RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our intent, belief and expectations, such as statements concerning our estimated results in future periods, operating and growth strategy, and financing plans. These forward-looking statements may be affected by certain risks and uncertainties, including, but not limited to, the continued deterioration in the United States economy and the related adverse effect on our sales of decreases in consumer spending; our ability to achieve our internal forecast of sales and profitability; our ability to comply with the terms and conditions of our financing agreements; our ability to realize projected returns on investment from our re-branding and concept repositioning efforts; our ability to maintain or increase same store sales and operating margins at our restaurants; the effect that increases in food, labor, energy, interest costs and other expenses have on our results of operations; the effect that the phase of out of Kids Eat Free has on our results of operations; our ability to successfully implement and realize projected savings from changes to our supply chain; the effect of increased competition; and the other risks described in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008 under the caption "Risk Factors" and in our other filings with the Securities and Exchange Commission ("the Commission"). Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

Overview

We are a leading casual dining restaurant company headquartered in Nashville, Tennessee. We own and operate three restaurant concepts under the "O'Charley's," "Ninety Nine" and "Stoney River Legendary Steaks" trade names. As of July 12, 2009, we operated 233 O'Charley's restaurants in 17 states in the Southeast and Midwest regions, 116 Ninety Nine restaurants in nine states throughout New England and the Mid-Atlantic, and 10 Stoney River restaurants in six states in the Southeast and Midwest. As of July 12, 2009, we had ten franchised O'Charley's restaurants, including four in Michigan, two in Ohio, and one of each in Iowa, Pennsylvania, Florida, and Tennessee. As of July 12, 2009, we had two joint venture O'Charley's restaurants in Louisiana. Our fiscal year ends on the last Sunday of the calendar year. We have one reportable segment.

On June 4, 2009, we announced that Jeffrey D. Warne had been named our new president and chief executive officer. He was also appointed to our board of directors, increasing the total number of directors to eleven. Mr. Warne served as our O'Charley's concept president since 2006 and has extensive experience in the restaurant industry. Prior to joining O'Charley's, Mr. Warne served as president and chief operating officer of Pick Up Stix, a restaurant concept of Carlson Companies, Inc. Previous assignments at Carlson included executive vice president and chief operating officer of TGI Friday's International and chief financial officer of Carson Restaurants Worldwide. We also announced that Philip J. Hickey, Jr., a member of the board of directors since January 2009, was elected chairman of the board. Prior to joining O'Charley's Inc., Mr. Hickey served as chief executive officer of RARE Hospitality International, Inc., the owner of LongHorn Steakhouse and The Capital Grille, from July 1998 until the sale of RARE to Darden Restaurants Inc. in October 2007. He also served as chairman of the board of RARE between January 2001 and October 2007. We are currently actively seeking a new O'Charley's concept president.

Our strategic plan over the recent years focused on the following key elements:
strengthening the organization with a new core of talent and building a winning team, improving box economics through the execution of product and labor cost management and increasing same store sales through our re-branding initiatives, new product offerings, new marketing, a more analytical approach to menu pricing, and achieving high guest satisfaction and intent to return by instilling "A Passion to Serve." SM While this remains our long term strategy, in response to the current economic environment, we are focused on driving profitable sales, controlling margins while enhancing guest service and maintaining our financial flexibility.

Improving sales by differentiating our brands through innovative food and beverage offerings. We are committed to serving the best food in the varied menu and polished casual dining segments with high value perception. By offering unique and innovative menu items, we believe we can differentiate ourselves from our competitors, build brand loyalty and stimulate return visits. In the current economic environment, we recognize that providing compelling value to our guests is increasingly important.

To that end, during the second quarter, our promotions featured a number of high quality items at attractive price points. For example, at O'Charley's we featured a complete steak dinner, with a side item, a choice of soup or salad, and our signature yeast rolls for $9.99 and subsequent to the second quarter, we featured two meals for $14.99 featuring six new entrées. At Ninety Nine restaurants we continued to reinforce its "Great Meal, Great Deal" brand message with seafood entrées starting at $9.99, and our popular "When the Red Sox Win Kids Eat Free" promotion when kids eat free the day after every Red Sox win with the purchase of an adult entrée. We continue to reposition our Stoney River Legendary Steaks brand by providing the same great guest experience with lower menu prices, new menu offerings, and a new menu format. We implemented the new Stoney River concept position at our restaurant in Louisville, Kentucky during the first quarter of fiscal 2009. Based on the results from the Louisville store, we implemented this repositioning in both of our Nashville Stoney River restaurants and subsequent to the second quarter, our restaurant in Chesterfield, Missouri and plan to expand this repositioning into additional Stoney River restaurants during the third quarter of fiscal 2009.

Controlling margins while enhancing guest service.We believe that our recent financial performance reflects the results of our food cost reduction initiatives, the implementation of a theoretical labor cost system, and tight control over our general and administrative costs. We also believe that the roll-out of our new, integrated back-of-house system over the next few years will facilitate even greater control over labor and food expenses. We continue to review every menu item with an intent to reduce costs through changes in portion size, recipe, or specifications, without negatively affecting the guest experience. We also realized year-over-year savings from changes to our health care plans for our hourly team members. We also have established a company-wide salary freeze and reduced staffing levels in our support centers, both of which have resulted in lower overhead costs through the second quarter of fiscal 2009. All of this was achieved while attaining record high guest satisfaction scores.

Maintaining our financial flexibility by maximizing cash flow and debt reduction.In the current economic environment it is critical to maintain our financial flexibility. The combination of positive operating cash flow and reduced levels of capital investment during the first 28 weeks of 2009 allowed us to reduce debt by

Following is an explanation of certain items in our consolidated statements of operations:

Revenues consist primarily of company-operated and joint venture restaurant sales and, to a lesser extent, royalty and franchise revenue. Restaurant sales include food and beverage sales and are net of applicable state and local sales taxes and discounts. Franchise revenue and other revenue consist of development fees, royalties on sales by franchised units, and royalties on sales of branded food items, particularly salad dressings. Our development fees for franchises in which we do not have an ownership interest are between $25,000 and $50,000 per restaurant. The development fees are recognized during the reporting period in which the developed restaurant begins operation. The royalties are recognized as revenue in the period corresponding to the franchisees' sales.

Cost of Food and Beverage primarily consists of the costs of beef, poultry, seafood, produce and alcoholic and non-alcoholic beverages net of vendor discounts and rebates. The three most significant commodities that may affect our cost of food and beverage are beef, poultry and seafood, which accounted for approximately 23 percent, 11 percent and 10 percent, respectively, of our overall cost of food and beverage in the second quarter of 2009. Generally, temporary increases in these costs are not passed on to guests; however, in the past, we have adjusted menu prices to compensate for increased costs of a more permanent nature.

Payroll and Benefits include payroll and related costs and expenses directly relating to restaurant level activities including restaurant management salaries, bonuses, share-based compensation, 401(k) compensation match, hourly wages for restaurant level team members, payroll taxes, workers' compensation, various health, life and dental insurance programs, vacation expense and sick pay. We have various incentive plans that compensate restaurant management for achieving certain restaurant level financial targets and performance goals.

Restaurant Operating Costs include occupancy and other expenses at the restaurant level, except property and equipment depreciation and amortization. In addition to occupancy costs, supplies, straight-line rent, supervisory salaries, bonuses, share-based compensation, 401(k) and deferred compensation match for multi-unit operational employees, and related expenses, management training salaries, general liability and property insurance, property taxes, utilities, repairs and maintenance, outside services and credit card fees account for the major expenses in this category.

Advertising and Marketing Expenses include all advertising and marketing-related expenses for the various programs that we utilize to promote traffic and brand recognition for our three restaurant concepts. This category also includes the administrative costs of our marketing departments.

General and Administrative Expenses include the costs of restaurant support center administrative functions that support the existing restaurant base and provide the infrastructure for future growth. Executive management and support staff salaries, bonuses, share-based compensation, 401(k) and deferred compensation match for support employees, benefits, and related expenses, data processing, legal and accounting expenses, changes in the liabilities associated with our non-qualified deferred compensation plan, and office expenses account for the major expenses in this category. This category also includes recruiting, relocation and most severance-related expenses.

Depreciation and Amortization of Property and Equipment primarily includes depreciation on property and equipment calculated on a straight-line basis over the estimated useful lives of the respective assets or the lease term plus one renewal term for leasehold improvements, if shorter. Based on the size of the investment that we make, the economic penalty incurred by discontinuing use of the leased facility, our historical experience with respect to the length of time a restaurant operates at a specific location, and leases that typically have multiple five-year renewal options that are exercised entirely at our discretion, we have concluded that one five-year renewal option is reasonably assured. During fiscal 2008, this also included accelerated depreciation expenses taken on assets to be disposed of during our 'Project RevO'lution' and'Project Dressed to the Nines' re-branding activities.

Impairment, Disposal and Restructuring Charges, net includes asset impairments, asset disposals and gains and losses incurred upon the sale of assets. Impairment charges are taken for land, buildings and equipment and certain other assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. The impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Impairment charges for assets that are held for sale represents the difference between their current book value and the estimated net sales proceeds. Disposal charges include the costs incurred to prepare the asset or assets for sale, including repair and maintenance; clean up costs; broker commissions; and independent appraisals. Gains and/or losses associated with the sale of assets are also included in this category.

We evaluate restaurant closures for potential disclosure as discontinued operations based on an assessment of quantitative and qualitative factors, including the nature of the closure, potential for revenue migration to other company-operated and franchised restaurants, planned market development in the area of the closed restaurant and the significance of the impact on the related consolidated financial statement line items. During the second quarter of 2009 we closed our Stoney River location in Dublin, Ohio, our only location in the Columbus, Ohio market. We do not believe the operating results of this one restaurant were significant to our consolidated financial statements and therefore, did not report this closure as a discontinued operation.

Pre-opening Costs represent costs associated with our store opening teams, as well as other costs associated with opening a new restaurant. These costs are expensed as incurred. These costs also include straight-line rent related to leased properties from the period of time between when we have waived any contingencies regarding use of the leased property and the date on which the restaurant opens. The amount of pre-opening costs incurred in any one period includes costs incurred during the period for restaurants opened and under development. Our pre-opening costs may vary significantly from period to period primarily due to the timing of restaurant development and openings. Pre-opening costs also include training, supply, and other incremental costs necessary to prepare for the re-opening of an existing restaurant as part of 'Project RevO'lution' and 'Project Dressed to the Nines' re-brandings.

Interest Expense, net represents the sum of the following: interest on our credit facility; interest on our 9 percent Senior Subordinated Notes due 2013 (the "Notes"); impact of our interest rate swaps that were terminated in December 2008; amortization of prepaid interest and finance charges; changes in the value of the assets associated with our non-qualified deferred compensation plan resulting from gains and losses in the underlying funds; interest on capital lease obligations; fees for certain unused credit facilities; and interest income from our investments in overnight repurchase agreements.

Income Tax Expense (Benefit) represents the provision for income taxes, including the impact of permanent tax differences on our income tax provision.

The following section should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto included elsewhere herein. The following table highlights the operating results for the 12- and 28- week periods ended July 12, 2009 and July 13, 2008 as a percentage of total revenues unless specified otherwise.

                                                 12 Weeks Ended                     28 Weeks Ended
                                           July 12,          July 13,         July 12,          July 13,
                                             2009              2008             2009              2008

Revenues:
Restaurant sales                                99.9 %            99.9 %            99.9 %           99.9 %
Franchise and other revenue                      0.1               0.1               0.1              0.1
                                               100.0 %           100.0 %           100.0 %          100.0 %

Costs and Expenses:
Cost of restaurant sales: (1)
Cost of food and beverage                       29.0              29.3              29.1             29.4
Payroll and benefits                            35.2              35.6              34.5             34.8
Restaurant operating costs                      19.4              20.0              19.4             19.8
Cost of restaurant sales (2)                    83.6              85.0              83.1             84.1

Advertising and marketing expenses               3.9               3.5               3.7              3.7
General and administrative expenses              3.9               4.7               4.2              4.6
Depreciation and amortization of
property and equipment                           5.3               5.2               5.2              5.2
Impairment, disposal and
restructuring charges, net                       0.7               0.8               0.4              0.3
Pre-opening costs                                0.0               0.7               0.1              0.5

Income from Operations                           2.5               0.2               3.5              1.7

Other Expense:
Interest expense, net                            1.3               1.2               1.4              1.3
Earnings (Loss) before Income Taxes              1.2              (1.0 )             2.1              0.5
Income Tax (Benefit) Expense                    (0.2 )             2.5               0.1              0.0
Net Earnings (Loss)                              1.4 %            (3.5 )%            2.0 %            0.5 %

(1) Percentages calculated as a percentage of restaurant sales.

(2) Excludes depreciation and amortization shown separately.

The following table reflects margin performance of each of our concepts for the 12- and 28 - week periods ended July 12, 2009 and July 13, 2008.

                                                  12 Weeks Ended          28 Weeks Ended
                                                 July 12, July 13,      July 12,   July 13,
                                                   2009     2008          2009       2008
                                                 ($ in millions)         ($ in millions)
O'Charley's Concept: (1)
Restaurant Sales                                 $  133.6 $  140.8     $  322.2    $  331.5

Cost and expenses: (2)
Cost of food and beverage                        28.8%    29.0%        28.9%       29.2%
Payroll and benefits                             35.0%    35.5%        34.2%       34.6%
Restaurant operating costs (3)                   19.0%    19.2%        18.5%       19.2%
Cost of restaurant sales (4)                     82.8%    83.7%              81.6%    83.0%

Ninety Nine Concept:
Restaurant Sales                                 $   65.4 $   71.8     $  157.2    $  166.2

Cost and expenses: (2)
Cost of food and beverage                        28.6%    28.9%        28.7%       29.0%
Payroll and benefits                             35.9%    36.6%        35.7%       36.0%
Restaurant operating costs (3)                   20.0%    21.8%        20.9%       21.4%
Cost of restaurant sales (4)                     84.5%    87.3%              85.3%    86.4%

Stoney River Concept:
Restaurant Sales                                 $    7.0 $    8.3     $   18.0    $   20.4

Cost and expenses: (2)
Cost of food and beverage                        36.6%    37.8%        36.8%       37.3%
Payroll and benefits                             31.5%    28.9%        30.0%       28.7%
Restaurant operating costs (3)                   21.8%    19.2%        21.8%       18.2%
Cost of restaurant sales (4)                     89.9%    85.9%        88.6%       84.2%

(1) Includes restaurant sales from O'Charley's joint venture operations of $1.7 million and $1.9 million for the 12 weeks ended July 12, 2009 and July 13, 2008, and $4.2 million for the 28 weeks ended July 12, 2009 and July 13, 2008, but excludes revenue from franchised restaurants.
(2) Shown as a percentage of restaurant sales.
(3) Includes rent, where 100% of the Ninety Nine restaurant locations are leased (land or land and building) as compared to 58% for O'Charley's and 70% for Stoney River.
(4) Excludes depreciation and amortization.

The following table sets forth certain financial and other restaurant data for the quarters ended July 12, 2009 and July 13, 2008:

                                                         July 12,         July 13,
                                                           2009             2008
Number of Restaurants:
O'Charley's Restaurants:
In operation, beginning of quarter                              232             228
Restaurants opened (3)                                            1               1
Restaurant closed                                                 -               -
In operation, end of quarter                                    233             229
Ninety Nine Restaurants:
In operation, beginning of quarter                              116             114
Restaurants opened                                               -                2
Restaurants closed                                                -               -
In operation, end of quarter                                    116             116
Stoney River Restaurants:
In operation, beginning of quarter                               11              10
Restaurants opened                                                -               -
Restaurants closed                                               (1 )             -
In operation, end of quarter                                     10              10
Franchised / Joint Venture Restaurants (O'Charley's)
In operation, beginning of quarter                               13              12
Restaurants opened                                                -               -
Restaurants closed (3)                                           (1 )             -
In operation, end of quarter                                     12              12
Average Weekly Sales per Store:
O'Charley's                                            $     47,284       $  50,761
Ninety Nine                                                  47,016          52,154
Stoney River                                                 55,174          69,496
Change in Same Store Sales(1):
O'Charley's                                                    (6.9 %)         (1.4 %)
Ninety Nine                                                   (10.0 %)         (3.1 %)
Stoney River                                                  (20.4 %)         (6.4 %)
Change in Same Store Guest Visits(1):
O'Charley's                                                    (7.4 %)         (4.5 %)
Ninety Nine                                                    (8.4 %)         (5.8 %)
Stoney River                                                   (9.0 %)        (13.7 %)
Change in Same Store Average Check per Guest (1):
O'Charley's                                                     0.6 %           3.2 %
Ninety Nine                                                    (1.8 %)          2.9 %
Stoney River                                                  (12.6 %)          8.4 %
Average Check per Guest(2):
O'Charley's                                            $      12.98       $   12.91
Ninety Nine                                                   14.61           14.95
Stoney River                                                  40.19           46.25

(1) When computing same store sales and guest visits, restaurants open for at least 78 weeks are compared from period to period.

(2) The average check per guest is computed using all restaurants open at the end of the quarter.

(3) Represents the acquisition of Wi-Tenn Restaurants LLC joint venture on June 2, 2009. See Note K of the Notes to Unaudited Consolidated Financial Statements for further discussion relating to this matter.

Second Quarter and First 28 Weeks of 2009 Versus Second Quarter and First 28 Weeks of 2008

Revenues

During the 12 weeks ended July 12, 2009, total revenues decreased 6.7 percent to $206.2 million from $221.1 million for the same prior year period. Total revenues for the first 28 weeks of 2009 decreased 4.0 percent to $497.9 million from $518.6 million in the same prior-year period.

Restaurant sales for company-operated O'Charley's decreased 5.0 percent to $131.9 million for the second quarter of fiscal 2009, reflecting a decline in same store sales of 6.9 percent, and the net addition of three new company-operated restaurants since the second quarter of fiscal 2008. The same-store sales decrease of 6.9 percent was comprised of a 0.6 percent increase in average check offset by a 7.4 percent decrease in guest counts. Restaurant sales for company-operated O'Charley's decreased to $318.0 million for the first 28 weeks of 2009 from $327.3 million for the first 28 weeks of 2008 reflecting a same store sales decrease of 4.6 percent comprised of a 1.2 percent higher average check offset by a decrease in guest counts of 5.7 percent.

Restaurant sales for Ninety Nine decreased 8.9 percent to $65.4 million in the second quarter of fiscal 2009, reflecting a decline in same store sales of 10.0 percent, and the addition of one new restaurant and the closing of one restaurant since the second quarter of fiscal 2008. The same-store sales decrease of 10.0 percent was comprised of a 1.8 percent decrease in average check and a 8.4 percent decrease in guest counts. Restaurant sales for Ninety Nine decreased to $157.2 million for the first 28 weeks of 2009 from $166.2 million for the first 28 weeks of 2008 reflecting a same store sales decrease of 6.9 percent comprised of a 0.6 percent lower average check and a decrease in guest counts of 6.3 percent.

Restaurant sales for Stoney River Legendary Steaks decreased 16.0 percent to $7.0 million, which reflects a same store sales decrease of 20.4 percent. The same-store sales decrease of 20.4 percent consisted of a 12.6 percent decrease in average check and a 9.0 percent decrease in guest counts. At the end of the . . .