UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 25, 2011

Commission file number 0-18629

O’CHARLEY’S INC.

(Exact name of registrant as specified in its charter)

Tennessee	62-1192475
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3038 Sidco Drive Nashville, Tennessee	37204
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:	(615) 256-8500
Securities registered pursuant to Section 12(b) of the Act:	Common Stock, no par
Name of each exchange on which registered	NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:	None

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $121.7 million. For purposes of this calculation, shares held by non-affiliates excludes only those shares beneficially owned by officers, directors and shareholders beneficially owning 10% or more of the outstanding common stock.

The number of shares of common stock outstanding on February 24, 2012 was 21,947,706.

INDEX

PART I	3
Item 1. Business	3
Item 1A. Risk Factors	13
Item 1B. Unresolved Staff Comments	20
Item 2. Properties	21
Item 3. Legal Proceedings	21
Item 4. Mine Safety Disclosures	22
PART II	23
Item  5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6. Selected Financial Data	26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	46
Item 8. Financial Statements and Supplementary Data	47
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
Item 9A. Controls and Procedures	75
Item 9B. Other Information	78
PART III	78
Item 10. Directors, Executive Officers and Corporate Governance	78
Item 11. Executive Compensation	81
Item  12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	99
Item 13. Certain Relationships and Related Transactions, and Director Independence	102
Item 14. Principal Accounting Fees and Services	103
PART IV	105
Item 15. Exhibits, Financial Statement Schedules	105
SIGNATURES	110
EX-10.28 Summary of Director and Executive Officer Compensation
EX-10.36 Executive Employment Agreement of Marc A. Buehler
EX-21 Subsidiaries of the Company
EX-23 Consent of KPMG LLP
EX-31.1 Section 302 Certification of the Chief Executive Officer
EX-31.2 Section 302 Certification of the Chief Financial Officer
EX-32.1 Section 906 Certification of the Chief Executive Officer
EX-32.2 Section 906 Certification of the Chief Financial Officer

2

O’CHARLEY’S INC.

PART I

Item 1. Business.

We are a multi-concept 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 December 25, 2011, we operated 221 O’Charley’s company-owned restaurants in 17 states in the East, Southeast and Midwest, 105 Ninety Nine restaurants in seven states throughout New England and upstate New York, and 10 Stoney River restaurants in six states in the East, Southeast and Midwest. As of December 25, 2011, we had six franchised O’Charley’s restaurants in four states in the Southeast and Midwest.

The following description of our business should be read in conjunction with the information in Item 7 of this Form 10-K under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial Statements and Supplementary Data” of this Form 10-K. References made herein to “we,” “our,” “us,” or the “Company” refer to O’Charley’s Inc. and its direct and indirect subsidiaries.

Proposed Acquisition of Our Company

On February 5, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Fidelity National Financial, Inc., a Delaware corporation (“FNF”), and Fred Merger Sub Inc. (“Merger Sub”), a Tennessee corporation and an indirect, wholly-owned subsidiary of FNF, pursuant to which FNF, through Merger Sub, agreed to commence a tender offer (the “Offer”) to acquire all of our outstanding shares of common stock, no par value per share (the “Shares”), for $9.85 per Share, net to the seller thereof in cash (the “Offer Price”), without interest and subject to any required withholding of taxes. The Offer commenced on February 27, 2012.

Completion of the Offer is subject to the satisfaction or waiver of a number of conditions set forth in the Merger Agreement, including (i) that the number of Shares validly tendered and not validly withdrawn, together with any Shares then owned by FNF and its affiliates, equals at least a majority of the Shares outstanding as of the expiration of the Offer on a fully-diluted basis, (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and certain other antitrust laws, (iii) the absence of a material adverse effect on the Company and (iv) certain other customary conditions.

The Merger Agreement also provides that after consummation of the Offer and subject to statutory waiting periods and the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”) and the Company will become an indirect, wholly-owned subsidiary of FNF. In the Merger, each Share that was not tendered pursuant to the Offer, other than Shares owned by the Company, FNF or Merger Sub or by a wholly-owned subsidiary of the Company or FNF, will be converted into the right to receive cash in an amount equal to the Offer Price, subject to any required withholding of taxes and without interest.

If Merger Sub holds at least 90% of the outstanding Shares immediately prior to the Merger, Merger Sub may effect the Merger as a short-form merger without additional approval by the Company’s shareholders. Otherwise, we would hold a special shareholders’ meeting to obtain shareholder approval of the Merger. Subject to the terms of the Merger Agreement, applicable laws and the number of authorized Shares available under our charter, we have granted to FNF and/or Merger Sub an irrevocable right (the “Top-Up Option”), exercisable following consummation of the Offer, if necessary, to purchase from us, at a price per share equal to the Offer Price, up to that number of newly issued Shares so that FNF, its subsidiaries and Merger Sub own one share more than 90% of the Shares then outstanding on a fully-diluted basis after giving effect to the Top-Up Option.

We are permitted to solicit inquiries or engage in discussions with third parties relating to “acquisition proposals” (as defined in the Merger Agreement) for a 30-day “go-shop” period ending March 6, 2012, and with certain parties who make written competing proposals during the “go-shop” period (each, an “Excluded Party”). After such period, we may not solicit or initiate discussions with third parties regarding other proposals to acquire the Company and have agreed to certain restrictions on our ability to respond to such proposals, subject to the fulfillment of certain fiduciary duties of our board of directors.

3

The Merger Agreement can be terminated by us or FNF under certain circumstances. If terminated, we must pay FNF a termination fee under certain circumstances, which fee will be either $6.74 million or $3.37 million depending on the circumstances giving rise to payment of the termination fee.

Our Restaurant Concepts

O’Charley’s

We acquired the original O’Charley’s restaurant in Nashville, Tennessee in May 1984. O’Charley’s is a casual-dining restaurant concept whose strategy is to differentiate its restaurants by serving high-quality, freshly prepared food at moderate prices and with genuinely friendly and attentive guest service. O’Charley’s restaurants are intended to appeal to a broad spectrum of guests from a diverse income base with varying family composition.

The O’Charley’s menu features a variety of items, including hand-cut and aged steaks, baby-back ribs basted with a sweet, smoky BBQ sauce, slow roasted prime rib, fresh-never-frozen Atlantic salmon, hand breaded chicken tenders, freshly made salads with O’Charley’s special recipe salad dressings and O’Charley’s signature caramel pie. All entrées are cooked to order and feature a selection of side items in addition to our hot, freshly baked yeast rolls. We believe the large number of freshly prepared items on the O’Charley’s menu helps differentiate our O’Charley’s concept from other casual-dining restaurants.

O’Charley’s restaurants are open seven days a week, serve lunch, dinner and Sunday brunch and offer full bar service. Specialty menu items include seasonal promotions, O’Charley’s lunch and dinner combos and a special kids menu. We are continually developing new menu items for our O’Charley’s restaurants to respond to changing guest tastes and preferences. Lunch entrées start at $5.99, with dinner entrées ranging from $7.99 to $18.79. The average check per guest, including beverages, was $12.64 in 2011, $12.43 in 2010 and $12.85 in 2009.

We seek to create a casual, neighborhood atmosphere in our O’Charley’s restaurants through an open layout and by tailoring the decor of our restaurants to the local community. The interior typically is open, casual and well lighted. Additionally, the interior features warm woods, exposed brick and hand-painted murals depicting local history, people, places and events. The prototypical O’Charley’s restaurant is a free-standing building of approximately 6,000 square feet with seating for 225 guests, including 17 bar seats. We did not open any new restaurants during 2011 and do not plan to open any new restaurants during 2012.

Ninety Nine

In January 2003, we acquired Ninety Nine Restaurants (“Ninety Nine”), a Woburn, Massachusetts-based casual-dining concept that began in 1952 with its initial location at 99 State Street in downtown Boston, Massachusetts. Ninety Nine restaurants are casual-dining restaurants that we believe have earned a reputation as friendly, comfortable places to gather and enjoy great American food and drink at a reasonable price. Ninety Nine restaurants are intended to appeal to mainstream casual-dining and value-oriented guests. The Ninety Nine menu features a wide selection of appetizers, soups, salads, sandwiches, burgers, beef, chicken and seafood entrées and desserts. Ninety Nine restaurants offer full bar service, including a wide selection of imported and domestic beers, wines and specialty drinks.

Ninety Nine restaurants are open seven days a week and serve lunch and dinner. Lunch entrées start at $5.99, with dinner entrées ranging from $7.99 to $18.99. The average check per guest, including beverages, was $14.79 in 2011, $14.59 in 2010 and $14.62 in 2009.

Ninety Nine restaurants seek to provide a warm and friendly neighborhood pub atmosphere. Signature elements of the prototypical Ninety Nine restaurant include an open view kitchen, booth seating and a centrally located rectangular bar. The prototypical Ninety Nine restaurant is a free-standing building of approximately 6,300 square feet with seating for 190 guests, including 30 bar seats. Ninety Nine has historically grown through remodeling traditional and non-traditional restaurant locations as well as through developing new restaurants in the style of our prototype restaurant. We did not open any new restaurants during 2011 and do not plan to open any new restaurants during 2012.

Stoney River Legendary Steaks

We acquired Stoney River Legendary Steaks (“Stoney River”) in May 2000. Stoney River restaurants are steakhouses that appeal to both upscale casual-dining and fine-dining guests by offering the high-quality food and attentive guest service typical of high-end steakhouses at more moderate prices. Stoney River restaurants have an upscale “mountain lodge” design with a large stone fireplace and rich woods that are intended to make the interior of the

4

restaurant inviting and comfortable. While Stoney River has both free-standing and in-line footprints, the average restaurants have 7,500 square feet with seating for 275 guests including 25 bar seats. During 2009 and 2010, we repositioned Stoney River to provide the same great guest experience with lower menu prices, new menu offerings, and a new menu format. This repositioning included reduced prices of certain menu offerings, the addition of new menu items to appeal to the upscale casual-dining guests and an improved and more price conscious wine list. The Stoney River menu features several offerings of premium Midwestern beef, fresh seafood and a variety of other gourmet entrées. An extensive assortment of freshly prepared salads, side dishes, several specialty appetizers and desserts are also available. Stoney River restaurants offer full bar service, including an extensive selection of wines. The dinner price range of entrées is $12.99 to $33.99. The average check per guest, including beverages, was $35.90 in 2011, $36.97 in 2010, and $41.22 in 2009. We did not open any new restaurants during 2011 and do not plan to open any new restaurants during 2012.

Support Operations

Supply Chain Management. Our supply chain management process offers a systematic approach to managing the acquisition of goods and services that achieves the lowest total cost of ownership and matches internal customers’ needs with marketplace capabilities. The supply chain team focuses on three key areas: strategic sourcing, quality assurance and supply chain operations. Descriptions of these functions are as follows:

• Strategic sourcing: manages and facilitates enterprise-wide sourcing activities, including the development of sourcing strategies, supplier negotiation and selection, and supplier performance management for specified expenditure areas.

• Quality assurance: designs, implements, and measures strategic programs for both quality assurance and food safety that ensures we achieve, sustain, and continue to improve best of class programs for food quality and food safety for all our concepts.

• Supply chain operations: ensures uninterrupted, timely flow of goods to our concepts and monitors compliance with all sourcing and distribution agreements.

Human Resources. We maintain a human resources department that supports restaurant operations and our home office through the design and implementation of policies, programs, procedures and benefits for our team members. The human resources department is responsible for all customary human resource and compensation functions, including hiring, on-boarding, benefits and team member relations (including use of the Open Door Policy, a confidential toll free 800 number, and an alternative dispute resolution process), and the design and implementation of team member compensation policies and practices. The human resources department is also responsible for all training and development of new hourly team members and managers, as well as new product rollouts and the continuing training and development of the restaurant teams.

Guest Relations. Our guests’ perceptions and experiences are measured through the Guest Satisfaction Index (“GSI”). GSI is a survey-based tool designed to measure guest satisfaction levels at each O’Charley’s, Ninety Nine, and Stoney River restaurant, providing immediate feedback to all levels of the organization. Guests are issued an invitation on a random basis through our point-of-sale system to take a telephone survey or an internet survey. Primary focus is placed on identification and improvement of primary drivers of a highly satisfied guest experience. Our ability to continuously monitor service levels and guest satisfaction at the restaurant level, while providing guests with a convenient, brief, unbiased, and user-friendly way to share their comments, allows us to focus on converting satisfied guests to highly satisfied or loyal guests. In addition to measuring and communicating guest satisfaction results, our guest relations team receives and responds as applicable to direct calls, written correspondence and social media feedback from O’Charley’s, Ninety Nine, and Stoney River guests.

Advertising and Marketing. We have an ongoing advertising and marketing plan for each of our restaurant concepts that utilizes some combination of television, radio, internet, outdoor and print advertising. We also support our restaurants with point of purchase materials, menus and local restaurant marketing programs. We focus our marketing efforts on value offerings and new product promotions, the quality and freshness of our products, and the overall guest experience. We conduct or subscribe to studies of food trends, changes in guest tastes and preferences and are continually evaluating the quality of our menu offerings. In addition to advertising, we encourage restaurant level team members to become active in their communities through local charities and other organizations and sponsorships.

Restaurant Reporting and Back-Office Support. Our use of technology and management information systems is essential for the management oversight needed to improve our operating results. We maintain theoretical food, labor, and

5

beverage cost systems in each of our restaurants through which we closely monitor and control restaurant operating costs. We also maintain operational and financial controls in each restaurant, including management information systems that monitor sales, inventory, and labor and that provide reports and data to our home office. The management accounting system polls data from our restaurants and generates periodic reports of sales, sales mix, guest counts, average check, cash, labor and food cost. Management utilizes this data to monitor the effectiveness of controls and to prepare periodic financial and management reports. We also utilize these systems for financial and budgetary analysis, including analyses of sales by restaurant, product mix and labor utilization. Our internal audit department audits a sample of our restaurants to measure compliance within our operational systems, procedures and controls. Our back office systems and processes are designed to consolidate and integrate our accounting functions. In addition, a centralized call line is available to restaurant management for questions, comments and problem resolution relating to their financial reports or employee benefits. We believe having a consolidated accounting function for our three concepts provides a structure that creates consistency and provides more centralized control over our accounting and financial reporting function while also promoting continuous process improvement and savings.

6

Restaurant Locations

The following table sets forth the markets in which our company-owned O’Charley’s, Ninety Nine and Stoney River restaurants were located at December 25, 2011, including the number of restaurants in each market.

O’Charley’s Restaurants

Alabama (18)	Kentucky (20)	Ohio (19)
Birmingham (5)	Ashland	Cincinnati (8)
Decatur	Bowling Green	Cleveland
Dothan	Cold Spring	Columbus (7)
Florence	Danville	Dayton (3)
Guntersville	Elizabethtown
Huntsville	Florence	South Carolina (11)
Mobile (4)	Frankfort	Aiken
Montgomery	Hopkinsville	Anderson
Opelika	Lexington (4)	Charleston (2)
Oxford	Louisville (5)	Columbia (2)
Tuscaloosa	Owensboro	Greenwood
	Paducah	Rock Hill
Arkansas (1)	Richmond	Simpsonville
Jonesboro		Spartanburg
	Louisiana (3)	Summerville
Florida (4)	Lafayette
Jacksonville (2)	Lake Charles	Tennessee (39)
Panama City	Monroe	Chattanooga (2)
Pensacola		Clarksville (2)
	Mississippi (8)	Cleveland
Georgia (28)	Gulfport	Columbia
Atlanta (20)	Hattiesburg	Cookeville
Augusta	Meridian	Dickson
Columbus	Olive Branch	Jackson
Dalton	Pearl	Johnson City
Ft. Oglethorpe	Ridgeland	Kingsport
Gainesville	Southaven	Knoxville (5)
Griffin	Tupelo	Manchester
Macon (2)		Memphis (4)
	Missouri (8)	Morristown
Illinois (5)	Cape Girardeau	Murfreesboro (2)
Champaign	St. Louis (7)	Nashville (12)
Marion		Pigeon Forge
O’Fallon	North Carolina (21)	Spring Hill
Springfield (2)	Asheville	Springfield
	Burlington
Indiana (21)	Charlotte (7)	Virginia (12)
Bloomington	Fayetteville	Bristol
Clarksville	Greensboro	Fredericksburg
Corydon	Greenville	Harrisonburg
Evansville (2)	Hendersonville	Lynchburg
Fort Wayne (2)	Hickory	Roanoke (2)
Greenfield	Jacksonville	Richmond (6)
Indianapolis (11)	Raleigh (2)
Lafayette	Wake Forest	West Virginia (2)
Richmond	Wilmington	Charleston (2)
	Winston-Salem (2)
		Wisconsin (1)
		Grand Chute

7

Ninety Nine Restaurants

Connecticut (11)	New Hampshire (13)	Massachusetts (61)
Dayville	Concord	Auburn
Enfield	Dover	Boston (36)
Groton	Hooksett	Centerville
Hartford (4)	Littleton	Chicopee
New Haven	Londonderry	Fairhaven
Norwich	Manchester	Fall River
Stratford	Nashua	Fitchburg
Torrington	North Conway	Franklin
	Portsmouth	Greenfield
Maine (5)	Salem	Holyoke
Auburn	Seabrook	Marlboro
Augusta	Tilton	Mashpee
Bangor	West Lebanon	North Attleboro
Portland (2)		North Dartmouth
	New York (9)	Pittsfield
Rhode Island (3)	Albany (2)	Plymouth
Cranston	Clifton Park	Seekonk
Newport	Kingston	Springfield (4)
Westerly	Plattsburgh	Tewksbury
	Queensbury	West Yarmouth
Vermont (3)	Rotterdam	Worcester (3)
Brattleboro	Saratoga Springs
Rutland	Utica
Williston

Stoney River Restaurants

Georgia (3)	Kentucky (1)	Maryland (2)	Missouri (1)
Atlanta (3)	Louisville	Annapolis	St. Louis
		Towson
Illinois (1)	Tennessee (2)
Chicago	Nashville (2)

In addition to the above company-owned locations, the table below sets forth our franchised locations as of December 25, 2011.

Franchised Restaurants (O’Charley’s Restaurants)

Florida (1)	Ohio (3)	Pennsylvania (1)
Orlando	Boardman	Erie
	Cuyahoga Falls
	Niles	Tennessee (1)
		Nashville

8

Franchising

We have entered into exclusive multi-unit development agreements with third-party franchisees to open and operate O’Charley’s restaurants. Franchisees are required to comply with our specifications as to restaurant space, design and décor, menu items, principal food ingredients, team member training and day-to-day operations. The following table illustrates the current agreements that we have with our franchisees along with the contracted markets and the number of restaurants operated by each franchisee as of December 25, 2011:

Franchise Entity	Open Restaurants	Markets
O’Candall Group, Inc.	5	Tampa and Orlando Florida, Western Pennsylvania, Northwest West Virginia and Northern Ohio
Delaware North Companies Travel Hospitality Services	1	Tennessee (Nashville International Airport)

Competition

The restaurant industry is extremely competitive. Restaurants compete across numerous areas, including food quality, price, service quality, location, design, and attractiveness. To remain competitive, we must constantly monitor changing consumer tastes, national and regional economic conditions, the effectiveness of our advertising and many other factors. We compete within each market with national and regional chains and locally-owned restaurants for customers, management and hourly personnel and suitable locations. We also face growing competition from the supermarket industry, which offers “convenient meals” in the form of improved entrées and side dishes. We expect intense competition to continue in these areas.

Service Marks

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

Government Regulation

We are subject to various federal, state and local laws affecting our business. In addition, each of our restaurants are subject to licensing and regulation by a number of governmental authorities, which may include alcoholic beverage control, health, safety, sanitation, building and fire agencies in the state or municipality in which the restaurant is located. Most municipalities in which our restaurants are located require local business licenses. We are also subject to federal and state environmental regulations, but those regulations have not had a material effect on our operations to date.

Approximately 11.6 percent of restaurant sales in 2011 were attributable to the sale of alcoholic beverages. Each restaurant, where permitted by local law, has appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and in some states or localities, to provide service for extended hours and on Sunday. In addition, the Patient Protection and Affordable Care Act (“PPACA”) will require, effective January 1, 2014, that chain restaurants with 20 or more locations display caloric content on their menus. Also, some states require, or are considering requiring, us to disclose nutritional information on our menus. Each restaurant has food service licenses from local health authorities. The failure of a restaurant to obtain or retain liquor or food service licenses could adversely affect its operations or, in an extreme case, cause us to close the restaurant. We have established standardized procedures for our restaurants designed to assure compliance with applicable codes and regulations.

9

We are subject, in most states in which we operate restaurants, to “dram-shop” statutes or judicial interpretations, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.

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

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

Seasonality

Our sales volumes fluctuate seasonally. Our first fiscal quarter is a 16-week quarter, while our second through fourth fiscal quarters are each 12 weeks. Historically, average weekly sales per restaurant are higher in the first quarter than in subsequent quarters, and we typically generate a disproportionate share of our income from operations in the first quarter. Holidays, severe weather and other disruptive conditions may impact sales volumes seasonally in some operating regions. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Purchasing

Our ability to maintain consistent quality throughout each of our restaurant concepts depends upon acquiring products from reliable sources. Our pre-approved suppliers and our restaurants are required to adhere to strict product and safety specifications established through our quality assurance and culinary programs. These requirements ensure that high-quality products are served in each of our restaurants. We strategically negotiate directly with major suppliers to obtain competitive prices. We also use purchase commitment contracts when appropriate to stabilize the potentially volatile pricing of certain commodity items. All essential products are available from pre-qualified distributors to be delivered to any of our restaurant locations. Additionally, as a purchaser of a variety of protein products, we require our vendors to adhere to humane processing standards for their respective industries and encourage them to evaluate new technologies for food safety and humane processing improvements. Because of the relatively rapid turnover of perishable food products, inventories in the restaurants, consisting primarily of food, beverages and supplies, have a modest aggregate dollar value in relation to revenues.

Team Members

As of December 25, 2011, we employed approximately 21,000 team members, approximately 19,000 of whom represented our hourly workforce within our restaurants. None of our team members are covered by a collective bargaining agreement. We have an alternative dispute resolution program in which all team members are required to participate as a condition of employment. We consider our team member relations to be good.

10

Executive Officers of the Registrant

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

Name	Age	Position
David W. Head	55	Chief Executive Officer and President
R. Jeffrey Williams	45	Chief Financial Officer and Treasurer
Marc A. Buehler	41	Concept President-O’Charley’s
John R. Grady	59	Concept President-Ninety Nine Restaurants
Alfred L. Thimm, Jr.	52	Concept President-Stoney River Legendary Steaks
Colin M. Daly	40	General Counsel, Secretary and Compliance Officer
Lawrence D. Taylor	53	Chief Supply Chain Officer
Robert F. Luz	51	Chief Human Resources Officer
Leon de Wet	50	Chief Information Officer

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

David W. Head has served as Chief Executive Officer (“CEO”), President and member of our board of directors since September 2010. Prior to joining O’Charley’s and since 2006, Mr. Head served as Chairman, President and CEO of Captain D’s Seafood Kitchen, an operator and franchisor of quick-service seafood restaurants. From 2003 to 2006 Mr. Head served as President, CEO and a director of Romacorp, Inc., which operates and franchises Tony Roma’s casual-dining locations. In November 2005 Romacorp, Inc. filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.

R. Jeffrey Williams has served as Chief Financial Officer and Treasurer since August 2011 after serving as Interim Chief Financial Officer since December 2010. Mr. Williams has served as Chief Accounting Officer since February 2006 and as Corporate Controller from February 2003 to November 2011. In addition, Mr. Williams served as Controller for the O’Charley’s Concept from July 2001 to February 2003. Prior to joining O’Charley’s, Mr. Williams served as Controller of The Krystal Company from 2000 to 2001. Mr. Williams holds a Master of Business Administration from Vanderbilt University’s Owen Graduate School of Management and is a certified public accountant.

Marc A. Buehler has served as Concept President–O’Charley’s since September 2011. Prior to joining O’Charley’s, Mr. Buehler was President, CEO and a director of Kona Grill, Inc., which operates upscale casual restaurants, since 2009. Mr. Buehler also served as CEO of LS Management, Inc., the operator of two restaurant concepts, Lone Star Steakhouse & Saloon and Texas Land & Cattle Steak House with a total of nearly 200 locations, from July 2007 to May 2009. In addition, from 2002 to 2007, Mr. Buehler was with Romacorp Inc., which operated or franchised over 200 Tony Roma’s, casual dining locations, joining the company as Vice President of Marketing and rising to President, CEO and a director. In November 2005 Romacorp, Inc. filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.

John R. Grady has served as Concept President–Ninety Nine Restaurants since April 2004. Mr. Grady joined Ninety Nine Restaurants in March 1975. Prior to being named President of Ninety Nine Restaurants in 2004, Mr. Grady was Executive Vice President and has also served in various capacities in the Operations, Training and Real Estate Departments for Ninety Nine Restaurants over the years.

Alfred L. Thimm, Jr. has served as Concept President–Stoney River Legendary Steaks since February 2011. Prior to being named President, Mr. Thimm served as the President and CEO of Al Copeland Investments, Restaurant Division, a privately owned multi-concept restaurant company and franchise group, from May 2007 to July 2010. Prior to that, Mr. Thimm served as President and Chief Operating Officer (“COO”) of The Palm restaurants which owns and operates a chain of fine-dining steakhouses, from September 1990 to June 2006.

Colin M. Daly, Esq. has served as Secretary since March 2009 and General Counsel since February 2008. Prior to being named General Counsel, Mr. Daly served as the company’s Senior Corporate Counsel from April 2006 to January 2008. Prior to joining O’Charley’s, Mr. Daly served as an Assistant General Counsel for ARAMARK Corporation, a diversified management services company, from 2003 to 2006. Prior to ARAMARK, Mr. Daly practiced law with law firms in Nashville, Tennessee and Philadelphia, Pennsylvania.

11

Lawrence D. Taylor has served as Chief Supply Chain Officer since May 2006. Prior to joining O’Charley’s, he was the Chief Procurement Officer for Carlson Companies, Inc., a global travel, hospitality, restaurant and marketing company, from 2003 to 2006. Mr. Taylor was Vice President, Supply Chain Management for Carlson Restaurants from 2001 to 2003. Mr. Taylor’s earlier experience included senior procurement and supply chain management positions with Taco Bell Corporation, Burger King, Inc., and Perseco. Mr. Taylor was also an owner-operator of a franchised McDonald’s restaurant.

Robert F. Luz has served as Chief Human Resources Officer since August 2011. Mr. Luz previously served as Vice President of Human Resources since October 2007. Mr. Luz joined Ninety Nine Restaurants in 1999. Prior to being named Vice President of Human Resources, Mr. Luz served as the company’s Executive Vice President of Human Resources and Training for Ninety Nine Restaurants. Prior to joining Ninety Nine, Mr. Luz was Executive Director of Human Resources for Applebee’s International, Inc., a casual-dining restaurant company, from 1993 to 1999. Mr. Luz served as Vice President of Human Resources for Back Bay Restaurant Group, a casual-dining restaurant company, from 1991 to 1993. Mr. Luz served as Vice President of Operations from 1986 to 1991 for Hotel and Restaurant Personnel of America, a national executive recruitment firm specializing in senior hospitality management positions.

Leon de Wet has served as Chief Information Officer since September 2006. Prior to joining O’Charley’s, he was with Brinker International, a casual-dining restaurant company, from 1992 to 2006 and served as the Vice President, Business Intelligence and Strategic Systems, from 2002 to 2006. His previous roles at Brinker International include Senior Member of Technical Staff, Director of Store Systems and Development Manager. Mr. De Wet’s earlier experiences include management and analyst roles in charge of retail systems at various companies, including Michael’s Stores Inc.

Available Information

Our website address is www.ocharleysinc.com. Please note that our website address is provided as an inactive textual reference only. We make available free of charge through our website the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information provided on our website is not part of this report, and is therefore not incorporated by reference unless such information is specifically referenced elsewhere in this report.

We have posted our Corporate Governance Guidelines, Code of Conduct and Business Ethics Policy for directors, officers and team members, and the charters of our Audit, Compensation and Human Resources and Nominating and Corporate Governance Committees of the board of directors on our website at www.ocharleysinc.com.

12

Item 1A. Risk Factors.

Risk Factors

Some of the statements we make in this Annual Report on Form 10-K are forward-looking. Forward-looking statements are generally identifiable by the use of the words “anticipate,” “will,” “believe,” “estimate,” “expect,” “plan,” “intend,” “seek” or similar expressions and are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief, plans or expectations such as statements concerning our operating and growth strategy, projections of revenue, income or loss, information regarding future restaurant openings and capital expenditures, potential increases in food and other operating costs, and our development, expansion, franchising plans and future operations. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results in future periods to differ materially from those anticipated in the forward-looking statements. Those risks and uncertainties include, among others, costs and uncertainties relating to the consummation of the transactions contemplated by the definitive merger agreement with Fidelity National Financial, Inc.; the continued deterioration in the United States economy and the related adverse effect on our sales of decreased 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 maintain or increase comparable 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 of increased competition; our ability to sell or sublease closed restaurants and other surplus assets; our ability to successfully implement and realize projected benefits of our turnaround and transformation process; the resolution of outstanding legal proceedings; and the risks and uncertainties discussed below. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of these assumptions could prove to be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this Annual Report on Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to the forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

We face risks and uncertainties associated with our previously announced signing of a definitive merger agreement related to the acquisition of all our outstanding shares of common stock.

On February 5, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Fidelity National Financial, Inc. (“FNF”) and Fred Merger Sub Inc. (“Merger Sub”), an indirect wholly-owned subsidiary of FNF, pursuant to which Merger Sub has commenced a tender offer to purchase all of the outstanding shares of our common stock for $9.85 per share and, if the tender offer is consummated, subject to the approval of our shareholders, if required, and the satisfaction of certain other conditions set forth in the Merger Agreement, the Company will merge with and into Merger Sub, with the Company continuing as the surviving corporation and becoming an indirect wholly-owned subsidiary of FNF (see note 24 of the “Notes to the Consolidated Financial Statements” for further information).

The announcement of the transactions contemplated by the Merger Agreement, whether or not consummated, may create instability in our relationships with key employees and vendors and may create potential concerns or negative impressions among our customers and prospective customers. The Merger Agreement generally requires us to operate our business in the ordinary course pending consummation of the proposed transaction, but includes certain contractual restrictions on the conduct of our business that may affect our ability to execute on our business strategies and/or to attain our financial goals. We have committed and expect to further commit significant Company resources to the proposed transaction which could have been devoted to other business opportunities. Also, the ensuing process places significant demands upon our management resources, which among other things may distract our senior management and our board of directors from committing the optimum amount of time, attention and resources to our ongoing business operations.

Since the announcement of the proposed transaction, several putative class action lawsuits have been filed by purported shareholders of the Company on behalf of themselves and other shareholders of the Company in relation to the transaction (see note 20 of the “Notes to the Consolidated Financial Statements” for further information). All of these lawsuits seek to enjoin the proposed transaction or rescission of the transaction if it is consummated. We also could be subject to additional litigation related to the proposed transaction, whether or not it is consummated. While we currently believe all such litigation is without merit and will not succeed, these pending and potential lawsuits create additional uncertainty relating to the proposed transaction and defending such matters is costly and distracting to management.

13

The Merger Agreement can be terminated by us or FNF under certain circumstances. If terminated, we must pay FNF a termination fee under certain circumstances, which fee will be either $6.74 million or $3.37 million depending on the circumstances giving rise to payment of the termination fee. Under certain circumstances, we would be required to reimburse FNF for its actual expenses incurred in connection with the proposed transaction, subject to a $2 million cap, which such expense reimbursement will reduce the subsequent payment of any termination fee.

The completion of the proposed transaction is subject to certain conditions, including, among others, (i) that the number of shares of our common stock validly tendered and not validly withdrawn, together with any shares then owned by FNF and its affiliates, equals at least a majority of the shares of our common stock issued and outstanding on a fully diluted basis, (ii) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and certain other antitrust laws, (iii) the absence of a material adverse effect on the Company and (iv) certain other customary conditions. We cannot predict whether the closing conditions for the proposed transaction set forth in the Merger Agreement will be satisfied. As a result, we cannot assure you that the proposed transaction will be completed. If the closing conditions for the proposed transaction are not satisfied or waived pursuant to the Merger Agreement, or if the transaction is not completed for any other reason, the market price of our common stock may decline significantly.

In addition, if the proposed transaction does not occur, we will nonetheless remain liable for the significant expenses that we have incurred related to the transaction.

These factors, alone or in combination with other circumstances and events, may have a material adverse effect upon our business, results of operations and financial condition.

FNF and Merger Sub filed a Tender Offer Statement on Schedule TO (the “Schedule TO”) with the SEC on February 27, 2012, and we have filed a Solicitation/Recommendation Statement on Schedule 14D-9 (the “Schedule 14D-9”) with the SEC. The Schedule TO and Schedule 14D-9 have been sent to our shareholders. We urge our investors and shareholders to read the Schedule 14D-9 and the Schedule TO and other relevant materials as they become available because they will contain important information about the proposed transaction.

General economic conditions, as well as those specific to the restaurant industry, may adversely affect our results of operations.

Our business results depend on a number of industry-specific and general economic factors, many of which are beyond our control. These factors include consumer income, interest rates, inflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends and other matters that influence consumer confidence and discretionary spending. A continued deterioration in consumer confidence and these other factors could continue to reduce guest traffic and impose pressures on pricing, harming our results of operations.

The significant slowdown and volatility in the U.S. economy has and is expected to continue to negatively affect our business. For instance, the soft housing market, tight credit and high unemployment rates in recent years have led to a lack of consumer confidence, particularly for consumers that frequent casual-dining chains. Continuing weakness in the spending of those consumers has had and could continue to have an adverse impact on our results of operations. Since our business depends upon consumer discretionary spending, high unemployment and decreased home values, rising fuel and energy costs and tighter access to consumer credit would likely place additional pressure on our guest counts and reduce our profitability as our guests may have lower disposable income and reduce the frequency with which they dine out, may spend less when dining out or may choose more inexpensive restaurants. There can be no assurance that the macroeconomic environment will improve significantly or that the federal government’s stimulus efforts will restore consumer confidence, increase liquidity and the availability of credit, or result in significantly lower unemployment. In response to ongoing economic conditions, many of our competitors have continued discounting activities in markets in which we operate. Our response, or failure to respond, to such discounting could negatively impact our restaurant sales.

In addition, general economic conditions may have an adverse effect on our suppliers, landlords, franchisees and other business partners. Some of our suppliers could experience serious cash flow problems due to the current credit market. As a result, they may attempt to increase their prices, pass through increased costs or alter payment terms. Our suppliers may be forced to reduce their production, shut down their operations or file for bankruptcy protection, which could have a material adverse effect on our business. A weak economic recovery or worsening of the U.S. economy, or even the fear of such a development, could intensify the adverse effects of these difficult market conditions on our results of operations.

14

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

Our O’Charley’s and Ninety Nine restaurants are casual-dining restaurants that feature menus intended to appeal to a broad spectrum of guests. Our Stoney River restaurants are upscale casual-dining steakhouses that feature steaks, fresh seafood and other gourmet entrées. Our continued success depends, in part, upon the popularity of these foods and these styles of dining. Shifts in consumer preferences away from this cuisine or dining style could materially adversely affect our future operating results. The restaurant industry is characterized by the continual introduction of new concepts and is subject to rapidly changing consumer preferences, tastes and eating and purchasing habits. Our success will depend in part on our ability to anticipate and respond to these changes in consumer preferences, as well as other factors affecting the restaurant industry, including new market entrants and demographic changes. In connection with the repositioning of our Stoney River concept in 2009 and 2010, we reduced prices of certain menu offerings and added new menu items. We may make further changes in our concepts and menus in order to respond to changes in consumer tastes or dining patterns. If we change a restaurant concept or menu, we may lose guests who do not prefer the new concept or menu, and may not be able to attract a sufficient new guest base to produce the revenue needed to make the restaurant concept profitable.

Unfavorable publicity, or a failure to respond effectively to adverse publicity, could harm our reputation and adversely impact our guest counts and sales.

The good reputation of our restaurant brands is a key factor in the success of our business. Actual or alleged incidents at any of our restaurants could result in negative publicity that could harm our brands. Negative publicity may result from allegations of illegal, unfair or inconsistent employment practices, guest discrimination, illness or injury. Regardless of whether the allegations or complaints are valid, unfavorable publicity relating to a limited number of our restaurants, or only to a single restaurant, could adversely affect public perception of the entire brand. Negative publicity also may result from health concerns including food safety and flu outbreaks, publication of government or industry findings concerning food products, environmental disasters, crime incidents, scandals involving our employees, or disruptions or operational problems at our restaurants, all of which could make our brands and menu offerings less appealing to our guests and negatively impact our guest counts and sales. Adverse publicity and its effect on overall consumer perceptions of our brands, or our failure to respond effectively to adverse publicity, could have a material adverse effect on our business.

In addition, even incidents occurring at restaurants operated by our competitors or in the supply chain generally could result in negative publicity that could harm the restaurant industry overall and, indirectly, our own brands.

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

The restaurant industry is intensely competitive with respect to price, service, location, nutritional and dietary trends and food quality, and there are many well-established competitors with substantially greater financial and other resources than us, including a large number of national and regional restaurant chains, some of which operate more restaurants and have greater financial resources than we do. Some of our competitors have been in existence for a substantially longer period than us and may be better established in the markets where our restaurants are or may be located. Some of our competitors advertise on national television, which may provide them with greater awareness and name recognition than we can achieve through our advertising efforts. Our success to drive incremental sales or maintain sales levels is dependent upon our operational execution and marketing. If our marketing promotions fail to achieve a competitive advantage we may lose market share. Additionally, we face increasing competition from the convergence of restaurant, deli and grocery services, as supermarkets and grocery stores offer “convenient meals” in the form of improved entrées and side dishes in their deli sections. If our restaurants are unable to compete successfully in new and existing markets, our results of operations will be adversely affected.

We also compete with other restaurants for experienced management personnel and hourly team members and with other restaurants and retail establishments for quality sites.

The effectiveness of our marketing and advertising programs could have a material effect on our operating results.

Our revenues are heavily influenced by brand marketing and advertising. Our marketing and advertising programs may not be successful, which may lead us to fail to attract new guests and retain existing guests. If our marketing and advertising programs are unsuccessful, our results of operations could be adversely affected. Our marketing and

15

advertising programs may also be impacted by the activities of our competitors. Increased spending on advertising and promotions by our competitors could result in increased spending by us on advertising and promotions, or could reduce the effectiveness of our marketing efforts, either of which could adversely affect our results of operations. We believe that the current economic environment and the competitive landscape in the casual-dining restaurant industry have made our customers more value-conscious, and that we must respond to new market conditions and consumers’ demand for superior value. This strategy is reflected in, among other things, menu offerings at our O’Charley’s and Ninety Nine restaurants and our value-oriented pricing and menu changes at our Stoney River restaurants. If we are unable to successfully execute this strategy, our operating margins and financial results could be adversely affected.

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

Our restaurants are subject to extensive federal, state and local government laws and regulation, including regulations related to the preparation and sale of food (such as labeling, allergens content, trans fat content and other menu information regarding nutrition), the sale of alcoholic beverages, employment matters (such as minimum wage, employee health insurance, organizing and collective bargaining, fair employment practices, and employee health and safety), information security, zoning and building codes and other health, sanitation and safety matters. Compliance with these laws and regulations can be costly and can increase exposure to litigation or governmental investigations or proceedings. The federal healthcare reform legislation that became law in March 2010 or PPACA requires restaurant companies such as ours to disclose calorie information on their menus. We do not expect to incur any material costs from compliance with this provision, but cannot anticipate any changes in guest behavior resulting from the implementation of this portion of the law, which could have an adverse effect on our sales and results of operations.

All of these regulations impact not only our current restaurant operations but also our ability to open new restaurants, if our business strategy calls for us to do so. We will be required to comply with applicable state and local regulations in any new locations into which we expand. Any difficulties, delays or failures in obtaining licenses, permits or approvals in such new locations could delay or prevent the opening of a restaurant in a particular area or reduce operations at an existing location, either of which could materially and adversely affect our growth and results of operations.

The revenues and costs of operating our restaurants may be adversely affected if there are changes in laws governing minimum hourly wages or tip credits, labor or collective bargaining laws, nutritional labeling, environmental matters, workers’ compensation insurance rates, employee health insurance, unemployment tax rates, sales taxes, corporate income tax or other laws and regulations, such as the federal Americans with Disabilities Act, the Family Medical Leave Act and the PPACA. The PPACA contains requirements that may significantly raise our employee health benefits costs or alter the benefits we provide, including mandatory enrollment of employees in company health plans, the elimination of caps on annual and lifetime coverage limits, a ban on pre-existing conditions as an exclusion for coverage, a prohibition on linking eligibility and premium rates to health-status factors, and mandatory coverage availability for dependents through age 26. If our employee health insurance and other of the foregoing costs increase, there can be no assurance that we will be able to offset the increase by increasing our menu prices or by other means, which would adversely affect our results of operations.

If we are unable to comply with our financial covenants, our liquidity and results of operations could be adversely affected.

At December 25, 2011, we had a total of $0.2 million in debt and capital lease obligations. We had no amounts outstanding on our revolving credit facility at December 25, 2011.

Our credit facility contains customary restrictive covenants, including limitations on dividends, repurchases of capital stock, sale leaseback transactions, the incurrence of additional indebtedness, mergers and acquisitions, and asset sales. In addition, our credit facility contains certain financial covenants, including an adjusted debt to EBITDAR ratio, a senior secured leverage ratio, a fixed-charge coverage ratio and capital expenditures ratio. As of the end of our 2011 fiscal year, there were no defaults under our credit facility and we believe we were in compliance with all covenants. Although we currently project that we will remain in compliance with these covenants, there can be no assurance that we will remain in compliance with these covenants.

If we were to violate any of our covenants under our credit facility, there can be no assurance that we will be successful in obtaining amendments or waivers on acceptable terms. Any waiver or amendment may result in future increases in the interest costs and possible additional restrictions under our credit facility.

16

In addition, we have four separate lease agreements that cover lease arrangements for an aggregate of 30 of our Ninety Nine restaurants, each of which contains a fixed charge covenant calculation. Each of the four restaurant groups are subject to an annual fixed charge coverage ratio of 1.50 to 1.00. Each of the lease agreements exceeded the 1.50 to 1.00 minimum as of the end of fiscal 2011. Failure to remain in compliance with these lease covenants could adversely affect our results of operations.

Our support centers could experience a natural or man-made disaster, resulting in a loss of data and information, and disruption of our business.

Successful operation of our restaurants depends upon the oversight, information systems and administrative support that they receive from our support centers. For example, our information systems provide point-of-sale processing in our restaurants, management of our supply chain, financial reporting, various other processes and transactions and maintaining operational efficiencies. We have developed and tested a Disaster Recovery Plan to respond to the loss of information systems in the event of natural and man-made disasters. This plan allows us to fully restore our critical systems in a remote location within three business days. If the Disaster Recovery Plan were to fail, the loss of data and other capabilities could have an adverse impact on our results of operations and the reliability of our financial information.

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

Our operating results are significantly dependent on our ability to anticipate and react to increases in food, labor, team member benefits, insurance, energy and other costs. Various factors beyond our control, including adverse weather conditions, governmental regulation, production, availability and recalls of food products, inflation and seasonality may affect our food costs or cause a disruption in our supply chain. Some climatologists predict that the long-term effects of climate change may result in more severe, volatile weather, which could affect our food cost. We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our operating results. In addition, because the pricing strategy at all of our concepts is intended to provide an attractive price-to-value relationship, we may not be able to pass along price increases to our guests, particularly in the current economic environment, without adversely impacting our guest counts.

We compete with other restaurants for experienced management personnel and hourly team members. Each of our concepts offers medical benefits to hourly team members. Increases in health care costs, changes in state or federal minimum wage laws, or changes in legal requirements relating to employee benefits would likely cause an increase in our labor costs. We cannot assure that we will be able to offset increased wage and benefit costs through our purchasing and hiring practices or menu price increases, particularly over the short term. As a result, increases in wages and benefits could have a material adverse effect on our business.

In addition, the current premiums that we pay for our insurance (including workers’ compensation, general liability, property, health, and directors’ and officers’ liability) may increase annually, thereby further increasing our costs. The dollar amount of claims that we actually experience under our workers’ compensation and general liability insurance, for which we carry high per-claim deductibles, may also increase at any time, thereby further increasing our costs. Further, the decreased availability of property and liability insurance has the potential to negatively impact the cost of premiums and the magnitude of uninsured losses, particularly if the insurance carriers themselves became financially unstable.

We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and increased costs.

Some business processes that are dependent on technology are outsourced to third parties. Such processes include gift card tracking and authorization, credit card authorization and processing, certain payroll processes and insurance and benefit administrators. We make a diligent effort to ensure that all providers of outsourced services are observing proper internal control practices, including secure data transfers between us and the third-party vendor; however, there are no guarantees that failures will not occur. Failure of third parties to provide adequate services could have an adverse effect on our results of operations, financial condition or ability to accomplish our financial and management reporting.

Failure to protect the integrity and security of individually identifiable data of our guests and team members could expose us to litigation and damage our reputation.

We receive and maintain certain personal information about our guests and team members both internally and with third party vendors. Our use of this information is regulated at the federal and state levels, as well as by certain third party contracts. If our security and information systems are compromised or our business associates fail to comply with

17

these laws and regulations and this information is obtained by unauthorized persons or used inappropriately, it could adversely affect our reputation, as well as operations, results of operations and financial condition, and could result in litigation against us or the imposition of penalties. As privacy and information security laws and regulations change, or changes are imposed by our business partners, we may incur additional costs to ensure we remain in compliance.

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.

We are subject to complaints or litigation from time to time from guests alleging illness, injury or other food quality or health concerns. Litigation or adverse publicity resulting from these allegations may materially adversely affect our business, regardless of whether the allegations are valid or whether we are liable. We are subject to litigation under “dram shop’’ laws that allow a person to sue us based on any injury or death caused by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. While we maintain insurance for lawsuits under a “dram shop” law or alleging illness or injury from food, we have significant deductibles under such insurance and any such litigation may result in a verdict in excess of our liability insurance policy limits, which could result in substantial liability for us and could have a material adverse effect on our results of operations.

We are a defendant from time to time in various legal proceedings arising in the ordinary course of our business, including claims relating to injury; claims relating to workplace and employment matters, including wage and hour disputes, discrimination claims and similar matters; claims resulting from “slip and fall” accidents; claims relating to lease and contractual obligations; claims relating to our franchising initiatives; trademark infringement; shareholder claims; and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns.

We do not believe that any of the legal proceedings pending against us as of the date of this report will have a material adverse effect on our liquidity or financial condition. We may incur liabilities, receive benefits, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal quarter which may adversely affect our results of operations, or on occasion, receive settlements that favorably affect results of operations. However, the outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. Even if a claim is unsuccessful or is not fully pursued, the negative publicity surrounding any negative allegation regarding our company, our business or our products could adversely affect our reputation with existing and potential guests. As a result, litigation may adversely affect our business, financial condition and results of operations.

A large part of our success depends on our ability to execute our strategic plan and to realize our anticipated supply chain efficiencies.

Our strategic plan involves a number of initiatives intended to improve our restaurant level economics and enhance guest loyalty. Our strategic plan involves significant investments in our management team and our restaurants and the success of the strategic plan depends on our ability to successfully implement the plan and realize the projected return on our investment. Our strategy also includes improving our restaurant level economics, and we believe that effective supply chain management will contribute significantly to achieving this goal. However, a failure to successfully implement and realize projected savings from these actions could adversely affect the results of our strategic plan.

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

Our O’Charley’s restaurants are located in the Eastern, Southeastern, and Midwestern United States. Our Ninety Nine restaurants are located in the Northeastern United States. As of December 25, 2011, we operated 39 of our 221 O’Charley’s restaurants in Tennessee and 61 of our 105 Ninety Nine restaurants in Massachusetts. As a result, our business and our financial or operating results may be materially adversely affected by adverse economic, weather or business conditions in these markets, as well as in other geographic regions in which we operate restaurants.

18

Any disruption in our supply chain could adversely affect our ability to operate our restaurants.

Possible shortages or interruptions in the supply of food items and other supplies to our restaurants could adversely affect the availability, quality and cost of items we buy and the operations of our restaurants. Such disruptions may be caused by inclement weather, natural disasters such as floods, drought and hurricanes, the inability of our vendors to obtain credit in a tightened credit market, food safety warnings or advisories or the prospect of such pronouncements, or other conditions beyond our control. Our inability to effectively manage supply chain risk could increase our costs and limit the availability of products critical to our restaurant operations.

We have outsourced the manufacture of all food products, as well as the distribution and transportation services to the O’Charley’s, Ninety Nine and Stoney River brands, to third parties. This makes us dependent upon the performance of third-party manufacturers and distributors for the availability and delivery of food and other supplies. Any disruptions to their operations could have a material impact on our future reported results.

We rely heavily on technology in our business, and any interruption, failure or breach of security of that technology could negatively affect our ability to effectively operate our business.

If we experience problems with our ability to effectively manage our information systems it could disrupt our operations. Our business depends on information systems that assist us in, among other things, point-of-sale processing in our restaurants, management of our supply chain, financial reporting, various other processes and transactions and maintaining operational efficiencies. All of these processes depend upon the reliability and capacity of these information systems. These systems include software developed in-house and systems provided by external contractors and other service providers. To the extent that these external contractors or other service providers become insolvent or fail to support the software or systems, our operations could be negatively affected. If we experience a reduction in the performance, reliability, or availability of our information systems, our operations and ability to produce timely and accurate reports could be adversely affected.

Our information systems and applications require continual maintenance, upgrading, and enhancement to meet our operational needs. In addition, damage or interruption from power outages, computer, network and telecommunications failures, computer viruses, a breach of security, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism and usage errors by our employees could cause delays in customer service, hinder operational efficiencies, result in a loss of data or require a significant investment to remediate the problem. If we are unable to successfully implement, maintain, secure, or expand our systems properly, we could suffer from, among other things, operational disruptions and increases in administrative expenses which could affect our results of operations.

Failure to comply with current regulatory requirements will result in additional expenses and may adversely affect us.

Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, Securities and Exchange Commission regulations and NASDAQ Stock Market rules, has required an increased amount of our management’s attention and greater utilization of external resources. We remain committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, including any standards or regulations approved under the current government administration. This ongoing investment results in continuing support costs included in general and administrative expenses.

We are dependent on attracting and retaining qualified employees.

Our performance is dependent on attracting and retaining qualified restaurant employees. Availability of staff varies widely from location to location. Many staff members are in entry-level or part-time positions, typically with high rates of turnover. Even though recent trends in employee turnover have been favorable, if restaurant management and staff turnover were to increase, we could suffer higher direct costs associated with recruiting, training and retaining replacement personnel. Management turnover as well as general shortages in the labor pool can cause our restaurants to be operated with reduced staff, which negatively affects our ability to provide appropriate service levels to our customers. Competition for qualified employees exerts upward pressure on wages paid to attract such personnel, resulting in higher labor costs, together with greater recruiting and training expenses.

19

We are dependent upon our senior management team to execute our business strategy.

Our operations and our ability to execute our business strategy are highly dependent on the efforts of our senior management team. Many of the members of our senior management team do not have long tenures with us. Recent hires include our Chief Executive Officer and President in September 2010, our Stoney River Concept President in February 2011, and our O’Charley’s Concept President in September 2011. Additionally, effective as of December 27, 2010, our former Chief Financial Officer resigned to accept a position with another company, and our Chief Accounting Officer and Corporate Controller was subsequently promoted to serve as our Chief Financial Officer and Treasurer.

Although the members of our senior management team have employment agreements with us, these agreements may not provide sufficient incentives for these officers to continue employment with us. The loss of one or more of the members of our senior management team could adversely affect our business. We do not maintain key man insurance on any of the members of our senior management team.

Identification of material weakness in internal control may adversely affect our financial results.

We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002. Those provisions provide for the identification of material weaknesses in internal control. If such a material weakness is identified, it could indicate a lack of adequate controls to generate accurate financial statements. We routinely assess our internal controls, but we cannot assure you that we will be able to timely remediate any material weaknesses that may be identified in future periods, or maintain all of the controls necessary for continued compliance. Likewise, we cannot assure you that we will be able to retain sufficient skilled finance and accounting team members, especially in light of the increased demand for such individuals among publicly-traded companies. As of December 25, 2011 we believe our internal control over financial reporting was effective (see Item 9A “Controls and Procedures”).

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

We make certain estimates and projections with regard to individual restaurant operations, as well as our overall performance in connection with our impairment analyses for long-lived assets. An impairment charge is required when the carrying value of the asset exceeds the estimated fair value or undiscounted future cash flows of the asset. The projection of future cash flows used in this analysis requires the use of judgment and a number of estimates and projections of future operating results. If actual results differ from our estimates, additional charges for asset impairments may be required in the future. If impairment charges are significant, our results of operations could be adversely affected.

Item 1B. Unresolved Staff Comments.

None.

20

Item 2. Properties.

As of December 25, 2011, we operated 221 O’Charley’s restaurants, 105 Ninety Nine restaurants and 10 Stoney River Legendary Steaks restaurants. As of that date, our owned and leased properties at these operating locations by concept are as follows:

	Owned		Ground Lease		Building Lease		Land and Building Lease		Total
O’Charley’s		45		83		—		93		221
Ninety Nine		—		28		18		59		105
Stoney River		3		4		3		—		10
Total		48		115		21		152		336

See “Item 1-Business-Restaurant Locations” above. Restaurant lease expirations range from 2012 to 2031, with the majority of the leases providing for an option to renew for additional terms ranging from five years or longer. All of our restaurant leases provide for a specified annual rental, and some leases call for additional rental based on sales volume at the particular location over specified minimum levels. Generally, our restaurant leases are triple net leases, which require us to pay the cost of insurance, utilities, and taxes.

As of December 25, 2011, 45 of our company-owned properties were subject to collateral mortgages under our Fourth Amended and Restated Credit Agreement.

We own our home office that is located in Nashville, Tennessee with approximately 60,000 square feet. We lease administrative offices of approximately 15,000 square feet in Woburn, Massachusetts. In June 2009, we entered into an agreement to outsource food and supply distribution for our Ninety Nine restaurants and to sell related assets at our distribution facility in Bellingham, Massachusetts. We sublet the Bellingham, Massachusetts facility, with approximately 79,000 square feet of space. Our lease for this facility expires in September 2015.

Item 3. Legal Proceedings.

On February 9, 2012, a purported shareholder of the Company named David Kaniecki filed a putative class action lawsuit in the Tennessee Chancery Court, 20th Judicial District, against the members of the Board of Directors, the Company, FNF and Merger Sub (the “Kaniecki Complaint”). On February13, 2012, a purported shareholder of the Company named Paul Walleman filed a putative class action lawsuit in the Tennessee Circuit Court, 20th Judicial District, against the members of the Board of Directors, the Company, FNF, Merger Sub and Crescendo Partners (the “Walleman Complaint”). On February 15, 2012, two purported shareholders of the Company named Michael Gilliam and Angela Wieder filed a putative class action lawsuit in the Tennessee Chancery Court, 20th Judicial District, against the members of the Board of Directors, the Company, FNF and Merger Sub (the “Gilliam Complaint”). On February 15, 2012, a purported shareholder of the Company named Hilary Coyne filed a putative class action lawsuit in the Tennessee Chancery Court, 20th Judicial District, against the members of the Board of Directors, the Company, FNF and Merger Sub (the “Coyne Complaint”). On February 15, 2012, a purported shareholder of the Company named Brady White filed a putative class action lawsuit in the Tennessee Chancery Court, 20th Judicial District, against the members of the Board of Directors, the Company, FNF and Merger Sub (the “White Complaint,” and together with the Kaniecki Complaint, the Walleman Complaint, the Gilliam Complaint and the Coyne Complaint, the “Complaints”). Each of the Complaints alleges that the members of the Board of Directors breached their fiduciary duties to shareholders in connection with the sale of the Company. Each of the Complaints alleges that FNF and/or Merger Sub and/or Crescendo Partners aided and abetted the Board of Directors purported breach of its fiduciary duties. Each of the Complaints, in addition to seeking other relief, seeks to enjoin the sale of the Company. With respect to each of the Complaints, the Company believes the plaintiff’s allegations are without merit, and, if one or more of the various plaintiffs proceeds with litigation, the Company will contest the allegations vigorously.

We are a defendant from time to time in various legal proceedings arising in the ordinary course of our business, including claims relating to injury or wrongful death under “dram shop” laws that allow a person to sue us based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants; claims relating to workplace, workers compensation and employment matters, discrimination and similar matters; claims resulting from “slip and fall” accidents; claims relating to lease and contractual obligations; claims relating to our joint venture and franchising initiatives; and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns.

21

We do not believe that any of the legal proceedings pending against us as of the date of this report will have a material adverse effect on our liquidity or financial condition. We may incur liabilities, receive benefits, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal quarter which may adversely affect our results of operations, or on occasion, receive settlements that favorably affect results of operations.

Item 4. Mine Safety Disclosures.

Not applicable.

22

PART II

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

Our common stock trades on the NASDAQ Global Select Market under the symbol “CHUX.” As of February 24, 2012, there were 2,190 shareholders of record of our common stock.

The following table shows quarterly high and low sales prices for our common stock for the periods indicated, as reported by the NASDAQ Global Select Market.

	High		Low
Fiscal 2011
First Quarter	$	8.26	$	5.66
Second Quarter		7.99		5.98
Third Quarter		7.82		4.51
Fourth Quarter		6.84		4.85
Fiscal 2010
First Quarter	$	9.95	$	6.35
Second Quarter		10.00		4.38
Third Quarter		7.49		5.28
Fourth Quarter		7.98		6.65

23

Graph Data Points	12/31/06		12/30/07		12/28/08		12/27/09		12/26/10		12/25/2011
O’Charley’s Inc.	$	100.00	$	70.95	$	9.90	$	33.56	$	37.62	$	26.75
NASDAQ Composite	$	100.00	$	110.26	$	65.65	$	95.19	$	112.10	$	110.81
S&P Restaurants	$	100.00	$	110.35	$	104.41	$	122.05	$	161.43	$	214.83

24

Issuer Purchases of Equity Securities

The following table sets forth information with respect to purchases of shares of the Company’s common stock made during the quarter ended December 25, 2011 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b5-1 of the Exchange Act:

O’Charley’s Accounting Periods	Total Number of Shares Purchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans  or Programs		Maximum Number of Shares or Approximate Dollar Value That May Yet be Purchased Under the Plans or Programs
10/3/11- 10/30/11						—		—
10/31/11- 11/27/11		1,056	$	6.55		—		—
11/28/11- 12/25/11						—		—
Total for the Quarter		1,056	$	6.55		—		—

(1) Represents shares withheld to cover tax-withholding requirements relating to the vesting of restricted stock and stock options issued to employees pursuant to the Company’s shareholder-approved stock incentive plans.

25

Item 6. Selected Financial Data.

The selected financial data presented below under the captions “Statement of Operations Data” and “Balance Sheet Data” for, and as of the end of each of the fiscal years in the five-year period ended December 25, 2011, were derived from the consolidated financial statements of O’Charley’s Inc. and its subsidiaries. The selected data should be read in conjunction with the consolidated financial statements as of December 25, 2011 and December 26, 2010 and for each of the fiscal years in the three-year period ended December 25, 2011, and the related notes thereto, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in this Annual Report on Form 10-K. Fiscal years 2009, 2008 and 2007 have been adjusted to reflect the discontinued operations of certain restaurant locations closed during 2010. See Item 8 “Financial Statements and Supplementary Data” for further discussion of loss from discontinued operations, net loss and related loss per diluted share.

	Fiscal Years
	2011			2010			2009			2008			2007
	(In thousands, except per share data)
Statement of Operations Data:
Revenues:
Restaurant sales	$	826,156		$	828,982		$	865,342		$	913,888		$	952,440
Commissary sales		—			—			—			—			7,783
Franchise and other revenue		931			1,127			931			843			472
		827,087			830,109			866,273			914,731			960,695
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		260,646			247,558			252,207			270,870			278,966
Payroll and benefits		287,010			293,629			305,418			319,252			325,009
Restaurant operating costs		174,740			175,025			171,930			184,378			181,035
Cost of restaurant sales, exclusive of depreciation and amortization shown separately below		722,396			716,212			729,555			774,500			785,010
Cost of commissary sales		—			—			—			—			7,700
Advertising and marketing expenses		35,458			34,655			32,234			33,753			32,086
General and administrative expenses		31,938			39,474			38,343			44,292			48,670
Depreciation and amortization of property and equipment		36,118			42,093			46,460			49,543			49,651
Impairment, disposal and restructuring charges, net (1)		2,866			14,998			8,437			12,776			15,226
Goodwill impairment (2)		—			—			—			93,656			—
Pre-opening costs		—			7			597			3,655			3,065
		828,776			847,439			855,626			1,012,175			941,408
(Loss) Income from Operations		(1,689	)		(17,330	)		10,647			(97,444	)		19,287
Other Expense (Income):
Interest expense, net		9,624			11,812			11,628			14,966			12,287
Other, net		1			(8	)		(68	)		10			(87	)
		9,625			11,804			11,560			14,976			12,200
(Loss) Earnings from Continuing Operations Before Income Taxes		(11,314	)		(29,134	)		(913	)		(112,420	)		7,087
Income Tax Expense (Benefit) (3)		655			(1,849	)		2,254			15,115			(1,017	)
(Loss) Earnings from Continuing Operations	$	(11,969	)	$	(27,285	)	$	(3,167	)	$	(127,535	)	$	8,104
(Loss) Earnings Per Share from Continuing Operations:
Basic	$	(0.56	)	$	(1.29	)	$	(0.15	)	$	(6.10	)	$	0.35
Diluted	$	(0.56	)	$	(1.29	)	$	(0.15	)	$	(6.10	)	$	0.34
Balance Sheet Data (at end of period):
Working capital deficit	$	(19,406	)	$	(13,713	)	$	(16,944	)	$	(31,883	)	$	(21,145	)
Total assets		313,611			422,741			462,255			520,262			648,983
Current portion of long-term debt and capitalized lease obligations		122			1,710			1,979			6,640			8,597
Long-term debt and capitalized lease obligations, including current portion		152			118,874			131,898			163,068			145,235
Total shareholders’ equity		168,511			178,234			209,119			211,760			366,276
Cash dividends per share	$	—		$	—		$	—		$	0.18		$	0.18

26

(1) During 2011, the Company recorded total impairment, disposal and restructuring charges, net, of $2.9 million. Included are impairment charges of $1.4 million on three O’Charley’s restaurants, loss on sale of $1.2 million on six O’Charley’s restaurants included in the sale-leaseback transaction and $0.2 million on three assets held for sale. Also included is a gain of $0.2 million due to net reductions of previously closed locations future lease obligations, offset by $0.3 million of exit and disposal cost and other net disposals.

During 2010, we recorded total impairment, disposal and restructuring charges, net, of $15.0 million. Included are impairment charges of $11.5 million on 16 O’Charley’s restaurants, seven Ninety Nine restaurants and three surplus properties. Also included is $3.2 million for exit and disposal costs relating to restaurant and facility closures. The remaining $0.3 million relates to other net losses on asset disposals.

During 2009, we recorded total impairment, disposal and restructuring charges, net, of $8.4 million. Included are impairment charges of $7.7 million on eight O’Charley’s restaurants, six Ninety Nine restaurants, and two Stoney River restaurants. The remaining $0.7 million charge relates to restructuring costs related to the closing of our Bellingham, Massachusetts distribution facility and the sale of a non-core asset.

During 2008, we recorded total impairment, disposal and restructuring charges, net, of $12.8 million. Included are impairment charges of $12.6 million on five O’Charley’s restaurants, eight Ninety Nine restaurants and two Stoney River restaurants. In addition, we sold our airplane and incurred other immaterial charges. This impairment charge was partially offset by net gains on the disposal of assets of $0.4 million.

During 2007, we recorded total impairment, disposal and restructuring charges, net, of $15.2 million. Included was a $10.2 million charge in connection with changes in our supply chain, which primarily consisted of non-cash charges taken for the loss on the sale of the commissary real estate and facility and related impairment of manufacturing equipment, charges taken for employee severance and retention, and to a lesser extent, legal and transition costs. We also recorded impairment and disposal costs of $5.2 million relating to restaurant impairments and other asset retirements during 2007. Included in the $5.2 million charge is the impairment related to three underperforming O’Charley’s restaurants, one Ninety Nine restaurant, and one Stoney River restaurant.

(2) In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 “Intangibles – Goodwill and Other” (“FASB ASC 350”), in 2008 we recorded goodwill impairment charges of $93.1 million related to goodwill recorded in connection with the acquisition of the Ninety Nine concept and $0.6 million related to the acquisition of the Stoney River concept, resulting in the write off of all of the goodwill on our balance sheet.

(3) For fiscal 2011, the income tax provision included a net valuation allowance increase of $10.2 million to offset the current year changes in deferred tax assets. For fiscal 2010, the income tax provision included a net valuation allowance increase of $18.6 million to offset the current year increase in deferred tax assets. For fiscal 2009, the income tax provision included a net valuation allowance increase of $6.5 million to offset the current year increase in deferred tax assets. For fiscal 2008, the income tax provision included a charge of $61.6 million to establish a valuation reserve for substantially all of our deferred tax assets.

27

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

Overview

We are a multi-concept 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 December 25, 2011, we operated 221 O’Charley’s company-owned restaurants in 17 states in the East, Southeast and Midwest, 105 Ninety Nine restaurants in seven states throughout New England and upstate New York, and 10 Stoney River restaurants in six states in the East, Southeast and Midwest. As of December 25, 2011, we had six franchised O’Charley’s restaurants in four states in the Southeast and Midwest.

In response to the macroeconomic conditions of the past several years, much of management’s focus has been on improving guest satisfaction, stabilizing and increasing guest counts and sales, controlling margins, reducing overhead costs, maximizing cash flow, and reducing debt. While we believe that we have made progress in these areas, and that the tools we applied, such as our food, labor, and beverage cost management systems, continue to contribute positively to our operating results, we believe that we still have considerable opportunities to improve our financial performance.

Our Guest Satisfaction Index (“GSI”) scores, which we believe are a barometer signifying our guests’ intent to return to the restaurant, continued to improve during fiscal 2011. The percentage of respondents who gave the highest rating for overall satisfaction improved by 400 basis points at O’Charley’s, by 500 basis points at Ninety Nine, and by 300 basis points at Stoney River in fiscal 2011 compared to the prior-year period. Going forward, we believe that our primary focus must be on positioning each of our restaurant concepts to increase guest counts, sales, and profitability.

During 2011, each of our concepts produced positive comparable sales for the full year as compared to the prior year, with a 0.3% increase for O’Charley’s, a 3.9% increase for Ninety Nine and a 7.2% increase for Stoney River. Comparable sales at Ninety Nine and Stoney River concepts have produced positive comparable sales growth for six consecutive quarters. Guest counts and average check per guest increased at two of our three restaurant concepts. We are in the early stages of improving our ability to produce sustainable, long-term profitability growth and believe long-term success will come from continuing to focus on the key points of our turnaround plan: (1) lead with food and win with food: serving a menu of memorable offerings priced to provide a compelling value for our guests; (2) operate great restaurants: consistently delivering a quality dining experience; (3) drive guest counts through effective messages: clearly communicating the attributes of our concepts; and (4) provide attractive and comfortable restaurants: delivering a great environment for our guests every day at each O’Charley’s, Ninety Nine and Stoney River restaurant.

At our O’Charley’s restaurants, during 2011 we saw a slight increase in our comparable sales as compared to the prior-year. While sales and average check per guest increased, our comparable guest counts decreased. During the year we continued to build upon the concept’s existing strengths by simplifying the menu and improving the quality of menu items. We also continued our re-training and re-certification program with our restaurant management teams to improve service and execution, which were also aided by a simplified menu. In addition, we continue to strengthen the management team. During the third quarter we announced the hiring of Marc Buehler as the Concept President for O’Charley’s. Mr. Buehler has extensive experience in casual dining, most recently as President, CEO and a director of Kona Grill, Inc. Subsequent to our fiscal 2011 year-end, we announced the hiring of Rick Trebilcock as our O’Charley’s Vice President of Marketing. Mr. Trebilcock joined us from Potbelly Sandwich Shops and previously led the marketing team at Longhorn Steakhouse when it was owned by RARE Hospitality.

At our Ninety Nine restaurants, we continue to focus on our core guests, who we believe appreciate a friendly environment that offers generous portions of high-quality traditional fare at moderate prices. This “back to the basics” approach has produced six consecutive quarters of accelerating comparable sales growth along with improved guest counts and average check per guest during fiscal 2011.

At our Stoney River restaurants, we have focused on broadening the appeal of this brand to a wider audience. We believe this strategy is the primary reason that, Stoney River’s comparable guest counts have increased for nine consecutive quarters and comparable sales have grown for six consecutive quarters. We are now focused on refreshing our menu choices as well as bringing Stoney River’s cost structure in line with a lower check average.

In addition, during 2011, we redeemed at par $115.2 million principal amount of our 9% Senior Subordinated Notes which were to mature in November 2013 (“the “Senior Notes”). The gross proceeds of approximately $105.0 million from the sale-leaseback of 50 O’Charley’s restaurant properties combined with then available cash funded the redemption of the Senior Notes. The sale-leaseback was completed and announced on October 17, 2011. The Senior Note redemption was completed on November 16, 2011. The anticipated impact of these two transactions will be a

28

decrease in annual interest expense associated with the Senior Notes of approximately $10.0 million, as well as approximately $2.5 million less in annual depreciation, partly offset by approximately $8.9 million of incremental annual rent expense. In addition, we recorded a loss in the fiscal fourth quarter of 2011 of approximately $1.2 million on the sale of certain properties included in the sale-leaseback transaction. Also on October 17, 2011 we entered into a Fourth Amended and Restated Credit Agreement with existing banks, which reduced our revolving credit facility to $30 million from $45 million and extended the facility’s term under our credit facility to 2016.

As announced subsequent to the end of fiscal 2011, on February 5, 2012, we signed a definitive merger agreement with FNF whereby FNF would acquire all of the outstanding shares of the Company’s common stock for $9.85 per share, representing a total equity value of approximately $221 million on a fully diluted basis. See Item 1 “Business – Proposed Acquisition of Our Company” and Note 24 of the “Notes to the Consolidated Financial Statements” for further information. Unless expressly noted to the contrary, all forward-looking statements in this Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relate to us on a stand-alone basis and are not reflective of the impact of the proposed transaction with FNF.

Fiscal years end on the last Sunday of the calendar year. Fiscal years 2011, 2010 and 2009 each consisted of 52 weeks. We have one reportable segment.

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

Revenues consist primarily of company-operated 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 and other revenue consist of development fees, royalties on sales by franchised units, and royalties on sales of branded food items, particularly salad dressings. 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. Revenue resulting from the sale of gift cards is recognized in the period redeemed. A percentage of gift card redemptions, based upon actual experience, is recognized as a reduction in restaurant operating cost for gift cards sold that will not be redeemed.

Cost of Food and Beverage primarily consists of the costs of beef, seafood, poultry 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, seafood, and poultry which accounted for approximately 25 percent, 13 percent and 10 percent, respectively, of our overall cost of food and beverage in fiscal 2011. 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) contribution match, hourly wages for restaurant level team members, payroll taxes, workers’ compensation programs, 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, benefits 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. A percentage of gift card redemptions, based upon actual experience, is recognized as a reduction in restaurant operating costs for gift cards sold that will not be redeemed.

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. We expense advertising and marketing costs in the year incurred, except for certain advertising production costs that are initially capitalized and subsequently expensed the first time the advertising takes place.

General and Administrative Expenses include the costs of the 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 plan gains or

29

losses in employees’ self-directed non-qualified deferred compensation plan accounts, and office expenses account for the major expenses in this category. This category also includes all recruiting, relocation and most severance-related expenses. Severance costs associated with the 2010 restaurant closures and the 2009 sale of the Ninety Nine distribution operations are included in the “Impairment, disposal and restructuring charges, net” line.

Depreciation and Amortization, 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.

Impairment, Disposal and Restructuring Charges, net includes asset impairments, either operating or held for sale, severance and other exit costs for closed locations, asset disposals, gains and losses incurred upon the sale of assets, and to a lesser extent, various costs associated with restructuring our supply chain. 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 represent 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. Exit and disposal costs are primarily future lease obligations net of expected sublease income, if any, or changes in these net future lease obligations.

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, costs shared with open locations, and the significance of the impact on the related consolidated financial statement line items.

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 were not material in 2011. 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 re-branding or remodeling initiatives.

Interest Expense, net represents the sum of the following: interest on our 9% Senior Subordinated notes (the “Senior Notes”) which were fully redeemed during the fourth fiscal quarter of 2011; interest and fees associated with our credit facility; amortization of prepaid interest and finance charges; impact of the interest rate swaps that were terminated in December 2008; amortization of the swap exit payment; changes in the value of the assets associated with our non-qualified deferred compensation plan resulting from gains and losses in the underlying funds; and interest on capital lease obligations; and the premiums paid over the face value of any Senior Notes repurchased during the relevant fiscal period.

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

Loss from Discontinued Operations, Net includes the operating results of closed locations classified as discontinued operations and impairment, disposal and exit costs related to these restaurants and ongoing real estate, utility and maintenance costs, net of income taxes. Impairment charges are taken for land, buildings and equipment and certain other assets upon closing and are measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset based upon the future highest and best use of the impaired asset. Exit costs represent activities necessary to close the restaurant, including termination benefits such as severance, contract termination costs, and other contract costs that will remain without future economic benefit, such as operating leases. Remaining operating lease obligations are reduced by estimated sublease rentals that could be reasonably obtained.

30

Results of Operations

The following information should be read in conjunction with our consolidated financial statements and the related notes. The following table reflects our operating results for fiscal years 2011, 2010, and 2009 as a percentage of total revenues unless otherwise indicated. All fiscal years were comprised of 52 weeks. Fiscal year 2009 has been adjusted to reflect the discontinued operations of certain restaurant locations closed during 2010.

	2011			2010			2009
Revenues:
Restaurant sales		99.9	%		99.9	%		99.9	%
Franchise and other revenue		0.1			0.1			0.1
		100.0	%		100.0	%		100.0	%
Costs and Expenses:
Cost of restaurant sales: (1)
Cost of food and beverage		31.5	%		29.9	%		29.1	%
Payroll and benefits		34.7			35.4			35.3
Restaurant operating costs		21.2			21.1			19.9
Cost of restaurant sales, exclusive of depreciation and amortization shown separately below		87.4			86.4			84.3
Advertising and marketing expenses		4.3			4.2			3.7
General and administrative expenses		3.9			4.8			4.4
Depreciation and amortization of property and equipment		4.4			5.1			5.4
Impairment, disposal, and restructuring charges, net		0.3			1.8			1.0
Pre-opening costs		—			—			0.1
(Loss) Income from Operations		(0.2	)		(2.1	)		1.2
Other Expense:
Interest expense, net		1.2			1.4			1.3
Loss from Continuing Operations Before Income Taxes		(1.4	)		(3.5	)		(0.1	)
Income Tax Expense (Benefit)		0.1			(0.2	)		0.3
Loss from Continuing Operations		(1.5	)		(3.3	)		(0.4	)
Loss from Discontinued Operations, net		—			(0.9	)		(0.5	)
Net Loss		(1.5	)%		(4.2	)%		(0.9	)%

(1) Shown as a percentage of restaurant sales.

31

The following information should be read in conjunction with our consolidated financial statements and the related notes. The following table reflects the margin performance of each of our concepts for fiscal years 2011, 2010, and 2009 as a percentage of restaurant sales for each respective concept. All fiscal years were comprised of 52 weeks. Fiscal year 2009 has been adjusted to reflect the discontinued operations of certain restaurant locations closed during 2010.

	2011			2010			2009
O’Charley’s Concept: (1)
Restaurant Sales:	$	519.5		$	529.2		$	558.9
Cost and expenses (2)
Cost of food and beverage		32.0	%		29.9	%		29.0	%
Payroll and benefits		34.7	%		35.6	%		35.2	%
Restaurant operating costs (3)		21.1	%		20.6	%		19.0	%
Costs of restaurant sales, exclusive of depreciation and amortization		87.8	%		86.1	%		83.2	%
Ninety Nine Concept:
Restaurant Sales:	$	272.3		$	265.9		$	273.5
Cost and expenses (2)
Cost of food and beverage		30.0	%		29.1	%		28.5	%
Payroll and benefits		35.8	%		36.3	%		36.3	%
Restaurant operating costs (3)		21.6	%		22.2	%		21.5	%
Costs of restaurant sales, exclusive of depreciation and amortization		87.4	%		87.6	%		86.3	%
Stoney River Concept:
Restaurant Sales:	$	34.3		$	33.9		$	32.9
Cost and expenses (2)
Cost of food and beverage		36.8	%		35.7	%		36.1	%
Payroll and benefits		27.0	%		26.9	%		29.3	%
Restaurant operating costs (3)		19.3	%		19.9	%		20.7	%
Costs of restaurant sales, exclusive of depreciation and amortization		83.1	%		82.5	%		86.1	%

(1) Includes revenue from O’Charley’s joint venture operations of $5.4 million for fiscal year 2009 and associated costs and expenses, but excludes revenue from franchised restaurants. During 2009, we acquired the remaining interests of both our joint venture operations.

(2) Shown as a percentage of restaurant sales.

(3) Includes rent, where 100 percent of the Ninety Nine restaurant locations are leased compared to 80 percent of O’Charley’s restaurant locations and 70 percent of Stoney River restaurant locations. In 2010, we leased 57 percent of O’Charley’s restaurant locations. The change in 2011 is from the sale-leaseback transaction completed during the fourth quarter of 2011.

32

The following tables set forth certain unaudited financial and other restaurant data relating to company-owned restaurants, unless otherwise specified. All fiscal years were comprised of 52 weeks and include the operations of certain restaurant locations closed during 2010, which are classified as discontinued operations in the accompanying financial statements.

	2011			2010			2009
Number of Restaurants:
O’Charley’s Restaurants: (1)
In operation, beginning of year		221			235			232
Restaurants opened/acquired (2)		—			—			3
Restaurants closed		—			(14	)		—
In operation, end of year		221			221			235
Ninety Nine Restaurants:
In operation, beginning of year		106			116			116
Restaurants opened		—			—			1
Restaurants closed		(1	)		(10	)		(1	)
In operation, end of year		105			106			116
Stoney River Restaurants:
In operation, beginning of year		11			11			11
Restaurants opened		—			—			1
Restaurants closed		(1	)		—			(1	)
In operation, end of year		10			11			11
Franchise / Joint Venture Restaurants (O’Charley’s):
In operation, beginning of year		9			10			12
Restaurants opened		—			—			2
Restaurants closed/ acquired		(3	)		(1	)		(4	)
In operation, end of year		6			9			10
Average Weekly Sales per Store:
O’Charley’s	$	45,209		$	44,107		$	46,189
Ninety Nine		49,499			46,611			46,734
Stoney River		65,774			59,206			59,456
Increase (Decrease) in Comparable Store Sales (3):
O’Charley’s		0.3	%		(4.9	)%		(5.8	)%
Ninety Nine		3.9	%		(1.5	)%		(6.8	)%
Stoney River		7.2	%		(1.5	)%		(16.4	)%
(Decrease) Increase in Comparable Store Guest Visits (3):
O’Charley’s		(1.2	)%		(1.6	)%		(4.8	)%
Ninety Nine		3.0	%		(1.6	)%		(4.7	)%
Stoney River		9.0	%		9.8	%		(4.7	)%
Increase (Decrease) in Comparable Store Average Check per Guest (3):
O’Charley’s		1.5	%		(3.4	)%		(1.1	)%
Ninety Nine		0.9	%		0.1	%		(2.2	)%
Stoney River		(1.7	)%		(10.2	)%		(12.3	)%
Average Check per Guest (4):
O’Charley’s	$	12.64		$	12.43		$	12.85
Ninety Nine		14.79			14.59			14.62
Stoney River		35.90			36.97			41.22

(1) “O’Charley’s Restaurants” refers to O’Charley’s company-owned restaurants only.

(2) Represents the acquisition of the remaining ownership interests in our Wi-Tenn Restaurants, LLC joint venture on June 2, 2009 and JFC Enterprises, LLC joint venture on September 28, 2009.

(3) When computing comparable store sales, guest visits and average check per guest, restaurants open for at least 78 weeks are compared from period to period for company-owned restaurants.

(4) The average check per guest is computed using all restaurants open during the year.

33

Fiscal Year 2011 Compared with Fiscal Year 2010

Overview

The comparison between our financial results in fiscal 2011 and our financial results in fiscal 2010 was impacted by a number of developments. Comparable store sales and average weekly sales increased at each of our concepts during fiscal 2011 as compared to fiscal 2010. During 2011 we closed two under-performing restaurants. During fiscal 2010, we closed 24 under-performing restaurants, of which nine were considered discontinued operations, and incurred impairment, disposal and restructuring charges of $20.9 million, of which $5.9 million is included in loss from discontinued operations, net on our consolidated statement of operations. The following discussion of year-over-year results pertains only to those locations included in our continuing operations.

Revenues

During fiscal 2011, total revenues decreased $3.0 million, or 0.4 percent, to $827.1 million from $830.1 million in fiscal 2010.

Restaurant sales for company-operated O’Charley’s decreased $9.7 million, or 1.8 percent, to $519.5 million during fiscal 2011, primarily reflecting a comparable store sales increase of 0.3 percent and the closure of ten restaurants since the beginning of fiscal 2010. The closure of the ten restaurants reduced sales in the current year by $11.3 million. The comparable store sales increase of 0.3 percent was the result of a 1.5 percent increase in average check partly offset by a 1.2 percent decrease in guest counts. The 1.5 percent increase in average check increased sales by $7.7 million compared to the prior-year period, while the 1.2 percent decrease in guest counts decreased sales by $6.3 million compared to the prior-year period.

Restaurant sales for Ninety Nine increased $6.4 million, or 2.4 percent, to $272.3 million during fiscal 2011 primarily reflecting a comparable store sales increase of 3.9 percent and the closure of six restaurants since the beginning of fiscal 2010. The closure of the six restaurants reduced sales in the current year by $3.4 million. The comparable store sales increase of 3.9 percent was the result of a 3.0 percent increase in guest counts and a 0.9 percent increase in average check. The 3.0 percent increase in guest counts increased sales by $7.7 million compared to the prior-year period, while the 0.9 percent increase in average check increased sales by $2.5 million compared to the prior-year period.

Restaurant sales for Stoney River Legendary Steaks increased $0.4 million, or 1.2 percent, to $34.3 million during fiscal 2011 primarily reflecting a comparable store sales increase of 7.2 percent and the closure of one restaurant during fiscal 2011. The closure of the restaurant reduced sales in the current year by $1.9 million. The comparable store sales increase of 7.2 percent was the result of a 9.0 percent increase in guest counts partially offset by a 1.7 percent decrease in average check. The 9.0 percent increase in guest counts increased sales by $2.8 million compared to the prior-year period, while the 1.7 percent decrease in average check decreased sales by $0.6 million compared to the prior-year period.

Cost of Food and Beverage

During fiscal 2011, our cost of food and beverage was $260.6 million, or 31.5 percent of restaurant sales, compared with $247.5 million, or 29.9 percent of restaurant sales, in the prior-year period. A number of factors contributed to this $13.1 million increase in food and beverage costs. In addition to changes in trends in consumer behavior, we routinely adjust our product offerings, pricing, and promotional incentives among other factors that collectively comprise our product mix during any given period. During the 2011 fiscal year, we believe the increase is due to a $15.1 million increase in our commodity costs, primarily for beef. This increase was partly offset by a $1.2 million decrease attributed to changes to our product mix, and a $0.8 million decrease attributed to a decline in our restaurant sales.

34

Payroll and Benefits

During fiscal 2011, payroll and benefits were $287.0 million, or 34.7 percent of restaurant sales, compared to $293.6 million, or 35.4 percent of restaurant sales, in fiscal 2010. As a percentage of restaurant sales, payroll and benefits declined as compared to the prior-year period due primarily to higher productivity from better utilization of our scheduling tools, partly offset by an increase in payroll taxes due to the prior-year period including a credit from the adoption of the Hiring Incentives to Restore Employment (“HIRE”) Act and increased current year employee bonuses. The HIRE Act was not extended to fiscal 2011.

Restaurant Operating Costs

During fiscal 2011, restaurant operating costs were $174.7 million, or 21.2 percent of restaurant sales, compared to $175.0 million, or 21.1 percent of restaurant sales, in fiscal 2010. The $0.3 million year-over-year decrease is due primarily to several partly offsetting items. As compared to the prior-year period, reductions in utilities cost of $1.7 million and general liability expense of $0.8 million were partly offset by an increase in repair and maintenance costs of $0.9 million, an increase in base rent expense of $0.9 million due to the sale-leaseback of 50 owned O’Charley’s properties and increased fees of $0.4 million due to an increase in gift card sales through retail channels.

Advertising and Marketing Expenses

During fiscal 2011, advertising and marketing expenditures were $35.5 million, or 4.3 percent of total revenues, compared to $34.7 million, or 4.2 percent of total revenues, in fiscal 2010. The $0.8 million year-over-year increase is due to an increased investment in social, digital, and television media in our efforts to support our value offering and message.

General and Administrative Expenses

During fiscal 2011, general and administrative expenses were $31.9 million, or 3.9 percent of total revenues, compared to $39.5 million, or 4.8 percent of total revenues, in fiscal 2010. This net 90 basis point decrease in general and administrative expenses is due primarily to a $5.4 million reduction in net compensation, including salaries and bonuses, share-based compensation and severance and a $0.4 million decrease due to a loss in our deferred compensation plan as compared to a gain in the prior-year.

Depreciation and Amortization

During fiscal 2011, depreciation and amortization expense was $36.1 million, or 4.4 percent of total revenues, as compared to $42.1 million, or 5.1 percent of total revenues, in fiscal 2010. This reduction in depreciation is primarily due to lower carrying values of assets following restaurant impairment charges recognized in prior fiscal years as well as the sale-leaseback transaction completed in the fourth quarter of 2011.

Impairment, disposal and restructuring charges, net

Impairment, disposal and restructuring charges, net were $2.9 million, or 0.3 percent of total revenues, in fiscal 2011, compared to $15.0 million, or 1.8 percent of total revenues, in fiscal 2010. Included in fiscal 2011 are impairment charges of $1.4 million on three O’Charley’s restaurants, a $1.2 million loss on sale on six O’Charley’s restaurants included in the sale-leaseback transaction and $0.2 million on three assets held for sale. Also included is a gain of $0.2 million due to net reductions of previously closed locations’ future lease obligations offset by $0.3 million of exit and disposal costs and other net disposal costs. Included in fiscal 2010 are impairment charges of $11.5 million for 16 O’Charley’s restaurants, seven Ninety Nine restaurants and three surplus properties. Also included is $3.2 million for exit and disposal costs relating to restaurant and other facility closures. The remaining $0.3 million relates to other net losses on asset disposals.

Pre-opening Costs

There were no pre-opening costs incurred during 2011 and in 2010 as they were insignificant. There were no new restaurant developments during fiscal 2011 or 2010.

35

Interest Expense, net

Our net interest expense was $9.6 million or 1.2 percent of total revenues, in fiscal 2011, as compared to $11.8 million, or 1.4 percent of total revenues, in 2010. This $2.2 million decrease is primarily due to our repurchase of the remaining $115.2 million of our Senior Notes in the fourth quarter of 2011.

Income Taxes

For fiscal 2011 we have recorded income tax expense of $0.7 million, compared with $1.8 million of tax benefit in the prior year. Our tax expense includes only the portion associated with continuing operations. This reflects a rate of 5.8 percent applied against our full year pretax loss, and includes changes in deferred tax assets and liabilities and changes in accruals for uncertain tax positions.

Loss from Discontinued Operations, Net

During fiscal 2011, we recorded a $0.2 million loss from discontinued operations, compared to a loss of $7.6 million, net of taxes, in 2010. For fiscal 2011, we recorded exit and disposal costs and the adjustment of future lease obligations for previously closed locations of $0.6 million, partially offset by a gain from the sale of assets held for sale of $0.4 million. During fiscal 2010, we closed nine restaurants that were treated as discontinued operations. Asset impairment charges related to these closed restaurants were $4.8 million and exit and disposal costs were $1.1 million, primarily severance and the present value of future lease obligations, net of expected sublease income. In addition, these restaurants had a combined net loss from operations of $1.7 million during fiscal 2010.

Fiscal Year 2010 Compared with Fiscal Year 2009

Overview

The comparison between our financial results in fiscal 2010 and our financial results in fiscal 2009 was impacted by a number of developments. We continued to experience declines in comparable store sales and average weekly sales at each of our concepts due to the economic environment, however comparable store sales trends improved in the second half of fiscal 2010 as compared to the prior-year period. During fiscal 2010, we closed 24 restaurants, of which nine were considered discontinued operations, and incurred impairment, disposal and restructuring charges of $20.9 million, of which $5.9 million is included in loss from discontinued operations, net on our consolidated statement of operations. The following discussion on year over year results pertains only to those locations included in our continuing operations.

Revenues

During fiscal 2010, total revenues decreased $36.2 million, or 4.2 percent, to $830.1 million from $866.3 million in 2009. In 2010, average check and same-store guest visits decreased at O’Charley’s and Ninety Nine; and average check decreased and same-store guest visits increased at Stoney River Legendary Steaks. We believe these decreases in average check and same store guest visits were due primarily to weak consumer demand caused by the current economic environment. As consumers became more value conscious, we offered a greater variety of lower priced menu options and discounts.

Restaurant sales for O’Charley’s decreased $29.7 million, or 5.3 percent, to $529.2 million during fiscal 2010, reflecting a decline in same-store sales of 4.9 percent and the closure of ten restaurants. The closure of the ten restaurants reduced sales in the current year by $2.2 million. The same-store sales decrease of 4.9 percent was the result of a 3.4 percent decrease in average check and a 1.6 percent decrease in guest counts. The 3.4 percent decrease in average check reduced sales by $18.2 million compared to the prior-year period, while the 1.6 percent decrease in guest counts decreased sales by $8.8 million compared to the prior-year period.

Restaurant sales for Ninety Nine decreased $7.6 million, or 2.8 percent, to $265.9 million during fiscal 2010, reflecting a decline in same-store sales of 1.5 percent and the closing of five restaurants. The closure of the five restaurants reduced sales in the current year by $3.8 million. The same-store sales decrease of 1.5 percent was the result of a 1.6 percent decrease in guest counts partly offset by a 0.1 percent increase in average check. The 1.6 percent decrease in guest counts reduced sales by $4.4 million compared to the prior-year period, while the 0.1 percent increase in average check increased sales by $0.2 million compared to the prior-year period.

36

Restaurant sales for Stoney River Legendary Steaks increased $1.0 million, or 3.0 percent, to $33.9 million during fiscal 2010. Same-store sales decreased 1.5 percent. The same-store sales decrease of 1.5 percent was the result of a 10.2 percent decrease in average check partly offset by a 9.8 percent increase in guest counts. The 10.2 percent decrease in average check decreased sales by $3.4 million compared to the prior-year period, while the 9.8 percent increase in guest counts increased sales by $2.9 million compared to the prior-year period. The reduction due to the same-store sales decrease was offset by the fiscal 2010 comparative net sales increase resulting from the timing of 2009 store openings and closures.

Cost of Food and Beverage

During fiscal 2010, our cost of food and beverage was $247.6 million, or 29.9 percent of restaurant sales, compared with $252.2 million, or 29.1 percent of restaurant sales, in the same prior-year period. A number of factors contributed to this $4.6 million decrease in food and beverage costs. In addition to changes in trends in consumer behavior, we routinely adjust our product offerings, pricing, and promotional incentives among other factors that collectively comprise our product mix during any given period. During fiscal 2010, we believe the changes to our product mix increased our cost of food and beverage by approximately $10.5 million. This increase was more than offset by a $10.6 million decrease in cost of food and beverage attributable to our decline in sales and a $4.5 million decrease attributed to a reduction in our commodity costs for beef and wheat, partly offset by increase in costs for seafood.

Payroll and Benefits

During fiscal 2010, payroll and benefits were $293.6 million, or 35.4 percent of restaurant sales, compared to $305.4 million, or 35.3 percent of restaurant sales, in fiscal 2009. Payroll and benefit costs as a percentage of restaurant sales was essentially flat when compared to fiscal 2009 due to the de-leveraging impact of lower average weekly sales offset by net reductions in other payroll and benefits costs. The $11.7 million year-over-year decline is due primarily to lower payroll of $4.9 million due primarily to lower sales, reduced bonus expense of $4.2 million due to our operating performance, a reduction in payroll taxes of $2.1 million primarily related to the adoption of the (HIRE) Act, and reduced insurance costs of $1.3 million, partly offset by an increased investment in training of $0.9 million, reflecting our re-training and certification efforts.

Restaurant Operating Costs

During fiscal 2010, restaurant operating costs were $175.0 million, or 21.1 percent of restaurant sales, compared to $171.9 million, or 19.9 percent of restaurant sales, in fiscal 2009. The $3.1 million year-over-year increase is due primarily to a $1.2 million increase in repair and maintenance costs and a $1.0 million increase in our general liability cost due to claims experience.

Advertising and Marketing Expenses

During fiscal 2010, advertising and marketing expenditures were $34.7 million, or 4.2 percent of total revenues, compared to $32.2 million, or 3.7 percent of total revenues, in fiscal 2009. The $2.5 million year-over-year increase is due to an increased investment in television, radio, and print media in our efforts to support our value offerings and message.

General and Administrative Expenses

During fiscal 2010, general and administrative expenses were $39.5 million, or 4.8 percent of total revenues, compared to $38.3 million, or 4.4 percent of total revenues, in fiscal 2009. This net 40 basis point increase in general and administrative expenses is due to the de-leveraging impact of lower sales and $3.4 million of severance costs related to management changes and reductions in our support center staff. Excluding this severance charge, fiscal 2010 general and administrative costs were slightly below fiscal 2009 as a percentage of total revenues.

Depreciation and Amortization

During fiscal 2010, depreciation and amortization expense was $42.1 million, or 5.1 percent of total revenues, as compared to $46.5 million, or 5.4 percent of total revenues, in fiscal 2009. This reduction in depreciation was primarily due to lower carrying values of assets following restaurant impairment charges recognized in fiscal 2010 and prior-year periods.

37

Impairment, disposal and restructuring charges, net

Impairment, disposal and restructuring charges, net were $15.0 million, or 1.8 percent of total revenues, in fiscal 2010, compared to $8.4 million, or 1.0 percent of total revenues, in fiscal 2009. Included in fiscal 2010 are impairment charges of $11.5 million for 16 O’Charley’s restaurants, seven Ninety Nine restaurants and three surplus properties. Also included is $3.2 million for exit and disposal costs relating to restaurant and other facility closures. The remaining $0.3 million relates to other net losses on asset disposals. Included in 2009 are impairment charges of $7.7 million on eight O’Charley’s restaurants, six Ninety Nine restaurants and two Stoney River restaurants. The remaining $0.7 million charge relates to restructuring costs related to the closing of our Bellingham, Massachusetts distribution facility and the sale of a non-core asset.

Pre-opening Costs

Pre-opening costs during fiscal 2010 were insignificant compared to $0.6 million during fiscal 2009. This decrease in pre-opening costs was the result of no new restaurant development during the fiscal year.

Interest Expense, net

Our net interest expense was $11.8 million, or 1.4 percent of total revenues, in fiscal 2010, as compared to $11.6 million, or 1.3 percent of total revenues, in fiscal 2009. This $0.2 million increase is due to charges associated with changes in the value of deferred compensation balances, partly offset by reduced levels of debt.

Income Taxes

For fiscal 2010 we recorded income tax benefit of $1.8 million, compared with $2.3 million of tax expense in the prior year. Our tax benefit includes only the portion associated with continuing operations. This reflects a rate of 6.3 percent applied against our full year pretax loss, and includes changes in deferred tax assets and liabilities and changes in accruals for uncertain tax positions.

Loss from Discontinued Operations, Net

During fiscal 2010, we recorded a $7.6 million loss from discontinued operations, net of taxes, compared to a loss of $4.2 million in fiscal 2009. During fiscal 2010, we closed nine restaurants that were treated as discontinued operations. Asset impairment charges related to these closed restaurants were $4.8 million and exit and disposal costs were $1.1 million, primarily severance and the present value of future lease obligations, net of expected sublease income. In addition, these restaurants had a combined net loss from operations of $1.7 million during fiscal 2010. During fiscal 2009, we recorded a $4.2 million loss from discontinued operations, net of taxes, which included $2.9 million from asset impairments and a $1.3 million net loss from operations related to the nine restaurants closed in fiscal 2010.

38

Liquidity and Capital Resources

Our primary sources of capital have historically been cash provided by operations, borrowings under our credit facilities and capital leases. Our principal capital needs have historically arisen from property and equipment additions, acquisitions, and payments on long-term debt and capitalized lease obligations. In addition, we lease a substantial number of our restaurants under operating leases and have substantial operating lease obligations. During the fourth fiscal quarter of 2011, we completed the sale-leaseback of 50 O’Charley’s properties generating $105.0 million of gross proceeds which, along with existing cash, were used to retire the $115.2 million of our outstanding Senior Notes.

Like many restaurant companies, our working capital has historically had current liabilities in excess of current assets due to collection of our sales being received in four days or less while our typical accounts payable turnover, excluding food invoices, averages thirty days. We do not believe this indicates a lack of liquidity. We have slowed our restaurant development in recent years in order to focus on improving the performance of our existing restaurants and reducing our debt. We did not open any new company-owned restaurants at any of our concepts in 2011.

The following table presents a summary of our cash flows for the last three years (in thousands):

	2011			2010			2009
Net cash provided by operating activities	$	19,046		$	35,715		$	48,392
Net cash provided by (used in) investing activities		87,644			(14,321	)		(6,648	)
Net cash used in financing activities		(117,772	)		(13,581	)		(26,682	)
Net (decrease) increase in cash and cash equivalents	$	(11,082	)	$	7,813		$	15,062

Net cash provided by operating activities during fiscal 2011 was $19.0 million, a decrease of $16.7 million from fiscal 2010. This reduction in net cash provided by operating activities is due to a $6.7 million reduction in net earnings, after adjusting for non-cash charges and a $10.0 million use of cash due to the net change in working capital and other long-term assets and liabilities over the prior year. The $10.0 million net use of cash is primarily due to increased credit card and retail gift card sales receivables, payment timing of accounts payable and lower accruals for severance paid during 2011 and interest as our Senior Notes were retired in the fourth fiscal quarter of 2011.

Net cash provided by operating activities decreased in fiscal 2010 from fiscal 2009 by approximately 26 percent or $12.7 million. This reduction in net cash provided by operating activities is due to a $19.9 million reduction in net earnings, after adjusting for non-cash charges, partly offset by a $7.2 million net increase in the change in working capital and other long-term assets and liabilities over the prior year. The $7.2 million increase is primarily due to partly offsetting changes in accounts payable and inventory. The change in accounts payable is primarily due to the large reduction in payables in 2009 due to reductions to credit balances with certain financial institutions, the outsourcing of our Bellingham, Massachusetts distribution operations during 2009, and lower construction payables due to less construction activity at the end of 2009 as compared to 2008. Partly offsetting the changes in accounts payable were changes in inventory due to the 2009 phase out of our Bellingham, Massachusetts distribution operations and the use of inventory resulting from previous buying opportunities.

Net cash provided by investing activities during fiscal 2011 was $87.6 million, an increase of $102.0 million from fiscal 2010. The increase is due primarily to the $105.0 million in gross proceeds received from the fourth quarter 2011 sale-leaseback of 50 O’Charley’s properties, partly offset by $3.2 million of related transaction costs. Net cash used in investing activities increased in 2010 from 2009 by $7.7 million due primarily to 2009 sales of non-core assets and assets associated with the outsourcing of our Bellingham, Massachusetts distribution services.

Net cash used in financing activities during fiscal 2011 was $117.8 million, an increase of $104.2 million from fiscal 2010. The increase is due primarily to the fourth quarter redemption of the remaining $115.2 million of Senior Notes as compared to the repurchase of $9.8 million of Senior Notes in 2010. Net cash used in financing activities decreased in fiscal 2010 from fiscal 2009 by $13.1 million due primarily to a net decrease of $28.2 million for long-term debt and capital lease payments partly offset by fiscal 2009 payments from the counterparties of our swap agreements to exit the agreement in exchange for $3.5 million and the fiscal 2010 repurchase of our Senior Notes for $9.8 million.

We believe that our various sources of capital, including cash flow from operating activities, availability under our credit facility, and the ability to acquire additional financing, are adequate to fund our capital requirements for at least the next twelve months. As of the end of fiscal 2011, there were no amounts outstanding on our revolving credit facility and $0.2 million outstanding in debt and capital lease obligations. We had $12.8 million of outstanding letters of credit as of December 25, 2011. As of December 25, 2011, we had $17.2 million of remaining borrowing capacity under our revolving credit facility. We do not expect to rely on our credit facility as a significant source of funds during fiscal year 2012.

39

During the fourth fiscal quarter of 2011, we entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with the existing banks under our revolving credit facility which reduced our revolving credit facility to $30 million from $45 million and extended the facility’s term to 2016. The maximum adjusted leverage ratio remained at 5.25. The fixed charge ratio was 1.20 in the fourth fiscal quarter of 2011, ranges from 1.15 to 1.20 in fiscal 2012, and is 1.25 thereafter. We are permitted to make capital expenditures for restaurant remodels and expansion under the new facility of up to $5.0 million for 2011 and up to 35% of the prior year’s Earnings Before Interest Taxes Depreciation and Amortization or EBITDA (as defined therein) for 2012 and the years thereafter. The Credit Agreement also reduced the number of company-owned restaurants subject to collateral mortgages from 47 to 45. As of December 25, 2011, the Company believes it was in compliance with all covenants included in the Credit Agreement.

We have four separate lease agreements that cover an aggregate of 30 of our Ninety Nine restaurants, each of which contains a fixed charge covenant calculation. Each of the four restaurant groups are subject to an annual fixed charge coverage ratio of 1.50 to 1.00. Each of these groups of restaurants were in compliance with this covenant as of the end of fiscal 2011.

In fiscal years 2011, 2010 and 2009, net cash flows provided by (used in) investing activities included capital expenditures incurred principally for improvements to existing restaurants and improvements in our information systems. Capital expenditures for 2011, 2010 and 2009, excluding computer equipment financed through a capital lease obligation of $0.1 million in 2011, were as follows:

	2011		2010		2009
	(in thousands)
New restaurant capital expenditures	$	—	$	—	$	3,053
Remodel capital expenditures		301		3,096		1,184
Other capital expenditures		16,910		12,349		10,427
Total capital expenditures	$	17,211	$	15,445	$	14,664

40

Contractual Obligations and Commercial Commitments

The following tables set forth our contractual obligations and commercial commitments at December 25, 2011 (in thousands):

			Payments Due by Period
Contractual Obligation	Total		Less than 1 Yr		1-3 Yrs		3-5 Yrs		More Than 5 Years
Long-term debt, excluding credit facility	$	65	$	65	$	—	$	—	$	—
Long-term debt interest (1)		3		3		—		—		—
Capitalized lease obligations		94		64		30		—		—
Operating leases		443,677		40,794		78,720		69,276		254,887
Uncertain tax positions		469		123		230		54		62
Unconditional purchase obligations (2)		269,027		154,871		93,092		21,064		—
Total contractual obligations	$	713,335	$	195,919	$	172,073	$	90,394	$	254,949
			Amount of Commitment Expiration per Period
Other Commercial Commitments	Total		Less than 1 Yr		1-3 Yrs		3-5 Yrs		More Than 5 Years
Line of credit (3)	$	—	$	—	$	—	$	—	$	—

(1) This interest relates to notes payable to Stoney River Managing Partners.

(2) These purchase obligations are primarily food obligations with fixed commitments in regards to the time period of the contract with annual price adjustments that can fluctuate and a fixed beverage contract with an annual price adjustment. In situations where the price is based on market prices, we use the existing market prices at December 25, 2011 to determine the amount of the obligation. Total unconditional purchase obligations shown are based on variable pricing that is adjusted annually.

(3) The Company has a $30 million line of credit at December 25, 2011. At December 25, 2011, we had no amounts outstanding on this credit facility. We had $12.8 million of outstanding letters of credit as of December 25, 2011. As of December 25, 2011, we had $17.2 million of remaining borrowing capacity under our credit facility.

41

Franchise Arrangements

On May 18, 2005, we entered into a development agreement with O’Candall Group, Inc. and Sam Covelli. Under the terms of the agreement, O’Candall Group, Inc. and/or certain of its affiliates have the right to develop and operate up to 50 new O’Charley’s restaurants by November 2013. The development plans focus on the Tampa, Florida, Orlando, Florida, Western Pennsylvania, Northwest West Virginia and Northern Ohio markets. As of December 25, 2011, the O’Candall Group, Inc. operates five O’Charley’s restaurants.

The franchising arrangement requires us to provide access to certain contractual arrangements that we have with our vendors in order for the franchisee to benefit from those contracts. The development fees for the franchisee are $50,000 each for the initial restaurants and $25,000 each for the remaining restaurants in each of its five granted areas. The franchisee is also required to pay a franchise fee and marketing fund fee that are based on a percentage of sales. Pursuant to the arrangement, the franchisee was required to pay $500,000 as development fees at the closing of the agreement, which represents a portion of the fees associated with the 50 restaurants agreed upon. The franchisee is required to pay the remaining amount of the development fees to us as each new restaurant opens. No development fees for new restaurant openings were recognized in fiscal 2011 or 2010. The Company recognized income of $100,000 in development fees in 2009 for the opening of two restaurants and $50,000 in development fees for fiscal 2008 related to the opening of a franchised restaurant in each of those fiscal years. The remaining development fees paid have been deferred and will be recognized in income as each restaurant opens.

On February 1, 2007, we entered into an Operating Agreement with Delaware North Companies Travel Hospitality Services (“DNC”). Under the terms of the agreement, DNC and/or certain of its affiliates developed and operate one O’Charley’s Restaurant in the Nashville International Airport located in Nashville, Tennessee. The Operating Agreement requires us to provide access to certain contractual arrangements that we have with our vendors in order for the franchisee to benefit from those contracts. The fees for the franchisee were $30,000 for the restaurant. The franchisee is also required to pay a franchise fee that is based on a percentage of sales.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period (see Note 1 to our consolidated financial statements). Actual results could differ from those estimates. Critical accounting policies are those that management believes are both most important to the portrayal of our financial condition and operating results, and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements.

Our critical accounting policies are as follows:

• Lease accounting

• Share-based compensation

• Property and equipment, net

• Trademarks

• Impairment of long-lived assets

• Income taxes

42

Lease Accounting

Our policy for lease accounting involves recognizing rent on a straight-line basis from the time we are committed to a leased property, which is when all contingencies associated with the delivery of the property by the landlord are taken care of, to the end of the estimated lease term, which may include one or more renewal periods. The useful life over which leasehold improvements are depreciated is the shorter of the estimated useful life or the estimated lease term, which may include one or more renewal periods. We also recognize tenant allowances as a deferred rent liability and amortize them over the estimated lease term, which may include one or more renewal periods. Based upon the size of the investment that we make at a restaurant site, 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.

Share-Based Compensation

We account for share-based compensation in accordance with FASB ASC 718, “Compensation – Stock Compensation,” (“FASB ASC 718”), which requires the measurement and recognition of compensation cost at fair value for all share-based payments including stock options. Share-based compensation for fiscal years 2011, 2010, and 2009 includes compensation expense, recognized over the applicable vesting periods for share-based awards granted prior to these fiscal years, as well as awards granted during these fiscal years.

We use the Black-Scholes-Merton option-pricing model to estimate the fair value of stock options on their grant dates. The Black-Scholes-Merton option pricing model requires various assumptions including the risk free rate, the expected term, the expected dividend yield, and the stock price volatility. If any of these assumptions used in the model change, share-based compensation expense may differ in the future from that recorded in the current period. The Company’s policy is to recognize compensation cost for restricted awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. Compensation expense is recognized for only the portion of options and restricted awards that are expected to vest. Therefore, an estimated forfeiture rate derived from historical employee terminations is applied against share-based compensation expense. The forfeiture rate is applied on a straight-line basis over the service (vesting) period for each separately vesting portion of the award as if the award was in-substance, multiple awards.

Property and Equipment, net

The Company had $220.7 million of property and equipment, net of accumulated depreciation, at December 25, 2011. Our property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives: building and improvements-30 years; and furniture, fixtures and equipment-3 to 10 years. Leasehold improvements are amortized over the lesser of the asset’s estimated useful life or the expected lease term, inclusive of one renewal period. Equipment under capital leases is amortized to its expected residual value at the end of the lease term. Gains or losses are recognized upon the disposal of property and equipment, and the asset and related accumulated depreciation and amortization are removed from the accounts. Maintenance, repairs and betterments that do not enhance the value of or increase the life of the assets are expensed as incurred. We capitalize all direct external costs associated with obtaining the land, building and equipment for each new restaurant, as well as construction period interest. We also capitalize all direct external costs associated with obtaining the dining room and kitchen equipment, signage and other assets and equipment for each re-branded restaurant. In addition, for each new restaurant and re-branded restaurant we also capitalize a portion of the internal direct costs of our real estate and construction department.

To determine our accounting policies related to capitalizing costs associated with our in-house real estate department, we have taken guidance from FASB ASC 970, “Real Estate—General” (“FASB ASC 970”). While FASB ASC 970 establishes accounting and reporting standards for the acquisition, development, construction, selling and rental costs associated with real estate projects, it excludes from its scope “real estate developed by an entity for use in its own operations, other than for sale or rental.” Given there is no other authoritative literature directly addressing our circumstance of developing real estate projects for our own operations, we have applied the principles of FASB ASC 970 in such accounting for costs.

43

Inherent in the policies regarding property and equipment are certain significant management judgments and estimates, including useful life, residual value to which the asset is depreciated, the expected value at the end of the lease term for equipment under capital leases, and the determination as to what constitutes enhancing the value of or increasing the life of assets. These significant estimates and judgments, coupled with the fact that the ultimate useful life and economic value at the end of a lease are typically not known until after the passage of time, through proper maintenance of the asset, or through continued development and maintenance of a given market in which a restaurant operates can, under certain circumstances, produce distorted or inaccurate depreciation and amortization or, in some cases result in a write down of the value of the assets. See Critical Accounting Policy “Impairment of Long-Lived Assets” below.

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

Trademarks

Intangible assets with indefinite useful lives are tested for impairment at least annually. At December 25, 2011, we had a $25.9 million indefinite-lived intangible asset shown on our consolidated balance sheets related to the acquisition of Ninety Nine restaurants. The determination of whether this asset is impaired involves significant judgments based upon short-and long-term projections of future sales performance. Changes in strategy, new accounting pronouncements and/or market conditions may result in future impairment of recorded asset balances. We completed a valuation of this intangible asset as of December 25, 2011, the last day of fiscal 2011, and our valuation showed that the fair value of the intangible asset substantially exceeded its net book value and no impairment charge was needed.

Impairment of Long-Lived Assets

Long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets based upon the future highest and best use of the impaired assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. The cost associated with asset impairments are recorded in the consolidated statement of operations in the financial statement line item impairment, disposal and restructuring charges, net.

The judgments made related to the ultimate expected useful life and our ability to realize undiscounted cash flows in excess of the carrying value of an asset are affected by such issues as ongoing maintenance of the asset, continued development of a given market within which a restaurant operates, including the presence of traffic generating businesses in the area, and our ability to operate the restaurant efficiently and effectively. We assess the projected cash flows and carrying values at the restaurant level whenever events or changes in circumstances indicate that the long-lived assets associated with a restaurant may not be recoverable. In determining projected cash flows, we make key assumptions regarding sales growth, food and labor and other restaurant operating costs, as well as local market expectations. In the event that our economic expectations are not met, estimated future cash flows could be negatively impacted, which may result in a material impairment charge.

We believe that our accounting policy for impairment of long-lived assets provides reasonable assurance that any assets that are impaired are written down to their fair value and a charge is taken in operating earnings on a timely basis. Long-lived assets are tested for possible impairment each fiscal quarter. During fiscal 2011, we recorded total impairment, disposal and restructuring charges, net, of $2.9 million. Included are impairment charges of $1.4 million on three O’Charley’s restaurants, a $1.2 million loss on the sale of six O’Charley’s restaurants included in the sale-leaseback transaction and $0.2 million on three assets held for sale. Also included is a gain of $0.2 million due to net reductions of previously closed location’s future lease obligations offset by $0.3 million of exit and disposal costs and other net disposals. During fiscal 2010, we recorded total impairment, disposal and restructuring charges, net, of $15.0 million. Included are impairment charges of $11.5 million on 16 O’Charley’s restaurants, seven Ninety Nine restaurants and three surplus properties. Also included is $3.2 million for exit and disposal costs relating to restaurant and facility closures. The remaining $0.3 million relates to other net losses on asset disposals. During fiscal 2009, we recorded total impairment, disposal and restructuring charges, net of $8.4 million. Included are impairment charges of $7.7 million on eight O’Charley’s restaurants, six Ninety Nine restaurants, and two Stoney River restaurants. The remaining $0.7 million charge relates to restructuring costs related to the closing of our Bellingham, Massachusetts distribution facility and the sale of a non-core asset.

44

Income Taxes

We must make estimates of certain items that comprise our income tax provision and the related current and deferred tax liabilities. These estimates include employer tax credits for items such as FICA taxes paid on employee tip income, Work Opportunity and Welfare to Work credits, as well as estimates related to certain depreciation and capitalization policies. These estimates are made based on the best available information at the time of the provision and historical experience. We file our income tax returns many months after our year end. These returns are subject to audit by various federal, state and local governments several years after the returns are filed and could be subject to differing interpretations of the tax laws. We are also required to perform an analysis and measure each uncertain tax position. The analysis and measurement requires estimates and interpretations to be made. We base these estimates upon the best available information at that time of the provision and in coordination with our interpretation of existing tax law.

As part of the computation of the income tax provision, we identify and measure deferred tax assets and liabilities. We weigh available evidence in determining the realization of deferred tax assets. Available evidence includes historical, current and future financial performance of the Company. We also consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. If we determine it is more likely than not that some portion or the entire deferred tax asset will not be recognized, the deferred tax asset will be reduced by a valuation allowance. The deferred tax valuation allowance may be released in future years when we consider that it is more likely than not that some portion or all of the deferred tax assets will be realized. To form a conclusion that some or all of the deferred tax assets will be realized, we will need to generate three-year cumulative pre-tax income, and we will need to periodically evaluate whether or not all available evidence, such as future taxable income and reversal of temporary differences, provides sufficient positive evidence to offset any other potential negative evidence that may exist at such time. In the event the deferred tax valuation allowance is released, we would record an income tax benefit for the portion or all of the deferred tax valuation allowance released. At December 25, 2011, the Company had a deferred tax valuation allowance of $101.0 million.

Recently Issued Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)-Fair Value Measurement (“ASU 2011-04”), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for the Company in its first quarter of fiscal 2012 and will be applied prospectively. The Company is currently evaluating the impact of adopting ASU 2011-04, but currently believes there will be no significant impact on its consolidated financial statements.

Impact of Inflation

The impact of inflation on the cost of food, labor, equipment, and fuel/energy costs could adversely affect our operations. A majority of our employees are paid hourly rates related to federal and state minimum wage laws. The federal government and several states have instituted or are considering changes to their minimum wage and/or benefit related laws which, if and when enacted, could have an adverse impact on our payroll and benefit costs. In addition, most of our leases require us to pay taxes, insurance, maintenance, repairs and utility costs, and these costs are subject to inflationary pressures. Commodity inflation has had a significant impact on our operating costs. We attempt to offset the effect of inflation through periodic menu price increases, economies of scale in purchasing and cost controls and efficiencies at our restaurants.

45

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

We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities and fluctuations in commodity prices. Our fixed-rate debt consists primarily of capitalized lease obligations and our variable-rate debt consists primarily of our credit facility. A significant portion of our debt is at a fixed-rate; therefore a one percent fluctuation in interest rates is not expected to have a material impact on our results of operations.

We purchase certain commodities such as beef, pork, poultry, seafood, produce, and dairy. These commodities are generally purchased based upon market prices established with vendors. These purchase arrangements may contain contractual features that fix the price paid for certain commodities. We do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost paid and any commodity price aberrations are generally short-term in nature.

46

Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

O’CHARLEY’S INC.

	Page
Report of Independent Registered Public Accounting Firm (Consolidated Financial Statements)		48
Consolidated Balance Sheets at December 25, 2011 and December 26, 2010		49
Consolidated Statements of Operations for the Years Ended December 25, 2011, December  26, 2010, and December 27, 2009		50
Consolidated Statements of Shareholders’ Equity and Comprehensive Loss for the Years Ended December 25, 2011, December 26, 2010, and December 27, 2009		51
Consolidated Statements of Cash Flows for the Years Ended December 25, 2011, December  26, 2010, and December 27, 2009		52
Notes to the Consolidated Financial Statements		53
Report of Independent Registered Public Accounting Firm (Internal Control Over Financial Reporting)		77

47

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

O’Charley’s Inc.:

We have audited the consolidated balance sheets of O’Charley’s Inc. and subsidiaries (the Company) as of December 25, 2011 and December 26, 2010, and the related consolidated statements of operations, shareholders’ equity and comprehensive loss, and cash flows for each of the fiscal years in the three-year period ended December 25, 2011. In connection with our audits of the consolidated financial statements, we have also audited financial statement schedule II, Valuation and Qualifying Accounts. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of O’Charley’s Inc. and subsidiaries as of December 25, 2011 and December 26, 2010, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended December 25, 2011, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 25, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 29, 2012 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Nashville, Tennessee

February 29, 2012

48

O’CHARLEY’S INC.

CONSOLIDATED BALANCE SHEETS

	December 25, 2011		December 26, 2010
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	18,611	$	29,693
Trade accounts receivable, less allowance for doubtful accounts of $171 in 2011 and $129 in 2010		16,841		14,931
Inventories		9,233		9,071
Assets held for sale		3,211		4,847
Other current assets		3,949		4,201
Total current assets		51,845		62,743
Property and equipment, net of accumulated depreciation of $375,078 in 2011 and $379,580 in 2010		220,749		320,011
Trade names and other intangible assets		25,946		25,946
Other assets		15,071		14,041
Total Assets	$	313,611	$	422,741
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable	$	7,700	$	8,211
Accrued payroll and related expenses		13,337		14,639
Accrued expenses		22,436		24,314
Deferred revenue		18,939		17,584
Federal, state and local taxes		8,717		9,998
Current portion of long-term debt and capitalized lease obligations		122		1,710
Total current liabilities		71,251		76,456
Deferred income taxes		4,426		4,034
Deferred gain on sale-leasebacks		40,537		13,613
Other liabilities		28,856		33,240
Long-term debt and capitalized lease obligations, less current portion		30		117,164
Shareholders’ Equity:
Common stock—No par value; authorized, 50,000 shares; issued and outstanding, 21,967 in 2011 and 21,713 in 2010		167,964		165,547
Retained earnings		547		12,687
Total shareholders’ equity		168,511		178,234
Total Liabilities and Shareholders’ Equity	$	313,611	$	422,741

See accompanying notes to the consolidated financial statements

49

O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended
	December 25, 2011			December 26, 2010			December 27, 2009
	(in thousands, except per share data)
Revenues:
Restaurant sales	$	826,156		$	828,982		$	865,342
Franchise and other revenue		931			1,127			931
		827,087			830,109			866,273
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		260,646			247,558			252,207
Payroll and benefits		287,010			293,629			305,418
Restaurant operating costs		174,740			175,025			171,930
Cost of restaurant sales, exclusive of depreciation and amortization shown separately below		722,396			716,212			729,555
Advertising and marketing expenses		35,458			34,655			32,234
General and administrative expenses		31,938			39,474			38,343
Depreciation and amortization of property and equipment		36,118			42,093			46,460
Impairment, disposal and restructuring charges, net		2,866			14,998			8,437
Pre-opening costs		—			7			597
		828,776			847,439			855,626
(Loss) Income from Operations		(1,689	)		(17,330	)		10,647
Other Expense (Income):
Interest expense, net		9,624			11,812			11,628
Other, net		1			(8	)		(68	)
		9,625			11,804			11,560
Loss from Continuing Operations Before Income Taxes		(11,314	)		(29,134	)		(913	)
Income Tax Expense (Benefit)		655			(1,849	)		2,254
Loss from Continuing Operations		(11,969	)		(27,285	)		(3,167	)
Loss from Discontinued Operations, Net		(171	)		(7,630	)		(4,158	)
Net Loss	$	(12,140	)	$	(34,915	)	$	(7,325	)
Net Loss Attributable to Common Shareholders – basic and diluted:
Loss from Continuing Operations	$	(0.56	)	$	(1.29	)	$	(0.15	)
Loss from Discontinued Operations, net		—			(0.36	)		(0.20	)
Net Loss Attributable to Common Shareholders	$	(0.56	)	$	(1.65	)	$	(0.35	)

See accompanying notes to the consolidated financial statements

50

O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND

COMPREHENSIVE LOSS

	Common Stock
	Shares			Amount			Retained Earnings			Total
	(in thousands)
Balance, December 28, 2008		21,303		$	156,830		$	54,930		$	211,760
Comprehensive loss:
Net loss		—			—			(7,325	)		(7,325	)
Noncontrolling interest, net		—			(384	)		—			(384	)
Shares tendered and retired for minimum tax withholdings		(51	)		(220	)		—			(220	)
Shares issued under CHUX Ownership Plan and exercise of stock Options		229			799			—			799
Share-based compensation expense		66			4,489			—			4,489
Balance, December 27, 2009		21,547			161,514			47,605			209,119
Comprehensive loss:
Net loss		—			—			(34,915	)		(34,915	)
Shares tendered and retired for minimum tax withholdings		(41	)		(307	)		—			(307	)
Shares issued under CHUX Ownership Plan and exercise of stock Options		113			745			—			745
Excess tax benefit from share-based payments		—			11			—			11
Dividends paid		—			—			(3	)		(3	)
Share-based compensation expense		94			3,584			—			3,584
Balance, December 26, 2010		21,713			165,547		$	12,687			178,234
Comprehensive loss:
Net loss		—			—			(12,140	)		(12,140	)
Shares tendered and retired for minimum tax withholdings		(28	)		(176	)		—			(176	)
Shares issued under CHUX Ownership Plan and exercise of stock Options		127			615			—			615
Excess tax benefit from share-based payments		—			17			—			17
Share-based compensation expense		155			1,961			—			1,961
Balance, December 25, 2011		21,967		$	167,964		$	547		$	168,511

See accompanying notes to the consolidated financial statements

51

O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended
	December 25, 2011			December 26, 2010			December 27, 2009
	(in thousands)
Cash Flows from Operating Activities:
Net loss	$	(12,140	)	$	(34,915	)	$	(7,325	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment		36,118			42,495			47,283
Amortization of debt issuance costs and swap termination payments, net		(249	)		728			282
Deferred income taxes and other income tax related items		769			2,484			(638	)
Share-based compensation		1,961			3,584			4,489
Loss on early extinguishment of debt		—			198			—
Amortization of deferred gain on sale-leasebacks		(1,328	)		(1,056	)		(1,056	)
Loss on the sale of assets		148			182			129
Impairment, disposal and restructuring charges, net		2,290			20,547			10,975
Noncontrolling interests		—			—			(83	)
Changes in assets and liabilities:
Trade accounts and other receivables		(1,910	)		2,627			2,161
Inventories		(162	)		1,318			6,836
Other current assets		252			212			2,544
Trade accounts payable		(511	)		3,110			(11,365	)
Deferred revenue		1,355			(385	)		(144	)
Accrued payroll, accrued expenses, and federal, state and local taxes		(5,453	)		(1,978	)		(6,423	)
Other long-term assets and liabilities		(2,094	)		(3,436	)		727
Net cash provided by operating activities		19,046			35,715			48,392
Cash Flows from Investing Activities:
Additions to property and equipment		(17,211	)		(15,445	)		(14,664	)
Proceeds from sale lease-back transaction		105,000			—			—
Cost of sale lease-back transaction		(3,166	)		—			—
Proceeds from the sale of assets		2,938			1,137			7,971
Other, net		83			(13	)		45
Net cash provided by (used in) investing activities		87,644			(14,321	)		(6,648	)
Cash Flows from Financing Activities:
Payments on long-term debt and capitalized lease obligations		(1,697	)		(2,352	)		(30,452	)
Repurchase of senior notes		(115,205	)		(9,993	)		—
Payments to noncontrolling interests		—			—			(300	)
Dividends paid		—			(3	)		—
Proceeds from the exercise of stock options and issuances under CHUX Ownership Plan		615			745			799
Proceeds from swap cancellation		—			—			3,510
Excess tax benefit from share-based payments		17			11			—
Shares tendered and retired for minimum tax withholdings		(176	)		(307	)		(220	)
Debt issuance costs		(1,326	)		(1,682	)		(19	)
Net cash used in financing activities		(117,772	)		(13,581	)		(26,682	)
(Decrease) increase in cash and cash equivalents		(11,082	)		7,813			15,062
Cash and cash equivalents at beginning of the year		29,693			21,880			6,818
Cash and cash equivalents at end of the year	$	18,611		$	29,693		$	21,880

See accompanying notes to the consolidated financial statements

52

O’CHARLEY’S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

O’Charley’s Inc. (the “Company”) owns and operates 221 (at December 25, 2011) full-service restaurant facilities in 17 states in the East, Southeast and Midwest under the trade name “O’Charley’s,” 105 full-service restaurant facilities in seven states throughout New England and upstate New York under the trade name “Ninety Nine Restaurants,” and 10 full-service restaurant facilities in six states in the East, Southeast and Midwest under the trade name “Stoney River Legendary Steaks.” As of December 25, 2011, the Company had six franchised O’Charley’s restaurants, including three in Ohio and one in each of Pennsylvania, Florida and Tennessee. The Company’s fiscal year ends on the last Sunday in December. Fiscal years presented were comprised of 52 weeks in 2011, 2010 and 2009.

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany transactions and balances have been eliminated.

Cash Equivalents. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

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

Operating Leases. The Company has land only, building only and land and building leases that are recorded as operating leases. Most of the leases have rent escalation clauses and some have rent holiday and contingent rent provisions. The rent expense under these leases is recognized on the straight-line basis, except for contingent rent, which is determined as a percentage of gross sales in excess of specified levels, and is recognized when it is probable and estimable that sales will be achieved in amounts in excess of specified levels. The Company uses a lease life or expected lease term that generally is inclusive of one five-year renewal period. Based upon the size of the investment that the Company makes at a restaurant site, the economic penalty incurred by discontinuing use of the leased facility, its 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 its discretion, the Company has concluded that one five-year renewal option is reasonably assured. The Company begins recognizing rent expense on the date that the Company becomes legally obligated under the lease.

Certain leases provide for rent holidays, which are included in the lease life used for the straight-line rent calculation. Rent expense and an accrued rent liability are recorded during the rent holiday periods, during which the Company has possession of and access to the property, including the pre-opening period during construction, but is typically not required or obligated to, and normally does not, make rent payments.

The same lease life that is used for the straight-line rent calculation is also used for assessing leases for capital or operating lease accounting.

Investment in Affiliated Company. The Company has an approximate 8 percent ownership interest in a joint venture to operate a restaurant concept in Chicago, Illinois. The Company is not the primary beneficiary and accounts for its investment using the equity method.

53

Property and Equipment, net. The Company states property and equipment at cost and depreciates them on the straight-line method over 30 years for buildings and improvements and three to ten years for furniture, fixtures and equipment. Leasehold improvements are amortized over the lesser of the asset’s estimated useful life or the expected lease term, inclusive of one renewal period. Equipment under capitalized leases is amortized to its expected residual value to the Company at the end of the lease term. Gains or losses are recognized upon the disposal of property and equipment, and the asset and related accumulated depreciation and amortization are removed from the accounts. Maintenance, repairs and betterments that do not enhance the value of or increase the life of the assets are expensed as incurred. The Company capitalizes all direct external costs associated with obtaining the land, building and equipment for each new restaurant, as well as construction period interest. The Company also capitalizes all direct external costs associated with obtaining the dining room and kitchen equipment, signage and other assets and equipment. In addition, for each new restaurant and re-branded restaurant, the Company also capitalizes a portion of the internal direct costs of its real estate and construction department.

To determine its accounting policies related to capitalizing costs associated with its in-house real estate department, the Company has followed the guidance from FASB ASC 970, “Real Estate- General” (“FASB ASC 970”). While FASB ASC 970 establishes accounting and reporting standards for the acquisition, development, construction, selling and rental costs associated with real estate projects, it excludes from its scope: “real estate developed by an enterprise for use in its own operations, other than for sale of rental.” Given there is no other authoritative literature directly addressing the Company’s circumstance of developing real estate projects for its own operations, the Company has applied the principles of FASB ASC 970 in accounting for such costs.

Asset Retirement Obligations. The Company has determined that it has potential obligations for certain of its restaurant-level assets. Specifically, the Company has the obligation to remove certain assets from its restaurants at the end of the lease term and therefore records asset retirement obligations.

Intangible Assets. Intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually.

Indefinite-lived intangible assets, such as trademarks, are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the assets might be impaired. An impairment loss is recognized to the extent that the carrying amount of the indefinite-lived intangible asset exceeds its fair value. This analysis considers relevant historical and projected operating results, current conditions and outlook for the restaurant industry, as well as factors that influence industry change, and applies a relevant valuation methodology to value the intangible asset.

The Company has selected the last day of each fiscal year as the date on which it will test indefinite-lived intangible assets for impairment. The Company reviewed the carrying value of the trademarks, an indefinite-lived intangible asset, and found the fair value of the trademark to be substantially in excess of its net book value and that no impairment charge was needed for the 2011, 2010 or 2009 fiscal years.

Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group based upon the future highest and best use of the impaired asset or asset group. The costs associated with asset impairments are recorded in the consolidated statement of operations in the financial statement line item impairment, disposal and restructuring charges, net. Fair value is determined by projected future discounted cash flows for each location or the estimated market value of the asset. Assets to be disposed of are separately presented in the consolidated balance sheet and reported at the lower of carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a group classified as held for sale are presented separately in the appropriate asset and liability sections of the consolidated balance sheet.

54

Revenues. Revenues consist of Company-operated and joint venture restaurant sales and, to a lesser extent, franchise revenue and other 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, primarily salad dressings. Development fees for franchisees 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 in revenue in the period corresponding to the franchisees’ sales. Revenue resulting from the sale of gift cards is recognized in the period redeemed. A percentage of gift card redemptions, based upon actual experience, are recognized as a reduction in restaurant operating costs for gift cards sold that will not be redeemed. The amounts recognized as a reduction in restaurant operating costs for gift cards sold that will not be redeemed was $1.5 million for fiscal 2011, $1.5 million for fiscal 2010 and $1.5 million for fiscal 2009.

Vendor Rebates. The Company receives vendor rebates from various non-alcoholic beverage suppliers, and to a lesser extent, suppliers of food products and supplies. Rebates are recognized as reductions to cost of food and beverage in the same period as the related food and beverage expense.

Advertising and Marketing Cost. The Company expenses advertising and marketing costs as incurred, except for certain advertising production costs that are initially capitalized and subsequently expensed the first time the advertising takes place.

Income Taxes. The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. These judgments and estimates are reviewed on a periodic basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carry-back declines, if the Company projects lower levels of future taxable income, or if the Company has recently experienced pretax losses. Such a valuation allowance would be established through a charge to income tax expense which would adversely affect the Company’s reported operating results. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the period that includes the enactment date.

We recognize the benefits of uncertain tax positions in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. We account for uncertain tax positions by determining the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. This determination requires the use of judgment in assessing the timing and amounts of deductible and taxable items. Tax positions that meet the more-likely-than-not recognition threshold are recognized and measured as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. We recognize interest and penalties accrued related to unrecognized tax benefits as components of our income tax expense.

Share-Based Compensation. Share-based compensation expense for fiscal years 2011, 2010, and 2009 is recognized at fair value over the applicable vesting periods, for share-based awards granted prior to these fiscal years, as well as awards granted during the fiscal year.

Restricted stock fair value is determined based on the trading price of stock on the grant date. The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of stock options on their grant dates. The Company’s policy is to recognize compensation cost for share-based awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award. In addition, compensation expense is recognized for only the portion of options and restricted awards that are expected to vest. Therefore, an estimated forfeiture rate derived from historical employee terminations is applied against share-based compensation expense. The forfeiture rate is applied on a straight-line basis over the service (vesting) period for each separately vesting portion of the award as if the award was in-substance, multiple awards. In addition, the Company expenses the discount associated with its employee stock purchase plan based on the actual discount received.

Deferred Compensation. The Company’s nonqualified deferred compensation plan invests in mutual funds, which are classified as trading securities. Trading securities are recorded at fair value, based on quoted market prices. Unrealized holding gains and losses on trading securities are included in earnings. Dividend and interest income are recognized when earned.

55

Earnings Per Share. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities, according to dividends declared and participation rights in undistributed earnings. Under this method, net earnings are reduced by the amount of dividends declared in the current period for common shareholders and participating security holders. The remaining earnings or “undistributed earnings” are allocated between common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Once calculated, the earnings per common share is computed by dividing the net (loss) earnings attributable to common shareholders by the weighted average number of common shares outstanding during each year presented. Diluted (loss) earnings attributable to common shareholders per common share has been computed by dividing the net (loss) earnings attributable to common shareholders by the weighted average number of common shares outstanding plus the dilutive effect of options and restricted shares outstanding during the applicable periods computed using the treasury method. In cases where the Company has a net loss, no dilutive effect is shown as options and restricted stock become anti-dilutive.

Fair Value of Financial Instruments. Disclosure of fair values is required for most on- and off-balance sheet financial instruments for which it is practicable to estimate that value. This disclosure requirement excludes certain financial instruments, such as trade receivables and payables when the carrying value approximates the fair value, employee benefit obligations, lease contracts, and all nonfinancial instruments, such as land, buildings, and equipment. The fair values of the financial instruments are estimates based upon current market conditions and quoted market prices for the same or similar instruments. Book value approximates fair value for substantially all of the Company’s assets and liabilities for which fair value disclosures are required, except for the Company’s 9 percent senior subordinated Notes. These notes were redeemed during fiscal 2011. The fair value of the 9% Senior Subordinated Notes (“the Senior Notes”) at December 26, 2010 was $116.4 million, compared to the carrying value of $115.2 million. The fair value of the senior subordinated notes at December 26, 2010 was based on quoted market prices as of the last day of fiscal 2011 and fiscal 2010, respectively.

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

Use of Estimates. Management of the Company has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment and intangibles; valuation allowances for receivables; gift card breakage; inventories; deferred income tax assets; the fair value of debt; workers’ compensation and general liability insurance liabilities; and obligations related to employee benefits. Actual results could differ from those estimates.

Recently Issued Accounting Pronouncements.

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)-Fair Value Measurement (“ASU 2011-04”), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for the Company in its first quarter of fiscal 2012 and will be applied prospectively. The Company is currently evaluating the impact of adopting ASU 2011-04, but currently believes there will be no significant impact on its consolidated financial statements.

2. Discontinued Operations

During fiscal 2010, the Company closed 24 underperforming restaurants: 14 O’Charley’s restaurants and 10 Ninety Nine restaurants. The decision to close these restaurants was the result of an extensive review of the Company’s restaurant portfolio that examined each restaurant’s recent and historical financial and operating performance, its position in the marketplace, and other operating considerations. Given the geographic location of certain restaurants and

56

in accordance with relevant U.S. generally accepted accounting principles (“GAAP”), nine of these restaurants have been considered discontinued operations. Due to the consideration of these nine restaurants as discontinued operations, fiscal 2009 revenues and expenses have been revised in the accompanying consolidated statements of operations.

During fiscal 2011, the Company recorded a $0.2 million loss from discontinued operations, net of taxes, which includes a $0.4 million gain from the sale of assets held for sale partially offset by $0.6 million of exit and disposal costs and an adjustment of future lease obligations for previously closed locations. During fiscal year 2010, the Company recorded a $7.6 million loss from discontinued operations, net of taxes, which includes $4.8 million from asset impairments, a $1.7 million net loss from operations and $1.1 million of exit and disposal costs, primarily severance and the present value of future lease obligations net of expected sublease income. During fiscal 2009, the Company recorded a $4.2 million loss from discontinued operations, net of taxes, which includes $2.9 million from asset impairments and a $1.3 million net loss from operations. At December 25, 2011, assets related to discontinued operations were $0.8 million of the total $3.2 million classified as held for sale.

The results of discontinued operations were as follows (in thousands):

	2011			2010			2009
Revenues	$	—		$	12,973		$	14,566
Loss before income taxes	$	(171	)	$	(7,640	)	$	(4,265	)
Income tax benefit	$	—		$	(10	)	$	(107	)
Net loss	$	(171	)	$	(7,630	)	$	(4,158	)

3. Fair Value Measurements

FASB ASC 820, “Fair Value Measurements and Disclosures,” (“FASB ASC 820”), defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. In the case of non-operating assets, fair value is determined by the estimated value of the asset less costs associated with the marketing and/or selling the asset.

Fair value is defined under FASB ASC 820 as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a three-level fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

Level 1	Inputs based on quoted prices in active markets for identical assets.
Level 2	Inputs other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.
Level 3	Inputs that are unobservable for the asset.

Assets and liabilities measured at fair value on a recurring basis are summarized in the table below (in thousands):

	Fair Value Measurement
Description	Level		2011		2010
Deferred compensation plan assets and liabilities		1	$	3,805	$	4,227

The deferred compensation plan assets are comprised of various investment funds, which are valued based upon their quoted market prices.

57

Assets and liabilities measured at fair value on a nonrecurring basis are summarized in the table below (in thousands):

	Fair Value Measurement at Reporting Date Using
	December  25, 2011 Carrying Value		Level 1		Level 2		Level 3		Total Losses
Long-lived assets held and used	$	2,138	$	—	$	2,138	$	—	$	(2,552	)
Long-lived assets held for sale		884		—		884		—		(237	)
Total	$	3,022	$	—	$	3,022	$	—	$	(2,789	)

	Fair Value Measurement at Reporting Date Using
	December  26, 2010 Carrying Value		Level 1		Level 2		Level 3		Total Losses
Long-lived assets held and used	$	2,800	$	—	$	2,546	$	254	$	(10,770	)
Long-lived assets held for sale		1,722		—		1,722		—		(5,536	)
Total	$	4,522	$	—	$	4,268	$	254	$	(16,306	)

During fiscal 2011, in accordance with FASB ASC 360, “Property, Plant and Equipment,” long-lived assets held and used were written down to their fair value resulting in a loss of $2.6 million. The $2.6 million shown in the table above for the year ended December 25, 2011 is included in impairment, disposal and restructuring charges, net. In addition, assets held for sale were written down to their fair value resulting in a loss of $0.2 million. The $0.2 million shown in the table above for the year ended December 25, 2011, is included in impairment, disposal and restructuring charges, net.

During fiscal 2010, in accordance with FASB ASC 360, “Property, Plant and Equipment,” long-lived assets held and used were written down to their fair value resulting in a loss of $10.8 million. Of the $10.8 million shown in the table above for the year ended December 26, 2010, $8.5 million is included in impairment, disposal and restructuring charges, net, and $2.3 million is included in discontinued operations, net, on the consolidated statement of operations. In addition, during fiscal 2010, assets held for sale were written down to their fair value resulting in a loss of $5.5 million. Of the $5.5 million shown in the table above for the year ended December 26, 2010, $3.0 million is included in impairment, disposal and restructuring charges, net, and $2.5 million is included in discontinued operations, net, on the consolidated statement of operations.

Level 2 fair values are based upon broker estimates of value of leasehold improvements and other residual assets, as well as broker listings and sales agreements. In the case of assets held for sale, fair value is determined by the estimated sales value of the asset less costs associated with the marketing and/or selling the asset. Level 3 fair value is determined by projected future discounted cash flows for each restaurant location. The discount rate is the Company’s weighted average borrowing rate on outstanding debt which the Company believes is commensurate with the required rate of return that a potential buyer would expect to receive when purchasing a similar restaurant and the related long-lived assets. The Company limits assumptions about important factors such as sales and margin change to those that are supportable based upon its plans for the restaurant. Long-lived assets held and used in the table above are restaurants that were impaired as a result of the Company’s quarterly impairment review and to a lesser extent certain of the fourth quarter 2010 closures.

58

4. Intangible Assets

At December 25, 2011 and December 26, 2010, the Company had $25.9 million in indefinite-lived intangible assets shown on its consolidated balance sheets related primarily to the acquisition of Ninety Nine restaurants. The Company tests its intangible assets for potential impairment in accordance with FASB ASC 350 as part of its year-end process or when events or circumstances indicate there may be impairment. The Company completed a valuation of the intangibles as of December 25, 2011, the last day of fiscal 2011, and its valuation showed that the fair value of the intangible asset substantially exceeded its net book value and no impairment charge was needed.

5. Impairment and Disposal Charges

During 2011, the Company recorded total impairment, disposal and restructuring charges, net, of $2.9 million. Included are impairment charges of $1.4 million on three O’Charley’s restaurants, a $1.2 million loss on sale on six O’Charley’s restaurants included in the sale-leaseback transaction and impairment charges of $0.2 million on three assets held for sale.

Also included is a gain of $0.2 million due to net reductions of previously closed locations future lease obligations, offset by $0.3 million of exit and disposal costs and other net disposals.

A reconciliation of the liability balance is summarized in the table below (in millions):

Exit and Disposal Liability
Balance, December 26, 2010	$	4.7
Exit and Disposal Costs- Continuing Operations		0.1
Payments-Continuing Operations		(1.7	)
Discontinued Operations Activity		(1.0	)
Balance, December 25, 2011	$	2.1

During fiscal year 2011, the Company sold assets held for sale with a combined net book value of $2.3 million and recognized a gain of $0.5 on the sale of those assets. During fiscal year 2010, the Company sold assets held for sale with a combined net book value of $1.1 million for a minimal gain.

During 2010, the Company recorded total impairment, disposal and restructuring charges, net, of $15.0 million. Included are impairment charges of $11.5 million on 16 O’Charley’s restaurants, seven Ninety Nine restaurants and three surplus properties. Also included is $3.2 million for exit and disposal costs relating to the 2010 closures of seven O’Charley’s restaurants, five Ninety Nine restaurants and the Bellingham, Massachusetts distribution center. The remaining $0.3 million relates to other net losses on asset disposals. The excess carrying value of the restaurants was recorded as an impairment charge on the Company’s statement of operations.

During 2009, the Company recorded total impairment, disposal and restructuring charges, net, of $8.4 million. Included are impairment charges of $7.7 million on eight O’Charley’s restaurants, six Ninety Nine restaurants, and two Stoney River restaurants. The remaining $0.7 million charge relates to restructuring costs related to the closing of the Company’s Bellingham, Massachusetts distribution facility and the sale of a non-core asset.

59

The following table reconciles the impairment, disposal, and restructuring charges as presented on the Consolidated Statements of Operations to the total amount presented on the Consolidated Statement of Cash Flows:

	Fiscal Year End
	December 25, 2011			December 26, 2010			December 27, 2009
	(in thousands)
Supply Chain Changes:
Impairments, exit and disposal costs	$	(450	)	$	1,349		$	15
Severance and retention costs, legal costs and transition costs		—			—			380
Total charges related to supply chain changes		(450	)		1,349			395
Restaurant impairments, exit and disposal costs		3,273			13,094			7,332
Other impairments		237			437			695
Other disposals, net		(194	)		118			15
Total impairment, disposal, and restructuring charges, net		2,866			14,998			8,437
Impairment, exit and disposal costs – discontinued operations		171			5,913			2,918
Impairment and supply chain changes paid or accrued		(747	)		(364	)		(380	)
Other non-cash items		—			—			—
Total non-cash impairment, disposal and restructuring charges	$	2,290		$	20,547		$	10,975

6. Share–Based Compensation

Total share-based compensation expense was $1.9 million, $3.6 million, and $4.5 million for fiscal 2011, 2010, and 2009, respectively. The Company’s net share-based compensation expense primarily consisted of expense associated with restricted (non-vested) stock awards and to a lesser extent expense associated with the Company’s employee share purchase plan and stock options. On May 21, 2008, the Company adopted the 2008 Equity and Incentive Plan. As of such date, shares granted will be granted under this plan only. Under this plan, the maximum aggregate number of shares that may be issued cannot exceed 1.5 million shares; however options and restricted stock awards under this or certain prior plans, which terminate, expire unexercised, and are forfeited or cancelled, increase this share reserve. As of December 25, 2011, there were approximately 1.1 million remaining shares available for issuance pursuant to the 2008 Equity and Incentive Plan.

(a) Stock Options

The Company has various incentive stock option plans that provide for the grant of both statutory and non-statutory stock options to officers, key team members and nonemployee directors of the Company. Options are granted with exercise prices equal to the fair market value of common stock on the date of the grant, with expiration dates ranging from six to ten years from the grant date and vesting dates ranging from one to seven years as determined by the board of directors. The fair value of the Company’s stock options were estimated using the Black-Scholes-Merton option-pricing model. As of December 25, 2011, the Company had approximately 915,000 unvested stock options outstanding of which approximately 870,000 are expected to vest. As of December 25, 2011, the total compensation cost related to stock option awards not yet recognized was approximately $1.3 million and the weighted average period over which it is expected to be recognized is 0.8 years. During fiscal years 2011, 2010, and 2009, the Company recorded approximately $262,000, $838,000, and $673,000, respectively, of share-based compensation expense related to stock options. Stock option transactions during the year ended December 25, 2011 were as follows:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Options outstanding at December 26, 2010		1,701,086		$	12.10		3.50	$	2,987,647
Granted		297,500			6.76
Exercised		(10,660	)		2.74
Forfeited		(218,005	)		7.57
Expired		(162,589	)		18.67
Options outstanding at December 25, 2011		1,607,332		$	11.13		3.40	$	1,297,242
Options vested and exercisable at December 25, 2011		691,160		$	19.51		1.20	$	80,920
Options unvested expected to vest at December 25, 2011		869,830		$	4.71		4.97	$	1,215,689

60

The fair value of options vested during fiscal 2011, 2010, and 2009 was approximately $142,000, $372,000, and $150,000, respectively. For the years ended December 25, 2011 and December 26, 2010, the intrinsic value of options exercised and tax benefit related to the exercise of stock options was insignificant. There were no stock options exercised during fiscal 2009.

For the fiscal year 2011, the Company issued 0.3 million non-qualified stock options having various vesting schedules over a three year period. For fiscal 2010, the Company issued 212,500 non-qualified stock options of which 150,000 vest ratably over three years, 7,500 vested immediately upon grant, 25,000 cliff vest after one year and the remaining cliff vest after three years. For fiscal 2009, the Company issued 1.3 million non-qualified stock options of which the majority cliff vest after three years, while the remaining vest ratably over three years, and expire on February 10, 2015. The following table reflects the weighted average assumptions utilized in the Black-Scholes-Merton option-pricing model to value stock options granted during the 2011, 2010 and 2009 fiscal years and reflects the values as of the date of grant:

	2011			2010			2009
Risk-free rate		1.7	%		1.2	%		1.9	%
Expected term (years)		5.2			3.9			5.1
Expected dividend yield		0.0	%		0.0	%		0.0	%
Volatility		81.7	%		88.5	%		67.6	%
Weighted-average Black-Scholes-Merton fair value per share	$	4.44		$	4.11		$	2.57

The risk-free interest rate is based upon the rates on a non-coupon treasury bond released by the Federal Reserve. The expected term for options granted were derived using the Company’s historical data including post vest cancellations and expirations and calculating the weighted average time in which options were outstanding before being settled. The volatility assumptions were derived using a historical volatility method that synchronizes the historical period over which the volatility is calculated with the expected term using daily stock prices. During fiscal 2011 and 2010, the Company did not pay any dividends and does not plan to pay dividends in the near future.

(b) Restricted (Non-Vested) Stock Awards

During 2011, 2010, and 2009, the Company granted approximately 182,000, 203,000, and 148,000 shares of restricted stock, respectively, to certain members of senior management, the board of directors and other employees. For fiscal 2011, the Company issued 181,770 shares of time-based vesting restricted stock of which 92,020 cliff vest after one year, with the remaining vesting in two to three years from the grant date. For fiscal 2010, the Company issued 203,020 shares of time-based vesting restricted stock of which 40,000 cliff vest after four years, 86,020 cliff vest after one year and the remaining vest ratably over a three year period. For fiscal 2009, the Company issued time-based grants that vest ratably over periods ranging from one to three years and also issued a grant that was immediately vested. The Company recognized net share-based compensation expense of approximately $495,000, $643,000, and $494,000 related to these restricted stock awards granted during fiscal 2011, 2010, and 2009, respectively.

The fair value of the restricted stock awards was determined by using the closing market price for the Company’s stock on the date of grant for each restricted stock award.

61

The following table sets forth the restricted stock activity during the year ended December 25, 2011.

	Number of Restricted Stock Awards			Weighted Average Grant Date Fair Value
Restricted Stock Awards outstanding at December 26, 2010		375,984		$	9.45
Granted		181,770			7.03
Vested		(214,566	)		10.63
Forfeited		(26,263	)		10.00
Restricted Stock Awards outstanding at December 25, 2011		316,925		$	7.21

During fiscal 2011, 2010, and 2009, the Company recognized share-based compensation expense for all restricted stock awards of approximately $1.6 million, $2.6 million, and $3.4 million, respectively. As of December 25, 2011, the total compensation cost related to time-based restricted stock awards not yet recognized was approximately $2.3 million and the weighted average period over which it is expected to be recognized is 1.2 years. The fair value of shares vested during fiscal 2011, 2010, and 2009, was approximately $2.3 million, $3.2 million, and $6.6 million, respectively. Included in the 316,925 restricted shares outstanding at December 25, 2011 are 5,593 performance-based restricted shares, which vest over four years based upon achievement of annual financial targets through 2011. Based upon the Company’s 2011 and 2010 financial performance, the portion related to 2011 and 2010 financial targets did not vest and accordingly the Company did not recognize any share-based compensation expense for such shares. Based upon the Company’s 2009 financial performance, 86 percent of the shares that relate to fiscal 2009 financial targets vested; therefore, the Company recognized approximately $131,500 of share-based compensation expense related to these shares in 2009.

(c) Employee Stock Purchase Plan

The Company established the CHUX Ownership Plan for the purpose of providing an opportunity for eligible team members of the Company to become shareholders in the Company. On May 12, 2009, the Company’s shareholders approved an increase of 1,000,000 shares of common stock authorized for issuance under the CHUX ownership plan. As a result, the Company has reserved 2,350,000 common shares for this plan. The CHUX Ownership Plan is intended to be an employee stock purchase plan which qualifies for favorable tax treatment under Section 423 of the Internal Revenue Code. The Plan allows participants to purchase common shares at 85 percent of the lower of 1) the closing market price per share of the Company’s common stock on the last trading date of the plan period or 2) the average of the closing market price of the Company’s common stock on the first and the last trading day of the plan period. Contributions of up to 15 percent of base salary are made by each participant through payroll deductions. As of December 25, 2011, there were approximately 816,425 shares available for grant under this plan. During fiscal 2011, 2010, and 2009, the Company recorded pre-tax expense of approximately $94,000, $121,000, and $352,000, respectively, associated with this plan.

62

7. Asset Retirement Obligations

The Company has determined that it has obligations under certain of its restaurant leases. Specifically, the Company has the obligation to remove certain assets from its restaurants at the end of the lease term. The following is a breakdown of the activity related to the retirement obligation for the years ended December 25, 2011, December 26, 2010 and December 27, 2009.

	(in thousands)
Asset Retirement Obligation as of December 28, 2008	$	715
Accretion expense on the present-valued liability		30
Property additions requiring recognition of a liability		1
Asset Retirement Obligation as of December 27, 2009	$	746
Accretion expense on the present-valued liability		29
Property additions requiring recognition of a liability		—
Reversal for closed locations		(101	)
Asset Retirement Obligation as of December 26, 2010	$	674
Accretion expense on the present-valued liability		26
Reversal for closed locations		(7	)
Asset Retirement Obligation as of December 25, 2011	$	693

In calculating the present value of the asset retirement obligation, the Company used the 10-year treasury yield plus the margin that the Company pays above LIBOR in its credit agreement. The 10-year treasury yield was 4.4 percent and the spread over LIBOR was 1.3 percent.

8. Property and Equipment

Property and equipment consist of the following:

	December 25, 2011			December 26, 2010
	(in thousands)
Land and improvements	$	33,798		$	69,342
Buildings and improvements		75,405			141,742
Furniture, fixtures and equipment		293,469			285,831
Leasehold improvements		192,178			193,115
Equipment under capitalized leases		132			6,935
Construction in progress		845			2,626
		595,827			699,592
Less accumulated depreciation and amortization		(375,078	)		(379,580	)
	$	220,749		$	320,011

Depreciation and amortization of property and equipment (including amounts classified as discontinued operations) was $36.1 million, $42.5 million, and $47.3 million for the years ended December 25, 2011, December 26, 2010, and December 27, 2009, respectively.

63

9. Assets Held for Sale

Assets held for sale consist of the following:

	December 25, 2011		December 26, 2010
	(in thousands)
Land	$	2,461	$	3,086
Buildings and improvements		650		722
Other assets		100		1,039
	$	3,211	$	4,847

As of December 25, 2011, the amount shown in assets held for sale consisted of the assets related to four restaurants closed in the fourth quarter of 2010, one liquor license from a restaurant closed in the fourth quarter of 2010, assets related to a site previously subleased which the Company no longer intends to sublease and assets related to a site the Company no longer plans to utilize. The amount shown in assets held for sale on the consolidated balance sheet as of December 26, 2010 consisted of assets related to four restaurants closed in the fourth quarter of 2010, five liquor licenses from restaurants closed in the fourth quarter of 2010, assets related to a site previously subleased which the Company no longer intends to sublease and assets related to a site the Company no longer plans to utilize.

The Company ceases recognizing depreciation expense for all assets that are held for sale. During fiscal 2011, the Company sold a restaurant closed during fiscal 2010 and assets related to six additional restaurants closed during 2010. As a result, the Company received proceeds of $2.8 million and recorded a gain of $0.5 million. During fiscal 2010, the Company sold a restaurant closed during fiscal 2009 with a net book value of $1.1 million for a minimal gain.

10. Other Assets

Other assets consist of the following:

	December 25, 2011		December 26, 2010
	(in thousands)
Non-qualified deferred compensation plan asset	$	3,043	$	3,660
Liquor licenses		2,403		2,403
Prepaid interest and finance costs		6,618		3,769
Other assets		3,007		4,209
	$	15,071	$	14,041

The prepaid interest and finance costs shown above are associated with the Company’s debt and are amortized over the life of the loan. As of December 25, 2011, the aggregate cost basis of the investments in the nonqualified deferred compensation plan, combined current and non-current, totaled $3.7 million and combined fair value totaled $3.8 million. As of December 26, 2010, the aggregate cost basis of the investments in the nonqualified deferred compensation plan combined current and non-current, totaled $4.0 million and combined fair value totaled $4.2 million.

64

11. Accrued Expenses

Accrued expenses consist of the following:

	December 25, 2011		December 26, 2010
	(in thousands)
Accrued insurance expenses	$	11,481	$	12,124
Accrued employee benefits		2,682		2,468
Accrued interest		336		1,998
Accrued utilities		2,471		2,675
Accrued legal		553		349
Accrued other expenses		4,913		4,700
	$	22,436	$	24,314

The amount for self-insured accrued insurance expenses shown above primarily includes liabilities for workers’ compensation, general liability, and liquor liability claims. Included in accrued employee benefits are liabilities associated with the Company’s self-insured health insurance programs. The total of the accrued self-insured health insurance liabilities at December 25, 2011 and December 26, 2010 was $2.3 million and $2.1 million, respectively. Included in accrued other expenses as of December 25, 2011, is $1.1 million of accrued exit and disposal costs relating to the future lease obligations of closed restaurants and the Bellingham, Massachusetts distribution center.

12. Long-Term Debt

Long-term debt consists of the following:

	December 25, 2011			December 26, 2010
	(in thousands)
9% senior subordinated notes	$	—		$	115,205
Financing arrangements		—			142
Note payable to Stoney River Managing Partners		65			208
	$	65		$	115,555
Fair value adjustments on hedged debt		—			1,894
Less current portion of long-term debt		(65	)		(285	)
Long-term debt, less current portion	$	—		$	117,164

(a) Credit Facility

During the fourth fiscal quarter of 2011, the Company entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with the existing banks under our revolving credit facility which reduced our revolving credit facility to $30 million from $45 million and extended the facility’s term to 2016. The maximum adjusted leverage ratio remained at 5.25. The fixed charge ratio was 1.20 in the fourth fiscal quarter of 2011, ranges from 1.15 to 1.20 in fiscal 2012, and is 1.25 thereafter. The Company is permitted to make capital expenditures for restaurant remodels and expansion under the new facility of up to $5.0 million for 2011 and up to 35% of the prior year’s Earnings Before Interest Taxes Depreciation and Amortization or EBITDA (as defined therein) for 2012 and the years thereafter. The Credit Agreement also reduced the number of company-owned restaurants subject to collateral mortgages from 47 to 45.

At December 25, 2011, the Company had no amounts outstanding on its revolving credit facility and $12.8 million outstanding letters of credit, which reduced its available capacity under the Credit Agreement to $17.2 million.

The Credit Agreement includes certain customary representations and warranties, negative covenants and events of default. It requires the Company to comply with certain financial covenants. The Company believes it was in compliance with such covenants at December 25, 2011.

65

(b) Note Payable to Stoney River Managing Partners

During fiscal 2008, 2007 and 2006, the Company purchased minority interests of four Stoney River restaurants in which the managing partner held an interest. At December 25, 2011, the Company owes approximately $65,000 that bears interest at approximately 3.9 percent and is payable in 2012.

13. Other Liabilities

Other liabilities consist of the following:

	December 25, 2011		December 26, 2010
	(in thousands)
Deferred rent		19,547		19,160
Nonqualified deferred compensation plan liability		3,043		3,660
Liability for uncertain tax positions		469		936
Other long-term liabilities		5,797		9,484
	$	28,856	$	33,240

Included in other long-term liabilities as of December 25, 2011 and December 26, 2010, is $1.0 million and $3.1 million, respectively, of accrued exit and disposal costs relating to the future lease obligations of closed restaurants and the Bellingham, Massachusetts distribution center. Shown separately on the Company’s Consolidated Balance Sheet as of December 25, 2011 and December 26, 2010, are the deferred gains of $28.3 million, $4.5 million, and $16.9 million on the sale-leaseback transactions completed during 2011, 2004, and 2003 respectively. These gains are being deferred and amortized over the 20-year term of the leases that were entered into in conjunction with the transactions.

14. Lease Commitments

The Company has various leases for certain restaurant land and buildings under operating lease agreements. These leases generally contain renewal options of from five years or more and require the Company to pay all executory costs, such as taxes, insurance and maintenance costs, in addition to the lease payments. Certain leases also provide for additional contingent rentals based on a percentage of sales in excess of a minimum rent. The Company leases certain equipment under a capital lease agreement having a lease term of less than three years.

In addition, the Company has four separate lease agreements that cover lease arrangements for an aggregate of 30 of its Ninety Nine restaurants, each of which contains a minimum fixed charge covenant calculation. Each of the four restaurant groups are subject to a minimum annual fixed charge coverage ratio of 1.50 to 1.00. During fiscal year 2011, each of the four groups exceeded the 1.50 to 1.00 minimum.

As of December 25, 2011 and December 26, 2010, $0.1 million and $1.3 million, respectively, of net book value of the Company’s property and equipment were under capitalized lease obligations. The assets under capital lease obligations relate to equipment. The interest rate on the capitalized lease obligation is 8.6 percent.

66

Future minimum lease payments at December 25, 2011 are as follows:

	Capitalized Equipment Leases			Operating Leases
	(in thousands)
2012	$	64		$	40,794
2013		30			40,197
2014		—			38,523
2015		—			36,207
2016		—			33,069
Thereafter		—			254,887
Total minimum lease payments	$	94		$	443,677
Less amount representing interest		(7	)
Net minimum lease payments		87
Less current portion		57
Capitalized lease obligations, net of current portion	$	30

Rent expense for operating locations leases are as follows:

	2011		2010		2009
	(in thousands)
Minimum rentals	$	30,713	$	31,585	$	31,389
Contingent rentals		179		188		238
	$	30,892	$	31,773	$	31,627

67

15. Income Taxes

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

		$ (4,332)			$ (4,332)			$ (4,332)
	2011			2010			2009
	(in thousands)
Income tax expense (benefit) attributable to:
Loss from continuing operations	$	672		$	(1,838	)	$	2,254
Loss from discontinued operations		—			(10	)		(106	)
Shareholders’ equity, tax benefit derived from non-qualified stock options exercised		(17	)		(11	)		—
Total income tax expense (benefit)	$	655		$	(1,859	)	$	2,148

Income tax expense (benefit) related to loss before income taxes for each respective year is as follows:

		$ (4,332)			$ (4,332)			$ (4,332)
	2011			2010			2009
	(in thousands)
Current	$	(114	)	$	(4,332	)	$	2,892
Deferred		769			2,483			(638	)
Income tax expense (benefit) from continuing operations	$	655		$	(1,849	)	$	2,254
Income tax benefit from discontinued operations	$	—		$	(10	)	$	(106	)

Income tax expense (benefit) attributable to loss from continuing operations before income taxes differs from the amounts computed by applying the applicable U.S. federal income tax rate to pretax (loss) earnings as a result of the following:

		$ (4,332)			$ (4,332)			$ (4,332)
	2011			2010			2009
Federal statutory rate		35.0	%		35.0	%		35.0	%
Increase (decrease) in taxes due to:
State income taxes, net of federal tax benefit		(1.5	)		0.4			(80.2	)
Tax credits, primarily FICA tip credits		36.4			17.2			583.8
Stock compensation shortfall		(2.5	)		(1.2	)		(217.2	)
Valuation allowance		(89.3	)		(54.7	)		(545.4	)
Other		16.1			9.7			(22.9	)
		(5.8	)%		6.4	%		(246.9	)%

68

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

		(101,044)			(101,044)
	December 25, 2011			December 26, 2010
	(in thousands)
Deferred tax assets:
Workers’ compensation, general liability, and employee health insurance accruals	$	4,833		$	4,821
Accrued compensation		3,418			3,749
Restricted stock		998			1,133
Asset impairment and exit cost		18,770			19,601
Property and equipment, principally due to differences in depreciation and amortization		16,725			7,690
Tax credits, primarily FICA tip credits		36,848			30,783
Federal net operating loss and state carry-forwards		5,471			5,440
Goodwill		14,968			17,696
Other		75			1,165
Total gross deferred tax assets		102,106			92,078
Deferred tax asset valuation allowance		(101,044	)		(90,887	)
Total net deferred tax assets		1,062			1,191
Deferred tax liabilities:
Trademark intangible		5,892			5,251
Total gross deferred tax liabilities		5,892			5,251
Net deferred tax liability	$	(4,830	)	$	(4,060	)

The net deferred tax liabilities are classified as follows:

		(101,044)			(101,044)
	2011			2010
	(in thousands)
Deferred income taxes, non-current liability	$	(4,426	)	$	(4,034	)
Deferred income taxes, current liability		(404	)		(26	)
	$	(4,830	)	$	(4,060	)

The Company has gross state net operating loss carry-forwards of $120.8 million to reduce future tax liabilities, which begin to expire at various times starting in fiscal year 2012, federal general business tax credits of $36.8 million which begin to expire at various times starting in 2027, and federal net operating losses of $0.7 million which expires in 2030.

The Company has established a valuation allowance of $101.0 million as of December 25, 2011 and $90.9 million as of December 26, 2010 to reduce deferred tax assets to the amount that is more likely than not to be realized which includes substantially all deferred tax assets. The change in the deferred tax valuation allowance was $10.2 million in 2011, $18.6 million in 2010, and $6.5 million in 2009. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Under FASB ASC 740, the Company is required to assess whether a valuation allowance should be established against the Company’s deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. The Company has a three-year cumulative pre-tax loss. A cumulative pre-tax loss is given more weight than projections of future income, and a recent historical cumulative loss is considered a significant factor that is difficult to overcome. Therefore, the Company has established a valuation allowance against all deferred tax assets, with the exception of $1.1 million and $1.2 million for 2011 and 2010, respectively, relating to federal and state net operating loss carryovers expected to be realized. The deferred tax valuation allowance may be released in future years when management considers that it is more likely than not that some portion or all of the deferred tax assets will be realized. To form a conclusion that some or all of the deferred tax assets will be realized, the Company will need to periodically evaluate all available evidence, such as whether future taxable income and reversal of temporary differences provides sufficient positive evidence to offset any potential negative evidence that may exist at such time, including the Company’s three-year cumulative pre-tax loss. In the event the deferred tax valuation allowance is released, the Company would record an income tax benefit for the portion or all of the deferred tax valuation allowance released.

69

The Company has a $0.5 million, net liability recorded as of December 25, 2011 and $1.3 million, net liability recorded for December 26, 2010 for uncertain tax positions. As of December 25, 2011, the total amount of unrecognized tax positions that, if recognized, would affect the effective tax rate is $0.3 million compared to $0.6 for fiscal 2010. The tax years 2007 to 2011 remain open to examination by major taxing jurisdictions.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended December 25, 2011, December 26, 2010 and December 27, 2009. The tabular reconciliation is shown without interest, and is adjusted for uncertain tax positions included in state net operating losses. The amount of interest liability is $0.1 million, $0.2 million, $0.5 million and the adjustment for state net operating losses is $0.3 million, $0.6 million, and $0.6 million for fiscal years ended December 25, 2011, December 26, 2010, and December 27, 2009, respectively.

	2011			2010			2009
	(in thousands)
Beginning balance	$	1,693		$	3,355		$	3,398
Gross prior year increases		3			271			82
Gross prior year decreases		(573	)		(1,521	)		(1,033	)
Gross current year increases		51			420			1,732
Settlements		(68	)		(126	)		(21	)
Lapse of statute of limitations		(450	)		(706	)		(803	)
Ending balance	$	656		$	1,693		$	3,355

16. Shareholders’ Equity

The Company’s charter authorizes 100,000 shares of preferred stock which the board of directors may, without shareholder approval, issue with voting or conversion rights upon the occurrence of certain events. At December 25, 2011, no preferred shares had been issued.

17. Loss per Share and Weighted Average Shares

The following is a reconciliation of the Company’s basic and diluted loss per share calculation. As the Company incurred a net loss in fiscal 2011, 2010 and 2009, the weighted average common shares outstanding used in the determination of the fiscal 2011, 2010 and 2009 basic loss per common share is used for the diluted loss per common share as well.

	2011			2010			2009
(in thousands, except per share data)
Loss from Continuing Operations	$	(11,969	)	$	(27,285	)	$	(3,167	)
Loss from Discontinued Operations, Net		(171	)		(7,630	)		(4,158	)
Net Loss	$	(12,140	)	$	(34,915	)	$	(7,325	)
Weighted average basic and diluted common shares outstanding		21,534			21,211			20,826
Net Loss Attributable to Common Shareholders – basic and diluted:
Loss from Continuing Operations	$	(0.56	)	$