##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K


|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 28, 2003

Commission file number 0-18629


OCHARLEYS INC.




(Exact name of registrant as specified in its charter)


|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Tennessee                       |  | 62-1192475                          
|                                |  |                                     
|(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
|incorporation or organization)  |  |                                     

|                                         |  |           
|---------------------------------------- |  | ----------
|3038 Sidco Drive                         |  |           
|Nashville, Tennessee                     |  | 37204     
|                                         |  |           
|(Address of principal executive offices) |  | (Zip Code)

|                                                            |  |                                                
|----------------------------------------------------------- |  | -----------------------------------------------
|Registrants telephone number, including area code:         |  | (615) 256-8500                                 
|                                                            |  |                                                
|Securities registered pursuant to Section 12(b) of the Act: |  | None                                           
|                                                            |  |                                                
|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock, no par value                     
|                                                            |  | Series A Junior Preferred Stock Purchase Rights

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  [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the 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. [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).    Yes   [X]   No  [   ]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of the last business day of the registrants most recently
completed second fiscal quarter was approximately $445.9 million. For purposes
of this calculation, shares held by non-affiliates excludes only those shares
beneficially owned by officers, directors and shareholders beneficially owning
10% or more of the outstanding common stock.

The number of shares of common stock outstanding on March 5, 2004 was
21,163,149.

DOCUMENTS INCORPORATED BY REFERENCE

|                  |  |                                                    
|----------------- |  | ---------------------------------------------------
|                  |  | Documents from which portions are                  
|Part of Form 10-K |  | incorporated by reference                          
|                  |  |                                                    
|Part III          |  | Proxy Statement relating to the registrants Annual
|                  |  | Meeting of Shareholders to be held May 13, 2004    

1



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TABLE OF CONTENTS



|                                                 |                                                                                                         |                                                 |  |  |  |  |  | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I                                          
|                                                 | Item 1. Business                                                                                       
|                                                 | Item 2. Properties                                                                                     
|                                                 | Item 3. Legal Proceedings                                                                              
|                                                 | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                         
|                                                 | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                                 | Item 6. Selected Financial Data                                                                        
|                                                 | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                                 | Item 8. Financial Statements and Supplementary Data                                                    
|                                                 |                                                                                                         | CONSOLIDATED BALANCE SHEETS                    
|                                                 |                                                                                                         | CONSOLIDATED STATEMENTS OF EARNINGS            
|                                                 |                                                                                                         | CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|                                                 |                                                                                                         | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|                                                 |                                                                                                         | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
|                                                 | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|                                                 | Item 9A. Controls and Procedures                                                                       
|PART III                                        
|                                                 | Item 10. Directors and Executive Officers of the Registrant                                            
|                                                 | Item 11. Executive Compensation                                                                        
|                                                 | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                 | Item 13. Certain Relationships and Related Transactions                                                
|                                                 | Item 14. Principal Accountant Fees and Services                                                        
|PART IV                                         
|                                                 | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|SIGNATURES                                      
|Ex-2.3 Settlement Agreement                     
|Ex-10.16 Severance Compensation Agreement       
|Ex-10.17 Severance Compensation Agreement       
|Ex-10.18 Severance Compensation Agreement       
|Ex-10.44 Development Agreement                  
|Ex-14 Code of Conduct and Business Ethics Policy
|Ex-21 Subsidiaries of the Company               
|Ex-23 Consent of KPMG LLP                       
|Ex-31.1 Section 302 Certification of the CEO    
|Ex-31.2 Section 302 Certification of the CFO    
|Ex-32.1 Section 906 Certification of the CEO    
|Ex-32.2 Section 906 Certification of the CFO    



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OCHARLEYS INC.




PART I




Item 1. Business.

We are a leading casual dining restaurant company headquartered in
Nashville, Tennessee. We own and operate three restaurant concepts under the
OCharleys, Ninety Nine Restaurant and Pub and Stoney River Legendary
Steaks trade names. Our two primary concepts, OCharleys and Ninety Nine,
are leading casual dining concepts in their respective operating markets. At
December 28, 2003, we operated 206 OCharleys restaurants in 16 states in the
Southeast and Midwest regions, 87 Ninety Nine restaurants in seven Northeastern
states, and six Stoney River restaurants in the Southeast and Midwest.

Our Restaurant Concepts

OCharleys

We acquired the original OCharleys restaurant in Nashville, Tennessee in
May 1984. OCharleys is a casual dining restaurant concept whose strategy is
to differentiate its restaurants by serving high-quality, freshly prepared food
at moderate prices and with attentive customer service. OCharleys
restaurants are intended to appeal to a broad spectrum of customers from a
diverse income base, including mainstream casual dining customers, as well as
upscale casual dining and value oriented customers. The OCharleys menu is
mainstream, but innovative and distinctive in taste. The OCharleys menu
features approximately 55 items including USDA Choice hand-cut and aged steaks,
baby-back ribs basted with our own tangy BBQ sauce, a variety of seafood,
fresh-cut salads with special recipe salad dressings and OCharleys signature
caramel pie. All entrees are cooked to order and feature a selection of side
items in addition to our hot, freshly baked yeast rolls. We believe the large
number of freshly prepared items on the OCharleys menu helps differentiate
our OCharleys concept from other casual dining restaurants.

OCharleys restaurants are open seven days a week and serve lunch, dinner
and Sunday brunch and offer full bar service. Specialty menu items include
limited-time promotions, OCharleys Lunch Club, special selections, a
special kids menu and a kids eat free program in selected markets. We are
continually developing new menu items for our OCharleys restaurants to
respond to changing customer tastes and preferences. Lunch entrees range in
price from $5.99 to $9.99, with dinner entrees ranging from $6.99 to $16.99. In
2003, the average check per customer, including beverages, was $11.60.

We seek to create a casual, neighborhood atmosphere in our OCharleys
restaurants through an open layout and exposed kitchen and by tailoring the
decor of our restaurants to the local community. The exterior typically
features bright red and green neon borders, multi-colored awnings and
attractive landscaping. The interior typically is open, casual and well
lighted and features warm woods, exposed brick, color prints and hand-painted
murals depicting local history, people, places and events. The prototypical
OCharleys restaurant is a free-standing building ranging in size from
approximately 6,400 to 6,800 square feet with seating for approximately 275
customers, including approximately 60 bar seats. We periodically update the
interior and exterior of our restaurants to reflect refinements in the concept
and respond to changes in customer tastes and preferences.

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Ninety Nine Restaurant and Pub

In
January 2003, we acquired Ninety Nine Restaurant and Pub, a Woburn,
Massachusetts based casual dining concept that began in 1952 with its initial
location at 99 State Street in downtown Boston. Ninety Nine restaurants are
casual dining restaurants that we believe have earned a reputation for
providing generous portions of high-quality food at moderate prices combined
with attentive service. Ninety Nine restaurants are intended to appeal to
mainstream casual dining and value oriented customers. The Ninety Nine menu
features approximately 75 items, including a wide selection of appetizers,
soups, salads, sandwiches, burgers, beef, chicken and seafood entrees and
desserts. Ninety Nine restaurants offer full bar service, including a wide
selection of imported and domestic beers, wine and specialty drinks.

Ninety Nine restaurants are open seven days a week and serve lunch and
dinner. Lunch entrees range in price from $5.99 to $14.99, with dinner entrees
ranging from $6.69 to $14.99. In 2003, the average check per customer,
including beverages, was $13.78.

Ninety Nine restaurants seek to provide a warm and friendly neighborhood
pub atmosphere. Signature elements of the prototypical Ninety Nine restaurant
include an open view kitchen, booth seating, walls decorated with local
community memorabilia and a centrally located rectangular bar. The
prototypical Ninety Nine restaurant is a free-standing building of
approximately 5,800 square feet in size with seating for approximately 190
customers, including approximately 30 bar seats. Ninety Nine has grown through
remodeling traditional and non-traditional restaurant locations as well as
through developing new restaurants in the style of its prototype restaurant.

Stoney River Legendary Steaks

We acquired Stoney River in May 2000. Stoney River restaurants are
upscale steakhouses that are intended to appeal to both upscale casual dining
and fine dining customers by offering the high-quality food and attentive
customer service typical of high-end steakhouses at more moderate prices.
Stoney River restaurants have an upscale mountain lodge design with a large
stone fireplace, plush sofas and rich woods that is intended to make the
interior of the restaurant inviting and comfortable. The Stoney River menu
features several offerings of premium midwestern beef, fresh seafood and a
variety of other gourmet entrees. An extensive assortment of freshly prepared
salads and side dishes is available a la carte. The menu also includes several
specialty appetizers and desserts. Stoney River restaurants offer full bar
service, including an extensive selection of wines. The price range of entrees
is $16.95 to $31.95. In 2003, the average check per customer, including
beverages, was $37.42.

We have established a managing partner program for the general managers
of our Stoney River restaurants pursuant to which each general manager has
acquired, or must acquire in the future, a 6% interest in the subsidiary that owns the restaurant that the
general manager manages in exchange for a capital contribution to that
subsidiary. We have also entered into a five-year employment agreement with
each general manager. During the five-year employment term, each general
manager is prohibited from selling or otherwise transferring his or her 6%
interest. Upon the fifth anniversary of the general managers capital
contribution to the subsidiary, we have the option, but not the obligation, to
purchase the general managers 6% interest for fair market value. In the event
the general managers employment with us terminates prior to the expiration of
the five-year term of his employment agreement, we have the option, but not the
obligation, to purchase the general managers 6% interest. In addition, the
general managers 6% interest is subject to forfeiture based on certain events.

Our Operating Strategy

Protect the Distinctive Culture and Operating Principles of Each of Our
Concepts.We believe our three restaurant concepts have distinctive cultures
and operating principles that have made them successful. In order to preserve
those distinctive cultures and principles, we have established separate,
experienced management teams for each concept. The members of the senior
management team of each concept have an average of at least 20 years in the
restaurant industry. We operate our three concepts separately, but each
concept is integrated with our home office for certain administrative and
support functions, such as management information systems, procurement and
other administrative services. We believe that having different management
teams for each concept should enable us to successfully operate and expand each
of our concepts by focusing on their distinctive strengths, while capitalizing
on the operating strengths and efficiencies of a large, multi-concept company.

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Provide an Attractive Price-to-Value Relationship.We believe our
OCharleys and Ninety Nine restaurants are recognized by consumers for
offering an attractive value. In 2003, the average check per customer,
including beverages, was $11.60 for OCharleys and $13.78 for Ninety Nine. At
our OCharleys restaurants, we believe our high-quality, freshly prepared food
appeals to a broad spectrum of customers from a diverse income base, including
mainstream casual dining customers, as well as upscale casual dining and value
oriented customers. The generous portions and quality of the food at our
Ninety Nine restaurants are intended to appeal to casual dining customers and
value oriented customers.

Pursue Disciplined Growth Strategy.We intend to continue to develop new
OCharleys restaurants in our target markets, primarily in the Southeast and
Midwest, and new Ninety Nine restaurants in the Northeast. Our target markets
for the OCharleys and Ninety Nine concepts include both metropolitan markets
and smaller markets in close proximity to metropolitan markets where we have a
significant presence. Our strategy is to cluster our new restaurants to
enhance supervisory, marketing and distribution efficiencies. Prior to opening
a new restaurant, we use cost, demographic and traffic data to analyze
prospective restaurant sites. While we prefer to develop new OCharleys
restaurants based on our prototype restaurants, we from time to time develop
new restaurants in existing buildings. Historically, Ninety Nine has opened a
significant number of new restaurants by remodeling existing buildings. Our
ability to remodel an existing building into an OCharleys or Ninety Nine
restaurant can permit greater accessibility to quality sites in more developed
markets. We opened 26 new OCharleys restaurants, closed two OCharleys
restaurants, opened ten new Ninety Nine restaurants and closed one Ninety Nine
restaurant in 2003.

Leverage Our Commissary Operations.We operate an approximately 220,000
square foot commissary in Nashville, Tennessee through which we purchase and
distribute a substantial majority of the food products and supplies for our
OCharleys and Stoney River restaurants and manufacture certain OCharleys
brand food products for our OCharleys restaurants and, to a lesser extent,
for sale to other customers, including retail grocery chains, mass
merchandisers and wholesale clubs. In addition, our Nashville commissary
operates a USDA-approved and inspected facility at which we cut beef for our
OCharleys and Stoney River restaurants and a production facility at which we
manufacture the signature yeast rolls and salad dressings served in our
OCharleys restaurants. We believe our Nashville commissary has sufficient
capacity to meet a substantial majority of the distribution needs of our
existing and planned OCharleys and Stoney River restaurants for the next
several years. We also operate a 20,000 square foot commissary and purchasing
operation located in Woburn, Massachusetts through which we purchase and
distribute a portion of the food products and supplies for our Ninety Nine
restaurants, primarily center of the plate items including red meat, poultry
and seafood. Our Woburn commissary operates a USDA-approved and inspected
facility at which we cut beef for our Ninety Nine restaurants and a production
facility at which we prepare the soups, sauces and marinades served in our
Ninety Nine restaurants. We believe our commissaries enhance restaurant
operations by helping to maintain consistent food quality, ensure reliable
distribution services to our restaurants, simplify our restaurant managers
food cost management responsibilities and reduce costs through purchasing
volumes and operating efficiencies.

Provide an Attractive Operating Environment for Our Employees. We believe
that a well-trained, highly motivated restaurant management team is critical to
achieving our operating objectives. Our training and compensation systems are
designed to create accountability at the restaurant management level for the
performance of each restaurant. We invest significant resources to train,
motivate and educate our restaurant level managers and hourly employees. To
instill a sense of ownership, a portion of the compensation of our restaurant
level managers is based upon restaurant operating results. Our focus on
restaurant level operations is intended to create a single store mentality
among our restaurant managers and provide an incentive for managers to improve
sales and operating results.

Support Operations

Quality Control.We use written customer evaluations, which are available
to customers in the restaurants, as a means of monitoring customer
satisfaction. We also employ a mystery shopper program in our OCharleys
restaurants to independently monitor quality control in areas such as
timeliness of service, atmosphere, cleanliness, employee attitude and food
quality. In addition, our customer service department receives calls from
customers and, when necessary, routes comments to the appropriate personnel.
We have also contracted with a company to provide customer satisfaction surveys
for our OCharleys concept, whereby customers answer questions regarding their
visits to our stores and rank their experience. This program will be rolled
out in 2004.

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Advertising and Marketing.We have an ongoing advertising and marketing
plan for the development of television, radio and newspaper advertising for our
restaurants and also use point of sale and local restaurant marketing. We focus
our marketing efforts on building brand loyalty and emphasizing the
distinctiveness of our restaurant atmosphere and menu offerings. We conduct
annual studies of changes in customer tastes and preferences and are
continually evaluating the quality of our menu offerings. During 2003, our
advertising expenses were approximately 3.2% of restaurant sales. In addition
to advertising, we encourage unit level personnel to become active in their
communities through local charities and other organizations and sponsorships.

Restaurant Reporting.Our use of technology and management information
systems is essential for the management oversight needed to produce strong
operating results. We maintain operational and financial controls in each
restaurant, including management information systems to monitor sales,
inventory, and labor, that provide reports and data to our home office. The
management accounting system polls data from our restaurants and generates
daily reports of sales, sales mix, customer counts, check average, cash, labor
and food cost. Management utilizes this data to monitor the effectiveness of
controls and to prepare periodic financial and management reports. We also
utilize these systems for financial and budgetary analysis, including analysis
of sales by restaurant, product mix and labor utilization.

Real Estate and Construction.We maintain an in-house construction and
real estate department to assist in the site selection process, develop
architectural and engineering plans and oversee new construction. We maintain
a broad database of possible sites and our management team analyzes prospective
sites. Once a site is selected, our real estate department oversees the zoning
process, obtains required governmental permits, develops detailed building
plans and specifications and equips the restaurants.

Human Resources.We maintain a human resources department that supports
restaurant operations through the design and implementation of policies,
programs, procedures and benefits for our employees. The human resources
department also includes an employee relations manager and maintains a
toll-free number for employee comments and questions. This department also
maintains our code of conduct and addresses any compliance issues. We conduct
annual Impact meetings at our OCharleys restaurants that provide a forum
for corporate management to receive feedback from restaurant managers and
hourly employees. We have had in place for several years a plan to foster
diversity throughout our workforce.

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Restaurant Locations

The following table sets forth the markets in which our OCharleys,
Ninety Nine and Stoney River restaurants were located at December 28, 2003,
including the number of restaurants in each market.

OCharleys Restaurants

Alabama
    
    Kentucky
    
    OhioBirmingham(6)
    
    
    
    Bowling Green
    
    
    
    Cincinnati(7)Decatur
    
    
    
    Cold Spring
    
    
    
    ClevelandDothan
    
    
    
    Elizabethtown
    
    
    
    Columbus(5)Florence
    
    
    
    Florence
    
    
    
    Dayton(3)Huntsville(2)
    
    
    
    Frankfort
    
    South CarolinaMobile(4)
    
    
    
    Hopkinsville
    
    
    
    AndersonMontgomery(2)
    
    
    
    Lexington(4)
    
    
    
    CharlestonOpelika
    
    
    
    Louisville(5)
    
    
    
    Columbia(3)Oxford
    
    
    
    Owensboro
    
    
    
    GreenvilleTuscaloosa
    
    
    
    Paducah
    
    
    
    GreenwoodArkansas
    
    
    
    Richmond
    
    
    
    Rock HillJonesboro
    
    Louisiana
    
    
    
    SpartanburgFlorida
    
    
    
    Monroe
    
    TennesseeDestin
    
    Mississippi
    
    
    
    Chattanooga(2)Jacksonville(2)
    
    
    
    Biloxi(2)
    
    
    
    Clarksville(2)Panama City
    
    
    
    Hattiesburg
    
    
    
    ClevelandPensacola
    
    
    
    Jackson
    
    
    
    CookevilleGeorgia
    
    
    
    Meridian
    
    
    
    JacksonAtlanta(18)
    
    
    
    Olive Branch
    
    
    
    Johnson CityAugusta
    
    
    
    Pearl
    
    
    
    KingsportCanton
    
    
    
    Southhaven
    
    
    
    Knoxville(7)Columbus
    
    
    
    Tupelo
    
    
    
    Memphis(3)Dalton
    
    Missouri
    
    
    
    MorristownFt. Oglethorpe
    
    
    
    Cape Girardeau
    
    
    
    Murfreesboro(2)Gainesville
    
    
    
    Kansas City(2)
    
    
    
    Nashville(13)Macon(2)
    
    
    
    St. Louis(6)
    
    
    
    Pigeon ForgeIllinois
    
    North Carolina
    
    VirginiaChampaign
    
    
    
    Asheville
    
    
    
    BristolMarion
    
    
    
    Burlington
    
    
    
    HarrisonburgOFallon
    
    
    
    Charlotte(7)
    
    
    
    LynchburgSpringfield(2)
    
    
    
    Fayetteville
    
    
    
    Roanoke(2)Indiana
    
    
    
    Greensboro
    
    
    
    Richmond(5)Bloomington
    
    
    
    Greenville
    
    West VirginiaClarksville
    
    
    
    Hendersonville
    
    
    
    CharlestonCorydon
    
    
    
    HickoryEvansville(2)
    
    
    
    Raleigh(4)Fort Wayne(2)
    
    
    
    WilmingtonIndianapolis(10)
    
    
    
    Winston-Salem(2)LafayetteRichmond




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Ninety Nine Restaurants

Connecticut
    
    New Hampshire
    
    New YorkHartford(8)
    
    
    
    Concord
    
    
    
    AlbanyMaine
    
    
    
    Hookset
    
    Rhode IslandAugusta
    
    
    
    Keene
    
    
    
    CranstonBangor
    
    
    
    Londonderry
    
    
    
    NewportPortland(3)
    
    
    
    Manchester
    
    
    
    WarwickMassachusetts
    
    
    
    Nashua
    
    VermontAuburn
    
    
    
    North Conway
    
    
    
    RutlandBoston(37)
    
    
    
    Portsmouth
    
    
    
    WillistonCenterville
    
    
    
    SalemFairhaven
    
    
    
    SeabrookFall River
    
    
    
    TiltonFalmouth
    
    
    
    West LebanonFitchburgMashpeeNorth AttleboroNorth DartmouthPittsfieldSeekonkSpringfield(4)TewksburyWest YarmouthWorcester(2)


Stoney River Restaurants

|                    |  |                      |  |                     
|------------------- |  | -------------------- |  | --------------------
|Atlanta, Georgia(2) |  | Louisville, Kentucky |  | Nashville, Tennessee

Chicago, Illinois(2)


Franchising

We have completed a feasibility study of the potential franchising of the
OCharleys concept and, based upon the results of this study, are reviewing
franchising opportunities. We are seeking to enter into franchising
arrangements with restaurant operators for the development of OCharleys
restaurants in areas that are outside of our current development and growth
plans. During December 2003, we entered into an exclusive multi-unit
development agreement with a third party franchisee to develop and operate up
to 15 new OCharleys restaurants in Michigan. We intend to enter into
additional development agreements to franchise our OCharleys restaurant
concept in other areas. Franchisees will be required to comply with our
specifications as to restaurant space, design and decor, menu items, principal
food ingredients, employee training and day-to-day operations.

Service Marks

The name OCharleys and its logo, the name Stoney River Legendary
Steaks, and the Ninety Nine Restaurant and Pub logo are registered service
marks with the United States Patent and Trademark Office. We also have other
service marks that are registered in the states in which we operate. We are
aware of names and marks similar to our service marks used by third parties in
certain limited geographical areas. Use of our service marks by third parties
may prevent us from licensing the use of our service marks for restaurants in
those areas. We intend to protect our service marks by appropriate legal
action whenever necessary.

Government Regulation

We are subject to various federal, state and local laws affecting our
business. Our commissaries are licensed and subject to regulation by the USDA.
In addition, each of our restaurants is subject to licensing and regulation by
a

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number of governmental authorities, which may include alcoholic beverage
control, health, safety, sanitation, building and fire agencies in the state or
municipality in which the restaurant is located. Most municipalities in which
our restaurants are located require local business licenses. Difficulties in
obtaining or failures to obtain the required licenses or approvals could delay
or prevent the development of a new restaurant in a particular area. We are
also subject to federal and state environmental regulations, but those
regulations have not had a material adverse effect on our operations to date.

Approximately 12% of restaurant sales in 2003 were attributable to the
sale of alcoholic beverages. Each restaurant, where permitted by local law,
has appropriate licenses from regulatory authorities allowing it to sell
liquor, beer and wine, and in some states or localities to provide service for
extended hours and on Sunday. Each restaurant has food service licenses from
local health authorities. Similar licenses would be required for each new
restaurant. The failure of a restaurant to obtain or retain liquor or food
service licenses could adversely affect or, in an extreme case, terminate its
operations. We have established standardized procedures for our restaurants
designed to assure compliance with applicable codes and regulations.

We are subject, in most states in which we operate restaurants, to
dram-shop statutes or judicial interpretations, 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.

The Federal Americans With Disabilities Act prohibits discrimination on
the basis of disability in public accommodations and employment. We design our
restaurants to be accessible to the disabled and believe that we are in
substantial compliance with all current applicable regulations relating to
restaurant accommodations for the disabled.

The development and construction of additional restaurants will be subject
to compliance with applicable zoning, land use and environmental regulations.
Our restaurant operations are also subject to federal and state minimum wage
laws and other laws governing matters such as working conditions, citizenship
requirements, overtime and tip credits. In the event a proposal is adopted
that materially increases the applicable minimum wage, the wage increase would
likely result in an increase in payroll and benefits expense.

Employees

At December 28, 2003, we employed approximately 8,800 full-time and 11,800
part-time employees, including approximately 300 home office management and
staff personnel and approximately 150 commissary personnel, with the remainder
being restaurant personnel. None of our employees is covered by a collective
bargaining agreement. We consider our employee relations to be good.

Risk Factors

Some of the statements we make in this Annual Report on Form 10-K are
forward-looking. Forward-looking statements are generally identifiable by the
use of the words anticipate, will, believe, estimate, expect, plan,
intend, seek or similar expressions. These forward-looking statements
include all statements that are not historical statements of fact and those
regarding our intent, belief, plans or expectations including, but not limited
to, the discussions of our operating and growth strategy, projections of
revenue, income or loss, information regarding future restaurant openings and
capital expenditures, potential increases in food and other operating costs,
and our development, expansion and franchising plans and future operations.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause actual results in future periods to differ materially from those
anticipated in the forward-looking statements. Those risks and uncertainties
include, among others, the risks and uncertainties discussed below. Although we
believe that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of these assumptions could prove to be
inaccurate, and, therefore, there can be no assurance that the forward-looking
statements included in this Annual Report on Form 10-K will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, you should not regard the inclusion
of such information as a representation by us or any other person that our
objectives and plans will be achieved. We do not undertake any obligation to
publicly release any revisions to any forward-looking statements contained
herein to reflect events and circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.

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Changing consumer preferences and discretionary spending patterns could force
us to modify our concepts and menus and could result in a reduction in our
revenues.

Our OCharleys and Ninety Nine restaurants are casual dining restaurants
that feature menus intended to appeal to a broad spectrum of customers. Our
Stoney River restaurants are upscale steakhouses that feature steaks, fresh
seafood and other gourmet entrees. Our continued success depends, in part,
upon the popularity of these foods and these styles of dining. Shifts in
consumer preferences away from this cuisine or dining style could materially
adversely affect our future operating results. The restaurant industry is
characterized by the continual introduction of new concepts and is subject to
rapidly changing consumer preferences, tastes and eating and purchasing habits.
Our success will depend in part on our ability to anticipate and respond to
changing consumer preferences, tastes and eating and purchasing habits, as well
as other factors affecting the restaurant industry, including new market
entrants and demographic changes. We may be forced to make changes in our
concepts and menus in order to respond to changes in consumer tastes or dining
patterns. If we change a restaurant concept or menu, we may lose customers who
do not prefer the new concept or menu, and may not be able to attract a
sufficient new customer base to produce the revenue needed to make the
restaurant profitable. In addition, consumer preferences could be affected by
health concerns about the consumption of beef, the primary item on our Stoney
River menu, or by specific events such as E. coli food poisoning or outbreaks
of bovine spongiform encephalopathy (mad cow disease) or other diseases.

Our success is also dependent to a significant extent on numerous factors
affecting discretionary consumer spending, including economic conditions,
disposable consumer income and consumer confidence. Adverse changes in these
factors could reduce customer traffic or impose practical limits on pricing,
either of which could harm our results of operations.

Same store sales at our OCharleys restaurants have declined, and initiatives
we have implemented at our OCharleys restaurants to improve our same store
sales have resulted in increased costs and could continue to adversely affect
our results of operations.

Through the end of 2003, we experienced decreases in our same store sales
at our OCharleys restaurants during six of the previous seven fiscal
quarters. During the third quarter of 2003, we introduced a number of business
initiatives, including changes to our menu, designed to increase our customer
traffic. These initiatives have resulted in increases in our customer traffic,
but have also resulted in a lower average check due to the introduction of a
number of promotional items, resulting in continued decreases in same store
sales at our OCharleys restaurants. These initiatives have also resulted in
increased costs. There can be no assurance that these initiatives will result
in increased revenues or same store sales at our OCharleys restaurants and,
as a result, such initiatives may continue to adversely affect our results of
operations in future periods. Likewise, we cannot assure you that same store
sales at our OCharleys restaurants will not continue to decline.

An outbreak of Hepatitis A affecting customers and employees of a Knoxville,
Tennessee OCharleys restaurant has adversely affected our customer traffic,
negatively impacted our results of operations and resulted in litigation
against us, and we may be further impacted by another outbreak of Hepatitis A
linked to restaurants in Georgia, including two OCharleys restaurants.

In September 2003, we became aware that customers and employees at one of
our OCharleys restaurants located in Knoxville, Tennessee were exposed to the
Hepatitis A virus, which has resulted in a number of our employees and
customers becoming infected. Hepatitis A is a viral infection spread primarily
through contaminated food and water. The negative publicity surrounding this
incident has significantly reduced customer traffic at our nine OCharleys
restaurants in the Knoxville market and to a lesser extent in other markets.
We are aware of 81 individuals who have contracted the Hepatitis A virus in the
Knoxville area, most of whom have been linked to our Knoxville restaurant
during the time of the outbreak. As of the date of this report, we are also
aware of 31 lawsuits that have been filed against us to date alleging injuries
or fear of injuries from the Hepatitis A incident, some of which claim
substantial damages, including treble damages under Tennessee consumer
protection laws and punitive damages, and some of which seek to be certified as
class actions. One of the lawsuits was filed by an individual who contracted
the Hepatitis A virus and died following the filing of his lawsuit, and his
lawsuit has been amended to allege wrongful death. Other plaintiffs have
alleged significant health concerns, including ailments requiring
hospitalization. We anticipate that additional lawsuits will be filed against
us relating to this incident.

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We are also aware of an outbreak of Hepatitis A linked to numerous
independent restaurants and restaurant chains located in Georgia, including two
of our OCharleys restaurants. We have received the preliminary report of the
Georgia Division of Public Health indicating that ten persons who contracted
the Hepatitis A virus in Georgia stated that they had eaten at the Centerville,
Georgia or the Macon, Georgia OCharleys restaurant.

We are not able to predict the extent to which the negative publicity
surrounding these incidents will continue to adversely affect our customer
traffic, or the outcome of the litigation that has been filed against us or
that may be filed against us in the future relating to these incidents or the
amounts that we may be required to pay to settle that litigation or to satisfy
any adverse judgments that may be rendered against us. We have liability and
loss of income insurance; however, we cannot assure you that our insurance
carriers will reimburse us for any loss, liability or loss of income we suffer
in connection with this incident or that our insurance coverage will be
sufficient to cover any loss, liability or loss of income. If we suffer
losses, liabilities or loss of income in excess of our insurance coverage or if
our insurance does not cover those losses, liabilities or loss of income, there
could be a material adverse effect on our results of operations or financial
condition. The reduction in our customer traffic as a result of the Knoxville
incident adversely affected our results of operations for the period of time
following the September 2003 exposure and is continuing to adversely affect our
results of operations.

Our continued growth depends on our ability to open new restaurants and operate
our new restaurants profitably, which in turn depends upon our continued access
to capital.

A significant portion of our historical growth has been due to opening new
restaurants. We opened 24 new OCharleys restaurants and three new Stoney
River restaurants in 2002. We opened 26 new OCharleys restaurants, closed
two OCharleys restaurants, opened ten new Ninety Nine restaurants and closed
one Ninety Nine restaurant in 2003. Our ability to open new restaurants will
depend on a number of factors, such as:



| |  |  | the selection and availability of quality restaurant sites;                                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to negotiate acceptable lease or purchase terms;                                                                                                                                                           
|
| |  |  | our ability to hire, train and retain the skilled management and
other personnel necessary to open, manage and operate new restaurants;                                                                                
|
| |  |  | our ability to secure the governmental permits and approvals
required to open new restaurants;                                                                                                                         
|
| |  |  | our ability to manage the amount of time and money required to
build and open new restaurants, including the possibility that adverse
weather conditions may delay construction and the opening of new
restaurants; and
|
| |  |  | the availability of adequate financing.                                                                                                                                                                                

Many of these factors are beyond our control. In addition, we have
historically generated insufficient cash flow from operations to fund our
working capital and capital expenditures and, accordingly, our ability to open
new restaurants and our ability to grow, as well as our ability to meet other
anticipated capital needs, is dependent on our continued access to external
financing, including borrowings under our credit facility and financing
obtained in the capital markets. Our ability to make borrowings under our
credit facility will require, among other things, that we comply with certain
financial and other covenants, and we cannot assure you that we will be able to
do so. Accordingly, we cannot assure you that we will be successful in opening
new restaurants in accordance with our current plans or otherwise.
Furthermore, we cannot assure you that our new restaurants will generate
revenues or profit margins consistent with those of our existing restaurants,
or that the new restaurants will be operated profitably.

We may not be able to successfully integrate the operations of Ninety Nine
Restaurant and Pub, which could adversely affect our business, financial
condition and results of operations.

On January 27, 2003, we acquired Ninety Nine Restaurant and Pub. The
acquisition of Ninety Nine was substantially larger than any acquisition we
have previously completed, and our management team does not have significant
experience integrating the operations of acquired businesses. In addition, our
Ninety Nine restaurants are located in markets in which we have not
historically operated. Achieving the expected benefits of the Ninety Nine
acquisition will depend in large part on our completion of the integration of
Ninety Nines operations and personnel in a timely and efficient manner. The
challenges involved in this integration include the following:

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| |  |  | persuading employees of Ninety Nine that we will maintain Ninety
Nines distinctive business culture and employee morale;             
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | retaining the senior management team of Ninety Nine, several of
whom received significant payments in connection with the acquisition;
|
| |  |  | maintaining a workforce over expanded geographic locations; and                                                                       
|
| |  |  | consolidating certain corporate, commissary, information
technology, accounting and administrative infrastructures.                   

If we cannot overcome the challenges we face in completing the integration
of Ninety Nine, our ability to effectively and profitably manage Ninety Nines
business could suffer. We cannot assure you that our Ninety Nine restaurants
will generate revenues or profit margins consistent with prior years or that
these restaurants will not operate at a loss. Moreover, the integration
process itself may be disruptive to our business, as it will divert the
attention of management from its normal operational responsibilities and
duties. We cannot offer any assurance that we will be able to successfully
integrate Ninety Nines operations or personnel or realize the anticipated
benefits of the acquisition. Our failure to successfully complete the
integration of Ninety Nine could harm our business, financial condition and
results of operations.

Our growth may strain our management and infrastructure, which could slow our
development of new restaurants and adversely affect our ability to manage
existing restaurants.

Our growth has placed significant demands upon our management. We also
face the risk that our existing systems and procedures, restaurant management
systems, financial controls and information systems will be inadequate to
support our planned growth. We cannot predict whether we will be able to
respond on a timely basis to all of the changing demands that our planned
growth will impose on management and these systems and controls. In May 2000,
we acquired Stoney River and, in January 2003, we acquired Ninety Nine. The
development of the Stoney River concept and the integration and operation of
the Ninety Nine concept will continue to place significant demands on our
management. These demands on our management and systems could also adversely
affect our ability to manage our existing restaurants. If our management is
unable to meet these demands or if we fail to continue to improve our
information systems and financial controls or to manage other factors necessary
for us to achieve our growth objectives, our operating results or cash flows
could be materially adversely affected.

Unanticipated expenses and market acceptance could affect the results of
restaurants we open in new and existing markets.

As part of our growth plans, we may open new restaurants in areas in which
we have little or no operating experience and in which potential customers may
not be familiar with our restaurants. As a result, we may have to incur costs
related to the opening, operation, supervision and promotion of those new
restaurants that are substantially greater than those incurred in other areas.
Even though we may incur substantial additional costs with these new
restaurants, they may attract fewer customers than our more established
restaurants in existing markets. As a result, the results of operations at new
restaurants may be inferior to those of our existing restaurants. The new
restaurants may even operate at a loss.

Another part of our growth plan is to open restaurants in markets in which
we already have existing restaurants. We may be unable to attract enough
customers to the new restaurants for them to operate at a profit. Even if we
are able to attract enough customers to the new restaurants to operate them at
a profit, those customers may be former customers of one of our existing
restaurants in that market and the opening of a new restaurant in the existing
market could reduce the revenue of our existing restaurants in that market.

We may experience higher operating costs, which would adversely affect our
operating results, if we cannot increase menu prices to cover them.

Our operating results are significantly dependent on our ability to
anticipate and react to increases in food, labor, employee benefits and other
costs. Various factors beyond our control, including adverse weather
conditions, governmental regulation, production, availability, recalls of food
products and seasonality may affect our food costs or cause a disruption in our
supply chain. We cannot predict whether we will be able to anticipate and
react to changing

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food costs by adjusting our purchasing practices and menu prices, and a
failure to do so could adversely affect our operating results. In addition,
because the pricing strategy at our OCharleys and Ninety Nine restaurants is
intended to provide an attractive price-to-value relationship, we may not be
able to pass along price increases to our guests.

We compete with other restaurants for experienced management personnel and
hourly employees. Given the low unemployment rates in certain areas in which we
operate, we will likely be required to continue to enhance our wage and
benefits package in order to attract qualified management and other personnel.
For example, in 2003 we began offering expanded medical benefits for our hourly
employees at the OCharleys concept, which has increased our benefit costs.
In addition, any increase in the federal minimum wage rate would likely cause
an increase in our labor costs. We cannot assure you that we will be able to
offset increased wage and benefit costs through our purchasing and hiring
practices or menu price increases, particularly over the short term. As a
result, increases in wages and benefits could have a material adverse effect on
our business and could decrease the cash available to service our obligations.

We have completed a feasibility study on franchising our OCharleys
restaurant concept and have begun marketing the franchise concept. During
December 2003, we entered into an exclusive multi-unit development agreement
with a third party franchisee to develop and operate up to 15 new OCharleys
restaurants in Michigan. We intend to enter into additional development
agreements to franchise our OCharleys restaurant concept. We will continue
to experience expenditures and losses in implementing our franchising
initiative until such time, if ever, that we generate sufficient franchising
revenue to cover these expenditures.

We could face labor shortages that could adversely affect our results of
operations.

Our success depends in part upon our ability to attract, motivate and
retain a sufficient number of qualified employees, including restaurant
managers, kitchen staff and servers, necessary to continue our operations and
to keep pace with our growth. Qualified individuals of the requisite caliber
and quantity needed to fill these positions are in short supply. Given the low
unemployment rates in certain areas in which we operate, we may have difficulty
hiring and retaining qualified management and other personnel. Any inability
to recruit and retain sufficient qualified individuals may adversely affect
operating results at existing restaurants and delay the planned openings of new
restaurants. Any delays in opening new restaurants or any material increases
in employee turnover rates in existing restaurants could have a material
adverse effect on our business, financial condition, operating results or cash
flows. Additionally, we have increased wages and benefits to attract a
sufficient number of competent employees, resulting in higher labor costs.

Our restaurants are concentrated geographically; if any one of the regions in
which our restaurants are located experiences an economic downturn, adverse
weather or other material change, our business results may suffer.

Our OCharleys restaurants are located predominately in the southeastern
and midwestern United States. Our Ninety Nine restaurants are located in the
northeastern United States. At December 28, 2003, we operated 36 of our 206
OCharleys restaurants in Tennessee and 56 of our 87 Ninety Nine restaurants
in Massachusetts. As a result, our business and our financial or operating
results may be materially adversely affected by adverse economic, weather or
business conditions in these markets, as well as in other geographic regions in
which we locate restaurants.

Our future performance depends on our senior management who are experienced in
restaurant management and who could not easily be replaced with executives of
equal experience and capabilities.

We depend significantly on the services of Gregory L. Burns, our Chief
Executive Officer, Steven J. Hislop, our President and Chief Operating Officer,
and A. Chad Fitzhugh, our Chief Financial Officer. We also depend significantly
on the services of each of our Concept Presidents, William E. Hall, Jr., our
Concept President-OCharleys, Herman A Moore, Jr., our President, Commissary
Operations, and Charles F. Doe, Jr., our Concept President-Ninety Nine
Restaurant and Pub. Mr. Doe, who joined our company when we acquired Ninety
Nine in January 2003, received significant payments at the time of our
acquisition of Ninety Nine, and we do not have an employment agreement with Mr.
Doe. In February 2004, we announced that Mr. Doe would transition from concept
president of Ninety Nine, responsible for oversight of day-to-day operations,
to chairman of an advisory board at Ninety Nine, responsible for the strategic
development of the Ninety Nine brand. If we lose the services of any members of
our senior management for any reason, we may be unable to replace them with
qualified personnel, which could have a material adverse effect on our business

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and development. We do not have employment agreements with any of our
executive officers and we do not carry key person life insurance on any of our
executive officers.

Our restaurants may not be able to compete successfully with other restaurants,
which could adversely affect our results of operations.

The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than us,
including a large number of national and regional restaurant chains. Some of
our competitors have been in existence for a substantially longer period than
us and may be better established in the markets where our restaurants are or
may be located. If our restaurants are unable to compete successfully with
other restaurants in new and existing markets, our results of operations will
be adversely affected.

To the extent that we open restaurants in larger cities and metropolitan
areas, we expect competition to be more intense in those markets. We also
compete with other restaurants for experienced management personnel and hourly
employees and with other restaurants and retail establishments for quality
sites.

Any disruption in the operation of our commissaries could adversely affect our
ability to operate our restaurants.

We operate a commissary in Nashville, Tennessee through which we purchase
and distribute a substantial majority of the food products and supplies for our
OCharleys and Stoney River restaurants. We also operate a commissary in
Woburn, Massachusetts, through which we purchase and distribute a portion of
the food products and supplies for our Ninety Nine restaurants. If the
operations of our commissaries are disrupted, we may not be able to deliver
food and supplies to our restaurants. If our commissaries are unable to deliver
the food products and supplies required to run our restaurants, we may not be
able to find other sources of food or supplies, or, if alternative sources of
food or supplies are located, our operating costs may increase. Accordingly,
any disruption in the operation of our commissaries could adversely affect our
ability to operate our restaurants and our results of operations.

We may incur costs or liabilities and lose revenue as the result of government
regulation.

Our restaurants are subject to extensive federal, state and local
government regulation, including regulations related to the preparation and
sale of food, the sale of alcoholic beverages, zoning and building codes and
other health, sanitation and safety matters. All of these regulations impact
not only our current restaurant operations but also our ability to open new
restaurants. We will be required to comply with applicable state and local
regulations in new locations into which we expand. Any difficulties, delays or
failures in obtaining licenses, permits or approvals in such new locations
could delay or prevent the opening of a restaurant in a particular area or
reduce operations at an existing location, either of which would materially and
adversely affect our growth and results of operations. In addition, our
commissaries are licensed and subject to regulation by the United States
Department of Agriculture and are subject to further regulation by state and
local agencies. Our failure to obtain or retain federal, state or local
licenses for our commissaries or to comply with applicable regulations could
adversely affect our commissary operations and disrupt delivery of food and
other products to our restaurants. If one or more of our restaurants were
unable to serve alcohol or food for even a short time period, we could
experience a reduction in our overall revenue.

The costs of operating our restaurants may increase if there are changes
in laws governing minimum hourly wages, workers compensation insurance rates,
unemployment tax rates, sales taxes or other laws and regulations, such as the
federal Americans with Disabilities Act, which governs access for the disabled.
If any of the above costs increase, we cannot assure you that we will be able
to offset the increase by increasing our menu prices or by other means, which
would adversely affect our results of operations.

We may incur costs or liabilities as a result of litigation and publicity
concerning food quality, health and other issues that can cause customers to
avoid our restaurants.

In addition to the litigation that has been or may in the future be filed
concerning the Hepatitis A incidents discussed above, we are sometimes the
subject of other complaints or litigation from customers alleging illness,
injury or other food quality or health concerns. Litigation or adverse
publicity resulting from these allegations may materially

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adversely affect us or our restaurants, regardless of whether the
allegations are valid or whether we are liable. In addition, our restaurants
are subject in each state in which we operate to dram shop laws that allow a
person to sue us if that person was injured by an intoxicated person who was
wrongfully served alcoholic beverages at one of our restaurants. A lawsuit
under a dram shop law or alleging illness or injury from food may result in a
verdict in excess of our liability insurance policy limits, which could result
in substantial liability for us and may have a material adverse effect on our
results of operations.

Restaurant companies have been the target of class actions and other lawsuits
alleging, among other things, violations of federal and state law.

We are subject to the risk that our results of operations may be adversely
affected by legal or governmental proceedings brought by or on behalf of our
employees or customers. In recent years, a number of restaurant companies have
been subject to lawsuits, including class action lawsuits, alleging violations
of federal and state law regarding workplace and employment matters,
discrimination and similar matters. A number of these lawsuits have resulted
in the payment of substantial damages by the defendants. Similar lawsuits have
been instituted against us from time to time and we are also the defendant in a
number of pending lawsuits in connection with the Knoxville Hepatitis A
incident discussed above under - An outbreak of Hepatitis A affecting
customers and employees of a Knoxville, Tennessee OCharleys restaurant has
adversely affected our customer traffic, negatively impacted our results of
operations and resulted in litigation against us, and we may be further
impacted by another outbreak of Hepatitis A linked to restaurants in Georgia,
including two OCharleys restaurants. Accordingly, we cannot assure you
that we will not incur substantial damages and expenses resulting from
lawsuits, which could have a material adverse effect on our business.

Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses.

Keeping abreast of, and in compliance with, changing laws, regulations and
standards relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new Securities and Exchange Commission regulations
and Nasdaq Stock Market rules, has required an increased amount of management
attention and external resources. We remain committed to maintaining high
standards of corporate governance and public disclosure. As a result, we intend
to invest all reasonably necessary resources to comply with evolving standards,
and this investment has resulted in and may continue to result in increased
general and administrative expenses and a diversion of management time and
attention from revenue-generating activities to compliance activities.

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Executive Officers of the Registrant

Our executive officers are elected by the board of directors and serve at
the pleasure of the board of directors. The following table sets forth certain
information regarding our executive officers.

|                     |  |     |    |          |  |                                                  
|-------------------- |  | --- | -- | -------- |  | -------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Gregory L. Burns     |  |     | 49 |          |  | Chief Executive Officer and Chairman of the Board
|                     |  |     |    |          |  |                                                  
|Steven J. Hislop     |  |     | 44 |          |  | President and Chief Operating Officer            
|                     |  |     |    |          |  |                                                  
|A. Chad Fitzhugh     |  |     | 43 |          |  | Chief Financial Officer, Secretary and Treasurer 
|                     |  |     |    |          |  |                                                  
|William E. Hall, Jr. |  |     | 49 |          |  | Concept President-OCharleys                    
|                     |  |     |    |          |  |                                                  
|Herman A. Moore, Jr. |  |     | 52 |          |  | President, Commissary Operations                 
|                     |  |     |    |          |  |                                                  
|Charles F. Doe, Jr.  |  |     | 43 |          |  | Concept President-Ninety Nine Restaurant and Pub 
|                     |  |     |    |          |  |                                                  
|Suzanne M. Osterberg |  |     | 39 |          |  | Chief Support Officer                            
|                     |  |     |    |          |  |                                                  
|R. Jeffrey Williams  |  |     | 37 |          |  | Controller                                       

The following is a brief summary of the business experience of each of our
executive officers.

Gregory L. Burnshas served as Chairman of the Board and Chief Executive
Officer since February 1994. Mr. Burns, a director since 1990, served as
President from September 1996 to May 1999 and from May 1993 to February 1994,
as Chief Financial Officer from October 1983 to September 1996, and as
Executive Vice President and Secretary from October 1983 to May 1993.

Steven J. Hislophas served as President since May 1999, as Chief
Operating Officer since March 1997 and as a director since March 1998. From
March 1997 until May 1999, Mr. Hislop served as an Executive Vice President of
our company. Mr. Hislop served as Senior Vice President  Operations from
January 1993 to March 1997, and as Vice President  Operations from April 1990
to January 1993.

A.
Chad Fitzhughhas served as Chief Financial Officer since September 1996, as Secretary since May 1993, and as Treasurer since April 1990. He
served as our Controller from 1987 until his appointment as Chief Financial
Officer. Mr. Fitzhugh is a certified public accountant.

William E. Hall, Jr. has served as Concept President-OCharleys since
December 2002. Mr. Hall served as Executive Vice President, Operations from
September 1999 to December 2002. Mr. Hall served as Vice President, Operations
from March 1997 to September 1999, as Director of Operations from December 1996
to March 1997, as a Regional Director from July 1992 to December 1996, and as
an Area Supervisor from May 1991 to July 1992.

Herman A. Moore, Jr.has served as President, Commissary Operations since
December 2002. Mr. Moore served as Vice President, Commissary Operations from
January 1996 to December 2002. Mr. Moore served as Director of Commissary
Operations from 1988 to January 1996.

Charles F. Doe, Jr. has served as Concept President-Ninety Nine Restaurant
and Pub since February 2003. Mr. Doe served as President of Ninety Nine
Restaurant and Pub from 1991 until we acquired Ninety Nine Restaurant and Pub.
Mr. Doe served in various capacities in the Operations and Real Estate
departments for Ninety Nine Restaurant and Pub prior to 1991.

Suzanne M. Osterberghas served as Chief Support Officer since December
2002. Mrs. Osterberg served as Vice President of Human Resources, Training and
Development from December 2001 to December 2002. Mrs.

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Osterberg served as Vice President of Human Resources and Development from
December 2000 to December 2001. Mrs. Osterberg served as Vice President of
Training and Management Development from 1999 to 2001. Mrs. Osterberg served
in various capacities in the Operations and Training departments for
OCharleys prior to 1999.

R. Jeffrey Williamshas served as Controller since February 2003. Mr.
Williams served as Controller for the OCharleys Concept from July 2001 to
February 2003. Mr. Williams served as Controller of The Krystal Company from
July 2000 to July 2001. Mr. Williams served as a Director of Financial
Planning and Analysis for Cracker Barrel Old Country Store from July 1999 to
July 2000 and as Accounting Manager for Cracker Barrel Old Country Store from
November 1996 to July 1999. Mr. Williams is a certified public accountant.

Available Information

The Companys internet website address is http://www.ocharleys.com. The
Company makes available free of charge through its website the Companys Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to those reports as soon as reasonably practicable after it
electronically files or furnishes such materials to the Securities and Exchange
Commission. Information contained on the Companys website is not part of this
report.







Item 2. Properties.

At December 28, 2003, we operated 206 OCharleys restaurants, 87 Ninety
Nine restaurants and six Stoney River Legendary Steak restaurants. As of that
date, we owned the land and building at 95 of our OCharleys restaurants,
leased the land and building at eight of our OCharleys restaurants and leased
the land only at 103 of our OCharleys restaurants. We lease the land and
building at 71 of our Ninety Nine restaurants and lease the land only at 16 of
our Ninety Nine restaurants. We own the land and building at three of our
Stoney River restaurants and lease the land only at our other three Stoney
River restaurants. See Restaurant Locations in Item 1 above for a list of
the markets in which our restaurants were located at December 28, 2003.
Restaurant lease expirations range from 2004 to 2025, with the majority of the
leases providing for an option to renew for additional terms ranging from five
to 20 years. All of our restaurant leases provide for a specified annual
rental, and some leases call for additional rental based on sales volume at the
particular location over specified minimum levels. Generally, our restaurant
leases are net leases, which require us to pay the cost of insurance and taxes.

Our home office and Nashville commissary are located in Nashville,
Tennessee in approximately 290,000 square feet of office and warehouse space.
We own these facilities. We also have administrative offices in Woburn,
Massachusetts and a commissary located in approximately 20,000 square feet of
space. We lease these facilities.

Item 3. Legal Proceedings.

In September 2003, we became aware that customers and employees at one of
our OCharleys restaurants located in Knoxville, Tennessee were exposed to the
Hepatitis A virus, which resulted in a number of our employees and customers
becoming infected. We have worked closely with the Knox County Health
Department and the Centers for Disease Control and Prevention since we became
aware of this incident and have cooperated fully with their directives and
recommendations. We are aware of 81 individuals who have contracted the
Hepatitis A virus, most of whom have been linked to our Knoxville restaurant
during the time of the outbreak. As of the date of this report, we are also
aware of 31 lawsuits that have been filed against us, all of which have been
filed in the circuit court for Knox County, Tennessee, that allege injuries or
fear of injuries from the Hepatitis A incident. A number of these suits seek
substantial damages, including treble damages under Tennessee consumer
protection laws and punitive damages, and some of which seek to be certified as
class actions. One of the lawsuits was filed by an individual who contracted
Hepatitis A and died following the filing of his lawsuit. This suit has been
amended to seek compensatory damages not to exceed $7.5 million and punitive
damages not to exceed $10.0 million alleging wrongful death. Other plaintiffs
have alleged significant health concerns, including ailments requiring
hospitalization. The Company has filed a motion to consolidate
the cases claiming injury for discovery purposes only.

We are also aware of an outbreak of Hepatitis A linked to numerous
independent restaurants and restaurant chains located in Georgia, including two
of our OCharleys restaurants. We have received the preliminary report of the
Georgia Division of Public Health indicating that ten persons who contracted
the Hepatitis A virus in Georgia stated that

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they had eaten at the Centerville, Georgia or the Macon, Georgia
OCharleys restaurant. Each of the Knox County Health Department, the Georgia
Division of Public Health, the Centers for Disease Control and Prevention and
the Food and Drug Administration have tentatively associated the recent
outbreaks of the Hepatitis A virus affecting a number of restaurants, including
OCharleys, to eating green onions (scallions).

While we intend to vigorously defend the litigation that has been filed
against us, we are not able to predict the outcome of the litigation that has
been filed against us or that may be filed against us in the future relating to
the Hepatitis A outbreak or the amounts that we may be required to pay to
settle that litigation or to satisfy any adverse judgments that may be rendered
against us. We have liability insurance; however, we cannot assure you that
our insurance carriers will reimburse us for any loss or liability we suffer in
connection with this incident or that our insurance will be sufficient to cover
any loss or liability. If we suffer losses or liabilities in excess of our
insurance coverage or if our insurance does not cover those losses or
liabilities, there could be a material adverse effect on our results of
operations and financial condition.

The Company has a foodborne
illness policy that reimburses the Company for certain lost profits associated with this
type of incident. The Company is currently developing supporting documentation
for the claim associated with this incident. The Company has not
recognized any recoveries under its foodborne illness policy. At this time, the Company cannot
reasonably estimate the amount or timing of the settlement of this claim.

In addition, we are defendants from time to time in various other legal
proceedings arising in the ordinary course of our business, including claims
relating to workplace and employment matters, discrimination and similar
matters, claims resulting from slip and fall accidents and claims from
customers or employees alleging illness, injury or other food quality, health
or operational concerns. We do not believe that any of the other legal
proceedings pending against us as of the date of this report will have a
material adverse effect on our operating results, liquidity or financial
condition. In addition, we may incur or accrue expenses relating to legal
proceedings, which may materially adversely affect our results of operations.




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

No matters were submitted to a vote of shareholders during the fourth
quarter ended December 28, 2003.

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PART II




Item 5. Market for Registrants Common Equity and Related Stockholder Matters.

Our common stock trades on the NASDAQ National Market under the symbol
CHUX. As of March 5, 2004, there were approximately 2,600 shareholders of
record of our common stock. The following table shows quarterly high and low
bid prices for our common stock for the periods indicated, as reported by
the NASDAQ National Market.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|Fiscal 2003    |  | High |       | Low
|               |  |      |       |    
|First Quarter  |  | $    | 23.65 |     |  | $ | 17.50 | 
|Second Quarter |  |      | 23.32 |     |  |   | 17.50 | 
|Third Quarter  |  |      | 22.60 |     |  |   | 14.09 | 
|Fourth Quarter |  |      | 17.92 |     |  |   | 13.66 | 
|              
|Fiscal 2002    |  |      |       |     |  |   |       | 
|              
|First Quarter  |  | $    | 24.25 |     |  | $ | 18.11 | 
|Second Quarter |  |      | 25.82 |     |  |   | 21.08 | 
|Third Quarter  |  |      | 23.00 |     |  |   | 17.35 | 
|Fourth Quarter |  |      | 22.48 |     |  |   | 15.59 | 

We have never paid a cash dividend on our common stock and we presently
intend to retain our cash to finance the growth and development of our
business. Our revolving credit facility prohibits the payment of cash
dividends on our common stock without the consent of the participating banks.

On January 27, 2003, we issued 941,176 shares of common stock to the
former owners of Ninety Nine Restaurant and Pub as part of the purchase price
of the acquisition of Ninety Nine. The Company issued an additional 390,586
shares in January 2004 and is required to issue an additional 407,843 shares on
each of the second and third anniversaries of the closing of the acquisition
and 94,118 shares on each of the fourth and fifth anniversaries of the closing. The
issuance of the shares to the former owners of Ninety Nine was exempt from the
registration requirements of the Securities Act of 1933 pursuant to Section
4(2) of the Securities Act of 1933.




Item 6. Selected Financial Data.

The selected financial data presented below under the captions Statement
of Earnings Data and Balance Sheet Data for, and as of the end of, each of
the fiscal years in the five-year period ended December 28, 2003, were derived
from the consolidated financial statements of OCharleys Inc. and
subsidiaries, which consolidated financial statements have been audited by KPMG
LLP, independent auditors. The selected data should be read in conjunction
with the consolidated financial statements for the year ended December 28,
2003, and the related notes thereto.

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|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |        | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------- | ------- | ------------------------------------- | ------- | ---- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------ | 
|                                                                                             |                                                  |                            |         | Fiscal Years                         
|                                                                                             |                                                  |                            |         |                                      
|                                                                                             |                                                  |                            |         | 2003(1)                               |         | 2002 |         | 2001    |         | 2000(2) |         | 1999   
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |        
|                                                                                             |                                                  |                            |         | (in thousands, except per share data)
|Statement of Earnings Data:                                                                  |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |        
|Revenues:                                                                                    |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |        
|                                                                                             | Restaurant sales                                 |                            | $       | 753,740                               |         |      | $       | 495,112 |         |         | $       | 440,875 |         |   | $       | 373,700 |         |   | $       | 299,014 |       
|                                                                                             | Commissary sales                                 |                            |         | 5,271                                 |         |      |         | 4,800   |         |         |         | 4,056   |         |   |         | 3,562   |         |   |         | 3,191   |       
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|                                                                                             |                                                  |                            | 759,011 |                                       |         |      | 499,912 |         |         |         | 444,931 |         |         |   | 377,262 |         |         |   | 302,205 |        
|Costs and expenses:                                                                          |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |        
|                                                                                             | Cost of restaurant sales:                        |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|                                                                                             |                                                  | Cost of food and beverage  |         |                                       | 221,129 |      |         |         | 140,577 |         |         |         | 129,529 |   |         |         | 109,480 |   |         |         | 89,713 | 
|                                                                                             |                                                  | Payroll and benefits       |         |                                       | 251,579 |      |         |         | 154,311 |         |         |         | 138,009 |   |         |         | 115,029 |   |         |         | 90,625 | 
|                                                                                             |                                                  | Restaurant operating costs |         |                                       | 138,473 |      |         |         | 85,761  |         |         |         | 76,321  |   |         |         | 64,818  |   |         |         | 52,483 | 
|                                                                                             | Cost of commissary sales                         |                            |         | 4,970                                 |         |      |         | 4,488   |         |         |         | 3,808   |         |   |         | 3,341   |         |   |         | 3,013   |       
|                                                                                             | Advertising, general and
administrative expenses |                            |         | 53,493                                |         |      |         | 37,677  |         |         |         | 29,979  |         |   |         | 24,480  |         |   |         | 19,235  |       
|                                                                                             | Depreciation and amortization (3)                |                            |         | 36,360                                |         |      |         | 25,527  |         |         |         | 22,135  |         |   |         | 18,202  |         |   |         | 14,060  |       
|                                                                                             | Asset impairment and exit costs(4)               |                            |         |                                      |         |      |         |        |         |         |         | 5,798   |         |   |         |        |         |   |         |        |       
|                                                                                             | Preopening costs (3)                             |                            |         | 6,337                                 |         |      |         | 5,074   |         |         |         | 5,654   |         |   |         | 4,705   |         |   |         | 4,037   |       
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|                                                                                             |                                                  |                            | 712,341 |                                       |         |      | 453,415 |         |         |         | 411,233 |         |         |   | 340,055 |         |         |   | 273,166 |        
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Income from operations                                                                       |                                                  |                            | 46,670  |                                       |         |      | 46,497  |         |         |         | 33,698  |         |         |   | 37,207  |         |         |   | 29,039  |        
|Other (income) expense:                                                                      |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |        
|                                                                                             | Interest expense, net                            |                            |         | 14,153                                |         |      |         | 5,556   |         |         |         | 6,610   |         |   |         | 7,398   |         |   |         | 4,174   |       
|                                                                                             | Debt extinguishment costs                        |                            |         | 1,800                                 |         |      |         |        |         |         |         |        |         |   |         |        |         |   |         |        |       
|                                                                                             | Other, net                                       |                            |         | (652                                  | )       |      |         | (118    | )       |         |         | 189     |         |   |         | 24      |         |   |         | 82      |       
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|                                                                                             |                                                  |                            | 15,301  |                                       |         |      | 5,438   |         |         |         | 6,799   |         |         |   | 7,422   |         |         |   | 4,256   |        
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Earnings before income taxes and
cumulative effect of change in
accounting principle         |                                                  |                            | 31,369  |                                       |         |      | 41,059  |         |         |         | 26,899  |         |         |   | 29,785  |         |         |   | 24,783  |        
|Income taxes                                                                                 |                                                  |                            | 10,096  |                                       |         |      | 14,268  |         |         |         | 9,347   |         |         |   | 10,425  |         |         |   | 8,674   |        
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Earnings before cumulative effect of
change in accounting principle                          |                                                  |                            | 21,273  |                                       |         |      | 26,791  |         |         |         | 17,552  |         |         |   | 19,360  |         |         |   | 16,109  |        
|Cumulative effect of change in
accounting principle, net of tax(3)(5)                        |                                                  |                            |        |                                       |         |      | (6,123  | )       |         |         |        |         |         |   |        |         |         |   | (1,348  | )      
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Net earnings                                                                                 |                                                  | $                          | 21,273  |                                       |         | $    | 20,668  |         |         | $       | 17,552  |         |         | $ | 19,360  |         |         | $ | 14,761  |        
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Basic earnings per common share before
cumulative effect of change in accounting principle   |                                                  | $                          | 0.98    |                                       |         | $    | 1.44    |         |         | $       | 0.99    |         |         | $ | 1.24    |         |         | $ | 1.04    |        
|Cumulative effect of change in
accounting principle, net of tax (3)(5)                       |                                                  |                            |        |                                       |         |      | (0.33   | )       |         |         |        |         |         |   |        |         |         |   | (0.09   | )      
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |        
|Basic earnings per common share                                                              |                                                  | $                          | 0.98    |                                       |         | $    | 1.11    |         |         | $       | 0.99    |         |         | $ | 1.24    |         |         | $ | 0.95    |        
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Diluted earnings per common share
before cumulative effect of change in accounting principle |                                                  | $                          | 0.95    |                                       |         | $    | 1.35    |         |         | $       | 0.93    |         |         | $ | 1.17    |         |         | $ | 0.97    |        
|Cumulative effect of change in
accounting principle, net of tax(3)(5)                        |                                                  |                            |        |                                       |         |      | (0.31   | )       |         |         |        |         |         |   |        |         |         |   | (0.08   | )      
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Diluted earnings per common share                                                            |                                                  | $                          | 0.95    |                                       |         | $    | 1.04    |         |         | $       | 0.93    |         |         | $ | 1.17    |         |         | $ | 0.89    |        
|                                                                                             |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |         |       
|Balance Sheet Data (at end of period):                                                       |                                                  |                            |         |                                       |         |      |         |         |         |         |         |         |         |   |         |         |         |   |         |        
|Working capital (deficit)                                                                    |                                                  | $                          | (31,306 | )                                     |         | $    | (20,997 | )       |         | $       | (15,053 | )       |         | $ | (20,145 | )       |         | $ | (19,411 | )      
|Total assets                                                                                 |                                                  |                            | 620,235 |                                       |         |      | 428,791 |         |         |         | 383,430 |         |         |   | 311,018 |         |         |   | 240,180 |        
|Current portion of long-term debt and
capitalized lease obligations                          |                                                  |                            | 10,031  |                                       |         |      | 8,015   |         |         |         | 7,924   |         |         |   | 7,574   |         |         |   | 7,013   |        
|Long-term debt and capitalized lease
obligations, including current portion                  |                                                  |                            | 209,629 |                                       |         |      | 132,102 |         |         |         | 121,929 |         |         |   | 122,244 |         |         |   | 80,471  |        
|Total shareholders equity                                                                   |                                                  |                            | 303,135 |                                       |         |      | 229,964 |         |         |         | 204,202 |         |         |   | 143,490 |         |         |   | 122,689 |        

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---

|(1) |  | On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, a
casual dining restaurant company based in Woburn, Massachusetts. Our
2003 earnings include the earnings of Ninety Nine for the period from
January 27, 2003 through December 28, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In May 2000, we acquired two Stoney River restaurants and all
associated trademarks and intellectual property for approximately $15.8
million in a cash transaction accounted for as a purchase.
Accordingly, the results of operations of the two Stoney River
restaurants have been included in our consolidated results of
operations since the date of acquisition. Fiscal 2000 consisted of 53
weeks.                                                                                                                                                                                                                                                                                                                                           
|   
|(3) |  | During the first quarter of 1999, we adopted Statement of Position
98-5 Reporting on the Costs of Start-Up Activities, which requires
that restaurant preopening costs be expensed rather than capitalized.
Previously, we capitalized restaurant preopening costs and amortized
these amounts over one year from the opening of each restaurant. The
depreciation and amortization expense recorded in 1998 included
preopening cost amortization of $2.9 million. For subsequent years,
the depreciation and amortization line item does not include
amortization of preopening costs. We incurred a pre-tax charge of $2.1
million, or $1.3 million net of tax, in the first quarter of 1999 as a
result of this change in accounting principle.
|   
|(4) |  | During the third quarter of 2001, we decided to close certain
restaurant locations. As a result, we recorded a non-cash charge of
$5.0 million pursuant to the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of to
reflect the differences between the fair value and net book value of
the assets and a charge of $800,000 for exit costs associated with the
closure of such locations.                                                                                                                                                                                                                                         
|   
|(5) |  | We incurred an after-tax charge of $6.1 million, or $0.31 per diluted
share, which was recorded as a cumulative effect of a change in
accounting principle as of the beginning of fiscal 2002 associated with
the adoption of Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets. The charge was related to the
goodwill associated with the Stoney River acquisition in May 2000. See
note 1 to the accompanying consolidated financial statements for net
earnings and earnings per share for fiscal 2001 as if SFAS No. 142 had
been adopted at the beginning of fiscal 2001.                                                                                                                             

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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations

Introduction

We are a leading casual dining restaurant company operating 206
OCharleys restaurants in 16 states in the Southeast and Midwest regions, 87
Ninety Nine restaurants in seven Northeastern states, and six Stoney River
restaurants in the Southeast and Midwest.

Historically,
we have grown the OCharleys concept by a combination of
opening new stores and same store sales growth. The growth in new
stores has typically been in the 15% - 20% range year over year.
During 2003, we opened 26 new stores and closed two stores. This
represents an approximate 13% increase over 2002. In 2004, we expect
to open 15 OCharleys restaurants, a growth rate of approximately 8%.
We reduced our growth rate for 2004 in order to better focus on our sales
building initiatives in our existing restaurants as well as focusing
on brand development in new expansion markets. As we have expanded
into new markets outside of our core operating areas, we have
experienced sales levels lower than in our core markets. We believe
these lower sales levels are due to a lack of brand awareness and we
are taking steps to improve awareness, which we believe
will improve our sales and profitability in these new markets. We are
currently strategically evaluating the appropriate level of new unit
growth for the OCharleys concept that will allow us to
maximize long-term shareholder value.

According
to an industry survey, the casual dining segment within the
full-service restaurant segment of the U.S. restaurant industry, of which both
OCharleys and Ninety Nine are a part, reported average customer visit and
same restaurant sales increases during 2003. Our OCharleys restaurants
reported declining customer visits of 2.3% and same restaurant sales decreases
of 2.5% in 2003. The lower same restaurant sales at the OCharleys
restaurants, combined with costs associated with the OCharleys restaurants
sales-building initiatives and higher overall labor costs, resulted in lower
than expected financial results during 2003. While fiscal 2003 was clearly a
year that did not meet our sales and earnings objectives, there were several
significant events that occurred. We took significant steps to reverse the
declining trend in customer visits at OCharleys restaurants; we acquired the
Ninety Nine Restaurant and Pub concept; we restructured our balance sheet providing a
more flexible, long-term capital structure; and we announced the signing of our
first OCharleys franchisee. Following is an overview of these important
events to facilitate a better understanding of the discussion and analysis that
follows.

OCharleys Sales-Building Plan

Prior
to 2002, we consistently reported annual increases in same
restaurant sales and customer visits at OCharleys. In the second fiscal
quarter of 2002, we began to experience decreases in customer visits at our
OCharleys restaurants, which eventually led to declines in same restaurant
sales. The decrease in customer visits at OCharleys continued through the first
two quarters of fiscal 2003. Based on our analysis of marketing research,
impact meetings with co-workers and customer focus group results, we believe
the customer visit declines occurred in part because our price to value
relationship diminished for our value-conscious customers, and certain service
initiatives introduced during 2001 negatively impacted our customers
experience.

During the third fiscal quarter of 2003, we initiated a three phase plan
intended to increase our sales and customer visits at our OCharleys
restaurants. During the first phase, we improved the price-value relationship
with a new multi-colored menu, introducing the Pick Two and Pick Three
combo promotions and a price decrease on certain menu items. Additionally, we
made improvements to our store atmosphere and increased our service levels.
Each of these actions significantly increased customer visits but adversely
affected operating margins due primarily to the better than expected customer
response to the lower margin combo promotions. During phase two, which
occurred during the fourth fiscal quarter of 2003, we introduced certain higher
margin items to the menu and increased the prices on the Pick Two and Pick
Three combos. Prior to implementing these two phases, customer visits were
down on average 4.0% to 4.5% as compared to the same prior-year period.
Subsequent to implementing these initiatives, customer visits increased on
average approximately 1.0% through the end of fiscal 2003 over the same
prior-year period. While customer visits improved, the overall check average
declined approximately 3.0% to 3.5% during the same period, resulting in same
restaurant sales at OCharleys declining 2.0% to 2.5% during the period of
these sales-building initiatives. In addition, these initiatives negatively
impacted our margins in the third and fourth quarters of 2003.

During
the first quarter of 2004, we have introduced the third phase of
our sales-building initiatives which is designed to maintain the customer visit
momentum established in 2003, while improving the overall check average and
same restaurant sales. We expect phase three to be longer in term and broader
in scope than the prior two phases, which lasted approximately four months. We
believe the third phase will broaden our customer base, appeal to core
customers and improve our margins. While these initiatives are currently
meeting our expectations, there can be no assurance they will result in a
sustained improvement in customer visits or in same restaurant sales.

Acquisition of Ninety Nine

We
believe the intense competitive nature of the restaurant business has
been, and will continue to be, an impetus for industry consolidation. We believe
multi-concept operators with significant financial and physical resources will
be better positioned to leverage advertising and support services, fully
penetrate and establish brand dominance in specific geographic regions and
reduce profit variations during weak economic times. In January 2003, we
completed the acquisition of Ninety Nine Restaurant and Pub, a Woburn,
Massachusetts based casual dining concept with 78 locations

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in seven Northeastern states. We acquired Ninety Nine for $116 million in cash
and approximately 2.34 million shares of common stock, plus the assumption of
certain liabilities. While the acquisition of Ninety Nine was substantially
larger than any we have previously completed, we met our overall financial,
operational and integration goals at Ninety Nine during 2003. See Note 2 to
the Notes to the Consolidated Financial Statements included elsewhere in this
report for additional information regarding the acquisition of Ninety Nine.

Financing Arrangements

In conjunction with the acquisition of Ninety Nine, we entered into a $300
million senior secured credit facility, comprised of a $200 million revolving
credit facility and a $100 million term loan. This credit facility remained in
place through the first four weeks of the fourth fiscal quarter of 2003, at
which time we refinanced our capital structure in order to reduce our balance
sheet leverage, reduce our exposure to interest rate risk and provide a more
flexible, long-term capital structure to support our overall business strategy.
To that end, during the fourth quarter we amended and restated our credit
facility to a $125 million revolving credit facility and issued $125 million of
unsecured, senior subordinated notes due 2013. The proceeds from the notes
offering were used to repay the $95 million term loan balance and to repay a
portion of the revolving credit loan. In addition, during the fourth quarter
of 2003 and the first quarter of 2004, we repaid certain amounts outstanding
under our revolving credit facility with proceeds from the sale and lease-back
of 34 OCharleys restaurant properties. See Liquidity and Capital Resources
for additional information regarding these arrangements.

OCharleys Franchising

During
December 2003, we entered into an exclusive multi-unit development
agreement with Meritage Hospitality Group to develop and operate
up to 15 new OCharleys restaurants in Michigan. Meritage Hospitality appointed Roger Zingle, a
25 year veteran of the restaurant industry, as its President and Chief
Operating Officer of OCharleys of Michigan. We intend to
enter into additional development agreements to franchise our
OCharleys concept in other areas. We will continue to
experience expenditures and losses in implementing our franchising
initiative until such time, if ever, that we generate sufficient
franchising revenue to cover these expenditures.

Following is an explanation of certain items in the Companys consolidated
statement of earnings:

Revenuesconsist of restaurant sales and, to a lesser extent, commissary
sales. Restaurant sales include food and beverage sales and are net of
applicable state and local sales taxes. Commissary sales represent sales to
outside parties consisting primarily of sales of OCharleys branded food
items, primarily salad dressings, to retail grocery chains, mass merchandisers
and wholesale clubs.

Cost of Food and Beverageprimarily consists of the costs of beef,
poultry, seafood, produce and alcoholic and non-alcoholic beverages. We believe
our menus offer a broad selection of menu items and as a result there is not a
high concentration of our food costs in any one product category. Generally,
temporary increases in these costs are not passed on to customers; however, we
have in the past generally adjusted menu prices to compensate for increased
costs of a more permanent nature.

Payroll and Benefitsinclude payroll and related costs and expenses
directly relating to restaurant level activities including restaurant
management salaries and bonuses, hourly wages for restaurant level employees,
payroll taxes, workers compensation, various health, life and dental insurance
programs, vacation expense and sick pay. We have an incentive bonus plan that
compensates restaurant management for achieving and exceeding certain
restaurant level financial targets and performance goals.

Restaurant Operating Costsinclude occupancy and other expenses at the
restaurant level, except property and equipment depreciation and amortization.
Supplies, rent, supervisory salaries, bonuses and related expenses, management
training salaries, general liability and property insurance, property taxes,
utilities, repairs and maintenance, outside services and credit card fees
account for the major expenses in this category.

Advertising, General and Administrative Expensesinclude all advertising
and home office administrative functions that support the existing restaurant
base and provide the infrastructure for future growth. Advertising, executive
management and support staff salaries, bonuses and related expenses, data
processing, legal and accounting expenses and office expenses account for the
major expenses in this category.

22



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##### Table of Contents



Depreciation and Amortizationprimarily includes depreciation on property
and equipment calculated on a straight-line basis over the estimated useful
lives of the respective assets. For periods prior to December 31, 2001,
depreciation and amortization also includes amortization of goodwill, which
related primarily to the acquisition of the Stoney River concept. In
accordance with SFAS No. 142, beginning December 31, 2001, we no longer
amortize goodwill.

Preopening Costsinclude operating costs and expenses incurred prior to a
new restaurant opening. The amount of preopening costs incurred in any one
period includes costs incurred during the period for restaurants opened and
under development. Our preopening costs may vary significantly from quarter to
quarter primarily due to the timing of restaurant openings.

23



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##### Table of Contents



The following information should be read in conjunction with Selected
Financial Data and our consolidated financial statements and the related notes
thereto included elsewhere herein. The following table reflects our operating
results for 2003, 2002, and 2001 as a percentage of total revenues unless
otherwise indicated. All fiscal years presented were comprised of 52 weeks.

|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |      |  
|------------------------------------------------------------------------------------ | ------------------------------------------------ |  | ----- | ---- | ---- |  | ----- | ---- | - |  | ----- | ---- | -
|                                                                                     |                                                  |  | 2003  |      | 2002 |  | 2001 
|                                                                                     |                                                  |  |       |      |      |  |      
|Revenues:                                                                            |                                                  |  |       |      |      |  |       |      |   |  |       |     
|                                                                                     | Restaurant sales                                 |  |       | 99.3 | %    |  |       | 99.0 | % |  |       | 99.1 | %
|                                                                                     | Commissary sales                                 |  |       | 0.7  |      |  |       | 1.0  |   |  |       | 0.9  |  
|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |      |  
|                                                                                     |                                                  |  | 100.0 | %    |      |  | 100.0 | %    |   |  | 100.0 | %   
|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |     
|Costs and expenses:                                                                  |                                                  |  |       |      |      |  |       |      |   |  |       |     
|                                                                                     | Cost of restaurant sales: (1)                    |  |       |      |      |  |       |      |   |  |       |      |  
|                                                                                     | Cost of food and beverage                        |  |       | 29.3 | %    |  |       | 28.4 | % |  |       | 29.3 | %
|                                                                                     | Payroll and benefits                             |  |       | 33.4 |      |  |       | 31.2 |   |  |       | 31.3 |  
|                                                                                     | Restaurant operating costs                       |  |       | 18.4 |      |  |       | 17.3 |   |  |       | 17.4 |  
|                                                                                     | Cost of commissary sales (2)                     |  |       | 0.7  |      |  |       | 0.9  |   |  |       | 0.9  |  
|                                                                                     | Advertising, general and administrative expenses |  |       | 7.0  |      |  |       | 7.5  |   |  |       | 6.7  |  
|                                                                                     | Depreciation and amortization (3)                |  |       | 4.8  |      |  |       | 5.1  |   |  |       | 5.0  |  
|                                                                                     | Asset impairment and exit costs                  |  |       |     |      |  |       |     |   |  |       | 1.3  |  
|                                                                                     | Preopening costs                                 |  |       | 0.8  |      |  |       | 1.0  |   |  |       | 1.3  |  
|                                                                                    
|Income from operations                                                               |                                                  |  | 6.1   |      |      |  | 9.3   |      |   |  | 7.6   |     
|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |     
|                                                                                     | Interest expense, net                            |  |       | 1.9  |      |  |       | 1.1  |   |  |       | 1.5  |  
|                                                                                     | Debt extinguishment charge                       |  |       | 0.2  |      |  |       |     |   |  |       |     |  
|                                                                                     | Other, net                                       |  |       | (0.1 | )    |  |       |     |   |  |       |     |  
|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |      |  
|Earnings before income taxes and cumulative effect of change in accounting
principle |                                                  |  | 4.1   |      |      |  | 8.2   |      |   |  | 6.1   |     
|Income taxes                                                                         |                                                  |  | 1.3   |      |      |  | 2.9   |      |   |  | 2.1   |     
|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |      |  
|Earnings before cumulative effect of change in accounting
principle                  |                                                  |  | 2.8   |      |      |  | 5.3   |      |   |  | 4.0   |     
|Cumulative effect of change in accounting principle,
net of tax                      |                                                  |  |      |      |      |  | (1.2  | )    |   |  |      |     
|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |      |  
|Net earnings                                                                         |                                                  |  | 2.8   | %    |      |  | 4.1   | %    |   |  | 4.0   | %   
|                                                                                     |                                                  |  |       |      |      |  |       |      |   |  |       |      |  



---

|(1) |  | As a percentage of restaurant sales.                                                                                                                                                         
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Cost of commissary sales as a percentage of commissary sales was
94.3%, 93.5%, and 93.9% for fiscal years 2003, 2002 and 2001,
respectively.                                                 
|   
|(3) |  | See note 1 to the accompanying consolidated financial statements
for net earnings and earnings per share for fiscal 2001 as if SFAS No.
142 had been adopted at the beginning of fiscal 2001.

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##### Table of Contents



The
following tables set forth certain unaudited financial and other restaurant
data relating to Company restaurants:

|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |   |        |   
|------------------------------------ | ------------------------- | ------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | -- |  | - | ------ | --
|                                     |                           |                                 |  | 2003 |        | 2002 |  | 2001
|                                     |                           |                                 |  |      |        |      |  |     
|Number of Restaurants:               |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     | OCharleys Restaurants:  |                                 |  |      |        |      |  |      |        |    |  |   |       
|                                     |                           | In operation, beginning of year |  |      | 182    |      |  |      | 161    |    |  |   | 138    |   
|                                     |                           | Restaurants opened              |  |      | 26     |      |  |      | 24     |    |  |   | 24     |   
|                                     |                           | Restaurant closed               |  |      | (2     | )    |  |      | (3     | )  |  |   | (1     | ) 
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     |                           | In operation, end of year       |  |      | 206    |      |  |      | 182    |    |  |   | 161    |   
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     | Ninety Nine Restaurants:  |                                 |  |      |        |      |  |      |        |    |  |   |       
|                                     |                           | Restaurants acquired            |  |      | 78     |      |  |      |        |    |  |   |        |   
|                                     |                           | Restaurants opened              |  |      | 10     |      |  |      |        |    |  |   |        |   
|                                     |                           | Restaurants closed              |  |      | (1     | )    |  |      |        |    |  |   |        |   
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     |                           | In operation, end of year       |  |      | 87     |      |  |      |        |    |  |   |        |   
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     | Stoney River Restaurants: |                                 |  |      |        |      |  |      |        |    |  |   |       
|                                     |                           | In operation, beginning of year |  |      | 6      |      |  |      | 3      |    |  |   | 2      |   
|                                     |                           | Restaurants opened              |  |      |       |      |  |      | 3      |    |  |   | 1      |   
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     |                           | In operation, end of year       |  |      | 6      |      |  |      | 6      |    |  |   | 3      |   
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |  
|Average Weekly Sales per Restaurant: |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     |                           | OCharleys                     |  | $    | 51,467 |      |  | $    | 53,574 |    |  | $ | 54,286 |   
|                                     |                           | Ninety Nine                     |  |      | 52,033 |      |  |      |       |    |  |   |       |   
|                                     |                           | Stoney River                    |  |      | 70,277 |      |  |      | 69,834 |    |  |   | 78,080 |   
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |   |        |   
|Change in Same Restaurant Sales (1): |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     |                           | OCharleys                     |  |      | (2.5   | %)   |  |      | (0.1   | %) |  |   | 1.9    | % 
|                                     |                           | Ninety Nine                     |  |      | 1.1    | %    |  |      |       |    |  |   |       |   
|                                     |                           | Stoney River                    |  |      | 1.6    | %    |  |      | 0.6    | %  |  |   | (5.7   | %)
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |   |        |   
|Change in Customer Visits (1):       |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     |                           | OCharleys                     |  |      | (2.3   | %)   |  |      | (2.6   | %) |  |   | 1.4    | % 
|                                     |                           |                                 |  |      |        |      |  |      |        |    |  |   |        |   
|Average Check:                       |                           |                                 |  |      |        |      |  |      |        |    |  |  
|                                     |                           | OCharleys                     |  | $    | 11.60  |      |  | $    | 11.59  |    |  | $ | 11.28  |   
|                                     |                           | Ninety Nine                     |  |      | 13.78  |      |  |      |       |    |  |   |       |   
|                                     |                           | Stoney River                    |  |      | 37.42  |      |  |      | 37.11  |    |  |   | 33.40  |   



---

|(1) |  | When computing same restaurant
sales and customer visits, restaurants open for at least
78 weeks are compared from period to period. Change in customer visits is not available for Ninety
Nine and Stoney River.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Fiscal Year 2003 Compared with Fiscal Year 2002

Revenues

During 2003, total revenues increased $259.1 million, or 51.8%, primarily
related to the inclusion of $205.5 million of sales from the operations of
Ninety Nine restaurants since we acquired that concept on January 27, 2003.
Excluding the revenues of the Ninety Nine restaurants, revenues increased $53.6
million, or 10.7%.

OCharleys restaurant sales increased $47.0 million, or 9.8%, as a result
of the net addition of 24 restaurants during 2003, comprised of 26 new
restaurants opened and the closure of two restaurants. Same restaurant sales
for the OCharleys restaurants decreased 2.5% in 2003 as compared to 2002, due
principally to a 2.3% decline in the number of customer visits. During the
third fiscal quarter of 2003, we implemented sales-building initiatives that
improved customer visits at the OCharleys restaurants during the third and
fourth quarters of 2003 but adversely affected operating margins. Sales at our
OCharleys restaurants were negatively affected in fiscal 2003 when customers
and employees at one of our OCharleys restaurants were exposed to the
Hepatitis A virus. See Legal Proceedings. We believe that the Hepatitis A
incident adversely affected sales at our nine Knoxville, Tennessee area
restaurants during the fourth quarter of 2003 by approximately 20% as compared
to the same prior-year period and adversely affected OCharleys same
restaurant sales and customer visits for the fourth quarter by approximately
100 basis points. Although comparable sales at our Knoxville area restaurants
have improved sequentially since the outbreak was first publicized, we expect
the negative publicity surrounding the Hepatitis A incident will continue to
adversely affect sales at our OCharleys restaurants in 2004.

Ninety Nine restaurant sales were $205.5 million for the period since its
acquisition on January 27, 2003. Same restaurant sales for Ninety Nine
restaurants were up 1.1% for 2003, compared with 2002.

Stoney River restaurant sales increased $6.1 million, or 38.9%, due
primarily to full year effect of the three new restaurants opened in 2002, same
restaurant sales increases of 1.6% in 2003 as compared to 2002 and higher sales
volumes at new restaurants.

Cost of Food and Beverage

Beginning in the second quarter of 2003 and continuing through the end of
2003, cost of food and beverage increased as a percentage of restaurant sales
compared to the same prior-year period as commodity costs, primarily the cost
of red meat, poultry and lettuce, increased as compared to the same prior-year
period. In addition to the higher commodity costs, the sales-building
initiatives we implemented during the third fiscal quarter of 2003 at our
OCharleys restaurants included promotions of lower priced items, and a price
reduction on certain menu items, both of which increased our food cost as a
percentage of restaurant sales.

More recently, the cost of red meat has become erratic as bovine
spongiform encephalopathy (BSE) was confirmed in a dairy cow in Washington in
December 2003. It appears that domestic consumer reaction was muted from this
event and consumer beef demand has remained relatively strong. Overall beef
costs have declined since the discovery of BSE due to various factors including
the reduction in beef exports. Following the BSE discovery, avian influenza
(AI) in broiler flocks has been reported in a number of Asian countries. Some
international consumers reacted to the finding of AI by increasing imports of
U.S. poultry products after banning imports from these Asian countries. This
change in U.S. poultry export demand drove prices sharply higher. However,
more recently there were broiler flocks in the United States that tested
positive for AI, causing the higher prices to moderate as a number of major
importers have placed bans on imports from the United States pending additional
test results of these flocks. We are unable to predict the repercussions of
the BSE and AI discoveries on consumer demand and commodity costs.

During the first quarter of 2004, we expect commodity costs will average
3% to 4% higher compared to the same prior-year period due principally to
higher poultry and red meat costs. For fiscal 2004, however, we
expect commodity costs to moderate to average 0% to 1% higher compared to the same prior-year period due
principally to higher poultry costs, offset by flat to slightly lower red meat
costs. Various factors beyond our control, including adverse weather
conditions, governmental regulation, production, availability, recalls of food
products and seasonality, may affect our commodity costs. We also expect to
continue to realize improvements in our meat yields of approximately 4% at our
new commissary meat facility that has been in operation since the third quarter
of 2003. We believe our expected yield improvement for 2004 equates to an
estimated red meat cost savings of approximately $1.0 million.

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##### Table of Contents



Payroll and Benefits

During 2003, we improved the insurance benefits offered to OCharleys and
Stoney River hourly employees to enable us to attract and retain the most
qualified candidates available. These improvements resulted in a $2.6 million,
or 50 basis point, increase in our payroll and benefits costs and expenses in
2003. In addition to the improved insurance benefits, payroll and benefit
costs increased as a percent of restaurant sales in 2003 as a result of the
higher average wage rates for the Ninety Nine managers and hourly co-workers,
lower average weekly sales at OCharleys, which increased the percentage of
fixed payroll costs, and increased service levels we introduced with the
sales-building plan at OCharleys. Partially offsetting these increases was a
decrease in restaurant level bonus expense. Restaurant management compensation
is based, in part, on restaurant sales and profitability, and since both were
below our annual targets we paid less bonus compensation during 2003.

Restaurant Operating Costs

Restaurant operating costs increased in 2003 primarily due to the higher
base of restaurants that are leased by Ninety Nine, and to higher utility
costs, primarily natural gas from increased usage due to inclement winter
weather in the first quarter of 2003 and rate increases through the year.
These increases were partially offset by lower supervisory bonus expense in
2003 compared to the same prior-year period. Restaurant supervisor
compensation is based, in part, on restaurant sales and profitability, and
since both were below our annual targets we paid less bonus compensation during
2003.

During 2003, we completed sale and lease-back transactions pursuant to
which we sold 28 OCharleys restaurant properties for aggregate gross proceeds
of approximately $59.1 million. During the first quarter of 2004, we completed
transactions involving the sale of six additional OCharleys restaurant
properties for aggregate gross proceeds of approximately $12.1 million. The
leases that we have entered into in connection with the $71.2 million sale and
lease-back transactions will require us to expense on a straight-line basis
approximately $4.9 million annually, including the amortization of the
$16.9 million deferred gain, over the 20-year lease term.

We may enter into an additional sale and lease-back transaction before the
end of the first fiscal quarter of 2004 pursuant to which we may sell and
lease-back up to seven OCharleys restaurant properties for estimated
aggregate gross proceeds of $13.8 million. We cannot assure you, however, that
this proposed sale and lease-back transaction will be completed or, if we do
complete this transaction, that the terms will not differ, perhaps
significantly, from those reflected in this report. We expect the recently
completed $71.2 million of sale and lease-back transactions and, if completed,
the proposed $13.8 million sale and lease-back transaction will increase rent
expense by approximately $6.0 million on an annual basis, including the
amortization of the related deferred gain over the lease term. For the first
fiscal quarter of 2004, we expect to have approximately $1.8 million of
additional net rent expense from these sale and lease-back transactions.

Advertising, General and Administrative Expenses

In 2003, advertising expenditures increased 43.6% to $24.4 million from
$17.0 million in 2002 and, as a percentage of total revenues, declined to 3.2%
in 2003 from 3.4% in 2002. The increase in advertising was primarily due to
the acquisition of Ninety Nine and as part of the sales-building initiatives at
OCharleys. Advertising expenditures were lower, as a percentage of revenues,
as Ninety Nine spends less on advertising as a percent of restaurant sales
compared to OCharleys restaurants. General and administrative expenses
increased 40.7% to $29.1 million in 2003 from $20.7 million in 2002, and as a
percentage of total revenues decreased to 3.8% in 2003 from 4.1% in 2002.
During the first fiscal quarter of 2003, we adopted a deferred compensation
plan for the senior management of Ninety Nine that increased general and
administrative costs. In addition, we incurred incremental costs, primarily in
salaries and related expenses, associated with operating multiple concepts,
which increased general and administrative expenses. These increases were
offset primarily by a decrease in bonus expense. Executive and senior
management compensation is based, in part, on Company sales and profitability,
and since both were below our annual targets we paid less bonus compensation
during 2003.

Depreciation and Amortization

The decrease in depreciation and amortization expense as a percentage of
total revenues in 2003 was primarily attributable to the acquisition of Ninety
Nine, which leases all of its restaurants. During 2004, we will have less
depreciation expense as a result of no longer depreciating the 28 OCharleys
properties included in the recently

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completed $71.2 million sale and lease-back transactions and, if
completed, the approximately seven OCharleys properties included in the
proposed $13.8 million sale and lease-back transaction.

Preopening Costs

In 2003, preopening costs declined as a percentage of total revenues due
primarily to lower average cost for each new restaurant opening in 2003 as
compared to 2002. Currently, we incur average preopening costs of
approximately $200,000 for each new OCharleys and Stoney River restaurant and
approximately $130,000 for each new Ninety Nine restaurant.

Interest Expense

Interest expense increased in 2003 primarily due to increased borrowings
incurred to finance the acquisition of Ninety Nine coupled with higher average
interest rates under our credit facility.

Income Taxes

Our income tax rate in 2003 was 32.2% which is lower than the 34.8% income
tax rate in the previous two years. This income tax rate reduction occurred
primarily because of higher income tax credits, primarily FICA tip credits,
relative to the lower than expected earnings. The tax credits increased as
expected in 2003 while pre-tax earnings decreased in 2003. For the first
quarter of 2004, we currently expect the income tax rate to be in the mid- to
high-32% range.

Diluted Weighted Shares

The increase in diluted weighted shares relates primarily to the shares
issued and committed to be issued in connection with the acquisition of Ninety
Nine. We issued approximately 941,000 shares at the closing of the acquisition,
390,586 shares on the first anniversary and will issue the remaining
approximately 1.4 million shares over the next five years. Since the remaining
shares to be issued are not contingent on any future event other than the
passage of time, they are included in the weighted share calculations.

Fiscal Year 2002 Compared with Fiscal Year 2001

Revenues

Total revenues increased $55.0 million, or 12.4%, primarily as a result of
an increase in restaurant sales of $54.2 million, or 12.3%. The increase in
restaurant sales was attributable to the net addition of 21 OCharleys
restaurants, three new Stoney River restaurants opened in 2002 and a 0.6% same
restaurant sales increase for the Stoney River concept, partially offset by a
0.1% same restaurant sales decline at our OCharleys restaurants. The overall
check average for the OCharleys concept was $11.59 in 2002 compared to $11.28
in 2001. Customer visits at our OCharleys restaurants decreased approximately
2.6% during fiscal 2002. During the second quarter of 2001, we implemented a
value menu promotion at OCharleys in response to the slowing economy, which
lowered the price of certain entrees. We believe this promotion generated
positive customer visits and lowered our average check in 2001. We believe our
customer visits were lower in 2002, in part, as a result of not having a
similar value promotion in 2002. During the third quarter of 2002, we increased
menu prices by approximately 3.1% in approximately two-thirds of our
OCharleys restaurants. During the fourth quarter of 2002, we introduced a new
menu in all of our OCharleys restaurants that included a menu price increase
of approximately 3.1% for the remaining one-third of our restaurants that had
not taken the menu price increase during the third quarter of 2002. We believe
the increase in our check average was the result of the combination of the menu
price increase taken in 2002 and the absence of a value promotion in 2002
similar to the one in 2001. The increase in same restaurant sales at our Stoney
River restaurants resulted from an increase in check average, partially offset
by a decrease in customer visits.

Cost of Food and Beverage

During 2002, cost of food and beverage decreased as a percent of
restaurant sales primarily related to an overall reduction in the cost of
certain food items and continued improvements in operating efficiencies at our
restaurants and commissary. We experienced lower costs in red meat, pork,
poultry and dairy costs, partially offset by increases in certain produce
costs.

28



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##### Table of Contents



Payroll and Benefits

Payroll and benefits expense in 2002 declined slightly as a percent of
restaurant sales compared to 2001, due to lower restaurant level bonuses and
workers compensation expenses, offset by a modest increase in hourly wage rates
and increased salaries for restaurant management in 2002.

Restaurant Operating Costs

Restaurant operating costs remained relatively flat as a percent of
restaurant sales in 2002. In 2002, we experienced higher overall restaurant
occupancy and operating costs due primarily to increases in repair and
maintenance cost, general liability insurance and credit card fees partially
offset by lower utility costs compared to 2001. We also experienced a decrease
in supervisory expenses in 2002 as a percentage of total restaurant sales due
primarily to lower management training salaries.

Advertising, General and Administrative Expenses

Advertising expenditures increased 28.1% to $17.0 million in 2002 from
$13.3 million in 2001 and, as a percentage of total revenues, increased to 3.4%
in 2002 from 3.0% in 2001. The increase in advertising expenditures was in
response to the continued weakness of the U.S. economy. An increase in
television costs represented the primary share of the overall increase in
advertising expenditures. General and administrative expenses increased 23.9%
to $20.7 million in 2002 from $16.7 million in 2001, and as a percentage of
total revenues increased to 4.1% in 2002 from 3.8% in 2001. The increase in
general and administrative expenses was primarily due to increased bonus
expenses and integration costs associated with the 2003 acquisition of Ninety
Nine partially offset by lower legal costs.

Depreciation and Amortization

As a percentage of total revenues, depreciation and amortization increased
slightly in 2002, due primarily to new restaurants opened in 2002 and capital
expenditures for improvements to existing restaurants, which offset the lack of
goodwill amortization in 2002.

Preopening Costs

The decline in preopening costs in 2002 as a percent of total revenues was
primarily attributable to lower average cost per restaurant opening in 2002
compared to 2001.

Interest Expense

Interest expense decreased in 2002 as a result of overall lower interest
rates. The weighted average interest rate on our revolving credit facility
decreased to 3.7% in 2002 as compared with 5.2% in 2001 due to lower short-term
LIBOR rates in 2002.

In 2002, we recorded a non-cash pre-tax charge of $9.9 million ($6.1
million net of tax or $0.31 per diluted share) as a cumulative effect of a
change in accounting principle as a result of our evaluation of the goodwill
carrying value of the Stoney River reporting unit.

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Quarterly Financial and Restaurant Operating Data

The following is a summary of certain unaudited quarterly results of
operations data for each of the last three fiscal years. For accounting
purposes, the first quarter consists of 16 weeks and the second, third and
fourth quarters each consist of 12 weeks. As a result, some of the variations
reflected in the following table are attributable to the different lengths of
the fiscal quarters.

|                                         |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|---------------------------------------- |  | --------------------------------------------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ------- |  |  | - | ------- | 
|                                         |  | First                                         |         | Second  |  | Third   |         | Fourth 
|                                         |  | Quarter                                       |         | Quarter |  | Quarter |         | Quarter
|                                         |  |                                               |         |         |  |         |         |        
|                                         |  | (dollars in thousands, except per share data)
|2003 (1)                                 |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|Revenues                                 |  | $                                             | 215,084 |         |  | $       | 179,214 |         |  | $ | 181,720 |  |  | $ | 182,993 | 
|Income from operations                   |  | $                                             | 17,337  |         |  | $       | 12,704  |         |  | $ | 7,814   |  |  | $ | 8,815   | 
|Net earnings                             |  | $                                             | 8,895   |         |  | $       | 6,114   |         |  | $ | 3,407   |  |  | $ | 2,857   | 
|Basic earnings per common share          |  | $                                             | 0.43    |         |  | $       | 0.28    |         |  | $ | 0.15    |  |  | $ | 0.13    | 
|Diluted earnings per common share        |  | $                                             | 0.41    |         |  | $       | 0.27    |         |  | $ | 0.15    |  |  | $ | 0.13    | 
|Restaurants in operation, end of quarter |  |                                               | 277     |         |  |         | 287     |         |  |   | 296     |  |  |   | 299     | 
|                                        
|2002 (2)                                 |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|Revenues                                 |  | $                                             | 149,632 |         |  | $       | 115,141 |         |  | $ | 116,622 |  |  | $ | 118,517 | 
|Income from operations                   |  | $                                             | 13,946  |         |  | $       | 10,446  |         |  | $ | 10,277  |  |  | $ | 11,828  | 
|Net earnings                             |  | $                                             | 1,935   |         |  | $       | 5,975   |         |  | $ | 5,902   |  |  | $ | 6,856   | 
|Basic earnings per common share          |  | $                                             | 0.10    |         |  | $       | 0.32    |         |  | $ | 0.31    |  |  | $ | 0.36    | 
|Diluted earnings per common share        |  | $                                             | 0.10    |         |  | $       | 0.30    |         |  | $ | 0.30    |  |  | $ | 0.35    | 
|Restaurants in operation, end of quarter |  |                                               | 171     |         |  |         | 177     |         |  |   | 183     |  |  |   | 188     | 
|                                        
|2001 (3)                                 |  |                                               |         |         |  |         |         |         |  |   |         |  |  |   |         | 
|Revenues                                 |  | $                                             | 130,084 |         |  | $       | 103,335 |         |  | $ | 105,757 |  |  | $ | 105,755 | 
|Income from operations                   |  | $                                             | 12,771  |         |  | $       | 8,800   |         |  | $ | 2,146   |  |  | $ | 9,982   | 
|Net earnings                             |  | $                                             | 6,738   |         |  | $       | 4,860   |         |  | $ | 495     |  |  | $ | 5,459   | 
|Basic earnings per common share          |  | $                                             | 0.42    |         |  | $       | 0.26    |         |  | $ | 0.03    |  |  | $ | 0.29    | 
|Diluted earnings per common share        |  | $                                             | 0.39    |         |  | $       | 0.25    |         |  | $ | 0.03    |  |  | $ | 0.28    | 
|Restaurants in operation, end of quarter |  |                                               | 149     |         |  |         | 157     |         |  |   | 162     |  |  |   | 164     | 



---

|(1) |  | On January 27, 2003, the Company acquired Ninety Nine Restaurant
and Pub for $116.0 million in cash and approximately 2.34 million
shares of common stock. Ninety Nine operated 78 restaurants at January
27, 2003. The earnings above include the earnings of Ninety Nine for
the period from January 27, 2003 through December 28, 2003.                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company incurred an after-tax charge of $6.1 million, or $0.31
per diluted share, which was recorded as a cumulative effect of a
change in accounting principle as of the beginning of fiscal 2002
associated with the adoption of Statement of Financial Accounting
Standards No. 142 Goodwill and Other Intangible Assets. The charge was
related to the write off of goodwill associated with the Stoney River
acquisition in May 2000.                                                       
|   
|(3) |  | During the third quarter of 2001, management decided to close five
restaurants. As a result, we recorded a non-cash charge of $5.0
million pursuant to the provisions of Statement of Financial Accounting
Standards No. 121 Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Ofto reflect the differences
between the fair value and net book value of the assets, and a charge
of $800,000 for exit costs associated with the closure of such
locations.

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##### Table of Contents



Liquidity and Capital Resources

Our primary sources of capital have historically been cash provided by
operations, borrowings under our credit facilities, capitalized lease
obligations and sales of common stock. Our principal capital needs have
historically arisen from property and equipment additions, acquisitions, and
payments on long-term debt and capitalized lease obligations. In addition, we
lease a substantial number of our restaurants under operating leases, as
described below, and have substantial operating lease obligations. Our working
capital historically has had current liabilities in excess of current assets
due to cash reinvestments in long-term assets, mostly property and equipment
additions, which we do not believe indicates a lack of liquidity.

On January 27, 2003, we completed the acquisition of Ninety Nine
Restaurant and Pub for $116.0 million in cash and approximately 2.34 million
shares of our common stock, plus the assumption of certain liabilities of
Ninety Nine. Of the stock portion of the purchase price, we delivered
approximately 941,000 shares at closing, 390,586 shares on the first
anniversary of the closing, and will deliver approximately 408,000 on each of the second and
third anniversaries of the closing and 94,000 shares on each of the fourth and
fifth anniversaries of the closing.

In conjunction with the acquisition of Ninety Nine, we entered into a $300
million senior secured credit facility, comprised of a $200 million revolving
credit facility and a $100 million term loan, to fund the cash portion of the
purchase price of Ninety Nine, repay the previous revolving credit facility and
provide capital for future growth. This credit facility remained in place
through the first four weeks of the fourth quarter of 2003 and was secured by
all our tangible and intangible assets and the capital stock of our
subsidiaries. The revolving credit facility had outstanding borrowings of
$128.1 million at October 5, 2003, which accrued interest at a rate of LIBOR
plus 2.75%. The term loan balance at the end of the third quarter of 2003 was
$95.0 million, which accrued interest at a rate of LIBOR plus 4.0%. The
weighted average interest rate on the outstanding borrowings under this credit
facility at the end of the third quarter of 2003 was 5.8%, compared to 3.4% at
the end of the same prior-year period.

In the fourth quarter of 2003, we amended and restated our credit facility
and issued $125.0 million aggregate principal amount of unsecured, senior
subordinated notes due 2013. The proceeds from the note offering were used to
repay the term loan and to repay a portion of the revolving credit loan under
our bank credit facility. Interest on the notes accrues at a fixed rate of 9.0%
and is payable semi-annually on May 1 and November 1 of each year commencing
May 1, 2004. The notes mature on November 1, 2013. The notes are unsecured,
senior subordinated obligations and rank junior in right of payment to all of
our existing and future senior debt (as defined in the indenture governing the
notes). At any time before November 1, 2006, we may redeem up to 35% of the
original aggregate principal amount of the notes at a redemption price equal to
109% of the principal amount of the notes, plus accrued and unpaid interest,
with the cash proceeds of certain equity offerings. We may also redeem all or a
portion of the notes on or after November 1, 2006 at the redemption prices set
forth in the indenture governing the notes. The notes are guaranteed on an
unsecured, senior subordinated basis by certain of our subsidiaries.

Our current bank credit facility consists of a revolving credit facility
in a maximum principal amount of $125.0 million. The facility has a four-year
term maturing in 2007, and bears interest, at our option, at either LIBOR plus
a specified margin ranging from 1.25% to 2.25% based on certain financial
ratios or the base rate, which is the higher of the lenders prime rate and the
federal funds rate plus 0.5%, plus a specified margin from 0.0% to 1.0% based
on certain financial ratios. The credit facility imposes restrictions on us
with respect to the incurrence of additional indebtedness, sales of assets,
mergers, acquisitions, joint ventures, investments, repurchases of stock and
the payment of dividends. In addition, the credit facility requires us to
comply with certain specified financial covenants, including covenants and
ratios relating to our senior secured leverage, maximum adjusted leverage,
minimum fixed charge coverage, minimum asset coverage and maximum capital
expenditures. The credit facility contains certain events of default, including
an event of default resulting from certain changes in control. At December 28,
2003, the credit facility was secured by all of the tangible and intangible
assets and capital stock of the Company as of the date of the credit agreement.
The Company was in compliance with such covenants at December 28, 2003.

During the fourth quarter of 2003, we also completed two sale and
lease-back transactions. The first transaction, completed on October 17, 2003,
involved the sale of 23 of our OCharleys restaurant properties for aggregate
gross proceeds of approximately $50.0 million. The second transaction,
completed on November 7, 2003, involved the sale of five of our OCharleys
restaurants for aggregate gross proceeds of approximately $9.1 million. During
the first quarter of

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##### Table of Contents



2004, we completed a transaction involving the sale of six of our OCharleys
restaurants for aggregate gross proceeds of approximately $12.1 million. All of
these sales were made to an unrelated entity who then leased the properties
back to us. The leases that we entered into in connection with these
transactions require us to make additional future minimum lease payments
aggregating approximately $119.4 million over the 20-year term of the leases,
or an average of approximately $6.0 million annually. The leases also provide
for the payment of additional rent beginning in the sixth year of the lease
term based on increases in the Consumer Price Index. The net proceeds from
these transactions were used to pay down indebtedness under our bank credit
facility.

We may enter into an additional sale and lease-back transaction totaling
aggregate gross proceeds of approximately $13.8 million in 2004. We plan to use the proceeds from these transactions, if
completed, to reduce indebtedness under our credit facility. We cannot assure
you that this proposed sale and lease-back transaction will be completed or, if
we do complete this transaction, the terms will not differ, perhaps
substantially, from those of the recently completed transactions described
above.

From time to time, we have entered into interest rate swap agreements with
certain financial institutions. These swap agreements may effectively convert
some of our obligations that bear interest at variable rates into fixed rate
obligations and may convert some of our obligations that bear interest at fixed
rates into variable interest rate obligations. As of December 28, 2003, we had
interest rate swap agreements with commercial banks, which effectively fixed
the interest rate on $20.0 million of our outstanding variable-rate debt at a
weighted-average interest rate of approximately 5.6%. The corresponding
floating rates of interest received on those notional amounts are based on one
month LIBOR rates and are typically reset on a monthly basis, which is intended
to coincide with the pricing adjustments on our credit facility. The swap
agreement with respect to $10.0 million of our indebtedness expired in January
2004. The swap agreement relating to the remaining $10.0 million of our
indebtedness expires in January 2006. During the first quarter of 2004, we
entered into additional interest rate swap agreements with a financial
institution that effectively convert a portion of the fixed-rate indebtedness
related to the senior subordinated notes due 2013 into variable-rate
obligations. The total notional amount of these swaps was $100.0 million and is
based on the six-month LIBOR rate in arrears plus a specified margin, the
average of which is 3.9%. The terms and conditions of these swaps mirror the
interest terms and conditions on our 9.0% senior subordinated notes due 2013.
These swap agreements expire in January 2014.

In October 2003, we announced an authorization to repurchase up to $25.0
million of our common stock. Any repurchases will be made from time to time in
open market transactions or privately negotiated transactions at our
discretion. To date, we have not repurchased any shares of our common stock
under this authorization. Any repurchases will be funded with borrowings under
our bank credit facility.

Net
cash flows used by investing activities in 2003 included approximately $114.3
million cash paid for the acquisition of Ninety Nine, net of cash acquired,
capital expenditures incurred principally for building new restaurants,
improvements to existing restaurants, a new USDA-inspected meat facility at our
Nashville commissary and technological improvements at our home office. Capital
expenditures were $67.6 million in 2003, excluding $20.0 million of new
restaurant equipment financed through capitalized lease obligations, compared
to $69.7 million in 2002 and $73.5 million in 2001. During 2003, we paid
approximately $10.9 million in debt issuance costs, which will be amortized
over the matching term of the related debt instrument. Our 2004 capital budget
includes approximately $60 million to $65 million for capital expenditures, excluding
new restaurant equipment financed through capitalized lease obligations. These
expenditures are for an estimated 15 additional OCharleys restaurants, 12
to 14 additional Ninety Nine restaurants, up to two additional Stoney River
restaurants, and improvements to existing restaurants and the commissary and
home office additions. There can be no assurance that actual capital
expenditures for 2004 will not vary significantly from budgeted amounts based
upon a number of factors, including the timing of additional purchases of
restaurant sites and the opening of new restaurants.

Payments on long-term debt were $198.0 million, $0.1 million, and $41.9
million in 2003, 2002, and 2001, respectively. Included in the 2003 long-term
debt payments is $198.0 million associated with outstanding balances under
credit facilities that were refinanced with the above-mentioned financing
sources. Payments on capitalized lease obligations were $9.6 million, $7.5
million, and $7.7 million in 2003, 2002, and 2001, respectively.

32



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##### Table of Contents



The following tables set forth our capital structure and certain financial
ratios and financial data at and for the fiscal years ended December 28, 2003
and December 29, 2002:

|                                      |                      |      |         |         |  |   |      |       |   |   |         |         |  |  |      |       |  
|------------------------------------- | -------------------- | ---- | ------- | ------- |  | - | ---- | ----- | - | - | ------- | ------- |  |  | ---- | ----- | -
|                                      |                      | 2003 |         | 2002   
|                                      |                      |      |         |        
|($ in thousands)                      |                      | $    |         | %       |  | $ |      | %    
|                                      |                      |      |         |         |  |   |      |      
|Revolving credit facility             |                      | $    | 40,000  |         |  |   | 7.8  | %     |   | $ | 98,000  |         |  |  | 27.1 | %    
|Secured mortgage note payable         |                      |      | 164     |         |  |   | 0.0  |       |   |   | 181     |         |  |  | 0.0  |      
|Capitalized lease obligations         |                      |      | 44,465  |         |  |   | 8.7  |       |   |   | 33,921  |         |  |  | 9.4  |      
|                                      |                      |      |         |         |  |   |      |       |   |   |         |         |  |  |      |      
|                                      | Total senior debt    |      |         | 84,629  |  |   |      | 16.5  |   |   |         | 132,102 |  |  |      | 36.5  |  
|Senior subordinated notes             |                      |      | 125,000 |         |  |   | 24.4 |       |   |   | 0       |         |  |  | 0.0  |      
|                                      |                      |      |         |         |  |   |      |       |   |   |         |         |  |  |      |      
|                                      | Total debt           |      |         | 209,629 |  |   |      | 40.9  |   |   |         | 132,102 |  |  |      | 36.5  |  
|Shareholders equity                  |                      |      | 303,135 |         |  |   | 59.1 |       |   |   | 229,964 |         |  |  | 63.5 |      
|                                      |                      |      |         |         |  |   |      |       |   |   |         |         |  |  |      |      
|                                      | Total capitalization |      | $       | 512,764 |  |   |      | 100.0 | % |   | $       | 362,066 |  |  |      | 100.0 | %
|                                      |                      |      |         |         |  |   |      |       |   |   |         |         |  |  |      |      
|Adjusted total debt (1) (2)           |                      | $    | 381,589 |         |  |   |      |       |   | $ | 199,350 |         |  |  |      |      
|Adjusted total capitalization (1) (2) |                      | $    | 684,724 |         |  |   |      |       |   | $ | 429,314 |         |  |  |      |      

|                                                              |  |                 |        |                 |  |   |        |  
|------------------------------------------------------------- |  | --------------- | ------ | --------------- |  | - | ------ | -
|                                                              |  | At December 28, |        | At December 29,
|                                                              |  | 2003            |        | 2002           
|                                                              |  |                 |        |                
|EBITDA (1) (3)                                                |  | $               | 81,882 |                 |  | $ | 72,142 |  
|Ratio of total debt to EBITDA                                 |  |                 | 2.6x   |                 |  |   | 1.8x   |  
|Ratio of EBITDA to interest expense, net                      |  |                 | 5.8x   |                 |  |   | 13.0x  |  
|Ratio of total debt to total capitalization                   |  |                 | 41     | %               |  |   | 37     | %
|Ratio
of adjusted total debt to adjusted total capitalization |  |                 | 56     | %               |  |   | 46     | %



---

|(1) |  | We believe EBITDA, adjusted total
debt and adjusted total capitalization are useful
measurements to investors because they are commonly used
as analytical indicators to evaluate performance, measure
leverage capacity and debt service ability. These measures are also
components in the financial covenants contained in our bank credit
facility and are used by management and investors to ascertain
compliance with these covenants. These
measures should not be considered as measures of
financial performance or liquidity under accounting
principles generally accepted in the United States of
America (GAAP). EBITDA, adjusted total
debt and adjusted total capitalization should not be
considered in isolation or as alternatives to financial
statement data presented in our consolidated financial
statements as an indicator of financial performance or
liquidity. EBITDA, adjusted total debt and
adjusted total capitalization, as presented, may not be
comparable to similarly titled measures of other
companies.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Adjusted total debt represents the sum of
long-term debt and capitalized lease obligations, in each
case including current portion, plus the product of (a)
rent expense for the 52 weeks ended December 28, 2003 and
December 29, 2002, respectively, multiplied by (b) eight.
Adjusted total capitalization represents the sum of
long-term debt and capitalized lease obligations, in each
case including current portion, shareholders equity,
plus the product of (a) rent expense for the 52 weeks
ended December 28, 2003 and December 29, 2002,
respectively, multiplied by (b) eight. Rent expense is
multiplied by eight to provide a lease-debt equivalent which is the
method used to calculate the Companys financial covenants under
its existing credit facility. The following
table reconciles adjusted total debt and adjusted total
capitalization, as described above, to the long-term debt
and capitalized lease obligations, in each case including
current portion, shareholders equity and rent expense as
reflected in our consolidated balance sheets and the
notes to the consolidated financial statements:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                         |                                                       |              |         |         |  |   |         |        | 
|-------------------------------------------------------- | ----------------------------------------------------- | ------------ | ------- | ------- |  | - | ------- | ------ | 
|                                                         |                                                       | Fiscal Years
|                                                         |                                                       |             
|($ in thousands)                                         |                                                       | 2003         |         | 2002   
|                                                         |                                                       |              |         |        
|Current portion of long-term debt and capitalized
leases |                                                       | $            | 10,031  |         |  | $ | 8,015   |       
|Add:                                                     |                                                       |              |         |         |  |   |         |       
|                                                         | Long-term debt, net of current portion                |              |         | 165,145 |  |   |         | 98,164 | 
|                                                         | Capitalized lease obligations, net of current portion |              |         | 34,453  |  |   |         | 25,923 | 
|                                                         |                                                       |              |         |         |  |   |         |       
|Total debt                                               |                                                       |              | 209,629 |         |  |   | 132,102 |       
|Add eight times:                                         |                                                       |              |         |         |  |   |         |       
|                                                         | Rent Expense                                          |              |         | 171,960 |  |   |         | 67,248 | 
|                                                         |                                                       |              |         |         |  |   |         |       
|Adjusted total debt                                      |                                                       |              | 381,589 |         |  |   | 199,350 |       

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##### Table of Contents



|                              |                      |      |              |         |  |   |         |         | 
|----------------------------- | -------------------- | ---- | ------------ | ------- |  | - | ------- | ------- | 
|                              |                      |      | Fiscal Years
|                              |                      |      |             
|($ in thousands)              |                      | 2003 |              | 2002   
|                              |                      |      |              |        
|Add:                          |                      |      |              |         |  |   |         |        
|                              | Shareholders Equity |      |              | 303,135 |  |   |         | 229,964 | 
|                              |                      |      |              |         |  |   |         |        
|Adjusted total capitalization |                      | $    | 684,724      |         |  | $ | 429,314 |        
|                              |                      |      |              |         |  |   |         |        



|(3) |  | EBITDA represents earnings before cumulative effect of
change in accounting principle before interest expense, income
taxes, and depreciation and amortization. The following table
reconciles EBITDA, as described above, to earnings before
cumulative effect of change in accounting principle, and to cash
flows provided by operating activities as reflected in our
consolidated statement of earnings and consolidated statements of
cash flows:
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                    |                               |      |              |        |  |   |        |        | 
|------------------------------------------------------------------- | ----------------------------- | ---- | ------------ | ------ |  | - | ------ | ------ | 
|                                                                    |                               |      | Fiscal Years
|                                                                    |                               |     
|($ in thousands)                                                    |                               | 2003 |              | 2002  
|                                                                    |                               |      |              |        |  |   |        |       
|Earnings before cumulative effect of change in
accounting principle |                               | $    | 21,273       |        |  | $ | 26,791 |       
|Add:                                                                |                               |      |              |        |  |   |        |       
|                                                                    | Income tax expense            |      |              | 10,096 |  |   |        | 14,268 | 
|                                                                    | Interest expense, net         |      |              | 14,153 |  |   |        | 5,556  | 
|                                                                    | Depreciation and amortization |      |              | 36,360 |  |   |        | 25,527 | 
|                                                                    |                               |      |              |        |  |   |        |       
|EBITDA                                                              |                               | $    | 81,882       |        |  | $ | 72,142 |       
|                                                                    |                               |      |              |        |  |   |        |       

|                                            |                                                                                                         |   |              |        |      |   |        |       | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------- | - | ------------ | ------ | ---- | - | ------ | ----- | 
|                                            |                                                                                                         |   | Fiscal Years
|                                            |                                                                                                         |   |             
|                                            |                                                                                                         |   | 2003         |        | 2002
|                                            |                                                                                                         |   |              |        |     
|Cash flows provided by operating
activities |                                                                                                         | $ | 67,726       |        |      | $ | 64,641 |      
|Add:                                        |                                                                                                         |   |              |        |      |   |        |      
|                                            | Changes in working capital items excluding
changes in accrued current income taxes and
accrued interest |   |              | 14,156 |      |   |        | 7,501 | 
|                                            |                                                                                                         |   |              |        |      |   |        |      
|EBITDA                                      |                                                                                                         | $ | 81,882       |        |      | $ | 72,142 |      
|                                            |                                                                                                         |   |              |        |      |   |        |      

Based upon the current level of operations and anticipated growth, we
believe that available cash flow from operations, combined with the available
borrowings under our bank credit facility and capitalized lease arrangements,
will be adequate to meet the anticipated future requirements for working
capital and capital expenditures through at least the next 12 months. We have
historically produced insufficient cash flow from operations to fund our
working capital and capital expenditures and, accordingly, our ability to meet
our anticipated capital needs is dependent on our ability to continue to access
external financing, particularly borrowings under our credit facility. In
addition, our growth strategy includes possible acquisitions or strategic joint
ventures. Any acquisitions, joint ventures or other growth opportunities may
require additional external financing. There can be no assurances that such
sources of financing will be available to us or that any such financing would
not negatively impact our earnings.

34



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##### Table of Contents



Contractual Obligations and Commercial Commitments

The following tables set forth our contractual obligations and commercial
commitments at December 28, 2003.

|                                       |  |                |                        |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |         | 
|-------------------------------------- |  | -------------- | ---------------------- | ---- |  | ------- | ------ | ------- |  | ---------- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                                       |  |                | Payments Due by Period
|Contractual                            |  |                |                        |      |  |        
|Obligation                             |  | Total          |                        | 1 Yr |  | 2-3 Yrs |        | 4-5 Yrs |  | Thereafter
|                                       |  |                |                        |      |  |         |        |         |  |           
|                                       |  | (in thousands)
|Long-term debt                         |  | $              | 165,164                |      |  | $       | 19     |         |  | $          | 44     |  |  | $ | 40,053  |  |  | $ | 125,048 | 
|Capitalized lease obligations (1)      |  |                | 49,664                 |      |  |         | 11,773 |         |  |            | 21,592 |  |  |   | 13,261  |  |  |   | 3,038   | 
|Operating leases (2)                   |  |                | 397,877                |      |  |         | 23,758 |         |  |            | 47,620 |  |  |   | 48,266  |  |  |   | 278,233 | 
|Interest rate swaps                    |  |                | 1,228                  |      |  |         | 614    |         |  |            | 614    |  |  |   |        |  |  |   |        | 
|Unconditional purchase
obligations (3) |  |                | 52,776                 |      |  |         | 27,427 |         |  |            | 13,875 |  |  |   | 10,214  |  |  |   | 1,260   | 
|                                       |  |                |                        |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |         | 
|Total contractual cash
obligations     |  | $              | 666,709                |      |  | $       | 63,591 |         |  | $          | 83,745 |  |  | $ | 111,794 |  |  | $ | 407,579 | 
|                                       |  |                |                        |      |  |         |        |         |  |            |        |  |  |   |         |  |  |   |         | 

|                   |  |                |         |      |  |                                            |   |         |  |            |   |  |  |   |         |  |  |  |   | 
|------------------ |  | -------------- | ------- | ---- |  | ------------------------------------------ | - | ------- |  | ---------- | - |  |  | - | ------- |  |  |  | - | 
|                   |  |                |         |      |  | Amount of Commitment Expiration per Period
|Other Commercial   |  | Total          |         |     
|Commitments        |  | Committed      |         | 1 Yr |  | 2-3 Yrs                                    |   | 4-5 Yrs |  | Thereafter
|                   |  |                |         |      |  |                                            |   |         |  |           
|                   |  | (in thousands)
|Line of credit (4) |  | $              | 125,000 |      |  |                                            |  |         |  |            |  |  |  | $ | 125,000 |  |  |  |  | 



---

|1) |  | Capitalized lease obligations include the $5.2 million interest component.                                                                                                                                                                                                                                                                                    
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | The operating lease commitments exclude the minimum lease obligations
totaling $21.3 million arising from the sale and lease-back transaction
consummated in January 2004.                                                                                                                                                                                    
|  
|3) |  | These purchase obligations are primarily fixed volume, fixed price food
and beverage contracts. In situations where the price is based on market
prices, we use the existing market prices at December 28, 2003 to
determine the amount of the obligation. Of the total unconditional
purchase obligations shown, $14.7 million are based on variable pricing.
|  
|4) |  | This pertains to our revolving line of credit of which $40.0 million is
included in long-term debt shown above.                                                                                                                                                                                                                                               

Critical Accounting Policies

Our critical accounting policies are as follows:



| |  |  | Property and equipment                                                         
| | - |  | -------------------------------------------------------------------------------
|
| |  |  | Excess of cost over fair value of net assets acquired (goodwill) and trademarks
|
| |  |  | Impairment of long-lived assets                                                

Property and Equipment

As discussed in Note 1 to the Consolidated Financial Statements, our
property and equipment are stated at cost and depreciated on a straight-line
method over the following estimated useful lives: building and improvements 
30 years; furniture, fixtures and equipment  3 to 10 years. Leasehold
improvements are amortized over the lesser of the assets estimated useful life
or the expected lease term. Equipment under capital leases is amortized to its
expected value

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at the end of the lease term. Gains or losses are recognized upon the
disposal of property and equipment, and the asset and related accumulated
depreciation and amortization are removed from the accounts. Maintenance,
repairs and betterments that do not enhance the value of or increase the life
of the assets are expensed as incurred.

Inherent in the policies regarding property and equipment are certain
significant management judgments and estimates, including useful life, residual
value to which the asset is depreciated, the expected value at the end of the
lease term for equipment under capital leases, and the determination as to what
constitutes enhancing the value of or increasing the life of assets. These
significant estimates and judgments, coupled with the fact that the ultimate
useful life and economic value at the end of a lease are typically not known
until the passage of time, through proper maintenance of the asset, or through
continued development and maintenance of a given market in which a store
operates can, under certain circumstances, produce distorted or inaccurate
depreciation and amortization or, in some cases result in a write down of the
value of the assets under Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. See
Critical Accounting Policy Impairment of Long-Lived Assets below.

We believe that our accounting policy for property and equipment provides
a reasonably accurate means by which the costs associated with an asset are
recognized in expense as the cash flows associated with the assets use are
realized.

Excess of Cost Over Fair Value of Net Assets Acquired (Goodwill) and Trademarks

As discussed in Note 1 to the Consolidated Financial Statements, as of
December 29, 2002, we no longer amortize goodwill and other indefinite life
intangible assets. Beginning in fiscal 2002, we adopted SFAS No. 142 Goodwill
and Other Intangibles. SFAS No. 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually in accordance with the provisions of SFAS No.
142. SFAS No. 142 also requires that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

At December 28, 2003, we have $93.1 million in goodwill and $25.9 million
in indefinite life intangible assets shown in our consolidated balance sheet
related to the acquisition of Ninety Nine Restaurant and Pub. The
determination of the estimated useful lives and whether these assets are
impaired involves significant judgments based upon short and long-term
projections of future performance. Certain of these forecasts reflect
assumptions regarding our ability to successfully integrate the Ninety Nine
concept and to maintain the financial performance that this concept has
experienced over its recent history. Changes in strategy, new accounting
pronouncements and/or market conditions may result in adjustments to recorded
asset balances. For example, we incurred an after-tax charge of $6.1 million,
or $0.31 per diluted share, which was recorded as a cumulative effect of a
change in accounting principle as of the beginning of fiscal 2002 associated
with the adoption of SFAS No. 142. The charge was related to the goodwill
associated with the Stoney River acquisition.

As discussed earlier, on January 27, 2003, we acquired Ninety Nine
Restaurant and Pub for $116 million in cash and approximately
2.34 million
shares of our common stock. We completed a valuation of the assets and
liabilities of Ninety Nine and allocated the purchase price to the acquired
tangible and intangible assets and liabilities, including $25.9 million related
to trademarks, with the remaining amount of $93.1 million being allocated to
goodwill. We selected the first day of each new fiscal year as the date on
which we will test the goodwill and trademarks for impairment. We completed a
valuation of the goodwill pursuant to SFAS No. 142 as of December 29, 2003, the
first day of fiscal 2004 and our valuation showed that the fair value of the
reporting unit exceeded its net book value and no impairment charge was needed.

Impairment of Long-Lived Assets

As discussed in Note 1 to the Consolidated Financial Statements, SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset

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to future net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of carrying amount or fair value less costs to sell.

The judgments made related to the ultimate expected useful life and our
ability to realize undiscounted cash flows in excess of the carrying value of
an asset are affected by such issues as ongoing maintenance of the asset,
continued development of a given market within which a store operates,
including the presence of traffic generating businesses in the area, and our
ability to operate the store efficiently and effectively. We assess the
projected cash flows and carrying values at the restaurant level, which is the
level where identifiable cash flows are largely independent of the cash flows
of other groups of assets, whenever events or changes in circumstances indicate
that the long-lived assets associated with a restaurant may not be recoverable.

We believe that our accounting policy for impairment of long-lived assets
provides reasonable assurance that any assets that are impaired are written
down to their fair value and a charge is taken in earnings on a timely basis.

Other Accounting Matters

As discussed in Note 1 to our Consolidated Financial Statements, we
account for our stock option plans in accordance with SFAS No. 123, Accounting
for Stock-based Compensation. SFAS 123 encourages all entities to adopt a fair
value based method of accounting for employee stock compensation plans, whereby
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
However, SFAS No. 123 also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principle Board Opinion No. 25 (APB 25),
whereby compensation cost is the excess, if any, of the quoted market price of
the stock on the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. We currently apply the provisions of
APB 25 to account for our stock option plans. Stock options issued to-date
pursuant to our stock options plans have had no intrinsic value at the grant
date, and under Opinion No. 25, no compensation cost is recognized for them.
We have provided in the notes to our Consolidated Financial Statements pro
forma net earnings and pro forma earnings per share disclosures for employee
stock option grants made in 1999 and subsequent years as if the
fair-value-based method defined in SFAS 123 had been applied. As of December
28, 2003, we had options to purchase approximately 3.7 million shares of common
stock outstanding at an average exercise price of $16.54 per share.

The Financial Accounting Standards Board is considering changes to the
accounting model for stock-based compensation. In the event that accounting
rules associated with stock options were to change to require all entities to
expense the fair value of stock options granted, our consolidated statement of
earnings would be adversely impacted.

Recent Accounting Pronouncements

In April 2002,the Financial Accounting Standards Board (the FASB) issued
SFAS No.145, Rescission of FASB Statements Nos. 4, 44 and 64, Amendments of
FASB Statement No.13, and Technical Corrections. SFAS No.145 amends existing
guidance on reporting gains and losses on the extinguishments of debt to
prohibit the classification of the gain or loss as extraordinary, as the use of
such extinguishments have become part of the risk management strategy of many
companies. SFAS No.145 also amends SFAS No.13 to require sale and leaseback
accounting for certain lease modifications that have economic effects similar
to sale and leaseback transactions. The provisions of the Statement related to
the rescission of Statement No.4 is applied in fiscal years beginning after May
15,2002. Earlier application of these provisions is encouraged. The
provisions of the Statement related to Statement No.13 were effective for
transactions occurring after May 15,2002, with early application encouraged.
The adoption of SFAS No.145 did not have a material effect on our consolidated
financial statements. We recognized a $1.8 million charge in the fourth
quarter of 2003 related to our $125 million bank credit facility. The charge
was reflected as a component of Other (Income) Expense in our consolidated
statement of earnings.

In June 2002, the FASB issued SFAS No.146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No.146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
The provisions of this Statement are effective for exit or disposal activities

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that are initiated after December 31, 2002, with early application encouraged.
The adoption of SFAS No.146 did not have a material effect on our consolidated
financial statements.

In January 2003, the FASB issued Interpretation No.46, Consolidation of
Variable Interest Entities, and Interpretation of ARB No.51. This
Interpretation addresses how a business enterprise should evaluate whether it
has a controlling financial interest in any entity through means other than
voting rights and accordingly should consolidate the entity. FIN 46R replaces
FASB Interpretation No. 46. The Company will be required to apply FIN 46R to
variable interests in variable interest entities (VIEs) created after
December 31, 2003. For variable interests in VIEs created before January 1,
2004, the Interpretation will be applied beginning January 1, 2005. For any
VIEs that must be consolidated under FIN 46R that were created before January
1, 2004, the assets, liabilities and noncontrolling interests of the VIE
initially would be measured at their carrying amounts with any difference be
between the net amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an accounting change.
We continue to evaluate the impact, if any, that FIN 46R will have on our
consolidated financial statements.

On May 15, 2003, the FASB issued SFAS No.150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. The
statement requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that embody
obligations for the issuer. Generally, the statement is effective for
financial instruments entered into or modified after May 31,2003 and is
otherwise effective at the beginning of the first interim period ending after
December 15,2003. We adopted the provisions of the statement on July 14, 2003.
The adoption of SFAS No.150 did not have a material impact on our consolidated
financial statements.

Impact of Inflation

The impact of inflation on the cost of food, labor, equipment, land and
construction costs could adversely affect our operations. A majority of our
employees are paid hourly rates related to federal and state minimum wage laws.
As a result of increased competition and the low unemployment rates in the
markets in which our restaurants are located, we have continued to increase
wages and benefits in order to attract and retain management personnel and
hourly employees. In addition, most of our leases require us to pay taxes,
insurance, maintenance, repairs and utility costs, and these costs are subject
to inflationary pressures. We attempt to offset the effect of inflation through
periodic menu price increases, economies of scale in purchasing and cost
controls and efficiencies at our restaurants.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are subject to market risk from exposure to changes in interest rates
based on our financing, investing, and cash management activities. We
currently utilize a balanced mix of debt maturities along with both fixed-rate
and variable-rate debt to manage our exposure to changes in interest rates.
Our fixed-rate debt consists primarily of capitalized leases and our
variable-rate debt consists of amounts outstanding under our revolving credit
facility and term loan.

As an additional method of managing our interest rate exposure on our
credit facility, at certain times we enter into interest rate swap agreements
whereby we agree to pay over the life of the swaps a fixed interest rate
payment on a notional amount and in exchange we receive a floating rate payment
calculated on the same amount over the same time period. The fixed interest
rates are dependent upon market levels at the time the swaps are consummated.
The floating interest rates are generally based on the monthly LIBOR rate and
rates are typically reset on a monthly basis, which is intended to coincide
with the pricing adjustments on our revolving credit facility. As of December
28, 2003, we had in effect $20.0 million in swaps at an average fixed rate of
5.6%, $10.0 million of which matured in January 2004 and $10.0 million of which
matures in January 2006.

During the first quarter of 2004, we entered into interest rate swap
agreements with a financial institution. These swap agreements effectively
convert a portion of the fixed-rate indebtedness related to our $125.0 million
Senior Subordinated Notes into variable-rate obligations. The total notional
amount of these swaps was $100.0 million and is based on six-month LIBOR rates
in arrears plus a specified margin, the average of which is 3.9%. The terms
and conditions of these swaps mirror the interest terms and conditions on the
notes. These swap agreements expire in January 2014.

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Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OCHARLEYS INC.

|                                                                                                                                                         |  |      |    | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                                         |  | Page
|                                                                                                                                                         |  |     
|Independent Auditors Report                                                                                                                             |  |      | 40 | 
|Consolidated Balance Sheets at December 28, 2003 and December 29, 2002                                                                                   |  |      | 41 | 
|Consolidated Statements of Earnings for the Years Ended December 28, 2003, December 29, 2002
and December 30, 2001                                       |  |      | 42 | 
|Consolidated Statements of Shareholders Equity and Comprehensive Income for the Years Ended
December 28, 2003, December 29, 2002, and December 30, 2001 |  |      | 43 | 
|Consolidated Statements of Cash Flows for the Years Ended December 28, 2003, December 29, 2002,
and December 30, 2001                                    |  |      | 44 | 
|Notes to the Consolidated Financial Statements                                                                                                           |  |      | 45 | 

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INDEPENDENT AUDITORS REPORT

The Board of Directors and Shareholders
OCharleys Inc.
Nashville, Tennessee:

We have audited the consolidated balance sheets of OCharleys Inc. and
subsidiaries (the Company) as of December 28, 2003 and December 29, 2002, and
the related consolidated statements of earnings, shareholders equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 28, 2003. These consolidated financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of OCharleys
Inc. and subsidiaries as of December 28, 2003 and December 29, 2002, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 28, 2003, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets in 2002.

KPMG LLP

Nashville, Tennessee
February 11, 2004

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CONSOLIDATED BALANCE SHEETS

|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |         |  |  | 
|----------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ------- | ------- | ---------------------- | ------- | ----------------- | ------- |  |  | 
|                                                      |                                                                                                                               |                            |                                      |         |         | December 28, 2003      |         | December 29, 2002
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                  
|                                                      |                                                                                                                               |                            |                                      |         |         | (dollars in thousands)
|                                                      |                                                                                                                               |                            |                                      | ASSETS  |         |                        |         |                   |         |  |  | 
|Current Assets:                                       |                                                                                                                               |                            |                                      |         |         |                        |         |                  
|                                                      | Cash and cash equivalents                                                                                                     |                            | $                                    | 9,574   |         |                        | $       | 8,311             |        
|                                                      | Accounts receivable, less allowance for doubtful
accounts of $78 in 2003 and $188 in 2002                                     |                            |                                      | 8,049   |         |                        |         | 4,800             |        
|                                                      | Inventories                                                                                                                   |                            |                                      | 21,980  |         |                        |         | 18,300            |        
|                                                      | Deferred income taxes                                                                                                         |                            |                                      | 3,405   |         |                        |         | 4,255             |        
|                                                      | Short-term notes receivable                                                                                                   |                            |                                      | 3,070   |         |                        |         | 2,950             |        
|                                                      | Other current assets                                                                                                          |                            |                                      | 3,426   |         |                        |         | 2,288             |        
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |        
|                                                      |                                                                                                                               | Total current assets       |                                      |         | 49,504  |                        |         |                   | 40,904  | 
|Property and Equipment, net                           |                                                                                                                               |                            | 429,361                              |         |         |                        | 381,553 |                  
|Goodwill                                              |                                                                                                                               |                            | 93,069                               |         |         |                        |        |                  
|Other Intangible Assets                               |                                                                                                                               |                            | 25,921                               |         |         |                        |        |                  
|Other Assets                                          |                                                                                                                               |                            | 22,380                               |         |         |                        | 6,334   |                  
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |        
|                                                      |                                                                                                                               | $                          | 620,235                              |         |         | $                      | 428,791 |                  
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |        
|                                                      |                                                                                                                               |                            | LIABILITIES AND SHAREHOLDERS EQUITY |         |         |                        |         |                   |         |  | 
|Current Liabilities:                                  |                                                                                                                               |                            |                                      |         |         |                        |         |                  
|                                                      | Accounts payable                                                                                                              |                            | $                                    | 15,387  |         |                        | $       | 13,284            |        
|                                                      | Accrued payroll and related expenses                                                                                          |                            |                                      | 11,608  |         |                        |         | 13,328            |        
|                                                      | Accrued expenses                                                                                                              |                            |                                      | 19,506  |         |                        |         | 9,967             |        
|                                                      | Deferred revenue                                                                                                              |                            |                                      | 15,442  |         |                        |         | 8,712             |        
|                                                      | Federal, state and local taxes                                                                                                |                            |                                      | 8,836   |         |                        |         | 8,595             |        
|                                                      | Current portion of long-term debt and capitalized
leases                                                                      |                            |                                      | 10,031  |         |                        |         | 8,015             |        
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |        
|                                                      |                                                                                                                               | Total current liabilities  |                                      |         | 80,810  |                        |         |                   | 61,901  | 
|Long-Term Debt, net of current portion                |                                                                                                                               |                            | 165,145                              |         |         |                        | 98,164  |                  
|Capitalized Lease Obligations, net of current portion |                                                                                                                               |                            | 34,453                               |         |         |                        | 25,923  |                  
|Deferred Income Taxes                                 |                                                                                                                               |                            | 6,940                                |         |         |                        | 7,796   |                  
|Other Liabilities                                     |                                                                                                                               |                            | 29,752                               |         |         |                        | 5,043   |                  
|Shareholders Equity:                                 |                                                                                                                               |                            |                                      |         |         |                        |         |                  
|                                                      | Common stock  No par value; authorized,
50,000,000 shares; issued and outstanding,
22,252,628 in 2003 and 18,838,826 in 2002 |                            |                                      | 170,008 |         |                        |         | 116,171           |        
|                                                      | Accumulated other comprehensive loss, net of tax                                                                              |                            |                                      | (519    | )       |                        |         | (931              | )      
|                                                      | Unearned compensation                                                                                                         |                            |                                      | (2,351  | )       |                        |         |                  |        
|                                                      | Retained earnings                                                                                                             |                            |                                      | 135,997 |         |                        |         | 114,724           |        
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |        
|                                                      |                                                                                                                               | Total shareholders equity |                                      |         | 303,135 |                        |         |                   | 229,964 | 
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |        
|                                                      |                                                                                                                               | $                          | 620,235                              |         |         | $                      | 428,791 |                  
|                                                      |                                                                                                                               |                            |                                      |         |         |                        |         |                   |        

See notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF EARNINGS

|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |         | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------- | ------- | ------------------------------------- | ------- | ------------ | ------- | ------------ | ------- | - | ------- | ------- | ------- | 
|                                                                                             |                                                  |                            |         |                                       |         |              |         | Year Ended   |         |   |         |        
|                                                                                             |                                                  |                            |         | December 28,                          |         | December 29, |         | December 30,
|                                                                                             |                                                  |                            |         | 2003                                  |         | 2002         |         | 2001        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |             
|                                                                                             |                                                  |                            |         | (in thousands, except per share data)
|Revenues:                                                                                    |                                                  |                            |         |                                       |         |              |         |              |         |   |         |        
|                                                                                             | Restaurant sales                                 |                            | $       | 753,740                               |         |              | $       | 495,112      |         |   | $       | 440,875 |        
|                                                                                             | Commissary sales                                 |                            |         | 5,271                                 |         |              |         | 4,800        |         |   |         | 4,056   |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|                                                                                             |                                                  |                            | 759,011 |                                       |         |              | 499,912 |              |         |   | 444,931 |        
|Costs and Expenses:                                                                          |                                                  |                            |         |                                       |         |              |         |              |         |   |         |        
|                                                                                             | Cost of restaurant sales:                        |                            |         |                                       |         |              |         |              |         |   |         |         |        
|                                                                                             |                                                  | Cost of food and beverage  |         |                                       | 221,129 |              |         |              | 140,577 |   |         |         | 129,529 | 
|                                                                                             |                                                  | Payroll and benefits       |         |                                       | 251,579 |              |         |              | 154,311 |   |         |         | 138,009 | 
|                                                                                             |                                                  | Restaurant operating costs |         |                                       | 138,473 |              |         |              | 85,761  |   |         |         | 76,321  | 
|                                                                                             | Cost of commissary sales                         |                            |         | 4,970                                 |         |              |         | 4,488        |         |   |         | 3,808   |        
|                                                                                             | Advertising, general and administrative expenses |                            |         | 53,493                                |         |              |         | 37,677       |         |   |         | 29,979  |        
|                                                                                             | Depreciation and amortization                    |                            |         | 36,360                                |         |              |         | 25,527       |         |   |         | 22,135  |        
|                                                                                             | Asset impairment and exit costs                  |                            |         |                                      |         |              |         |             |         |   |         | 5,798   |        
|                                                                                             | Preopening costs                                 |                            |         | 6,337                                 |         |              |         | 5,074        |         |   |         | 5,654   |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|                                                                                             |                                                  |                            | 712,341 |                                       |         |              | 453,415 |              |         |   | 411,233 |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Income from Operations                                                                       |                                                  |                            | 46,670  |                                       |         |              | 46,497  |              |         |   | 33,698  |        
|Other (Income) Expense:                                                                      |                                                  |                            |         |                                       |         |              |         |              |         |   |         |        
|                                                                                             | Interest expense, net                            |                            |         | 14,153                                |         |              |         | 5,556        |         |   |         | 6,610   |        
|                                                                                             | Debt extinguishment charge                       |                            |         | 1,800                                 |         |              |         |             |         |   |         |        |        
|                                                                                             | Other, net                                       |                            |         | (652                                  | )       |              |         | (118         | )       |   |         | 189     |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|                                                                                             |                                                  |                            | 15,301  |                                       |         |              | 5,438   |              |         |   | 6,799   |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Earnings Before Income Taxes and Cumulative Effect
of Change in Accounting Principle         |                                                  |                            | 31,369  |                                       |         |              | 41,059  |              |         |   | 26,899  |        
|Income Taxes                                                                                 |                                                  |                            | 10,096  |                                       |         |              | 14,268  |              |         |   | 9,347   |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Earnings Before Cumulative Effect of Change in
Accounting Principle                          |                                                  |                            | 21,273  |                                       |         |              | 26,791  |              |         |   | 17,552  |        
|Cumulative Effect of Change in Accounting
Principle, net of tax                              |                                                  |                            |        |                                       |         |              | (6,123  | )            |         |   |        |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Net Earnings                                                                                 |                                                  | $                          | 21,273  |                                       |         | $            | 20,668  |              |         | $ | 17,552  |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Basic Earnings Per Common Share Before Cumulative
Effect of Change in Accounting Principle   |                                                  | $                          | 0.98    |                                       |         | $            | 1.44    |              |         | $ | 0.99    |        
|Cumulative Effect of Change in Accounting
Principle, net of tax                              |                                                  |                            |        |                                       |         |              | (0.33   | )            |         |   |        |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Basic Earnings Per Common Share                                                              |                                                  | $                          | 0.98    |                                       |         | $            | 1.11    |              |         | $ | 0.99    |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Diluted Earnings Per Common Share Before
Cumulative Effect of Change in Accounting
Principle |                                                  | $                          | 0.95    |                                       |         | $            | 1.35    |              |         | $ | 0.93    |        
|Cumulative Effect of Change in Accounting
Principle, net of tax                              |                                                  |                            |        |                                       |         |              | (0.31   | )            |         |   |        |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        
|Diluted Earnings Per Common Share                                                            |                                                  | $                          | 0.95    |                                       |         | $            | 1.04    |              |         | $ | 0.93    |        
|                                                                                             |                                                  |                            |         |                                       |         |              |         |              |         |   |         |         |        

See notes to the consolidated financial statements

42



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##### Table of Contents






CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME

|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |   |        |        | 
|---------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | -------------------------- | - | ------------ | - | ------- | - | -------- | - | ------------- |  | ---------- | - | -------- | - | -------------- | - | ----- | - | ----------- | - | ------- |  | ------ | - | ------- | - | ------ | ------ | 
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   | Accumulated |   |         |  |        |   |         |   |       
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  | Additional |   |          |   |                |   | Other |   |             |   |         |  |        |   |        
|                                                                                   |  |                                                                        |                            |   | Common Stock |   | Capital |   | Unearned |   | Comprehensive |  | Retained   |   |          |   |               
|                                                                                   |  |                                                                        |                            |   | Shares       |   | Amount  |   | Paid-in  |   | Compensation  |  | Loss, net  |   | Earnings |   | Total         
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |               
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   | (In thousands) |   |       |   |             |   |         |  |        |   |         |   |       
|Balance, December 31, 2000                                                         |  |                                                                        | 15,704                     |   |              | $ | 67,207  |   |          | $ |              |  |            | $ |         |   |                | $ | (220  | ) |             | $ | 76,503  |  |        | $ | 143,490 |  
|                                                                                   |  | Comprehensive income:                                                  |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |   |        |       
|                                                                                   |  | 2001 net earnings                                                      |                            |   |             |   |         |   |         |   |               |  |           |   |          |   |               |   |       |   |            |   |         |  | 17,552 |   |         |   | 17,552 |       
|                                                                                   |  | Change in unrealized loss on available for sale
securities, net of tax |                            |   |             |   |         |   |         |   |               |  |           |   |          |   |               |   |       |   | 220         |   |         |  |       |   |         |   | 220    |       
|                                                                                   |  | Market value of derivatives, net of tax                                |                            |   |             |   |         |   |         |   |               |  |           |   |          |   |               |   |       |   | (490        | ) |         |  |       |   |         |   | (490   | )     
|                                                                                   |  | Total comprehensive income                                             |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |   | 17,282 |       
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|Repurchase of common stock                                                         |  |                                                                        | (286                       | ) |              |   | (5,153  | ) |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | (5,153  | )
|Sale of Common Stock                                                               |  |                                                                        | 2,300                      |   |              |   | 41,744  |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 41,744  |  
|Exercise of employee stock
options including tax benefits
(net of shares tendered) |  |                                                                        | 593                        |   |              |   | 5,619   |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 5,619   |  
|Shares issued under CHUX
Ownership Plan                                            |  |                                                                        | 82                         |   |              |   | 1,219   |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 1,219   |  
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|Balance, December 30, 2001                                                         |  |                                                                        | 18,393                     |   |              | $ | 110,636 |   |          | $ |              |  |            | $ |         |   |                | $ | (490  | ) |             | $ | 94,056  |  |        | $ | 204,202 |  
|                                                                                   |  | Comprehensive income:                                                  |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |   |        |       
|                                                                                   |  | 2002 net earnings                                                      |                            |   |             |   |         |   |         |   |               |  |           |   |          |   |               |   |       |   |            |   |         |  | 20,668 |   |         |   | 20,668 |       
|                                                                                   |  | Market value of derivatives,
net of tax                                |                            |   |             |   |         |   |         |   |               |  |           |   |          |   |               |   |       |   | (441        | ) |         |  |       |   |         |   | (441   | )     
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|                                                                                   |  |                                                                        | Total comprehensive income |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |   |        | 20,227 | 
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|Exercise of employee stock
options including tax benefits
(net of shares tendered) |  |                                                                        | 361                        |   |              |   | 4,097   |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 4,097   |  
|Shares issued under CHUX
Ownership Plan                                            |  |                                                                        | 85                         |   |              |   | 1,438   |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 1,438   |  
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|Balance, December 29, 2002                                                         |  |                                                                        | 18,839                     |   |              | $ | 116,171 |   |          | $ |              |  |            | $ |         |   |                | $ | (931  | ) |             | $ | 114,724 |  |        | $ | 229,964 |  
|                                                                                   |  | Comprehensive income:                                                  |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |   |        |       
|                                                                                   |  | 2003 net earnings                                                      |                            |   |             |   |         |   |         |   |               |  |           |   |          |   |               |   |       |   |            |   |         |  | 21,273 |   |         |   | 21,273 |       
|                                                                                   |  | Market value of derivatives, net of tax                                |                            |   |             |   |         |   |         |   |               |  |           |   |          |   |               |   |       |   | 412         |   |         |  |       |   |         |   | 412    |       
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|                                                                                   |  |                                                                        | Total comprehensive income |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |   |        | 21,685 | 
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|Exercise of employee stock
options including tax benefits
(net of shares tendered) |  |                                                                        | 811                        |   |              |   | 8,021   |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 8,021   |  
|Shares issued under CHUX
Ownership Plan                                            |  |                                                                        | 112                        |   |              |   | 1,682   |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 1,682   |  
|Restricted share issuances                                                         |  |                                                                        | 155                        |   |              |   | 3,281   |   |          |   |              |  |            |   | (2,821   | ) |                |   |      |   |             |   |        |  |        |   | 460     |  
|Amortization of unearned
compensation                                              |  |                                                                        |                           |   |              |   |        |   |          |   |              |  |            |   | 470      |   |                |   |      |   |             |   |        |  |        |   | 470     |  
|Shares issued or issuable for
acquisition                                          |  |                                                                        | 2,336                      |   |              |   | 40,853  |   |          |   |              |  |            |   |         |   |                |   |      |   |             |   |        |  |        |   | 40,853  |  
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  
|Balance, December 28, 2003                                                         |  |                                                                        | 22,253                     |   |              | $ | 170,008 |   |          | $ |              |  |            | $ | (2,351   | ) |                | $ | (519  | ) |             | $ | 135,997 |  |        | $ | 303,135 |  
|                                                                                   |  |                                                                        |                            |   |              |   |         |   |          |   |               |  |            |   |          |   |                |   |       |   |             |   |         |  |        |   |         |  

See notes to the consolidated financial statements

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CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |        |         |        | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------ | ------------ | ------ | ------------ | ------ | -------------- | ------ | ------- | ------ | ------- | ------ | 
|                                                   |                                                                                          |                                                                     |                                           |                                           |        | December 28, |        | December 29, |        | December 30,  
|                                                   |                                                                                          |                                                                     |                                           |                                           |        | 2003         |        | 2002         |        | 2001          
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |               
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        | (in thousands) |        |         |        |        
|Cash Flows from Operating Activities:              |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   | Net earnings                                                                             |                                                                     | $                                         | 21,273                                    |        |              | $      | 20,668       |        |                | $      | 17,552  |       
|                                                   | Adjustments to reconcile net earnings to net cash
provided by operating activities:      |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|                                                   |                                                                                          | Cumulative effect of accounting change, net of tax                  |                                           |                                           |       |              |        |              | 6,123  |                |        |         |       |        
|                                                   |                                                                                          | Depreciation and amortization  property and
equipment and goodwill |                                           |                                           | 36,360 |              |        |              | 25,527 |                |        |         | 22,135 |        
|                                                   |                                                                                          | Debt extinguishment charge                                          |                                           |                                           | 1,800  |              |        |              |       |                |        |         |       |        
|                                                   |                                                                                          | Amortization of debt issuance costs                                 |                                           |                                           | 1,184  |              |        |              | 380    |                |        |         | 237    |        
|                                                   |                                                                                          | Deferred income taxes excluding effect of Ninety Nine
acquisition   |                                           |                                           | 542    |              |        |              | 1,845  |                |        |         | (1,336 | )      
|                                                   |                                                                                          | Compensation expense related to restricted stock plans              |                                           |                                           | 470    |              |        |              |       |                |        |         |       |        
|                                                   |                                                                                          | (Gain) loss on the sale and involuntary conversion of
assets        |                                           |                                           | (423   | )            |        |              | (63    | )              |        |         | 104    |        
|                                                   |                                                                                          | Asset impairment and exit costs                                     |                                           |                                           |       |              |        |              |       |                |        |         | 5,798  |        
|                                                   | Changes in assets and liabilities, excluding the effects
of the Ninety Nine acquisition: |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|                                                   |                                                                                          | Accounts receivable                                                 |                                           |                                           | (1,961 | )            |        |              | (452   | )              |        |         | (712   | )      
|                                                   |                                                                                          | Inventories                                                         |                                           |                                           | (624   | )            |        |              | (12    | )              |        |         | (5,683 | )      
|                                                   |                                                                                          | Other current assets and short term notes receivable                |                                           |                                           | 526    |              |        |              | (677   | )              |        |         | (2,243 | )      
|                                                   |                                                                                          | Accounts payable                                                    |                                           |                                           | (381   | )            |        |              | 1,950  |                |        |         | (1,305 | )      
|                                                   |                                                                                          | Deferred revenue                                                    |                                           |                                           | 3,035  |              |        |              | 3,738  |                |        |         | 1,638  |        
|                                                   |                                                                                          | Accrued payroll and other accrued expenses                          |                                           |                                           | 1,233  |              |        |              | 4,514  |                |        |         | 8,579  |        
|                                                   | Tax benefit derived from exercise of stock options                                       |                                                                     |                                           | 4,692                                     |        |              |        | 1,100        |        |                |        | 1,816   |       
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|                                                   |                                                                                          |                                                                     |                                           | Net cash provided by operating activities |        |              | 67,726 |              |        |                | 64,641 |         |        |         | 46,580 | 
|Cash Flows from Investing Activities:              |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   | Additions to property and equipment                                                      |                                                                     |                                           | (67,598                                   | )      |              |        | (69,711      | )      |                |        | (73,467 | )     
|                                                   | Acquisition of company, net of cash acquired                                             |                                                                     |                                           | (114,287                                  | )      |              |        |             |        |                |        |        |       
|                                                   | Proceeds from the sale of assets                                                         |                                                                     |                                           | 3,724                                     |        |              |        | 2,018        |        |                |        | 1,355   |       
|                                                   | Other, net                                                                               |                                                                     |                                           | 545                                       |        |              |        | (831         | )      |                |        | (732    | )     
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|                                                   |                                                                                          |                                                                     | Net cash used in investing activities     |                                           |        | (177,616     | )      |              |        | (68,524        | )      |         |        | (72,844 | )     
|Cash Flows from Financing Activities:              |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |        
|                                                   | Proceeds from long-term debt                                                             |                                                                     |                                           | 265,121                                   |        |              |        | 9,000        |        |                |        | 38,700  |       
|                                                   | Payments on long-term debt and capitalized lease
obligations                             |                                                                     |                                           | (207,639                                  | )      |              |        | (7,610       | )      |                |        | (49,573 | )     
|                                                   | Proceeds from sale and lease-back transactions                                           |                                                                     |                                           | 59,097                                    |        |              |        |             |        |                |        |        |       
|                                                   | Debt issuance costs                                                                      |                                                                     |                                           | (10,898                                   | )      |              |        |             |        |                |        | (659    | )     
|                                                   | Net proceeds from sale of common stock                                                   |                                                                     |                                           |                                          |        |              |        |             |        |                |        | 41,744  |       
|                                                   | Exercise of employee incentive stock options and
issuances under stock purchase plan     |                                                                     |                                           | 5,012                                     |        |              |        | 4,435        |        |                |        | 5,022   |       
|                                                   | Restricted stock issuances                                                               |                                                                     |                                           | 460                                       |        |              |        |             |        |                |        |        |       
|                                                   | Repurchase of common stock                                                               |                                                                     |                                           |                                          |        |              |        |             |        |                |        | (5,153  | )     
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|                                                   |                                                                                          |                                                                     | Net cash provided by financing activities |                                           |        | 111,153      |        |              |        | 5,825          |        |         |        | 30,081  |       
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|Increase in cash and cash equivalents              |                                                                                          |                                                                     | 1,263                                     |                                           |        |              | 1,942  |              |        |                | 3,817  |        
|Cash and cash equivalents at beginning of the year |                                                                                          |                                                                     | 8,311                                     |                                           |        |              | 6,369  |              |        |                | 2,552  |        
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       
|Cash and cash equivalents at end of the year       |                                                                                          | $                                                                   | 9,574                                     |                                           |        | $            | 8,311  |              |        | $              | 6,369  |        
|                                                   |                                                                                          |                                                                     |                                           |                                           |        |              |        |              |        |                |        |         |       

See notes to the consolidated financial statements

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OCHARLEYS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------

OCharleys Inc.(the Company) owns and operates 206 (at December 28,
2003) full-service restaurant facilities in 16 southeastern and midwestern
states under the trade name of OCharleys, 87 full-service restaurant
facilities in seven northeastern states under the trade name Ninety Nine
Restaurant and Pub, and six full-service restaurant facilities under the trade
name of Stoney River Legendary Steaks. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated. The
Companys fiscal year ends on the last Sunday in December. All fiscal years
presented were comprised of 52 weeks. Certain reclassifications have been made
to prior year amounts to conform to the current year presentation.

Cash Equivalents. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents. The Company had
cash equivalents of $6.4 million and $8.5 million at December 28, 2003 and
December 29, 2002, respectively. These cash equivalents consist entirely of
overnight repurchase agreements of government securities.

Inventoriesare valued at the lower of cost (first-in, first-out method)
or market and consist primarily of food, beverages and supplies.

Preopening Costsrepresent costs incurred prior to a restaurant opening
and are expensed as incurred.

Investments. The Company owned certain marketable securities that were
accounted for in accordance with Statement of Financial Accounting Standards
(SFAS) No. 115 Accounting for Certain Debt and Equity Securities.
Marketable securities are classified as available for sale securities and are
carried at fair value, with the unrealized gains and losses recorded in a
separate component of shareholders equity, net of tax unless there is a
decline in value which is considered to be other than temporary, in which case
the cost of such security is written down to fair value and the amount of the
write down is reflected in earnings. During 2003, the Company sold all of
these securities.

Property and Equipmentare stated at cost and depreciated on a
straight-line method over the following estimated useful lives: buildings and
improvements  30 years; furniture, fixtures and equipment  3 to 10 years.
Leasehold improvements are amortized over the lesser of the assets estimated
useful life or the expected lease term. Equipment under capitalized leases is
amortized to its expected value to the Company at the end of the lease term.
Gains or losses are recognized upon the disposal of property and equipment, and
the asset and related accumulated depreciation and amortization are removed
from the accounts. Maintenance, repairs and betterments that do not enhance
the value of or increase the life of the assets are expensed as incurred.

Excess of Cost Over Fair Value of Net Assets Acquired (goodwill)
represents the excess of costs over fair value of assets of businesses
acquired. The Company adopted the provisions of SFAS No. 142, Goodwill and
Other Intangible Assets, as of December 31, 2001. Goodwill and intangible
assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with estimated useful lives be amortized
over their respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with SFAS No. 144, Accounting
for Impairment or Disposal of Long-Lived Assets.

As of the date of adoption, the Company had unamortized goodwill in the
amount of $10.0 million, which was subject to the transition provisions of SFAS
No. 142. Amortization expense related to goodwill was $544,000 for the year
ended December 30, 2001. During the second quarter of 2002, the Company
completed the required goodwill transitional impairment tests under SFAS No.
142 as of December 31, 2001 and recorded a non-cash pretax charge of $9.9
million ($6.1 million after tax or $0.31 per diluted share). This charge is
recorded in the consolidated statement of earnings for the year ended December
29, 2002 as a cumulative effect of a change in accounting principle. The
Company identified the reporting units as required by SFAS No. 142 and
determined the carrying value of each reporting unit by assigning the assets
and liabilities, including existing goodwill and intangible assets, to the
reporting units at December 31, 2001. The impaired goodwill was related to the
Stoney River reporting unit. The amount of the charge was determined by comparing the fair value of
the Stoney River reporting unit to the fair value of its net assets, exclusive
of

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goodwill, at December 30, 2001. The fair value of the Stoney River
reporting unit was determined by a combination of two approaches: the market
approach and the income approach. The market approach values the reporting
unit by comparing market multiples of revenue and cash flow for similar
concepts. The market approach also uses comparable purchase transactions of
similar concepts. The income approach values the reporting unit by discounting
the expected future cash flows of the reporting unit. The table below sets
forth the adjusted 2001 fiscal year assuming no goodwill amortization was
recognized during that time (in thousands).

|                                      |  |   |        |  | 
|------------------------------------- |  | - | ------ |  | 
|2001                                  |  |   |        | 
|                                      |  |   |        | 
|Earnings before income taxes          |  | $ | 26,899 | 
|Goodwill amortization                 |  |   | 544    | 
|                                      |  |   |        | 
|Adjusted earnings before income taxes |  |   | 27,443 | 
|Adjusted taxes                        |  |   | 9,536  | 
|Net earnings                          |  | $ | 17,907 | 
|                                      |  |   |        | 
|Basic earnings per share              |  | $ | 1.01   | 
|                                      |  |   |        | 
|Diluted earnings per share            |  | $ | 0.95   | 
|                                      |  |   |        | 

On January 27,
2003, we acquired Ninety Nine Restaurant and Pub for $116
million in cash and approximately 2.34 million shares of our common stock. We
completed a valuation of the assets and liabilities of Ninety Nine and
allocated the purchase price to the acquired tangible and intangible assets and
liabilities with the remaining amount being allocated to goodwill. We selected
the first day of each new fiscal year as the date on which we will test the
goodwill and trademarks for impairment. We completed a valuation of the goodwill pursuant to
SFAS No. 142 as of December 29, 2003, the first day of fiscal 2004 and our
valuation showed that the fair value of the reporting unit exceeded
its net book value and no impairment charge was needed.

Prior to the adoption of SFAS No. 142, goodwill was amortized on a
straight-line basis over 20 years, and assessed for recoverability by
determining whether the amortization of the goodwill balance over its remaining
life could be recovered through undiscounted future operating cash flows of the
acquired operation. All other intangible assets were amortized on a
straight-line basis over 5 years.

Impairment of Long-Lived Assets. The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets,as of December
30, 2001. Prior to the adoption of SFAS No. 144, the Company accounted for
long-lived assets in accordance with SFAS No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of.SFAS No. 144
provides a single accounting model for long-lived assets to be disposed of.
SFAS No. 144 also changes the criteria for classifying an asset held for sale,
broadens the scope of business to be disposed of that qualifies for reporting as
discontinued operations and changes the timing of recognizing losses on such
operations. The Company adopted SFAS No. 144 in the first quarter of 2002.
The adoption of SFAS No. 144 did not affect the Companys consolidated
financial statements.

In accordance with SFAS No. 144, long-lived assets, such as property and
equipment, and purchased intangibles subject to amortization are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future
cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Assets to be
disposed of would be separately presented in the consolidated balance sheet and
reported at the lower of carrying amount or fair value less costs to sell, and
would no longer be depreciated. The assets and liabilities of a disposed group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the consolidated balance sheet.

Revenuesconsist of restaurant sales, and to a lesser extent, commissary
sales. Restaurant sales include food and beverage sales and are net of
applicable state and local sales taxes. Restaurant sales are recognized upon
delivery of services. Proceeds from the sale of gift cards and certificates are
deferred and recognized as revenue as they are redeemed. Commissary sales
represent sales to outside parties consisting primarily of sales of OCharleys
branded food items, primarily salad dressings, to retail grocery chains, mass
merchandisers and wholesale clubs. Commissary sales are recognized when
delivery occurs, the revenue amount is determinable and when collection is
reasonably assured.

Advertising Costs.The Company expenses advertising costs as incurred,
except for certain advertising production costs that are expensed the first
time the advertising takes place. Advertising expense for fiscal years 2003,

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2002 and 2001, totaled $24.4 million, $17.0 million, and $13.3 million,
respectively.

Income Taxesare accounted for in accordance with the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the
statement of earnings in the period that includes the enactment date.

Stock Option Plan. The Company applies the intrinsic-value-based method
of accounting prescribed by Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees,and related interpretations
including FASB Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Opinion No. 25,issued
in March 2000, to account for its fixed-plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. SFAS No.
123, Accounting for Stock-Based Compensation,established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic-value-based method of
accounting described above, and has adopted only the disclosure requirements of
SFAS No. 123. The following table illustrates the effect on net earnings if
the fair-value-based method had been applied to all outstanding and unvested
awards in each period.

|                                                                                                                            |                     |   |        |      |      |   |                |      |  |   |        |      | 
|--------------------------------------------------------------------------------------------------------------------------- | ------------------- | - | ------ | ---- | ---- | - | -------------- | ---- |  | - | ------ | ---- | 
|                                                                                                                            |                     |   | 2003   |      | 2002 |   | 2001          
|                                                                                                                            |                     |   |        |      |      |   |               
|                                                                                                                            |                     |   |        |      |      |   | (in thousands) |      |  |   |       
|Net earnings, as reported                                                                                                   |                     | $ | 21,273 |      |      | $ | 20,668         |      |  | $ | 17,552 |     
|Add stock-based employee
compensation
expense included in
reported net
earnings, net of tax                                 |                     |   | 319    |      |      |   | 366            |      |  |   |       |     
|Deduct total stock-based employee
compensation expense determined
under fair-value-based method for all
rewards, net of tax |                     |   | (2,928 | )    |      |   | (2,651         | )    |  |   | (1,572 | )   
|                                                                                                                            |                     |   |        |      |      |   |                |      |  |   |        |     
|Pro forma net earnings                                                                                                      |                     | $ | 18,664 |      |      | $ | 18,383         |      |  | $ | 15,980 |     
|                                                                                                                            |                     |   |        |      |      |   |                |      |  |   |        |     
|Earnings per share:                                                                                                         |                     |   |        |      |      |   |                |      |  |   |        |     
|                                                                                                                            | Basic-as reported   |   | $      | 0.98 |      |   | $              | 1.11 |  |   | $      | 0.99 | 
|                                                                                                                            | Basic-pro forma     |   | $      | 0.86 |      |   | $              | 0.98 |  |   | $      | 0.89 | 
|                                                                                                                            | Diluted-as reported |   | $      | 0.95 |      |   | $              | 1.04 |  |   | $      | 0.93 | 
|                                                                                                                            | Diluted-pro forma   |   | $      | 0.84 |      |   | $              | 0.93 |  |   | $      | 0.84 | 

Per Share Data. Basic earnings per common share have been computed by
dividing net earnings by the weighted average number of common shares
outstanding during each year presented. Diluted earnings per common share have
been computed by dividing net earnings by the weighted average number of common
shares outstanding plus the dilutive effect of options outstanding during the
applicable periods. Basic and diluted earnings per share also include the
dilutive effect of shares issuable to the prior owners of Ninety Nine due to
the fact that the timing of issuance is related solely to the passage of time.

Stock Repurchase. Under Tennessee law, when a corporation purchases its
common stock in the open market, such repurchased shares become authorized but
unissued. The Company reflects the purchase price of any such repurchased
shares as a reduction of additional paid-in capital and common stock.

Fair
Value of Financial Instruments. SFAS No. 107, Disclosures about Fair
Value of Financial Instruments,requires disclosure of the fair values of most
on-and-off balance sheet financial instruments for which it
is practicable to estimate that value. The fair values of the financial instruments are estimates based
upon current market conditions and quoted market prices for the same or similar
instruments as of

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December 28, 2003 and December 29, 2002. Book value
approximates fair value for substantially all of the Companys assets and
liabilities that fall under the scope of SFAS No. 107.

Derivative Instruments and Hedging Activities.All derivatives are
recognized on the consolidated balance sheet at their fair value. On the date
the derivative contract is entered into, the Company designates the derivative
as a hedge of the variability of cash flows to be paid related to a recognized
liability. The Company assesses, both at the hedges inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions
are highly effective in offsetting changes in cash flows of the hedged items.
The Company also determines how ineffectiveness will be measured. Changes in
the fair value of a derivative that is highly effective and that is designated
and qualifies as a cash-flow hedge are recorded in other comprehensive income,
until earnings are affected by the variability in cash flows of the designated
hedged item. If it is determined that a derivative is ineffective as a hedge,
the Company discontinues hedge accounting prospectively.

During fiscal 2001, the Company entered into interest rate swap agreements
to reduce its exposure to market risks from changing interest rates. These
agreements were designated as cash flow hedges. For interest rate swaps, the
differential to be paid or received is accrued and recognized in interest
expense and may change as market interest rates change. If the swaps were to
be terminated prior to their maturity, the gain or loss would be recognized
over the remaining original life of the swap if the item hedged remained
outstanding, or immediately if the item hedged did not remain outstanding.

Comprehensive Income. SFAS No. 130, Reporting Comprehensive Income,
establishes rules for the reporting of comprehensive income and its components.
Comprehensive income, presented in the Consolidated Statement of Shareholders
Equity and Comprehensive Income, consists of net income and unrealized gains
(losses) on available for sale securities and interest rate swaps. Other
comprehensive income, net of tax, for 2003 was $412,000. The accumulated other
comprehensive loss at December 28, 2003 is comprised of an unrealized loss on
derivative financial instruments of $519,000, net of tax.

Operating Segments. Due to similar economic characteristics, as well as a
single type of product, production process, distribution system and type of
customer, the Company reports the operations of its three concepts on an
aggregated basis and does not separately report segment information. Revenues
from external customers are derived principally from food and beverage sales.
The Company does not rely on any major customers as a source of revenue. As a
result, separate segment information is not disclosed.

Use of Estimates. Management of the Company has made certain estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could differ from
these estimates.

Recent Accounting Pronouncements. In April 2002,the Financial Accounting
Standards Board issued SFAS No. 145, Rescission of FASB Statements Nos. 4, 44
and 64, Amendments of FASB Statement No. 13, and Technical Corrections.SFAS
No. 145 amends existing guidance on reporting gains and losses on the
extinguishments of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale and leaseback accounting for certain lease modifications that have
economic effects similar to sale and leaseback transactions. The provisions of
the Statement related to the rescission of Statement No.4 is applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 did not have a material effect on our
consolidated financial statements. We recognized a $1.8 million charge in the
fourth quarter of 2003 related to the early extinguishment of our prior bank
credit facility. The charge was reflected as a component of Other (Income)
Expense in our consolidated statement of earnings.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities.SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity. The provisions of this Statement are effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application encouraged. The adoption of SFAS No. 146 did not have a
material effect on our consolidated financial statements.

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In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, and Interpretation of ARB No. 51. This
Interpretation addresses how a business enterprise should evaluate whether it
has a controlling financial interest in any entity through means other than
voting rights and accordingly should consolidate the entity. FIN 46R replaces
FASB Interpretation No. 46. The Company will be required to apply FIN 46R to
variable interests in variable interest entities (VIEs) created after
December 31, 2003. For variable interests in VIEs created before January 1,
2004, the Interpretation will be applied beginning January 1, 2005. For any
VIEs that must be consolidated under FIN 46R that were created before January
1, 2004, the assets, liabilities and noncontrolling interests of the VIE
initially would be measured at their carrying amounts with any difference be
between the net amount added to the balance sheet and any previously recognized
interest being recognized as the cumulative effect of an accounting change.
The Company continues to evaluate the impact, if any, that FIN 46R will have on
its consolidated financial statements.

On May 15, 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity.The
statement requires issuers to classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that embody
obligations for the issuer. Generally, the statement is effective for
financial instruments entered into or modified after May 31, 2003 and is
otherwise effective at the beginning of the first interim period ending after
December 15, 2003. We adopted the provisions of the statement on July 14,
2003. The adoption of SFAS No. 150 did not have a material impact on our
consolidated financial statements.



|2. |  | Acquisition
|-- |  | -----------

On January 27, 2003, the Company acquired Ninety Nine Restaurant and Pub
(Ninety Nine), a casual dining chain based in Woburn, Massachusetts,
primarily to continue expanding its portfolio of quality restaurant concepts in
becoming a multi-concept restaurant operation. The Company acquired Ninety
Nine Restaurant and Pub for $116 million in cash and approximately 2.34 million
shares of common stock, plus the assumption of certain liabilities. In
addition to the purchase price, the Company agreed to pay a total of $1.0
million per year, plus accrued interest, on each of January 1, 2004, 2005, 2006
and 2007, to certain key employees of Ninety Nine who continue to be employed
at the time of such payments. Of the stock portion of the purchase price, the
Company delivered 941,176 shares at closing, and 390,586 shares in January 2004
and will deliver 407,843 on each of the second, and third anniversaries of the
closing and 94,118 shares on each of the fourth and fifth anniversaries of the
closing.

The transaction will be accounted for using the purchase method of
accounting as required by SFAS No. 141 and, accordingly, the results of
operations of Ninety Nine will be included in the Companys consolidated
financial statements from the date of acquisition. The Ninety Nine concept is
being operated as a wholly owned subsidiary of the Company. The Company
attributes the goodwill shown below to the long-term historical financial
performance and the anticipated future performance of Ninety Nine. The
allocation of the purchase price to the acquired net assets is as follows (in
thousands).

|                                                               |  |   |         |  
|-------------------------------------------------------------- |  | - | ------- | -
|Current
assets                                                 |  | $ | 11,912  |  
|Property
and equipment, net                                    |  |   | 41,990  |  
|Other
assets                                                   |  |   | 1,981   |  
|Purchase price in excess of the net assets acquired (goodwill) |  |   | 93,069  |  
|Other intangible assets (tradename)                            |  |   | 25,921  |  
|Favorable leases                                               |  |   | 575     |  
|Current
liabilities                                            |  |   | (14,018 | )
|Fair value of liabilities assumed                              |  |   | (770    | )
|                                                               |  |   |         |  
|Cash and stock paid                                            |  |   | 160,660 |  
|Less stock issued or issuable for acquisition                  |  |   | (40,853 | )
|Less cash acquired                                             |  |   | (5,520  | )
|                                                               |  |   |         |  
|Net cash paid for acquisition                                  |  | $ | 114,287 |  
|                                                               |  |   |         |  

The following unaudited pro forma condensed results of operations give
effect to the acquisition of Ninety Nine as if such transaction had occurred at
the beginning of fiscal 2002:

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Fiscal Years ended December 28, 2003 and December 29, 2002

|                                                                                     |  |      |         |      |  |   |         |  
|------------------------------------------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|Unaudited Pro Forma Earnings:                                                        |  | 2003 |         | 2002
|                                                                                     |  |      |         |     
|(In thousands, except for per share data)                                            |  |      |         |      |  |   |         |  
|Total revenues                                                                       |  | $    | 775,194 |      |  | $ | 696,283 |  
|Earnings before income taxes and cumulative effect
of change in accounting principle |  |      | 31,749  |      |  |   | 52,676  |  
|Earnings before cumulative effect of change in
accounting principle                  |  |      | 21,519  |      |  |   | 34,371  |  
|Cumulative effect of change in accounting principle                                  |  |      |        |      |  |   | (6,123  | )
|                                                                                     |  |      |         |      |  |   |         |  
|Net earnings                                                                         |  | $    | 21,519  |      |  | $ | 28,248  |  
|                                                                                     |  |      |         |      |  |   |         |  
|Basic earnings per share                                                             |  |      |         |      |  |   |         |  
|Earnings before cumulative effect of change in
accounting principle                  |  | $    | 0.97    |      |  | $ | 1.63    |  
|Cumulative effect of change in accounting principle                                  |  |      |        |      |  |   | (0.29   | )
|                                                                                     |  |      |         |      |  |   |         |  
|Net earnings                                                                         |  | $    | 0.97    |      |  | $ | 1.34    |  
|                                                                                     |  |      |         |      |  |   |         |  
|Basic weighted average common shares outstanding                                     |  |      | 22,265  |      |  |   | 21,036  |  
|                                                                                     |  |      |         |      |  |   |         |  
|Diluted earnings per share                                                           |  |      |         |      |  |   |         |  
|Earnings before cumulative effect of change in
accounting principle                  |  | $    | 0.94    |      |  | $ | 1.55    |  
|Cumulative effect of change in accounting principle                                  |  |      |        |      |  |   | (0.28   | )
|                                                                                     |  |      |         |      |  |   |         |  
|Net earnings                                                                         |  | $    | 0.94    |      |  | $ | 1.27    |  
|                                                                                     |  |      |         |      |  |   |         |  
|Diluted weighted average common shares outstanding                                   |  |      | 22,875  |      |  |   | 22,139  |  
|                                                                                     |  |      |         |      |  |   |         |  

The
foregoing unaudited pro forma amounts are based upon certain assumptions and
estimates, including, but not limited to the recognition of interest expense on
debt incurred to finance the acquisition. The unaudited pro forma amounts do not
necessarily represent results which would have occurred if the acquisition had
taken place on the basis assumed above, nor are they indicative of the results
of future combined operations.



|3. |  | Property and Equipment
|-- |  | ----------------------

Property and equipment consist of the following:

|                                               |  |                |          |              |  |   |          |  
|---------------------------------------------- |  | -------------- | -------- | ------------ |  | - | -------- | -
|                                               |  | December 28,   |          | December 29,
|                                               |  | 2003           |          | 2002        
|                                               |  |                |          |             
|                                               |  | (in thousands)
|Land and improvements                          |  | $              | 77,738   |              |  | $ | 91,237   |  
|Buildings and improvements                     |  |                | 151,598  |              |  |   | 157,542  |  
|Furniture, fixtures and equipment              |  |                | 145,154  |              |  |   | 106,323  |  
|Leasehold improvements                         |  |                | 130,949  |              |  |   | 87,856   |  
|Equipment under capitalized leases             |  |                | 69,034   |              |  |   | 56,218   |  
|Property leased to others                      |  |                | 802      |              |  |   | 802      |  
|                                               |  |                |          |              |  |   |          |  
|                                               |  |                | 575,275  |              |  |   | 499,978  |  
|Less accumulated depreciation and amortization |  |                | (145,914 | )            |  |   | (118,425 | )
|                                               |  |                |          |              |  |   |          |  
|                                               |  | $              | 429,361  |              |  | $ | 381,553  |  
|                                               |  |                |          |              |  |   |          |  

Depreciation and amortization of property and equipment was $36.4 million,
$25.5 million and $21.6 million for the years ended December 28, 2003,
December 29, 2002, and December 30, 2001, respectively. This excludes
amortization of goodwill and intangible assets.

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|4. |  | Other Assets
|-- |  | ------------

Other assets consist of the following:

|                                             |  |                |        |              |  |   |       | 
|-------------------------------------------- |  | -------------- | ------ | ------------ |  | - | ----- | 
|                                             |  | December 28,   |        | December 29,
|                                             |  | 2003           |        | 2002        
|                                             |  |                |        |             
|                                             |  | (in thousands)
|Supplemental executive retirement plan asset |  | $              | 5,527  |              |  | $ | 2,514 | 
|Liquor licenses                              |  |                | 2,097  |              |  |   | 1,027 | 
|Deferred compensation                        |  |                | 3,000  |              |  |   |      | 
|Prepaid interest and finance costs           |  |                | 8,227  |              |  |   | 313   | 
|Notes receivable                             |  |                | 1,565  |              |  |   | 917   | 
|Other assets                                 |  |                | 1,964  |              |  |   | 1,563 | 
|                                             |  |                |        |              |  |   |       | 
|                                             |  | $              | 22,380 |              |  | $ | 6,334 | 
|                                             |  |                |        |              |  |   |       | 

Amortization of goodwill was $544,000 for the year ended December 30,
2001. There was no amortization for the years ended December 28, 2003 and
December 29, 2002.

The increase in the supplemental executive retirement plan asset shown
above is primarily related to salary and bonus deferrals combined with the
Company match and earnings on the accounts of the participants during 2003.
See Note 14.

The deferred compensation shown above represents the amount yet to be
recognized in expense under the payment plan to certain employees of Ninety
Nine Restaurant and Pub discussed above in Note 2. The amounts are payable
each January 1 in each of the next four years. The Company recognized
compensation expense of $1.0 million plus accrued interest during 2003 related
to this payment plan.

The increase in prepaid interest and finance costs shown above relates to
the refinancing of our senior credit facility and the sale and leaseback
transactions. These amounts will be amortized over the respective life of the
commitment. See Notes 6 and 8.



|5. |  | Accrued Expenses
|-- |  | ----------------

Accrued expenses include the following:

|                           |  |                |        |              |  |   |       | 
|-------------------------- |  | -------------- | ------ | ------------ |  | - | ----- | 
|                           |  | December 28,   |        | December 29,
|                           |  | 2003           |        | 2002        
|                           |  |                |        |             
|                           |  | (in thousands)
|Accrued insurance expenses |  | $              | 8,836  |              |  | $ | 5,033 | 
|Accrued employee benefits  |  |                | 3,067  |              |  |   | 1,543 | 
|Accrued interest           |  |                | 1,912  |              |  |   | 200   | 
|Accrued vacation           |  |                | 1,541  |              |  |   | 315   | 
|Other accrued expenses     |  |                | 4,150  |              |  |   | 2,876 | 
|                           |  |                |        |              |  |   |      
|                           |  | $              | 19,506 |              |  | $ | 9,967 | 
|                           |  |                |        |              |  |   |      



|6. |  | Long-Term Debt
|-- |  | --------------

Long-term debt consists of the following:

|                                       |  |                |         |              |  |   |        |  
|-------------------------------------- |  | -------------- | ------- | ------------ |  | - | ------ | -
|                                       |  | December 28,   |         | December 29,
|                                       |  | 2003           |         | 2002        
|                                       |  |                |         |             
|                                       |  | (in thousands)
|Revolving line of credit               |  | $              | 40,000  |              |  | $ | 98,000 |  
|9% senior subordinated notes due 2013  |  |                | 125,000 |              |  |   |       |  
|Secured mortgage note payable          |  |                | 164     |              |  |   | 181    |  
|                                       |  |                |         |              |  |   |        |  
|                                       |  |                | 165,164 |              |  |   | 98,181 |  
|Less current portion of long-term debt |  |                | (19     | )            |  |   | (17    | )
|                                       |  |                |         |              |  |   |        |  
|Long-term debt, net of current portion |  | $              | 165,145 |              |  | $ | 98,164 |  
|                                       |  |                |         |              |  |   |        |  

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In the fourth quarter of 2003, the Company amended and restated our credit
facility and issued $125 million aggregate principal amount of the notes.
Interest on the notes accrues at the stated rate and is payable semi-annually
on May 1 and November 1 of each year commencing May 1, 2004. The notes mature
on November 1, 2013. The notes are unsecured, senior subordinated obligations
and rank junior in right of payment to all of our existing and future senior
debt (as defined in the indenture governing the notes). At any time before
November 1, 2006, the Company may redeem up to 35% of the original aggregate
principal amount of the notes at a redemption price equal to 109% of the
principal amount of the notes, plus accrued and unpaid interest, with the cash
proceeds of certain equity offerings. The Company may also redeem all or a
portion of the notes on or after November 1, 2006 at the redemption prices set
forth in the indenture governing the notes. The notes are guaranteed on an
unsecured, senior subordinated basis by certain of our subsidiaries.

The indenture governing the notes contains certain customary covenants
that, subject to certain exceptions and qualifications, limit the Companys
ability to, among other things: incur additional debt or issue preferred stock;
pay dividends or make other distributions on, redeem or repurchase capital
stock; make investments or other restricted payments; engage in sale and
leaseback transactions; create or permit to exist certain liens; consolidate,
merge or transfer all or substantially all of our assets; and enter into
transactions with affiliates. In addition, if the Company sells certain
assets (and generally do not use the proceeds of such sales for certain
specified purposes) or experience specific kinds of changes in control, the
Company must offer to repurchase all or a portion of the notes. The notes are
also subject to certain cross-default provisions with the terms of our other
indebtedness.

The proceeds from the note offering were used to pay off the term loan and
to repay a portion of the revolving credit loan under the Companys bank credit
facility. The Companys current bank credit facility consists of a revolving
credit facility in a maximum principal amount of $125.0 million and does not
provide for a term loan facility. The facility has a four-year term maturing
in 2007, and bears interest, at our option, at either LIBOR plus a specified
margin ranging from 1.25% to 2.25% based on certain financial ratios or the
base rate, which is the higher of the lenders prime rate and the federal funds
rate plus 0.5%, plus a specified margin from 0.0% to 1.0% based on certain
financial ratios. The credit facility imposes restrictions on the Company with
respect to the incurrence of additional indebtedness, sales of assets, mergers
and acquisitions, joint ventures, investments, repurchases of stock and the
payment of dividends. In addition, the credit facility requires the Company to
comply with certain specified financial covenants, including covenants and
ratios relating to the Companys senior secured leverage, maximum adjusted
leverage, minimum fixed charge coverage, minimum asset coverage and maximum
capital expenditures. The credit facility contains certain events of default,
including an event of default resulting from certain changes in control. At
December 28, 2003, the credit facility was secured by all of the tangible and
intangible assets and capital stock of the Company as of the date of the credit
agreement. The Company was in compliance with such covenants at December 28,
2003. During 2003, the Company paid commitment fees of approximately
$298,000.

The secured mortgage note payable at December 28, 2003 bears interest at
10.5% and is payable in monthly installments, including interest, through June
2010. This debt is collateralized by land and buildings having a depreciated
cost of approximately $940,000 at December 28, 2003.

The annual maturities of long-term debt as of December 28, 2003 were:
$19,000-2004; $21,000-2005; $23,000-2006; $40.0 million-2007; $28,000-2008;
and $125.0 million thereafter.



|7. |  | Other Liabilities
|-- |  | -----------------

Other liabilities include the following:

|                                                 |  |                |        |              |  |   |       | 
|------------------------------------------------ |  | -------------- | ------ | ------------ |  | - | ----- | 
|                                                 |  | December 28,   |        | December 29,
|                                                 |  | 2003           |        | 2002        
|                                                 |  |                |        |             
|                                                 |  | (in thousands)
|Deferred gain on sale leaseback transactions     |  | $              | 16,412 |              |  | $ | 0     | 
|Deferred rent                                    |  |                | 2,197  |              |  |   | 420   | 
|Supplemental executive retirement plan liability |  |                | 6,658  |              |  |   | 3,096 | 
|Deferred compensation liability                  |  |                | 3,000  |              |  |   | 0     | 
|Market value of swaps                            |  |                | 763    |              |  |   | 1,427 | 
|Other long-term liabilities                      |  |                | 722    |              |  |   | 100   | 
|                                                 |  |                |        |              |  |   |       | 
|                                                 |  | $              | 29,752 |              |  | $ | 5,043 | 
|                                                 |  |                |        |              |  |   |       | 

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|8. |  | Lease Commitments
|-- |  | -----------------

The Company has various leases for certain restaurant land and buildings
under operating lease agreements. Under these leases, the Company pays taxes,
insurance and maintenance costs in addition to the lease payments. Certain
leases also provide for additional contingent rentals based on a percentage of
sales in excess of a minimum rent. The Company leases certain equipment and
fixtures under capital lease agreements having lease terms from five to seven
years. The Company expects to exercise its options under these agreements to
purchase the equipment in accordance with the provisions of the lease
agreements.

As of December 28, 2003 and December 29, 2002, approximately $50.2 million
and $36.3 million, respectively, net book value of the Companys property and
equipment is under capitalized lease obligations. Interest rates on
capitalized lease obligations range from 4.0% to 7.5%.

Future minimum lease payments at December 28, 2003 are as follows:

|                                                      |                       |   |                |        |           |   |         |         | 
|----------------------------------------------------- | --------------------- | - | -------------- | ------ | --------- | - | ------- | ------- | 
|                                                      |                       |   | Capitalized    |        |           |   |        
|                                                      |                       |   | Equipment      |        | Operating
|                                                      |                       |   | Leases         |        | Leases   
|                                                      |                       |   |                |        |          
|                                                      |                       |   | (in thousands)
|2004                                                  |                       | $ | 11,773         |        |           | $ | 23,758  |        
|2005                                                  |                       |   | 12,363         |        |           |   | 23,663  |        
|2006                                                  |                       |   | 9,229          |        |           |   | 23,957  |        
|2007                                                  |                       |   | 6,661          |        |           |   | 24,072  |        
|2008                                                  |                       |   | 6,600          |        |           |   | 24,194  |        
|Thereafter                                            |                       |   | 3,038          |        |           |   | 278,233 |        
|                                                      |                       |   |                |        |           |   |         |        
|                                                      | Total minimum rentals |   | $              | 49,664 |           |   | $       | 397,877 | 
|                                                      |                       |   |                |        |           |   |         |        
|Less amount representing interest                     |                       |   | (5,199         | )      |           |   |         |        
|                                                      |                       |   |                |        |           |   |         |        
|Net minimum lease payments                            |                       |   | 44,465         |        |           |   |         |        
|Less current maturities                               |                       |   | (10,012        | )      |           |   |         |        
|                                                      |                       |   |                |        |           |   |         |        
|Capitalized lease obligations, net of current portion |                       | $ | 34,453         |        |           |   |         |        
|                                                      |                       |   |                |        |           |   |         |        

Rent expense for 2001, 2002 and 2003 for operating leases is as follows:

|                   |  |      |        |      |  |                |       |  |  |   |       | 
|------------------ |  | ---- | ------ | ---- |  | -------------- | ----- |  |  | - | ----- | 
|                   |  | 2003 |        | 2002 |  | 2001          
|                   |  |      |        |      |  |               
|                   |  |      |        |      |  | (in thousands) |       |  |  |  
|Minimum rentals    |  | $    | 21,072 |      |  | $              | 8,104 |  |  | $ | 7,429 | 
|Contingent rentals |  |      | 423    |      |  |                | 302   |  |  |   | 602   | 
|                   |  |      |        |      |  |                |       |  |  |   |       | 
|                   |  | $    | 21,495 |      |  | $              | 8,406 |  |  | $ | 8,031 | 
|                   |  |      |        |      |  |                |       |  |  |   |       | 

During the fourth quarter of 2003, we completed two sale and leaseback
transactions. The first transaction, completed on October 17, 2003, involved
the sale of 23 of our OCharleys restaurant properties for aggregate gross
proceeds of approximately $50.0 million. The second transaction, completed on
November 7, 2003, involved the sale of five of our OCharleys restaurants for
aggregate gross proceeds of approximately $9.1 million. During the first
quarter of 2004, we entered into a third sale and leaseback transaction. This
transaction, completed on December 30, 2003, involved the sale of six of our
OCharleys restaurant properties for aggregate gross proceeds of approximately
$12.1 million.

All of these sales were made to an unrelated entity who then leased the
properties back to us. The leases that we entered into in connection with
these transactions require us to make additional future minimum lease payments
aggregating approximately $119.4 million over the 20-year term of the leases,
or an average of approximately $6.0 million annually. The leases also provide for the
payment of additional rent beginning in the sixth year of the lease term based
on increases in the Consumer Price Index. The net proceeds from these
transactions were used to pay down indebtedness under our existing bank credit
facility.

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The Company recognized a gain of approximately $16.9 million on the sale
and leaseback transactions completed during 2003. This gain is being deferred
and amortized over the 20 year term of the leases that were entered into under
the transaction. The short-term portion of the gain is reflected in Accrued
Expenses and the long-term portion is shown in Other Liabilities in the
accompanying consolidated balance sheet. None of the gain amortization is
reflected in the future minimum operating lease amounts shown above. Also, see
Note 7.

The future minimum lease payments on the transaction completed in the
first quarter 2004 are as follows: $895,000-2004, $943,000-2005,
$991,000-2006, $1,040,000-2007, $1,088,000, 2008, and $16,322,000-thereafter.
The deferred gain on the transaction completed in the first quarter 2004 was
approximately $4.5 million.



|9. |  | Derivative Instruments and Hedging Activities.
|-- |  | ----------------------------------------------

The Company uses variable-rate debt to help finance its operations. The
debt obligations expose the Company to variability in interest payments due to
changes in interest rates. Management believes it is prudent to limit the
variability of a portion of its interest payments. To meet this objective,
management periodically enters into interest rate swap agreements to manage
fluctuations in cash flows resulting from interest rate risk. These swaps
change the variable-rate cash flow exposure on the debt obligations to
fixed-rate cash flows. Under the terms of the interest rate swaps, the Company
receives variable interest rate payments and makes fixed interest rate
payments, thereby creating the equivalent of fixed-rate debt. The swaps have
been designated as cash flow hedges.

Changes in the fair value of interest rate swaps designated as hedging
instruments that effectively offset the variability of cash flows associated
with variable-rate, long-term debt obligations are reported in accumulated
other comprehensive income, net of tax. These amounts subsequently are
reclassified into interest expense as a yield adjustment of the hedged debt
obligation in the same period in which the related interest affects earnings.

As of December 28, 2003 and December 29, 2002, the Company had in effect
$20.0 million in swaps at an average fixed rate of 5.6%, $10.0 million of which
matured in January 2004 and $10.0 million of which matures in January 2006. As
of December 28, 2003, $519,000 of deferred losses, net of tax, on the swaps
were included in accumulated other comprehensive income. During the first
quarter of 2004, the Company entered into interest rate swap agreements with a
financial institution that effectively converted a portion of the fixed-rate
indebtedness related to our $125.0 million senior subordinated notes due 2013
into variable-rate obligations. The total notional amount of these swaps was
$100.0 million and is based on six-month LIBOR rates in arrears plus a
specified margin, the average of which is 3.9%. The terms and conditions of
these swaps mirror the interest terms and conditions on the notes. These swap
agreements expire in January 2014.



|10. |  | Income Taxes
|--- |  | ------------

The total income tax expense (benefit) for each respective year is as
follows:

|                                                                                     |  |      |        |      |  |                |        |   |  |   |        |  
|------------------------------------------------------------------------------------ |  | ---- | ------ | ---- |  | -------------- | ------ | - |  | - | ------ | -
|                                                                                     |  | 2003 |        | 2002 |  | 2001          
|                                                                                     |  |      |        |      |  |               
|                                                                                     |  |      |        |      |  | (in thousands) |        |   |  |  
|Income tax expense from earnings before cumulative effect
of accounting change       |  | $    | 10,096 |      |  | $              | 14,268 |   |  | $ | 9,347  |  
|Tax effect of cumulative effect of
accounting change                                 |  |      |       |      |  |                | (3,731 | ) |  |   |       |  
|Shareholders equity, tax change in
market value of derivative
instruments           |  |      | 251    |      |  |                | (235   | ) |  |   | (260   | )
|Shareholders equity, tax benefit
derived from non-statutory stock
options exercised |  |      | (4,692 | )    |  |                | (1,100 | ) |  |   | (1,816 | )
|                                                                                     |  |      |        |      |  |                |        |   |  |   |        |  
|                                                                                     |  | $    | 5,655  |      |  | $              | 9,202  |   |  | $ | 7,271  |  
|                                                                                     |  |      |        |      |  |                |        |   |  |   |        |  

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Income tax expense (benefit) related to earnings before cumulative effect
of a change in accounting principle for each respective year is as follows:

|         |  |      |        |      |  |                |        |  |  |   |        |  
|-------- |  | ---- | ------ | ---- |  | -------------- | ------ |  |  | - | ------ | -
|         |  | 2003 |        | 2002 |  | 2001          
|         |  |      |        |      |  |               
|         |  |      |        |      |  | (in thousands) |        |  |  |  
|Current  |  | $    | 9,554  |      |  | $              | 12,423 |  |  | $ | 10,683 |  
|Deferred |  |      | 542    |      |  |                | 1,845  |  |  |   | (1,336 | )
|         |  |      |        |      |  |                |        |  |  |   |        |  
|         |  | $    | 10,096 |      |  | $              | 14,268 |  |  | $ | 9,347  |  
|         |  |      |        |      |  |                |        |  |  |   |        |  

Income tax expense (benefit) attributable to earnings before cumulative
effect of a change in accounting principle differs from the amounts computed by
applying the applicable U.S. federal income tax rate to pretax earnings from
operations as a result of the following:

|                                     |                                                |  |      |      |      |  |      |      |   |  |      |      |  
|------------------------------------ | ---------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                     |                                                |  | 2003 |      | 2002 |  | 2001
|                                     |                                                |  |      |      |      |  |     
|Federal statutory rate               |                                                |  | 35.0 | %    |      |  | 35.0 | %    |   |  | 35.0 | %   
|Increase (decrease) in taxes due to: |                                                |  |      |      |      |  |      |      |   |  |      |     
|                                     | State income taxes, net of
federal tax benefit |  |      | 5.6  |      |  |      | 3.1  |   |  |      | 3.2  |  
|                                     | Tax
credits, primarily FICA tip credits        |  |      | (8.8 | )    |  |      | (4.2 | ) |  |      | (5.2 | )
|                                     | Other                                          |  |      | 0.4  |      |  |      | 0.9  |   |  |      | 1.8  |  
|                                     |                                                |  |      |      |      |  |      |      |   |  |      |     
|                                     |                                                |  | 32.2 | %    |      |  | 34.8 | %    |   |  | 34.8 | %   
|                                     |                                                |  |      |      |      |  |      |      |   |  |      |     

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at each of the
respective year ends are as follows:

|                          |                                                                                                                  |  |                                      |                            |   |                |       |        |  |        |       | 
|------------------------- | ---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------ | -------------------------- | - | -------------- | ----- | ------ |  | ------ | ----- | 
|                          |                                                                                                                  |  |                                      |                            |   | 2003           |       | 2002  
|                          |                                                                                                                  |  |                                      |                            |   |                |       |       
|                          |                                                                                                                  |  |                                      |                            |   | (in thousands)
|Deferred tax assets:      |                                                                                                                  |  |                                      |                            |   |                |       |       
|                          | Inventories, principally due to
uniform capitalization                                                           |  | $                                    | 520                        |   |                | $     | 714    | 
|                          | Goodwill impairment                                                                                              |  |                                      | 318                        |   |                |       | 3,364  | 
|                          | Accrued expenses, principally due to
accruals for workers
compensation, employee health and
retirement benefits |  |                                      | 3,672                      |   |                |       | 2,446  | 
|                          | Asset impairment and exit cost                                                                                   |  |                                      | 1,210                      |   |                |       | 2,135  | 
|                          | Unearned gift card income                                                                                        |  |                                      | 313                        |   |                |       |       | 
|                          | Tax credits, primarily FICA tip credits                                                                          |  |                                      | 624                        |   |                |       |       | 
|                          | Net operating loss                                                                                               |  |                                      | 517                        |   |                |       |       | 
|                          | Other                                                                                                            |  |                                      | 202                        |   |                |       | 705    | 
|                          |                                                                                                                  |  |                                      |                            |   |                |       |        | 
|                          |                                                                                                                  |  | Total gross deferred tax assets      |                            |   | 7,376          |       |        |  | 9,364  |      
|                          | Deferred tax asset valuation allowance                                                                           |  |                                      | (317                       | ) |                |       |       | 
|                          |                                                                                                                  |  |                                      |                            |   |                |       |        | 
|                          |                                                                                                                  |  | Total net deferred tax assets        |                            |   | 7,059          |       |        |  | 9,364  |      
|Deferred tax liabilities: |                                                                                                                  |  |                                      |                            |   |                |       |       
|                          | Property and equipment, principally
due to differences in
depreciation and capitalized
lease amortization        |  |                                      | 10,594                     |   |                |       | 12,905 | 
|                          |                                                                                                                  |  |                                      |                            |   |                |       |        | 
|                          |                                                                                                                  |  | Total gross deferred tax liabilities |                            |   | 10,594         |       |        |  | 12,905 |      
|                          |                                                                                                                  |  |                                      |                            |   |                |       |        | 
|                          |                                                                                                                  |  |                                      | Net deferred tax liability |   | $              | 3,535 |        |  | $      | 3,541 | 
|                          |                                                                                                                  |  |                                      |                            |   |                |       |        | 

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The net deferred tax liability (asset) is as follows:

|                                           |  |                |        |      |  |   |        |  
|------------------------------------------ |  | -------------- | ------ | ---- |  | - | ------ | -
|                                           |  | 2003           |        | 2002
|                                           |  |                |        |     
|                                           |  | (in thousands)
|Deferred income taxes, long-term liability |  | $              | 6,940  |      |  | $ | 7,796  |  
|Deferred income taxes, current asset       |  |                | (3,405 | )    |  |   | (4,255 | )
|                                           |  |                |        |      |  |   |        |  
|                                           |  | $              | 3,535  |      |  | $ | 3,541  |  
|                                           |  |                |        |      |  |   |        |  

The Company has gross state net operating loss carry-forwards of $12.2
million to reduce future tax liabilities, which expire in 2008 and 2024. The
federal general business tax credits of $624,000 will expire in 2024.

The Company has established a valuation allowance of $317,000 as of
December 28, 2003 for state net operating loss carryforwards. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management believes that the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance.



|11. |  | Shareholders Equity
|--- |  | --------------------

In October 2003, the Company announced an authorization to repurchase up
to $25.0 million of our common stock. Any repurchases will be made from time
to time in open market transactions or privately negotiated transactions at the
Companys discretion. To date, the Company has not repurchased any shares of
common stock under this authorization. Any repurchases will be funded with
borrowings under the Companys amended and restated bank credit facility.

The Companys charter authorizes 100,000 shares of preferred stock which
the Board of Directors may, without shareholder approval, issue with voting or conversion rights upon the
occurrence of certain events. At December 28, 2003, no preferred shares had
been issued.

On December 8, 2000, the Companys Board of Directors adopted a
Shareholders Rights Plan (the Rights Plan) to protect the interests of the
Companys shareholders if the Company is confronted with coercive or unfair
takeover tactics by third parties. Pursuant to the Rights Plan, a dividend of
one Right for each outstanding share of the Companys Common Stock was
issued to shareholders of record on December 27, 2000. Under certain
conditions, each Right may be exercised to purchase one-thousandth of a share
of a new Series A Junior Preferred Stock at an exercise price of $80 per Right.
Each Right will become exercisable following the tenth day after a persons or
groups acquisition of, or commencement of a tender exchange offer for 18% or
more of the Companys Common Stock. If a person or group acquires 18% or more
of the Companys Common Stock, each right will entitle its holder (other than
the person or group whose action has triggered the exercisability of the
Rights) to purchase common stock of either OCharleys Inc. or the acquiring
company (depending on the form of the transaction) having a value of twice the
exercise price of the Rights. The Rights will also become exercisable in the
event of certain mergers or asset sales involving more than 50% of the
Companys assets or earning power. The Rights may be redeemed prior to becoming
exercisable, subject to approval by the Companys Board of Directors, for
$0.001 per Right. The Rights expire on December 8, 2010. The Company has
reserved 50,000 shares of Series A Junior Preferred Stock for issuance upon
exercise of the Rights.



|12. |  | Earnings Per Share
|--- |  | ------------------

The following is a reconciliation of the weighted average shares used in
the calculation of basic and diluted earnings per share.

|                                              |  |                |        |      |  |      |        |  |  |  |        | 
|--------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                              |  | 2003           |        | 2002 |  | 2001
|                                              |  |                |        |      |  |     
|                                              |  | (in thousands)
|Weighted average shares outstanding  basic   |  |                | 21,677 |      |  |      | 18,683 |  |  |  | 17,772 | 
|Incremental stock option shares outstanding   |  |                | 610    |      |  |      | 1,103  |  |  |  | 1,101  | 
|                                              |  |                |        |      |  |      |        |  |  |  |        | 
|Weighted average shares outstanding  diluted |  |                | 22,287 |      |  |      | 19,786 |  |  |  | 18,873 | 
|                                              |  |                |        |      |  |      |        |  |  |  |        | 

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For the fiscal years 2003, 2002, and 2001, the number of anti-dilutive
shares excluded from the weighted average shares calculation were approximately
1,375,000, 233,000, and 73,000, respectively.



|13. |  | Stock Compensation and Purchase Plans
|--- |  | -------------------------------------

The Company has various incentive stock option plans that provide for the
grant of both statutory and nonstatutory stock options to officers, key
employees, nonemployee directors and consultants of the Company. The Company
has reserved 4,556,958 shares of common stock for issuance pursuant to these
plans. Options are granted at 100% of the fair market value of common stock on
the date of the grant, expire ten years from the date of the grant and are
exercisable at various times as previously determined by the Board of
Directors. The Company adopted the OCharleys 2000 Stock Incentive Plan (the
2000 Plan) in May 2000. The Company has reserved 3,000,000 shares of common
stock for issuance pursuant to the 2000 Plan. At December 28, 2003, options to
purchase 2,099,017 shares of common stock were outstanding under the 2000 Plan.
Following adoption of the 2000 Plan, no additional options may be granted
pursuant to previously adopted stock option plans. At December 28, 2003,
options to purchase 1,615,488 shares of common stock were outstanding under
those previously adopted plans. The Company applies APB Opinion No. 25 in
accounting for its plan; and, accordingly, no compensation cost has been
recognized because no options have been granted at an exercise price less than
the fair value of the stock on the date of the grant.

A summary of stock option activity during the past three years is as
follows:

|                             |           |  |                  |           |                |   |                  |       | 
|---------------------------- | --------- |  | ---------------- | --------- | -------------- | - | ---------------- | ----- | 
|                             |           |  |                  |           |                |   | Weighted-Average
|                             |           |  | Number of Shares |           | Exercise Price
|                             |           |  |                  |           |               
|Balance at December 31, 2000 |           |  | 3,850,872        |           |                | $ | 9.67             |      
|                             | Granted   |  |                  | 514,550   |                |   |                  | 17.84 | 
|                             | Exercised |  |                  | (593,285  | )              |   |                  | 6.64  | 
|                             | Forfeited |  |                  | (173,919  | )              |   |                  | 14.49 | 
|                             |           |  |                  |           |                |   |                  |      
|Balance at December 30, 2001 |           |  | 3,598,218        |           |                |   | 11.11            |      
|                             | Granted   |  |                  | 392,500   |                |   |                  | 21.67 | 
|                             | Exercised |  |                  | (366,101  | )              |   |                  | 8.51  | 
|                             | Forfeited |  |                  | (101,293  | )              |   |                  | 13.67 | 
|                             |           |  |                  |           |                |   |                  |      
|Balance at December 29, 2002 |           |  | 3,523,324        |           |                | $ | 12.43            |      
|                             | Granted   |  |                  | 1,261,722 |                |   |                  | 18.60 | 
|                             | Exercised |  |                  | (969,511  | )              |   |                  | 6.45  | 
|                             | Forfeited |  |                  | (101,031  | )              |   |                  | 18.86 | 
|                             |           |  |                  |           |                |   |                  |      
|Balance at December 28, 2003 |           |  | 3,714,504        |           |                | $ | 16.54            |      
|                             |           |  |                  |           |                |   |                  |      

At the end of 2003, 2002, and 2001, the number of options exercisable was
approximately 1,690,000, 2,180,000, and 2,267,000, respectively, and the
weighted average exercise price of those options was $13.47, $9.81, and $8.82,
respectively.

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The following table summarizes information about stock options outstanding
at December 28, 2003.

|                    |  |                     |           |                  |  |                |     |                  |  |                |       |  |  |                  |           |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ---------------- |  | -------------- | --- | ---------------- |  | -------------- | ----- |  |  | ---------------- | --------- |  |  | - | ----- | 
|Options Outstanding |  | Options Exercisable
|                    |  |                    
|                    |  |                     |           |                  |  | Weighted-Avg.  |     |                  |  |                |       |  |  |                  |           |  |  |  
|                    |  |                     |           |                  |  | Remaining      |     | Weighted-Average |  |                |       |  |  | Weighted-Average
|Exercise Price      |  | Number              |           | Contractual Life |  | Exercise Price |     | Number           |  | Exercise Price
|                    |  |                     |           |                  |  |                |     |                  |  |               
|$7.00
to 7.99       |  |                     | 267,075   |                  |  |                | 1.2 |                  |  | $              | 7.67  |  |  |                  | 266,097   |  |  | $ | 7.67  | 
|$8.00
to 10.99      |  |                     | 210,555   |                  |  |                | 2.7 |                  |  |                | 9.08  |  |  |                  | 198,113   |  |  |   | 9.03  | 
|$11.00
to 13.99     |  |                     | 499,760   |                  |  |                | 5.1 |                  |  |                | 12.15 |  |  |                  | 367,235   |  |  |   | 12.13 | 
|$14.00 to 15.99     |  |                     | 826,447   |                  |  |                | 5.5 |                  |  |                | 15.08 |  |  |                  | 511,627   |  |  |   | 15.09 | 
|$16.00
to 18.99     |  |                     | 491,495   |                  |  |                | 7.7 |                  |  |                | 17.98 |  |  |                  | 225,445   |  |  |   | 18.04 | 
|Over $18.99         |  |                     | 1,419,172 |                  |  |                | 8.8 |                  |  |                | 21.21 |  |  |                  | 121,671   |  |  |   | 22.22 | 
|                   
|$7.00
to 25.00      |  |                     | 3,714,504 |                  |  |                | 6.5 |                  |  | $              | 16.54 |  |  |                  | 1,690,188 |  |  | $ | 13.47 | 

In the first quarter of 2002, the Company granted approximately 84,000
restricted stock units to certain executive officers and members of senior
management in order to provide retention incentives and to encourage them to
meet and exceed budgeted increases in targeted performance criteria. Each
restricted stock unit represents the right to receive one share of the
Companys common stock. For each of fiscal years 2002, 2003 and 2004, the
compensation committee of the board of directors will establish performance
criteria related to targeted earnings per share. If the annual performance
targets are achieved, one-third of the restricted stock units will vest in that
year and the Company will issue the corresponding number of common shares. In
the event the performance criteria are not achieved, the restricted stock units
that would have vested related to that fiscal year shall not vest and all
rights thereto shall forfeit. In the event that the employment of the individual by
the Company is terminated for any reason, no further vesting of restricted
stock units shall occur. One-third of the units vested in 2002, while the
one-third that was to vest in 2003 did not vest due to the vesting targets not
being met.

The Company has established the CHUX Ownership Plan for the purpose of
providing an opportunity for eligible employees of the Company to become
shareholders in OCharleys. The Company has reserved 675,000 common shares
for this plan. The CHUX Ownership Plan is intended to be an employee stock
purchase plan, which qualifies for favorable tax treatment under Section 423 of
the Internal Revenue Code. The Plan allows participants to purchase common
shares at 85% of the lower of 1) the closing market price per share of the
Companys Common Stock on the last trading date of the plan period or 2) the
average of the closing market price of the Companys Common Stock on the first
and the last trading day of the plan period. Contributions of up to 15% of
base salary are made by each participant through payroll deductions. As of
December 28, 2003, 466,029 shares have been issued under this plan.

During the first quarter of 2003, the Company granted approximately
135,000 shares of restricted stock to certain executives and members of senior
management associated with a performance accelerated restricted stock plan in
order to provide retention incentives for these individuals. The grantees
rights in the restricted stock shall become fully vested on the sixth
anniversary of the grant date. Vesting can be accelerated on the attainment of
certain stock performance criteria that are measured against the total
shareholder return for the Standard and Poors 500 Restaurant Index for the
period from the grant date to the measurement date. The awards may vest as
early as three years from the grant date if the stock performance criteria are
met at that time. In the event that the employment of the individual by the
Company is terminated for any reason, no further vesting of restricted stock
units shall occur. Upon issuance of restricted stock awards, unearned
compensation is charged to shareholders equity for the fair value of the
restricted stock and recognized as compensation expense ratably over the
vesting periods, as applicable. Compensation cost related to these restricted
stock awards recognized by the Company during fiscal 2003 was approximately
$470,000.

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Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1999, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model. The weighted average assumptions used for
grants in each respective year is as follows:

|                                          |  |      |      |      |  |      |       |   |  |   |      |  
|----------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  | - | ---- | -
|                                          |  | 2003 |      | 2002 |  | 2001
|                                          |  |      |      |      |  |     
|Risk-free investment interest             |  |      | 4.0  | %    |  |      | 4.7   | % |  |   | 5.5  | %
|Expected life in years                    |  |      | 5.3  |      |  |      | 4.9   |   |  |   | 6.1  |  
|Expected volatility                       |  |      | 46.7 | %    |  |      | 50.7  | % |  |   | 49.6 | %
|Fair value of options granted (per share) |  | $    | 9.68 |      |  | $    | 10.69 |   |  | $ | 9.78 |  



|14. |  | Employee Benefit Plans
|--- |  | ----------------------

The Company has a 401(k) salary reduction and profit-sharing plan called
the CHUX Savings Plan (the Plan). Under the Plan, employees can make
contributions up to 15% of their annual compensation. The Company contributes
annually to the Plan an amount equal to 50% of employee contributions, subject
to certain limitations. Additional contributions are made at the discretion of
the Board of Directors. Company contributions vest at the rate of 20% each
year beginning after the employees initial year of employment. Company
contributions were approximately $500,000 in 2003, $500,000 in 2002, and
$550,000 in 2001.

The Company maintains a supplemental executive retirement plan for a
select group of management employees to provide supplemental retirement income
benefits through deferrals of salary, bonus and deferral of contributions which
cannot be made to the Companys 401(k) Plan due to Internal Revenue Code
limitations. Participants in this plan can contribute, on a pre-tax basis, up
to 50% of their base pay and 100% of their bonuses. The Company contributes
annually to this plan an amount equal to a matching formula of each
participants deferrals. Company contributions were approximately $230,000 in
2003, $203,000 in 2002, and $248,000 in 2001. The amount of the supplemental
executive retirement plan liability payable to the participants at December 28,
2003 and December 29, 2002 was $6,658,000 and $3,096,000, respectively, and is
recorded as Other Liabilities on the consolidated balance sheets.



|15. |  | Related-Party Transactions
|--- |  | --------------------------

At the beginning of 1999, the Company leased the land and building of four
of its restaurants from Two Mile Partners, a partnership whose partners were
David K. Wachtel, Jr., who owned 75% and was the managing partner of the
partnership and a former director and executive officer of the Company, and
Gregory L. Burns, the Companys chairman of the board and chief executive
officer, who owns 25% of the partnership. During 2000, the Company terminated
one of the leases. The three remaining leases were to expire at various times
through 2007, with options to renew for a term of 10 years. The Company
purchased the land and buildings for three of its restaurant sites from Two
Mile Partners during January 2002. See Note 18.

The aforementioned related-party transactions are reflected in the
consolidated financial statements as follows:

|                                    |                    |  |                |   |      |  |      |    |  |  |   |     | 
|----------------------------------- | ------------------ |  | -------------- | - | ---- |  | ---- | -- |  |  | - | --- | 
|                                    |                    |  | 2003           |   | 2002 |  | 2001
|                                    |                    |  |                |   |      |  |     
|                                    |                    |  | (in thousands)
|Consolidated Statements of Earnings |                    |  |                |   |      |  |      |    |  |  |   |    
|Restaurant operating costs:         |                    |  |                |   |      |  |      |    |  |  |   |    
|                                    | Rent expense       |  | $              | 0 |      |  | $    | 29 |  |  | $ | 330 | 
|                                    | Contingent rentals |  |                | 0 |      |  |      | 15 |  |  |   | 160 | 

During 2001, the Company paid a portion of the cash bonuses to its
executive officers on a quarterly basis as an advance on the cash bonuses that
the Company expected to pay for 2001. The Company did not achieve the targeted
level of earnings during 2001 necessary for the payment of cash bonuses to
these executive officers. Each of the executive officers has agreed to repay
the amounts paid to such officer as a cash bonus during 2001. The total amount
of the loans to these executive officers was approximately $495,000. The loans
have a three-year term with principal and accrued

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interest, at the rate of 5%
per annum, payable at the end of the term. During 2003, one of the officers
paid off his loan. The remaining balance at December 28, 2003 was
approximately $410,000.



|16. |  | Consolidated Statements of Cash Flows
|--- |  | -------------------------------------

Supplemental disclosure of cash flow information is as follows:

|                                           |  |      |        |      |  |                |        |  |  |   |        | 
|------------------------------------------ |  | ---- | ------ | ---- |  | -------------- | ------ |  |  | - | ------ | 
|                                           |  | 2003 |        | 2002 |  | 2001          
|                                           |  |      |        |      |  |               
|                                           |  |      |        |      |  | (in thousands) |        |  |  |  
|Cash paid for interest                     |  | $    | 11,589 |      |  | $              | 5,828  |  |  | $ | 7,552  | 
|Additions to capitalized lease obligations |  |      | 20,046 |      |  |                | 8,749  |  |  |   | 10,559 | 
|Income taxes paid (net of refunds)         |  |      | 8,125  |      |  |                | 11,048 |  |  |   | 7,242  | 



|17. |  | Asset Impairment and Exit Costs
|--- |  | -------------------------------

During the third quarter of 2001, the Company decided to close five
stores. This decision followed a review of historical and projected cash flows
of the Companys stores in view of the difficult economic environment in which
the Company was operating. As a result of this decision, the Company
recognized a charge during the third quarter of 2001 for asset impairment and
exit costs totaling $5.8 million. This amount includes an asset impairment
charge of approximately $5.0 million related to building, leasehold improvement
and equipment write-downs, and an exit cost accrual of approximately $800,000
relating primarily to minimum property lease payments from the post-closure
date to the projected sublease date, if applicable, otherwise to the end of the
lease term. With respect to the asset impairment charge, fair value was
determined by discounting projected cash flow for each location, which is the
lowest level of identifiable cash flows largely independent of the cash flows
of other groups of assets, over its remaining operating period, including the
estimated proceeds from the disposition of such assets. The exit cost accrual
is reflected in accrued expenses on the accompanying consolidated balance sheet
at December 28, 2003. The balance in the exit cost accrual at December 28,
2003 was approximately $220,000.



|18. |  | Litigation and Contingencies
|--- |  | ----------------------------

In September 2003, the Company became aware that customers and employees
at one of its OCharleys restaurants located in Knoxville, Tennessee were
exposed to the Hepatitis A virus, which resulted in a number of employees and
customers becoming infected. The Company has worked closely with the Knox
County Health Department and the Centers for Disease Control and Prevention
since it became aware of this incident and has cooperated fully with their
directives and recommendations. The Company is aware of 81 individuals who
have contracted the Hepatitis A virus, most of whom have been linked to the
Knoxville restaurant during the time of the outbreak. As of the date of this
filing, the Company is also aware of 31 lawsuits that have been filed against
it to date, all of which have been filed in the circuit court for Knox County,
Tennessee, that allege injuries or fear of injuries from the Hepatitis A
incident. A number of these suits seek substantial damages, including treble
damages under Tennessee consumer protection laws and punitive damages, and some
of which seek to be certified as class actions. One of the lawsuits was filed
by an individual who contracted Hepatitis A and died following the filing of
his lawsuit. This suit has been amended to seek compensatory damages not to
exceed $7.5 million and punitive damages not to exceed $10.0 million alleging
wrongful death. Other plaintiffs have alleged significant health concerns,
including ailments requiring hospitalization.

The Company is also aware of an outbreak of Hepatitis A linked to numerous
independent restaurants and restaurant chains located in Georgia, including two
of its OCharleys restaurants. The Company has received the preliminary
report of the Georgia Division of Public Health indicating that ten persons who
contracted the Hepatitis A virus in Georgia stated that they had eaten at the
Centerville, Georgia or the Macon, Georgia OCharleys restaurant. Each of the
Knox County Health Department, the Georgia Division of Public Health, the
Centers for Disease Control and Prevention and the Food and Drug Administration
has tentatively associated the recent outbreaks of the Hepatitis A virus
affecting a number of restaurants, including OCharleys, to eating green
onions (scallions).

While the Company intends to vigorously defend the litigation that has
been filed against it, it is not able to predict the outcome of the litigation
that has been filed against it or that may be filed against it in the future
relating to the Hepatitis A outbreak or the amounts that it may be required to
pay to settle that litigation or to satisfy any adverse judgments that may be
rendered against it. The Company has liability insurance; however, it cannot
assure you that its insurance carriers will reimburse it for any loss or
liability it suffers in connection with this incident or that its insurance
will be sufficient to cover any loss or liability. If the Company suffers
losses or liabilities in excess of its insurance coverage or if its insurance
does not cover those losses or liabilities, there could be a material adverse
effect on its results of operations and financial condition.

The Company has
a foodborne illness policy that reimburses the Company for certain lost profits
associated with this type of incident. The Company is currently
developing supporting documentation for the claim associated with this
incident. The
Company has not recognized any recoveries under its foodborne illness
policy. At
this time, the Company cannot reasonably estimate the amount or timing of the
settlement of this claim.

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In November 2000, the Company was sued by Two Mile Partners in the circuit
court for Montgomery County, Tennessee. Two Mile Partners is a Tennessee general partnership whose
partners were the late David K. Wachtel, Jr., who owned 75% and was the
managing partner of the partnership and a former director and executive officer
of the Company, and Gregory L. Burns, who owns 25% of the partnership and is
chairman of the board and chief executive officer of the Company. Prior to Mr.
Wachtels death in November 2001, all decisions regarding the prosecution of
this suit by Two Mile Partners were made by Mr. Wachtel in his capacity as
managing partner. In the complaint, Two Mile Partners sought $1.5 million in
damages, plus interest, attorneys fees and costs as a result of our alleged
breach of a lease entered into in 1985 for a restaurant property owned by the
partnership and located in Clarksville, Tennessee. Two Mile Partners alleged
that the Company breached a continuous operation provision in the lease by
vacating the property in July 2000 and opening another OCharleys restaurant
in Clarksville, Tennessee.

In January 2002, the Company entered into a comprehensive settlement
agreement with Two Mile Partners settling all litigation and business matters
between the Company and Two Mile Partners. As a result of the settlement, (i)
the Company purchased restaurant properties located in Goodlettsville,
Murfreesboro and Clarksville, Tennessee that were leased from Two Mile Partners
for $1.7 million, $1.6 million and $1.0 million, respectively, (ii) the Company
terminated a lease with Two Mile Partners for a restaurant property located in
Bowling Green, Kentucky on which the Company formerly operated the Bowling
Green restaurant and sold Two Mile Partners an adjoining parcel of property
used for parking for a payment of $300,000, and (iii) Two Mile Partners
dismissed with prejudice the litigation pending against the Company in
consideration of a payment by the Company of $200,000.

Mr. Burns recused himself from the discussions and considerations by the
Company of any matters relating to the settlement. The Company believes that
it terminated the Clarksville lease in accordance with its terms and denies the
allegations contained in the complaint filed by Two Mile Partners.
Nevertheless, a special committee of the Board of Directors comprised of
disinterested directors approved the settlement and believed it was in the
Companys best interest to settle the litigation to avoid the expense,
uncertainty and distraction of this litigation.

In addition, the Company is a defendant from time to time in various other
legal proceedings arising in the ordinary course of its business, including
claims relating to workplace and employment matters, discrimination and similar
matters, claims resulting from slip and fall accidents and claims from
customers and employees alleging illness, injury or other food quality, health
or operational concerns. The Company does not believe that any of the other
legal proceedings pending against it will have a material adverse effect on its
financial condition. In addition, the Company may incur or accrue expenses
relating to legal proceedings, which may materially adversely affect its
results of operations.



|19. |  | Supplementary Condensed Consolidating Financial Information of Subsidiary
Guarantors
|--- |  | ------------------------------------------------------------------------------------

In the fourth quarter of 2003, the Company issued $125 million aggregate
principal amount of 9% Senior Subordinated Notes due 2013. The obligations of
the Company under the Senior Subordinated Notes are guaranteed by all of the
Companys subsidiaries, with the exception of certain minor subsidiaries. The
guarantees are made on a joint and several basis. The claims of creditors of
the non-guarantor subsidiaries have priority over the rights of the Company to
receive dividends or distributions from such subsidiaries. Presented below is
supplementary condensed consolidating financial information for the Company and
the subsidiary guarantors as of December 28, 2003 and December 29, 2002 and for
each of the three years in the period ended December 28, 2003.

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Condensed Consolidating Balance Sheet
As of December 28, 2003

|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |        |         | 
|----------------------------------------------------- | -------------------------------------------------------- | ------------------------- | -------------------------- | -------- | -------------- | ------- | ---------- | ------- | ---------------------- | ------- | ----------------- | -------- | ------------------ | -------- | ------- | ------- | ------ | ------- | 
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          | Minor Subsidiaries |          |         |         |       
|                                                      |                                                          |                           |                            |          |                |         |            |         | Subsidiary             |         | and Consolidating |          |                    |          |        
|                                                      |                                                          |                           |                            |          | Parent Company |         | Guarantors |         | Adjustments            |         | Consolidated     
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                  
|                                                      |                                                          |                           |                            |          |                |         |            |         | (Dollars in thousands) |         |                   |          |                   
|ASSETS                                                |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |        
|Current assets:                                       |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |        
|                                                      | Cash and cash equivalents                                |                           | $                          | 2,946    |                |         | $          | 6,628   |                        |         | $                 |         |                    |          | $       | 9,574   |       
|                                                      | Accounts receivable                                      |                           |                            | 3,190    |                |         |            | 4,859   |                        |         |                   |         |                    |          |         | 8,049   |       
|                                                      | Intercompany receivables (payable)                       |                           |                            | (116,014 | )              |         |            | 119,649 |                        |         |                   | (3,635   | )                  |          |         |        |       
|                                                      | Inventories                                              |                           |                            | 3,460    |                |         |            | 18,520  |                        |         |                   |         |                    |          |         | 21,980  |       
|                                                      | Deferred income taxes                                    |                           |                            | 3,021    |                |         |            | 384     |                        |         |                   |         |                    |          |         | 3,405   |       
|                                                      | Short-term notes receivable                              |                           |                            | 3,070    |                |         |            |        |                        |         |                   |         |                    |          |         | 3,070   |       
|                                                      | Other current assets                                     |                           |                            | 1,394    |                |         |            | 1,916   |                        |         |                   | 116      |                    |          |         | 3,426   |       
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |       
|                                                      |                                                          | Total current assets      |                            |          | (98,933        | )       |            |         | 151,956                |         |                   |          | (3,519             | )        |         |         | 49,504 |        
|Property and equipment, net                           |                                                          |                           | 343,641                    |          |                |         | 85,719     |         |                        |         | 1                 |          |                    |          | 429,361 |        
|Goodwill                                              |                                                          |                           |                           |          |                |         | 93,069     |         |                        |         |                  |          |                    |          | 93,069  |        
|Other intangible assets                               |                                                          |                           |                           |          |                |         | 25,921     |         |                        |         |                  |          |                    |          | 25,921  |        
|Other assets                                          |                                                          |                           | 218,985                    |          |                |         | 23,628     |         |                        |         | (220,233          | )        |                    |          | 22,380  |        
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |       
|Total assets                                          |                                                          | $                         | 463,693                    |          |                | $       | 380,293    |         |                        | $       | (223,751          | )        |                    | $        | 620,235 |        
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |       
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |        
|Current liabilities:                                  |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |        
|                                                      | Accounts payable                                         |                           | $                          | 6,841    |                |         | $          | 12,306  |                        |         | $                 | (3,760   | )                  |          | $       | 15,387  |       
|                                                      | Accrued payroll and related expenses                     |                           |                            | 7,550    |                |         |            | 4,058   |                        |         |                   |         |                    |          |         | 11,608  |       
|                                                      | Accrued expenses                                         |                           |                            | 10,264   |                |         |            | 9,274   |                        |         |                   | (32      | )                  |          |         | 19,506  |       
|                                                      | Deferred revenue                                         |                           |                            | 7,277    |                |         |            | 8,164   |                        |         |                   | 1        |                    |          |         | 15,442  |       
|                                                      | Federal, state and local taxes                           |                           |                            | (3,063   | )              |         |            | 11,900  |                        |         |                   | (1       | )                  |          |         | 8,836   |       
|                                                      | Current portion of long-term debt and
capitalized leases |                           |                            | 9,691    |                |         |            | 340     |                        |         |                   |         |                    |          |         | 10,031  |       
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |       
|                                                      |                                                          | Total current liabilities |                            |          | 38,560         |         |            |         | 46,042                 |         |                   |          | (3,792             | )        |         |         | 80,810 |        
|Long-term debt, net of current portion                |                                                          |                           | 180,906                    |          |                |         |           |         |                        |         | (15,761           | )        |                    |          | 165,145 |        
|Capitalized lease obligations, net of
current portion |                                                          |                           | 32,442                     |          |                |         | 2,010      |         |                        |         | 1                 |          |                    |          | 34,453  |        
|Deferred income taxes                                 |                                                          |                           | 7,355                      |          |                |         | (415       | )       |                        |         |                  |          |                    |          | 6,940   |        
|Other liabilities                                     |                                                          |                           | 21,188                     |          |                |         | 8,438      |         |                        |         | 126               |          |                    |          | 29,752  |        
|Shareholders equity:                                 |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |        
|                                                      | Common stock                                             |                           |                            | 169,629  |                |         |            | 168,469 |                        |         |                   | (168,090 | )                  |          |         | 170,008 |       
|                                                      | Accumulated other comprehensive loss,
net of tax         |                           |                            | (519     | )              |         |            |        |                        |         |                   |         |                    |          |         | (519    | )     
|                                                      | Unearned compensation expense                            |                           |                            | (2,351   | )              |         |            |        |                        |         |                   |         |                    |          |         | (2,351  | )     
|                                                      | Retained earnings                                        |                           |                            | 16,483   |                |         |            | 155,749 |                        |         |                   | (36,235  | )                  |          |         | 135,997 |       
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |       
|                                                      |                                                          |                           | Total shareholders equity |          |                | 183,242 |            |         |                        | 324,218 |                   |          |                    | (204,325 | )       |         |        | 303,135 | 
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |       
|Total liabilities and shareholders equity            |                                                          | $                         | 463,693                    |          |                | $       | 380,293    |         |                        | $       | (223,751          | )        |                    | $        | 620,235 |        
|                                                      |                                                          |                           |                            |          |                |         |            |         |                        |         |                   |          |                    |          |         |         |       

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Condensed Consolidating Balance Sheet
As of December 29, 2002

|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |        |         | 
|----------------------------------------------------- | -------------------------------------------------------- | ------------------------- | -------------------------- | ------- | -------------- | ------- | ---------- | ------ | ---------------------- | ------- | ----------------- | ------- | ------------ | ------- | ------- | ------- | ------ | ------- | 
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         | Minor        |         |         |         |       
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         | Subsidiaries |         |         |         |       
|                                                      |                                                          |                           |                            |         |                |         |            |        | Subsidiary             |         | and Consolidating |         |              |         |        
|                                                      |                                                          |                           |                            |         | Parent Company |         | Guarantors |        | Adjustments            |         | Consolidated     
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                  
|                                                      |                                                          |                           |                            |         |                |         |            |        | (Dollars in thousands) |         |                   |         |             
|ASSETS                                                |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |        
|Current assets:                                       |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |        
|                                                      | Cash and cash equivalents                                |                           | $                          | 3,292   |                |         | $          | 5,019  |                        |         | $                 |        |              |         | $       | 8,311   |       
|                                                      | Accounts receivable                                      |                           |                            | 2,888   |                |         |            | 1,912  |                        |         |                   |        |              |         |         | 4,800   |       
|                                                      | Intercompany receivables (payable)                       |                           |                            | (75,700 | )              |         |            | 82,717 |                        |         |                   | (7,017  | )            |         |         |        |       
|                                                      | Inventories                                              |                           |                            | 2,939   |                |         |            | 15,361 |                        |         |                   |        |              |         |         | 18,300  |       
|                                                      | Deferred income taxes                                    |                           |                            | 4,255   |                |         |            |       |                        |         |                   |        |              |         |         | 4,255   |       
|                                                      | Short-term notes receivable                              |                           |                            | 2,950   |                |         |            |       |                        |         |                   |        |              |         |         | 2,950   |       
|                                                      | Other current assets                                     |                           |                            | 1,832   |                |         |            | 457    |                        |         |                   | (1      | )            |         |         | 2,288   |       
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |       
|                                                      |                                                          | Total current assets      |                            |         | (57,544        | )       |            |        | 105,466                |         |                   |         | (7,018       | )       |         |         | 40,904 |        
|Property and equipment, net                           |                                                          |                           | 348,439                    |         |                |         | 33,114     |        |                        |         |                  |         |              |         | 381,553 |        
|Other assets                                          |                                                          |                           | 46,664                     |         |                |         | 17,664     |        |                        |         | (57,994           | )       |              |         | 6,334   |        
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |       
|Total assets                                          |                                                          | $                         | 337,559                    |         |                | $       | 156,244    |        |                        | $       | (65,012           | )       |              | $       | 428,791 |        
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |       
|LIABILITIES AND SHAREHOLDERS EQUITY                  |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |        
|Current liabilities:                                  |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |        
|                                                      | Accounts payable                                         |                           | $                          | 14,574  |                |         | $          | 5,827  |                        |         | $                 | (7,117  | )            |         | $       | 13,284  |       
|                                                      | Accrued payroll and related expenses                     |                           |                            | 10,078  |                |         |            | 3,250  |                        |         |                   |        |              |         |         | 13,328  |       
|                                                      | Accrued expenses                                         |                           |                            | 7,887   |                |         |            | 2,251  |                        |         |                   | (171    | )            |         |         | 9,967   |       
|                                                      | Deferred revenue                                         |                           |                            | 7,213   |                |         |            | 1,499  |                        |         |                   |        |              |         |         | 8,712   |       
|                                                      | Federal, state and local taxes                           |                           |                            | 2,779   |                |         |            | 5,816  |                        |         |                   |        |              |         |         | 8,595   |       
|                                                      | Current portion of long-term debt and
capitalized leases |                           |                            | 7,926   |                |         |            | 89     |                        |         |                   |        |              |         |         | 8,015   |       
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |       
|                                                      |                                                          | Total current liabilities |                            |         | 50,457         |         |            |        | 18,732                 |         |                   |         | (7,288       | )       |         |         | 61,901 |        
|Long-term debt, net of current portion                |                                                          |                           | 112,324                    |         |                |         |           |        |                        |         | (14,160           | )       |              |         | 98,164  |        
|Capitalized lease obligations, net of
current portion |                                                          |                           | 25,341                     |         |                |         | 582        |        |                        |         |                  |         |              |         | 25,923  |        
|Deferred income taxes                                 |                                                          |                           | 7,796                      |         |                |         |           |        |                        |         |                  |         |              |         | 7,796   |        
|Other liabilities                                     |                                                          |                           | 1,644                      |         |                |         | 3,299      |        |                        |         | 100               |         |              |         | 5,043   |        
|Shareholders equity:                                 |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |        
|                                                      | Common stock                                             |                           |                            | 115,793 |                |         |            | 44,034 |                        |         |                   | (43,656 | )            |         |         | 116,171 |       
|                                                      | Accumulated other comprehensive loss,
net of tax         |                           |                            | (931    | )              |         |            |       |                        |         |                   |        |              |         |         | (931    | )     
|                                                      | Retained earnings                                        |                           |                            | 25,135  |                |         |            | 89,597 |                        |         |                   | (8      | )            |         |         | 114,724 |       
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |       
|                                                      |                                                          |                           | Total shareholders equity |         |                | 139,997 |            |        |                        | 133,631 |                   |         |              | (43,664 | )       |         |        | 229,964 | 
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |       
|Total liabilities and shareholders equity            |                                                          | $                         | 337,559                    |         |                | $       | 156,244    |        |                        | $       | (65,012           | )       |              | $       | 428,791 |        
|                                                      |                                                          |                           |                            |         |                |         |            |        |                        |         |                   |         |              |         |         |         |       

63



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Condensed Consolidating Statement of Earnings
For the Year Ended December 28, 2003

|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------ | -------------------------- | -------------------------- | ------ | -------------- | ------- | ---------- | ------- | -------------- | ------ | ----------------- | -------- | ------------ | ----- | ------- | ------ | ------- | ------- | 
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          | Minor        |       |         |        |        
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          | Subsidiaries |       |         |        |        
|                                                                                     |                                                  |                            |                            |        |                |         |            |         | Subsidiary     |        | and Consolidating |          |              |       |        
|                                                                                     |                                                  |                            |                            |        | Parent Company |         | Guarantors |         | Adjustments    |        | Consolidated     
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                  
|                                                                                     |                                                  |                            |                            |        |                |         |            |         | (In thousands) |        |                   |          |              |       |         |        |        
|Revenues:                                                                            |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |       
|                                                                                     |                                                  | Restaurant sales           |                            | $      | 467,141        |         |            | $       | 264,673        |        |                   | $        | 21,926       |       |         | $      | 753,740 |        
|                                                                                     |                                                  | Commissary sales           |                            |        |               |         |            |         | 161,537        |        |                   |          | (156,266     | )     |         |        | 5,271   |        
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |        
|                                                                                     |                                                  |                            | 467,141                    |        |                |         | 426,210    |         |                |        | (134,340          | )        |              |       | 759,011 |       
|Costs and expenses:                                                                  |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |       
|                                                                                     | Cost of restaurant sales:                        |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |        
|                                                                                     |                                                  |                            | Cost of food and beverage  |        |                | 141,468 |            |         |                | 79,474 |                   |          |              | 187   |         |        |         | 221,129 | 
|                                                                                     |                                                  |                            | Payroll and benefits       |        |                | 160,768 |            |         |                | 85,965 |                   |          |              | 4,846 |         |        |         | 251,579 | 
|                                                                                     |                                                  |                            | Restaurant operating costs |        |                | 82,339  |            |         |                | 50,400 |                   |          |              | 5,734 |         |        |         | 138,473 | 
|                                                                                     | Cost of commissary sales                         |                            |                            |       |                |         |            | 152,293 |                |        |                   | (147,323 | )            |       |         | 4,970  |        
|                                                                                     | Advertising, general and administrative
expenses |                            |                            | 2,658  |                |         |            | 50,835  |                |        |                   |         |              |       |         | 53,493 |        
|                                                                                     | Depreciation and amortization                    |                            |                            | 26,965 |                |         |            | 9,395   |                |        |                   |         |              |       |         | 36,360 |        
|                                                                                     | Preopening costs                                 |                            |                            | 4,930  |                |         |            | 1,407   |                |        |                   |         |              |       |         | 6,337  |        
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |        
|                                                                                     |                                                  |                            | 419,128                    |        |                |         | 429,769    |         |                |        | (136,556          | )        |              |       | 712,341 |       
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |        
|Income from operations                                                               |                                                  |                            | 48,013                     |        |                |         | (3,559     | )       |                |        | 2,216             |          |              |       | 46,670  |       
|Other (income) expense:                                                              |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |       
|                                                                                     |                                                  | Interest expense, net      |                            |        | 13,289         |         |            |         | 864            |        |                   |          |             |       |         |        | 14,153  |        
|                                                                                     |                                                  | Debt extinguishment charge |                            |        | 1,800          |         |            |         |               |        |                   |          |             |       |         |        | 1,800   |        
|                                                                                     |                                                  | Other, net                 |                            |        | 46,450         |         |            |         | (47,102        | )      |                   |          |             |       |         |        | (652    | )      
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |        
|                                                                                     |                                                  |                            | 61,539                     |        |                |         | (46,238    | )       |                |        |                  |          |              |       | 15,301  |       
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |        
|Earnings before income taxes and cumulative
effect of change in accounting principle |                                                  |                            | (13,526                    | )      |                |         | 42,679     |         |                |        | 2,216             |          |              |       | 31,369  |       
|Income taxes                                                                         |                                                  |                            | (4,352                     | )      |                |         | 13,735     |         |                |        | 713               |          |              |       | 10,096  |       
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |        
|Net earnings                                                                         |                                                  | $                          | (9,174                     | )      |                | $       | 28,944     |         |                | $      | 1,503             |          |              | $     | 21,273  |       
|                                                                                     |                                                  |                            |                            |        |                |         |            |         |                |        |                   |          |              |       |         |        |         |        

64



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##### Table of Contents



Condensed Consolidating Statement of Earnings
For the Year Ended December 29, 2002

|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |         | 
|------------------------------------------------------------------------------------ | ------------------------------------------------ | --------------------- | -------------------------- | ------ | -------------- | ------- | ---------- | ------- | -------------- | ------ | ----------------- | -------- | ------------ | ------ | ------- | ------ | ------- | ------- | 
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          | Minor        |        |         |        |        
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          | Subsidiaries |        |         |        |        
|                                                                                     |                                                  |                       |                            |        |                |         |            |         | Subsidiary     |        | and Consolidating |          |              |        |        
|                                                                                     |                                                  |                       |                            |        | Parent Company |         | Guarantors |         | Adjustments    |        | Consolidated     
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                  
|                                                                                     |                                                  |                       |                            |        |                |         |            |         | (In thousands) |        |                   |          |              |        |         |        |        
|Revenues:                                                                            |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |       
|                                                                                     |                                                  | Restaurant sales      |                            | $      | 423,218        |         |            | $       | 57,782         |        |                   | $        | 14,112       |        |         | $      | 495,112 |        
|                                                                                     |                                                  | Commissary sales      |                            |        |               |         |            |         | 138,075        |        |                   |          | (133,275     | )      |         |        | 4,800   |        
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|                                                                                     |                                                  |                       | 423,218                    |        |                |         | 195,857    |         |                |        | (119,163          | )        |              |        | 499,912 |       
|Costs and expenses:                                                                  |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |       
|                                                                                     | Cost of restaurant sales:                        |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |        
|                                                                                     |                                                  |                       | Cost of food and beverage  |        |                | 123,642 |            |         |                | 19,599 |                   |          |              | (2,664 | )       |        |         | 140,577 | 
|                                                                                     |                                                  |                       | Payroll and benefits       |        |                | 136,561 |            |         |                | 14,651 |                   |          |              | 3,099  |         |        |         | 154,311 | 
|                                                                                     |                                                  |                       | Restaurant operating costs |        |                | 67,853  |            |         |                | 14,295 |                   |          |              | 3,613  |         |        |         | 85,761  | 
|                                                                                     | Cost of commissary sales                         |                       |                            |       |                |         |            | 129,096 |                |        |                   | (124,608 | )            |        |         | 4,488  |        
|                                                                                     | Advertising, general and administrative
expenses |                       |                            | 1,929  |                |         |            | 35,748  |                |        |                   |         |              |        |         | 37,677 |        
|                                                                                     | Depreciation and amortization                    |                       |                            | 23,276 |                |         |            | 2,251   |                |        |                   |         |              |        |         | 25,527 |        
|                                                                                     | Preopening costs                                 |                       |                            | 4,422  |                |         |            | 652     |                |        |                   |         |              |        |         | 5,074  |        
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|                                                                                     |                                                  |                       | 357,683                    |        |                |         | 216,292    |         |                |        | (120,560          | )        |              |        | 453,415 |       
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|Income from operations                                                               |                                                  |                       | 65,535                     |        |                |         | (20,435    | )       |                |        | 1,397             |          |              |        | 46,497  |       
|Other (income) expense:                                                              |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |       
|                                                                                     |                                                  | Interest expense, net |                            |        | 4,905          |         |            |         | 651            |        |                   |          |             |        |         |        | 5,556   |        
|                                                                                     |                                                  | Other, net            |                            |        | 42,114         |         |            |         | (42,232        | )      |                   |          |             |        |         |        | (118    | )      
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|                                                                                     |                                                  |                       | 47,019                     |        |                |         | (41,581    | )       |                |        |                  |          |              |        | 5,438   |       
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|Earnings before income taxes and cumulative
effect of change in accounting principle |                                                  |                       | 18,516                     |        |                |         | 21,146     |         |                |        | 1,397             |          |              |        | 41,059  |       
|Income taxes                                                                         |                                                  |                       | 6,434                      |        |                |         | 7,348      |         |                |        | 486               |          |              |        | 14,268  |       
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|Earnings before cumulative effect of change in
accounting principle                  |                                                  |                       | 12,082                     |        |                |         | 13,798     |         |                |        | 911               |          |              |        | 26,791  |       
|Cumulative effect of change in accounting
principle, net of tax                      |                                                  |                       |                           |        |                |         | (6,123     | )       |                |        |                  |          |              |        | (6,123  | )     
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|Net earnings                                                                         |                                                  | $                     | 12,082                     |        |                | $       | 7,675      |         |                | $      | 911               |          |              | $      | 20,668  |       
|                                                                                     |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        

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##### Table of Contents



Condensed Consolidating Statement of Earnings
For the Year Ended December 30, 2001

|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |         | 
|---------------------------- | ------------------------------------------------ | --------------------- | -------------------------- | ------ | -------------- | ------- | ---------- | ------- | -------------- | ------ | ----------------- | -------- | ------------ | ------ | ------- | ------ | ------- | ------- | 
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          | Minor        |        |         |        |        
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          | Subsidiaries |        |         |        |        
|                             |                                                  |                       |                            |        |                |         |            |         | Subsidiary     |        | and Consolidating |          |              |        |        
|                             |                                                  |                       |                            |        | Parent Company |         | Guarantors |         | Adjustments    |        | Consolidated     
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                  
|                             |                                                  |                       |                            |        |                |         |            |         | (In thousands) |        |                   |          |              |        |         |        |        
|Revenues:                    |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |       
|                             |                                                  | Restaurant sales      |                            | $      | 377,377        |         |            | $       | 63,498         |        |                   | $        |             |        |         | $      | 440,875 |        
|                             |                                                  | Commissary sales      |                            |        |               |         |            |         | 124,156        |        |                   |          | (120,100     | )      |         |        | 4,056   |        
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|                             |                                                  |                       | 377,377                    |        |                |         | 187,654    |         |                |        | (120,100          | )        |              |        | 444,931 |       
|Costs and expenses:          |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |       
|                             | Cost of restaurant sales:                        |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |        
|                             |                                                  |                       | Cost of food and beverage  |        |                | 113,878 |            |         |                | 22,507 |                   |          |              | (6,856 | )       |        |         | 129,529 | 
|                             |                                                  |                       | Payroll and benefits       |        |                | 122,454 |            |         |                | 15,555 |                   |          |              |       |         |        |         | 138,009 | 
|                             |                                                  |                       | Restaurant operating costs |        |                | 60,252  |            |         |                | 16,537 |                   |          |              | (468   | )       |        |         | 76,321  | 
|                             | Cost of commissary sales                         |                       |                            |       |                |         |            | 116,584 |                |        |                   | (112,776 | )            |        |         | 3,808  |        
|                             | Advertising, general and
administrative
expenses |                       |                            | 1,949  |                |         |            | 28,030  |                |        |                   |         |              |        |         | 29,979 |        
|                             | Depreciation and amortization                    |                       |                            | 19,971 |                |         |            | 2,164   |                |        |                   |         |              |        |         | 22,135 |        
|                             | Preopening costs                                 |                       |                            | 5,232  |                |         |            | 422     |                |        |                   |         |              |        |         | 5,654  |        
|                             | Asset impairment and exit costs                  |                       |                            | 5,798  |                |         |            |        |                |        |                   |         |              |        |         | 5,798  |        
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|                             |                                                  |                       | 329,534                    |        |                |         | 201,799    |         |                |        | (120,100          | )        |              |        | 411,233 |       
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|Income from operations       |                                                  |                       | 47,843                     |        |                |         | (14,145    | )       |                |        |                  |          |              |        | 33,698  |       
|Other (income) expense:      |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |       
|                             |                                                  | Interest expense, net |                            |        | 6,254          |         |            |         | 356            |        |                   |          |             |        |         |        | 6,610   |        
|                             |                                                  | Other, net            |                            |        | 37,463         |         |            |         | (37,274        | )      |                   |          |             |        |         |        | 189     |        
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|                             |                                                  |                       | 43,717                     |        |                |         | (36,918    | )       |                |        |                  |          |              |        | 6,799   |       
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|Earnings before income taxes |                                                  |                       | 4,126                      |        |                |         | 22,773     |         |                |        |                  |          |              |        | 26,899  |       
|Income taxes                 |                                                  |                       | 1,434                      |        |                |         | 7,913      |         |                |        |                  |          |              |        | 9,347   |       
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        
|Net earnings                 |                                                  | $                     | 2,692                      |        |                | $       | 14,860     |         |                | $      |                  |          |              | $      | 17,552  |       
|                             |                                                  |                       |                            |        |                |         |            |         |                |        |                   |          |              |        |         |        |         |        

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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Year Ended December 28, 2003

|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | -------- | -------------- | ------ | ---------- | ------- | -------------- | ------- | ----------------- | ---- | ------------ | ------ | - | -------- | -------- | ------ | -
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      | Minor        |        |   |          |         
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      | Subsidiaries |        |   |          |         
|                                                   |                                                                                      |                                                                     |          |                |        |            |         | Subsidiary     |         | and Consolidating |      |              |        |  
|                                                   |                                                                                      |                                                                     |          | Parent Company |        | Guarantors |         | Adjustments    |         | Consolidated     
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                  
|                                                   |                                                                                      |                                                                     |          |                |        |            |         | (In thousands) |         |                   |      |              |        |   |          |         
|Cash flows from operating activities:              |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |         
|                                                   | Net earnings                                                                         |                                                                     | $        | (9,174         | )      |            | $       | 28,944         |         |                   | $    | 1,503        |        |   | $        | 21,273   |       
|                                                   | Adjustments to reconcile net earnings to net
cash
provided by operating activities:  |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       
|                                                   |                                                                                      | Depreciation and amortization  property
and equipment and goodwill |          |                | 26,965 |            |         |                | 9,395   |                   |      |              |       |   |          |          | 36,360 |  
|                                                   |                                                                                      | Debt
extinguishment charge                                          |          |                | 1,800  |            |         |                |        |                   |      |              |       |   |          |          | 1,800  |  
|                                                   |                                                                                      | Amortization of debt issuance costs                                 |          |                | 1,184  |            |         |                |        |                   |      |              |       |   |          |          | 1,184  |  
|                                                   |                                                                                      | Deferred income taxes                                               |          |                | 542    |            |         |                |        |                   |      |              |       |   |          |          | 542    |  
|                                                   |                                                                                      | Compensation expense related to restricted
stock plans              |          |                | 470    |            |         |                |        |                   |      |              |       |   |          |          | 470    |  
|                                                   |                                                                                      | (Gain) loss on the sale and involuntary
conversion of assets        |          |                | (415   | )          |         |                | (8      | )                 |      |              |       |   |          |          | (423   | )
|                                                   | Changes in assets and liabilities:                                                   |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       
|                                                   |                                                                                      | Accounts receivable                                                 |          |                | (302   | )          |         |                | (1,659  | )                 |      |              |       |   |          |          | (1,961 | )
|                                                   |                                                                                      | Inventories                                                         |          |                | (522   | )          |         |                | (102    | )                 |      |              |       |   |          |          | (624   | )
|                                                   |                                                                                      | Other current assets                                                |          |                | 438    |            |         |                | 205     |                   |      |              | (117   | ) |          |          | 526    |  
|                                                   |                                                                                      | Accounts payable                                                    |          |                | (7,732 | )          |         |                | 3,995   |                   |      |              | 3,356  |   |          |          | (381   | )
|                                                   |                                                                                      | Deferred revenue                                                    |          |                | 64     |            |         |                | 2,971   |                   |      |              |       |   |          |          | 3,035  |  
|                                                   |                                                                                      | Accrued payroll and other accrued expenses                          |          |                | 30,775 |            |         |                | (25,739 | )                 |      |              | (3,803 | ) |          |          | 1,233  |  
|                                                   | Tax benefit derived from exercise of stock
options                                   |                                                                     |          | 4,692          |        |            |         |               |         |                   |      |             |        |   |          | 4,692    |       
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       
|                                                   |                                                                                      |                                                                     | 48,785   |                |        |            | 18,002  |                |         |                   | 939  |              |        |   | 67,726   |         
|Cash flows from investing activities:              |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |         
|                                                   | Additions to property and equipment                                                  |                                                                     |          | (50,905        | )      |            |         | (17,256        | )       |                   |      | 563          |        |   |          | (67,598  | )     
|                                                   | Acquisition of company, net of cash acquired                                         |                                                                     |          | (114,286       | )      |            |         | (1             | )       |                   |      |             |        |   |          | (114,287 | )     
|                                                   | Proceeds from the sale and involuntary
conversion of assets                          |                                                                     |          | 3,704          |        |            |         | 20             |         |                   |      |             |        |   |          | 3,724    |       
|                                                   | Other, net                                                                           |                                                                     |          | 1,203          |        |            |         | 844            |         |                   |      | (1,502       | )      |   |          | 545      |       
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       
|                                                   |                                                                                      |                                                                     | (160,284 | )              |        |            | (16,393 | )              |         |                   | (939 | )            |        |   | (177,616 | )       
|Cash flows from financing activities:              |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |         
|                                                   | Proceeds from long-term debt                                                         |                                                                     |          | 265,121        |        |            |         |               |         |                   |      |             |        |   |          | 265,121  |       
|                                                   | Payments on long-term debt and capitalized
lease obligations                         |                                                                     |          | (207,639       | )      |            |         |               |         |                   |      |             |        |   |          | (207,639 | )     
|                                                   | Proceeds from sale and lease-back transactions                                       |                                                                     |          | 59,097         |        |            |         |               |         |                   |      |             |        |   |          | 59,097   |       
|                                                   | Debt issuance costs                                                                  |                                                                     |          | (10,898        | )      |            |         |               |         |                   |      |              |        |   |          | (10,898  | )     
|                                                   | Exercise of employee incentive stock options
and issuances under stock purchase plan |                                                                     |          | 5,012          |        |            |         |               |         |                   |      |             |        |   |          | 5,012    |       
|                                                   | Restricted stock                                                                     |                                                                     |          | 460            |        |            |         |               |         |                   |      |             |        |   |          | 460      |       
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       
|                                                   |                                                                                      |                                                                     | 111,153  |                |        |            |        |                |         |                   |     |              |        |   | 111,153  |         
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       
|(Decrease) Increase in cash and cash equivalents   |                                                                                      |                                                                     | (346     | )              |        |            | 1,609   |                |         |                   |     |              |        |   | 1,263    |         
|Cash and cash equivalents at beginning of the year |                                                                                      |                                                                     | 3,292    |                |        |            | 5,019   |                |         |                   |     |              |        |   | 8,311    |         
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       
|Cash and cash equivalents at end of the year       |                                                                                      | $                                                                   | 2,946    |                |        | $          | 6,628   |                |         | $                 |     |              |        | $ | 9,574    |         
|                                                   |                                                                                      |                                                                     |          |                |        |            |         |                |         |                   |      |              |        |   |          |          |       

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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Year Ended December 29, 2002

|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ------- | -------------- | ------ | ---------- | ------ | -------------- | ------- | ----------------- | ---- | ------------ | -- | - | ------- | ------- | ------ | -
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      | Minor        |    |   |         |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      | Subsidiaries |    |   |         |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |        | Subsidiary     |         | and Consolidating |      |              |    |  
|                                                   |                                                                                      |                                                                     |         | Parent Company |        | Guarantors |        | Adjustments    |         | Consolidated     
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                  
|                                                   |                                                                                      |                                                                     |         |                |        |            |        | (In thousands) |         |                   |      |              |    |   |         |        
|Cash flows from operating activities:              |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |        
|                                                   | Net earnings                                                                         |                                                                     | $       | 12,082         |        |            | $      | 7,675          |         |                   | $    | 911          |    |   | $       | 20,668  |       
|                                                   | Cumulative effect of change in accounting
principle, net                             |                                                                     |         |               |        |            |        | 6,123          |         |                   |      |             |    |   |         | 6,123   |       
|                                                   | Adjustments to reconcile net earnings to
net cash provided by operating
activities:  |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       
|                                                   |                                                                                      | Depreciation and amortization  property
and equipment and goodwill |         |                | 23,276 |            |        |                | 2,251   |                   |      |              |   |   |         |         | 25,527 |  
|                                                   |                                                                                      | Amortization of debt issuance costs                                 |         |                | 380    |            |        |                |        |                   |      |              |   |   |         |         | 380    |  
|                                                   |                                                                                      | Deferred income taxes                                               |         |                | 1,845  |            |        |                |        |                   |      |              |   |   |         |         | 1,845  |  
|                                                   |                                                                                      | (Gain) loss on the sale and involuntary
conversion of assets        |         |                | (63    | )          |        |                |        |                   |      |              |   |   |         |         | (63    | )
|                                                   | Changes in assets and liabilities:                                                   |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       
|                                                   |                                                                                      | Accounts receivable                                                 |         |                | (305   | )          |        |                | (147    | )                 |      |              |   |   |         |         | (452   | )
|                                                   |                                                                                      | Inventories                                                         |         |                | (486   | )          |        |                | 474     |                   |      |              |   |   |         |         | (12    | )
|                                                   |                                                                                      | Other current assets                                                |         |                | (499   | )          |        |                | (178    | )                 |      |              |   |   |         |         | (677   | )
|                                                   |                                                                                      | Accounts payable                                                    |         |                | 13,883 |            |        |                | (11,926 | )                 |      |              | (7 | ) |         |         | 1,950  |  
|                                                   |                                                                                      | Deferred revenue                                                    |         |                | 3,112  |            |        |                | 626     |                   |      |              |   |   |         |         | 3,738  |  
|                                                   |                                                                                      | Accrued payroll and other accrued expenses                          |         |                | 3,150  |            |        |                | 1,357   |                   |      |              | 7  |   |         |         | 4,514  |  
|                                                   | Tax benefit derived from exercise of stock
options                                   |                                                                     |         | 1,100          |        |            |        |               |         |                   |      |             |    |   |         | 1,100   |       
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       
|                                                   |                                                                                      |                                                                     | 57,475  |                |        |            | 6,255  |                |         |                   | 911  |              |    |   | 64,641  |        
|Cash flows from investing activities:              |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |        
|                                                   | Additions to property and equipment                                                  |                                                                     |         | (64,989        | )      |            |        | (4,722         | )       |                   |      |             |    |   |         | (69,711 | )     
|                                                   | Proceeds from the sale and involuntary
conversion of assets                          |                                                                     |         | 2,018          |        |            |        |               |         |                   |      |             |    |   |         | 2,018   |       
|                                                   | Other, net                                                                           |                                                                     |         | 80             |        |            |        |               |         |                   |      | (911         | )  |   |         | (831    | )     
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       
|                                                   |                                                                                      |                                                                     | (62,891 | )              |        |            | (4,722 | )              |         |                   | (911 | )            |    |   | (68,524 | )      
|Cash flows from financing activities:              |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |        
|                                                   | Proceeds from long-term debt                                                         |                                                                     |         | 9,000          |        |            |        |               |         |                   |      |             |    |   |         | 9,000   |       
|                                                   | Payments on long-term debt and capitalized
lease obligations                         |                                                                     |         | (7,610         | )      |            |        |               |         |                   |      |             |    |   |         | (7,610  | )     
|                                                   | Exercise of employee incentive stock options
and issuances under stock purchase plan |                                                                     |         | 4,435          |        |            |        |               |         |                   |      |             |    |   |         | 4,435   |       
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       
|                                                   |                                                                                      |                                                                     | 5,825   |                |        |            |       |                |         |                   |     |              |    |   | 5,825   |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       
|Increase in cash and cash equivalents              |                                                                                      |                                                                     | 409     |                |        |            | 1,533  |                |         |                   |     |              |    |   | 1,942   |        
|Cash and cash equivalents at beginning of the
year |                                                                                      |                                                                     | 2,883   |                |        |            | 3,486  |                |         |                   |     |              |    |   | 6,369   |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       
|Cash and cash equivalents at end of the year       |                                                                                      | $                                                                   | 3,292   |                |        | $          | 5,019  |                |         | $                 |     |              |    | $ | 8,311   |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |        |                |         |                   |      |              |    |   |         |         |       

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Condensed Consolidating Statement of Cash Flows
For the Year Ended December 30, 2001

|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |        |  
|-------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ------- | -------------- | ------ | ---------- | ------- | -------------- | ------ | ----------------- | - | ------------ | ---- | - | ------- | ------- | ------ | -
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   | Minor        |      |   |         |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   | Subsidiaries |      |   |         |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |         | Subsidiary     |        | and Consolidating |   |              |      |  
|                                                   |                                                                                      |                                                                     |         | Parent Company |        | Guarantors |         | Adjustments    |        | Consolidated     
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                  
|                                                   |                                                                                      |                                                                     |         |                |        |            |         | (In thousands) |        |                   |   |              |      |   |         |        
|Cash flows from operating activities:              |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |        
|                                                   | Net earnings                                                                         |                                                                     | $       | 2,692          |        |            | $       | 14,860         |        |                   | $ |             |      |   | $       | 17,552  |       
|                                                   | Adjustments to reconcile net earnings to
net cash provided by operating
activities:  |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       
|                                                   |                                                                                      | Depreciation and amortization  property
and equipment and goodwill |         |                | 19,971 |            |         |                | 2,164  |                   |   |              |     |   |         |         | 22,135 |  
|                                                   |                                                                                      | Amortization of debt issuance costs                                 |         |                | 237    |            |         |                |       |                   |   |              |     |   |         |         | 237    |  
|                                                   |                                                                                      | Deferred income taxes                                               |         |                | (1,336 | )          |         |                |       |                   |   |              |     |   |         |         | (1,336 | )
|                                                   |                                                                                      | (Gain) loss on the sale and involuntary
conversion of assets        |         |                | 104    |            |         |                |       |                   |   |              |     |   |         |         | 104    |  
|                                                   |                                                                                      | Asset impairment and exit costs                                     |         |                | 5,798  |            |         |                |       |                   |   |              |     |   |         |         | 5,798  |  
|                                                   | Changes in assets and liabilities:                                                   |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       
|                                                   |                                                                                      | Accounts receivable                                                 |         |                | (177   | )          |         |                | (535   | )                 |   |              |     |   |         |         | (712   | )
|                                                   |                                                                                      | Inventories                                                         |         |                | (475   | )          |         |                | (5,208 | )                 |   |              |     |   |         |         | (5,683 | )
|                                                   |                                                                                      | Other current assets                                                |         |                | (2,129 | )          |         |                | (114   | )                 |   |              |     |   |         |         | (2,243 | )
|                                                   |                                                                                      | Accounts payable                                                    |         |                | 442    |            |         |                | (1,553 | )                 |   |              | (194 | ) |         |         | (1,305 | )
|                                                   |                                                                                      | Deferred revenue                                                    |         |                | 765    |            |         |                | 873    |                   |   |              |     |   |         |         | 1,638  |  
|                                                   |                                                                                      | Accrued payroll and other accrued expenses                          |         |                | 1,280  |            |         |                | 7,105  |                   |   |              | 194  |   |         |         | 8,579  |  
|                                                   | Tax benefit derived from exercise of stock
options                                   |                                                                     |         | 1,816          |        |            |         |               |        |                   |   |             |      |   |         | 1,816   |       
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       
|                                                   |                                                                                      |                                                                     | 28,988  |                |        |            | 17,592  |                |        |                   |  |              |      |   | 46,580  |        
|Cash flows from investing activities:              |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |        
|                                                   | Additions to property and equipment                                                  |                                                                     |         | (59,333        | )      |            |         | (14,134        | )      |                   |   |             |      |   |         | (73,467 | )     
|                                                   | Proceeds from the sale and involuntary
conversion of assets                          |                                                                     |         | 1,355          |        |            |         |               |        |                   |   |             |      |   |         | 1,355   |       
|                                                   | Other, net                                                                           |                                                                     |         | (732           | )      |            |         |               |        |                   |   |             |      |   |         | (732    | )     
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       
|                                                   |                                                                                      |                                                                     | (58,710 | )              |        |            | (14,134 | )              |        |                   |  |              |      |   | (72,844 | )      
|Cash flows from financing activities:              |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |        
|                                                   | Proceeds from long-term debt                                                         |                                                                     |         | 38,700         |        |            |         |               |        |                   |   |             |      |   |         | 38,700  |       
|                                                   | Payments on long-term debt and capitalized
lease obligations                         |                                                                     |         | (49,573        | )      |            |         |               |        |                   |   |             |      |   |         | (49,573 | )     
|                                                   | Debt issuance cost                                                                   |                                                                     |         | (659           | )      |            |         |               |        |                   |   |             |      |   |         | (659    | )     
|                                                   | Net proceeds from sale of common stock                                               |                                                                     |         | 41,744         |        |            |         |               |        |                   |   |             |      |   |         | 41,744  |       
|                                                   | Exercise of employee incentive stock options
and issuances under stock purchase plan |                                                                     |         | 5,022          |        |            |         |               |        |                   |   |             |      |   |         | 5,022   |       
|                                                   | Repurchase of common stock                                                           |                                                                     |         | (5,153         | )      |            |         |               |        |                   |   |             |      |   |         | (5,153  | )     
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       
|                                                   |                                                                                      |                                                                     | 30,081  |                |        |            |        |                |        |                   |  |              |      |   | 30,081  |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       
|Increase in cash and cash equivalents              |                                                                                      |                                                                     | 359     |                |        |            | 3,458   |                |        |                   |  |              |      |   | 3,817   |        
|Cash and cash equivalents at beginning of the
year |                                                                                      |                                                                     | 2,524   |                |        |            | 28      |                |        |                   |  |              |      |   | 2,552   |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       
|Cash and cash equivalents at end of the year       |                                                                                      | $                                                                   | 2,883   |                |        | $          | 3,486   |                |        | $                 |  |              |      | $ | 6,369   |        
|                                                   |                                                                                      |                                                                     |         |                |        |            |         |                |        |                   |   |              |      |   |         |         |       

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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed and
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures effectively and timely provide them with material information
relating to us and our consolidated subsidiaries required to be disclosed in
the reports we file or submit under the Exchange Act.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting
during our fiscal quarter ended December 28, 2003 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.




PART III




Item 10. Directors and Executive Officers of the Registrant.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 13, 2004, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the captions Corporate
Governance and Election of Directors information required by Item 10 of Form
10-K as to directors and executive officers of the Company and is incorporated
herein by reference. Pursuant to General Instruction G(3), certain information
concerning executive officers of the Company is included in Part I of this Form
10-K, under the caption Executive Officers of the Registrant.




Item 11. Executive Compensation.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 13, 2004, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption Executive
Compensation information required by Item 11 of Form 10-K and is incorporated
herein by reference.




Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 13, 2004, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the captions Security
Ownership of Certain Beneficial Owners and Election of Directors information
required by Item 12 of Form 10-K and is incorporated herein by reference.

Equity Compensation Plans

The table below sets forth the following information as of December 28,
2003 with respect to the compensation plans (including individual compensation
arrangements) under which the Companys equity securities are authorized for
issuance, aggregated by (i) all compensation plans previously approved by the
Companys security holders and (ii) all compensation plans not previously
approved by the Companys security holders:



| |  |  | the number of securities to be issued upon the exercise of outstanding awards;   
| | - |  | ---------------------------------------------------------------------------------
|
| |  |  | the weighted-average exercise price of the outstanding awards; and               
|
| |  |  | the number of securities remaining available for future issuance under the plans.

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All of the Companys stock compensation plans have been approved by the
companys shareholders.

|                                                           |  |                   |           |                   |  |                    |       |                     |  |                     |         | 
|---------------------------------------------------------- |  | ----------------- | --------- | ----------------- |  | ------------------ | ----- | ------------------- |  | ------------------- | ------- | 
|                                                           |  |                   |           |                   |  |                    |       |                     |  | Number of          
|                                                           |  |                   |           |                   |  |                    |       |                     |  | securities         
|                                                           |  |                   |           |                   |  |                    |       |                     |  | remaining available
|                                                           |  | Number of         |           |                   |  |                    |       | for future issuance
|                                                           |  | securities to be  |           |                   |  |                    |       | under equity       
|                                                           |  | issued upon       |           | Weighted-average  |  | compensation plans
|                                                           |  | exercise of       |           | exercise price of |  | (excluding        
|                                                           |  | outstanding       |           | outstanding       |  | securities        
|                                                           |  | options, warrants |           | options, warrants |  | reflected in the  
|Plan category                                              |  | and rights        |           | and rights        |  | first column)     
|                                                           |  |                   |           |                   |  |                   
|Equity compensation plans approved by security
holders     |  |                   | 3,714,504 |                   |  | $                  | 16.54 |                     |  |                     | 655,157 | 
|Equity compensation plans not approved by security
holders |  |                   | 0         |                   |  |                    | 0     |                     |  |                     | 0       | 
|Total                                                      |  |                   | 3,714,504 |                   |  | $                  | 16.54 |                     |  |                     | 655,157 | 




Item 13. Certain Relationships and Related Transactions.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 13, 2004, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption Certain
Transactions information required by Item 13 of Form 10-K and is incorporated
herein by reference.




Item 14. Principal Accountant Fees and Services.

The Proxy Statement issued in connection with the shareholders meeting to
be held on May 13, 2004, to be filed with the Securities and Exchange
Commission pursuant to Rule 14a-6(b), contains under the caption Fees Billed
to the Company by KPMG LLP During 2003 and 2002 information required by Item
14 of Form 10-K and is incorporated herein by reference.




PART IV




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



|(a)  1. |  | Financial Statements: See Item 8
|------- |  | --------------------------------



| | 2. |  | Financial Statement Schedules: Not Applicable               
| | -- |  | ------------------------------------------------------------
|
| | 3. |  | Management Contracts and Compensatory Plans and Arrangements



| | - |  | OCharleys Inc. 1990 Employee Stock Plan
(included as Exhibit 10.7)                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | First Amendment to OCharleys Inc. 1990 Employee
Stock Plan (included as Exhibit 10.8)                                                          
|
| | - |  | Second Amendment to OCharleys Inc. 1990
Employee Stock Plan (included as Exhibit 10.9)                                                         
|
| | - |  | Third Amendment to OCharleys Inc. 1990 Employee
Stock Plan (included as Exhibit 10.10)                                                         
|
| | - |  | Fourth Amendment to OCharleys Inc. 1990
Employee Stock Plan (included as Exhibit 10.11)                                                        
|
| | - |  | OCharleys 1991 Stock Option Plan for Outside
Directors, as amended (included as Exhibit 10.12)                                                 
|
| | - |  | CHUX Ownership Plan, as amended (included as Exhibit 10.13)                                                                                      
|
| | - |  | OCharleys 2000 Stock Incentive Plan (included as Exhibit 10.14)                                                                                
|
| | - |  | Severance Compensation Agreement, dated February
19, 2003, by and between OCharleys Inc. and Gregory L. Burns
(included as Exhibit 10.15)      
|
| | - |  | Severance Compensation Agreement, dated as of
February 11, 2004, by and between OCharleys Inc. and A. Chad
Fitzhugh (included as Exhibit 10.16)

71



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| | - |  | Severance Compensation Agreement, dated as of
February 11, 2004, by and between OCharleys Inc. and Steven J.
Hislop (included as Exhibit 10.17)
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | Severance Compensation Agreement, dated as of
May 14, 2003, by and between OCharleys Inc. and William
E. Hall, Jr. (included as Exhibit 10.18) 
|
| | - |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and Gregory L. Burns
(included as Exhibit 10.19)              
|
| | - |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and Steven J. Hislop
(included as Exhibit 10.20)              
|
| | - |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and William E. Hall, Jr.
(included as Exhibit 10.21)          
|
| | - |  | Restricted Stock Unit Agreement, dated February
13, 2002, between OCharleys Inc. and Herman A. Moore, Jr.
(included as Exhibit 10.22)          
|
| | - |  | Secured Promissory Note, dated February 13, 2002,
by Gregory L. Burns, as maker, and OCharleys Inc., as payee
(included as Exhibit 10.23)      
|
| | - |  | Secured Promissory Note, dated February 13, 2002,
by Steven J. Hislop, as maker, and OCharleys Inc., as payee
(included as Exhibit 10.24)      
|
| | - |  | Secured Promissory Note, dated February 13, 2002,
by William E. Hall, Jr., as maker, and OCharleys Inc., as
payee (included as Exhibit 10.25)  
|
| | - |  | Secured Promissory Note, dated February 13, 2002,
by Herman A. Moore, Jr., as maker, and OCharleys Inc., as
payee (included as Exhibit 10.26)  



| | 4. |  | Exhibits:
| | -- |  | ---------

|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2.1     |  |  |  | Asset Purchase Agreement by and among OCharleys Inc.,
99 Boston, Inc., 99 Boston of Vermont, Inc., Doe Family
II LLC, and each of William A. Doe, III, Dana G. Doe and
Charles F. Doe, Jr. (Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules and exhibits to this
agreement are omitted, but will be provided
supplementally to the Commission upon request.)
(Incorporated herein by reference to Exhibit 2.1 to the
Companys Current Report on Form 8-K filed with the
Commission on November 1, 2002)
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2.2     |  |  |  | Merger Agreement by and among OCharleys Inc.,
Volunteer Acquisition Corporation, 99 West, Inc., and
each of William A. Doe, III, Dana G. Doe and Charles F.
Doe, Jr. (Pursuant to Item 601(b)(2) of Regulation S-K,
the schedules and exhibits to this agreement are
omitted, but will be provided supplementally to the
Commission upon request.) (Incorporated herein by
reference to Exhibit 2.2 to the Companys Current Report
on Form 8-K filed with the Commission on November 1,
2002)                      
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|2.3     |  |  |  | Settlement
Agreement, dated as of December 11, 2003, by and among
OCharleys Inc., 99 Boston, Inc., Doe Family II LLC,
99 Boston of Vermont, Inc., William A. Doe, III, Dana G. Doe,
Charles F. Doe, Jr. and 99 West, Inc.                                                                                                                                                                                                                                                                                           
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3.1     |  |  |  | Restated Charter of the Company (restated electronically
for SEC filing purposes only and incorporated by
reference to Exhibit 3 to the Companys Current Report
on Form 8-K filed with the Commission on December 27,
2000)                                                                                                                                                                                                                                                                                          
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|3.2     |  |  |  | Amended and Restated Bylaws of the Company (incorporated
by reference to Exhibit 3 of the Companys Quarterly
Report on Form 10-Q for the quarter ended April 22,
2001)                                                                                                                                                                                                                                                                                                                                               
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|4.1     |  |  |  | Form of Certificate for the Common Stock (incorporated
by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-1, Registration No.
33-35170)                                                                                                                                                                                                                                                                                                                                                    

72



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|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|4.2     |  |  |  | Rights Agreement, dated December 8, 2000, between the
Company and First Union National Bank, as Rights Agent
(incorporated by reference to Exhibit 4 to the Companys
Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 27, 2000)                                                                                                                          
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|4.3     |  |  |  | Registration Rights Agreement, dated January 27, 2003, between OCharleys Inc., 99 Boston, Inc., Doe Family
II, LLC, William A. Doe, III, Dana G. Doe and Charles F. Doe, Jr. (incorporated by reference to Exhibit 4.1 to
the Companys Current Report on Form 8-K filed with the Commission on January 29, 2003)                                                                               
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.1    |  |  |  | Participation Agreement, dated as of October 10, 2000, among OCharleys Inc., as Lessee, First American
Business Capital, Inc., as Lessor, AmSouth Bank, as Agent, Bank of America, Firstar Bank, N.A., First Union
National Bank and SunTrust Bank (incorporated by reference to Exhibit 10.13 of the Companys Annual Report on
Form 10-K for the year ended December 31, 2000)                
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.2    |  |  |  | First Amendment to Participation Agreement, dated July 9, 2001, among OCharleys Inc., as lessee, First
American Business Capital, Inc., as lessor, AmSouth Bank, as agent, Bank of America, N.A., Firstar Bank, N.A.,
First Union National Bank and SunTrust Bank (incorporated by reference to Exhibit 10.2 of the Companys
Quarterly Report on Form 10-Q for the quarter ended July 15, 2001)
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.3    |  |  |  | Lease, dated as of October 10, 2000, by and between First American Business Capital, Inc., as Lessor, and
OCharleys Inc., as Lessee (incorporated by reference to Exhibit 10.14 of the Companys Annual Report on Form
10-K for the year ended December 31, 2000)                                                                                                                               
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.4    |  |  |  | Lease, dated October 10, 2000, by and between First American Business Capital, Inc., as Lessor, and OCharleys
Inc., as Lessee (incorporated by reference to Exhibit 10.15 of the Companys Annual Report on Form 10-K for the
year ended December 31, 2000)                                                                                                                                     
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.5    |  |  |  | First Amendment to Lease, dated July 9, 2001, by and between First American Business Capital, Inc., as lessor,
and OCharleys Inc., as lessee (incorporated by reference to Exhibit 10.3 of the Companys Quarterly Report on
Form 10-Q for the quarter ended July 15, 2001)                                                                                                                     
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.6    |  |  |  | OCharleys Inc. 1985 Stock Option Plan (incorporated by reference to Exhibit 10.27 of the Companys
Registration Statement on Form S-1, Registration No. 33-35170)                                                                                                                                                                                                                               
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.7    |  |  |  | OCharleys Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit 10.26 of the Companys
Registration Statement on Form S-1, Registration No. 33-35170)                                                                                                                                                                                                                             
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.8    |  |  |  | First Amendment to OCharleys Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit 10.24 of the
Companys Annual Report on Form 10-K for the year ended December 29, 1991)                                                                                                                                                                                                        
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.9    |  |  |  | Second Amendment to OCharleys Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit 10.23 of
the Companys Annual Report on Form 10-K for the year ended December 26, 1993)                                                                                                                                                                                                       
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.10   |  |  |  | Third Amendment to OCharleys Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit 10.14 of the
Companys Annual Report on Form 10-K for the year ended December 27, 1998)                                                                                                                                                                                                        
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.11   |  |  |  | Fourth Amendment to OCharleys Inc. 1990 Employee Stock Plan (incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on Form 10-Q for the quarter ended October 1, 2000)                                                                                                                                                                                                    

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|        |  |  |  |                                                                                                                                                                                                                                                                 
|------- |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |  |  |                                                                                                                                                                                                                                                                 
|Number  |  |  |  | Description                                                                                                                                                                                                                                                     
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.12   |  |  |  | OCharleys Inc. 1991 Stock Option Plan for Outside Directors, as amended (incorporated by reference to Exhibit
10.3 of the Companys Quarterly Report on Form 10-Q for the quarter ended October 1, 2000)                                                      
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.13   |  |  |  | CHUX Ownership Plan, as amended (incorporated by reference to Exhibit 10.2 of the Companys Quarterly Report on
Form 10-Q for the quarter ended July 9, 2000)                                                                                                   
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.14   |  |  |  | OCharleys 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Companys Quarterly
Report on Form 10-Q for the quarter ended July 9, 2000)                                                                                             
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.15   |  |  |  | Severance Compensation Agreement, dated February 19, 2003, by and between OCharleys Inc. and Gregory L. Burns
(incorporated by reference to Exhibit 10.15 of the Companys Annual Report on Form 10-K for the year ended
December 29, 2002)                   
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.16   |  |  |  | Severance Compensation Agreement,
dated as of February 11, 2004, by and between OCharleys Inc. and A. Chad Fitzhugh                                                                                                                                           
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.17   |  |  |  | Severance
Compensation Agreement, dated as of February 11, 2004, by and
between OCharleys Inc. and Steven J. Hislop                                                                                                                                           
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.18   |  |  |  | Severance Compensation Agreement,
dated as of May 14, 2003, by and between OCharleys Inc. and William E. Hall, Jr.                                                                                                                                            
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.19   |  |  |  | Restricted Stock Unit Agreement, dated February 13, 2002, between OCharleys Inc. and Gregory L. Burns.
(Incorporated herein by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)        
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.20   |  |  |  | Restricted Stock Unit Agreement, dated February 13, 2002, between OCharleys Inc. and Steven J. Hislop.
(Incorporated herein by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)        
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.21   |  |  |  | Restricted Stock Unit Agreement, dated February 13, 2002, between OCharleys Inc. and William E. Hall, Jr.
(Incorporated herein by reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)     
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.22   |  |  |  | Restricted Stock Unit Agreement, dated February 13, 2002, between OCharleys Inc. and Herman A. Moore, Jr.
(Incorporated herein by reference to Exhibit 10.5 to the Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended April 21, 2002)     
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.23   |  |  |  | Secured Promissory Note, dated February 13, 2002, by Gregory L. Burns, as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit 10.6 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)
|        |  |  |  |                                                                                                                                                                                                                                                                 
|10.24   |  |  |  | Secured Promissory Note, dated February 13, 2002, by Steven J. Hislop, as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit 10.7 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)

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|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Number  |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.25   |  |  |  | Secured Promissory Note, dated February 13, 2002, by William E. Hall, Jr., as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit 10.9 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)                                                                                                                                                                           
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.26   |  |  |  | Secured Promissory Note, dated February 13, 2002, by Herman A. Moore, Jr., as maker, and OCharleys Inc., as
payee. (Incorporated herein by reference to Exhibit 10.10 to the Companys Quarterly Report on Form 10-Q for
the Quarterly Period Ended April 21, 2002)                                                                                                                                                                          
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.27   |  |  |  | Master Lease, dated December 4, 2001, by and between Double 9 Property I LLC and Doe Family II LLC
(incorporated by reference to Exhibit 10.33 of the Companys Annual Report on Form 10-K for the year ended
December 29, 2002)                                                                                                                                                                                                               
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.28   |  |  |  | Assignment and Assumption of Lease and Acknowledgement of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January 27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property I LLC, 99 Remainder I LLC and GE Capital Franchise Finance Corporation (incorporated by
reference to Exhibit 10.34 of the Companys Annual Report on Form 10-K for the year ended December 29, 2002)    
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.29   |  |  |  | Master Lease, dated December 4, 2001, by and between Double 9 Property II LLC and Doe Family II LLC
(incorporated by reference to Exhibit 10.35 of the Companys Annual Report on Form 10-K for the year ended
December 29, 2002)                                                                                                                                                                                                              
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.30   |  |  |  | First Amendment to Master Lease, dated February 1, 2002, by and between Double 9 Property II LLC and Doe Family
II LLC (incorporated by reference to Exhibit 10.36 of the Companys Annual Report on Form 10-K for the year
ended December 29, 2002)                                                                                                                                                                                           
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.31   |  |  |  | Assignment and Assumption of Lease and Acknowledgement of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January 27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property II LLC, 99 Remainder II LLC and GE Capital Franchise Finance Corporation (incorporated by
reference to Exhibit 10.37 of the Companys Annual Report on Form 10-K for the year ended December 29, 2002)  
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.32   |  |  |  | Master Lease, dated December 4, 2001, by and between Double 9 Property III LLC and Doe Family II LLC
(incorporated by reference to Exhibit 10.38 of the Companys Annual Report on Form 10-K for the year ended
December 29, 2002)                                                                                                                                                                                                             
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.33   |  |  |  | Assignment and Assumption of Lease and Acknowledgement of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January 27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property III LLC, 99 Remainder III LLC and GE Capital Franchise Finance Corporation (incorporated by
reference to Exhibit 10.39 of the Companys Annual Report on Form 10-K for the year ended December 29, 2002)
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.34   |  |  |  | Master Lease, dated December 4, 2001, by and between Double 9 Property IV LLC and Doe Family II LLC
(incorporated by reference to Exhibit 10.40 of the Companys Annual Report on Form 10-K for the year ended
December 29, 2002)                                                                                                                                                                                                              
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.35   |  |  |  | First Amendment to Master Lease, dated February 1, 2002, by and between Double 9                                                                                                                                                                                                                                                                                                                                                               

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|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- |  |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Number  |  |  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |  |  | Property IV LLC and Doe Family II LLC (incorporated by
reference to Exhibit 10.41 of the Companys Annual Report on
Form 10-K for the year ended December 29, 2002)                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.36   |  |  |  | Assignment and Assumption of Lease and Acknowledgement of Master Lease Assignment and Subordination,
Nondisturbance and Attornment Agreement, dated January 27, 2003, by and among Doe Family II LLC, 99 West, Inc.,
Double 9 Property IV LLC, 99 Remainder IV LLC and GE Capital Franchise Finance Corporation (incorporated by
reference to Exhibit 10.42 of the Companys Annual Report on Form 10-K for the year ended December 29, 2002)                                                                                                                       
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.37   |  |  |  | Purchase Agreement, dated as of October 30, 2003, by and among
OCharleys Inc., various direct and indirect subsidiaries of
OCharleys Inc., Wachovia Capital Markets, LLC and Morgan
Joseph & Co. Inc. (incorporated by reference to Exhibit 10.1
of the Companys Quarterly Report on Form 10-Q for the
quarter ended October 5, 2003)                                                                                                                                                                                                                          
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.38   |  |  |  | Registration Rights Agreement, dated as of November 4, 2003, by and
among OCharleys Inc., various direct and indirect
subsidiaries of OCharleys Inc., Wachovia Capital Markets,
LLC and Morgan Joseph & Co. Inc. (incorporated by reference
to Exhibit 10.2 of the Companys Quarterly Report on Form
10-Q for the quarter ended October 5, 2003)                                                                                                                                                                                                               
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.39   |  |  |  | Indenture, dated as of November 4, 2003, by and among OCharleys Inc.,
various direct and indirect subsidiaries of OCharleys Inc.
and The Bank of New York (including Form of 144A Global Note
and Form of Regulation S Temporary Global Note).
(incorporated by reference to Exhibit 10.3 of the Companys
Quarterly Report on Form 10-Q for the quarter ended October
5, 2003)                                                                                                                                                                                 
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.40   |  |  |  | Amended and Restated Credit Agreement, dated as of November 4, 2003,
by and among OCharleys Inc., as Borrower, the Lenders
referred to therein, Wachovia Bank, National Association, as
Administrative Agent, Bank of America, N.A. and Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A. Rabobank
International, New York Branch, as Co-Syndication Agents,
and AmSouth Bank and SunTrust Bank, as Co-Documentation
Agents. (incorporated by reference to Exhibit 10.4 of the
Companys Quarterly Report on Form 10-Q for the quarter ended
October 5, 2003)
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.41   |  |  |  | Form of Amended and Restated Revolving Credit Note. (incorporated by
reference to Exhibit 10.5 of the Companys Quarterly Report
on Form 10-Q for the quarter ended October 5, 2003)                                                                                                                                                                                                                                                                                                                                                                                
|       
|10.42   |  |  |  | Form of Amended and Restated Swingline Note. (incorporated by
reference to Exhibit 10.6 of the Companys Quarterly Report
on Form 10-Q for the quarter ended October 5, 2003)                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.43   |  |  |  | Form of Lease Agreement by and between CNL Funding 2001-A, LP, as
landlord, and OCharleys Inc., as tenant. In accordance with
Rule 12b-31 under the Exchange Act, copies of other lease agreements,
which are substantially identical to Exhibit 10.43 in all
material respects, except as to the landlord, the tenant, the
property involved and the rent due thereunder, are omitted.
(incorporated by reference to Exhibit 10.1 of the Companys
Registration Statement on Form S-4, Registration No.
333-112429-03)                                           
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.44   |  |  |  | Development
Agreement, dated December 22, 2003, by and among
OCharleys Inc., OCM Development Company, LLC and Meritage
Hospitality Group Inc.                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|14      |  |  |  | OCharleys
Inc. Code of Conduct and Business Ethics Policy                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|21      |  |  |  | Subsidiaries of the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|23      |  |  |  | Consent of KPMG LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|        |  |  |  |                                                                                                                                                                                         
|------- |  |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |  |  |                                                                                                                                                                                         
|Number  |  |  |  | Description                                                                                                                                                                             
|        |  |  |  |                                                                                                                                                                                         
|31.1    |  |  |  | Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002                                                                                      
|        |  |  |  |                                                                                                                                                                                         
|31.2    |  |  |  | Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002                                                                                      
|        |  |  |  |                                                                                                                                                                                         
|32.1    |  |  |  | Certification of Gregory L. Burns, Chief Executive Officer
of OCharleys Inc., pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|        |  |  |  |                                                                                                                                                                                         
|31.2    |  |  |  | Certification of A. Chad Fitzhugh, Chief Financial Officer
of OCharleys Inc., pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002

(b) On October 8, 2003, the Company furnished to the Securities and
Exchange Commission a Current Report on Form 8-K (Items 9 and 12) which
contained its press release announcing that it had revised its outlook for the
third quarter of 2003.

On October 21, 2003, the Company furnished to the Securities and Exchange
Commission a Current Report on Form 8-K (Item 9) which contained its press
release announcing that the Company intended to offer, through a private
placement, $125 million in aggregate principal amount of senior subordinated
notes due 2013.

On October 21, 2003, the Company furnished to the Securities and Exchange
Commission a Current Report on Form 8-K (Item 9) which contained its press
release announcing the completion of a $50 million sale and leaseback
transaction and the establishment of a $25 million share repurchase
authorization and issuing sales and earnings guidance for the fourth fiscal
quarter ending December 28, 2003.

On October 29, 2003, the Company furnished to the Securities and Exchange
Commission a Current Report on Form 8-K (Item 9) which contained its press
release providing an update on the Hepatitis A incident.

On October 30, 2003, the Company furnished to the Securities and Exchange
Commission a Current Report on Form 8-K (Item 9) which contained its press
release announcing that the Company had rescheduled its earnings conference
call for the third fiscal quarter.

On October 30, 2003, the Company furnished to the Securities and Exchange
Commission a Current Report on Form 8-K (Item 9) which contained its press
release announcing that the Company intended to offer $125 million in aggregate
principal amount of senior subordinated notes due 2013.

On October 31, 2003, the Company furnished to the Securities and Exchange
Commission a Current Report on Form 8-K (Item 9) which contained its press
release announcing the pricing of its offering of $125 million in aggregate
principal amount of 9.0% senior subordinated notes due 2013 in an institutional
private placement.

On October 31, 2003, the Company filed and furnished to the Securities and
Exchange Commission a Current Report on Form 8-K (Items 5, 9 and 12) which
contained its press release announcing the Companys third quarter 2003
financial results and included certain financial information of the Company.

Notwithstanding the foregoing, information furnished under Item 9 and Item
12 of our Current Reports on Form 8-K, including the related exhibits, shall
not be deemed to be filed for purposes of Section 18 of the Securities Exchange
Act of 1934.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                     |                 |                                                  
|-------------------- | --------------- | -------------------------------------------------
|                     | OCHARLEYS INC
|                     |                 |                                                  
|Date: March 11, 2004 | By:             | /s/ Gregory L. Burns                             
|                     |                 |                                                  
|                     |                 | Gregory L. Burns                                 
|                     |                 | Chief Executive Officer and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                         |  |                                                                                               |  |                
|---------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | ---------------
|Signature                                |  | Title                                                                                         |  | Date           
|                                         |  |                                                                                               |  |                
|/s/ Gregory L. BurnsGregory L. Burns     |  | Chief Executive Officer and Chairman of
the Board (Principal Executive Officer)               |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ Steven J. HislopSteven J. Hislop     |  | President, Chief Operating Officer and
Director                                               |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ A. Chad FitzhughA. Chad Fitzhugh     |  | Chief Financial Officer, Secretary and
Treasurer (Principal Financial and
Accounting Officer) |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|John W. Stokes, Jr.                      |  | Director                                                                                      |  | March   , 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ Richard Reiss, Jr.Richard Reiss, Jr. |  | Director                                                                                      |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ G. Nicholas SpivaG. Nicholas Spiva   |  | Director                                                                                      |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ H. Steve TidwellH. Steve Tidwell     |  | Director                                                                                      |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ Samuel H. HowardSamuel H. Howard     |  | Director                                                                                      |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|Shirley A. Zeitlin                       |  | Director                                                                                      |  | March    , 2004
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ Robert J. WalkerRobert J. Walker     |  | Director                                                                                      |  | March 11, 2004 
|                                        
|                                         |  |                                                                                               |  |                
|                                        
|/s/ Dale W. PolleyDale W. Polley         |  | Director                                                                                      |  | March 11, 2004 

78