##### Table of Contents



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 25, 2005
 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
(Address of principal executive offices)
    
    37204
(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 valueSeries A Junior Preferred Stock Purchase Rights
 o þ
 o þ
 þ o
 o
 o þ o
 o þ
   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 18, 2006




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##### 



INDEX
 PART I
    
    
    3Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    17Item 2. Properties
    
    
    17Item 3. Legal Proceedings
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18PART II
    
    
    19Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    19Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 8. Financial Statements and Supplementary Data
    
    
    45Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    86Item 9A. Controls and Procedures
    
    
    86Item 9B. Other Information
    
    
    89PART III
    
    
    89Item 10. Directors and Executive Officers of the Registrant
    
    
    89Item 11. Executive Compensation
    
    
    89Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    89Item 13. Certain Relationships and Related Transactions
    
    
    89Item 14. Principal Accountant Fees and Services
    
    
    89PART IV
    
    
    90Item 15. Exhibits and Financial Statement Schedules
    
    
    90SIGNATURES
    
    
    97EX-10.15 AMENDED AND RESTATED SEVERANCE COMPENSATION AGREEMENT GREGORY L. BURNSEX-10.57 SUMMARY OF DIRECTOR AND EXECUTIVE OFFICER COMPENSATIONEX-10.65 LETTER AGREEMENTEX-10.66 NON-COMPETE/SEVERANCE LETTER AGREEMENTEX-10.67 SEVERANCE COMPENSATION AGREEMENTEX-10.68 RESTRICTED STOCK AGREEMENTEX-10.69 LETTER AGREEMENTEX-10.70 SEVERANCE COMPENSATION AGREEMENTEX-10.71 RESTRICTED STOCK AGREEMENTEX-21 SUBSIDIARIES OF THE COMPANYEX-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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##### Table of Contents



OCHARLEYS INC.
 
 PART I
 
 Item 1.
    
    Business.
  Our Restaurant Concepts
 OCharleys
     Project RevOlution
 3




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##### Table of Contents



Ninety Nine Restaurant and Pub
    Stoney River Legendary Steaks
   Support Operations
 Commissary Operations.
 4




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Human Resources.
 Guest Relations. top box highly
 Advertising and Marketing.
 5




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Restaurant Reporting.
 Real Estate and Construction.
 Restaurant Locations
  OCharleys Restaurants
 Alabama (21)
    
    Kentucky (20)
    
    Ohio (19)Birmingham (6)
    
    Ashland
    
    Cincinnati (7)Decatur
    
    Bowling Green
    
    ClevelandDothan
    
    Cold Spring
    
    Columbus (7)Florence
    
    Danville
    
    Dayton (3)Guntersville
    
    Elizabethtown
    
    HarrisonHuntsville (2)
    
    FlorenceMobile (4)
    
    Frankfort
    
    South Carolina (12)Montgomery (2)
    
    Hopkinsville
    
    AikenOpelika
    
    Lexington (4)
    
    AndersonOxford
    
    Louisville (5)
    
    Charleston (2)Tuscaloosa
    
    Owensboro
    
    Columbia (3)Paducah
    
    GreenvilleArkansas (3)
    
    Richmond
    
    GreenwoodFayetteville
    
    
    
    Rock HillJonesboro
    
    Louisiana (1)
    
    SimpsonvilleRogers
    
    Monroe
    
    Spartanburg
 6




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##### Table of Contents



Florida (6)
    
    Mississippi (8)
    
    Tennessee (35)Destin
    
    Biloxi
    
    Chattanooga (2)Jacksonville (3)
    
    Hattiesburg
    
    Clarksville (2)Panama City
    
    Jackson
    
    ClevelandPensacola
    
    Meridian
    
    CookevilleOlive Branch
    
    JacksonGeorgia (26)
    
    Pearl
    
    Johnson CityAtlanta (17)
    
    Southhaven
    
    KingsportAugusta
    
    Tupelo
    
    Knoxville (5)Canton
    
    
    
    Memphis (3)Columbus
    
    Missouri (11)
    
    MorristownDalton
    
    Cape Girardeau
    
    Murfreesboro (2)Ft. Oglethorpe
    
    Kansas City (3)
    
    Nashville (13)Gainesville
    
    St. Louis (7)
    
    Pigeon ForgeGriffin
    
    
    
    SpringfieldMacon (2)
    
    North Carolina (24)Asheville
    
    Virginia (12)Illinois (5)
    
    Burlington
    
    BristolChampaign
    
    Charlotte (8)
    
    FredericksburgMarion
    
    Durham
    
    HarrisonburgOFallon
    
    Fayetteville
    
    LynchburgSpringfield (2)
    
    Greensboro
    
    Roanoke (2)Greenville
    
    Richmond (6)Indiana (20)
    
    HendersonvilleBloomington
    
    Hickory
    
    West Virginia (2)Clarksville
    
    Jacksonville
    
    Charleston (2)Corydon
    
    Raleigh (3)Evansville (2)
    
    Wilmington (2)Fort Wayne (2)
    
    Winston-Salem (2)Indianapolis (11)LafayetteRichmond
  OCharleys
Franchised and Joint Venture Restaurants
 Michigan (4)
    
    Louisiana (2)Grand Rapids
    
    Lake CharlesLivonia
    
    LafayetteChesterfieldHolland
 7




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Ninety Nine Restaurants
 Connecticut (15)
    
    New Hampshire (14)
    
    Pennsylvania (1)Enfield
    
    Concord
    
    Trevose (Bensalem)Groton
    
    DoverHartford (8)
    
    Hooksett
    
    Rhode Island (3)Manchester
    
    Keene
    
    CranstonNew Haven (2)
    
    Littleton
    
    NewportNorwich
    
    Londonderry
    
    WarwickTorrington
    
    ManchesterNashua
    
    Vermont (2)Maine (5)
    
    North Conway
    
    RutlandAugusta
    
    Portsmouth
    
    WillistonBangor
    
    SalemPortland (3)
    
    SeabrookTiltonWest LebanonMassachusetts (60)
    
    New York (9)Auburn
    
    Albany (2)Boston (37)
    
    Clifton ParkCenterville
    
    KingstonChicopee
    
    PlattsburghFairhaven
    
    QueensburyFall River
    
    RotterdamFitchburg
    
    Saratoga SpringsHolyoke
    
    UticaMashpeeNorth AttleboroNorth DartmouthPlymouthPittsfieldSeekonkSpringfield (4)TewksburyWest YarmouthWorchester (4)
 Stoney River Restaurants
 Georgia (2)
    
    Kentucky (1)
    
    Ohio (1)Atlanta (2)
    
    Louisville
    
    DublinIllinois (2)
    
    Tennessee (1)Chicago (2)
    
    Nashville
 8




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Franchising
  TotalRestaurantsFranchise / Joint Venture
    
    Current
    
    Contracted forProgram
    
    Entity
    
    Restaurants
    
    Development
    
    MarketsJoint Venture:JFC Enterprises, LLC
    
    
    2
    
    
    
    10
    
    
    Southern Louisiana
and Beaumont, TexasWi-Tenn Restaurants, LLC
    
    
    
    
    
    
    10
    
    
    WisconsinFranchisee:Four Star Restaurant Group, LLC
    
    
    
    
    
    
    10
    
    
    Iowa, Nebraska,
Topeka, Kansas and
Eastern South
DakotaOCandall Group, Inc.
    
    
    
    
    
    
    50
    
    
    Tampa and Orlando
Florida, Pittsburgh,
Pennsylvania and
Northern OhioOCM Development, LLC
    
    
    4
    
    
    
    15
    
    
    Michigan
 Service Marks
  Government Regulation
   9




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Team Members
  Executive Officers of the Registrant
  Name
    
    Age
    
    PositionGregory L. Burns
    
    
    51
    
    
    Chief Executive Officer and Chairman of the BoardLawrence E. Hyatt
    
    
    51
    
    
    Chief Financial Officer, Secretary and TreasurerRandall C. Harris
    
    
    55
    
    
    Chief Human Resources OfficerJeff D. Warne
    
    
    45
    
    
    Concept President  OCharleysHerman A. Moore, Jr.
    
    
    54
    
    
    President, Commissary OperationsJohn R. Grady
    
    
    53
    
    
    Concept President-Ninety Nine Restaurant and PubAnthony J. Halligan III
    
    
    47
    
    
    Concept President-Stoney River Legendary SteaksR. Jeffrey Williams
    
    
    39
    
    
    Chief Accounting Officer and Corporate ControllerJames K. Quackenbush
    
    
    47
    
    
    Corporate Vice-President of Development
  Gregory L. Burns
 Lawrence E. Hyatt
 10




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Randall C. Harris
 Jeff
D. Warne
 Herman A. Moore, Jr.
 John R. Grady
 Anthony
J. Halligan III
 R. Jeffrey
Williams
 James K. Quackenbush
 Available Information
 www.sec.gov www.ocharleysinc.com
 11




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www.ocharleysinc.com
 
 Item 1A.
    
    Risk Factors.
 Risk Factors
  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.
   12




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We may experience higher operating costs, which would adversely affect our operating results, if we
cannot increase menu prices to cover them.
   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.
  
    
    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.
  13




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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.
  Unanticipated expenses and market acceptance could affect the results of restaurants we open in new
and existing markets.
   We could face labor shortages that could adversely affect our results of operations.
  14




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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 restaurants may not be able to compete successfully with other restaurants, which could
adversely affect our results of operations.
   Any disruption in the operation of our commissaries could adversely affect our ability to operate
our restaurants.
  We may incur costs or liabilities and lose revenue as the result of government regulation.
  15




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We may incur costs or liabilities as a result of litigation and publicity concerning food quality,
health and other issues that can also cause guests to avoid our restaurants.
   Compliance with and any failure to comply with current regulatory requirements will result in
additional expenses and may adversely affect us.
  We are dependent upon our senior management team to execute our business strategy.
  16




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Item 1B.
    
    Unresolved Staff Comments.
  
 Item 2.
    
    Properties.
   
 Item 3.
    
    Legal Proceedings.
    17




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Item 4.
    
    Submission of Matters to a Vote of Security Holders.
  18




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
  High
    
    LowFiscal 2005First Quarter
    
    $
    22.89
    
    
    $
    17.62Second Quarter
    
    
    22.56
    
    
    
    16.32Third Quarter
    
    
    19.70
    
    
    
    13.97Fourth Quarter
    
    
    15.77
    
    
    
    12.69Fiscal 2004First Quarter
    
    $
    20.88
    
    
    $
    16.55Second Quarter
    
    
    20.34
    
    
    
    16.40Third Quarter
    
    
    18.08
    
    
    
    14.58Fourth Quarter
    
    
    19.41
    
    
    
    14.27
    
 Item 6.
    
    Selected Financial Data.
  19




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Fiscal Years2005
    
    
    2004
    
    
    2003(1)
    
    
    2002
    
    
    2001(In thousands, except per share data)Statement of Operations Data:Revenues:Restaurant sales
    
    $
    921,329
    
    
    $
    864,259
    
    
    $
    753,740
    
    
    $
    495,112
    
    
    $
    440,875Commissary sales
    
    
    8,498
    
    
    
    7,035
    
    
    
    5,271
    
    
    
    4,800
    
    
    
    4,056Franchise revenue
    
    
    361
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    930,188
    
    
    
    871,386
    
    
    
    759,011
    
    
    
    499,912
    
    
    
    444,931Costs and Expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    277,788
    
    
    
    261,013
    
    
    
    221,206
    
    
    
    140,638
    
    
    
    129,576Payroll and benefits
    
    
    318,524
    
    
    
    290,514
    
    
    
    252,415
    
    
    
    154,311
    
    
    
    138,009Restaurant operating costs
    
    
    172,160
    
    
    
    157,491
    
    
    
    139,205
    
    
    
    86,006
    
    
    
    76,575Cost of commissary sales
    
    
    7,710
    
    
    
    6,631
    
    
    
    4,970
    
    
    
    4,488
    
    
    
    3,808Advertising expenses,
    
    
    25,468
    
    
    
    25,621
    
    
    
    24,300
    
    
    
    16,973
    
    
    
    13,255General and administrative expenses
    
    
    41,945
    
    
    
    38,237
    
    
    
    28,016
    
    
    
    20,725
    
    
    
    16,682Depreciation and amortization, property and equipment
    
    
    43,806
    
    
    
    39,798
    
    
    
    36,360
    
    
    
    25,527
    
    
    
    22,135Asset impairment and disposals(2)
    
    
    7,320
    
    
    
    16
    
    
    
    (180
    )
    
    
    (139
    )
    
    
    5,666Pre-opening costs
    
    
    6,271
    
    
    
    5,908
    
    
    
    6,900
    
    
    
    5,629
    
    
    
    6,126900,992
    
    
    
    825,229
    
    
    
    713,192
    
    
    
    454,158
    
    
    
    411,832Income from Operations
    
    
    29,196
    
    
    
    46,157
    
    
    
    45,819
    
    
    
    45,754
    
    
    
    33,099Other Expense:Interest expense, net
    
    
    15,124
    
    
    
    13,476
    
    
    
    14,153
    
    
    
    5,556
    
    
    
    6,610Debt extinguishment charge
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    
    
    
    
    Other, net
    
    
    42
    
    
    
    
    
    
    
    (584
    )
    
    
    
    
    
    
    36315,166
    
    
    
    13,476
    
    
    
    15,369
    
    
    
    5,556
    
    
    
    6,973Earnings Before Income Taxes and Cumulative Effect of Change in
Accounting Principle
    
    
    14,030
    
    
    
    32,681
    
    
    
    30,450
    
    
    
    40,198
    
    
    
    26,126Income Taxes
    
    
    2,001
    
    
    
    9,362
    
    
    
    9,261
    
    
    
    13,942
    
    
    
    9,072Earnings Before Cumulative Effect of Change in Accounting
Principle
    
    
    12,029
    
    
    
    23,319
    
    
    
    21,189
    
    
    
    26,256
    
    
    
    17,054Cumulative Effect of Change in Accounting Principle, net of tax(3)
    
    
    (151
    )
    
    
    
    
    
    
    
    
    
    
    (6,123
    )
    
    
    Net Earnings
    
    $
    11,878
    
    
    $
    23,319
    
    
    $
    21,189
    
    
    $
    20,133
    
    
    $
    17,054Basic Earnings Per Common Share Before Cumulative Effect of Change
in Accounting Principle
    
    $
    0.53
    
    
    $
    1.05
    
    
    $
    0.98
    
    
    $
    1.41
    
    
    $
    0.96Cumulative effect of Change in Accounting Principle, net of tax(3)
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    (0.33
    )
    
    
    Basic Earnings Per Common Share
    
    $
    0.52
    
    
    $
    1.05
    
    
    $
    0.98
    
    
    $
    1.08
    
    
    $
    0.96Diluted Earnings Per Common Share Before Cumulative Effect of
Change in Accounting Principle
    
    $
    0.52
    
    
    $
    1.03
    
    
    $
    0.96
    
    
    $
    1.33
    
    
    $
    0.90Cumulative Effect of Change in Accounting Principle, net of tax(3)
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    (0.31
    )
    
    
    Diluted Earnings Per Common Share
    
    $
    0.51
    
    
    $
    1.03
    
    
    $
    0.96
    
    
    $
    1.02
    
    
    $
    0.90Balance Sheet Data (at end of period):Working capital (deficit)
    
    $
    (24,336
    )
    
    $
    (30,986
    )
    
    $
    (30,284
    )
    
    $
    (21,388
    )
    
    $
    (15,552
    )Total assets
    
    
    687,610
    
    
    
    657,511
    
    
    
    620,673
    
    
    
    428,400
    
    
    
    383,100Current portion of long-term debt and capitalized lease obligations
    
    
    10,975
    
    
    
    12,670
    
    
    
    10,031
    
    
    
    8,015
    
    
    
    7,924Long-term debt and capitalized lease obligations, including
current portion
    
    
    185,682
    
    
    
    191,139
    
    
    
    209,629
    
    
    
    132,102
    
    
    
    121,929Total shareholders equity
    
    
    349,588
    
    
    
    330,740
    
    
    
    300,187
    
    
    
    227,560
    
    
    
    201,872
 
 (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. 20




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(2)
    
    During 2005, we took an impairment charge on two OCharleys restaurants that remain open and
decided to close six OCharleys restaurants and sell a company aircraft. As a result, we
recorded a non-cash impairment charge of $7.1 million to reflect the difference between the
fair value and net book value of the underlying assets. During the third quarter of fiscal
2001, we decided to close certain restaurant locations. As a result, we recorded a non-cash
impairment charge of $5.0 million to reflect the differences between the fair value and net
book value of the underlying assets and a charge of $800,000 for exit costs associated with
the closure of such locations.(3)
    
    In 2005, we incurred an after-tax charge of $0.2 million, or $0.01 per diluted share, which
was recorded as a cumulative effect of a change in accounting principle for 2005 associated
with the adoption of FASB Interpretation No. 47, Accounting for Conditional Asset Retirement
Obligations  an interpretation of Statement of Financial Accounting Standards No. 143. In
2002, 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 impairment of
goodwill associated with the Stoney River acquisition in May 2000. 
 21




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Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Overview
    Revenues
 Cost of Food and Beverage
 Payroll and Benefits
 Restaurant Operating Costs
 Advertising Expenses
 General and Administrative Expenses
 22




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##### Table of Contents



Depreciation and Amortization, Property and Equipment
 Asset Impairment and Disposals
 Pre-opening Costs
 23




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Results of Operations
  2005
    
    
    2004
    
    
    2003Revenues:Restaurant sales
    
    
    99.0
    %
    
    
    99.2
    %
    
    
    99.3
    %Commissary sales
    
    
    0.9
    
    
    
    0.8
    
    
    
    0.7Franchise revenue
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.0100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Costs and Expenses:Cost of restaurant sales:(1)Cost of food and beverage
    
    
    30.2
    %
    
    
    30.2
    %
    
    
    29.3
    %Payroll and benefits
    
    
    34.6
    
    
    
    33.6
    
    
    
    33.5Restaurant operating costs
    
    
    18.7
    
    
    
    18.2
    
    
    
    18.5Cost of commissary sales(2)
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.7Advertising expenses
    
    
    2.7
    
    
    
    2.9
    
    
    
    3.2General and administrative expenses
    
    
    4.5
    
    
    
    4.4
    
    
    
    3.7Depreciation and amortization, property and equipment
    
    
    4.7
    
    
    
    4.6
    
    
    
    4.8Asset impairment and disposals
    
    
    0.8
    
    
    
    
    
    
    
    Pre-opening costs
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.9Income from Operations
    
    
    3.1
    
    
    
    5.3
    
    
    
    6.1Interest expense, net
    
    
    1.6
    
    
    
    1.5
    
    
    
    1.9Debt extinguishment charge
    
    
    
    
    
    
    
    
    
    
    0.2Other, net
    
    
    
    
    
    
    
    
    
    
    Earnings Before Income Taxes and Cumulative Effect of Change in
Accounting Principle
    
    
    1.5
    
    
    
    3.8
    
    
    
    4.0Income Taxes
    
    
    0.2
    
    
    
    1.1
    
    
    
    1.2Earnings Before Cumulative Effect of Change in Accounting Principle
    
    
    1.3
    
    
    
    2.7
    
    
    
    2.8Cumulative Effect of Change in Accounting Principle, net of tax
    
    
    
    
    
    
    
    
    
    
    Net Earnings
    
    
    1.3
    %
    
    
    2.7
    %
    
    
    2.8
    %
 
 (1)
    
    As a percentage of restaurant sales.(2)
    
    Cost of commissary sales as a percentage of commissary sales was 90.7%, 94.3%, and 94.3% for
fiscal years 2005, 2004, and 2003, respectively. 
 24




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2005
    
    2004
    
    2003($ in millions)OCharleys Concept:Restaurant Sales:
    
    $
    614.2
    
    
    $
    588.9
    
    
    $
    526.4Cost and expensesCost of food and beverage
    
    
    30.0
    %
    
    
    30.2
    %
    
    
    29.2
    %Payroll and benefits
    
    
    34.8
    %
    
    
    33.8
    %
    
    
    33.3
    %Restaurant operating costs
    
    
    18.4
    %
    
    
    18.2
    %
    
    
    18.6
    %Ninety Nine Concept:Restaurant Sales:
    
    $
    282.2
    
    
    $
    251.9
    
    
    $
    205.5Cost and expensesCost of food and beverage
    
    
    29.7
    %
    
    
    29.6
    %
    
    
    28.8
    %Payroll and benefits
    
    
    34.9
    %
    
    
    33.9
    %
    
    
    34.2
    %Restaurant operating costs
    
    
    18.9
    %
    
    
    18.0
    %
    
    
    17.4
    %Stoney River Concept:Restaurant Sales:
    
    $
    24.9
    
    
    $
    23.5
    
    
    $
    21.9Cost and expensesCost of food and beverage
    
    
    39.0
    %
    
    
    35.6
    %
    
    
    37.1
    %Payroll and benefits
    
    
    24.6
    %
    
    
    25.2
    %
    
    
    28.2
    %Restaurant operating costs
    
    
    23.0
    %
    
    
    21.6
    %
    
    
    22.4
    %
 25




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Number of Restaurants:OCharleys Restaurants:In operation, beginning of year
    
    
    221
    
    
    
    206
    
    
    
    182Restaurants opened
    
    
    13
    
    
    
    15
    
    
    
    26Restaurants closed
    
    
    (9
    )
    
    
    
    
    
    
    (2
    )In operation, end of year
    
    
    225
    
    
    
    221
    
    
    
    206Ninety Nine Restaurants:In operation, beginning of year
    
    
    99
    
    
    
    87
    
    
    
    78Restaurants opened
    
    
    10
    
    
    
    12
    
    
    
    10Restaurants closed
    
    
    
    
    
    
    
    
    
    
    (1
    )In operation, end of year
    
    
    109
    
    
    
    99
    
    
    
    87Stoney River Restaurants:In operation, beginning of year
    
    
    6
    
    
    
    6
    
    
    
    6Restaurants opened
    
    
    1
    
    
    
    
    
    
    
    In operation, end of year
    
    
    7
    
    
    
    6
    
    
    
    6Franchise / Joint Venture Restaurants (OCharleys):In operation, beginning of year
    
    
    2
    
    
    
    Restaurants opened
    
    
    4
    
    
    
    2In operation, end of year
    
    
    6
    
    
    
    2Average Weekly Sales per Restaurant:OCharleys
    
    $
    52,254
    
    
    $
    52,703
    
    
    $
    51,467Ninety Nine
    
    
    52,619
    
    
    
    52,777
    
    
    
    52,033Stoney River
    
    
    77,283
    
    
    
    75,267
    
    
    
    70,277Change in Same Restaurant Sales (1):OCharleys
    
    
    0.0
    %
    
    
    3.1
    %
    
    
    (2.5
    )%Ninety Nine
    
    
    0.7
    %
    
    
    1.3
    %
    
    
    1.1
    %Stoney River
    
    
    3.7
    %
    
    
    6.4
    %
    
    
    1.6
    %Change in Same Restaurant Guest Visits (1):OCharleys
    
    
    0.1
    %
    
    
    3.9
    %
    
    
    (2.3
    )%Ninety Nine
(2)
    
    
    1.4
    %
    
    
    (1.7
    )%
    
    
    Stoney River
    
    
    1.1
    %
    
    
    1.1
    %
    
    
    Average
Check per Guest (3):OCharleys
    
    $
    11.52
    
    
    $
    11.52
    
    
    $
    11.60Ninety Nine
    
    
    13.69
    
    
    
    13.86
    
    
    
    13.78Stoney River
    
    
    40.56
    
    
    
    39.53
    
    
    
    37.42
 
 (1)
    
    When computing same restaurant sales and guest visits, restaurants open for at least 78 weeks
are compared from period to period. The calculation of change in same restaurant sales and
guest visits for 2005 excludes the prior year sales and guest visits for OCharleys
restaurants closed during or after Hurricane Katrina, for the days they were closed.(2)
    
    Change in same restaurant guest visits is not available for Ninety Nine prior to 2004 as the OCharleys
methodology of counting guest visits was adopted subsequent to the completion of the
acquisition and we are unable to recast 2003 visits using that same methodology. 26




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##### Table of Contents



(3)
    
    The average check per guest is computed using all restaurants open at the end of the year. Fiscal Year 2005 Compared with Fiscal Year 2004
 Revenues
     Cost of Food and Beverage
  Payroll and Benefits
  Restaurant Operating Costs
  Advertising Expenses
  27




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##### Table of Contents



General and Administrative Expenses
  Depreciation and Amortization
  Asset Impairment and Disposals
  Pre-opening Costs
  Interest Expense
  Income Taxes
  28




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##### Table of Contents



Fiscal Year 2004 Compared with Fiscal Year 2003
 Revenues
     Cost of Food and Beverage
   Payroll and Benefits
  Restaurant Operating Costs
  29




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Advertising Expenses
  General and Administrative Expenses
  Depreciation and Amortization
  Pre-opening Costs
  Interest Expense
  Income Taxes
  30




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##### Table of Contents



Outlook
  Strengthen the organization with a new core of talent and build a winning team.
 Enhance guest satisfaction and intent to return by instilling A Passion to Serve at all
levels of the organization.
 Improve the execution of product and labor cost management.
 Focus the organization on our commitment to greater profitability, with incentives for success
and consequences for failing to meet our targets.
 Increase same restaurant sales through new product offerings, new marketing, and a more
analytical approach to menu pricing.
 rd
 31




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##### Table of Contents



Liquidity and Capital Resources
    32




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##### Table of Contents



December 25,
    
    
    December 26,2005
    
    
    2004(in thousands)New restaurant capital expenditures
    
    $
    46,889
    
    
    $
    37,439Other capital expenditures
    
    
    21,889
    
    
    
    23,052Total capital expenditures
    
    $
    68,778
    
    
    $
    60,491
   At December 25,
    
    
    At December 26,2005
    
    
    2004$
    
    
    %
    
    
    $
    
    
    %($ in thousands)Revolving credit facility
    
    $
    22,000
    
    
    
    4.1
    %
    
    $
    21,000
    
    
    
    4.0
    %Secured mortgage note payable
    
    
    125
    
    
    
    0.0
    
    
    
    146
    
    
    
    0.0GE capital financing arrangement
    
    
    1,197
    
    
    
    0.2
    
    
    
    
    
    
    
    0.0Capitalized lease obligations
    
    
    37,360
    
    
    
    7.0
    
    
    
    44,993
    
    
    
    8.6Total senior debt
    
    
    60,682
    
    
    
    11.3
    
    
    
    66,139
    
    
    
    12.7Senior subordinated notes
    
    
    125,000
    
    
    
    23.4
    
    
    
    125,000
    
    
    
    24.0Total debt(1)(2)
    
    
    185,682
    
    
    
    34.7
    
    
    
    191,139
    
    
    
    36.6Shareholders equity
    
    
    349,588
    
    
    
    65.3
    
    
    
    330,740
    
    
    
    63.4Total capitalization
    
    $
    535,270
    
    
    
    100.0
    %
    
    $
    521,879
    
    
    
    100.0
    %Adjusted total debt(1)(3)
    
    $
    432,554
    
    
    
    
    
    
    $
    430,299Adjusted total capitalization(1)(3)
    
    $
    782,142
    
    
    
    
    
    
    $
    761,039
 33




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##### Table of Contents



As of
    
    As ofDecember 25,
    
    December 26,2005
    
    2004($ in thousands)EBITDA(1)(4)
    
    $
    80,032
    
    
    $
    85,971Ratio of total debt to EBITDA
    
    
    2.3
    x
    
    
    2.2
    xRatio of EBITDA to interest expense, net
    
    
    5.3
    x
    
    
    6.4
    xRatio of total debt to total capitalization
    
    
    35
    %
    
    
    37
    %Ratio of adjusted total debt to adjusted total capitalization
    
    
    55
    %
    
    
    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 (GAAP). EBITDA, total debt, adjusted total debt and
adjusted total capitalization should not be considered in isolation or as alternatives to
financial statement data presented in our consolidated financial statements as an indicator of
financial performance or liquidity. EBITDA, 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 Years2005
    
    
    2004(in thousands)Current portion of long-term debt and capitalized lease obligations
    
    $
    10,975
    
    
    $
    12,670Add:Long-term debt, excluding current portion
    
    
    148,299
    
    
    
    146,125Capitalized lease obligations, excluding current portion
    
    
    26,408
    
    
    
    32,344Total debt
    
    $
    185,682
    
    
    $
    191,139
 34




---



##### Table of Contents



(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 25, 2005 and December 26, 2004, 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 25, 2005 and December 26, 2004, 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 financial statements and the notes to the consolidated financial statements: Fiscal Years2005
    
    
    2004(in thousands)Current portion of long-term debt and capitalized leases
    
    $
    10,975
    
    
    $
    12,670Add:Long-term debt, excluding current portion
    
    
    148,299
    
    
    
    146,125Capitalized lease obligations, less current portion
    
    
    26,408
    
    
    
    32,344Total debt
    
    
    185,682
    
    
    
    191,139Add eight times:Rent expense
    
    
    246,872
    
    
    
    239,160Adjusted total debt
    
    
    432,554
    
    
    
    430,299Add:Shareholders equity
    
    
    349,588
    
    
    
    330,740Adjusted total capitalization
    
    $
    782,142
    
    
    $
    761,039
 
 (4)
    
    EBITDA represents earnings before interest expense, income taxes, and depreciation and
amortization and non-operating charges, as defined in our credit agreement. The following
tables reconcile EBITDA, as described above, to net earnings, and to cash flows provided by
operating activities as reflected in our consolidated statements of earnings and cash flows: Fiscal Years2005
    
    
    2004(in thousands)Net earnings
    
    $
    11,878
    
    
    $
    23,319Add:Income tax expense
    
    
    1,904
    
    
    
    9,362Interest expense, net
    
    
    15,124
    
    
    
    13,476Asset impairment and disposals
    
    
    7,320
    
    
    
    16Depreciation and amortization
    
    
    43,806
    
    
    
    39,798EBITDA
    
    $
    80,032
    
    
    $
    85,971
 35




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##### Table of Contents



Fiscal Years2005
    
    
    2004(in thousands)Cash flows provided by operating activities
    
    $
    62,732
    
    
    $
    70,498Adjustment for items included in cash provided by operating activities
but excluded from the calculation of EBITDA:Deferred income taxes
    
    
    3,653
    
    
    
    464Expense related to equity-based compensation
    
    
    (485
    )
    
    
    (2,171
    )Amortization of deferred gain on sale leasebacks
    
    
    1,056
    
    
    
    1,055Loss on sale and involuntary conversion of assets
    
    
    (233
    )
    
    
    (215
    )Donation of stock
    
    
    
    
    
    
    (137
    )Changes in operating assets and liabilities, net of Ninety Nine
acquisition
    
    
    1,312
    
    
    
    358Changes in long-term assets and liabilities
    
    
    (2,931
    )
    
    
    (4,046
    )Tax benefit derived from exercise of stock options
    
    
    (674
    )
    
    
    (1,224
    )Income tax expense
    
    
    1,904
    
    
    
    9,362Interest expense
    
    
    13,698
    
    
    
    12,027EBITDA
    
    $
    80,032
    
    
    $
    85,971
  
 36




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess
    
    
    
    
    
    
    
    
    
    
    Morethan
    
    
    
    
    
    
    
    
    
    
    thanTotal
    
    
    1 Yr
    
    
    1-3 Yrs
    
    
    3-5 Yrs
    
    
    5 YearsContractual Obligation
    
    (in thousands)Long-term debt
    
    $
    148,322
    
    
    $
    23
    
    
    $
    22,053
    
    
    $
    49
    
    
    $
    126,197Capitalized lease obligations(1)
    
    
    40,501
    
    
    
    11,082
    
    
    
    18,720
    
    
    
    8,652
    
    
    
    2,047Operating leases
    
    
    448,784
    
    
    
    30,353
    
    
    
    61,220
    
    
    
    59,979
    
    
    
    297,232Unconditional purchase obligations(2)
    
    
    49,339
    
    
    
    45,663
    
    
    
    3,676
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    686,946
    
    
    $
    87,121
    
    
    $
    105,669
    
    
    $
    68,680
    
    
    $
    425,476
 Amount of Commitment Expiration per PeriodLess
    
    
    
    
    
    
    
    
    
    
    MoreTotal
    
    
    than
    
    
    
    
    
    
    
    
    
    
    thanCommitted
    
    
    1 Yr
    
    
    1-3 Yrs
    
    
    3-5 Yrs
    
    
    5 YearsOther Commercial Commitments
    
    (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 $3.1 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 25, 2005 to determine the amount of the obligation. Of the total
unconditional purchase obligations shown, $1.4 million are based on variable pricing.(3)
    
    This pertains to our revolving line of credit of which $22.0 million is included in long-term
debt shown above. In addition, we have $6.1 million in letters of credit outstanding which
reduces our remaining borrowing capacity under this line of credit to $96.9 million.(4)
    
    This pertains to the financing arrangement with GE Capital Franchise Finance Corporation and
represents our maximum obligation. As of December 25, 2005, there were $1.2 million of loans
outstanding under this financing arrangement. Joint Ventures and Franchise Arrangements
    37




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##### Table of Contents



38




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##### Table of Contents



Critical Accounting Policies
   
    
    Lease accounting
    
    Equity-based compensation
    
    Property and equipment
    
    Goodwill and trademarks
    
    Impairment of long-lived assets
    
    Tax provision and related financial statement items
 Lease Accounting
   39




---



##### Table of Contents



Equity-Based Compensation
 Share-Based Payment.
   Property and Equipment
   40




---



##### Table of Contents



Accounting for the Impairment or Disposal of
Long-Lived Assets
  Goodwill and Trademarks
    Impairment of Long-Lived Assets
   41




---



##### Table of Contents



Tax Provision and Related Financial Statement Items
   Recently Issued Accounting Pronouncements
 Accounting for Stock-Based Compensation Accounting
for Stock Issued to Employees
 Accounting for Conditional Asset Retirement
Obligations  An Interpretation of FASB Statement No. 143, Accounting for Asset Retirement Obligations, Accounting for Conditional Asset Retirement Obligations,
 42




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##### Table of Contents



Accounting Changes and Error Corrections. Accounting Changes, Reporting Accounting Changes in Interim Financial Statements
 . Share-Based Payment,
 Issues Relating to Accounting for
Leases Accounting for Leases, Accounting for Operating Leases with Scheduled Rent Increases,
 Impact of Inflation
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  43




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##### Table of Contents



44




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data.
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OCHARLEYS INC.
 PageReport of Independent Registered Public Accounting Firm
    
    
    46Consolidated Balance Sheets at December 25, 2005 and December 26, 2004
    
    
    47Consolidated Statements of Earnings for the Years Ended December 25,
2005, December 26, 2004, and December 28, 2003
    
    
    48Consolidated Statements of Shareholders Equity and Comprehensive
Income for the Years Ended December 25, 2005, December 26, 2004, and
December 28, 2003
    
    
    49Consolidated Statements of Cash Flows for the Years Ended December
25, 2005, December 26, 2004, and December 28, 2003
    
    
    50Notes to the Consolidated Financial Statements
    
    
    51
 45




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Internal ControlIntegrated
Framework
  
 46




---



##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 December 25,
    
    
    December 26,2005
    
    
    2004(dollars in thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    5,699
    
    
    $
    10,772Trade accounts receivable, less allowance for doubtful accounts of
$107 in 2005 and $135 in 2004
    
    
    12,057
    
    
    
    8,783Inventories
    
    
    45,131
    
    
    
    33,125Deferred income taxes
    
    
    9,838
    
    
    
    6,716Short-term notes receivable
    
    
    
    
    
    
    120Other current assets
    
    
    5,505
    
    
    
    4,882Assets held for sale
    
    
    5,708
    
    
    
    Total current assets
    
    
    83,938
    
    
    
    64,398Property and Equipment, net
    
    
    464,545
    
    
    
    451,808Goodwill
    
    
    93,074
    
    
    
    93,074Intangible Asset
    
    
    25,921
    
    
    
    25,921Other Assets
    
    
    20,132
    
    
    
    22,310Total Assets
    
    $
    687,610
    
    
    $
    657,511LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Trade accounts payable
    
    $
    21,874
    
    
    $
    14,259Accrued payroll and related expenses
    
    
    19,580
    
    
    
    19,183Accrued expenses
    
    
    23,739
    
    
    
    20,878Deferred revenue
    
    
    21,393
    
    
    
    19,210Federal, state and local taxes
    
    
    10,713
    
    
    
    9,184Current portion of long-term debt and capitalized lease obligations
    
    
    10,975
    
    
    
    12,670Total current liabilities
    
    
    108,274
    
    
    
    95,384Long-Term Debt, less current portion
    
    
    148,299
    
    
    
    146,125Capitalized Lease Obligations, less current portion
    
    
    26,408
    
    
    
    32,344Deferred Income Taxes
    
    
    7,407
    
    
    
    7,884Other Liabilities
    
    
    47,634
    
    
    
    45,034Total Liabilities
    
    
    338,022
    
    
    
    326,771Shareholders Equity:Common stockNo par value; authorized, 50,000,000 shares; issued
and outstanding, 22,988,401 in 2005 and 22,528,951 in 2004
    
    
    185,374
    
    
    
    178,262Accumulated other comprehensive loss, net of tax
    
    
    (5
    )
    
    
    (224
    )Unearned compensation
    
    
    (4,027
    )
    
    
    (3,666
    )Retained earnings
    
    
    168,246
    
    
    
    156,368Total shareholders equity
    
    
    349,588
    
    
    
    330,740Total Liabilities and Shareholders Equity
    
    $
    687,610
    
    
    $
    657,511
  47




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CONSOLIDATED STATEMENTS OF EARNINGS
 Year EndedDecember 25,
    
    
    December 26,
    
    
    December 28,2005
    
    
    2004
    
    
    2003(in thousands, except per share data)Revenues:Restaurant sales
    
    $
    921,329
    
    
    $
    864,259
    
    
    $
    753,740Commissary sales
    
    
    8,498
    
    
    
    7,035
    
    
    
    5,271Franchise revenue
    
    
    361
    
    
    
    92
    
    
    
    930,188
    
    
    
    871,386
    
    
    
    759,011Costs and Expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    277,788
    
    
    
    261,013
    
    
    
    221,206Payroll and benefits
    
    
    318,524
    
    
    
    290,514
    
    
    
    252,415Restaurant operating costs
    
    
    172,160
    
    
    
    157,491
    
    
    
    139,205Cost of commissary sales
    
    
    7,710
    
    
    
    6,631
    
    
    
    4,970Advertising expenses
    
    
    25,468
    
    
    
    25,621
    
    
    
    24,300General and administrative expenses
    
    
    41,945
    
    
    
    38,237
    
    
    
    28,016Depreciation and amortization, property and equipment
    
    
    43,806
    
    
    
    39,798
    
    
    
    36,360Asset impairment and disposals
    
    
    7,320
    
    
    
    16
    
    
    
    (180
    )Pre-opening costs
    
    
    6,271
    
    
    
    5,908
    
    
    
    6,900900,992
    
    
    
    825,229
    
    
    
    713,192Income from Operations
    
    
    29,196
    
    
    
    46,157
    
    
    
    45,819Other Expense:Interest expense, net
    
    
    15,124
    
    
    
    13,476
    
    
    
    14,153Debt extinguishment charge
    
    
    
    
    
    
    
    
    
    
    1,800Other, net
    
    
    42
    
    
    
    
    
    
    
    (584
    )15,166
    
    
    
    13,476
    
    
    
    15,369Earnings Before Income Taxes and Cumulative Effect of
Change in Accounting Principle
    
    
    14,030
    
    
    
    32,681
    
    
    
    30,450Income Taxes
    
    
    2,001
    
    
    
    9,362
    
    
    
    9,261Earnings Before Cumulative Effect of Change in Accounting
Principle
    
    
    12,029
    
    
    
    23,319
    
    
    
    21,189Cumulative Effect of Change in Accounting Principle, net of
tax
    
    
    (151
    )
    
    
    
    
    
    
    Net Earnings
    
    $
    11,878
    
    
    $
    23,319
    
    
    $
    21,189Basic Earnings Per Common Share Before Cumulative Effect
of Change in Accounting Principle
    
    $
    0.53
    
    
    $
    1.05
    
    
    $
    0.98Cumulative Effect of Change in Accounting Principle, net of
tax
    
    
    (0.01
    )
    
    
    
    
    
    
    Basic Earnings Per Common Share
    
    $
    0.52
    
    
    $
    1.05
    
    
    $
    0.98Diluted Earnings Per Common Share Before Cumulative Effect
of Change in Accounting Principle
    
    $
    0.52
    
    
    $
    1.03
    
    
    $
    0.96Cumulative Effect of Change in Accounting Principle, net of
tax
    
    
    (0.01
    )
    
    
    
    
    
    
    Diluted Earnings Per Common Share
    
    $
    0.51
    
    
    $
    1.03
    
    
    $
    0.96
  48




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CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE INCOME
 AccumulatedOtherCommon Stock
    
    
    Unearned
    
    
    Comprehensive
    
    
    RetainedShares
    
    
    Amount
    
    
    Compensation
    
    
    Loss, net
    
    
    Earnings
    
    
    Total(in thousands)Balance, December 29, 2002
    
    
    18,839
    
    
    $
    116,631
    
    
    $
    
    
    
    $
    (931
    )
    
    $
    111,860
    
    
    $
    227,560Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,189
    
    
    
    21,189Unrealized change in market value of
derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    412
    
    
    
    
    
    
    
    412Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    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
    
    
    
    330,740Comprehensive income:Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,878
    
    
    
    11,878Unrealized change in market value of
derivatives, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    219Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,097Exercise of employee stock options
including tax benefits (net of shares
tendered)
    
    
    286
    
    
    
    4,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,135Shares issued under CHUX Ownership Plan
    
    
    146
    
    
    
    2,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,131Restricted share issuances
    
    
    27
    
    
    
    1,490
    
    
    
    (1,490
    )
    
    
    
    
    
    
    
    
    
    
    Compensation expense
    
    
    
    
    
    
    (644
    )
    
    
    1,129
    
    
    
    
    
    
    
    
    
    
    
    485Balance, December 25, 2005
    
    
    22,988
    
    
    $
    185,374
    
    
    $
    (4,027
    )
    
    $
    (5
    )
    
    $
    168,246
    
    
    $
    349,588
  49




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CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year EndedDecember 25,
    
    
    December 26,
    
    
    December 28,2005
    
    
    2004
    
    
    2003(in thousands)Cash Flows from Operating Activities:Net earnings
    
    $
    11,878
    
    
    $
    23,319
    
    
    $
    21,189Adjustments to reconcile net earnings to net cash provided
by operating activities:Depreciation and amortization, property and equipment
    
    
    43,806
    
    
    
    39,798
    
    
    
    36,360Debt extinguishment charge
    
    
    
    
    
    
    
    
    
    
    1,800Amortization of debt issuance costs
    
    
    1,426
    
    
    
    1,449
    
    
    
    1,184Deferred income taxes excluding effect of Ninety Nine
acquisition
    
    
    (3,653
    )
    
    
    (464
    )
    
    
    184Expenses related to equity-based compensation
    
    
    485
    
    
    
    2,171
    
    
    
    470Amortization of deferred gain on sale-leasebacks
    
    
    (1,056
    )
    
    
    (1,055
    )
    
    
    (163
    )Loss (gain) on the sale and involuntary conversion of assets
    
    
    233
    
    
    
    215
    
    
    
    (423
    )Asset impairment and disposals
    
    
    7,320
    
    
    
    16
    
    
    
    (180
    )Donation of stock
    
    
    
    
    
    
    137
    
    
    
    Changes in assets and liabilities, excluding the effects of
the Ninety Nine acquisition:Trade accounts receivable
    
    
    (3,274
    )
    
    
    (734
    )
    
    
    (1,961
    )Inventories
    
    
    (12,006
    )
    
    
    (11,612
    )
    
    
    (548
    )Other current assets
    
    
    377
    
    
    
    (1,078
    )
    
    
    526Trade accounts payable
    
    
    7,615
    
    
    
    (1,128
    )
    
    
    (381
    )Deferred revenue
    
    
    2,183
    
    
    
    3,768
    
    
    
    3,035Accrued payroll and other accrued expenses, and federal,
state and local taxes
    
    
    3,793
    
    
    
    10,426
    
    
    
    372Other long-term assets and liabilities
    
    
    2,931
    
    
    
    4,046
    
    
    
    2,164Tax benefit derived from exercise of stock options
    
    
    674
    
    
    
    1,224
    
    
    
    4,692Net cash provided by operating activities
    
    
    62,732
    
    
    
    70,498
    
    
    
    68,320Cash Flows from Investing Activities:Additions to property and equipment
    
    
    (68,778
    )
    
    
    (60,491
    )
    
    
    (67,598
    )Acquisition of company, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (114,287
    )Proceeds from the sale of assets
    
    
    3,364
    
    
    
    1,943
    
    
    
    3,724Other, net
    
    
    1,987
    
    
    
    3,246
    
    
    
    412Net cash used in investing activities
    
    
    (63,427
    )
    
    
    (55,302
    )
    
    
    (177,749
    )Cash Flows from Financing Activities:Proceeds from long-term debt
    
    
    5,885
    
    
    
    4,454
    
    
    
    265,121Payments on long-term debt and capitalized lease obligations
    
    
    (15,855
    )
    
    
    (33,799
    )
    
    
    (207,639
    )Proceeds from sale and lease-back transactions
    
    
    
    
    
    
    12,090
    
    
    
    59,097Minority interest in joint ventures
    
    
    
    
    
    
    750
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    (900
    )
    
    
    (10,898
    )Exercise of employee incentive stock options and issuances
under stock purchase plan
    
    
    5,592
    
    
    
    3,407
    
    
    
    5,011Net cash (used in) provided by financing activities
    
    
    (4,378
    )
    
    
    (13,998
    )
    
    
    110,692(Decrease) increase in cash and cash equivalents
    
    
    (5,073
    )
    
    
    1,198
    
    
    
    1,263Cash and cash equivalents at beginning of the year
    
    
    10,772
    
    
    
    9,574
    
    
    
    8,311Cash and cash equivalents at end of the year
    
    $
    5,699
    
    
    $
    10,772
    
    
    $
    9,574
  50




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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.
 Cash Equivalents
 Inventories
 Operating leases Accounting for Operating Leases with Scheduled Rent Increases,
 Issues Relating to Accounting for
Leases
   Principles of consolidation
 51




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##### Table of Contents



Pre-opening Costs
 Investments
 Investment in Affiliated Company Consolidation of Variable Interest Entities
 Investment in Joint Ventures.
 Property and Equipment
 Managing Partner Program for Stoney River
   52




---



##### Table of Contents



Business Combinations
 Goodwill Accounting for Impairment or Disposal of Long-Lived Assets.
  Impairment of Long-Lived Assets
 Business
Combinations
  Revenues
 53




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##### Table of Contents



Advertising Costs.
 Income Taxes
 Stock Option Plan Accounting for Stock Issued to
Employees, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25, Accounting for Stock-Based Compensation Accounting for Stock-Based
Compensation, Transition and Disclosure, an amendment of FASB Statement No. 123
 2005
    
    
    2004
    
    
    2003(in thousands)Net earnings, as reported
    
    $
    11,878
    
    
    $
    23,319
    
    
    $
    21,189Add stock-based employee
compensation expense included
in reported net earnings, net
of tax
    
    
    416
    
    
    
    1,550
    
    
    
    327Deduct total stock-based
employee compensation expense
determined under
fair-value-based method for
all awards, net of tax
    
    
    (11,619
    )
    
    
    (4,509
    )
    
    
    (3,115
    )Pro forma net earnings
    
    $
    675
    
    
    $
    20,360
    
    
    $
    18,401Earnings per share:Basicas reported
    
    $
    0.52
    
    
    $
    1.05
    
    
    $
    0.98Basicpro forma
    
    $
    0.03
    
    
    $
    0.91
    
    
    $
    0.85Dilutedas reported
    
    $
    0.51
    
    
    $
    1.03
    
    
    $
    0.96Dilutedpro forma
    
    $
    0.03
    
    
    $
    0.90
    
    
    $
    0.83
 Share-Based Payment.
 54




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##### Table of Contents



Per Share Data
 Stock Repurchase
 Fair Value of Financial Instruments Disclosures about Fair Value of Financial
Instruments,
 Derivative Instruments and Hedging Activities
  55




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##### Table of Contents



Comprehensive Income Reporting Comprehensive Income,
 Operating Segments
 Use of Estimates
 Recently Issued Accounting Pronouncements Share-Based Payment Accounting for
Stock-Based Compensation
 Accounting for Conditional Asset Retirement
Obligations  An Interpretation of FASB Statement No. 143, Application of FASB Statement No. 143, Accounting for Asset Retirement Obligations, Accounting for Conditional Asset Retirement Obligations,
 56




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##### Table of Contents



Accounting Changes and Error Corrections. Accounting Changes, Reporting
Accounting Changes in Interim Financial Statements
 Classification and
Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee
Services under FASB Statement No. 123R. Share-Based Payment,
 Accounting for Rental
Costs Incurred during a Construction Period. Issues Relating to Accounting for
Leases Accounting for Leases, Accounting for Operating Leases with Scheduled Rent Increases,
 2. Acquisition
   57




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##### Table of Contents



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
  Fiscal Year ended December 28, 2003
 2003(in thousands)Pro Forma Earnings:Total revenues
    
    $
    775,194Earnings before income taxes and cumulative effect of change in
accounting principle
    
    
    30,830Earnings before cumulative effect of change in accounting principle
    
    
    21,436Cumulative effect of change in accounting principle
    
    
    Net earnings
    
    $
    21,436Basic earnings per shareEarnings before cumulative effect of change in accounting principle
    
    $
    0.97Cumulative effect of change in accounting principle
    
    
    Net earnings
    
    $
    0.97Basic weighted average common shares outstanding
    
    
    22,148Diluted earnings per shareEarnings before cumulative effect of change in accounting principle
    
    $
    0.94Cumulative effect of change in accounting principle
    
    
    Net earnings
    
    $
    0.94Diluted weighted average common shares outstanding
    
    
    22,758
  58




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##### Table of Contents



3 Impairment of and Disposal of Long-Lived Assets
    4. Exit and Disposal Costs
  5. Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
 59




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##### Table of Contents



(in thousands)Asset Retirement Obligation as of December 28, 2003
    
    $
    462Plus:Accretion expense on the present valued liability
    
    
    44Plus:Fixed Asset Additions Requiring Recognitions of a Liability
    
    
    16Asset Retirement Obligation as of December 26, 2004
    
    $
    522Plus:Accretion expense on the present valued liability
    
    
    55Plus:Fixed Asset Additions Requiring Recognitions of a Liability
    
    
    18Asset Retirement Obligation as of December 25, 2005
    
    $
    595
  6. Property and Equipment
  December 25,
    
    
    December 26,2005
    
    
    2004(in thousands)Land and improvements
    
    $
    79,559
    
    
    $
    77,588Buildings and improvements
    
    
    144,631
    
    
    
    148,060Furniture, fixtures and equipment
    
    
    188,621
    
    
    
    170,736Leasehold improvements
    
    
    186,948
    
    
    
    159,296Equipment under capitalized leases
    
    
    74,549
    
    
    
    73,828Property leased to others
    
    
    1,888
    
    
    
    1,888676,196
    
    
    
    631,396Less accumulated depreciation and amortization
    
    
    (211,651
    )
    
    
    (179,588
    )$
    464,545
    
    
    $
    451,808
  60




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##### Table of Contents



7. Assets Held for Sale
  December 25,2005(in thousands)Land
    
    $
    2,047Buildings and improvements
    
    
    6,501Other assets
    
    
    3,585Less accumulated depreciation and amortization
    
    
    (6,425
    )$
    5,708
  8. Other Assets
  December 25,
    
    
    December 26,2005
    
    
    2004(in thousands)Supplemental executive retirement plan asset
    
    $
    8,404
    
    
    $
    7,189Liquor licenses
    
    
    2,351
    
    
    
    2,392Deferred compensation
    
    
    1,000
    
    
    
    2,000Prepaid interest and finance costs
    
    
    6,302
    
    
    
    7,678Notes receivable
    
    
    160
    
    
    
    993Other assets
    
    
    1,915
    
    
    
    2,058$
    20,132
    
    
    $
    22,310
   61




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##### Table of Contents



9. Accrued Expenses
  December 25,
    
    
    December 26,2005
    
    
    2004(in thousands)Accrued insurance expenses
    
    $
    11,206
    
    
    $
    8,164Accrued employee benefits
    
    
    3,457
    
    
    
    4,592Accrued interest
    
    
    1,904
    
    
    
    1,565Accrued vacation
    
    
    1,411
    
    
    
    1,909Other accrued expenses
    
    
    5,761
    
    
    
    4,648$
    23,739
    
    
    $
    20,878
  10. Long-Term Debt
  December 25,
    
    
    December 26,2005
    
    
    2004(in thousands)Revolving line of credit
    
    $
    22,000
    
    
    $
    21,0009% senior subordinated notes due 2013
    
    
    125,000
    
    
    
    125,000Financing arrangement
    
    
    1,197
    
    
    
    Secured mortgage note payable
    
    
    125
    
    
    
    146$
    148,322
    
    
    
    146,146Less current portion of long-term debt
    
    
    (23
    )
    
    
    (21
    )Long-term debt, less current portion
    
    $
    148,299
    
    
    $
    146,125
  62




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63




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##### Table of Contents



11. Other Liabilities
  December 25,
    
    
    December 26,2005
    
    
    2004(in thousands)Deferred gain on sale leaseback transactions
    
    $
    18,916
    
    
    $
    20,484Deferred rent
    
    
    13,976
    
    
    
    11,981Supplemental executive retirement plan liability
    
    
    10,454
    
    
    
    8,747Deferred compensation liability
    
    
    1,071
    
    
    
    2,000Other long-term liabilities
    
    
    3,217
    
    
    
    1,822$
    47,634
    
    
    $
    45,034
 12. Lease Commitments
    CapitalizedEquipment
    
    
    OperatingLeases
    
    
    Leases(in thousands)2006
    
    $
    11,082
    
    
    $
    30,3532007
    
    
    9,319
    
    
    
    30,6212008
    
    
    9,401
    
    
    
    30,5992009
    
    
    6,894
    
    
    
    30,1392010
    
    
    1,758
    
    
    
    29,840Thereafter
    
    
    2,047
    
    
    
    297,232Total minimum lease payments
    
    
    40,501
    
    
    $
    448,784Less amount representing interest
    
    
    (3,141
    )Net minimum lease payments
    
    
    37,360Less current portion
    
    
    (10,952
    )Capitalized lease obligations, net of current portion
    
    $
    26,408
  2005
    
    
    2004
    
    
    2003(in thousands)Minimum rentals
    
    $
    30,438
    
    
    $
    29,485
    
    
    $
    22,252Contingent rentals
    
    
    421
    
    
    
    410
    
    
    
    423$
    30,859
    
    
    $
    29,895
    
    
    $
    22,675
 64




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##### Table of Contents



13. Derivative Instruments and Hedging Activities .
       65




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14. Income Taxes
  2005
    
    
    2004
    
    
    2003(in thousands)Income taxes attributable to:Earnings before cumulative effect of change in
accounting principle
    
    $
    2,001
    
    
    $
    9,362
    
    
    $
    9,261Tax effect of cumulative effect of accounting change
    
    
    (97
    )
    
    
    
    
    
    
    Shareholders equity, tax change in market value of
derivative instruments
    
    
    53
    
    
    
    189
    
    
    
    251Shareholders equity, tax benefit derived from
non-statutory stock options exercised
    
    
    (674
    )
    
    
    (1,224
    )
    
    
    (4,692
    )$
    1,283
    
    
    $
    8,327
    
    
    $
    4,820
 66




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##### Table of Contents



2005
    
    
    2004
    
    
    2003(in thousands)Current
    
    $
    5,654
    
    
    $
    9,606
    
    
    $
    9,100Deferred
    
    
    (3,653
    )
    
    
    (244
    )
    
    
    161$
    2,001
    
    
    $
    9,362
    
    
    $
    9,261
  2005
    
    2004
    
    2003Federal statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Increase (decrease) in taxes due to:State income taxes, net of federal tax benefit
    
    
    8.6
    
    
    
    4.9
    
    
    
    4.3Tax credits, primarily FICA tip credits
    
    
    (28.5
    )
    
    
    (11.0
    )
    
    
    (9.2
    )Other
    
    
    (0.8
    )
    
    
    (0.3
    )
    
    
    0.314.3
    %
    
    
    28.6
    %
    
    
    30.4
    %
  December 25,
    
    
    December 26,2005
    
    
    2004(in thousands)Deferred tax assets:Inventories, principally due to uniform capitalization
    
    $
    856
    
    
    $
    707Accrued expenses, principally due to accruals for
workers compensation, employee health and retirement
benefits
    
    
    7,538
    
    
    
    7,922Asset impairment and exit cost
    
    
    2,292
    
    
    
    308Unearned gift card income
    
    
    1,079
    
    
    
    1,082Tax credits, primarily FICA tip credits
    
    
    4,836
    
    
    
    1,807State net operating loss carry forwards
    
    
    2,993
    
    
    
    1,775Deferred rent
    
    
    1,778
    
    
    
    2,174Other
    
    
    0
    
    
    
    106Total gross deferred tax assets
    
    
    21,372
    
    
    
    15,881Deferred tax asset valuation allowance
    
    
    (2,961
    )
    
    
    (1,775
    )Total net deferred tax assets
    
    
    18,411
    
    
    
    14,106Deferred tax liabilities:Property and equipment, principally due to
differences in depreciation and capital lease
amortization
    
    
    9,643
    
    
    
    11,180Goodwill
    
    
    6,278
    
    
    
    4,094Other
    
    
    59
    
    
    
    0Total gross deferred tax liabilities
    
    
    15,980
    
    
    
    15,274Net deferred tax (asset) liability
    
    $
    (2,431
    )
    
    $
    1,168
 67




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##### Table of Contents



2005
    
    
    2004(in thousands)Deferred income taxes, long-term liability
    
    $
    7,407
    
    
    $
    7,884Deferred income taxes, current asset
    
    
    (9,838
    )
    
    
    (6,716
    )$
    (2,431
    )
    
    $
    1,168
   15. Shareholders Equity
   16. Earnings Per Share
  2005
    
    2004
    
    2003(in thousands)Weighted average shares outstandingbasic
    
    
    22,837
    
    
    
    22,290
    
    
    
    21,560Incremental stock option shares outstanding
    
    
    259
    
    
    
    357
    
    
    
    610Weighted average shares outstandingdiluted
    
    
    23,096
    
    
    
    22,647
    
    
    
    22,170
  68




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##### Table of Contents



17. Stock Compensation and Purchase Plans
   Weighted-Number of
    
    
    AverageOptions
    
    
    Exercise PriceBalance 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
    
    
    $
    16.54Granted
    
    
    
    
    
    
    Exercised
    
    
    (352,767
    )
    
    
    9.05Forfeited
    
    
    (138,388
    )
    
    
    19.33Balance at December 26, 2004
    
    
    3,223,349
    
    
    $
    17.23Granted
    
    
    
    
    
    
    Exercised
    
    
    (294,861
    )
    
    $
    10.93Forfeited
    
    
    (139,168
    )
    
    
    12.52Balance at December 25, 2005
    
    
    2,789,320
    
    
    $
    14.12
  69




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted-Avg.
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseExercise Price
    
    
    Number
    
    
    Life
    
    
    Price
    
    
    Number
    
    
    Price$
    7.26
    
    
    to
    
    
    9.77
    
    
    
    49,380
    
    
    
    1.0
    
    
    $
    9.13
    
    
    
    43,170
    
    
    $
    9.10$
    9.77
    
    
    to
    
    
    12.10
    
    
    
    322,975
    
    
    
    2.4
    
    
    
    11.76
    
    
    
    260,946
    
    
    
    11.74$
    12.10
    
    
    to
    
    
    14.51
    
    
    
    198,967
    
    
    
    3.4
    
    
    
    13.63
    
    
    
    160,218
    
    
    
    13.72$
    14.51
    
    
    to
    
    
    16.93
    
    
    
    615,047
    
    
    
    3.5
    
    
    
    15.39
    
    
    
    592,297
    
    
    
    15.39$
    16.93
    
    
    to
    
    
    19.35
    
    
    
    351,845
    
    
    
    5.6
    
    
    
    18.09
    
    
    
    351,845
    
    
    
    18.09$
    19.35
    
    
    to
    
    
    21.77
    
    
    
    990,382
    
    
    
    6.6
    
    
    
    20.77
    
    
    
    990,382
    
    
    
    20.77$
    21.78
    
    
    to
    
    
    24.19
    
    
    
    260,724
    
    
    
    6.7
    
    
    
    22.69
    
    
    
    243,100
    
    
    
    22.69$
    7.26
    
    
    to
    
    
    24.19
    
    
    
    2,789,320
    
    
    
    5.5
    
    
    $
    14.12
    
    
    
    2,641,958
    
    
    $
    17.87
     70




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##### Table of Contents



Approximate
    
    AmountNumber of
    
    Recorded toShares
    
    Common StockGrant Date
    
    Granted
    
    in 2005
    
    Vesting ScheduleJanuary 21, 2005 (1)
    
    
    26,878
    
    
    $
    485,417
    
    
    Ratably over periods of time ranging from date of grant to seven
years (fixed-plan accounting)January 21, 2005 (2)
    
    
    190,089
    
    
    
    0
    
    
    Based upon cumulative growth in earnings per
share over the next three years (variable-plan accounting)May 12, 2005 (3)
    
    
    24,000
    
    
    
    398,880
    
    
    Ratably over a three year period
of time (fixed-plan accounting)May 12, 2005 (4)
    
    
    24,307
    
    
    
    425,373
    
    
    Ratably over periods of time
ranging from date of grant to five
years (fixed-plan accounting)August 29, 2005 (5)
    
    
    24,830
    
    
    
    401,998
    
    
    Ratably over periods of time ranging from date
of grant to five years (fixed-plan
accounting)October 3, 2005 (6)
    
    
    20,000
    
    
    
    283,400
    
    
    Ratably over a three year period
of time (fixed-plan accounting)December 8, 2005 (7)
    
    
    20,025
    
    
    
    298,973
    
    
    Ratably over periods of time
ranging from date of grant to four
years (fixed-plan accounting)
 
 (1)
    
    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. 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 fiscal 2005 approximated $110,000.(2)
    
    If the cumulative annual performance targets are achieved, up to 25.0% 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. There was not any compensation cost related to these awards recognized by
the Company in fiscal 2005. As described above, the Companys expected earnings target was
below the required vesting target for these awards.(3)
    
    In the event that the service of the non-employee director terminates for any reason, no
further vesting of restricted stock shall occur. The grantees rights in these shares vest
based upon the passage of time; 71




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##### Table of Contents



therefore, the Company uses fixed-plan accounting. Compensation cost related to these restricted
stock awards recognized by the Company during 2005 approximated $83,000.(4)
    
    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. 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 fiscal 2005 approximated $93,000.(5)
    
    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. 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 the fiscal 2005 approximated $68,000.(6)
    
    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 this restricted stock award recognized by the
Company during 2005 was approximately $22,000.(7)
    
    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. 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 fiscal 2005 approximated $33,000. 72




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##### Table of Contents



2003Risk-free investment interest
    
    
    4.0
    %Expected life in years
    
    
    5.3Expected volatility
    
    
    46.7
    %Fair value of options granted (per share)
    
    $
    9.68
 18. Team Member Benefit Plans
   19. Consolidated Statements of Cash Flows
  2005
    
    2004
    
    2003(in thousands)Cash paid for interest
    
    $
    13,660
    
    
    $
    12,782
    
    
    $
    11,589Additions to capitalized lease obligations
    
    
    4,510
    
    
    
    10,810
    
    
    
    20,046Income taxes paid (net of refunds)
    
    
    5,161
    
    
    
    9,693
    
    
    
    7,980Other non cash transactions:Transfer of assets to held-for-sale
    
    $
    5,708
    
    
    
    
    
    
    
    
 20. Litigation and Contingencies
  73




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##### Table of Contents



21. Guarantees
   74




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##### Table of Contents



22. Franchising Arrangements
       75




---



##### Table of Contents



23. Quarterly Financial and Restaurant Operating Data (Unaudited)
  First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(dollars in thousands, except per share data)2005Revenues
    
    $
    290,491
    
    
    $
    214,249
    
    
    $
    211,759
    
    
    $
    213,689Income (Loss) from operations
    
    $
    18,793
    
    
    $
    10,528
    
    
    $
    (4,885
    )
    
    $
    4,760Earnings before cumulative effect
of change in accounting principle
    
    $
    10,114
    
    
    $
    4,966
    
    
    $
    (4,689
    )
    
    $
    1,638Net earnings (loss) (1)
    
    $
    10,114
    
    
    $
    4,966
    
    
    $
    (4,689
    )
    
    $
    1,487Basic earnings per common share (1)
    
    $
    0.45
    
    
    $
    0.22
    
    
    $
    (0.20
    )
    
    $
    0.06Diluted earnings per common share(1)
    
    $
    0.44
    
    
    $
    0.21
    
    
    $
    (0.20
    )
    
    $
    0.06Company-owned restaurants in
operation, end of quarter
    
    
    331
    
    
    
    334
    
    
    
    341
    
    
    
    3412004Revenues
    
    $
    267,743
    
    
    $
    201,155
    
    
    $
    200,277
    
    
    $
    202,211Income from operations
    
    $
    15,325
    
    
    $
    10,576
    
    
    $
    9,078
    
    
    $
    11,178Net 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
    
    
    $
    0.29Company-owned restaurants in
operation, end of quarter
    
    
    307
    
    
    
    313
    
    
    
    320
    
    
    
    326
 
 (1)
    
    Represents net earnings and basic and diluted earnings per share after the cumulative effect
of a change in accounting principle. 24. Commitments
  76




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##### Table of Contents



25. Supplementary Condensed Consolidating Financial Information of Subsidiary Guarantors
  77




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##### Table of Contents



Consolidating Balance Sheet
December 25, 2005
 MinorSubsidiaries andParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated( in thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    2,611
    
    
    $
    3,072
    
    
    $
    16
    
    
    $
    5,699Trade accounts receivable
    
    
    4,473
    
    
    
    7,542
    
    
    
    42
    
    
    
    12,057Intercompany (payable) receivables
    
    
    (132,552
    )
    
    
    141,466
    
    
    
    (8,914
    )
    
    
    Inventories
    
    
    3,923
    
    
    
    41,169
    
    
    
    39
    
    
    
    45,131Deferred income taxes
    
    
    9,454
    
    
    
    384
    
    
    
    
    
    
    
    9,838Other current assets
    
    
    3,297
    
    
    
    3,233
    
    
    
    (1,025
    )
    
    
    5,505Assets held for sale
    
    
    3,541
    
    
    
    2,167
    
    
    
    
    
    
    
    5,708Total current assets
    
    
    (105,253
    )
    
    
    199,033
    
    
    
    (9,842
    )
    
    
    83,938Property and Equipment, net
    
    
    323,827
    
    
    
    134,622
    
    
    
    6,096
    
    
    
    464,545Goodwill
    
    
    
    
    
    
    93,074
    
    
    
    
    
    
    
    93,074Intangible Asset
    
    
    
    
    
    
    25,921
    
    
    
    
    
    
    
    25,921Other Assets
    
    
    217,397
    
    
    
    28,558
    
    
    
    (225,823
    )
    
    
    20,132Total Assets
    
    $
    435,971
    
    
    $
    481,208
    
    
    $
    (229,569
    )
    
    $
    687,610LIABILITIES
AND SHAREHOLDERS EQUITY (DEFICIT)Current Liabilities:Trade accounts payable
    
    $
    12,412
    
    
    $
    16,515
    
    
    $
    (7,053
    )
    
    $
    21,874Accrued payroll and related expenses
    
    
    12,880
    
    
    
    7,738
    
    
    
    (1,038
    )
    
    
    19,580Accrued expenses
    
    
    13,543
    
    
    
    10,671
    
    
    
    (475
    )
    
    
    23,739Deferred revenue
    
    
    9,466
    
    
    
    11,881
    
    
    
    46
    
    
    
    21,393Federal, state and local taxes
    
    
    (6,020
    )
    
    
    16,669
    
    
    
    64
    
    
    
    10,713Current portion of long-term debt and capitalized
lease obligations
    
    
    10,559
    
    
    
    372
    
    
    
    44
    
    
    
    10,975Total current liabilities
    
    
    52,840
    
    
    
    63,846
    
    
    
    (8,412
    )
    
    
    108,274Long-Term Debt, less current portion
    
    
    164,827
    
    
    
    
    
    
    
    (16,528
    )
    
    
    148,299Capitalized Lease Obligations, less current portion
    
    
    25,126
    
    
    
    1,283
    
    
    
    (1
    )
    
    
    26,408Deferred Income Taxes
    
    
    8,191
    
    
    
    (784
    )
    
    
    
    
    
    
    7,407Other Liabilities
    
    
    30,249
    
    
    
    16,266
    
    
    
    1,119
    
    
    
    47,634Total Liabilities
    
    
    281,233
    
    
    
    80,611
    
    
    
    (23,822
    )
    
    
    338,022Shareholders equity (deficit):Common stock
    
    
    184,995
    
    
    
    203,101
    
    
    
    (202,722
    )
    
    
    185,374Accumulated other comprehensive loss, net of tax
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    (5
    )Unearned compensation
    
    
    (4,027
    )
    
    
    
    
    
    
    
    
    
    
    (4,027
    )Retained (deficit) earnings
    
    
    (26,225
    )
    
    
    197,496
    
    
    
    (3,025
    )
    
    
    168,246Total shareholders equity (deficit)
    
    
    154,738
    
    
    
    400,597
    
    
    
    (205,747
    )
    
    
    349,588Total Liabilities and Shareholders Equity
(Deficit)
    
    $
    435,971
    
    
    $
    481,208
    
    
    $
    (229,569
    )
    
    $
    687,610
 78




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##### Table of Contents



Consolidating Balance Sheet
 December 26, 2004
 MinorSubsidiaries andParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated( in thousands)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    2,491
    
    
    $
    7,733
    
    
    $
    548
    
    
    $
    10,772Trade accounts receivable
    
    
    2,640
    
    
    
    6,130
    
    
    
    13
    
    
    
    8,783Intercompany (payable) receivables
    
    
    (123,459
    )
    
    
    129,076
    
    
    
    (5,617
    )
    
    
    Inventories
    
    
    3,310
    
    
    
    29,792
    
    
    
    23
    
    
    
    33,125Deferred income taxes
    
    
    6,332
    
    
    
    384
    
    
    
    
    
    
    
    6,716Short-term notes 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
    
    
    
    
    
    
    
    93,074Intangible 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 EQUITY (DEFICIT)Current 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, less current portion
    
    
    162,865
    
    
    
    
    
    
    
    (16,740
    )
    
    
    146,125Capitalized Lease Obligations, less 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 deficit: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
 79




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##### Table of Contents



Consolidating Statement of Operations
For the Year Ended December 25, 2005
 MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Revenues:Restaurant sales
    
    $
    547,326
    
    
    $
    353,088
    
    
    $
    20,915
    
    
    $
    921,329Commissary sales
    
    
    
    
    
    
    253,994
    
    
    
    (245,496
    )
    
    
    8,498Franchise revenue
    
    
    482
    
    
    
    
    
    
    
    (121
    )
    
    
    361547,808
    
    
    
    607,082
    
    
    
    (224,702
    )
    
    
    930,188Costs and Expenses:Cost of restaurant sales:Cost of food and beverage
    
    
    177,032
    
    
    
    107,828
    
    
    
    (7,072
    )
    
    
    277,788Payroll and benefits
    
    
    196,870
    
    
    
    117,161
    
    
    
    4,493
    
    
    
    318,524Restaurant operating costs
    
    
    97,842
    
    
    
    69,405
    
    
    
    4,913
    
    
    
    172,160Cost of commissary sales
    
    
    
    
    
    
    237,315
    
    
    
    (229,605
    )
    
    
    7,710Advertising expenses
    
    
    
    
    
    
    25,468
    
    
    
    
    
    
    
    25,468General and administrative expenses
    
    
    4,728
    
    
    
    36,997
    
    
    
    220
    
    
    
    41,945Depreciation and amortization, property and equipment
    
    
    31,038
    
    
    
    12,573
    
    
    
    195
    
    
    
    43,806Asset impairment and disposals
    
    
    6,220
    
    
    
    1,100
    
    
    
    
    
    
    
    7,320Pre-opening costs
    
    
    3,531
    
    
    
    2,432
    
    
    
    308
    
    
    
    6,271517,261
    
    
    
    610,279
    
    
    
    (226,548
    )
    
    
    900,992Income (Loss) from Operations
    
    
    30,547
    
    
    
    (3,197
    )
    
    
    1,846
    
    
    
    29,196Other Expense (Income):Interest expense, net
    
    
    14,142
    
    
    
    753
    
    
    
    229
    
    
    
    15,124Other, net
    
    
    54,530
    
    
    
    (54,488
    )
    
    
    
    
    
    
    4268,672
    
    
    
    (53,735
    )
    
    
    229
    
    
    
    15,166(Loss) Earnings Before Income Taxes and Cumulative
Effect of Change in Accounting Principle
    
    
    (38,125
    )
    
    
    50,538
    
    
    
    1,617
    
    
    
    14,030Income Tax (Benefit) Expense
    
    
    (5,437
    )
    
    
    7,207
    
    
    
    231
    
    
    
    2,001(Loss) Earnings Before Cumulative Effect of Change
in Accounting Principle
    
    
    (32,688
    )
    
    
    43,331
    
    
    
    1,386
    
    
    
    12,029Cumulative Effect of Change in Accounting Principle,
net of tax
    
    
    (151
    )
    
    
    
    
    
    
    
    
    
    
    (151
    )Net (Loss) Earnings
    
    $
    (32,839
    )
    
    $
    43,331
    
    
    $
    1,386
    
    
    $
    11,878
 80




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##### Table of Contents



Consolidating Statement of Operations
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
revenue
    
    
    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 expenses
    
    
    
    
    
    
    25,621
    
    
    
    
    
    
    
    25,621General and administrative expenses
    
    
    3,334
    
    
    
    34,872
    
    
    
    31
    
    
    
    38,237Depreciation and amortization,
property and equipment
    
    
    29,358
    
    
    
    10,419
    
    
    
    21
    
    
    
    39,798Asset impairment and disposals
    
    
    
    
    
    
16
    
    
    
    
    
    
    
    16Pre-opening costs
    
    
    4,165
    
    
    
    1,504
    
    
    
    239
    
    
    
    5,908477,471
    
    
    
    515,043
    
    
    
    (167,285
    )
    
    
    825,229Income (Loss) from Operations
    
    
    49,123
    
    
    
    (5,500
    )
    
    
    2,534
    
    
    
    46,157Other Expense (Income):Interest expense, net
    
    
    12,564
    
    
    
    894
    
    
    
    18
    
    
    
    13,476Other, net
    
    
    52,474
    
    
    
    (52,474
    )
    
    
    
    
    
    
    65,038
    
    
    
    (51,580
    )
    
    
    18
    
    
    
    13,476(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
 81




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##### Table of Contents



Consolidating Statement of Operations
For the Year Ended December 28, 2003
 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 expenses
    
    
    
    
    
    
    24,300
    
    
    
    
    
    
    
    24,300General and administrative
    
    
    2,658
    
    
    
    25,358
    
    
    
    
    
    
    
    28,016Depreciation and amortization,
property and equipment
    
    
    26,965
    
    
    
    9,395
    
    
    
    
    
    
    
    36,360Asset impairment and disposals
    
    
    
    
    
    
    (180
    )
    
    
    
    
    
    
    (180
    )Pre-opening costs
    
    
    5,493
    
    
    
    1,407
    
    
    
    
    
    
    
    6,900420,047
    
    
    
    429,701
    
    
    
    (136,556
    )
    
    
    713,192Income (Loss) from Operations
    
    
    47,094
    
    
    
    (3,491
    )
    
    
    2,216
    
    
    
    45,819Other Expense (Income):Interest expense, net
    
    
    13,289
    
    
    
    864
    
    
    
    
    
    
    
    14,153Debt extinguishment charge
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    1,800Other, net
    
    
    46,450
    
    
    
    (47,034
    )
    
    
    
    
    
    
    (584
    )61,539
    
    
    
    (46,170
    )
    
    
    
    
    
    
    15,369(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
 82




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##### Table of Contents



Consolidating Statement of Cash Flows
For the Year Ended December 25, 2005
 MinorSubsidiariesandParent
    
    
    Subsidiary
    
    
    ConsolidatingCompany
    
    
    Guarantors
    
    
    Adjustments
    
    
    Consolidated(in thousands)Cash Flows from Operating Activities:Net (loss) earnings
    
    $
    (32,839
    )
    
    $
    43,331
    
    
    $
    1,386
    
    
    $
    11,878Adjustments to reconcile net (loss) earnings to net
cash provided by (used in) operating activities:Depreciation and amortization, property and equipment
    
    
    31,038
    
    
    
    12,573
    
    
    
    195
    
    
    
    43,806Amortization of debt issuance costs
    
    
    1,426
    
    
    
    
    
    
    
    
    
    
    
    1,426Deferred income taxes
    
    
    (3,653
    )
    
    
    
    
    
    
    
    
    
    
    (3,653
    )Expenses related to equity based compensation
    
    
    485
    
    
    
    
    
    
    
    
    
    
    
    485Amortization of deferred gain on sale leaseback
    
    
    (1,056
    )
    
    
    
    
    
    
    
    
    
    
    (1,056
    )Loss on the sale and involuntary conversion of assets
    
    
    218
    
    
    
    15
    
    
    
    
    
    
    
    233Asset impairment and disposals
    
    
    6,220
    
    
    
    1,100
    
    
    
    
    
    
    
    7,320Changes in assets and liabilities:Trade accounts receivable
    
    
    (1,833
    )
    
    
    (1,413
    )
    
    
    (28
    )
    
    
    (3,274
    )Inventories
    
    
    (604
    )
    
    
    (11,377
    )
    
    
    (25
    )
    
    
    (12,006
    )Other current assets
    
    
    (2,790
    )
    
    
    1,132
    
    
    
    2,035
    
    
    
    377Trade accounts payable
    
    
    5,816
    
    
    
    5,176
    
    
    
    (3,377
    )
    
    
    7,615Deferred revenue
    
    
    1,022
    
    
    
    1,127
    
    
    
    34
    
    
    
    2,183Accrued payroll and other accrued expenses, and
federal, state and local taxes
    
    
    3,851
    
    
    
    1,232
    
    
    
    (1,290
    )
    
    
    3,793Other long-term assets and liabilities
    
    
    3,790
    
    
    
    1,963
    
    
    
    (2,822
    )
    
    
    2,931Tax benefit derived from exercise of stock options
    
    
    674
    
    
    
    
    
    
    
    
    
    
    
    674Net cash provided by (used in) operating activities
    
    
    11,765
    
    
    
    54,859
    
    
    
    (3,892
    )
    
    
    62,732Cash Flows from Investing Activities:Additions to property and equipment
    
    
    (14,805
    )
    
    
    (47,088
    )
    
    
    (6,885
    )
    
    
    (68,778
    )Proceeds from the sale of assets
    
    
    3,364
    
    
    
    
    
    
    
    
    
    
    
    3,364Other, net
    
    
    3,204
    
    
    
    (11,332
    )
    
    
    10,115
    
    
    
    1,987Net cash (used in) provided by investing activities
    
    
    (8,237
    )
    
    
    (58,420
    )
    
    
    3,230
    
    
    
    (63,427
    )Cash Flows from Financing Activities:Proceeds from long-term debt
    
    
    5,885
    
    
    
    
    
    
    
    
    
    
    
    5,885Payments on long-term debt and capitalized lease
obligations
    
    
    (15,855
    )
    
    
    
    
    
    
    
    
    
    
    (15,855
    )Exercise of employee incentive stock options and
issuances under stock purchase plan
    
    
    5,592
    
    
    
    
    
    
    
    
    
    
    
    5,592Net cash used in financing activities
    
    
    (4,378
    )
    
    
    
    
    
    
    
    
    
    
    (4,378
    )Increase (decrease) in cash and cash equivalents
    
    
    (850
    )
    
    
    (3,561
    )
    
    
    (662
    )
    
    
    (5,073
    )Cash and cash equivalents at beginning of the year
    
    
    2,491
    
    
    
    7,733
    
    
    
    548
    
    
    
    10,772Cash and cash equivalents at end of the year
    
    $
    1,641
    
    
    $
    4,172
    
    
    $
    (114
    )
    
    $
    5,699
 83




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##### Table of Contents



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
    
    
    29,358
    
    
    
    10,419
    
    
    
    21
    
    
    
    39,798Amortization of debt issuance costs
    
    
    1,449
    
    
    
    
    
    
    
    
    
    
    
    1,449Deferred income taxes
    
    
    (464
    )
    
    
    
    
    
    
    
    
    
    
    (464
    )Compensation expense related to restricted stock plans
    
    
    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
    
    
    
    
    
    
    
    215Asset impairment and disposals
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16Donation 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, and
federal state and local taxes
    
    
    4,084
    
    
    
    6,588
    
    
    
    (246
    )
    
    
    10,426Other long-term assets and liabilities
    
    
    2,627
    
    
    
    (152
    )
    
    
    1,571
    
    
    
    4,046Tax benefit derived from exercise of stock options
    
    
    1,224
    
    
    
    
    
    
    
    
    
    
    
    1,224Net cash provided by operating activities
    
    
    30,291
    
    
    
    36,871
    
    
    
    3,336
    
    
    
    70,498Cash Flows from Investing Activities:Additions to property and equipment
    
    
    (34,507
    )
    
    
    (23,999
    )
    
    
    (1,985
    )
    
    
    (60,491
    )Proceeds from the sale of assets
    
    
    1,928
    
    
    
    15
    
    
    
    
    
    
    
    1,943Other, net
    
    
    15,893
    
    
    
    (11,843
    )
    
    
    (804
    )
    
    
    3,246Net cash used in investing activities
    
    
    (16,686
    )
    
    
    (35,827
    )
    
    
    (2,789
    )
    
    
    (55,302
    )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
    
    
    
    
    
    
    
    
    
    
    
    12,090Minority interest in joint ventures
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    750Debt issuance costs
    
    
    (900
    )
    
    
    
    
    
    
    
    
    
    
    (900
    )Exercise of employee incentive stock options and
issuances under stock purchase plan
    
    
    3,407
    
    
    
    
    
    
    
    
    
    
    
    3,407Net cash used in financing activities
    
    
    (13,998
    )
    
    
    
    
    
    
    
    
    
    
    (13,998
    )(Decrease) increase in cash and cash equivalents
    
    
    (393
    )
    
    
    1,044
    
    
    
    547
    
    
    
    1,198Cash and cash equivalents at beginning of the year
    
    
    2,946
    
    
    
    6,628
    
    
    
    
    
    
    
    9,574Cash and cash equivalents at end of the year
    
    $
    2,553
    
    
    $
    7,672
    
    
    $
    547
    
    
    $
    10,772
 84




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##### Table of Contents



Consolidating Statement of Cash Flows
For the Year Ended December 28, 2003
 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, excluding effect of Ninety
Nine acquisition
    
    
    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
    )Asset impairment and disposals
    
    
    
    
    
    
    (180
    )
    
    
    
    
    
    
    (180
    )Changes in assets and liabilities, excluding effect
of Ninety Nine acquisition: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, and
federal state and local taxes
    
    
    30,080
    
    
    
    (25,905
    )
    
    
    (3,803
    )
    
    
    372Other long-term assets and liabilities
    
    
    1,038
    
    
    
    (478
    )
    
    
    1,604
    
    
    
    2,164Tax 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
    
    
    1,850
    
    
    
    1,668
    
    
    
    (3,106
    )
    
    
    412Net cash used in investing activities
    
    
    (159,637
    )
    
    
    (15,569
    )
    
    
    (2,543
    )
    
    
    (177,749
    )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
    
    
    5,011
    
    
    
    
    
    
    
    
    
    
    
    5,011Net cash provided by financing activities
    
    
    110,692
    
    
    
    
    
    
    
    
    
    
    
    110,692(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
 85




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##### Table of Contents



Schedule II Valuation and Qualifying Accounts
 AdditionsBalance at
    
    charged to
    
    Charged to
    
    
    
    
    
    Balancebeginning
    
    costs and
    
    other
    
    
    
    
    
    at endDescription
    
    of period
    
    expenses
    
    accounts
    
    Deductions
    
    of period(Dollars in thousands)Valuation allowance
for state net operating
loss carry-forwardsYear ended December 25, 2005
    
    $
    1,775
    
    
    $
    1,234
    
    
    $
    
    
    
    $
    48
    
    
    $
    2,961Year ended December 26, 2004
    
    
    517
    
    
    
    1,258
    
    
    
    
    
    
    
    
    
    
    
    1,775Year ended December 28, 2003
    
    
    
    
    
    
    517
    
    
    
    
    
    
    
    
    
    
    
    517
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Annual Report On Internal Control Over Financial Reporting
  (i)
    
    pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the Company;(ii)
    
    provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with 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(iii)
    
    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.
  86




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Changes in Internal Control Over Financial Reporting
  Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework,
    87




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##### Table of Contents



Internal ControlIntegrated Framework, Internal ControlIntegrated
Framework,
   
 88




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##### Table of Contents



Item 9B. Other Information.
   
 PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
  89




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
    
    
    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)
    
    Amended Restated Severance Compensation Agreement, dated February 22, 2006, by and
between OCharleys Inc. and Gregory L. Burns (included as Exhibit 10.15)
    
    Severance Agreement and General Release dated June 24, 2004 between William E. Hall, Jr.
and OCharleys Inc. (included as Exhibit 10.34)
    
    Severance Agreement and General Release, dated October 29, 2004, by and between A. Chad
Fitzhugh and OCharleys Inc. (included as
Exhibit 10.35)
    
    Form of Incentive Stock Option Agreement (included as
Exhibit 10.36)
    
    Form of Non-Qualified Stock Option Agreement (included as
Exhibit 10.37)
    
    Form of Restricted Stock Agreement for Employees (Time-Based Vesting) (included as
Exhibit 10.38)
    
    Form of Restricted Stock Agreement for Employees (Performance-Based Vesting) (included
as Exhibit 10.39)
    
    Form of Restricted Stock Agreement for Directors (included as
Exhibit 10.40)
    
    Letter Agreement, dated November 11, 2004, between OCharleys Inc. and Lawrence E.
Hyatt (included as Exhibit 10.50)
    
    Non-Compete/Severance Letter Agreement, dated November 11, 2004, between Lawrence E.
Hyatt and OCharleys Inc. (included as Exhibit 10.51)
    
    Severance Compensation Agreement, dated as of November 15, 2004, between OCharleys
Inc. and Lawrence E. Hyatt (included as Exhibit 10.52)
    
    Restricted Stock Agreement, dated as of November 15, 2004, between OCharleys Inc. and
Lawrence E. Hyatt (included as Exhibit 10.53)
    
    Restricted Stock Agreement, dated as of November 15, 2004, between OCharleys Inc. and
Lawrence E. Hyatt (included as Exhibit 10.54)
    
    Restricted Stock Agreement, dated as of November 15, 2004, between OCharleys Inc. and
Lawrence E. Hyatt (included as Exhibit 10.55)
    
    Summary of Director and Executive Officer Compensation (included as Exhibit 10.57)
    
    OCharleys Inc. 2005 Executive Officers Cash Incentive Plan (included as Exhibit 10.58)
 90




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
    
    OCharleys Inc. Deferred Compensation Plan (as amended) (included as Exhibit 10.59)
    
    Amendment to CHUX Ownership Plan (included as Exhibit 10.62)
    
    Severance Agreement and General Release, dated January 1,
2006, by and between Steven J. Hislop and OCharleys Inc.
(included as Exhibit 10.63)
    
    Severance Agreement and General Release, dated January 1,
2006, by and between Richard D. May and OCharleys Inc.
(included as Exhibit 10.64)
 
    
    Letter Agreement, dated August 25, 2005, between OCharleys Inc. and Randall C. Harris
(included as Exhibit 10.65)
    
    Non-Compete/Severance Letter Agreement, dated October 3, 2005, between Randall C.
Harris and OCharleys Inc. (included as Exhibit 10.66)
    
    Severance Compensation Agreement, dated as of October 3, 2005, between OCharleys Inc.
and Randall C. Harris (included as Exhibit 10.67)
    
    Restricted Stock Agreement, dated as of October 3, 2005, between OCharleys Inc. and
Randall C. Harris (included as Exhibit 10.68)
    
    Letter Agreement, dated January 22, 2006, between OCharleys Inc. and Jeffrey D. Warne
(included as Exhibit 10.69)
    
    Severance Compensation Agreement, dated as of January 22, 2006, between OCharleys
Inc. and Jeffrey D. Warne (included as Exhibit 10.70)
    
    Restricted Stock Agreement, dated as of February 13, 2006, between OCharleys Inc. and
Jeffrey D. Warne (included as Exhibit 10.71)
  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)4.1
    
    
    
    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)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)
 91




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##### Table of Contents



ExhibitNumber
    
    
    
    Description10.6
    
    
    
    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)10.12
    
    
    
    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
    
    
    
    Amended and Restated Severance Compensation Agreement,
dated February 22, 2006, by and between OCharleys
Inc. and Gregory L. Burns10.16
    
    
    
    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)10.17
    
    
    
    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)10.18
    
    
    
    Master Lease, dated December 4, 2001, by and between
Double 9 Property II LLC and Doe Family II LLC
(incorporated by reference to Exhibit 10.35 of the
Companys Annual Report on Form 10-K for the year
ended December 29, 2002)10.19
    
    
    
    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)10.20
    
    
    
    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)10.21
    
    
    
    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)
 92




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##### Table of Contents



ExhibitNumber
    
    
    
    Description10.22
    
    
    
    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)10.23
    
    
    
    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)10.24
    
    
    
    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)10.25
    
    
    
    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)10.26
    
    
    
    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)10.27
    
    
    
    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)10.28
    
    
    
    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)10.29
    
    
    
    Amended and Restated Credit Agreement, dated as of
November 4, 2003, by and among OCharleys Inc., as
Borrower, the Lenders referred to therein, Wachovia
Bank, National Association, as Administrative Agent,
Bank of America, N.A. and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. Rabobank
International, New York Branch, as Co-Syndication
Agents, and AmSouth Bank and SunTrust Bank, as
Co-Documentation Agents. (incorporated by reference to
Exhibit 10.4 of the Companys Quarterly Report on Form
10-Q for the quarter ended October 5, 2003)10.30
    
    
    
    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)10.31
    
    
    
    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)10.32
    
    
    
    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)
 93




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ExhibitNumber
    
    
    
    Description10.33
    
    
    
    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)10.34
    
    
    
    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)10.35
    
    
    
    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)10.36
    
    
    
    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)10.37
    
    
    
    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)10.38
    
    
    
    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)10.39
    
    
    
    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)10.40
    
    
    
    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)10.41
    
    
    
    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)10.42
    
    
    
    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)10.43
    
    
    
    Revolving Loan Agreement, dated as of August 20, 2004,
by and between JFC Enterprises, LLC 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)10.44
    
    
    
    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)10.45
    
    
    
    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)10.46
    
    
    
    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)10.47
    
    
    
    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)10.48
    
    
    
    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)
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##### Table of Contents



ExhibitNumber
    
    
    
    Description10.49
    
    
    
    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)10.50
    
    
    
    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)10.51
    
    
    
    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)10.52
    
    
    
    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)10.53
    
    
    
    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)10.54
    
    
    
    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)10.55
    
    
    
    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)10.56
    
    
    
    Lease, dated as of December 17, 2004, between
Bellingham Mechanic, LLC and 99 Commissary, LLC and
related Guaranty. (incorporated by reference to
Exhibit 10.63 of the Companys Annual Report on Form
10-K for the year ended December 26, 2004)10.57
    
    
    
    Summary of Director and Executive Officer Compensation.10.58
    
    
    
    OCharleys Inc. 2005 Executive Officers Cash
Incentive Plan. (incorporated by reference to Exhibit
10.65 of the Companys Annual Report on Form 10-K for
the year ended December 26, 2004)10.59
    
    
    
    OCharleys Inc. Deferred Compensation Plan (as
amended) (incorporated by reference to Exhibit 10.66
of the Companys Annual Report on Form 10-K for the
year ended December 26, 2004)10.60
    
    
    
    Development Agreement, dated as of March 28, 2005, by
and among OCharleys Inc., Four Star Restaurant
Group, LLC and Michael R. Johnson. (incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on Form 8-K filed with the Commission on April
1, 2005)10.61
    
    
    
    Development Agreement, dated as of May 18, 2005, by
and among OCharleys Inc., OCandall Group, Inc. and
Sam Covelli. (incorporated by reference to Exhibit
10.1 of the Companys Current Report on Form 8-K filed
with the Commission on May 24, 2005)10.62
    
    
    
    Amendment to CHUX Ownership Plan. (incorporated by
reference to Exhibit 10.2 of the Companys
Registration Statement on Form S-8, Registration No.
333-126221)10.63
    
    
    
    Severance Agreement and General Release, dated January
1, 2006, by and between Steven J. Hislop 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 February 1, 2006)
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##### Table of Contents



ExhibitNumber
    
    
    
    Description10.64
    
    
    
    Severance Agreement and General Release, dated January
1, 2006, by and between Richard D. May 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 February 1, 2006)10.65
    
    
    
    Letter Agreement, dated August 25, 2005, between OCharleys Inc. and
Randall C. Harris10.66
    
    
    
    Non-Compete/Severance Letter Agreement, dated October 3, 2005,
between Randall C. Harris and OCharleys Inc.10.67
    
    
    
    Severance Compensation Agreement, dated as of October 3, 2005,
between OCharleys Inc. and Randall C. Harris10.68
    
    
    
    Restricted Stock Agreement, dated as of October 3, 2005, between
OCharleys Inc. and Randall C. Harris10.69
    
    
    
    Letter Agreement, dated January 22, 2006, between OCharleys Inc. and
Jeffrey D. Warne10.70
    
    
    
    Severance Compensation Agreement, dated as of January 22, 2006,
between OCharleys Inc. and Jeffrey D. Warne10.71
    
    
    
    Restricted Stock Agreement, dated as of February 13, 2006, between
OCharleys Inc. and Jeffrey D. Warne14
    
    
    
    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.
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##### Table of Contents



SIGNATURES
  OCharleys Inc.Date: March 10, 2006
    
    By:
    
    /s/ GregoryL.BurnsGregory L. BurnsChief Executive Officer and Chairman of the Board
  Signature
    
    Title
    
    Date/s/ Gregory L. Burns

Gregory L. Burns
    
    Chief Executive Officer and Chairman of the Board (Principal
Executive Officer)
    
    March 10, 2006/s/ Lawrence E. Hyatt

Lawrence E. Hyatt
    
    Chief Financial Officer, Secretary and Treasurer (Principal
Financial Officer)
    
    March 10, 2006/s/ R. Jeffrey Williams

R. Jeffrey Williams
    
    Chief Accounting Officer and
Corporate Controller (Principal Accounting Officer)
    
    March 10, 2006/s/ Richard Reiss, Jr.

Richard Reiss, Jr.
    
    Director
    
    March 10, 2006/s/ G. Nicholas Spiva

G. Nicholas Spiva
    
    Director
    
    March 10, 2006/s/ H. Steve Tidwell

H. Steve Tidwell
    
    Director
    
    March 10, 2006/s/ Shirley A. Zeitlin

Shirley A. Zeitlin
    
    Director
    
    March 10, 2006/s/ Robert J. Walker

Robert J. Walker
    
    Director
    
    March 10, 2006/s/ Dale W. Polley

Dale W. Polley
    
    Director
    
    March 10, 2006/s/ William F. Andrews

William F. Andrews
    
    Director
    
    March 10, 2006/s/ John E. Stokely

John E. Stokely
    
    Director
    
    March 10, 2006
 97