RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

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

Overview

We are a leading casual dining restaurant company headquartered in Nashville, Tennessee. We own and operate three restaurant concepts under the "O'Charley's," "Ninety Nine" and "Stoney River Legendary Steaks" trade names. As of October 4, 2009, we operated 235 O'Charley's restaurants in 17 states in the Southeast and Midwest regions, 116 Ninety Nine restaurants in nine states throughout New England and the Mid-Atlantic, and 10 Stoney River restaurants in six states in the Southeast and Midwest. As of October 4, 2009, we had 10 franchised O'Charley's restaurants, including four in Michigan, two in Ohio, and one in each of Iowa, Pennsylvania, Florida, and Tennessee. Subsequent to the end of the third quarter of fiscal 2009, we ended our franchise agreement with Four Star Restaurant Group, LLC and closed the related restaurant in Iowa. Our fiscal year ends on the last Sunday of the calendar year. We have one reportable segment.

Recent economic trends, including high rates of unemployment and declining home prices, have negatively impacted the middle-income consumer who is the core customer of casual dining restaurants. Like many of our competitors, the economic environment has contributed to declines in same store sales. In response to the current economic environment, we are focused on driving profitable sales, controlling margins while enhancing guest service and maintaining our financial flexibility.

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

To that end, during the third quarter, our promotions featured a number of new items at attractive price points. For example, at O'Charley's we introduced two meals for $14.99 featuring six new entrées, with availability Sunday through Thursday. This promotion has been expanded since the end of the quarter to include a total of ten new entrées with expanded availability, all of which is supported with advertising and marketing, as well as communications through our 1.3 million member E-club. At Ninety Nine restaurants we continued to reinforce our "Great Meal. Great Deal" brand message with nine entrées starting at $9.99. Subsequent to the third quarter, in order to build our lunch business we offered seven new lunch items starting at $5.99. We continue to reposition our Stoney River Legendary Steaks brand as a polished casual dining restaurant by providing the same great guest experience with lower menu prices, new menu offerings, and a new menu format. We expanded our implementation of the new Stoney River concept to our restaurants in Chesterfield, Missouri and Annapolis, Maryland during the third quarter of fiscal 2009, bringing the total number of repositioned restaurants to five. Additionally, we completed this repositioning at our three Atlanta restaurant locations in the final week of the quarter, and given the success of the repositioning to date, plan to complete the roll-out by the end of November at our final two Stoney River restaurants which are located in Chicago, Illinois.

Controlling margins while enhancing guest service. We believe that our recent financial performance reflects the results of our food cost reduction initiatives, the adherence to our theoretical food cost and theoretical labor cost standards, and tight control over our general and administrative costs. Our third quarter restaurant level margin, which we define as restaurant sales minus cost of food and beverage, payroll and benefit costs, and restaurant operating costs, was 14.2 percent of restaurant sales, compared to 13.6 percent of restaurant sales in the same prior year quarter. We believe that the roll-out of our new, integrated back-of-house system next year will facilitate even greater control over labor and food expenses. We also realized year-over-year savings from changes to our health care plans for our hourly team members. We also have established a company-wide salary freeze and reduced staffing levels in our support centers, both of which have resulted in lower overhead costs through the third quarter of fiscal 2009. All of this was achieved while attaining record high guest satisfaction scores.

Maintaining our financial flexibility by maximizing cash flow and reducing debt. In the current economic environment it is critical to maintain our financial flexibility. The combination of positive operating cash flow and reduced levels of capital investment during the first 40 weeks of 2009 allowed us to reduce debt, including the amortization of the swap payment of $0.6 million, by $30.3 million, and included paying off the outstanding borrowings under our revolving line of credit of $23.8 million, $5.7 million in capital leases and approximately $0.2 million in other borrowings. During the third quarter we completed the transaction to outsource food and supply distribution for our Ninety Nine restaurants, and received net cash proceeds of approximately $6.7 million. Our new restaurant development plan during fiscal 2009 is limited to one Ninety Nine restaurant, which opened during the first quarter, and one Stoney River Legendary Steaks restaurant, which opened subsequent to the end of the fiscal third quarter.

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

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

Cost of Food and Beverage primarily consists of the costs of beef, poultry, wheat, seafood, produce and alcoholic and non-alcoholic beverages net of vendor discounts and rebates. The four most significant commodities that may affect our cost of food and beverage are beef, poultry, wheat and seafood, which accounted for approximately 23 percent, 11 percent, 9 percent and 8 percent, respectively, of our overall cost of food and beverage in the third quarter of fiscal 2009. Generally, temporary increases in these costs are not passed on to guests; however, in the past, we have adjusted menu prices to compensate for increased costs of a more permanent nature.

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

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

Advertising and Marketing Expenses include all advertising and marketing-related expenses for the various programs that we utilize to promote traffic and brand recognition for our three restaurant concepts. This category also includes the administrative costs of our marketing departments. 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. On a quarterly basis and for purposes of interim reporting, we expense a portion of the projected annual advertising and marketing expenses in proportion to revenue for the quarter compared to projected annual revenue.

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

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

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

We evaluate restaurant closures for potential disclosure as discontinued operations based on an assessment of quantitative and qualitative factors, including the nature of the closure, potential for revenue migration to other company-operated and franchised restaurants, planned market development in the area of the closed restaurant and the significance of the impact on the related consolidated financial statement line items.

Goodwill Impairment represents the impairment associated with goodwill as events and circumstances result in a carrying value in excess of fair value. In addition, the determination of a goodwill impairment, in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other," ("FASB ASC 350"), consists of a two-step process. The first step consists of comparing each reporting unit's fair value to its carrying value. If the carrying value exceeds the fair value, the goodwill is considered to be impaired. If a possible impairment exists, a second step is performed to measure the amount of the impairment.

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

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

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

The following section should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto included elsewhere herein.
The following table highlights the operating results for the 12- and 40- week periods ended October 4, 2009 and October 5, 2008 as a percentage of total revenues unless specified otherwise.

                                                 12 Weeks Ended                40 Weeks Ended
                                            October 4,     October 5,     October 4,     October 5,
                                               2009           2008           2009           2008

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

Costs and Expenses:
   Cost of restaurant sales: (1)
     Cost of food and beverage                     29.1          30.3            29.1           29.7
     Payroll and benefits                          36.3          35.3            35.0           34.9
     Restaurant operating costs                    20.4          20.8            19.7           20.1
         Cost of restaurant sales (2)              85.8          86.4            83.8           84.7

   Advertising and marketing expenses               3.9           3.6             3.8            3.7
   General and administrative expenses              4.5           4.4             4.3            4.6
   Depreciation and amortization of
property and equipment                              5.5           5.6             5.3            5.3
   Impairment, disposal and restructuring
charges, net                                        0.2           0.0             0.3            0.2
   Goodwill impairment                              0.0          22.9             0.0            6.6
   Pre-opening costs                                0.0           0.4             0.1            0.4

Income (Loss) from Operations                       0.1         (23.2 )           2.5           (5.4 )

Other Expense:
   Interest expense, net                            1.2           2.1             1.3            1.5
(Loss) Earnings before Income Taxes                (1.1 )       (25.3 )           1.2           (6.9 )
Income Tax Expense                                  0.0           6.6             0.1            1.9
Net (Loss) Earnings                                (1.1 )%      (31.9 )%          1.1 %         (8.8 )%

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

(2) Excludes depreciation and amortization shown separately.

The following table reflects margin performance of each of our concepts for the 12- and 40 - week periods ended October 4, 2009 and October 5, 2008.

                                                  12 Weeks Ended                   40 Weeks Ended

                                             October 4,     October 5,         October 4,    October 5,
                                                2009           2008                2009         2008
                                                 ($ in millions)                   ($ in millions)
O'Charley's Concept: (1)
   Restaurant Sales                         $      123.3    $    132.8       $      445.5    $    464.3

   Cost and expenses: (2)
     Cost of food and beverage                      29.0 %        30.1 %             28.9 %        29.4 %
     Payroll and benefits                           36.5 %        35.6 %             34.9 %        34.9 %
     Restaurant operating costs (3)                 19.5 %        20.3 %             18.8 %        19.5 %
     Cost of restaurant sales (4)                   85.0 %        86.0 %             82.6 %        83.7 %

Ninety Nine Concept:
   Restaurant Sales                         $       64.0    $     68.9       $      221.2    $    235.0

   Cost and expenses: (2)
     Cost of food and beverage                      28.6 %        29.7 %             28.7 %        29.2 %
     Payroll and benefits                           36.8 %        35.4 %             36.0 %        35.8 %
     Restaurant operating costs (3)                 22.2 %        22.0 %             21.2 %        21.6 %
     Cost of restaurant sales (4)                   87.6 %        87.0 %             85.9 %        86.6 %

Stoney River Concept:
   Restaurant Sales                         $        6.6    $      7.8       $       24.7    $     28.2

   Cost and expenses: (2)
     Cost of food and beverage                      35.9 %        39.2 %             36.6 %        37.8 %
     Payroll and benefits                           29.3 %        28.8 %             29.8 %        28.7 %
     Restaurant operating costs (3)                 19.7 %        19.3 %             21.3 %        18.5 %
      Cost of restaurant sales (4)                  84.9 %        87.3 %             87.7 %        85.0 %

(1) Includes restaurant sales from O'Charley's joint venture operations of $1.2 million and $1.7 million for the 12 weeks ended October 4, 2009 and October 5, 2008, and $5.5 million and $5.9 million for the 40 weeks ended October 4, 2009 and October 5, 2008, respectively, but excludes revenue from franchised restaurants.
(2) Shown as a percentage of restaurant sales.
(3) Includes rent: 100% of the Ninety Nine restaurant locations are leased (land or land and building) as compared to 58% for O'Charley's and 70% for Stoney River.
(4) Excludes depreciation and amortization.

The following table sets forth certain financial and other restaurant data for the quarters ended October 4, 2009 and October 5, 2008:

                                                           October 4,         October 5,
                                                              2009               2008
Number of Restaurants:
   O'Charley's Restaurants:
     In operation, beginning of quarter                            233                229
     Restaurants opened/acquired (1)                                 2                  2
     Restaurant closed                                               -                  -
     In operation, end of quarter                                  235                231
   Ninety Nine Restaurants:
     In operation, beginning of quarter                            116                116
     Restaurants opened                                              -                  -
     Restaurants closed                                              -                  -
     In operation, end of quarter                                  116                116
   Stoney River Restaurants:
     In operation, beginning of quarter                             10                 10
     Restaurants opened                                              -                  -
     Restaurants closed                                              -                  -
     In operation, end of quarter                                   10                 10
   Franchised / Joint Venture Restaurants (O'Charley's)
     In operation, beginning of quarter                             12                 12
     Restaurants opened                                              -                  -
     Restaurants closed/acquired (1)                                (2 )                -
     In operation, end of quarter                                   10                 12
Average Weekly Sales per Store:
     O'Charley's                                          $     43,627       $     47,406
     Ninety Nine                                                45,985             49,471
     Stoney River                                               55,088             65,115
Change in Same Store Sales (2):
     O'Charley's                                                  (7.6 %)            (4.0 %)
     Ninety Nine                                                  (7.1 %)            (8.1 %)
     Stoney River                                                (17.1 %)            (8.1 %)
Change in Same Store Guest Visits (2):
     O'Charley's                                                  (7.4 %)            (5.5 %)
     Ninety Nine                                                  (3.4 %)            (9.0 %)
     Stoney River                                                 (1.0 %)           (13.4 %)
Change in Same Store Average Check per Guest (2):
     O'Charley's                                                  (0.2 %)             1.5 %
     Ninety Nine                                                  (3.8 %)             1.0 %
     Stoney River                                                (16.3 %)             6.1 %
Average Check per Guest (3):
     O'Charley's                                          $      12.86       $      12.89
     Ninety Nine                                                 14.25              14.83
     Stoney River                                                39.76              48.19

(1) Represents the acquisition of JFC Enterprises, LLC on September 28, 2009. See Note J of the Notes to Unaudited Consolidated Financial Statements for further discussion relating to this matter.

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

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

Third Quarter and First 40 Weeks of 2009 Versus Third Quarter and First 40 Weeks of 2008

Revenues

During the 12 weeks ended October 4, 2009, total revenues decreased 7.4 percent to $194.1 million from $209.6 million for the same prior year period. Total revenues for the first 40 weeks of 2009 decreased 5.0 percent to $692.0 million from $728.3 million in the same prior-year period.

Restaurant sales for company-operated O'Charley's decreased 6.9 percent to $122.1 million for the third quarter of fiscal 2009, reflecting a decline in same store sales of 7.6 percent, and the net addition of one new company-operated restaurant since the third quarter of fiscal 2008. The same-store sales decrease of 7.6 percent was comprised of a 0.2 percent decrease in average check and a 7.4 percent decrease in guest counts. Restaurant sales for company-operated O'Charley's decreased to $440.0 million for the first 40 weeks of 2009 from $458.4 million for the first 40 weeks of 2008 reflecting a same store sales decrease of 5.4 percent comprised of a 0.8 percent higher average check offset by a decrease in guest counts of 6.2 percent.

Restaurant sales for Ninety Nine decreased 7.0 percent to $64.0 million in the third quarter of fiscal 2009, reflecting a decline in same store sales of 7.1 percent, and the addition of one new restaurant and the closing of one . . .