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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-K þ
    
    ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 26, 2004
Commission file number 0-18629 OCHARLEYS INC. 
  Tennessee
    
    62-1192475(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)3038 Sidco Drive
Nashville, Tennessee
    
    37204(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code:
    
    (615) 256-8500Securities registered pursuant to Section 12(b) of the Act:
    
    NoneSecurities 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 þ No o 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. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2).
Yes þ No o 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 $345.8 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 21, 2005 was 22,146,124. DOCUMENTS INCORPORATED BY REFERENCE Documents from which portions arePart of Form 10-K
    
    incorporated by referencePart III
    
    Proxy Statement relating to the registrants Annual
Meeting of Shareholders to be held May 12, 2005
   1




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INDEX PART I
    
    
    3Item 1. Business
    
    
    3Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    16PART II
    
    
    17Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    17Item 6. Selected Financial Data
    
    
    17Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    21Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    39Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    75Item 9A. Controls and Procedures
    
    
    75Item 9B. Other Information
    
    
    77PART III
    
    
    77Item 10. Directors and Executive Officers of the Registrant
    
    
    77Item 11. Executive Compensation
    
    
    78Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    78Item 13. Certain Relationships and Related Transactions
    
    
    78Item 14. Principal Accountant Fees and Services
    
    
    78PART IV
    
    
    78Item 15. Exhibits and Financial Statement Schedules
    
    
    78SIGNATURES
    
    
    86EX-10.63 LEASE DATED AS OF DECEMBER 17, 2004Ex-10.64  Summary of Director & Executive Officer CompensationEx-10.65  O'Charley's Inc.  2005 Executive Officers' Cash Incentive PlanEX-10.66  O'CHARLEY'S INC. DEFERRED COMPENSATION PLANEx-21  List of SubsidiariesEx-23  Consent of KPMG LLPEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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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 which operate under the OCharleys, Ninety Nine
Restaurant and Pub and Stoney River Legendary Steaks trade names. As of December 26, 2004, we
operated 221 OCharleys restaurants in 16 states in the Southeast and Midwest regions, 99 Ninety
Nine restaurants in seven Northeastern states, and six Stoney River restaurants in the Southeast
and Midwest. As of December 26, 2004, we had one franchised OCharleys restaurant located in
Michigan and one location in Louisiana that is operated by a joint venture franchisee in which we
have an interest. 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 a variety of items including USDA Choice
hand-cut and aged steaks, baby-back ribs basted with our own tangy BBQ sauce, fresh salmon, 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, 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 $6.49 to $17.99. The average check per customer, including beverages, was
$11.52 in 2004, $11.60 in 2003 and $11.59 in 2002. 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. Historically, we have grown the OCharleys concept through opening new stores. This growth
in new stores has typically been in the 15% to 20% range, year over year. During 2003, we opened
26 new stores and closed two stores. We decided to cut back the number of expected openings in
2004 to 15 stores, a growth rate of approximately 8%. We made this decision based on the trends we
have experienced over the last two years in customer counts and profits. As we discuss in more
detail in the information that follows, we have expanded into newer markets over the past few years
and believe that it will take time to operate these stores at the level we experience in markets
where we have historically operated. As we take steps to make the necessary improvements in sales
and profitability, we will continue to evaluate the appropriate level of growth for the OCharleys
concept. During 2005, we plan to open 13 to 15 new company-operated
OCharleys restaurants and four
to five new franchised or joint venture operated OCharleys restaurants. 3




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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. The average
check per customer, including beverages, was $13.86 in 2004 and $13.78 in 2003. 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. During 2005,
we plan to open between 13 and 15 new Ninety Nine restaurants. 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. The average check per
customer, including beverages, was $39.53 in 2004 and $37.42 in 2003. We have established a managing partner program for the general managers of our Stoney River
restaurants pursuant to which each general manager has the
opportunity to acquire 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. 4




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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 2004, the average
check per customer, including beverages, was $11.52 for OCharleys and $13.86 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 15 new OCharleys restaurants and 12 new Ninety Nine
restaurants in 2004. 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. Our Nashville commissary also cuts red meat and chicken products for our Ninety Nine
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 tips for our Ninety Nine restaurants and
a production facility at which we prepare the soups, sauces and marinades served in our Ninety Nine
restaurants. In December 2004, we entered into a lease for approximately 78,000 square feet of
space in Bellingham, Massachusetts to be used as a distribution facility for our Ninety Nine
Restaurant and Pub concept. We plan to transfer the Woburn distribution operations to this facility
when it is ready for occupancy, which we believe will be during our third fiscal quarter of 2005.
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. 5




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Support Operations Customer Relations.We use IVR (Interactive Voice Response) technology to measure customer
satisfaction and loyalty in our OCharleys restaurants. Customers are issued an invitation
through our POS (point of sale) system to participate in our survey program and communicate their
level of satisfaction with their dining experience. Our ability to continuously monitor service
levels and satisfaction at the unit level, while providing customers with a convenient, brief,
unbiased and user friendly way to share their comments, allows us to focus on converting satisfied
customers to highly satisfied or truly loyal customers. In addition to measuring customer
satisfaction, our customer service team receives direct customer calls from our OCharleys and
Ninety Nine concepts, routing comments and suggestions to the appropriate personnel. The IVR
survey program will be rolled out to the Ninety Nine concept in 2005. Advertising and Marketing.We have an ongoing advertising and marketing plan for each of our
restaurant concepts for the development of television, radio and newspaper advertising for our
restaurants and also use point of purchase 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. 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. The Internal Audit department annually conducts
audits of a sample of our restaurants to measure compliance with our systems, procedures and
controls. 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,
the Home Office and Commissary through the design and implementation of policies, programs,
procedures and benefits for our employees. The human resources department is responsible for the
oversight of employee relations and enforces the Alternative Dispute Resolution process. However,
all employees are encouraged to first address their issues or concerns through the companys open
door policies or the toll free 800 number. This department also maintains our code of conduct and
addresses possible compliance issues. The Support Services area also administers the Employee
Survey and is responsible for identifying issues and developing
action plans to resolve any issues that are identified. 6




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Restaurant Locations The following table sets forth the markets in which our company-operated OCharleys, Ninety
Nine and Stoney River restaurants were located at December 26, 2004, 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 (6)Florence
    
    Florence
    
    Dayton (3)Huntsville (2)
    
    FrankfortMobile (4)
    
    Hopkinsville
    
    South CarolinaMontgomery (2)
    
    Lexington (4)
    
    AndersonOpelika
    
    Louisville (5)
    
    Charleston (2)Oxford
    
    Owensboro
    
    Columbia (3)Tuscaloosa
    
    Paducah
    
    GreenvilleRichmond
    
    GreenwoodArkansas
    
    
    
    Rock HillJonesboro
    
    Louisiana
    
    SimpsonvilleRogers
    
    Monroe
    
    SpartanburgFlorida
    
    Mississippi
    
    TennesseeDestin
    
    Biloxi (2)
    
    Chattanooga (2)Jacksonville (3)
    
    Hattiesburg
    
    Clarksville (2)Panama City
    
    Jackson
    
    ClevelandPensacola
    
    Meridian
    
    CookevilleOlive Branch
    
    JacksonGeorgia
    
    Pearl
    
    Johnson CityAtlanta (19)
    
    Southhaven
    
    KingsportAugusta
    
    Tupelo
    
    Knoxville (7)Canton
    
    
    
    Memphis (3)Columbus
    
    Missouri
    
    MorristownDalton
    
    Cape Girardeau
    
    Murfreesboro (2)Ft. Oglethorpe
    
    Kansas City (3)
    
    Nashville (13)Gainesville
    
    St. Louis (8)
    
    Pigeon ForgeMacon (2)
    
    
    
    SpringfieldNorth CarolinaIllinois
    
    Asheville
    
    VirginiaChampaign
    
    Burlington
    
    BristolMarion
    
    Charlotte (8)
    
    FredericksburgOFallon
    
    Durham
    
    HarrisonburgSpringfield (2)
    
    Fayetteville
    
    LynchburgGreensboro
    
    Roanoke (2)Indiana
    
    Greenville
    
    Richmond (5)Bloomington
    
    HendersonvilleClarksville
    
    Hickory
    
    West VirginiaCorydon
    
    Jacksonville
    
    Charleston (2)Evansville (2)
    
    Raleigh (4)Fort Wayne (2)
    
    WilmingtonIndianapolis (10)
    
    Winston-Salem (2)Lafayette
Richmond
 In addition to the above company-operated locations, as of December 26, 2004, we had one
franchise location in Grand Rapids, Michigan and one location in Lafayette, Louisiana that is
operated by a joint venture franchisee in which we have a financial interest. 7




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Ninety Nine Restaurants Connecticut
Groton
Hartford (8)
New Haven (2
    
    New Hampshire
Concord
Dover
Hooksett
    
    New York
Albany (2)
Plattsburgh
Saratoga SpringsKeene
    
    UticaMaine
    
    LondonderryAugusta
Bangor
Portland (3)
    
    Manchester
Nashua
North Conway
Portsmouth
    
    Rhode Island
Cranston
Newport
WarwickMassachusetts
    
    SalemAuburn
Boston (37)
Centerville
Chicopee
Fairhaven
Fall River
Fitchburg
Holyoke
Mashpee
North Attleboro
North Dartmouth
Plymouth
Pittsfield
Seekonk
Springfield (4)
Tewksbury
West Yarmouth
Worchester (4)
    
    Seabrook
Tilton
West Lebanon
    
    Vermont
Rutland
Williston
 Stoney River Restaurants Atlanta, Georgia (2)
Chicago, Illinois (2)
    
    Louisville, Kentucky
    
    Nashville, Tennessee
 Franchising We seek franchising relationships with successful restaurant operators for the development of
OCharleys restaurants in areas that are outside of our current growth plans for company-owned
restaurants. To date, we have entered into exclusive multi-unit development agreements with a
third party franchisee to open and operate up to 15 OCharleys restaurants in Michigan, a joint
venture entity to open and operate up to 10 OCharleys restaurants in Louisiana and a joint
venture entity to operate up to 10 OCharleys restaurants in Wisconsin. We intend to enter into
additional development agreements as we continue to franchise our OCharleys restaurant concept.
Franchisees and joint venture partners are required to comply with our specifications as to
restaurant space, design and décor, 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. 8




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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 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 2004 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. Many of our markets are seeing changes in laws regarding smoking inside of buildings. These
laws can negatively affect our bar business, with ancillary effects on our dining room business. 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 As of December 26, 2004, we employed approximately 8,119 full-time and 14,175 part-time
employees. None of our employees is covered by a collective bargaining agreement. We have an
alternative dispute resolution program in which all employees are required to participate as a
condition of employment. 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 9




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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. 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. Initiatives we have implemented at our OCharleys restaurants to improve our same restaurant 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 restaurant 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 same restaurant
sales but have also resulted in increased costs. There can be no assurance that these initiatives
will continue to result in increases in same restaurant sales at our OCharleys restaurants or
that efforts to increase our average check will be successful or will not adversely affect same
restaurant sales. 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 food costs by
adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect
our operating results. We experienced significant commodity cost inflation in fiscal 2004 which we
estimate adversely affected our diluted earnings per share by approximately $0.21 as compared to
the prior year. 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.
Each of our concepts now offers medical benefits to hourly employees, 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 10




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increases, particularly over the short term. As a result, increases in wages and benefits could
have a material adverse effect on our business. 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 15 new OCharleys restaurants and 12 new Ninety Nine restaurants in 2004. We expect to
open 13 to 15 new OCharleys restaurants, 13 to 15 new Ninety Nine restaurants and two new Stoney
River restaurants in 2005. 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. 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.
For example, in 2005 we plan to expand our Ninety Nine concept into the Philadelphia market. 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. 11




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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 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. As of
December 26, 2004, we operated 37 of our 221 OCharleys restaurants in Tennessee and 60 of our 99
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 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, and have
targeted completion of a new distribution facility in Bellingham, Massachusetts for the second half
of fiscal 2005. 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 would adversely affect our results of operations. 12




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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 (such as regulations regarding
labeling, allergens content and other menu information regarding nutrition), 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 also 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 incident, discussed in Item 3  Legal Proceedings, 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
adversely affect us or our restaurants, regardless of whether the allegations are valid or whether
we are liable. In addition, we are subject to litigation under dram shop laws that allow a
person to sue us based on any injury or death caused by an intoxicated person who was wrongfully
served alcoholic beverages at one of our restaurants. While we maintain insurance for lawsuits
under a dram shop law or alleging illness or injury from food, we have significant deductibles
under such insurance and any such litigation 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
Hepatitis A incident discussed in Item 3  Legal Proceedings. 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 and any failure to comply with current regulatory requirements will result in
additional expenses and may adversely affect us. 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, 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 we
expect will continue to result in increased general and administrative expenses and a diversion of
management time and attention from revenue-generating activities to compliance activities. 13




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Under Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to furnish a
report regarding the effectiveness of our internal control over financial reporting. The report,
which is set forth beginning on page 75 of this Annual Report, contains managements conclusion
that, as of December 26, 2004, our internal control over financial reporting was not effective as a
result of a material weakness in our accounting for leases and leasehold depreciation. This
conclusion could result in a loss of investor confidence in our financial reports and adversely
affect our stock price. 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
    
    PositionGregory L. Burns
    
    
    50
    
    
    Chief Executive Officer and Chairman of the BoardSteven J. Hislop
    
    
    45
    
    
    President and Chief Operating OfficerLawrence E. Hyatt
    
    
    50
    
    
    Chief Financial Officer, Secretary and TreasurerHerman A. Moore, Jr.
    
    
    53
    
    
    President, Commissary OperationsJohn R. Grady
    
    
    52
    
    
    Concept President-Ninety Nine Restaurant and PubSuzanne M. Osterberg
    
    
    40
    
    
    Chief Support OfficerR. Jeffrey Williams
    
    
    38
    
    
    Principal Accounting Officer and Corporate ControllerRichard D. May
    
    
    52
    
    
    Chief Strategic Officer
 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. 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. Lawrence E. Hyatthas served as Chief Financial Officer, Secretary and Treasurer since
November 2004. Prior to joining our company, he was Executive Vice President and Chief Financial
Officer of Cole National Corporation from 2002 to 2004. Mr. Hyatt was with PSINet, Inc. as Chief
Financial and Restructuring Officer from 2000 to 2002; with HMS Host Corporation as Chief Financial
Officer from 1999 to 2000; and with Sodexho Marriott Services, Inc. and its predecessor company as
Chief Financial Officer from 1989 to 1999. 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. John R. Gradyhas served as Concept President-Ninety Nine Restaurant and Pub since April 2004.
Mr. Grady joined Ninety Nine Restaurant and Pub in March 1975. Prior to being named President,
Mr. Grady was Executive Vice President and has also served in various capacities in the Operations,
Training and Real Estate Departments over the years. 14




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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. 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 Principal Accounting Officer since August 2004 and as
Corporate 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. Richard D. Mayhas served as Chief Strategic Officer since June 2004. Mr. May served as
Executive Vice President of Stoney River Legendary Management (d/b/a Stoney River Legendary Steaks)
from May 2000 to June 2004. Mr. May served as Director of Strategic Planning from April 1998 to
May 2000. Available Information We file reports with the Securities and Exchange Commission, including annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The public may read and copy
any materials we file with the SEC at the SECs Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains an
Internet site at http://www.sec.gov that contains the reports, proxy and information statements,
and other information filed electronically. Our website address is www.ocharleysinc.com. Please
note that our website address is provided as an inactive textual reference only. We make available
free of charge through our website the annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable
after such material is electronically filed with or furnished to the SEC. The information provided
on our website is not part of this report, and is therefore not incorporated by reference unless
such information is specifically referenced elsewhere in this report. We have posted our Corporate Governance Guidelines, Code of Conduct and Business Ethics Policy
for directors, officers and employees, and the charters of our Audit, Compensation and Human
Resources and Nominating and Corporate Governance Committees of the Board of Directors on our
website at www.ocharleysinc.com. Our corporate governance materials are available free of charge
upon request to our Corporate Secretary, OCharleys Inc., 3038 Sidco Drive, Nashville, Tennessee
37204. 
 Item 2. Properties. As of December 26, 2004, we operated 221 OCharleys restaurants, 99 Ninety Nine restaurants
and six Stoney River Legendary Steak restaurants. As of that date, we owned the land and building
at 94 of our OCharleys restaurants, leased the land and building at 42 of our OCharleys
restaurants and leased the land only at 85 of our OCharleys restaurants. We lease the land and
building at 78 of our Ninety Nine restaurants and lease the land only at 21 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 Item 1  Business  Restaurant
Locations above. Restaurant lease expirations range from 2005 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. We have also entered into a lease for
approximately 78,000 square feet of space in Bellingham, Massachusetts to be used as a 15




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distribution facility for our Ninety Nine Restaurant and Pub concept. We plan to transfer the
Woburn distribution operations to this facility when it is ready for occupancy, which we believe
will be during our third fiscal quarter of 2005. 
 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 worked closely with the Knox
County Health Department and the Centers for Disease Control and Prevention when we became aware of
this incident and 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 filing, we are also
aware of 56 lawsuits against us, all but one 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. As of March 24, 2005, we have agreements to settle 18 of these cases. Each of the Knox County Health Department, the Centers for Disease Control and Prevention and
the Food and Drug Administration have tentatively associated the outbreak of the Hepatitis A virus
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, there can be no assurance that insurance will be
sufficient to cover our ultimate loss or liability. We have submitted a claim pursuant to our
insurance coverage for this type of loss. At this point, we cannot reasonably estimate the value of
any potential settlement of this claim or the timing thereof. If we suffer losses or liabilities in
excess of our insurance coverage, there could be a material adverse effect on our results of
operations and financial condition. 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 injury or wrongful death under
dram shop laws that allow a person to sue us based on any injury caused by an intoxicated person
who was wrongfully served alcoholic beverages at one of our restaurants; 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 these legal proceedings
pending against us as of the date of this report will have a material adverse effect on our
liquidity or financial condition. We may incur or accrue expenses relating to legal proceedings,
however, which may adversely affect our results of operations in a particular period. 
 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
26, 2004. 16




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PART II 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities. Our common stock trades on the NASDAQ National Market under the symbol CHUX. As of March
21, 2005, there were approximately 3,500 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 2004
    
    High
    
    
    LowFirst Quarter
    
    $
    20.88
    
    
    $
    16.55Second Quarter
    
    
    20.34
    
    
    
    16.40Third Quarter
    
    
    18.08
    
    
    
    14.58Fourth Quarter
    
    
    19.41
    
    
    
    14.27Fiscal 2003First Quarter
    
    $
    23.65
    
    
    $
    17.50Second Quarter
    
    
    23.32
    
    
    
    17.50Third Quarter
    
    
    22.60
    
    
    
    14.09Fourth Quarter
    
    
    17.92
    
    
    
    13.66
 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 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 as part of the purchase price of the acquisition of Ninety Nine Restaurant and Pub. We issued
an additional 390,586 shares in January 2004 and 407,843 shares in January 2005 and are required to
issue an additional 407,843 shares on the third anniversary 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. In connection with his employment, on November 15, 2004, we granted Lawrence E. Hyatt, our
Chief Financial Officer, Secretary and Treasurer, an aggregate of 11,000 shares of restricted stock
that will vest ratably over three years and 20,000 shares of restricted stock that will vest over
three years dependent upon meeting cumulative earnings per share targets which were established by
our Compensation and Human Resources Committee. These restricted stock awards constitute inducement
awards under NASDAQ Marketplace Rule 4350. The issuance of the shares of restricted stock to Mr.
Hyatt 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 26, 2004, were derived from the consolidated financial statements of
OCharleys Inc. and subsidiaries. The selected data should be read in conjunction with the
consolidated financial statements for the year ended December 26, 2004, and the related notes
thereto. The selected financial data as of December 26, 2004 and December 28, 2003, and for the 2004,
2003 and 2002 fiscal years have been derived from the audited financial statements
appearing in this Form 10-K. The financial statements for the 2003 and 2002 fiscal years have been
restated. The selected financial data for the 2001 and
2000 fiscal years have been restated to be consistent with the restatement adjustments made for the
subsequent years. See 17




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Note 2 of the notes to consolidated financial statements for further
discussion of the restatement. Certain prior year amounts have been reclassified to conform to the
current year presentation. When you read this financial data, it is important that you also read the consolidated
financial statements and related notes included in this Form 10-K, as well as the section of this
report entitled Managements Discussion and Analysis of Financial Condition and Results of
Operations. Historical results are not necessarily indicative of future results. 18




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Fiscal Years2004
    
    
    2003(1)
    
    
    2002
    
    
    2001(2)
    
    
    2000(2) (3)(In thousands, except per share data)
    
    
    
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)
    
    
    (restated)Statement of Earnings Data:Revenues:Restaurant sales
    
    $
    864,259
    
    
    $
    753,740
    
    
    $
    495,112
    
    
    $
    440,875
    
    
    $
    373,700Commissary sales
    
    
    7,035
    
    
    
    5,271
    
    
    
    4,800
    
    
    
    4,056
    
    
    
    3,562Franchise revenue
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    871,386
    
    
    
    759,011
    
    
    
    499,912
    
    
    
    444,931
    
    
    
    377,262Costs and expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    261,013
    
    
    
    221,206
    
    
    
    140,638
    
    
    
    129,576
    
    
    
    109,537Payroll and benefits
    
    
    290,514
    
    
    
    252,415
    
    
    
    154,311
    
    
    
    138,009
    
    
    
    115,029Restaurant operating costs
    
    
    157,491
    
    
    
    139,205
    
    
    
    86,006
    
    
    
    76,575
    
    
    
    65,133Cost of commissary sales
    
    
    6,631
    
    
    
    4,970
    
    
    
    4,488
    
    
    
    3,808
    
    
    
    3,341Advertising, general and administrative expenses
    
    
    63,754
    
    
    
    52,204
    
    
    
    37,677
    
    
    
    29,979
    
    
    
    24,480Depreciation and amortization
    
    
    39,798
    
    
    
    36,360
    
    
    
    25,527
    
    
    
    22,135
    
    
    
    18,202Asset impairment and exit costs(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,798
    
    
    
    Preopening costs
    
    
    5,908
    
    
    
    6,900
    
    
    
    5,629
    
    
    
    6,126
    
    
    
    4,978825,109
    
    
    
    713,260
    
    
    
    454,276
    
    
    
    412,006
    
    
    
    340,700Income from operations
    
    
    46,277
    
    
    
    45,751
    
    
    
    45,636
    
    
    
    32,925
    
    
    
    36,562Other (income) expense:Interest expense, net
    
    
    13,476
    
    
    
    14,153
    
    
    
    5,556
    
    
    
    6,610
    
    
    
    7,398Debt extinguishment charge
    
    
    
    
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    120
    
    
    
    (652
    )
    
    
    (118
    )
    
    
    189
    
    
    
    2413,596
    
    
    
    15,301
    
    
    
    5,438
    
    
    
    6,799
    
    
    
    7,422Earnings before income taxes and cumulative effect of
change in accounting principle
    
    
    32,681
    
    
    
    30,450
    
    
    
    40,198
    
    
    
    26,126
    
    
    
    29,140Income taxes
    
    
    9,362
    
    
    
    9,261
    
    
    
    13,942
    
    
    
    9,072
    
    
    
    10,202Earnings before cumulative effect of change in accounting
principle
    
    
    23,319
    
    
    
    21,189
    
    
    
    26,256
    
    
    
    17,054
    
    
    
    18,938Cumulative effect of change in accounting principle, net
of tax (5)
    
    
    
    
    
    
    
    
    
    
    (6,123
    )
    
    
    
    
    
    
    Net earnings
    
    $
    23,319
    
    
    $
    21,189
    
    
    $
    20,133
    
    
    $
    17,054
    
    
    $
    18,938Basic earnings per common share before cumulative effect
of change in accounting principle
    
    $
    1.05
    
    
    $
    0.98
    
    
    $
    1.41
    
    
    $
    0.96
    
    
    $
    1.22Cumulative effect of change in accounting principle, net
of tax (5)
    
    
    
    
    
    
    
    
    
    
    (0.33
    )
    
    
    
    
    
    
    Basic earnings per common share
    
    $
    1.05
    
    
    $
    0.98
    
    
    $
    1.08
    
    
    $
    0.96
    
    
    $
    1.22Diluted earnings per common share before cumulative
effect of change in accounting principle
    
    $
    1.03
    
    
    $
    0.96
    
    
    $
    1.33
    
    
    $
    0.90
    
    
    $
    1.15Cumulative effect of change in accounting principle, net
of tax (5)
    
    
    
    
    
    
    
    
    
    
    (0.31
    )
    
    
    
    
    
    
    Diluted earnings per common share
    
    $
    1.03
    
    
    $
    0.96
    
    
    $
    1.02
    
    
    $
    0.90
    
    
    $
    1.15Balance Sheet Data (at end of period):Working capital (deficit)
    
    $
    (30,986
    )
    
    $
    (30,284
    )
    
    $
    (21,388
    )
    
    $
    (15,552
    )
    
    $
    (20,428
    )Total assets
    
    
    657,511
    
    
    
    620,673
    
    
    
    428,400
    
    
    
    383,100
    
    
    
    310,735Current portion of long-term debt and capitalized lease
obligations
    
    
    12,670
    
    
    
    10,031
    
    
    
    8,015
    
    
    
    7,924
    
    
    
    7,574Long-term debt and capitalized lease obligations,
including current portion
    
    
    191,139
    
    
    
    209,629
    
    
    
    132,102
    
    
    
    121,929
    
    
    
    122,244Total shareholders equity
    
    
    330,740
    
    
    
    300,187
    
    
    
    227,560
    
    
    
    201,872
    
    
    
    141,658
 19




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##### Table of Contents



(1)
    
    On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, a casual dining
restaurant company based in Woburn, Massachusetts. Our fiscal 2003 earnings include the
earnings of Ninety Nine for the period from January 27, 2003 through December 28, 2003.(2)
    
    The financial information shown as of December 29, 2002, and for fiscal 2001 and
2000 has not been audited and reflects our previously issued financial information
restated as discussed in Note 2 of the notes to the consolidated financial statements.(3)
    
    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.(4)
    
    During the third quarter of fiscal 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. 20




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##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations. Restatement of Financial Statements On February 7, 2005, the Office of the Chief Accountant of the SEC issued a letter to the
American Institute of Certified Public Accountants (the SEC letter) expressing its views
regarding certain operating lease accounting issues and their application under U.S. generally
accepted accounting principles (GAAP). Following the release of the SEC letter, many restaurant
companies and retailers reviewed their previous interpretation of these lease accounting issues and
announced that they would restate their results for previous periods. On March 3, 2005, management
and the Audit Committee of the Board of Directors concluded that certain of our historical methods
of accounting for operating leases were not in accordance with GAAP, and that we would restate
certain of our previously issued consolidated financial statements. With
respect to rent holidays, the SEC letter states that pursuant to the response in
paragraph 2 of Financial Accounting
Standards Board (FASB) Technical Bulletin 85-3, Accounting for
Operating Leases with Scheduled Rent Increases, rent holidays in an
operating lease should be recognized by the lessee on a straight-line
basis over the lease term (including any rent holiday period) unless
another systematic and rational allocation is more representative of
the time pattern in which leased property is physically
employed. The period from when leased land is made available to
us for the construction of a new restaurant and when the lease payments begin is a rent holiday.
Since we did not previously recognize rent expense during the rent
holiday period, we were understating rent expense during the construction period,
and overstating rent during subsequent periods. We have made restatement adjustments to recognize straight-line rent expense
beginning on the date that we took possession of the leased land or premises. Tenant
improvement incentives are typically provided by landlords to pay a portion
of the cost associated with constructing improvements on the leased premises.
We do not typically receive tenant improvement allowances on our leases.
However, we received a tenant improvement allowance on one lease during 2001.
We recognized the allowance as a reduction in the capitalized amount of the leasehold
improvements, thereby reducing the related depreciation.  The SEC
letter states that such allowances should be recorded as deferred
rent and amortized as reductions to rent expense over the lease term.
We have made adjustments to our consolidated balance sheet to
record the allowance as deferred rent. These adjustments had no net
impact on our consolidated statements of earnings. These adjustments,
because the tenant improvement allowance was received during 2001,
had no impact on our consolidated statement of cash flows. Prior
to our 2000 fiscal year,
we did not recognize rent expense on leases with escalating rental obligations using the
required straight-line rent method. Beginning with leases entered
into in fiscal 2000, we have recognized rent expense by applying the straight-line rent method. For leases on restaurants
opened during our 2000 and 2001 fiscal years, we recognized depreciation expense for
leasehold improvements using economic lives that were longer than the time periods used for
calculating straight-line rent expense on the underlying leases. Beginning with leases entered
into in fiscal 2002, we have recognized depreciation expense for leasehold improvements
using a useful life that is consistent with the time period used for straight-line rent
calculations. For purpose of straight-line rent expense and depreciating leasehold improvements,
we use the estimated lease term, inclusive of one renewal period. We
have made
adjustments to the prior period consolidated financial statements to
correct these errors. We did not amend our previously filed Annual Reports on Form 10-K or Quarterly Reports on Form
10-Q for the restatement, and the financial statements and related financial information contained
in such reports should no longer be relied upon. Prior to the issuance of the SEC letter, we issued a press release on February 3, 2005 setting
forth our unaudited consolidated statement of earnings for the fiscal year ended December 26,
2004. The net earnings reported on the consolidated statement of earnings for the fiscal year
ended December 26, 2004 contained in this Annual Report on
Form 10-K is lower than the previously
issued unaudited results by $1.1 million, or $0.04 per diluted share. This change resulted from the
change in accounting for operating leases; the correction of other
errors as described in Note 2 to
the notes to consolidated financial statements; a subsequent event described in Note 21 to the
notes to consolidated financial statements; and the accrual of additional audit fees associated
with the restatement. The following discussion of our financial condition and results of operations gives effect to the restatement and should be read in conjunction with the
consolidated financial statements and related notes. Overview We are a leading casual dining restaurant company operating 221 OCharleys restaurants in 16
states in the Southeast and Midwest, 99 Ninety Nine restaurants in seven Northeastern states, and
six Stoney River restaurants in the Southeast and Midwest. We also have one restaurant in
Michigan operated by a franchisee and another restaurant located in Louisiana operated by a joint
venture franchisee in which we have a financial interest. Fiscal years end on the last Sunday of the calendar year. Fiscal 2004, 2003 and 2002 each
consisted of 52 weeks. We have one reportable segment. During the third quarter of 2004, 62 of our OCharleys restaurants, or approximately 28% of
the chain, were affected by Hurricane Ivan. We estimate that the combination of lost sales and
required repairs after the storm adversely affected our earning in fiscal 2004 by approximately
$600,000 before tax, or approximately $0.02 per diluted share. All of these stores have
substantially recovered and are back to normal operating capacity. Following is an explanation of certain items in our consolidated statement of earnings: Revenuesconsist of restaurant sales and, to a lesser extent, commissary sales and franchise
revenues. 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. Franchise revenue consists of development fees and royalties on
sales of franchised units. Our development fees for franchisees in which we do not have an
ownership interest are generally $50,000 for the first two stores and $25,000 for each additional store
opened by the franchisee. The 21




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##### Table of Contents



development fees are recognized during the reporting period in which
the developed store begins operation. The royalties are recognized in revenue in the period
corresponding to the franchisees sales. Cost of Food and Beverageprimarily consists of the costs of beef, poultry, seafood, produce
and alcoholic and non-alcoholic beverages. The two most significant commodities that may affect our
cost of food and beverage are beef and poultry, which account for approximately 20% to 22% and 10%
to 12%, respectively, of our overall cost of food and beverage. 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,
stock-based compensation and related expenses; data processing, legal and accounting expenses; and
office expenses account for the major expenses in this category. This category also includes all
severance-related expenses. Depreciation and Amortizationprimarily includes depreciation on property and equipment
calculated on a straight-line basis over the estimated useful lives of the respective assets or the
expected lease term for leasehold improvements, if shorter. Preopening Costsrepresent costs incurred prior to a restaurant opening and are expensed as
incurred. These costs also include straight-line rent related to leased properties from the period
of time between when the leased property is physically employed and the date on which the
restaurant opens. 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. 22




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##### Table of Contents



Results of Operations 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 fiscal years 2004, 2003, and 2002 as a
percentage of total revenues unless otherwise indicated. All fiscal years presented were comprised
of 52 weeks. 2004
    
    
    2003
    
    
    2002(restated)
    
    
    
    (restated)Revenues:Restaurant sales
    
    
    99.2
    %
    
    
    99.3
    %
    
    
    99.0
    %Commissary sales
    
    
    0.8
    
    
    
    0.7
    
    
    
    1.0Franchise revenue
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and expenses:Cost of restaurant sales:(1)Cost of food and beverage
    
    
    30.2
    %
    
    
    29.3
    %
    
    
    28.4
    %Payroll and benefits
    
    
    33.6
    
    
    
    33.5
    
    
    
    31.2Restaurant operating costs
    
    
    18.2
    
    
    
    18.5
    
    
    
    17.4Cost of commissary sales (2)
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.9Advertising, general and administrative
    
    
    7.3
    
    
    
    6.9
    
    
    
    7.5Depreciation and amortization
    
    
    4.6
    
    
    
    4.8
    
    
    
    5.1Preopening costs
    
    
    0.7
    
    
    
    0.9
    
    
    
    1.1Income from operations
    
    
    5.3
    
    
    
    6.0
    
    
    
    9.1Interest expense, net
    
    
    1.5
    
    
    
    1.9
    
    
    
    1.1Debt extinguishment charge
    
    
    
    
    
    
    0.2
    
    
    
    Other, net
    
    
    
    
    
    
    (0.1
    )
    
    
    Earnings before income taxes and cumulative effect of change in accounting
principle
    
    
    3.8
    
    
    
    4.0
    
    
    
    8.0Income taxes
    
    
    1.1
    
    
    
    1.2
    
    
    
    2.8Earnings before cumulative effect of change in accounting
principle
    
    
    2.7
    
    
    
    2.8
    
    
    
    5.2Cumulative effect of change in accounting principle,
net of tax
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Net earnings
    
    
    2.7
    %
    
    
    2.8
    %
    
    
    4.0
    %
   (1)
    
    As a percentage of restaurant sales.(2)
    
    Cost of commissary sales as a percentage of commissary sales was 94.3%, 94.3%, and
93.5% for fiscal years 2004, 2003, and 2002 respectively. 23




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##### Table of Contents



The following tables set forth certain unaudited financial and other restaurant data relating
to company-owned restaurants: 2004
    
    
    2003
    
    
    2002Number of Restaurants:OCharleys Restaurants:In operation, beginning of year
    
    
    206
    
    
    
    182
    
    
    
    161Restaurants opened
    
    
    15
    
    
    
    26
    
    
    
    24Restaurant closed
    
    
    
    
    
    
    (2
    )
    
    
    (3
    )In operation, end of year
    
    
    221
    
    
    
    206
    
    
    
    182Ninety Nine Restaurants:In operation, beginning of year
    
    
    87
    
    
    
    78Restaurants opened
    
    
    12
    
    
    
    10Restaurants closed
    
    
    
    
    
    
    (1
    )In operation, end of year
    
    
    99
    
    
    
    87Stoney River Restaurants:In operation, beginning of year
    
    
    6
    
    
    
    6
    
    
    
    3Restaurants opened
    
    
    
    
    
    
    
    
    
    
    3In operation, end of year
    
    
    6
    
    
    
    6
    
    
    
    6Average Weekly Sales per Restaurant:OCharleys
    
    $
    52,703
    
    
    $
    51,467
    
    
    $
    53,574Ninety Nine
    
    
    52,777
    
    
    
    52,033
    
    
    
    Stoney River
    
    
    75,267
    
    
    
    70,277
    
    
    
    69,834Change in Same Restaurant Sales (1):OCharleys
    
    
    3.1
    %
    
    
    (2.5
    %)
    
    
    (0.1
    %)Ninety Nine
    
    
    1.3
    %
    
    
    1.1
    %
    
    
    Stoney River
    
    
    6.4
    %
    
    
    1.6
    %
    
    
    0.6
    %Change in Customer Visits (1):OCharleys
    
    
    3.9
    %
    
    
    (2.3
    %)
    
    
    (2.6
    %)Ninety Nine (2)
    
    
    (1.7
    %)
    
    
    
    
    
    
    Stoney River
    
    
    1.1
    %
    
    
    
    
    
    
    Average Check:OCharleys
    
    $
    11.52
    
    
    $
    11.60
    
    
    $
    11.59Ninety Nine
    
    
    13.86
    
    
    
    13.78
    
    
    
    Stoney River
    
    
    39.53
    
    
    
    37.42
    
    
    
    37.11
   (1)
    
    When computing same restaurant sales and customer visits, restaurants
open for at least 78 weeks are compared from period to period.(2)
    
    Change in customer visits is not available for Ninety Nine prior to
2004 as the OCharleys methodology of counting customer
visits was adopted
subsequent to the completion of the acquisition and we are unable to recast 2002
customer visits using that same methodology. 24




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##### Table of Contents



Fiscal Year 2004 Compared with Fiscal Year 2003 Revenues During 2004, total revenues increased $112.4 million, or 14.8%, to $871.4 million from $759.0
million in 2003. Total revenues for 2004 included 16 weeks of sales from the operations of Ninety
Nine restaurants in the first fiscal quarter of 2004 compared to 12 weeks of Ninety Nine results in
the first fiscal quarter of 2003 (we acquired Ninety Nine on January 27, 2003). OCharleys restaurant sales increased $62.1 million, or 11.8%, to $588.4 million during 2004
as a result of same restaurant sales increases of 3.1% and the addition of 15 restaurants during
the past 12 months. The 3.1% same restaurant sales increase was comprised of a 3.9% increase in the
number of customer visits partially offset by a 0.7% decrease in our average check. Ninety Nine restaurant sales increased $46.5 million, or 22.6%, during 2004. The
year-over-year sales increase was primarily related to same restaurant sales increases of 1.3% in
2004 and the addition of 12 new restaurants over the past 12 months. The same restaurant sales
increase was comprised of a 3.0% check average increase partially offset by a 1.7% decline in
customer visits. Stoney River restaurant sales increased $1.6 million, or 7.1%, during 2004 due primarily to
same restaurant sales increases of 4.9%. The 6.4% same restaurant sales increase was comprised of a
5.3% improvement in the average check coupled with a 1.1% increase in customer counts. Cost of Food and Beverage During 2004, we continued to experience higher food costs, a trend that began during the
second quarter of 2003. We estimate that food cost inflation, as compared to the same prior-year
period, was approximately 4% in 2004, consisting primarily of higher poultry, pork and cheese
costs. Commodity cost increases resulted in an increase in the cost of food and beverage of 0.8% of
restaurant sales compared to fiscal 2003. We estimate that commodity cost inflation adversely
affected our diluted earnings per share by approximately $0.21 in 2004 as compared to the prior
year. During 2003 and 2004, poultry represented, on average, approximately 10% to 12% of our cost of
food and beverage. During 2004, our price of purchasing poultry was approximately 16% higher
compared to the prior year. Historically, we have not entered into contracts to fix poultry prices
and, accordingly, we were subject to weekly market price fluctuations during fiscal 2004 and 2003. Payroll and Benefits During 2004, payroll and benefits increased 10 basis points as a percentage of restaurant
sales compared to the same prior-year period. Higher store-level bonus expense, payroll taxes and
workers compensation expenses were partially offset by lower hourly health insurance costs. The
higher store-level bonus expenses, and the resulting increase in payroll taxes, are related to the
improving sales trends and margins at our OCharleys stores. The increase in workers
compensation expenses related to more favorable cost trends late in 2003. The lower hourly
insurance costs are related to better than expected claims experience compared to 2003. Restaurant Operating Costs Restaurant operating costs during 2004 decreased as a percentage of restaurant sales as
compared to 2003 primarily due to decreased supervisory expenses partially offset by increased rent
expense from sale and leaseback transactions. During the fourth quarter of 2003 and the first
quarter of 2004 we completed sale and leaseback transactions pursuant to which we sold 34
OCharleys restaurant properties for aggregate gross proceeds of approximately $71.2 million. The
leases that we have entered into in connection with the $71.2 million sale and leaseback
transactions will require us to expense on a straight-line basis approximately $4.9 million
annually, including the amortization of the $21.4 million deferred gain over the 20-year lease
term. The reduction in supervisory expenses as a percentage of restaurant sales was due to a
reduction in the number of operational supervisory positions during the first quarter of 2004. 25




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##### Table of Contents



Advertising, General and Administrative Expenses During 2004, advertising expenditures increased 5.6% to $25.6 million from $24.3 million in
2003 and, as a percentage of total revenues, declined to 2.9% from 3.2% in the prior year. The
decrease in advertising expenditures as a percentage of total revenues is primarily due to
economies of scale by having a higher concentration of stores in existing markets. General and
administrative expenses increased 36.7% to $38.2 million in 2004 from $27.9 million in 2003, and as
a percentage of total revenues, increased to 4.4% from 3.7% in the prior year. The increase in
general and administrative expenses, as a percentage of total revenues, is due primarily to
increased incentive compensation expense. During 2004, we shifted the emphasis of our equity-based
compensation plans from stock options to restricted stock. During 2004, the expense associated
with these equity-based compensation plans reduced earnings by $0.05 per diluted share compared to
$0.01 per diluted share during fiscal 2003. Depreciation and Amortization During 2004, depreciation and amortization of property and equipment decreased as a percentage
of total revenues. The decrease was primarily attributable to approximately $1.4 million of
depreciation that was eliminated as a result of the sale and leaseback transactions completed
during the fourth quarter of 2003 and the first quarter of 2004. Pre-opening Costs During 2004, pre-opening costs declined as a percentage of total revenues due primarily to
fewer restaurant openings compared to the same prior-year periods. We estimate average pre-opening
costs of approximately $230,000 for each new OCharleys restaurant, approximately $275,000 for
each new Stoney River restaurant and approximately $173,000 for each new Ninety Nine restaurant. Interest Expense Interest expense decreased during 2004 compared to the prior year as a result of the reduction
of amounts outstanding under our revolving credit facility with $71.2 million of aggregate gross
proceeds from the sale and leaseback of 34 OCharleys restaurant properties. Interest expense
during 2004 reflects $125.0 million of senior subordinated notes at a fixed rate of 9.0%;
approximately $21.0 million outstanding on our $125.0 million bank revolver accruing interest at
one-month LIBOR plus 1.75%; and other debt including capitalized lease obligations and prepaid
financing costs that accounted for approximately $4.5 million in interest expense during 2004.
Approximately $100.0 million of the 9.0% senior subordinated notes have been effectively converted
through interest rate swap agreements into a variable interest rate obligation using the six-month
LIBOR rate in arrears plus 3.9%. Income Taxes Our effective income tax rate in fiscal 2004 was 28.6% compared to 30.4% in 2003. The
reduction resulted primarily from an increase in the net benefit from the FICA tip and other
credits from $2.8 million in 2003 to $3.6 million in 2004. Our tax rates in both years have been
adjusted for the restatement associated with lease accounting, during which we also adjusted our
tax accounts to correct prior year computation errors as well as to adjust our 2004 provision for
revised state apportionment factors that we calculated as a part of the filing of our fiscal 2003
tax return during the fourth quarter of 2004. 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 26




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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 Item 3  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 1%. 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. 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 percentage 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 as compared to the same prior year period
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. Advertising, General and Administrative Expenses In 2003, advertising expenditures increased 43.6% to $24.3 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 has historically spent less on advertising as a percent of restaurant
sales compared to OCharleys restaurants. General and administrative expenses increased 40.7% to
$27.9 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 27




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salaries and related expenses, associated with operating multiple concepts, which increased
general and administrative expense. 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 incurred less bonus compensation
during fiscal 2003 than during fiscal 2002. 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. 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. 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 30.4% which is lower than the 34.7% income tax rate in prior
year. 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. 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 941,176 shares at the
closing of the acquisition, 390,586 shares on the first anniversary, and 407,843 shares on the
second anniversary and will issue an additional 407,843 shares on the third anniversary of the
closing of the acquisition and 94,118 shares on each of the fourth and fifth anniversaries of the
closing. 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. 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
941,176 shares at closing, 390,586 shares on the first anniversary and 407,843 on the second
anniversary and will deliver 407,843 on the third anniversary of the closing and 94,118 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 28




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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 Company was in compliance with or had received waivers of compliance with such covenants at
December 26, 2004. The credit facility contains certain events of default, including an event of
default resulting from certain changes in control. All amounts owing under the facility are
secured by 100% of the equity interests we own of each of our existing and future subsidiaries and
all of the tangible and intangible assets, other than real property acquired after the date of the
credit facility and equipment, of us and substantially all of our subsidiaries. The lenders may,
under certain circumstances, also require that we pledge such real estate and equipment as
collateral. During the fourth quarter of 2003, we also 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 completed a sale and leaseback 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. 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 effectively convert some of our
obligations that bear interest at fixed rates into variable rate obligations. As of December 26,
2004, we had interest rate swap agreements with commercial banks, which effectively fixed the
interest rate on $10.0 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
relating to the $10.0 million of our indebtedness expires in
January 2006 and is accounted for as a cash flow hedge. 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 $125 million aggregate
principal amount of senior subordinated notes due 2013 into variable-rate obligations. The total
notional amount of these swaps was 29




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$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 and are
accounted for as fair value hedges. These swap agreements expire in November
2013. The Companys weighted average interest rate for 2004 and 2003 was 6.9% and 6.2%,
respectively. 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 included capital expenditures incurred principally
for building new restaurants, improvements to existing restaurants and technological improvements
at our home office. Capital expenditures were $60.5 million in 2004, excluding $10.8 million of
new restaurant equipment financed through capitalized lease obligations, compared to $67.6 million
in 2003 and $69.7 million in 2002. 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
2005 capital budget includes approximately $70 to $80 million for capital expenditures, excluding
new restaurant equipment financed through capitalized lease obligations. These expenditures are for
an estimated 13 to 15 additional OCharleys restaurants, a similar number of new Ninety Nine
restaurants, 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 2005 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. The following tables set forth our capital structure and certain financial ratios and
financial data as at and for the fiscal years ended December 26, 2004 and December 28, 2003: 2004
    
    

2003 (restated)($ in thousands)
    
    $
    
    
    %
    
    

$
    
    
    %Revolving credit facility
    
    $
    21,000
    
    
    
    4.0
    %
    
    $
    40,000
    
    
    
    7.8
    %Secured mortgage note payable
    
    
    146
    
    
    
    0.0
    
    
    
    164
    
    
    
    0.0Capitalized lease obligations
    
    
    44,993
    
    
    
    8.6
    
    
    
    44,465
    
    
    
    8.7Total senior debt
    
    
    66,139
    
    
    
    12.7
    
    
    
    84,629
    
    
    
    16.6Senior subordinated notes
    
    
    125,000
    
    
    
    24.0
    
    
    
    125,000
    
    
    
    24.5Total debt (1) (2)
    
    
    191,139
    
    
    
    36.6
    
    
    
    209,629
    
    
    
    41.1Shareholders equity
    
    
    330,740
    
    
    
    63.4
    
    
    
    300,187
    
    
    
    58.9Total capitalization
    
    $
    521,879
    
    
    
    100.0
    %
    
    $
    509,816
    
    
    
    100.0
    %Adjusted total debt (1) (3)
    
    $
    430,299
    
    
    
    
    
    
    $
    391,029Adjusted total capitalization (1) (3)
    
    $
    761,039
    
    
    
    
    
    
    $
    691,216
 At December 26,
    
    
    At December 28,2004
    
    
    2003(restated)EBITDA (1) (4)
    
    $
    85,955
    
    
    $
    80,963Ratio of total debt to EBITDA
    
    
    2.2
    x
    
    
    2.6
    xRatio of EBITDA to interest expense, net
    
    
    6.4
    x
    
    
    5.7
    xRatio of total debt to total capitalization
    
    
    37
    %
    
    
    41
    %Ratio of adjusted total debt to adjusted
total capitalization
    
    
    57
    %
    
    
    57
    %
   (1)
    
    We believe EBITDA, total debt, 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 should
not be considered as measures of financial performance or liquidity under
U.S. generally accepted accounting principles. EBITDA, total debt,
adjusted total debt and 30




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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, total debt, adjusted total debt and adjusted total capitalization,
as presented, may not be comparable to similarly titled measures of other
companies.(2)
    
    Total debt represents the long-term debt and capitalized
lease obligations, in each case including current portion. The following
table reconciles total debt, as described above, to the long-term debt and
capitalized lease obligations, in each case including current portion as
reflected in our consolidated balance sheets: Fiscal Years($ in thousands)
    
    2004
    
    
    2003Current portion of long-term debt and capitalized
lease obligations
    
    $
    12,670
    
    
    $
    10,031Add:Long-term debt, excluding current portion
    
    
    146,125
    
    
    
    165,145Capitalized lease obligations, excluding
current portion
    
    
    32,344
    
    
    
    34,453Total debt
    
    $
    191,139
    
    
    $
    209,629
   (3)
    
    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 26,
2004 and December 28, 2003, 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 26, 2004 and December 28, 2003, respectively,
multiplied by (b) eight. 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 Years2004
    
    
    2003($ in thousands)
    
    
    
    
    (restated)Current portion of long-term debt and capitalized
leases
    
    $
    12,670
    
    
    $
    10,031Add:Long-term debt, excluding current portion
    
    
    146,125
    
    
    
    165,145Capitalized lease obligations, excluding
current portion
    
    
    32,344
    
    
    
    34,453Total debt
    
    
    191,139
    
    
    
    209,629Add eight times:Rent expense
    
    
    239,160
    
    
    
    181,400Adjusted total debt
    
    
    430,299
    
    
    
    391,029Add:Shareholders equity
    
    
    330,740
    
    
    
    300,187Adjusted total capitalization
    
    $
    761,039
    
    
    $
    691,216
   (4)
    
    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 statements
of earnings and cash flows: 31




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Fiscal Years2004
    
    
    2003(restated)Earnings before cumulative effect of change in
accounting principle
    
    $
    23,319
    
    
    $
    21,189Add:Income tax expense
    
    
    9,362
    
    
    
    9,261Interest
expense, net
    
    
    13,476
    
    
    
    14,153Depreciation
and amortization
    
    
    39,798
    
    
    
    36,360EBITDA
    
    $
    85,955
    
    
    $
    80,963
 Fiscal Years2004
    
    
    2003(restated)Cash flows provided by operating
activities
    
    $
    70,498
    
    
    $
    68,320Adjustment for items included in cash provided
by operating activities but excluded from the
calculation of EBITDA:Debt extinguishment charge
    
    
    
    
    
    
    (1,800
    )Deferred income taxes
    
    
    464
    
    
    
    (184
    )Compensation expense related to restricted
stock plans
    
    
    (2,171
    )
    
    
    (470
    )Amortization of deferred gain on sale
leaseback
    
    
    1,055
    
    
    
    163(Loss) gain on sale and involuntary
conversion of assets
    
    
    (215
    )
    
    
    423Donation of stock
    
    
    (137
    )
    
    
    Changes in operating assets and liabilities,
net of Ninety Nine acquisition
    
    
    358
    
    
    
    (1,043
    )Changes in long-term assets and
liabilities
    
    
    (4,062
    )
    
    
    (1,984
    )Tax benefit derived from exercise of stock
Options
    
    
    (1,224
    )
    
    
    (4,692
    )Income tax expense
    
    
    9,362
    
    
    
    9,261Interest expense
    
    
    12,027
    
    
    
    12,969EBITDA
    
    $
    85,955
    
    
    $
    80,963
 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. Contractual Obligations and Commercial Commitments The following tables set forth our contractual obligations and commercial commitments at
December 26, 2004. 32




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##### Table of Contents



Payments Due by PeriodContractual
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More thanObligation
    
    Total
    
    
    1 Yr
    
    
    1-3 Yrs
    
    
    3-5 Yrs
    
    
    5 Years(in thousands)Long-term debt
    
    $
    146,146
    
    
    $
    21
    
    
    $
    21,048
    
    
    $
    60
    
    
    $
    125,017Capitalized lease
obligations (1)
    
    
    48,628
    
    
    
    13,697
    
    
    
    19,493
    
    
    
    13,580
    
    
    
    1,858Operating leases
    
    
    438,793
    
    
    
    27,221
    
    
    
    55,195
    
    
    
    55,371
    
    
    
    301,006Interest rate swaps
    
    
    614
    
    
    
    614
    
    
    
    
    
    
    
    
    
    
    
    Unconditional
purchase
obligations (2)
    
    
    58,409
    
    
    
    54,055
    
    
    
    3,671
    
    
    
    683
    
    
    
    Total contractual
cash
obligations
    
    $
    692,590
    
    
    $
    95,608
    
    
    $
    99,407
    
    
    $
    69,694
    
    
    $
    427,881
 Amount of Commitment Expiration per PeriodOther Commercial
    
    Total
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More thanCommitments
    
    Committed
    
    
    1 Yr
    
    
    1-3 Yrs
    
    
    3-5 Yrs
    
    
    5 Years(in thousands)Line of credit (3)
    
    $
    125,000
    
    
    
    
    
    
    $
    125,000
    
    
    
    
    
    
    
    Guarantee of
joint-venture
financing (4)
    
    $
    15,000
    
    
    
    
    
    
    $
    15,000
    
    
    
    
    
    
    
    
   1)
    
    Capitalized lease obligations include the $3.6 million interest component.2)
    
    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 26, 2004 to determine the amount of the obligation. Of the total
unconditional purchase obligations shown, $13.7 million are based on variable pricing.3)
    
    This pertains to our revolving line of credit of which $21.0 million is included in long-term
debt shown above.4)
    
    This pertains to the financing arrangement with GE Capital Franchise Finance Corporation and
represents our maximum obligation. As of December 26, 2004, there were no loans outstanding
under this financing arrangement. Joint Ventures and Franchise Financing Arrangement In connection with our franchising initiative, we may from time to time enter into joint
venture arrangements to develop and operate OCharleys restaurants. For any franchisee in which we
have an ownership interest, we may make loans to the joint venture entity and/or guarantee certain
of its debt and obligations. On November 11, 2004, we entered into a Program Agreement with GE Capital Franchise Finance
Corporation. Under the terms of the Program Agreement, GE Capital Franchise Finance Corporation
will provide financing to certain qualified franchisees of our OCharleys restaurants (typically
those in which we have an ownership interest) in a maximum aggregate amount of $75,000,000. Such
financing may be used to fund the acquisition, construction and installation of the land, building
and equipment for new OCharleys restaurants opened by such franchisees or to fund a franchisees
acquisition from us of the land, building and equipment for existing OCharleys restaurants. Under
the program, financing will be provided in the maximum amount of $2.5 million per location or 80%
of the total acquisition and construction costs relating to each restaurant, whichever is less. In consideration of the lenders agreement to make financing available under the program to
certain of our franchisees, we have agreed, subject to limitations, to guarantee payment to the
lender of any ultimate net losses it may suffer in connection with loans under the program. Our
maximum liability under such ultimate net loss guarantee is equal to the lesser of 20% of the sum
of the original funded principal balances of all loans under the program and $15 million. In
addition to the ultimate net loss guarantee, we have agreed to purchase any such loans that have
been declared in default by the lender if the sum of the original funded principal balances of all
loans under the program is less than $10 million. Subject to certain exceptions, our guarantee of
loans under the program shall remain in effect for as long as the loans are outstanding. To date, we have invested in two joint ventures for the development of OCharleys
restaurants. On August 20, 2004, we invested in a joint venture for the development of ten
OCharleys restaurants in certain markets in Louisiana. 33




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Under the terms of the Limited Liability Company Agreement for the Louisiana joint venture,
ownership of the joint venture entity is shared equally between us and our joint venture partner.
The joint venture entity is managed by a Board of Managers composed of two individuals designated
by the joint venture partner and two individuals designated by us. The joint venture partner is
required to make capital contributions in the aggregate amount of $500,000 to the joint venture
entity and we have agreed to make loans to the joint venture entity in the maximum principal amount
of $750,000. The loan is secured by substantially all of the assets of the joint venture entity and
is personally guaranteed by the joint venture partner. In the event that the joint venture entity has opened three restaurants in accordance with the
Development Agreement, is not in default of any franchise agreement with us or the Limited
Liability Company Agreement and has received a commitment to finance the remaining restaurants to
be developed under the Development Agreement on terms reasonably satisfactory to us, the joint
venture partner will have, for a certain period of time, the right to purchase our membership
interest in the joint venture entity upon the payment of certain amounts to us and the satisfaction
of certain conditions, including repaying all amounts outstanding under the Revolving Loan
Agreement and obtaining a release of our guaranty of any debt or other obligations of the joint
venture entity. In the event that the joint venture partner does not exercise its option to
purchase our membership interest in the joint venture entity, the joint venture partner is not
entitled to exercise its option to purchase our membership interest or we have terminated the
Development Agreement or any franchise agreement in accordance with their terms, we will have the
right, for a certain period of time, to purchase the joint venture partners membership interest in
the joint venture entity. In order to exercise such option, we will be required to pay certain
amounts to the joint venture partner and obtain a release of his guaranty of any debt of the joint
venture entity. On November 8, 2004, we invested in a second joint venture for the development of ten
OCharleys restaurants in certain markets in Wisconsin. Under the terms of the Limited Liability
Company Agreement for the Wisconsin joint venture, ownership of the joint venture entity is shared
equally between us and Wi-Tenn Investors, LLC, our joint venture partner. The joint venture entity
is managed by a Board of Managers composed of two individuals designated by the joint venture
partner and two individuals designated by us. The joint venture partner is required to make capital
contributions in the aggregate amount of $500,000 to the joint venture entity and we have agreed to
make loans to the joint venture entity in the maximum principal amount of $750,000. The loan is
secured by substantially all of the assets of the joint venture entity. In the event that the joint venture entity has opened three restaurants in accordance with the
Development Agreement, is not in default of any franchise agreement with us or the Limited
Liability Company Agreement and has received a commitment to finance the remaining restaurants to
be developed under the Development Agreement on terms reasonably satisfactory to us, the joint
venture partner will have, for a certain period of time, the right to purchase our membership
interest in the joint venture entity upon the payment of certain amounts to us and the satisfaction
of certain conditions, including repaying all amounts outstanding under the Revolving Loan
Agreement and obtaining a release of our guaranty of any debt or other obligations of the joint
venture entity. In the event that the joint venture partner does not exercise its option to
purchase our membership interest in the joint venture entity, the joint venture partner is not
entitled to exercise its option to purchase our membership interest or we have terminated the
Development Agreement or any franchise agreement in accordance with their terms, we will have the
right, for a certain period of time, to purchase the joint venture partners membership interest in
the joint venture entity. In order to exercise such option, we will be required to pay certain
amounts to the joint venture partner and obtain a release of the joint venture partners guaranty
of any debt of the joint venture entity. Critical Accounting Policies Our critical accounting policies are as follows:  
    Lease accounting
    Equity-based compensation
    Property and equipment
    Goodwill and trademarks
    Impairment of long-lived assets 34




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Lease Accounting On February 7, 2005, the Office of the Chief Accountant of the SEC issued a letter to the
American Institute of Certified Public Accountants (the SEC letter) expressing its views
regarding certain accounting principles relating to three aspects of lease accounting: the period
of time used for the amortization of leasehold improvements; the recognition of rent expense when
the lease term in an operating lease contains a period of free or reduced rents commonly referred
to as a rent holiday; and accounting for landlord improvement incentives to tenants. In light of
this letter, we determined that our historical methods of accounting for rent holidays and
tenant improvement allowances were not in accordance with GAAP. As a result, we restated prior
period financial statements and changed our policy for accounting for operating leases. Our new policy for lease accounting involves recognizing rent on a straight-line basis from
the time we are committed to a leased property, which is when all contingencies associated with the
delivery of the property by the landlord are taken care of, to the end of the lease term, inclusive
of one renewal period. The lease term, for purposes of straight-line rent calculations and the
useful life over which leasehold improvements are depreciated, is the shorter of the estimated
useful life of the leased property or the base lease term, inclusive of one renewal period. We
also recognize tenant allowances as a deferred rent liability and amortize them over the lease
term, inclusive of one renewal period. Equity Based Compensation On December 16, 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
123 (revised), Share-Based Payment. This standard requires expensing of stock options and other
share-based payments beginning in 2005, and supersedes FASBs earlier rule (the original SFAS 123)
that had allowed companies to choose between expensing stock options or showing pro forma
disclosure only. We are continuing to evaluate the impact of this new standard on our earnings
and currently expect that the impact on fiscal 2005 earnings of adopting this new standard in the
third fiscal quarter of 2005 will be in the range of $0.03 to $0.05 per diluted share. In addition to our stock option plans, we grant restricted stock and restricted stock units as
part of our equity-based compensation arrangements. Many of these restricted stock plans have
performance-based vesting features, where the number of shares that vest each year depends upon our
achievement of certain financial targets. In some plans, the shares that do not vest in any year
are forfeited, while in other plans, the shares that do not vest in any year are available to vest
in future years depending upon our cumulative achievement of multi-year financial targets. The
accounting for these compensation arrangements is complicated and requires significant judgment on
the part of management related to the ultimate number of shares that will vest, as well as overall
impact of both on the basic and diluted weighted average share calculation. The performance-based
awards require variable accounting under APB No. 25 and Financial Accounting Standards Board
Interpretation 28. We believe that our accounting policy for equity-based compensation provides for a reasonable
and systematic means of recognizing the expense over the period of time that we derive the benefits
of the employee service. During 2004, the expense associated with our equity-based compensation
plans reduced earnings by approximately $0.05 per diluted share. We anticipate the reduction of
earnings in 2005 associated with the expense of equity-based awards to be $0.10 to $0.12 per
diluted share. 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 basis 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, inclusive of one renewal period. Equipment under capital leases is amortized
to its expected value 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 35




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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 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. 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 26, 2004, we have $93.1 million in goodwill and $25.9 million in indefinite life
intangible assets shown in our consolidated balance sheets 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. We have relied on the judgments of outside valuation experts
in evaluating the carrying value of our goodwill and other intangible assets to the extent that the
comparative information contained in our report is appropriate information to use in assessing
whether these assets are impaired. 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. 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 27, 2004, the first day of fiscal
2005 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 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 36




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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. Recently Issued Accounting Pronouncements In November 2004, the FASB issued SFAS No. 151, Inventory Costs. SFAS No. 151 amends guidance
in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151
requires that those items be recognized as current-period charges regardless of whether they meet
the criterion of so abnormal. In addition, SFAS No. 151 requires that the allocation of fixed
production overhead costs be based on the normal capacity of production facilities. We are
required to adopt SFAS No. 151 in 2006. We are still evaluating the components of this new
standard and do not expect it to have a material impact on our consolidated financial statements. In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires
us to measure the cost of employee services received in exchange for an award of equity instruments
based on the grant-date fair value of the award. SFAS No. 123R will be effective for us beginning
July 11, 2005. We are continuing to evaluate the effect of adoption on our consolidated financial
statements and believe that the estimated impact in fiscal 2005 will be approximately $0.03 to $0.05
per diluted share. In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate Time-Sharing
Transactions. The FASB issued this Statement as a result of the guidance provided in AICPA
Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing transactions. SOP 04-2
applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance
on the recording of credit losses and the treatment of selling costs, but does not change the
revenue recognition guidance in SFAS No. 66, Accounting for Sales of Real Estate, for real estate
time-sharing transactions. SFAS No. 152 amends Statement No. 66 to reference the guidance provided
in SOP 04-2. SFAS No. 152 also amends SFAS No. 67, Accounting for Costs and Initial Rental
Operations of Real Estate Projects, to state that SOP 04-2 provides the relevant guidance on
accounting for incidental operations and costs related to the sale of real estate time-sharing
transactions. SFAS No. 152 is effective for years beginning after June 15, 2005, with restatements
of previously issued financial statements prohibited. This statement is not applicable to us. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an
amendment to Opinion No. 29, Accounting for Nonmonetary Transactions. Statement No. 153
eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance
contained in standards issued by the International Accounting Standards Board. The amendment to
Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary assets that do not
have commercial substance. Such an exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning
after December 16, 2004. We do not expect adoption of SFAS No. 153 to 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. Commodity
inflation has had a significant impact on our cost of food and beverage over the past 18 months. 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. 37




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Outlook for 2005 Our expectations for 2005 are for same restaurant sales increases of 1 to 3% for OCharleys
and 0 to 2% for Ninety Nine. We expect to open between 13 and 15 new company-owned OCharleys
restaurants, a similar number of Ninety-Nine restaurants, and two new Stoney River Legendary Steaks
restaurants during 2005. The new Stoney River restaurants will be the first additions to the chain
since 2002. The restarting of Stoney River restaurant development will require preopening,
training, and other expenses of approximately $1.0 million in fiscal 2005. We also expect continued
improvement in operating margins, an effective tax rate of between 29% and 31% for the fiscal year,
and a moderation of commodity cost increases in 2005. We have already purchased or contracted for
approximately 55% of our estimated beef requirements, approximately 20% of our estimated poultry
requirements, and approximately 40% of our estimated pork requirements for 2005. While we have not provided earnings guidance for the full fiscal year 2005, we have provided
estimates of the impact of our equity-based compensation plans on full year 2005 results. We expect
that expenses relating to our restricted stock plans will reduce fiscal 2005 net income by between
$0.10 and $0.12 per diluted share. While we continue to finalize our estimates of the impact of
implementing SFAS No. 123R, we currently expect that the impact of beginning to expense stock
options in the third quarter will be in the range of $0.03 to $0.05 per diluted share for fiscal
2005. There can be no assurance that actual performance for the first quarter or full year 2005
will not vary significantly from our expectations. 
 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 utilize a balanced mix of debt maturities
along with both fixed-rate and variable-rate debt to manage our exposures to changes in interest
rates. Our fixed-rate debt consists primarily of capitalized lease obligations and senior
subordinated notes and our variable-rate debt consists primarily of our revolving credit facility. 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. At December 26, 2004, we had 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 is $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 November 2013. Also
at December 26, 2004 and December 28, 2003, we had interest rate swap agreements with a
financial institution that effectively converts a portion of the variable-rate revolving line of
credit into a fixed-rate obligation. The notional amount of these swaps is $10.0 million and is
based on one month LIBOR plus a specified margin ranging from 1.25% to 2.25%. The interest terms
of these swaps mirror the interest terms on the debt. These swap agreements expire in 2006. 38




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Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OCHARLEYS INC. PageReport of Independent Registered Public Accounting Firm
    
    
    40Consolidated Balance Sheets at December 26, 2004 and December 28, 2003
    
    
    41Consolidated Statements of Earnings for the Years Ended December 26, 2004, December 28, 2003,
and December 29, 2002
    
    
    42Consolidated Statements of Shareholders Equity and Comprehensive Income for the Years Ended
December 26, 2004, December 28, 2003, and December 29, 2002
    
    
    43Consolidated Statements of Cash Flows for the Years Ended December 26, 2004, December 28, 2003
and December 29, 2002
    
    
    44Notes to the Consolidated Financial Statements
    
    
    45
 39




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 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 26, 2004 and December 28, 2003, 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 26, 2004. In conjunction with our audits of the consolidated
financial statements, we have also audited financial statement schedule II, Valuation and
Qualifying Accounts. These consolidated financial statements and financial statement schedule are
the responsibility of the Companys management. Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 26,
2004 and December 28, 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 26, 2004, in conformity with U. S. generally
accepted accounting principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein. 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. As discussed in Note 2 to the consolidated financial statements, the Company has restated its
2003 and 2002 consolidated financial statements. We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control over financial
reporting as of December 26, 2004, based on criteria established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
and our report dated March 25, 2005 expressed an unqualified opinion on managements assessment of,
and an adverse opinion on the effective operation of, internal control over financial reporting. KPMG LLP
 Nashville, Tennessee
March 25, 2005 40




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CONSOLIDATED BALANCE SHEETS December 26,
    
    
    December 28,2004
    
    
    2003(dollars in thousands)(restated)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    10,772
    
    
    $
    9,574Trade accounts receivable, less allowance for
doubtful accounts of $135 in 2004 and $78 in 2003
    
    
    8,783
    
    
    
    8,049Inventories
    
    
    33,125
    
    
    
    21,513Deferred income taxes
    
    
    6,716
    
    
    
    3,405Notes receivable
    
    
    120
    
    
    
    3,070Other current assets
    
    
    4,882
    
    
    
    3,426Total current assets
    
    
    64,398
    
    
    
    49,037Property and Equipment, net
    
    
    451,808
    
    
    
    430,266Goodwill
    
    
    93,074
    
    
    
    93,069Intangible Asset
    
    
    25,921
    
    
    
    25,921Other Assets
    
    
    22,310
    
    
    
    22,380Total Assets
    
    $
    657,511
    
    
    $
    620,673LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Trade accounts payable
    
    $
    14,259
    
    
    $
    15,387Accrued payroll and related expenses
    
    
    19,183
    
    
    
    11,608Accrued expenses
    
    
    20,878
    
    
    
    18,494Deferred revenue
    
    
    19,210
    
    
    
    15,442Federal, state and local taxes
    
    
    9,184
    
    
    
    8,359Current portion of long-term debt and capitalized
lease obligations
    
    
    12,670
    
    
    
    10,031Total current liabilities
    
    
    95,384
    
    
    
    79,321Long-Term Debt, excluding current portion
    
    
    146,125
    
    
    
    165,145Capitalized Lease Obligations, excluding current portion
    
    
    32,344
    
    
    
    34,453Deferred Income Taxes
    
    
    7,884
    
    
    
    5,037Other Liabilities
    
    
    45,034
    
    
    
    36,530Total Liabilities
    
    
    326,771
    
    
    
    320,486Shareholders Equity:Common stockNo par value; authorized, 50,000,000
shares; issued and outstanding, 22,528,951 in 2004
and 22,118,292 in 2003
    
    
    178,262
    
    
    
    170,008Accumulated other comprehensive loss, net of tax
    
    
    (224
    )
    
    
    (519
    )Unearned compensation
    
    
    (3,666
    )
    
    
    (2,351
    )Retained earnings
    
    
    156,368
    
    
    
    133,049Total shareholders equity
    
    
    330,740
    
    
    
    300,187Total
Liabilities and Shareholders Equity
    
    $
    657,511
    
    
    $
    620,673
 See notes to the consolidated financial statements 41




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CONSOLIDATED STATEMENTS OF EARNINGS Year EndedDecember 26,
    
    
    December 28,
    
    
    December 29,2004
    
    
    2003
    
    
    2002(in thousands, except per share data)(restated)
    
    
    (restated)Revenues:Restaurant sales
    
    $
    864,259
    
    
    $
    753,740
    
    
    $
    495,112Commissary sales
    
    
    7,035
    
    
    
    5,271
    
    
    
    4,800Franchise revenue
    
    
    92
    
    
    
    
    
    
    
    871,386
    
    
    
    759,011
    
    
    
    499,912Costs and Expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    261,013
    
    
    
    221,206
    
    
    
    140,638Payroll and benefits
    
    
    290,514
    
    
    
    252,415
    
    
    
    154,311Restaurant operating costs
    
    
    157,491
    
    
    
    139,205
    
    
    
    86,006Cost of commissary sales
    
    
    6,631
    
    
    
    4,970
    
    
    
    4,488Advertising, general and administrative
    
    
    63,754
    
    
    
    52,204
    
    
    
    37,677Depreciation and amortization
    
    
    39,798
    
    
    
    36,360
    
    
    
    25,527Preopening costs
    
    
    5,908
    
    
    
    6,900
    
    
    
    5,629825,109
    
    
    
    713,260
    
    
    
    454,276Income from Operations
    
    
    46,277
    
    
    
    45,751
    
    
    
    45,636Other (Income) Expense:Interest expense, net
    
    
    13,476
    
    
    
    14,153
    
    
    
    5,556Debt extinguishment charge
    
    
    
    
    
    
    1,800
    
    
    
    Other, net
    
    
    120
    
    
    
    (652
    )
    
    
    (118
    )13,596
    
    
    
    15,301
    
    
    
    5,438Earnings Before Income Taxes and
Cumulative Effect of Change in Accounting
Principle
    
    
    32,681
    
    
    
    30,450
    
    
    
    40,198Income Taxes
    
    
    9,362
    
    
    
    9,261
    
    
    
    13,942Earnings Before Cumulative Effect of
Change in Accounting Principle
    
    
    23,319
    
    
    
    21,189
    
    
    
    26,256Cumulative Effect of Change in Accounting
Principle, net of tax
    
    
    
    
    
    
    
    
    
    
    (6,123
    )Net Earnings
    
    $
    23,319
    
    
    $
    21,189
    
    
    $
    20,133Basic Earnings Per Common Share Before
Cumulative Effect of Change in Accounting
Principle
    
    $
    1.05
    
    
    $
    0.98
    
    
    $
    1.41Cumulative Effect of Change in Accounting
Principle, net of tax
    
    
    
    
    
    
    
    
    
    
    (0.33
    )Basic Earnings Per Common Share
    
    $
    1.05
    
    
    $
    0.98
    
    
    $
    1.08Diluted Earnings Per Common Share Before
Cumulative Effect of Change in Accounting
Principle
    
    $
    1.03
    
    
    $
    0.96
    
    
    $
    1.33Cumulative Effect of Change in Accounting
Principle, net of tax
    
    
    
    
    
    
    
    
    
    
    (0.31
    )Diluted Earnings Per Common Share
    
    $
    1.03
    
    
    $
    0.96
    
    
    $
    1.02
 See notes to the consolidated financial statements 42




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##### Table of Contents



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME AccumulatedOtherCommon Stock
    
    
    Unearned
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Amount
    
    
    Compensation
    
    

Loss, net
    
    
    Earnings
    
    
    Total(in thousands)Balance, December 30, 2001, as
previously reported
    
    
    18,393
    
    
    $
    110,636
    
    
    $
    
    
    
    $
    (490
    )
    
    $
    94,056
    
    
    $
    204,202Cumulative effect on prior
years of restatement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,329
    )
    
    
    (2,329
    )Balance, December 30, 2001
(restated)
    
    
    18,393
    
    
    $
    110,636
    
    
    $
    
    
    
    $
    (490
    )
    
    $
    91,727
    
    
    $
    201,873Comprehensive income:Net earnings (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,133
    
    
    
    20,133Unrealized change in
market value of
derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (441
    )
    
    
    
    
    
    
    (441
    )Total comprehensive
income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,692Exercise of employee stock
options including tax benefits
(net of shares tendered)
    
    
    361
    
    
    
    4,097
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,097Shares issued under CHUX
Ownership Plan
    
    
    85
    
    
    
    1,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,438Compensation expense
    
    
    
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460Balance, December 29, 2002
(restated)
    
    
    18,839
    
    
    $
    116,631
    
    
    $
    
    
    
    $
    (931
    )
    
    $
    111,860
    
    
    $
    227,560Comprehensive income:Net earnings (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,189
    
    
    
    21,189Unrealized change in market
value of
derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    412
    
    
    
    
    
    
    
    412Total comprehensive
income (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,601Exercise of employee stock
options including tax
benefits (net of shares
tendered)
    
    
    811
    
    
    
    8,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,021Shares issued under CHUX
Ownership Plan
    
    
    112
    
    
    
    1,682
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,682Restricted share issuances
    
    
    21
    
    
    
    2,821
    
    
    
    (2,821
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense
    
    
    
    
    
    
    
    
    
    
    470
    
    
    
    
    
    
    
    
    
    
    
    470Shares issued or issuable for
acquisition
    
    
    2,335
    
    
    
    40,853
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,853Balance, December 28, 2003
(restated)
    
    
    22,118
    
    
    $
    170,008
    
    
    $
    (2,351
    )
    
    $
    (519
    )
    
    $
    133,049
    
    
    $
    300,187Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,319
    
    
    
    23,319Unrealized change in market
value of
derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    
    
    
    
    295Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,614Exercise of employee stock
options including tax benefits
(net of shares tendered)
    
    
    248
    
    
    
    2,495
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,495Shares issued under CHUX
Ownership Plan
    
    
    147
    
    
    
    2,136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,136Restricted share issuances
    
    
    8
    
    
    
    2,249
    
    
    
    (2,249
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense
    
    
    
    
    
    
    1,237
    
    
    
    934
    
    
    
    
    
    
    
    
    
    
    
    2,171Donation of stock
    
    
    8
    
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137Balance, December 26, 2004
    
    
    22,529
    
    
    $
    178,262
    
    
    $
    (3,666
    )
    
    $
    (224
    )
    
    $
    156,368
    
    
    $
    330,740
 See notes to the consolidated financial statements 43




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS Year EndedDecember 26,
    
    
    December 28, 29,
    
    
    December 29,2004
    
    
    2003
    
    
    2002(in thousands)(restated)
    
    
    (restated)Cash Flows from Operating Activities:Net earnings
    
    $
    23,319
    
    
    $
    21,189
    
    
    $
    20,133Adjustments to reconcile net earnings to net cash
provided by operating activities:Cumulative effect of accounting change, net of tax
    
    
    
    
    
    
    
    
    
    
    6,123Depreciation and amortization  property and equipment
    
    
    39,798
    
    
    
    36,360
    
    
    
    25,527Debt extinguishment charge
    
    
    
    
    
    
    1,800
    
    
    
    Amortization of debt issuance costs
    
    
    1,449
    
    
    
    1,184
    
    
    
    380Deferred income taxes excluding effect of Ninety Nine
acquisition
    
    
    (464
    )
    
    
    184
    
    
    
    1,519Compensation expense related to restricted stock plans
    
    
    2,171
    
    
    
    470
    
    
    
    561Amortization of deferred gain on sale-leaseback
    
    
    (1,055
    )
    
    
    (163
    )
    
    
    Loss (gain) on the sale and involuntary conversion of
assets
    
    
    215
    
    
    
    (423
    )
    
    
    (63
    )Donation of stock
    
    
    137
    
    
    
    
    
    
    
    Changes in assets and liabilities, excluding the effects
of the Ninety Nine acquisition:Trade accounts receivable
    
    
    (734
    )
    
    
    (1,961
    )
    
    
    (452
    )Inventories
    
    
    (11,612
    )
    
    
    (548
    )
    
    
    49Other current assets
    
    
    (1,078
    )
    
    
    526
    
    
    
    (677
    )Trade accounts payable
    
    
    (1,128
    )
    
    
    (381
    )
    
    
    1,950Deferred revenue
    
    
    3,768
    
    
    
    3,035
    
    
    
    3,738Accrued payroll and other accrued expenses
    
    
    10,426
    
    
    
    372
    
    
    
    3,702Other long-term assets and liabilities
    
    
    4,062
    
    
    
    1,984
    
    
    
    1,102Tax benefit derived from exercise of stock options
    
    
    1,224
    
    
    
    4,692
    
    
    
    1,100Net cash provided by operating activities
    
    
    70,498
    
    
    
    68,320
    
    
    
    64,692Cash Flows from Investing Activities:Additions to property and equipment
    
    
    (60,491
    )
    
    
    (67,598
    )
    
    
    (69,711
    )Acquisition of company, net of cash acquired
    
    
    
    
    
    
    (114,287
    )
    
    
    Proceeds from the sale of assets
    
    
    1,943
    
    
    
    3,724
    
    
    
    2,018Other, net
    
    
    3,247
    
    
    
    411
    
    
    
    (882
    )Net cash used in investing activities
    
    
    (55,301
    )
    
    
    (177,750
    )
    
    
    (68,575
    )Cash Flows from Financing Activities:Proceeds from long-term debt
    
    
    4,454
    
    
    
    265,121
    
    
    
    9,000Payments on long-term debt and capitalized lease
obligations
    
    
    (33,799
    )
    
    
    (207,639
    )
    
    
    (7,610
    )Proceeds from sale and lease-back transactions
    
    
    12,090
    
    
    
    59,097
    
    
    
    Minority interest in joint ventures
    
    
    750
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (900
    )
    
    
    (10,898
    )
    
    
    Exercise of employee incentive stock options and
issuances under stock purchase plan
    
    
    3,406
    
    
    
    5,012
    
    
    
    4,435Net cash (used in) provided by financing activities
    
    
    (13,999
    )
    
    
    110,693
    
    
    
    5,825Increase in cash and cash equivalents
    
    
    1,198
    
    
    
    1,263
    
    
    
    1,942Cash and cash equivalents at beginning of the year
    
    
    9,574
    
    
    
    8,311
    
    
    
    6,369Cash and cash equivalents at end of the year
    
    $
    10,772
    
    
    $
    9,574
    
    
    $
    8,311
 See notes to the consolidated financial statements 44




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##### Table of Contents



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 221 (at December 26, 2004) full-service
restaurant facilities in 16 southeastern and midwestern states under the trade name of
OCharleys, 99 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 Company has one OCharleys store located in Michigan
that is operated by a franchisee. The Company has one OCharleys located in Louisiana that is
operated by a franchisee that is a joint venture in which the Company has a financial interest.
The consolidated financial statements include the accounts of the Company, its wholly owned
subsidiaries and the Louisiana joint venture franchisee accounts. All significant intercompany
accounts and transactions have been eliminated in consolidation. 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 $10.2 million and $6.4 million at December
26, 2004 and December 28, 2003, respectively. These cash equivalents consist entirely of overnight
repurchase agreements of government securities. Inventoriesare stated 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. These costs also include straight-line rent related to leased properties from the period
of time between when the leased property is physically employed and the date on which the
restaurant opens. 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. Investment in Affiliated Company. The Company has a 7% ownership interest in a joint venture
to operate a restaurant concept in Chicago, IL. The Company is not the primary beneficiary as
defined by FASB Interpretation (FIN) No. 46R Consolidation of Variable Interest Entities, and
accounts for its investment by the equity method. 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, inclusive of one renewal period.
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. Managing Partner Program for Stoney River. The Company has established a managing partner
program for the general managers of its Stoney River restaurants pursuant to which each general
manager has the opportunity to acquire a 6% interest in the subsidiary that owns the restaurant that the general
manager manages in exchange for a capital contribution to that subsidiary. The Company has 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, the Company has 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 the Company
terminates prior to the expiration of the five-year term of their agreement, the Company has 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. 45




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##### Table of Contents



Goodwillrepresents 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.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 goodwill associated with the Stoney River acquisition in
May 2000. On January 27, 2003, the Company acquired Ninety Nine Restaurant and Pub for $116 million in
cash and approximately 2.34 million shares of our common stock. The Company 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. 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. 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. Goodwill
and indefinite life intangible assets are tested annually for
impairment, and are tested for impairment more frequently if
events and circumstances indicate that the assets might be impaired. An impairment loss is
recognized to the extent that the carrying amount of goodwill and
indefinite life intangible assets exceeds their implied fair value. This
determination is made at the reporting unit level and consists of two steps. First, the Company
determines the fair value of a reporting unit and compares it to its carrying amount. Second, if
the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized
for any excess of the carrying amount of the reporting units goodwill over the implied fair value
of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of
the reporting unit in a manner similar to a purchase price allocation, in accordance with SFAS No.
141, Business Combinations. The residual fair value after this allocation is the implied fair
value of the reporting unit goodwill. We selected the first day of each new fiscal year as the date on which we will test the
goodwill for impairment. We completed a valuation of the goodwill pursuant to SFAS No. 142 as of
December 27, 2004, the first day of fiscal 2005 and our valuation showed that the fair value of the
goodwill exceeded the carrying value and no impairment charge was needed. Also, as a part of this
valuation, we reviewed the carrying value of the trademark, an indefinite life intangible asset,
and found that no impairment charge was needed. Revenuesconsist of restaurant sales, and to a lesser extent, commissary sales and franchise
revenues. 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. Franchise revenues consist of development
fees and royalties on sales of franchised units. The Companys development fees are $50,000 for
the first two stores and $25,000 for each additional store opened by the 46




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franchisee. The development fees are recognized during the reporting period in which the
developed store begins operation. The royalties are recognized in revenue in the period billed to
the franchisee. Advertising Costs.The Company expenses advertising costs as incurred, except for certain
advertising production costs that are initially capitalized and subsequently expensed the first
time the advertising takes place. Advertising expense for fiscal years 2004, 2003, and 2002,
totaled $25.6 million, $24.3 million, and $17.0 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 bases and operating loss and tax credit carry forwards. 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 consolidated
statement of earnings in the period that includes the enactment date. The Companys effective
income tax rate in fiscal 2004 was 28.6% compared to 30.4% in 2003. The reduction resulted
primarily from an increase in the net benefit from the FICA tip and other credits from $2.8 million
in 2003 to $3.6 million in 2004. Our tax rates in both years have been adjusted for the
restatement associated with lease accounting, during which we also adjusted our tax accounts to
correct prior year computation errors as well as to adjust our 2004 provision for revised state
apportionment factors that we calculated as a part of the filing of our fiscal 2003 tax return
during the fourth quarter of 2004. 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,to account for
its stock compensation plans. 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 Compensationand SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure, an amendment of FASB Statement No. 123, established
accounting and disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As permitted by existing accounting standards, 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, as amended. 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. 2004
    
    
    2003
    
    
    2002(in thousands)(restated)
    
    
    (restated)Net earnings, as reported
    
    $
    23,319
    
    
    $
    21,189
    
    
    $
    20,133Add stock-based employee
compensation
expense included in
reported net
earnings, net of
tax
    
    
    1,550
    
    
    
    327
    
    
    
    366Deduct total stock-based
employee
compensation expense
determined
under fair-value-based
method for all
awards, net of tax
    
    
    (4,509
    )
    
    
    (3,115
    )
    
    
    (3,480
    )Pro forma net earnings
    
    $
    20,360
    
    
    $
    18,401
    
    
    $
    17,019Earnings per share:Basic-as reported
    
    $
    1.05
    
    
    $
    0.98
    
    
    $
    1.08Basic-pro forma
    
    $
    0.91
    
    
    $
    0.85
    
    
    $
    0.91Diluted-as reported
    
    $
    1.03
    
    
    $
    0.96
    
    
    $
    1.02Diluted-pro forma
    
    $
    0.90
    
    
    $
    0.83
    
    
    $
    0.86
 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 47




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##### Table of Contents



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 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 scope of SFAS No. 107 excludes
certain financial instruments such as trade receivables and payables when the carrying value
approximates the fair value, employee benefit obligations, lease contracts, and all nonfinancial
instruments such as land, buildings, and equipment. 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 December 26, 2004 and December 28, 2003. 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 either a hedge of the variability of cash flows to
be paid related to a recognized liability or as a hedge of the fair value of a recognized
liability. For all hedging relationships, the Company formally documents the hedging relationship
and its risk-management objective and strategy for undertaking the hedge, the hedging instrument,
the item, the nature of the risk being hedged, how the hedging instruments effectiveness in
offsetting the hedge risk will be assessed, and a description of the method of measuring
ineffectiveness. This process includes linking all derivatives that are designated as fair-value
and cash-flow hedges to specific liabilities on the balance sheet. 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 or fair value 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. Changes in the fair value of a derivative that is highly
effective and that is designated and qualifies as a fair value hedge, along with the loss or gain
on the hedged liability, are recorded in earnings. The terms and conditions of the fair value
hedges mirror the interest terms and conditions on our 9.0% senior subordinated notes due 2013.
Therefore, the Company is not required to test the effectiveness of these derivatives. If it is
determined that a derivative is ineffective as a hedge, the Company discontinues hedge accounting
prospectively. When hedge accounting is discontinued because it is determined that the derivative no longer
qualifies as an effective fair-value hedge, the Company continues to carry the derivative on the
balance sheet at its fair value and no longer adjusts the hedged liability for changes in fair
value. The adjustment of the carrying amount of the hedged liability is accounted for in the same
manner as other components of the carrying amount of that liability. In all other situations in
which hedge accounting is discontinued, the Company continues to carry the derivative at its fair
value on the consolidated balance sheet and recognizes any subsequent changes in its fair value in
earnings. 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 earnings
and unrealized gains (losses) on derivatives. Other comprehensive income, net of tax, for 2004 was
$295,000. The accumulated other comprehensive loss at December 26, 2004 is comprised of an
unrealized loss on derivative financial instruments of $224,000, 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 at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the period to prepare these consolidated financial statements in
conformity with U.S. generally accepted accounting principles. Significant items subject to such 48




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estimates and assumptions include the carrying amount of plant and equipment, intangibles and
goodwill; valuation allowances for receivables, inventories and deferred income tax assets;
valuation of derivative instruments; and obligations related to employee benefits. Actual results
could differ from those estimates. Recently Issued Accounting Pronouncements. In November 2004, the Financial Accounting
Standards Board (FASB) issued SFAS No. 151, Inventory Costs. SFAS No. 151 amends guidance in ARB
No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires
that those items be recognized as current-period charges regardless of whether they meet the
criterion of so abnormal. In addition, SFAS No. 151 requires that the allocation of fixed
production overhead costs be based on the normal capacity of production facilities. The Company is
required to adopt SFAS No. 151 in 2006. The Company is still evaluating the components of this new
standard and does not expect it to have a material impact on its consolidated financial statements. In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R requires
the Company to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. SFAS No. 123R will be effective for
the Company beginning July 11, 2005. The Company is continuing to evaluate the effect of adoption
on the consolidated financial statements. In December 2004, the FASB issued SFAS No. 152, Accounting for Real Estate Time-Sharing
Transactions. The FASB issued this Statement as a result of the guidance provided in AICPA
Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing transactions. SOP 04-2
applies to all real estate time-sharing transactions. Among other items, the SOP provides guidance
on the recording of credit losses and the treatment of selling costs, but does not change the
revenue recognition guidance in SFAS No. 66, Accounting for Sales of Real Estate, for real estate
time-sharing transactions. SFAS No. 152 amends Statement No. 66 to reference the guidance provided
in SOP 04-2. SFAS No. 152 also amends SFAS No. 67, Accounting for Costs and Initial Rental
Operations of Real Estate Projects, to state that SOP 04-2 provides the relevant guidance on
accounting for incidental operations and costs related to the sale of real estate time-sharing
transactions. SFAS No. 152 is effective for years beginning after June 15, 2005, with restatements
of previously issued financial statements prohibited. This statement is not applicable to the
Company. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an
amendment to Opinion No. 29, Accounting for Nonmonetary Transactions. SFAS No. 153 eliminates
certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in
standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29
eliminates the fair value exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. Such an exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective
for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in periods beginning after
December 16, 2004. Management does not expect adoption of SFAS No. 153 to have a material impact on
the Companys financial statements. 2. Restatement of Financial Statements On February 7, 2005, the Office of the Chief Accountant of the SEC issued a letter to the
American Institute of Certified Public Accountants (the SEC letter) expressing its views
regarding certain accounting principles relating to three aspects of lease accounting: the period
of time used for the amortization of leasehold improvements; the recognition of rent expense when
the lease term in an operating lease contains a period of free or reduced rents commonly referred
to as a rent holiday; and accounting for landlord improvement incentives to tenants. In light of
this letter, the Company determined that its historical methods of accounting for rent holidays and
tenant improvement allowances were not in accordance with
U.S. generally accepted accounting principles. 49




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##### Table of Contents



With respect to rent holidays, the SEC letter states that pursuant to the response in
paragraph 2 of Financial Accounting Standards Board (FASB) Technical Bulletin 85-3, Accounting for
Operating Leases with Scheduled Rent Increases, rent holidays in an operating lease should be
recognized by the lessee on a straight-line basis over the lease term (including any rent holiday
period) unless another systematic and rational allocation is more representative of the time
pattern in which leased property is physically employed. The period from when leased land is made
available to the Company for the construction of a new restaurant and when the lease payments begin
is a rent holiday. Since the Company did not previously recognize rent expense during the rent
holiday period, it was understating rent expense during the construction period, and overstating
rent during subsequent periods. The Company has made restatement adjustments to recognize
straight-line rent expense beginning on the date that the Company took possession of the leased
land or premises. Tenant improvement incentives are typically provided by landlords to pay a portion of the cost
associated with constructing improvements on the leased premises. The Company does not typically
receive tenant improvement allowances on its leases. However, the Company received a tenant
improvement allowance on one lease during 2001. The Company recognized the allowance as a
reduction in the capitalized amount of the leasehold improvements, thereby reducing the related
depreciation. The SEC letter states that such allowances should be recorded as deferred rent and
amortized as reductions to rent expense over the lease term. The Company has made adjustments to
its consolidated balance sheet to record the allowance as deferred rent. These adjustments had no
impact on the Companys consolidated statements of earnings.
These adjustments, because the tenant improvement allowance was received during 2001, had no impact on the Companys
consolidated statement of cash flows included in this Annual Report. Prior to its 2000 fiscal year, the Company did not recognize rent expense on leases with
escalating rental obligations using the required straight-line rent method. Beginning with leases
entered into in fiscal 2000, the Company has recognized rent expense by applying the straight-line
rent method. For leases on restaurants opened during its 2000 and 2001 fiscal years, the Company
recognized depreciation expense for leasehold improvements using economic lives that were longer
than the time periods used for calculating straight-line rent expense on the underlying leases.
Beginning with leases entered into in fiscal 2002, the Company has recognized depreciation expense
for leasehold improvements using a useful life that is consistent with the time period used for
straight-line rent calculations. For purpose of straight-line rent expense and depreciating
leasehold improvements, the Company uses the estimated lease term, inclusive of one renewal period.
The Company has made adjustments to the prior period consolidated financial statements to correct
for these errors. In addition to the restatement adjustments relating to the Companys accounting for operating
leases, the Company has also made restatement adjustments to its previously issued consolidated
financial statements to correct for other errors that it had previously determined were not
material to its consolidated financial statements. Historically, the Company has not eliminated
certain inter-company profits from the carrying value of the inventory in its restaurants, and did
not calculate the value of its commissary inventory using full absorption of labor and overhead
costs. In addition, the consolidated financial statements for 2003, as previously reported,
included certain errors in the calculation of the income tax provision. The Company has restated its consolidated balance sheet and the related consolidated
statements of earnings, shareholders equity and comprehensive income, and cash flows. The
following table reflects the individual and cumulative effect of these restatement adjustments for
the periods indicated. See Note 22 of the notes to consolidated financial statements for a
reconciliation of the restatement on net earnings on a quarterly basis. As of and for
    
    
    For the Fiscalthe Fiscal Year Ended
    
    
    Year EndedDecember 28, 2003
    
    
    December 29, 2002Increase(decrease)
    
    
    IncreaseRetained
    
    
    in net
    
    
    (decrease)Dollars in thousands
    
    earnings
    
    
    earnings
    
    
    in net earningsAs previously reported
    
    $
    135,997
    
    
    $
    21,273
    
    
    $
    20,668Restatement items:Accounting for Operating Leases
    
    
    (4,861
    )
    
    
    (842
    )
    
    
    (800
    )Cost and Profit Recognition on Inventory
    
    
    (467
    )
    
    
    (76
    )
    
    
    (61
    )Total Pretax Impact
    
    
    (5,328
    )
    
    
    (918
    )
    
    
    (861
    )Tax calculation errors
    
    
    424
    
    
    
    424
    
    
    
    Impact of restatement on tax provision and deferred taxes
    
    
    1,956
    
    
    
    410
    
    
    
    326Total restatement items
    
    
    (2,948
    )
    
    
    (84
    )
    
    
    (535

    )As restated
    
    $
    133,049
    
    
    $
    21,189
    
    
    $
    20,133
 The effects of the Companys restatement on previously reported consolidated financial
statements as of December 28, 2003 and for the years ended December 28, 2003 and December 29, 2002
are summarized below. The following table reflects the effect of the restatement on the consolidated statements of
earnings (in thousands): Fiscal Years Ended2003
    
    
    
    
    
    2002As
    
    
    
    
    
    
    Aspreviously
    
    
    2003
    
    
    previously
    
    
    2002reported
    
    
    As restated
    
    
    reported
    
    
    As restatedSelected Statement of Income Data:Cost of food and beverage
    
    $
    221,129
    
    
    $
    221,206
    
    
    $
    140,577
    
    
    $
    140,638Restaurant operating costs
    
    
    138,473
    
    
    
    139,205
    
    
    
    85,761
    
    
    
    86,006Preopening
costs
    
    
    6,337
    
    
    
    6,900
    
    
    
    5,074
    
    
    
    5,629Total costs and expenses
    
    
    712,341
    
    
    
    713,260
    
    
    
    453,415
    
    
    
    454,276Income from Operations
    
    
    46,670
    
    
    
    45,751
    
    
    
    46,497
    
    
    
    45,636Earnings Before Income Taxes and Cumulative
Effect of Change in Accounting Principle
    
    
    31,369
    
    
    
    30,450
    
    
    
    41,059
    
    
    
    40,198Income Taxes
    
    
    10,096
    
    
    
    9,261
    
    
    
    14,268
    
    
    
    13,942Earnings Before Cumulative Effect of Change in
Accounting Principle
    
    
    21,273
    
    
    
    21,189
    
    
    
    26,791
    
    
    
    26,256Net Earnings
    
    $
    21,273
    
    
    $
    21,189
    
    
    $
    20,668
    
    
    $
    20,133Basic Earnings Per Common Share Before
Cumulative Effect of Change in Accounting
Principle
    
    $
    0.98
    
    
    $
    0.98
    
    
    $
    1.44
    
    
    $
    1.41Basic Earnings Per Common Share
    
    
    0.98
    
    
    
    0.98
    
    
    
    1.11
    
    
    
    1.08Diluted Earnings Per Common Share Before
Cumulative Effect of Change in Accounting
Principle (1)
    
    $
    0.96
    
    
    $
    0.96
    
    
    $
    1.35
    
    
    $
    1.33Diluted Earnings Per Common Share (1)
    
    
    0.96
    
    
    
    0.96
    
    
    
    1.04
    
    
    
    1.02
   (1)
    
    The 2003 as reported per share amounts shown reflect the correction
of the treatment of contingently issuable shares on the weighted
average share count. The originally reported per share amount for
2003 for both Diluted Earnings Per Common Share Before Cumulative
Effect of Change in Accounting Principle and Diluted Earnings Per
Common Share was $0.95. Note 13 in the Notes to the consolidated
financial statements reflects the revised share counts for this
change. The following table reflects the effect of the restatement on the consolidated balance sheet
(in thousands): December 28,2003AsPreviously
    
    
    2003reported
    
    
    As restatedSelected Balance Sheet Data:Inventories
    
    $
    21,980
    
    
    $
    21,513Total current assets
    
    
    49,504
    
    
    
    49,037Property and Equipment, net
    
    
    429,361
    
    
    
    430,266Total Assets
    
    
    620,235
    
    
    
    620,673Federal, state and local taxes
    
    
    8,836
    
    
    
    8,359Total Current Liabilities(1)
    
    
    80,810
    
    
    
    79,321Deferred Income Taxes
    
    
    6,940
    
    
    
    5,037Other Liabilities(1)
    
    
    29,752
    
    
    
    36,530Total Liabilities
    
    
    317,100
    
    
    
    320,486Retained earnings
    
    
    135,997
    
    
    
    133,049Total shareholders equity
    
    
    303,135
    
    
    
    300,187Total Liabilities and Shareholders Equity
    
    
    620,235
    
    
    
    620,673
   (1)
    
    Certain reclassifications have been made to the prior year amounts to conform to the
current year presentation. The following table reflects the effect of the restatement on the consolidated statements of
cash flows (in thousands): Fiscal Years Ended2003
    
    
    
    
    
    2002As
    
    
    
    
    
    
    Aspreviously
    
    
    2003
    
    
    previously
    
    
    2002reported
    
    
    As restated
    
    
    reported
    
    
    As restatedSelected Cash Flow Data:Net cash provided by operating activities
    
    $
    67,726
    
    
    $
    68,320
    
    
    $
    64,641
    
    
    $
    64,692Other, net (1)
    
    
    545
    
    
    
    411
    
    
    
    (831
    )
    
    
    (882
    )Net cash used in investing activities
    
    
    (177,616
    )
    
    
    (177,750
    )
    
    
    (68,524
    )
    
    
    (68,575
    )
   (1)
    
    Certain reclassifications have been made to the prior year amounts to conform to the
current year presentation. 50




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3. 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 (which excludes approximately $5.5
million in cash acquired and approximately $3.8 million in transaction costs) 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, 390,586 shares in January 2004, 407,843 in
January 2005 and will deliver 407,843 on the third anniversary of the closing and 94,118 shares on
each of the fourth and fifth anniversaries of the closing. The transaction was accounted for using the purchase method of accounting as required by SFAS
No. 141 and, accordingly, the results of operations of Ninety Nine are included in the Companys
consolidated financial statements from the date of acquisition. The Ninety Nine concept is being
operated through indirect wholly-owned subsidiaries 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). Fair value of assets acquired
    
    $
    41,865Purchase price in excess of the net assets acquired (goodwill)
    
    
    93,074Intangible Asset (tradename)
    
    
    25,921Favorable leases
    
    
    575Fair value of liabilities assumed
    
    
    (      770
    )Cash and stock paid
    
    
    160,665Less stock issued or issuable for acquisition
    
    
    (40,853
    )Less cash acquired
    
    
    (  5,520
    )Net cash paid for acquisition
    
    $
    114,292
 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 2003: Fiscal Years ended December 28, 2003 and December 29, 2002 2003
    
    
    2002(restated)
    
    
    (restated)Pro Forma Earnings:Total revenues
    
    $
    775,194
    
    
    $
    696,283Earnings before income taxes and cumulative effect
of change in accounting principle
    
    
    30,830
    
    
    
    51,815Earnings before cumulative effect of change in
accounting principle
    
    
    21,436
    
    
    
    33,836Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (6,123
    )Net earnings
    
    $
    21,436
    
    
    $
    27,713Basic earnings per shareEarnings before cumulative effect of change in
accounting principle
    
    $
    0.97
    
    
    $
    1.61Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (0.29
    )Net earnings
    
    $
    0.97
    
    
    $
    1.32Basic weighted average common shares outstanding
    
    
    22,148
    
    
    
    21,036
 51




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2003
    
    
    2002(restated)
    
    
    (restated)Diluted earnings per shareEarnings before cumulative effect of change in
accounting principle
    
    $
    0.94
    
    
    $
    1.53Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (0.28
    )Net earnings
    
    $
    0.94
    
    
    $
    1.25Diluted weighted average common shares outstanding
    
    
    22,758
    
    
    
    22,139
 The foregoing 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 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. 4. Property and Equipment Property and equipment consist of the following: December 26,
    
    
    December 28,2004
    
    
    2003(in thousands)(restated)Land and improvements
    
    $
    77,588
    
    
    $
    77,738Buildings and improvements
    
    
    148,060
    
    
    
    151,598Furniture, fixtures and equipment
    
    
    170,736
    
    
    
    145,154Leasehold improvements
    
    
    159,296
    
    
    
    131,854Equipment under capitalized leases
    
    
    73,828
    
    
    
    69,034Property leased to others
    
    
    1,888
    
    
    
    802631,396
    
    
    
    576,180Less accumulated depreciation and amortization
    
    
    (179,588
    )
    
    
    (145,914
    )$
    451,808
    
    
    $
    430,266
 Depreciation and amortization of property and equipment was $39.8 million, $36.4 million and
$25.5 million for the years ended December 26, 2004, December 28, 2003 and December 29, 2002,
respectively. 5. Other Assets Other assets consist of the following: December 26,
    
    
    December 28,2004
    
    
    2003(in thousands)Supplemental executive retirement plan asset
    
    $
    7,189
    
    
    $
    5,527Liquor licenses
    
    
    2,392
    
    
    
    2,097Deferred compensation
    
    
    2,000
    
    
    
    3,000Prepaid interest and finance costs
    
    
    7,678
    
    
    
    8,227Notes receivable
    
    
    993
    
    
    
    1,565Other assets
    
    
    2,058
    
    
    
    1,964$
    22,310
    
    
    $
    22,380
 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 2004. See Note 15. 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 in Note 3.
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 2004 and 2003 related to this
payment plan. 52




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6. Accrued Expenses Accrued expenses include the following: December 26,
    
    
    December 28,2004
    
    
    2003(in thousands)(restated)Accrued insurance expenses
    
    $
    8,164
    
    
    $
    7,753Accrued employee benefits
    
    
    4,592
    
    
    
    4,150Accrued interest
    
    
    1,565
    
    
    
    1,912Accrued vacation
    
    
    1,909
    
    
    
    1,541Other accrued expenses
    
    
    4,648
    
    
    
    3,138$
    20,878
    
    
    $
    18,494
 The amount for accrued insurance expenses shown above includes primarily reserves for workers
compensation and general liability claims for amounts that fall under our deductibles on each of
the respective insurance policies. The amount also includes reserves associated with our
self-insured health insurance programs. The total of the self-insured
health insurance accounts at
December 26, 2004 was approximately $1.9 million. 7. Long-Term Debt Long-term debt consists of the following: December 26,
    
    
    December 28,2004
    
    
    2003(in thousands)Revolving line of credit
    
    $
    21,000
    
    
    $
    40,0009% senior subordinated notes due 2013
    
    
    125,000
    
    
    
    125,000Secured mortgage note payable
    
    
    146
    
    
    
    164146,146
    
    
    
    165,164Less current portion of long-term debt
    
    
    (21
    )
    
    
    (19
    )Long-term debt, net of current portion
    
    $
    146,125
    
    
    $
    165,145
 In the fourth quarter of 2003, the Company amended and restated its credit facility and issued
$125 million aggregate principal amount of the notes. The proceeds from the notes were used to pay
off a term loan and to repay a portion of the revolving credit loan under the Companys bank credit
facility. 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
the Companys 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, 2008 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 the Companys 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 its assets; and enter into transactions with affiliates. In addition, if
the Company sells certain assets (and generally does not use the proceeds of such sales for certain
specified purposes) or experiences 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 the Companys other indebtedness. 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 53




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bears interest, at the
Companys 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 Company was in compliance with or has
received waivers of compliance with such covenants at
December 26, 2004. The credit
facility contains certain events of default, including an event of default resulting from certain
changes in control. At December 26, 2004, the credit facility
was secured by 100% of the equity interests the Company owns of each
of its
existing and future subsidiaries and all of the tangible
and intangible assets, other than real property acquired after the date
of the credit facility and equipment, of the Company and
substantially all of its subsidiaries. During 2004, the
Company paid commitment fees of approximately $319,000. At December 26, 2004, the amount available
under the revolving credit facility, after consideration of the
Companys outstanding letters of credit, was
$97.0 million. The secured mortgage note payable at December 26, 2004 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 $867,000 at December 26, 2004. The annual maturities of long-term debt as of December 26, 2004 were: $21,000-2005;
$23,000-2006; $21.0 million-2007; $28,000-2008; $31,000-2009; and $125.0 million thereafter. 8. Other Liabilities Other liabilities include the following: December 26,
    
    
    December 28,2004
    
    
    2003(in thousands)(restated)Deferred gain on sale leaseback transactions
    
    $
    20,484
    
    
    $
    17,257Deferred rent
    
    
    11,981
    
    
    
    7,963Supplemental executive retirement plan liability
    
    
    8,747
    
    
    
    6,658Deferred compensation liability
    
    
    2,000
    
    
    
    3,000Other long-term liabilities
    
    
    1,822
    
    
    
    1,652$
    45,034
    
    
    $
    36,530
 9. Lease Commitments The Company has various leases for certain restaurant land and buildings under operating lease
agreements. These leases generally contain renewal options ranging from five to 15 years and
require the Company to pay all executory costs such as 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 26, 2004 and December 28, 2003, approximately $57.7 million and $50.2 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 3.8% to 7.3%. Future minimum lease payments at December 26, 2004 are as follows: 54




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##### Table of Contents



CapitalizedEquipment
    
    
    OperatingLeases
    
    
    Leases(in thousands)2005
    
    $
    13,697
    
    
    $
    27,2212006
    
    
    11,034
    
    
    
    27,4942007
    
    
    8,459
    
    
    
    27,7012008
    
    
    8,539
    
    
    
    27,7592009
    
    
    5,041
    
    
    
    27,612Thereafter
    
    
    1,858
    
    
    
    301,006Total minimum lease payments
    
    $
    48,628
    
    
    $
    438,793Less amount representing interest
    
    
    (3,635
    )Net minimum lease payments
    
    
    44,993Less current portion
    
    
    (12,649
    )Capitalized lease obligations, net of current portion
    
    $
    32,344
 Rent expense for 2004, 2003 and 2002 for operating leases is as follows: 2004
    
    
    2003
    
    
    2002(in thousands)(restated)
    
    
    (restated)Minimum rentals
    
    $
    29,485
    
    
    $
    22,252
    
    
    $
    8,904Contingent rentals
    
    
    410
    
    
    
    423
    
    
    
    302$
    29,895
    
    
    $
    22,675
    
    
    $
    9,206
 During the fourth quarter of 2003, the Company completed two sale and leaseback transactions.
The first transaction, completed on October 17, 2003, involved the sale of 23 of its 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 its OCharleys
restaurants for aggregate gross proceeds of approximately $9.1 million. During the first quarter of
2004, the Company entered into a third sale and leaseback transaction. This transaction, completed
on December 30, 2003, involved the sale of six of its 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 the
Company. The leases that the Company entered into in connection with these transactions require
the Company 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 the Companys existing bank credit facility. The Company recognized a gain of approximately $16.9 million on the sale and leaseback
transactions completed during 2003 and a $4.5 million gain on the transaction completed in the
first quarter of 2004. These gains are being deferred and amortized over the 20-year term of the
leases that were entered into in conjunction with the transactions. The gain is reflected in other
liabilities in the accompanying consolidated balance sheets. None of the gain amortization is
reflected in the future minimum operating lease amounts shown above. 10. Derivative Instruments and Hedging Activities. The Company has interest-rate-related derivative instruments to manage its exposure on its
debt instruments. The Company does not enter into derivative instruments for any purpose other
than cash-flow-hedging and fair-value-hedging purposes. That is, the Company does not speculate
using derivative instruments. By using derivative financial instruments to hedge exposures to changes in interest rates, the
Company exposes itself to credit risk and market risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes the Company, which creates credit risk for
the Company. When the fair value of a derivative contract is negative, the Company owes the
counterparty and, therefore, it does not possess credit risk. The Company minimizes the credit
risk in derivative instruments by entering into transactions with high-quality counterparties. Market risk is the adverse effect on the value of a financial instrument that results from a
change in interest rates. The market risk associated with interest-rate contracts is managed by
establishing and monitoring parameters that limit the types and degree of market risk that may be
undertaken. 55




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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 loss, 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. The Company assesses interest rate cash flow risk by continually identifying and monitoring
changes in interest rate exposures that may adversely impact expected future cash flows and by
evaluating hedging opportunities. The Company maintains risk management control systems to monitor
interest rate cash flow risk attributable to both the Companys outstanding or forecasted debt
obligations as well as the Companys offsetting hedge positions. The risk management control
systems involve the use of analytical techniques, including cash flow sensitivity analysis, to
estimate the expected impact of changes in interest rates on the Companys future cash flows. The Company also uses fixed-rate debt to finance its operations. The debt obligations expose
the Company to variability in the fair value of the fixed-rate debt due to changes in interest
rates. Management believes that it is prudent to limit the variability of the debts fair value.
To meet this objective, management enters into interest rate swap agreements to manage fluctuations
in fair value resulting from changes in interest rates. These swaps change the fixed-rate cash
flow on the debt obligations to variable cash flows. Under the terms of interest rate swaps, the
Company receives fixed interest rate payments and makes variable interest rate payments, thereby
creating the equivalent of variable rate debt. Changes in the fair value of interest rate swaps designated as hedging instruments that
effectively offset the variability of fair value associated with fixed rate, long-term debt
obligations, along with the loss or gain on the hedged liability are recorded in earnings. At December 26, 2004, the Company has 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 is $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 November
2013. Also at December 26, 2004 and December 28, 2003, the Company has interest rate swap agreements
with a financial institution that effectively converts a portion of the variable-rate revolving
line of credit into a fixed-rate obligation. The notional amount of these swaps is $10.0 million
and is based on one month LIBOR plus a specified margin ranging from 1.25% to 2.25%. The interest
terms of these swaps mirror the interest terms on the debt. These swap agreements expire in 2006.
As of December 26, 2004, $224,000 of deferred losses, net of tax, on the swaps were included in
accumulated other comprehensive income. At
December 26, 2004 and December 28, 2003, the total fair value of all
swap agreements was a liability of $614,000 and $1,228,000,
respectively, which is included as a component of other long-term
liabilities. As of December 26, 2004 and December 28, 2003, $224,000 and $519,000, respectively, of
deferred losses on derivative instruments accumulated in other comprehensive income are expected to
be reclassified to earnings during the next 12 months. Transactions and events expected to occur
over the next twelve months that will necessitate reclassifying these derivatives losses to
earnings include the repricing of variable-rate debt. 56




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11. Income Taxes The total income tax expense (benefit) for each respective year is as follows: 2004
    
    
    2003
    
    
    2002(in thousands)(restated)
    
    
    (restated)Income taxes attributable to:Earnings before cumulative effect of
change in accounting principle
    
    $
    9,362
    
    
    
    9,261
    
    
    
    13,942Tax effect of cumulative effect of
accounting change
    
    
    
    
    
    
    
    
    
    
    (3,731
    )Shareholders equity, tax change in
market value of derivative
instruments
    
    
    189
    
    
    
    251
    
    
    
    (235
    )Shareholders equity, tax benefit
derived
from non-statutory stock options
exercised
    
    
    (1,224
    )
    
    
    (4,692
    )
    
    
    (1,100
    )$
    8,327
    
    
    $
    4,820
    
    
    $
    8,876
 Income tax expense (benefit) related to earnings before cumulative effect of a change in
accounting principle for each respective year is as follows: 2004
    
    
    2003
    
    
    2002(in thousands)(restated)
    
    
    (restated)Current
    
    $
    9,606
    
    
    $
    9,100
    
    
    $
    12,400Deferred
    
    
    (244
    )
    
    
    161
    
    
    
    1,542$
    9,362
    
    
    $
    9,261
    
    
    $
    13,942
 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: 2004
    
    
    2003
    
    
    2002(restated)
    
    
    (restated)Federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Increase (decrease) in taxes due to:State income taxes, net of federal tax
benefit
    
    
    4.9
    
    
    
    4.3
    
    
    
    3.2Tax credits, primarily FICA tip credits
    
    
    (11.0
    )
    
    
    (9.2
    )
    
    
    (4.3
    )Other
    
    
    (0.3
    )
    
    
    0.3
    
    
    
    0.828.6
    %
    
    
    30.4
    %
    
    
    34.7
    %
 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: 57




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December 26,
    
    
    December 28,2004
    
    
    2003(in thousands)(restated)Deferred tax assets:Inventories, principally due to
uniform capitalization
    
    $
    707
    
    
    $
    520Goodwill impairment
    
    
    
    
    
    
    318Accrued expenses, principally due to
accruals for workers
compensation, employee health and
retirement benefits
    
    
    7,922
    
    
    
    3,672Asset impairment and exit cost
    
    
    308
    
    
    
    1,210Unearned gift card income
    
    
    1,082
    
    
    
    313Tax credits, primarily FICA tip credits
    
    
    1,807
    
    
    
    624State net operating loss carry forwards
    
    
    1,775
    
    
    
    517Deferred rent
    
    
    2,174
    
    
    
    1,903Other
    
    
    106
    
    
    
    402Total gross deferred tax assets
    
    
    15,881
    
    
    
    9,479Deferred tax asset valuation allowance
    
    
    (1,775
    )
    
    
    (517
    )Total net deferred tax assets
    
    
    14,106
    
    
    
    8,962Deferred tax liabilities:Property and equipment, principally
due to differences in depreciation and
capital lease amortization
    
    
    11,180
    
    
    
    10,594Goodwill
    
    
    4,094
    
    
    
    Total gross deferred tax liabilities
    
    
    15,274
    
    
    
    10,594Net deferred tax liability
    
    $
    1,168
    
    
    $
    1,632
 The net deferred tax liability (asset) is as follows: 2004
    
    
    2003(in thousands)(restated)Deferred income taxes, long-term liability
    
    $
    7,884
    
    
    $
    5,037Deferred income taxes, current asset
    
    
    (6,716
    )
    
    
    (3,405
    )$
    1,168
    
    
    $
    1,632
 The Company has gross state net operating loss carry-forwards of $42 million to reduce future
tax liabilities, which begin to expire at various times starting in 2008. The federal general
business tax credits of $1,807,000 will begin to expire at various times starting in 2024. The
Company has established a valuation allowance of $1,775,000 and $517,000 as of
December 26, 2004 and December 28, 2003, respectively, for state net operating loss carry-forwards.
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. 58




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12. Shareholders Equity In October 2003, the Company announced an authorization to repurchase up to $25.0 million of
the Companys 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 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 26, 2004, no preferred shares had been issued. 13. Earnings Per Share The following is a reconciliation of the weighted average shares used in the calculation of
basic and diluted earnings per share. 2004
    
    
    2003
    
    
    2002(in thousands)(restated)
    
    
    (restated)Weighted average shares outstanding - basic
    
    
    22,290
    
    
    
    21,560
    
    
    
    18,683Incremental stock option shares outstanding
    
    
    357
    
    
    
    610
    
    
    
    1,103Weighted average shares outstanding - diluted
    
    
    22,647
    
    
    
    22,170
    
    
    
    19,786
 For fiscal years 2004, 2003, and 2002, the number of anti-dilutive shares excluded from the
weighted average shares calculation were approximately 1,741,000, 1,375,000 and 233,000,
respectively. 14. 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 reserved 4,183,523 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 26, 2004, options to purchase
1,954,097 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 26, 2004, options to purchase 1,269,252 shares of common stock were outstanding under
those previously adopted plans. At December 26, 2004, the Company has 542,743 shares available for
issuance under the 2000 Plan. 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-AverageNumber of Options
    
    
    Exercise PriceBalance at December 30, 2001
    
    
    3,598,218
    
    
    $
    11.11Granted
    
    
    392,500
    
    
    
    21.67Exercised
    
    
    (366,101
    )
    
    
    8.51Forfeited
    
    
    (101,293
    )
    
    
    13.67Balance at December 29, 2002
    
    
    3,523,324
    
    
    $
    12.43Granted
    
    
    1,261,722
    
    
    
    18.60Exercised
    
    
    (969,511
    )
    
    
    6.45Forfeited
    
    
    (101,031
    )
    
    
    18.86Balance at December 28, 2003
    
    
    3,714,504
    
    
    $
    16.54
 59




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##### Table of Contents



Weighted-AverageNumber of Options
    
    
    Exercise PriceGranted
    
    
    0
    
    
    
    0Exercised
    
    
    (352,767
    )
    
    
    9.05Forfeited
    
    
    (138,388
    )
    
    
    19.33Balance at December 26, 2004
    
    
    3,223,349
    
    
    $
    17.23
 At the end of 2004, 2003, and 2002, the number of options exercisable was approximately
1,620,000, 1,690,000 and 2,180,000, respectively, and the weighted average exercise price of those
options was $15.47, $13.47 and $9.81, respectively. The following table summarizes information about stock options outstanding at December 26,
2004. Options Outstanding
    
    
    Options ExercisableWeighted-Avg.Remaining
    
    Weighted-
    
    
    
    
    
    
    Weighted-Contractual
    
    Average
    
    
    
    
    
    
    AverageExercise Price
    
    Number
    
    
    Life
    
    Exercise Price
    
    
    Number
    
    
    Exercise Price$  7.26
to   9.77
    
    
    138,383
    
    
    1.3
    
    $
    8.47
    
    
    
    130,970
    
    
    $
    8.43$  9.77 to 12.10
    
    
    423,754
    
    
    3.5
    
    
    11.73
    
    
    
    349,340
    
    
    
    11.72$12.10 to 14.51
    
    
    217,067
    
    
    4.9
    
    
    13.64
    
    
    
    170,418
    
    
    
    13.72$14.51 to 16.93
    
    
    703,498
    
    
    4.6
    
    
    15.36
    
    
    
    435,882
    
    
    
    15.32$16.93 to 19.35
    
    
    400,295
    
    
    6.6
    
    
    18.10
    
    
    
    214,725
    
    
    
    18.12Over $19.35
    
    
    1,340,352
    
    
    7.9
    
    
    21.17
    
    
    
    318,854
    
    
    
    21.82$  7.26 to 24.19
    
    
    3,223,349
    
    
    6.0
    
    $
    17.23
    
    
    
    1,620,189
    
    
    $
    15.47
 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 26, 2004, 613,003
shares have been issued under this plan. In the first quarter of 2002, the Company granted approximately 84,000 restricted stock units
to certain executive officers and members of senior management. The 2003 and 2004 restricted stock
unit tranches did not vest due to the Companys earnings being below the established performance
criteria, and accordingly the Company did not recognize compensation expense pursuant to this grant
in either year. During the first quarter of 2003, the Company granted approximately 135,000 shares of
restricted stock to certain executives and members of senior management. Compensation cost related
to these awards recognized by the Company in fiscal 2004 and 2003 approximated $426,000 and
$470,000, respectively. During 2004, the Company changed its approach to equity-based compensation and discontinued
issuing stock options, choosing to only issue restricted stock. This change impacted the Companys
earnings as the accounting for restricted stock differs from the accounting for stock options, the
latter of which is discussed above. The accounting for restricted stock is based on the vesting
schedule for the shares. If the vesting schedule is based merely on the passage of time, the
accounting treatment requires expensing from the grant date to the expected vesting date based on
the number of shares granted and the stock price on the date of grant. If the vesting is based on
performance criteria that could cause the awards to vest over varying period of time, or to not
vest at all, the accounting treatment requires expensing from the grant date to the expected
vesting date with the stock price based on the closing price on the quarterly and annual 60




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reporting dates. The accounting for time-based vesting only is referred to below as fixed plan
accounting  and the accounting for performance-based vesting is referred to as variable-plan
accounting. During 2004, the Company granted restricted stock awards that involve both of these
accounting treatments. A description of each grant, the number of awards, the amount charged to
equity and expense as well as a description of the vesting schedule in shown as follows. Approximate
    
    AmountNumber of
    
    Recorded toShares
    
    Common StockGrant Date
    
    Granted
    
    in 2004
    
    Vesting ScheduleFebruary 3, 2004 (1)
    
    
    42,000
    
    
    $
    750,000
    
    
    Over a seven year period following the grant date (fixed plan accounting)May 12, 2004 (2)
    
    
    179,000
    
    
    
    626,000
    
    
    Based upon cumulative growth in
earnings per share over a four year period following the grant date (variable-plan accounting)May 12, 2004 (3)
    
    
    16,000
    
    
    
    300,000
    
    
    Over a four year period following the grant date (fixed plan accounting)May 13, 2004 (4)
    
    
    29,000
    
    
    
    543,000
    
    
    Three equal annual installments on the date of each of the next three annual meetings of shareholders (fixed plan accounting)August 31, 2004 (5)
    
    
    24,000
    
    
    
    385,000
    
    
    Over a five year period following the grant date (fixed plan accounting)November 15, 2004(6)
    
    
    11,000
    
    
    
    196,000
    
    
    Over a three year period following the grant date (fixed plan accounting)November 15, 2004 (7)
    
    
    20,000
    
    
    
    18,000
    
    
    Based upon cumulative growth in
earnings over a three year period following the grant date (variable plan accounting)November 17, 2004 (8)
    
    
    23,000
    
    
    
    412,000
    
    
    Over a five year period following the grant date (fixed plan accounting)
   (1)
    
    The grantees rights in the restricted stock shall become fully vested
over a seven year period, with 10% vested on the grant date. In the
event that either the employment of the individuals by the Company is
terminated for any reason or, for any reason, the individuals cease to
remain employed by the Company in the same position the individual
held on the date of grant (or a substantially equivalent or higher
position), no further vesting of restricted stock shall occur. The
grantees rights in these shares vest based upon the passage of time;
therefore, the Company uses fixed plan accounting. Fixed plan
accounting for stock-based compensation requires that, upon issuance
of restricted stock awards, unearned compensation within shareholders
equity be charged for the fair value of the restricted stock at the
grant date, 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 2004
approximated $109,000.(2)
    
    The vesting targets for these awards are based upon cumulative growth
in earnings per share over a four year period following the grant
date. If the cumulative
annual performance targets are achieved, up to 18.75% of the awards
may vest in each of the first, second and third years and all unvested
amounts may vest upon meeting the cumulative performance target in the
fourth year. Any unvested amounts at the end of the fourth year will
automatically be forfeited. In the event that either the employment of
the individuals by the Company is terminated for any reason or, for
any reason, the individuals cease to remain employed by the Company in
the same position the individual held on the date of grant (or a
substantially equivalent or higher position), no further vesting of
restricted stock shall occur. With respect to these awards, the
Company uses variable-plan accounting which requires the Company to
recognize the intrinsic value of the award measured at the end of each
reporting period over the life of the award as it is earned. Since
this award can only be settled in stock, common stock is credited as
the award value is recognized in expense over the vesting period.
Compensation cost related to these restricted stock awards recognized
by the Company during 2004 was approximately $626,000.(3)
    
    The grantees rights in these shares of restricted stock shall become
vested over a four year period following the grant date, with 10%
vested on the grant date. In the event that either the employment of
the individuals by the Company is terminated for any reason or, for
any reason, the individuals cease to be employed by the Company in the
same position the individual held on the date of the grant (or a
substantially equivalent or higher position), no further vesting of
restricted stock shall occur. The grantees rights in these shares
vest based upon the passage of time; therefore, the Company uses fixed
plan accounting as described above. Compensation cost related to these
restricted stock awards recognized by the Company during 2004 was
approximately $50,000.(4)
    
    Compensation cost related to these restricted stock awards recognized
by the Company during 2004 was approximately $115,000.(5)
    
    The grantees rights in the restricted stock shall become fully vested
over a five year period following the grant date, with 10% vested on
the grant date. In the event that either the employment of the
individuals by the Company is terminated for any reason or, for any
reason, the individuals cease to remain employed by the Company in the
same 61




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position the individual held on the date of grant (or a substantially equivalent or higher position), no further vesting of
restricted stock shall occur. The grantees rights in these shares
vest based upon the passage of time; therefore, the Company uses fixed
plan accounting as described above. Compensation cost related to these
restricted stock awards recognized by the Company during 2004
approximated $52,000.(6)
    
    The grantees rights in the 11,000 shares of restricted stock granted
as a fixed-plan award shall become vested over a three year period
following the grant date. In the event that either the employment of
the individual by the Company is terminated for any reason or, for any
reason, the individual ceases to be employed by the Company in the
same position the individual held on the date of the grant (or a
substantially equivalent or higher position), no further vesting of
restricted stock shall occur. The grantees rights in these shares
vest based upon the passage of time; therefore, the Company uses fixed
plan accounting as described above. Compensation cost related to these
restricted stock awards recognized by the Company during 2004 was
approximately $10,000.(7)
    
    The vesting targets for the 20,000 shares of restricted stock granted
as a variable-plan award are based upon cumulative growth in earnings
per share over a three year period following the grant date. If the cumulative annual
performance targets are achieved, up to 25% of the awards may vest in
each of the first and second years and all unvested amounts may vest
upon meeting the cumulative performance target in the third year. Any
unvested amounts at the end of the third year will automatically be
forfeited. In the event that either the employment of the individual
by the Company is terminated for any reason or, for any reason, the
individual ceases to remain employed by the Company in the same
position the individual held on the date of grant (or a substantially
equivalent or higher position), no further vesting of restricted stock
shall occur. With respect to these awards, the Company uses
variable-plan accounting as described above. Since this award can
only be settled in stock, common stock is credited as the award value
is recognized in expense over the vesting period. Compensation cost
related to these restricted stock awards recognized by the Company
during 2004 was approximately $18,000.(8)
    
    The grantees rights in the restricted stock shall become fully vested
over a five year period following the grant date, with 10% vested on
the grant date. In the event that either the employment of the
individuals by the Company is terminated for any reason or, for any
reason, the individuals cease to remain employed by the Company in the
same position the individual held on the date of grant (or a
substantially equivalent or higher position), no further vesting of
restricted stock shall occur. The grantees rights in these shares
vest based upon the passage of time; therefore, the Company uses fixed
plan accounting. Compensation cost related to these restricted stock
awards recognized by the Company during 2004 approximated $51,000. During 2004, the Company had two executives terminate their employment. Pursuant to their
respective severance agreements, the Company modified their stock option agreements to provide an
additional year for them to exercise the vested stock options which had been granted to them during
their employment with the Company. Under FIN 44, this is treated as a new measurement date for
measuring the value of the respective stock options because the terms of the vested options would
have ended with the termination of employment without this one-year extension in their term.
Pursuant to FIN 44, the Company recognized approximately $593,000 in expense associated with this
new measurement date which represents the difference between the exercise price on the original
date of grant and the market price on the new measurement date. Upon termination of these two executives, the Company immediately vested shares associated
with the 2003 performance-based restricted stock awards granted to these two executives. As a
result, the Company recorded approximately $121,000 in compensation expense and a corresponding
reduction to unearned compensation expense, which is reflected in shareholders equity on the
consolidated balance sheet. 62




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For purposes of providing the SFAS No. 123 and SFAS No. 148 disclosures in Note 1, the fair
value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing
model. The Company did not issue stock options during 2004, therefore, Black-Scholes assumptions
are not shown for 2004 below. The weighted average assumptions used for the Black-Scholes option
pricing model for grants in each respective year is as follows: 2003
    
    
    2002Risk-free investment interest
    
    
    4.0
    %
    
    
    4.7
    %Expected life in years
    
    
    5.3
    
    
    
    4.9Expected volatility
    
    
    46.7
    %
    
    
    50.7
    %Fair value of options granted (per share)
    
    $
    9.68
    
    
    $
    10.69
 15. 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 $942,000 in
2004, $500,000 in 2003 and $500,000 in 2002. 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 $280,000 in 2004, $230,000 in 2003 and $203,000 in 2002. The
amount of the supplemental executive retirement plan liability payable to the participants at
December 26, 2004 and December 28, 2003 was $8,747,000 and $6,658,000, respectively, and is
recorded in other liabilities on the consolidated balance sheets. 16. Consolidated Statements of Cash Flows Supplemental disclosure of cash flow information is as follows: 2004
    
    
    2003
    
    
    2002(in thousands)Cash paid for interest
    
    $
    12,782
    
    
    $
    11,589
    
    
    $
    5,828Additions to capitalized lease obligations
    
    
    10,810
    
    
    
    20,046
    
    
    
    8,749Income taxes paid (net of refunds)
    
    
    9,693
    
    
    
    7,980
    
    
    
    11,048
 17. 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 its employees and customers becoming infected. The
Company worked closely with the Knox
County Health Department and the Centers for Disease Control and
Prevention when it became aware of
this incident and 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 Companys Knoxville restaurant during the time of the outbreak. As of the date
of this filing, the Company is also
aware of 56 lawsuits against it, all but one 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. As of March 24, 2005, the Company has agreements to settle 18 of these cases. 63




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Each of the Knox County Health Department, the Centers for Disease Control and Prevention and
the Food and Drug Administration have tentatively associated the outbreak of the Hepatitis A virus
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, there can be no assurance that insurance will be
sufficient to cover the Companys ultimate loss or liability. The Company has
submitted a claim pursuant to its
insurance coverage for this type of loss. At this point, the Company cannot reasonably estimate the value of
any potential settlement of this claim or the timing thereof. If the
Company suffers losses or liabilities in
excess of its insurance coverage, there could be a material adverse
effect on its results of
operations and financial condition. 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 injury or wrongful death under
dram shop laws that allow a person to sue the Company based on any injury caused by an intoxicated person
who was wrongfully served alcoholic beverages at one of the
Companys restaurants; 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. The Company does not believe that any of these legal proceedings
pending against it as of the date of this report will have a material
adverse effect on its
liquidity or financial condition. The Company may incur or accrue expenses relating to legal proceedings,
however, which may adversely affect its results of operations in a particular period. 18. Guarantees On November 11, 2004, the Company entered into a Program Agreement with GE Capital Franchise
Finance Corporation. Under the terms of the Program Agreement, GE Capital Franchise Finance
Corporation (Lender) will provide financing to certain qualified franchisees of the Companys
OCharleys restaurants (typically those in which the Company has an ownership interest) in a
maximum aggregate amount of $75,000,000. Such financing may be used to fund the acquisition,
construction and installation of the land, building and equipment for new OCharleys restaurants
opened by such franchisees or to fund a franchisees acquisition from the Company of the land,
building and equipment for existing OCharleys restaurants. Under the program, financing will be
provided in the maximum amount of $2.5 million per location or 80% of the total acquisition and
construction costs relating to each restaurant, whichever is less. In consideration of the Lenders agreement to make financing available under the
program to certain of the Companys franchisees, the Company has agreed, subject to limitations, to guarantee
payment to the Lender of any ultimate net losses it may suffer in connection with loans under the
program. The Companys maximum liability under such ultimate net loss guarantee is equal to the
lesser of 20% of the sum of the original funded principal balances of all loans under the program
or $15 million. In addition to the ultimate net loss guarantee, the Company has agreed to purchase
any such loans that have been declared in default by the Lender if the sum of the original funded
principal balances of all loans under the program is less than $10 million. Subject to certain
exceptions, the Companys guarantee of loans under the program shall remain in effect for as long
as the loans are outstanding. At December 26, 2004, the Company has not recorded any amounts
pursuant to these guarantees, since no amounts were outstanding under the financing arrangement. 19. Franchising Arrangements On December 30, 2003, the Company entered into a multi-unit franchise agreement with a
franchisee to develop and operate OCharleys restaurants in Michigan. The agreement specifies the
franchisee will develop 15 new OCharleys restaurants. The franchising arrangement requires the Company to provide access to certain contractual
arrangements that the Company has with its vendors in order for the franchisee to benefit from
those contracts. The development fees for the franchisee are $50,000 each for the first two stores
and $25,000 each for the remaining 13 stores. The franchisee is also required to pay a franchise
fee and marketing fund fee that are based on a percentage of sales. Pursuant to the arrangement,
the franchisee was required to pay $212,500 as development fees at the closing of the agreement,
which represents half of the fees associated with the 15 stores agreed upon. The franchisee is
required to pay the other half of the development fee to the Company as each new store opens. The
Company recognized in income $50,000 in development fees in fiscal 2004 related to the opening of
the first franchised store. The remaining development fees paid have been deferred and will be
recognized in income as each store opens. 64




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20. Related Party Transactions During 2002, the Company made loans to certain executives related to bonus amounts paid in
2001. These loans had three year terms and included an interest rate of 5% per annum. As of
December 26, 2004, the balance on these loans was $469,000. Each of these loans were paid in full
on February 12, 2005. 21. Subsequent Events On March 3, 2005, the Company was notified that it was named as a defendant in a dram shop
lawsuit related to a fatal accident that occurred in October 2004. The suit alleges that the
fatality was caused by a driver who was operating his motor vehicle under the influence of alcohol
which had been served to him while he was a patron of one of our Ninety Nine restaurants. The
Company believes the claim set forth in this lawsuit will be covered under our liquor liability
coverage which has a deductible of $500,000. Following its evaluation of allegations set forth in
the complaint and an evaluation of the matter under SFAS No. 5,
the Company decided to accrue
its deductible of $500,000 in the results presented herein for fiscal 2004. 22. Quarterly Financial and Restaurant Operating Data (Unaudited) The following is a summary of certain 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
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(dollars in thousands, except per share data)2004
    
    (restated)
    
    (restated)
    
    (restated)Revenues
    
    $
    267,743
    
    
    $
    201,155
    
    
    $
    200,277
    
    
    $
    202,211Income from operations
    
    $
    15,355
    
    
    $
    10,556
    
    
    $
    9,176
    
    
    $
    11,190Net earnings
    
    $
    7,554
    
    
    $
    5,116
    
    
    $
    4,107
    
    
    $
    6,542Basic earnings per common share
    
    $
    0.34
    
    
    $
    0.23
    
    
    $
    0.18
    
    
    $
    0.29Diluted earnings per common share
    
    $
    0.33
    
    
    $
    0.23
    
    
    $
    0.18
    
    
    $
    0.29Restaurants in operation, end of quarter
    
    
    307
    
    
    
    313
    
    
    
    320
    
    
    
    3262003 (1)
    
    (restated)
    
    (restated)
    
    (restated)
    
    (restated)Revenues
    
    $
    215,084
    
    
    $
    179,214
    
    
    $
    181,720
    
    
    $
    182,993Income from operations
    
    $
    17,107
    
    
    $
    12,471
    
    
    $
    7,567
    
    
    $
    8,607Net earnings
    
    $
    8,768
    
    
    $
    5,986
    
    
    $
    3,270
    
    
    $
    3,166Basic earnings per common share
    
    $
    0.42
    
    
    $
    0.28
    
    
    $
    0.15
    
    
    $
    0.14Diluted earnings per common share
    
    $
    0.40
    
    
    $
    0.27
    
    
    $
    0.15
    
    
    $
    0.14Restaurants in operation, end of quarter
    
    
    277
    
    
    
    287
    
    
    
    296
    
    
    
    2992002 (2)
    
    (restated)
    
    (restated)
    
    (restated)
    
    (restated)Revenues
    
    $
    149,632
    
    
    $
    115,141
    
    
    $
    116,622
    
    
    $
    118,517Income from operations
    
    $
    13,776
    
    
    $
    10,233
    
    
    $
    10,004
    
    
    $
    11,623Net earnings
    
    $
    1,830
    
    
    $
    5,842
    
    
    $
    5,732
    
    
    $
    6,728Basic earnings per common share
    
    $
    0.10
    
    
    $
    0.31
    
    
    $
    0.31
    
    
    $
    0.36Diluted earnings per common share
    
    $
    0.09
    
    
    $
    0.29
    
    
    $
    0.29
    
    
    $
    0.34Restaurants in operation, end of quarter
    
    
    171
    
    
    
    177
    
    
    
    183
    
    
    
    188
   (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. 65




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As discussed in Note 2 to the notes to consolidated financial statements, the Company restated
its consolidated balance sheet as of December 28, 2003 and the related consolidated statements of
earnings, shareholders equity and comprehensive income, and cash flows for each of the two fiscal
years in the period ended December 28, 2003. The Company has also restated its quarterly financial
information for fiscal 2002, 2003 and the first three quarters of fiscal 2004. The following
tables reconcile the change in net earnings for the restated quarters by fiscal year. This
information should be read in conjunction with Note 2 to the consolidated financial statements. First
    
    
    Second
    
    
    ThirdDollars in thousands
    
    Quarter
    
    
    Quarter
    
    
    Quarter2004 Net EarningsAs previously reported
    
    $
    7,710
    
    
    $
    5,258
    
    
    $
    4,118Restatement items:Cost and profit
recognition on
inventory
    
    
    (28
    )
    
    
    15
    
    
    
    57Accounting for
operating leases
    
    
    (128
    )
    
    
    (107
    )
    
    
    (118
    )Other
    
    
    
    
    
    
    (50
    )
    
    
    50As restated
    
    $
    7,554
    
    
    $
    5,116
    
    
    $
    4,107
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2003 Net EarningsAs previously reported
    
    $
    8,895
    
    
    $
    6,114
    
    
    $
    3,407
    
    
    $
    2,857Cost and profit
recognition on
inventory
    
    
    (12
    )
    
    
    (2
    )
    
    
    (23
    )
    
    
    (9
    )Accounting for
operating leases
    
    
    (115
    )
    
    
    (126
    )
    
    
    (114
    )
    
    
    (106
    )Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    424As restated
    
    $
    8,768
    
    
    $
    5,986
    
    
    $
    3,270
    
    
    $
    3,1662002 Net EarningsAs previously reported
    
    $
    1,935
    
    
    $
    5,975
    
    
    $
    5,902
    
    
    $
    6,856Cost and profit
recognition on
inventory
    
    
    (24
    )
    
    
    7
    
    
    
    (10
    )
    
    
    (11
    )Accounting for
operating leases
    
    
    (81
    )
    
    
    (140
    )
    
    
    (160
    )
    
    
    (117
    )As restated
    
    $
    1,830
    
    
    $
    5,842
    
    
    $
    5,732
    
    
    $
    6,728
 23. Commitments The
Company has minimum purchase commitments with various vendors through
2008. Outstanding commitments as of December 26, 2004 were
approximately $58.4 million and consist primarily of minimum
purchase commitments of beef, pork, poultry and other food products
related to normal business operations. 24. 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
26, 2004 and December 28, 2003 and for each of the three years in the period ended December 26,
2004. 66




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Condensed Consolidating Balance Sheet
As of December 26, 2004 MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(dollars in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,491
    
    
    $
    7,733
    
    
    $
    548
    
    
    $
    10,772Trade accounts receivable
    
    
    2,640
    
    
    
    6,130
    
    
    
    13
    
    
    
    8,783Intercompany receivables (payable)
    
    
    (123,459
    )
    
    
    129,076
    
    
    
    (5,617
    )
    
    
    Inventories
    
    
    3,310
    
    
    
    29,792
    
    
    
    23
    
    
    
    33,125Deferred income taxes
    
    
    6,332
    
    
    
    384
    
    
    
    
    
    
    
    6,716Notes receivable
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    120Other current assets
    
    
    507
    
    
    
    4,365
    
    
    
    10
    
    
    
    4,882Total current assets
    
    
    (108,059
    )
    
    
    177,480
    
    
    
    (5,023
    )
    
    
    64,398Property and Equipment, net
    
    
    349,719
    
    
    
    100,121
    
    
    
    1,968
    
    
    
    451,808Goodwill
    
    
    
    
    
    
    93,074
    
    
    
    
    
    
    
    93,074Other Intangible Asset
    
    
    
    
    
    
    25,921
    
    
    
    
    
    
    
    25,921Other Assets
    
    
    217,351
    
    
    
    26,217
    
    
    
    (221,258
    )
    
    
    22,310Total Assets
    
    $
    459,011
    
    
    $
    422,813
    
    
    $
    (224,313
    )
    
    $
    657,511LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    6,596
    
    
    $
    11,339
    
    
    $
    (3,676
    )
    
    $
    14,259Accrued payroll and related expenses
    
    
    12,694
    
    
    
    6,470
    
    
    
    19
    
    
    
    19,183Accrued expenses
    
    
    11,705
    
    
    
    9,475
    
    
    
    (302
    )
    
    
    20,878Deferred revenue
    
    
    8,444
    
    
    
    10,754
    
    
    
    12
    
    
    
    19,210Federal, state and local taxes
    
    
    (6,540
    )
    
    
    15,707
    
    
    
    17
    
    
    
    9,184Current portion of long-term debt and
capitalized lease
obligations
    
    
    12,315
    
    
    
    355
    
    
    
    
    
    
    
    12,670Total current liabilities
    
    
    45,214
    
    
    
    54,100
    
    
    
    (3,930
    )
    
    
    95,384Long-Term Debt, excluding current portion
    
    
    162,865
    
    
    
    
    
    
    
    (16,740
    )
    
    
    146,125Capitalized Lease Obligations, excluding
current portion
    
    
    30,689
    
    
    
    1,655
    
    
    
    
    
    
    
    32,344Deferred Income Taxes
    
    
    8,299
    
    
    
    (415
    )
    
    
    
    
    
    
    7,884Other Liabilities
    
    
    32,097
    
    
    
    11,963
    
    
    
    974
    
    
    
    45,034Total liabilities
    
    
    279,164
    
    
    
    67,303
    
    
    
    (19,696
    )
    
    
    326,771Shareholders equity:Common stock
    
    
    177,811
    
    
    
    168,474
    
    
    
    (168,023
    )
    
    
    178,262Accumulated other comprehensive loss,
net of tax
    
    
    (224
    )
    
    
    
    
    
    
    
    
    
    
    (224
    )Unearned compensation
    
    
    (3,593
    )
    
    
    
    
    
    
    (73
    )
    
    
    (3,666
    )Retained
earnings (deficit)
    
    
    5,853
    
    
    
    187,036
    
    
    
    (36,521
    )
    
    
    156,368Total
shareholders equity (deficit)
    
    
    179,847
    
    
    
    355,510
    
    
    
    (204,617
    )
    
    
    330,740Total
Liabilities and Shareholders Equity (Deficit)
    
    $
    459,011
    
    
    $
    422,813
    
    
    $
    (224,313
    )
    
    $
    657,511
 67




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of December 28, 2003
(restated) MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(dollars in thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,946
    
    
    $
    6,628
    
    
    $
    
    
    
    $
    9,574Trade accounts receivable
    
    
    3,190
    
    
    
    4,859
    
    
    
    
    
    
    
    8,049Intercompany receivables (payable)
    
    
    (116,014
    )
    
    
    119,649
    
    
    
    (3,635
    )
    
    
    Inventories
    
    
    2,993
    
    
    
    18,520
    
    
    
    
    
    
    
    21,513Deferred income taxes
    
    
    3,021
    
    
    
    384
    
    
    
    
    
    
    
    3,405Notes receivable
    
    
    3,070
    
    
    
    
    
    
    
    
    
    
    
    3,070Other current assets
    
    
    1,394
    
    
    
    1,916
    
    
    
    116
    
    
    
    3,426Total current assets
    
    
    (99,400
    )
    
    
    151,956
    
    
    
    (3,519
    )
    
    
    49,037Property and Equipment, net
    
    
    343,641
    
    
    
    86,624
    
    
    
    1
    
    
    
    430,266Goodwill
    
    
    
    
    
    
    93,069
    
    
    
    
    
    
    
    93,069Other Intangible Asset
    
    
    
    
    
    
    25,921
    
    
    
    
    
    
    
    25,921Other Assets
    
    
    219,285
    
    
    
    23,628
    
    
    
    (220,533
    )
    
    
    22,380Total Assets
    
    $
    463,526
    
    
    $
    381,198
    
    
    $
    (224,051
    )
    
    $
    620,673LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Trade accounts payable
    
    $
    6,841
    
    
    $
    12,306
    
    
    $
    (3,760
    )
    
    $
    15,387Accrued payroll and related expenses
    
    
    7,550
    
    
    
    4,058
    
    
    
    
    
    
    
    11,608Accrued expenses
    
    
    9,419
    
    
    
    9,107
    
    
    
    (32
    )
    
    
    18,494Deferred revenue
    
    
    7,277
    
    
    
    8,164
    
    
    
    1
    
    
    
    15,442Federal, state and local taxes
    
    
    (3,540
    )
    
    
    11,900
    
    
    
    (1
    )
    
    
    8,359Current portion of long-term debt and
capitalized lease
obligations
    
    
    9,691
    
    
    
    340
    
    
    
    
    
    
    
    10,031Total current liabilities
    
    
    37,238
    
    
    
    45,875
    
    
    
    (3,792
    )
    
    
    79,321Long-Term Debt, excluding current portion
    
    
    180,906
    
    
    
    
    
    
    
    (15,761
    )
    
    
    165,145Capitalized Lease Obligations, excluding
current portion
    
    
    32,442
    
    
    
    2,010
    
    
    
    1
    
    
    
    34,453Deferred Income Taxes
    
    
    5,452
    
    
    
    (415
    )
    
    
    
    
    
    
    5,037Other Liabilities
    
    
    26,894
    
    
    
    9,510
    
    
    
    126
    
    
    
    36,530Total liabilities
    
    
    282,932
    
    
    
    56,980
    
    
    
    (19,426
    )
    
    
    320,486Shareholders equity:Common stock
    
    
    169,929
    
    
    
    168,469
    
    
    
    (168,390
    )
    
    
    170,008Accumulated other comprehensive loss,
net of tax
    
    
    (519
    )
    
    
    
    
    
    
    
    
    
    
    (519
    )Unearned compensation
    
    
    (2,351
    )
    
    
    
    
    
    
    
    
    
    
    (2,351
    )Retained
earnings (deficit)
    
    
    13,535
    
    
    
    155,749
    
    
    
    (36,235
    )
    
    
    133,049Total
shareholders equity (deficit)
    
    
    180,594
    
    
    
    324,218
    
    
    
    (204,625
    )
    
    
    300,187Total
Liabilities and Shareholders Equity (Deficit)
    
    $
    463,526
    
    
    $
    381,198
    
    
    $
    (224,051
    )
    
    $
    620,673
 68




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##### Table of Contents



Condensed Consolidating Statement of Earnings
For the Year Ended December 26, 2004 MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Revenues:Restaurant sales
    
    $
    526,485
    
    
    $
    320,114
    
    
    $
    17,660
    
    
    $
    864,259Commissary sales
    
    
    
    
    
    
    189,429
    
    
    
    (182,394
    )
    
    
    7,035Franchise revenues
    
    
    109
    
    
    
    
    
    
    
    (17
    )
    
    
    92526,594
    
    
    
    509,543
    
    
    
    (164,751
    )
    
    
    871,386Costs and expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    165,034
    
    
    
    99,169
    
    
    
    (3,190
    )
    
    
    261,013Payroll and benefits
    
    
    184,312
    
    
    
    102,935
    
    
    
    3,267
    
    
    
    290,514Restaurant operating costs
    
    
    91,268
    
    
    
    61,952
    
    
    
    4,271
    
    
    
    157,491Cost of commissary sales
    
    
    
    
    
    
    178,555
    
    
    
    (171,924
    )
    
    
    6,631Advertising, general and administrative
    
    
    3,334
    
    
    
    60,389
    
    
    
    31
    
    
    
    63,754Depreciation and amortization
    
    
    29,358
    
    
    
    10,419
    
    
    
    21
    
    
    
    39,798Preopening costs
    
    
    4,165
    
    
    
    1,504
    
    
    
    239
    
    
    
    5,908477,471
    
    
    
    514,923
    
    
    
    (167,285
    )
    
    
    825,109Income (loss) from operations
    
    
    49,123
    
    
    
    (5,380
    )
    
    
    2,534
    
    
    
    46,277Other (income) expense:Interest expense, net
    
    
    12,564
    
    
    
    894
    
    
    
    18
    
    
    
    13,476Other, net
    
    
    52,474
    
    
    
    (52,354
    )
    
    
    
    
    
    
    12065,038
    
    
    
    (51,460
    )
    
    
    18
    
    
    
    13,596(Loss) earnings before income taxes
    
    
    (15,915
    )
    
    
    46,080
    
    
    
    2,516
    
    
    
    32,681Income tax (benefit) expense
    
    
    (4,051
    )
    
    
    12,718
    
    
    
    695
    
    
    
    9,362Net (loss) earnings
    
    $
    (11,864
    )
    
    $
    33,362
    
    
    $
    1,821
    
    
    $
    23,319
 69




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##### Table of Contents



Condensed Consolidating Statement of Earnings
For the Year Ended December 28, 2003
(restated) MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Revenues:Restaurant sales
    
    $
    467,141
    
    
    $
    264,673
    
    
    $
    21,926
    
    
    $
    753,740Commissary sales
    
    
    
    
    
    
    161,537
    
    
    
    (156,266
    )
    
    
    5,271467,141
    
    
    
    426,210
    
    
    
    (134,340
    )
    
    
    759,011Costs and expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    141,545
    
    
    
    79,474
    
    
    
    187
    
    
    
    221,206Payroll and benefits
    
    
    160,768
    
    
    
    86,801
    
    
    
    4,846
    
    
    
    252,415Restaurant operating costs
    
    
    82,618
    
    
    
    50,853
    
    
    
    5,734
    
    
    
    139,205Cost of commissary sales
    
    
    
    
    
    
    152,293
    
    
    
    (147,323
    )
    
    
    4,970Advertising, general and administrative
    
    
    2,658
    
    
    
    49,546
    
    
    
    
    
    
    
    52,204Depreciation and amortization
    
    
    26,965
    
    
    
    9,395
    
    
    
    
    
    
    
    36,360Preopening costs
    
    
    5,493
    
    
    
    1,407
    
    
    
    
    
    
    
    6,900420,047
    
    
    
    429,769
    
    
    
    (136,556
    )
    
    
    713,260Income (loss) from operations
    
    
    47,094
    
    
    
    (3,559
    )
    
    
    2,216
    
    
    
    45,751Other (income) expense:Interest expense, net
    
    
    13,289
    
    
    
    864
    
    
    
    
    
    
    
    14,153Debt extinguishment charge
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    1,800Other, net
    
    
    46,450
    
    
    
    (47,102
    )
    
    
    
    
    
    
    (652
    )61,539
    
    
    
    (46,238
    )
    
    
    
    
    
    
    15,301(Loss)
earnings before income taxes
    
    
    (14,445
    )
    
    
    42,679
    
    
    
    2,216
    
    
    
    30,450Income tax (benefit) expense
    
    
    (5,187
    )
    
    
    13,735
    
    
    
    713
    
    
    
    9,261Net (loss) earnings
    
    $
    (9,258
    )
    
    $
    28,944
    
    
    $
    1,503
    
    
    $
    21,189
 70




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##### Table of Contents



Condensed Consolidating Statement of Earnings
For the Year Ended December 29, 2002
(restated) MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Revenues:Restaurant sales
    
    $
    423,218
    
    
    $
    57,782
    
    
    $
    14,112
    
    
    $
    495,112Commissary sales
    
    
    
    
    
    
    138,075
    
    
    
    (133,275
    )
    
    
    4,800423,218
    
    
    
    195,857
    
    
    
    (119,163
    )
    
    
    499,912Costs and expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    123,703
    
    
    
    19,599
    
    
    
    (2,664
    )
    
    
    140,638Payroll and benefits
    
    
    136,561
    
    
    
    14,651
    
    
    
    3,099
    
    
    
    154,311Restaurant operating costs
    
    
    68,098
    
    
    
    14,295
    
    
    
    3,613
    
    
    
    86,006Cost of commissary sales
    
    
    
    
    
    
    129,096
    
    
    
    (124,608
    )
    
    
    4,488Advertising, general and administrative
    
    
    1,929
    
    
    
    35,748
    
    
    
    
    
    
    
    37,677Depreciation and amortization
    
    
    23,276
    
    
    
    2,251
    
    
    
    
    
    
    
    25,527Preopening costs
    
    
    4,977
    
    
    
    652
    
    
    
    
    
    
    
    5,629358,544
    
    
    
    216,292
    
    
    
    (120,560
    )
    
    
    454,276Income (loss) from operations
    
    
    64,674
    
    
    
    (20,435
    )
    
    
    1,397
    
    
    
    45,636Other (income) expense:Interest expense, net
    
    
    4,905
    
    
    
    651
    
    
    
    
    
    
    
    5,556Other, net
    
    
    42,114
    
    
    
    (42,232
    )
    
    
    
    
    
    
    (118
    )47,019
    
    
    
    (41,581
    )
    
    
    
    
    
    
    5,438Earnings before income taxes and cumulative
effect of change in accounting principle
    
    
    17,655
    
    
    
    21,146
    
    
    
    1,397
    
    
    
    40,198Income taxes
    
    
    6,108
    
    
    
    7,348
    
    
    
    486
    
    
    
    13,942Earnings before cumulative effect of change in
accounting principle
    
    
    11,547
    
    
    
    13,798
    
    
    
    911
    
    
    
    26,256Cumulative effect of change in accounting
principle, net of tax
    
    
    
    
    
    
    (6,123
    )
    
    
    
    
    
    
    (6,123
    )Net earnings
    
    $
    11,547
    
    
    $
    7,675
    
    
    $
    911
    
    
    $
    20,133
 71




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Year Ended December 26, 2004 MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net (loss) earnings
    
    $
    (11,864
    )
    
    $
    33,362
    
    
    $
    1,821
    
    
    $
    23,319Adjustments to reconcile net (loss) earnings
to net cash provided by operating
activities:Depreciation and amortization  property
and equipment
    
    
    29,296
    
    
    
    10,480
    
    
    
    22
    
    
    
    39,798Amortization of debt issuance costs
    
    
    1,449
    
    
    
    
    
    
    
    
    
    
    
    1,449Deferred income taxes
    
    
    (464
    )
    
    
    
    
    
    
    
    
    
    
    (464
    )Compensation expense related to restricted
stockplans
    
    
    2,171
    
    
    
    
    
    
    
    
    
    
    
    2,171Amortization of deferred gain on sale and
leaseback
    
    
    (1,055
    )
    
    
    
    
    
    
    
    
    
    
    (1,055
    )Loss on the sale and involuntary
conversion of assets
    
    
    207
    
    
    
    8
    
    
    
    
    
    
    
    215Donation of Stock
    
    
    137
    
    
    
    
    
    
    
    
    
    
    
    137Changes in assets and liabilities:Trade accounts receivable
    
    
    550
    
    
    
    (1,271
    )
    
    
    (13
    )
    
    
    (734
    )Inventories
    
    
    (317
    )
    
    
    (11,272
    )
    
    
    (23
    )
    
    
    (11,612
    )Other current assets
    
    
    1,264
    
    
    
    (2,449
    )
    
    
    107
    
    
    
    (1,078
    )Trade accounts payable
    
    
    (245
    )
    
    
    (967
    )
    
    
    84
    
    
    
    (1,128
    )Deferred revenue
    
    
    1,165
    
    
    
    2,589
    
    
    
    14
    
    
    
    3,768Accrued payroll and other accrued expenses
    
    
    4,084
    
    
    
    6,588
    
    
    
    (246
    )
    
    
    10,426Other long-term assets and liabilities
    
    
    2,627
    
    
    
    (136
    )
    
    
    1,571
    
    
    
    4,062Tax benefit derived from exercise of stock
options
    
    
    1,224
    
    
    
    
    
    
    
    
    
    
    
    1,224Net cash provided by operating
activities
    
    
    30,229
    
    
    
    36,932
    
    
    
    3,337
    
    
    
    70,498Cash flows from investing activities:Additions to property and equipment
    
    
    (34,507
    )
    
    
    (23,999
    )
    
    
    (1,985
    )
    
    
    (60,491
    )Proceeds from the sale and involuntary
conversion of assets
    
    
    1,928
    
    
    
    15
    
    
    
    
    
    
    
    1,943Other, net
    
    
    15,894
    
    
    
    (11,843
    )
    
    
    (804
    )
    
    
    3,247Net cash used in investing
activities
    
    
    (16,685
    )
    
    
    (35,827
    )
    
    
    (2,789
    )
    
    
    (55,301
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    4,454
    
    
    
    
    
    
    
    
    
    
    
    4,454Payments on long-term debt and capitalized
lease obligations
    
    
    (33,799
    )
    
    
    
    
    
    
    
    
    
    
    (33,799
    )Proceeds from sale and lease-back transactions
    
    
    12,090
    
    
    
    
    
    
    
    
    
    
    
    12,090Debt issuance costs
    
    
    (900
    )
    
    
    
    
    
    
    
    
    
    
    (900
    )Minority interest in joint ventures
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    750Exercise of employee incentive stock options
and issuances under stock purchase plan
    
    
    3,406
    
    
    
    
    
    
    
    
    
    
    
    3,406Net cash
used in financing activities
    
    
    (13,999
    )
    
    
    
    
    
    
    
    
    
    
    (13,999
    )(Decrease) Increase in cash and cash equivalents
    
    
    (455
    )
    
    
    1,105
    
    
    
    548
    
    
    
    1,198Cash and cash equivalents at beginning of the year
    
    
    2,946
    
    
    
    6,628
    
    
    
    
    
    
    
    9,574Cash and cash equivalents at end of the year
    
    $
    2,491
    
    
    $
    7,733
    
    
    $
    548
    
    
    $
    10,772
 72




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Year Ended December 28, 2003
(restated) MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net (loss) earnings
    
    $
    (9,258
    )
    
    $
    28,944
    
    
    $
    1,503
    
    
    $
    21,189Adjustments to reconcile net (loss) earnings
to net cash provided by operating activities:Depreciation and amortization  property
and equipment
    
    
    26,965
    
    
    
    9,395
    
    
    
    
    
    
    
    36,360Debt extinguishment charge
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    1,800Amortization of debt issuance costs
    
    
    1,184
    
    
    
    
    
    
    
    
    
    
    
    1,184Deferred income taxes
    
    
    184
    
    
    
    
    
    
    
    
    
    
    
    184Compensation expense related to restricted
stock plans
    
    
    470
    
    
    
    
    
    
    
    
    
    
    
    470Amortization of deferred gain on
sale-leaseback
    
    
    (163
    )
    
    
    
    
    
    
    
    
    
    
    (163
    )Gain on the sale and involuntary
conversion of assets
    
    
    (415
    )
    
    
    (8
    )
    
    
    
    
    
    
    (423
    )Changes in assets and liabilities:Trade accounts receivable
    
    
    (302
    )
    
    
    (1,659
    )
    
    
    
    
    
    
    (1,961
    )Inventories
    
    
    (446
    )
    
    
    (102
    )
    
    
    
    
    
    
    (548
    )Other current assets
    
    
    438
    
    
    
    205
    
    
    
    (117
    )
    
    
    526Trade accounts payable
    
    
    (7,732
    )
    
    
    3,995
    
    
    
    3,356
    
    
    
    (381
    )Deferred revenue
    
    
    64
    
    
    
    2,971
    
    
    
    
    
    
    
    3,035Accrued payroll and other accrued expenses
    
    
    30,080
    
    
    
    (25,905
    )
    
    
    (3,803
    )
    
    
    372Other long-term assets and liabilities
    
    
    1,038
    
    
    
    (658
    )
    
    
    1,604
    
    
    
    1,984Tax benefit derived from exercise of stock
options
    
    
    4,692
    
    
    
    
    
    
    
    
    
    
    
    4,692Net cash provided by operating activities
    
    
    48,599
    
    
    
    17,178
    
    
    
    2,543
    
    
    
    68,320Cash 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
    
    
    
    
    
    
    
    3,724Other, net
    
    
    1,849
    
    
    
    1,668
    
    
    
    (3,106
    )
    
    
    411Net cash used in investing activities
    
    
    (159,638
    )
    
    
    (15,569
    )
    
    
    (2,543
    )
    
    
    (177,750
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    265,121
    
    
    
    
    
    
    
    
    
    
    
    265,121Payments on long-term debt and capitalized
lease obligations
    
    
    (207,639
    )
    
    
    
    
    
    
    
    
    
    
    (207,639
    )Proceeds from sale and lease-back transactions
    
    
    59,097
    
    
    
    
    
    
    
    
    
    
    
    59,097Debt issuance costs
    
    
    (10,898
    )
    
    
    
    
    
    
    
    
    
    
    (10,898
    )Exercise of employee incentive stock options
and issuances under stock purchase plan
    
    
    5,012
    
    
    
    
    
    
    
    
    
    
    
    5,012Net cash provided by financing activities
    
    
    110,693
    
    
    
    
    
    
    
    
    
    
    
    110,693(Decrease) Increase in cash and cash equivalents
    
    
    (346
    )
    
    
    1,609
    
    
    
    
    
    
    
    1,263Cash and cash equivalents at beginning of the year
    
    
    3,292
    
    
    
    5,019
    
    
    
    
    
    
    
    8,311Cash and cash equivalents at end of the year
    
    $
    2,946
    
    
    $
    6,628
    
    
    $
    
    
    
    $
    9,574
 73




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows
For the Year Ended December 29, 2002
(restated) MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Cash flows from operating activities:Net earnings
    
    $
    11,547
    
    
    $
    7,675
    
    
    $
    911
    
    
    $
    20,133Cumulative effect of change in accounting
principle, net
    
    
    
    
    
    
    6,123
    
    
    
    
    
    
    
    6,123Adjustments to reconcile net earnings to
net cash provided by operating
activities:Depreciation and amortization  property
and equipment
    
    
    23,276
    
    
    
    2,251
    
    
    
    
    
    
    
    25,527Compensation expense related to restricted
stock plans
    
    
    561
    
    
    
    
    
    
    
    
    
    
    
    561Amortization of debt issuance costs
    
    
    380
    
    
    
    
    
    
    
    
    
    
    
    380Deferred income taxes
    
    
    1,519
    
    
    
    
    
    
    
    
    
    
    
    1,519(Gain) loss on the sale and involuntary
conversion of assets
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    (63
    )Changes in assets and liabilities:Trade accounts receivable
    
    
    (305
    )
    
    
    (147
    )
    
    
    
    
    
    
    (452
    )Inventories
    
    
    (425
    )
    
    
    474
    
    
    
    
    
    
    
    49Other current assets
    
    
    (499
    )
    
    
    (178
    )
    
    
    
    
    
    
    (677
    )Trade accounts payable
    
    
    13,883
    
    
    
    (11,926
    )
    
    
    (7
    )
    
    
    1,950Deferred revenue
    
    
    3,112
    
    
    
    626
    
    
    
    
    
    
    
    3,738Accrued payroll and other accrued expenses
    
    
    2,338
    
    
    
    1,357
    
    
    
    7
    
    
    
    3,702Other long-term assets and liabilities
    
    
    1,102
    
    
    
    
    
    
    
    
    
    
    
    1,102Tax benefit derived from exercise of stock
options
    
    
    1,100
    
    
    
    
    
    
    
    
    
    
    
    1,100Net cash provided by operating
activities
    
    
    57,526
    
    
    
    6,255
    
    
    
    911
    
    
    
    64,692Cash 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
    
    
    
    
    
    
    
    
    
    
    
    2,018Other, net
    
    
    29
    
    
    
    
    
    
    
    (911
    )
    
    
    (882
    )Net cash used in investing activities
    
    
    (62,942
    )
    
    
    (4,722
    )
    
    
    (911
    )
    
    
    (68,575
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    9,000Payments 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
    
    
    
    
    
    
    
    
    
    
    
    4,435Net cash provided by financing
activities
    
    
    5,825
    
    
    
    
    
    
    
    
    
    
    
    5,825Increase in cash and cash equivalents
    
    
    409
    
    
    
    1,533
    
    
    
    
    
    
    
    1,942Cash and cash equivalents at beginning of the
year
    
    
    2,883
    
    
    
    3,486
    
    
    
    
    
    
    
    6,369Cash and cash equivalents at end of the year
    
    $
    3,292
    
    
    $
    5,019
    
    
    $
    
    
    
    $
    8,311
 74




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Schedule II Valuation and Qualifying Accounts AdditionsBalance at
    
    
    
    charged to
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    
    
    costs and
    
    
    
    Charged to
    
    
    
    
    
    
    
    
    at endDescription
    
    
    of period
    
    
    
    expenses
    
    
    
    other accounts
    
    
    
    Deductions
    
    
    
    of period(Dollars in thousands)Valuation allowance for state net operating loss
carry-forwardsYear ended
December 26, 2004
    
    
    $
    517
    
    
    
    $
    1,258
    
    
    
    $
    
    
    
    
    $
    
    
    
    
    $
    1,775Year ended December
28, 2003
    
    
    
    
    
    
    
    
    517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    517Year
ended December 29, 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable. 
 Item 9A. Controls and Procedures. (a)     Disclosure
Controls and ProceduresThe Company maintains disclosure controls and procedures
that are designed to ensure that information required to be disclosed in the Companys reports
under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and that
such information is accumulated and communicated to management, including the Companys Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely
decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, as the
Companys are designed to do, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. In connection with the preparation of this Annual Report on Form 10-K, as of December 26,
2004, an evaluation was performed under the supervision and with the participation of the Companys
management and the Audit Committee of the Board of Directors of the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Exchange Act). In performing this evaluation, management reviewed the Companys lease
accounting and leasehold depreciation practices, partially in light of the recent attention and
focus on such practices by restaurant and retail companies. As a result of this review, the Company
concluded that its previously established lease accounting practices were not appropriate and
determined that the Companys annual rent expense over the last several years had been understated.
Accordingly, as described herein, the Company determined to restate certain of its previously
issued financial statements to reflect the correction in the Companys lease accounting practices.
Based on that evaluation, the Companys CEO and CFO concluded that the Companys disclosure
controls and procedures were not effective as of December 26, 2004. (b)     Managements Annual Report on Internal Control over Financial ReportingManagement of the
Company is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a-15(f) under the Exchange Act. The Companys internal control
system is designed to provide reasonable assurance to the Companys management and Board of
Directors regarding the preparation and fair presentation of published financial statements. All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Management has assessed the effectiveness of the Companys internal control over financial
reporting as of December 26, 2004. In making its assessment of internal control over financial
reporting, management used the criteria 75




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set forth by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission in Internal ControlIntegrated Framework. In conjunction with performing this assessment, management reviewed
the Companys lease
accounting and leasehold depreciation practices. As a result of this review, management
concluded that the Companys controls over the selection and monitoring of appropriate assumptions
and factors affecting lease accounting practices were ineffective, and, as a result, management
determined that the Companys annual rent expense for the years
ended December 28, 2003 and December 29, 2002 and for each
of the quarterly periods of fiscal years 2004, 2003 and 2002 through
October 3, 2004 had been
understated. On March 3, 2005, the Audit Committee of the Board of Directors and senior management
decided to restate the Companys financial statements as of and
for the years ended December 28, 2003 and December 29, 2002 and for
each of the quarterly periods in fiscal years 2004, 2003 and 2002
through October 3, 2004 to reflect the
correction in its lease accounting practices. Management evaluated the impact of this restatement on the Companys assessment of internal
control over financial reporting and has concluded that the control deficiency that resulted in the
incorrect lease accounting represented a material weakness. As a
result of this material weakness as of December 26, 2004 in the Companys internal control over financial reporting, management has concluded that, as of
December 26, 2004, the Companys internal control over financial reporting was not effective based
on the criteria set forth by the COSO of the Treadway Commission in Internal ControlIntegrated
Framework. A material weakness in internal control over financial reporting is a control deficiency
(within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard
No. 2), or combination of control deficiencies, that results in there being more than a remote
likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected. PCAOB Auditing Standard No. 2 identifies a number of circumstances that,
because of their likely significant negative effect on internal control over financial reporting,
are to be regarded as at least significant deficiencies as well as strong indicators that a
material weakness exists, including the restatement of previously
issued financial
statements to
reflect the correction of a misstatement. The Companys independent registered public accounting firm, KPMG LLP, has issued an
attestation report on managements assessment of the Companys internal control over financial
reporting. This report appears below. (c)     Remediation Steps to Address Material WeaknessTo remediate the material weakness in the
Companys internal control over financial reporting, subsequent
to year end, the Company has implemented additional review procedures
over the selection and monitoring of appropriate assumptions and
factors affecting lease accounting to ensure that U.S. generally
accepted accounting principles are appropriately applied. (d)     Change in Internal Control Over Financial ReportingThere were no changes in the Companys
internal control over financial reporting that occurred during the fiscal quarter ended December
26, 2004 that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting. Report of Independent Registered Public Accounting Firm The Board of Directors
OCharleys Inc.: We
have audited managements assessment, included in the
accompanying Managements Annual Report on
Internal Control over Financial Reporting (Item 9A), that OCharleys Inc. (the Company) did not
maintain effective internal control over financial reporting as of December 26, 2004, because of
the effect of the material weakness in internal controls over the selection, monitoring, and review
of assumptions and factors affecting lease accounting and leasehold depreciation practices, based
on criteria established in Internal ControlIntegrated Framework,issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to express an
opinion on managements assessment and an opinion on the effectiveness of the Companys internal
control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion. 76




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##### Table of Contents



A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate. A material weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the annual or interim
financial statements will not be prevented or detected. The following material weakness has been
identified and included in managements assessment as of December 26, 2004: Management identified
deficiencies in the Companys internal control over financial
reporting regarding the selection and monitoring of assumptions and factors affecting lease accounting  practices. As a result of these deficiencies in the Companys internal
control, previously reported annual rent expense was understated,
resulting in the restatement of financial statements as of and for
the years ended December 28, 2003 and December 29, 2002 and
for each of the quarterly periods of fiscal years 2004, 2003 and
2002 through October 3, 2004. We also
have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of OCharleys Inc. and subsidiaries as of
December 26, 2004, and the related consolidated statements of earnings,
shareholders equity and comprehensive income, and cash flows
for the year then ended. The aforementioned material weakness was considered in determining
the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated
financial statements, and this report does not affect our report
dated March 25, 2005, which
expressed an unqualified opinion on those consolidated financial statements. In our opinion, managements assessment that OCharleys Inc. did not maintain effective
internal control over financial reporting as of December 26, 2004, is fairly stated, in all
material respects, based on criteria established in Internal ControlIntegrated Framework,issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
opinion, because of the effect of the material weakness described above on the achievement of the
objectives of the control criteria, OCharleys Inc. has not maintained effective internal control
over financial reporting as of December 26, 2004, based on criteria established in Internal
ControlIntegrated Framework,issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). /s/ KPMG LLP Nashville, Tennessee
March 25, 2005 
 Item 9B. Other Information. On
March 22, 2005, the Compensation and Human Resources Committee of our
Board of Directors approved and adopted the OCharleys
Inc. 2005 Executive Officers Cash Incentive Plan. Under the
terms of the plan, our executive officers are eligible to receive
certain cash bonuses dependent upon the attainment of
certain corporate, division and/or individual performance goals
established by the Compensation and Human Resources Committee for the
2005 fiscal year. A copy of the plan is filed with this Annual Report
on Form 10-K as Exhibit 10.65 and is incorporated herein by reference. 
 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 12,
2005, to be filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b), contains
under the captions Corporate Governance, Election of Directors and Section 16(a) Beneficial
Ownership Reporting Compliance information required by Item 10 of Form 10-K and is incorporated
herein by reference. Pursuant to General Instruction G(3), certain 77




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##### Table of Contents



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 12,
2005, to be filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b), contains
under the captions Director Compensation and 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 12,
2005, 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, Election of Directors and
Equity Compensation Plans information required by Item 12 of Form 10-K and is incorporated herein
by reference. 
 Item 13. Certain Relationships and Related Transactions. The Proxy Statement issued in connection with the shareholders meeting to be held on May 12,
2005, 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 12,
2005, 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 2004 and 2003 information
required by Item 14 of Form 10-K and is incorporated herein by reference. 
 PART IV 
 Item 15. Exhibits and Financial Statement Schedules. (a)
    
    
    1.
    
    
    Financial Statements: See Item 82.
    
    
    Financial Statement
Schedules: See Item 83.
    
    
    Management Contracts and Compensatory Plans and Arrangements-
    
    OCharleys Inc. 1985 Stock Option Plan (included as Exhibit 10.6)-
    
    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 Steven J. Hislop (included as Exhibit
10.16)-
    
    Restricted Stock Unit Agreement, dated February 13, 2002,
between OCharleys Inc. and Gregory L. Burns (included as Exhibit 10.17)
 78




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##### Table of Contents



-
    
    Restricted Stock Unit Agreement, dated February 13, 2002,
between OCharleys Inc. and Steven J. Hislop (included as Exhibit 10.18)-
    
    Restricted Stock Unit Agreement, dated February 13, 2002,
between OCharleys Inc. and Herman A. Moore, Jr. (included as Exhibit 10.19)-
    
    Severance Agreement and General Release dated June 24, 2004 between William E. Hall, Jr. and OCharleys Inc. (included as
Exhibit 10.41)-
    
    Severance Agreement and General Release, dated October 29, 2004, by and between A. Chad Fitzhugh and OCharleys Inc.
(included as Exhibit 10.42)-
    
    Form of Incentive Stock Option Agreement (included as Exhibit 10.43)-
    
    Form of Non-Qualified Stock Option Agreement (included as Exhibit 10.44)-
    
    Form of Restricted Stock Agreement for Employees (Time-Based Vesting) (included as Exhibit 10.45)-
    
    Form of Restricted Stock Agreement for Employees (Performance-Based Vesting) (included as Exhibit 10.46)-
    
    Form of Restricted Stock Agreement for Directors (included as Exhibit 10.47)-
    
    Letter Agreement, dated November 11, 2004, between OCharleys Inc. and Lawrence E. Hyatt (included as Exhibit 10.57)-
    
    Non-Compete/Severance Letter Agreement, dated November 11, 2004, between Lawrence E. Hyatt and OCharleys Inc. (included
as Exhibit 10.58)-
    
    Severance Compensation Agreement, dated as of November 15, 2004, between OCharleys Inc. and Lawrence E. Hyatt (included
as Exhibit 10.59)-
    
    Restricted Stock Agreement, dated as of November 15, 2004, between OCharleys Inc. and Lawrence E. Hyatt (included as
Exhibit 10.60)-
    
    Restricted Stock Agreement, dated as of November 15, 2004, between OCharleys Inc. and Lawrence E. Hyatt (included as
Exhibit 10.61)-
    
    Restricted Stock Agreement, dated as of November 15, 2004, between OCharleys Inc. and Lawrence E. Hyatt (included as
Exhibit 10.62)-
    
    Summary of Director and Executive Officer Compensation (included as Exhibit 10.64)-
    
    OCharleys Inc. 2005 Executive Officers Cash Incentive Plan (included as Exhibit 10.65)-
    
    OCharleys Inc. Deferred
Compensation Plan (as amended) (included as Exhibit 10.66)4.
    
    
    Exhibits:
 ExhibitNumber
    
    
    
    Description2.1
    
    
    
    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 of 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 of 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
(incorporated by reference to Exhibit 2.3 of the
Companys Annual Report on Form 10-K for the year ended
December 28, 2003)3.1
    
    
    
    Restated Charter of the Company (restated electronically
for SEC filing purposes only and incorporated by
reference to Exhibit 3 of 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)
 79




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##### Table of Contents



ExhibitNumber
    
    
    
    Description4.1
    
    
    
    Form of Certificate for the Common Stock (incorporated by
reference to Exhibit 4.1 of the Companys Registration
Statement on Form S-1, Registration No. 33-35170)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 of the Companys
Current Report on Form 8-K filed with the 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 of 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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ExhibitNumber
    
    
    
    Description10.12
    
    
    
    OCharleys Inc. 1991 Stock Option Plan for Outside
Directors, as amended (incorporated by reference to
Exhibit 10.2 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 February 11,
2004, by and between OCharleys Inc. and Steven J.
Hislop (incorporated by reference to Exhibit 10.17 of the
Companys Annual Report on Form 10-K for the year ended
December 28, 2003)10.17
    
    
    
    Restricted Stock Unit Agreement, dated February 13, 2002,
between OCharleys Inc. and Gregory L. Burns.
(incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended April 21, 2002)10.18
    
    
    
    Restricted Stock Unit Agreement, dated February 13, 2002,
between OCharleys Inc. and Steven J. Hislop.
(incorporated by reference to Exhibit 10.2 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended April 21, 2002)10.19
    
    
    
    Restricted Stock Unit Agreement, dated February 13, 2002,
between OCharleys Inc. and Herman A. Moore, Jr.
(incorporated by reference to Exhibit 10.5 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended April 21, 2002)10.20
    
    
    
    Secured Promissory Note, dated February 13, 2002, by
Gregory L. Burns, as maker, and OCharleys Inc., as
payee. (incorporated by reference to Exhibit 10.6 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended April 21, 2002)10.21
    
    
    
    Secured Promissory Note, dated February 13, 2002, by
Steven J. Hislop, as maker, and OCharleys Inc., as
payee. (incorporated by reference to Exhibit 10.7 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended April 21, 2002)10.22
    
    
    
    Secured Promissory Note, dated February 13, 2002, by
Herman A. Moore, Jr., as maker, and OCharleys Inc., as
payee. (incorporated by reference to Exhibit 10.10 of
the Companys Quarterly Report on Form 10-Q for the
quarter ended April 21, 2002)10.23
    
    
    
    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)10.24
    
    
    
    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)10.25
    
    
    
    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)
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ExhibitNumber
    
    
    
    Description10.26
    
    
    
    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)10.27
    
    
    
    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)10.28
    
    
    
    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)10.29
    
    
    
    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)10.30
    
    
    
    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)10.31
    
    
    
    First Amendment to Master Lease, dated February 1, 2002,
by and between Double 9 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)10.32
    
    
    
    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)10.33
    
    
    
    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)10.34
    
    
    
    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)10.35
    
    
    
    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)10.36
    
    
    
    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.
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ExhibitNumber
    
    
    
    Description(incorporated by reference to Exhibit 10.4 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 5, 2003)10.37
    
    
    
    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)10.38
    
    
    
    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)10.39
    
    
    
    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 10.1 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 10.39 of the
Companys Registration Statement on Form S-4,
Registration No. 333-112429-03)10.40
    
    
    
    Development Agreement, dated December 22, 2003, by and
among OCharleys Inc., OCM Development Company, LLC and
Meritage Hospitality Group Inc. (incorporated by
reference to Exhibit 10.44 of the Companys Annual Report
on Form 10-K for the year ended December 28, 2003)10.41
    
    
    
    Severance Agreement and General Release dated June 24,
2004 between William E. Hall, Jr. and OCharleys Inc.
(incorporated by reference to Exhibit 10.1 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended July 11, 2004)10.42
    
    
    
    Severance Agreement and General Release, dated October
29, 2004, by and between A. Chad Fitzhugh and OCharleys
Inc. (incorporated by reference to Exhibit 10.1 of the
Companys Current Report on Form 8-K filed with the
Commission on November 4, 2004)10.43
    
    
    
    Form of Incentive Stock Option Agreement. (incorporated
by reference to Exhibit 10.1 of the Companys Quarterly
Report on Form 10-Q for the quarter ended October 3,
2004)10.44
    
    
    
    Form of Non-Qualified Stock Option Agreement.
(incorporated by reference to Exhibit 10.2 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 3, 2004)10.45
    
    
    
    Form of Restricted Stock Agreement for Employees
(Time-Based Vesting). (incorporated by reference to
Exhibit 10.3 of the Companys Quarterly Report on Form
10-Q for the quarter ended October 3, 2004)10.46
    
    
    
    Form of Restricted Stock Agreement for Employees
(Performance-Based Vesting). (incorporated by reference
to Exhibit 10.4 of the Companys Quarterly Report on Form
10-Q for the quarter ended October 3, 2004)10.47
    
    
    
    Form of Restricted Stock Agreement for Directors.
(incorporated by reference to Exhibit 10.5 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 3, 2004)10.48
    
    
    
    Development Agreement, dated as of August 20, 2004, by
and among OCharleys Inc., JFC Enterprises, LLC and Kurt
Strang. (incorporated by reference to Exhibit 10.6 of
the Companys Quarterly Report on Form 10-Q for the
quarter ended October 3, 2004)10.49
    
    
    
    Limited Liability Company Agreement of JFC Enterprises,
LLC, dated as of August 20, 2004, by and among
OCharleys Inc. and Kurt Strang. (incorporated by
reference to Exhibit 10.7 of the Companys Quarterly
Report on Form 10-Q for the quarter ended October 3,
2004)10.50
    
    
    
    Revolving Loan Agreement, dated as of August 20, 2004, by
and between JFC Enterprises,
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ExhibitNumber
    
    
    
    DescriptionLLC and OCharleys Inc.
(incorporated by reference to Exhibit 10.8 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 3, 2004)10.51
    
    
    
    Master Secured Demand Promissory Note, dated as of August
20, 2004, made by JFC Enterprises, LLC. (incorporated by
reference to Exhibit 10.9 of the Companys Quarterly
Report on Form 10-Q for the quarter ended October 3,
2004)10.52
    
    
    
    Development Agreement, dated as of November 8, 2004, by
and among OCharleys Inc., Wi-Tenn Restaurants, LLC,
Wi-Tenn Investors, LLC, Richard K. Arras and Steven J.
Pahl. (incorporated by reference to Exhibit 10.10 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 3, 2004)10.53
    
    
    
    Limited Liability Company Agreement of Wi-Tenn
Restaurants, LLC, dated as of November 8, 2004, by and
among OCharleys Inc. and Wi-Tenn Investors, LLC.
(incorporated by reference to Exhibit 10.11 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 3, 2004)10.54
    
    
    
    Revolving Loan Agreement, dated as of November 8, 2004,
by and between Wi-Tenn Restaurants, LLC and OCharleys
Inc. (incorporated by reference to Exhibit 10.12 of the
Companys Quarterly Report on Form 10-Q for the quarter
ended October 3, 2004)10.55
    
    
    
    Master Secured Promissory Note, dated as of November 8,
2004, made by Wi-Tenn Restaurants, LLC. (incorporated by
reference to Exhibit 10.13 of the Companys Quarterly
Report on Form 10-Q for the quarter ended October 3,
2004)10.56
    
    
    
    Program Agreement, dated as of November 11, 2004, by and
between GE Capital Franchise Finance Corporation and
OCharleys Inc. (incorporated by reference to Exhibit
10.14 of the Companys Quarterly Report on Form 10-Q for
the quarter ended October 3, 2004)10.57
    
    
    
    Letter Agreement, dated November 11, 2004, between
OCharleys Inc. and Lawrence E. Hyatt. (incorporated by
reference to Exhibit 10.1 of the Companys Current Report
on Form 8-K filed with the Commission on November 16,
2004)10.58
    
    
    
    Non-Compete/Severance Letter Agreement, dated November
11, 2004, between Lawrence E. Hyatt and OCharleys Inc.
(incorporated by reference to Exhibit 10.2 of the
Companys Current Report on Form 8-K filed with the
Commission on November 16, 2004)10.59
    
    
    
    Severance Compensation Agreement, dated as of November
15, 2004, between OCharleys Inc. and Lawrence E. Hyatt.
(incorporated by reference to Exhibit 10.3 of the
Companys Current Report on Form 8-K filed with the
Commission on November 16, 2004)10.60
    
    
    
    Restricted Stock Agreement, dated as of November 15,
2004, between OCharleys Inc. and Lawrence E. Hyatt.
(incorporated by reference to Exhibit 10.4 of the
Companys Current Report on Form 8-K filed with the
Commission on November 16, 2004)10.61
    
    
    
    Restricted Stock Agreement, dated as of November 15,
2004, between OCharleys Inc. and Lawrence E. Hyatt.
(incorporated by reference to Exhibit 10.5 of the
Companys Current
Report on Form 8-K filed with the Commission on November 16, 2004)10.62
    
    
    
    Restricted Stock Agreement, dated as of November 15, 2004, between OCharleys Inc. and Lawrence E. Hyatt.
(incorporated by reference to Exhibit 10.6 of the Companys Current Report on Form 8-K filed with the Commission
on November 16, 2004)10.63
    
    
    
    Lease, dated as of December 17, 2004, between Bellingham Mechanic, LLC and 99 Commissary, LLC and related
Guaranty.10.64
    
    
    
    Summary of Director and Executive Officer Compensation.
 84




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##### Table of Contents



ExhibitNumber
    
    
    
    Description10.65
    
    
    
    OCharleys Inc. 2005 Executive Officers Cash Incentive Plan.10.66
    
    
    
    OCharleys Inc. Deferred Compensation Plan (as amended)14
    
    
    
    OCharleys Inc. Code of Conduct and Business Ethics Policy (incorporated by reference to Exhibit 14 of the
Companys Annual Report on Form 10-K for the year ended December 28, 2003)21
    
    
    
    Subsidiaries of the Company23
    
    
    
    Consent of KPMG LLP.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 2002.32.2
    
    
    
    Certification of Lawrence E. Hyatt, 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.
 85




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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 25, 2005
    By:
    /s/ Gregory L. BurnsGregory L. BurnsChief 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. Burns

Gregory L. Burns
    
    Chief Executive Officer
and Chairman of the Board
(Principal Executive
Officer)
    
    March 25, 2005/s/ Steven J. Hislop

Steven J. Hislop
    
    President, Chief
Operating Officer and
Director
    
    March 25, 2005/s/ Lawrence E. Hyatt

Lawrence E. Hyatt
    
    Chief Financial Officer,
Secretary and Treasurer
(Principal Financial
Officer)
    
    March 25, 2005/s/ R. Jeffrey Williams

R. Jeffrey Williams
    
    Principal Accounting
Officer and Corporate
Controller
    
    March 25, 2005/s/ Richard Reiss, Jr.

Richard Reiss, Jr.
    
    Director
    
    March 25, 2005/s/ G. Nicholas Spiva

G. Nicholas Spiva
    
    Director
    
    March 25, 2005/s/ H. Steve Tidwell

H. Steve Tidwell
    
    Director
    
    March 25, 2005/s/ Shirley A. Zeitlin

Shirley A. Zeitlin
    
    Director
    
    March 25, 2005/s/ Robert J. Walker

Robert J. Walker
    
    Director
    
    March 25, 2005/s/ Dale W. Polley

Dale W. Polley
    
    Director
    
    March 25, 2005/s/ William F. Andrews

William F. Andrews
    
    Director
    
    March 25, 2005/s/ John E. Stokely

John E. Stokely
    
    Director
    
    March 25, 2005
 86