UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

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

For the Quarterly Period Ended July 13, 2008

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	(I.R.S. Employer
incorporation or organization)	Identification No.)

3038 Sidco Drive, Nashville, Tennessee	37204
(Address of principal executive offices)	(Zip Code)

(615) 256-8500

(Registrant’s telephone number, including area code)

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 o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer x Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding as of August 15, 2008
Common Stock, no par value	21,289,601 shares

O’Charley’s Inc.

Form10-Q

For the Quarter Ended July 13, 2008

Index

	Page No.
Part I — Financial Information
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets as of July 13, 2008 and December 30, 2007		3
Consolidated Statements of Operations for the 12 weeks ended July 13, 2008 and July 15, 2007		4
Consolidated Statements of Operations for the 28 weeks ended July 13, 2008 and July 15, 2007		5
Consolidated Statements of Cash Flows for the 28 weeks ended July 13, 2008 and July 15, 2007		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		30
Item 4. Controls and Procedures		30
Part II — Other Information
Item 1. Legal Proceedings		30
Item 2. Issuer Purchases of Equity Securities		31
Item 4. Submission of Matters to a Vote of Security Holders		31
Item 6. Exhibits		31
Signatures		32

EX-10.1 THIRD AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT

EX-31.1 SECTION 302 CEO CERTIFICATION

EX-31.2 SECTION 302 CFO CERTIFICATION

EX-32.1 SECTION 906 CEO CERTIFICATION

EX-32.2 SECTION 906 CFO CERTIFICATION

2

PART I — FINANCIAL INFORMATION

Item1. Consolidated Financial Statements (Unaudited)

O’CHARLEY’S INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	July 13,		December 30,
	2008		2007
ASSETS
Current Assets:
Cash and cash equivalents	$	5,540	$	9,982
Trade accounts receivable		13,625		17,352
Inventories		20,125		18,382
Deferred income taxes		14,037		13,793
Assets held for sale		2,252		2,909
Other current assets		8,219		3,424
Total current assets		63,798		65,842
Property and Equipment, net		440,415		435,752
Goodwill		93,656		93,461
Intangible Assets		25,946		25,946
Other Assets		28,628		27,982
Total Assets	$	652,443	$	648,983
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable	$	24,988	$	10,808
Accrued payroll and related expenses		17,096		17,761
Accrued expenses		24,538		23,451
Deferred revenue		7,206		17,808
Federal, state and local taxes		13,800		8,562
Current portion of long-term debt and capitalized lease obligations		9,425		8,597
Total current liabilities		97,053		86,987
Other Liabilities		59,188		59,832
Long-Term Debt, less current portion		148,213		127,654
Capitalized Lease Obligations, less current portion		4,663		8,984
Shareholders’ Equity:
Common stock — No par value; authorized, 50,000,000 shares; issued and outstanding, 21,291,772 in 2008 and 23,148,313 in 2007		152,845		174,985
Retained earnings		190,481		190,541
Total shareholders’ equity		343,326		365,526
Total Liabilities and Shareholders’ Equity	$	652,443	$	648,983

See accompanying notes to unaudited consolidated financial statements

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O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

12 Weeks Ended July 13, 2008 and July 15, 2007

(In thousands, except per share data)

(Unaudited)

	2008			2007
Revenues:
Restaurant sales	$	220,955		$		226,377
Commissary sales		—				2,249
Franchise and other revenue		188				129
		221,143				228,755
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		64,817				66,362
Payroll and benefits		78,651				77,330
Restaurant operating costs		44,258				43,121
Cost of restaurant sales, exclusive of depreciation and
amortization shown separately below		187,726				186,813
Cost of commissary sales		—				2,115
Advertising and marketing expenses		7,751				8,062
General and administrative expenses		10,346				11,263
Depreciation and amortization of property and equipment		11,605				11,664
Impairment, disposal and restructuring charges, net		1,728				7,873
Pre-opening costs		1,593				597
		220,749				228,387
Income from Operations		394				368
Other Expense (Income):
Interest expense, net		2,660				2,681
Other, net		(1	)			(6	)
		2,659				2,675
Loss Before Income Taxes		(2,265	)			(2,307	)
Income Tax Expense / (Benefit)		5,569				(1,161	)
Net Loss	$	(7,834	)	$		(1,146	)
Basic Loss per Common Share:
Net loss	$	(0.38	)	$	(0.05		)
Weighted average common shares outstanding		20,768			24,002
Diluted Loss per Common Share:
Net loss	$	(0.38	)	$		(0.05	)
Weighted average diluted common shares outstanding		20,768				24,002

See notes to accompanying unaudited consolidated financial statements

4

O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

28 Weeks Ended July 13, 2008 and July 15, 2007

(In thousands, except per share data)

(Unaudited)

	2008			2007
Revenues:
Restaurant sales	$	518,131		$		535,493
Commissary sales		—				5,978
Franchise and other revenue		507				173
		518,638				541,644
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		152,499				156,282
Payroll and benefits		180,269				182,180
Restaurant operating costs		102,744				99,978
Cost of restaurant sales, exclusive of depreciation and
amortization shown separately below		435,512				438,440
Cost of commissary sales		—				5,506
Advertising and marketing expenses		19,086				18,113
General and administrative expenses		23,937				27,180
Depreciation and amortization of property and equipment		27,188				26,922
Impairment, disposal and restructuring charges, net		1,531				8,786
Pre-opening costs		2,412				1,712
		509,666				526,659
Income from Operations		8,972				14,985
Other Expense (Income):
Interest expense, net		6,503				6,577
Other, net		(1	)			(11	)
		6,502				6,566
Earnings Before Income Taxes		2,470				8,419
Income Tax (Benefit) / Expense		(73	)			1,557
Net Earnings	$	2,543		$		6,862
Basic Earnings per Common Share:
Net earnings	$	0.12		$	0.29
Weighted average common shares outstanding		21,287			23,867
Diluted Earnings per Common Share:
Net earnings	$	0.12		$		0.28
Weighted average diluted common shares outstanding		21,395				24,239

See notes to accompanying unaudited consolidated financial statements

5

O’CHARLEY’S INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

28 Weeks Ended July 13, 2008 and July 15, 2007

(In thousands)

(Unaudited)

	2008			2007
Cash Flows from Operating Activities:
Net earnings	$	2,543		$	6,862
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization of property and equipment		27,188			26,922
Amortization of debt issuance costs		502			469
Share-based compensation		2,505			2,356
Amortization of deferred gain on sale-leaseback		(569	)		(569	)
Deferred income taxes and other income tax related items		(3,037	)		(797	)
Loss on the sale of assets		42			113
Impairment, disposal and restructuring charges, net		1,373			7,983
Changes in assets and liabilities:
Trade accounts receivable		3,727			(363	)
Inventories		(1,743	)		(5,481	)
Other current assets		(4,795	)		(3,300	)
Trade accounts payable		14,180			(4,193	)
Deferred revenue		(10,602	)		(11,220	)
Accrued payroll, accrued expenses, and federal, state and local taxes		5,129			(5,460	)
Other long-term assets and liabilities		1,087			(103	)
Net cash provided by operating activities		37,530			13,219
Cash Flows from Investing Activities:
Additions to property and equipment		(34,981	)		(26,379	)
Proceeds from the sale of assets		2,677			10,995
Other, net		92			(22	)
Net cash used in investing activities		(32,212	)		(15,406	)
Cash Flows from Financing Activities:
Proceeds from long-term debt		22,083			—
Payments on long-term debt and capitalized lease obligations		(5,231	)		(7,146	)
Excess tax benefit from share-based payments		—			1,621
Dividends paid		(2,603	)		(1,477	)
Shares repurchased		(24,774	)		—
Proceeds from the exercise of stock options and issuances under stock purchase plan		628			4,666
Other financing activities		137			—
Net cash used in financing activities		(9,760	)		(2,336	)
Decrease in Cash and Cash Equivalents		(4,442	)		(4,523	)
Cash and Cash Equivalents at Beginning of the Period		9,982			19,923
Cash and Cash Equivalents at End of the Period	$	5,540		$	15,400

See accompanying notes to unaudited consolidated financial statements

6

O’CHARLEY’S INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

12 and 28 Weeks Ended July 13, 2008 and July 15, 2007

(Unaudited)

A. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X. The Company’s fiscal year ends on the last Sunday in December with its first quarter consisting of sixteen weeks and its second, third and fourth quarters consisting of twelve weeks each in most years.

In the opinion of management, the unaudited interim consolidated financial statements contained in this report reflect all adjustments, consisting primarily of normal recurring accruals, which are necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year.

These unaudited consolidated financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2007. Certain reclassifications have been made to the prior year information to conform to the current year presentation. Management of the Company has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent 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. GAAP.

B. FAIR VALUE MEASUREMENTS

Effective December 31, 2007, the first day of fiscal 2008, the Company adopted Statement of Financial Accounting Standards No. 159 ("SFAS 159"), “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value reporting option for any assets and liabilities not previously recorded at fair value.

Effective December 31, 2007, the first day of fiscal 2008, the Company adopted the provisions of Statement of Financial Accounting Standards No. 157 ("SFAS 157"), “Fair Value Measurements” for financial assets and liabilities, as well as any other assets and liabilities that are carried at fair value on a recurring basis in financial statements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the Financial Accounting Standards Board ("FASB") having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements.  As a result, the adoption of SFAS 157 did not have a material impact on the Company. The Company applied the provisions of FASB Staff Position (“FSP”) FAS 157-2, "Effective Date of FASB Statement 157," which defers the provisions of SFAS 157 for nonfinancial assets and liabilities to the first fiscal period beginning after November 15, 2008. The deferred nonfinancial assets and liabilities include items such as goodwill and other nonamortizable intangibles. The Company is required to adopt SFAS 157 for nonfinancial assets and liabilities in the first quarter of fiscal 2009 and is still evaluating the impact on its consolidated financial statements.

Fair value is defined under SFAS 157 as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a three-level 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.

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

	Fair Value Measurement at Reporting Date Using
		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		July 13, 2008 Carrying
		(Level 1)		(Level 2)		(Level 3)		Value
Deferred compensation plan asset	$	8,305	$	—	$	—	$	8,305
Interest rate swap asset		—		704		—		704
Total	$	8.305	$	704	$	—	$	9,009

The deferred compensation plan asset is comprised of various investment funds, which are valued based upon their quoted market prices. The interest rate swap asset is valued based upon a mathematical approximation of market value, which can be observed moving directionally in relation to changes in the LIBOR.

7

C. IMPAIRMENT, DISPOSAL AND RESTRUCTURING CHARGES, NET

During the second quarter, the Company recorded impairment charges with respect to two O’Charley’s restaurants and one Ninety Nine restaurant, all of which will remain open, resulting in a total impairment charge of approximately $1.9 million. Total impairment, disposal, and restructuring charges for the 12 weeks ended July 13, 2008 were approximately $1.7 million compared to approximately $7.9 million for the same prior-year period. Total impairment, disposal and restructuring charges for the 28 weeks ended July 13, 2008 were approximately $1.5 million compared to approximately $8.8 million for the same prior-year period.

With respect to the asset impairment charges, fair value was determined by projected future discounted cash flows for each location or the estimated value of the asset less costs associated with the marketing and/or selling the asset.

During the second quarter of 2008, the Company sold an asset held for sale with an approximate book value of $0.6 million and recognized a gain of approximately $0.2 million on the sale of the asset. During the 28 weeks ended July 13, 2008, the Company sold assets held for sale with a combined net book value of $2.1 million and recognized a gain of approximately $0.5 million on the sale of those assets.

D. SHARE-BASED COMPENSATION

Total share-based compensation expense for the 12 weeks ended July 13, 2008 was approximately $1.0 million and was approximately $1.1 million for the 12 weeks ended July 15, 2007. Total share-based compensation expense for the 28 weeks ended July 13, 2008 was approximately $2.5 million and was approximately $2.4 million for the 28 weeks ended July 15, 2007. The Company’s net share-based compensation expense primarily consisted of expense associated with restricted stock awards and to a lesser extent expense associated with the Company’s employee share purchase plan and unvested stock options.

During the second quarter of 2008, the Company granted approximately 0.1 million shares of time vested restricted stock awards to members of its board of directors. The Company recognized share-based compensation expense of approximately $0.1 million related to these restricted stock awards granted during the 12-week period ended July 13, 2008. For the 28 weeks ended July 13, 2008, the Company issued approximately 0.5 million shares of time vested restricted stock awards to certain members of senior management, members of its board of directors and other employees and has recognized approximately $0.4 million related to these awards. As of July 13, 2008, there were approximately 1.3 million options outstanding and approximately 1.0 million restricted stock awards outstanding.

E. CASH DIVIDENDS AND STOCK REPURCHASE PROGRAM

On May 21, 2008, the Company announced that its Board of Directors approved a quarterly cash dividend on the Company’s common stock of $0.06 per share. The dividend was payable on June 27, 2008 to shareholders of record on June 13, 2008. Dividends of approximately $1.3 million were recorded in the second quarter of 2008 as a reduction to retained earnings. For the 28 weeks ended July 13, 2008, the Company has paid approximately $2.6 million in dividends that have been recorded as a reduction to retained earnings.

On February 7, 2008, the Company announced that its Board of Directors approved a $20 million increase in the Company's share repurchase authorization. During 2007, the Board of Directors approved a $50 million repurchase authorization under which the Company had repurchased $30 million of its common stock by the end of fiscal 2007.During the second quarter of 2008, the Company repurchased approximately 0.7 million additional shares for approximately $7.0 million. For the 28 weeks ended July 13, 2008, the Company has repurchased approximately 2.2 million shares for approximately $24.8 million. The remaining balance that may be repurchased under the current repurchase authorization is approximately $15.2 million. The share repurchase authorization does not have an expiration date and the pace of repurchase activity will depend on factors such as levels of cash generation from operations, cash requirements for strategic initiatives, restrictions in the Company’s bond indenture and credit agreement, repayment of debt, current stock price, and other factors. O'Charley's Inc. may repurchase shares from time to time on the open market or in private transactions, including structured transactions. The share repurchase program may be modified or discontinued at any time.

F. NET (LOSS) EARNINGS PER COMMON SHARE

Basic (loss) earnings per common share have been computed on the basis of the weighted average number of common shares outstanding. Diluted (loss) earnings per common share have been computed on the basis of the weighted average number of common shares outstanding plus the dilutive effect of stock options and restricted (non-vested) stock awards outstanding. As the Company incurred a net loss in the second quarters of 2008 and 2007, the weighted average common shares outstanding used in the determination of the second quarter 2008 and 2007 basic loss per common share is used for the diluted loss per common share as well.

Following is a reconciliation of the weighted average common shares used in the Company’s basic and diluted (loss) earnings per share calculation (in thousands):

	12 Weeks Ended						28 Weeks Ended
	July 13,			July 15,			July 13,		July 15,
	2008			2007			2008		2007
Net (loss) earnings	$	(7,834	)	$	(1,146)		$	2,543	$	6,862
Weighted average common shares outstanding		20,768			24,002			21,287		23,867
Incremental options and restricted shares outstanding		—			—			108		372
Weighted average diluted common shares outstanding		20,768			24,002			21,395		24,239
Basic (loss) earnings per common share	$	(.38	)	$	(.05	)	$	.12	$	.29
Diluted (loss) earnings per common share	$	(.38	)	$	(.05	)	$	.12	$	.28

Options for approximately 1.3 million shares were excluded from both the 12-week and 28-week diluted weighted average share calculations for 2008, as compared to approximately 0.1 million and 0.4 million for the same prior-year periods, due to these shares being anti-dilutive.

8

9

G. DERIVATIVE INSTRUMENTS

As of July 13, 2008, the Company’s derivative financial instruments consisted of interest rate swaps with a combined notional amount of $78.0 million, which effectively convert an equal portion of the fixed-rate indebtedness related to the Company’s $125.0 million senior subordinated notes due 2013 into variable-rate obligations (fair value hedges). The terms and conditions of the swaps mirror the terms and conditions of the respective debt. The Company’s purpose for holding such instruments is to hedge its exposure to fair value fluctuations due to changes in market interest rates, as well as to maintain, in the Company’s opinion, an appropriate mix of fixed and floating rate debt. The interest rate for these swap agreements is based on the six-month LIBOR rate in arrears plus a specified margin, the average of which is 3.9 percent.

H. LEGAL PROCEEDINGS

On November 5, 2007, the Company filed suit in Davidson County, Tennessee, against Richard Arras, Steven Pahl and Wi-Tenn Investors, LLC, (“Defendants”) alleging breach of contract and breach of fiduciary duty by the Defendants related to Wi-Tenn Restaurants, LLC, a joint venture owned 50% by the Company and 50% by the Defendants, which developed and operates an O’Charley’s restaurant in Grand Chute, Wisconsin (the “Tennessee Action”). Subsequently, on November 7, 2007, the Defendants filed suit in Outagamie County, Wisconsin, against the Company and seven of its current and former employees alleging violations of the Wisconsin Franchise Investment Law, Wisconsin Uniform Securities Law, fraud, misrepresentation and unjust enrichment, stemming from Defendants’ ownership in Wi-Tenn Restaurants, LLC (the “Wisconsin Action”). The Company filed a motion to dismiss Defendants’ complaint in the Wisconsin Action and this motion was granted on August 12, 2008, resulting in dismissal of the Wisconsin Action. On February 15, 2008, Defendants filed a counterclaim in the Tennessee Action against the Company and the aforementioned current and former employees, pertaining to the same subject matter referenced in the Wisconsin Action (the “Tennessee Counterclaim”). The Tennessee Counterclaim was amended and asserts ten causes of action including the claims asserted in the Wisconsin Action, claims under the Tennessee Securities Act and Delaware Securities Act, claims under the Tennessee Consumer Protection Act, and claims for tortuous interference, breach of fiduciary duty and breach of contract. The Tennessee Counterclaim alleges damages in excess of $75,000. On August 6, 2008, the Court in the Tennessee Action dismissed Defendants’ Counterclaims concerning the Wisconsin Franchise Investment Law, Wisconsin Uniform Securities Law, Tennessee Securities Act and Delaware Securities Act with prejudice and required Defendants to re-plead their claims under the Tennessee Consumer Protection Act and their claims for fraud, misrepresentation, tortuous interference and breach of contract. O’Charley’s denies all liability and intends to vigorously contest the allegations contained in the Tennessee Counterclaim and intends to vigorously prosecute the Tennessee Action against the Defendants. The Tennessee Action is set for trial on July 13, 2009.

The Company is also a defendant from time to time in various legal proceedings arising in the ordinary course of its business, including claims relating to injury or wrongful death under “dram shop” laws that allow a person to sue the Company based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of its 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 its joint venture and franchising initiatives; and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns.

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

I. ASSETS HELD FOR SALE

The amount shown in assets held for sale as of July 13, 2008 on the consolidated balance sheet consists of assets related to one Company-owned O’Charley’s restaurant that has been closed and one prospective restaurant site, which was added to assets held for sale during the first quarter and that the Company no longer plans to utilize. The closed restaurant and the real estate are currently being marketed for sale. The combined net book value of these assets is approximately $2.3 million. The impairment charges related to the closed restaurant were recorded in prior quarters. The Company does not recognize depreciation expense for assets being held for sale. During the second quarter of 2008, the Company sold an asset held for sale with an approximate net book value of $0.6 million and recognized a gain of approximately $0.2 million on the sale of the asset.

J. FRANCHISE AND JOINT VENTURE ARRANGEMENTS

In connection with the Company’s franchising initiative, the Company may from time to time enter into joint venture and franchise arrangements to develop and operate O’Charley’s restaurants. For any joint venture in which the Company has an ownership interest, the Company may make loans to the joint venture entity and/or guarantee certain of the joint venture’s debt and obligations. As of July 13, 2008 the Company has a 50% interest in two joint ventures to operate O’Charley’s restaurants. Under Financial Accounting Standards Board Interpretation (FIN) No. 46R, “Consolidation of Variable Interest Entities,” the joint ventures (JFC Enterprises, LLC and Wi-Tenn Restaurants, LLC) are considered variable interest entities. Since the Company currently bears a disproportionate share of the financial risk associated with the joint ventures, it has been deemed to be the primary beneficiary of the joint ventures and, in accordance with FIN 46R, the Company consolidates the joint ventures in its consolidated financial statements. The JFC Enterprise, LLC, joint venture partner has neither the obligation nor the ability to contribute its proportionate share of expected future losses. Such losses may require additional financial support from the Company. As of July 13, 2008, JFC Enterprises, LLC, which owns and operates two O’Charley’s restaurants in Louisiana, had loans outstanding due to the Company of approximately $8.5 million. As of July 13, 2008, Wi-Tenn Restaurants, LLC, which owns and operates one O’Charley’s restaurant in Wisconsin, had loans outstanding due to the Company of approximately $4.0 million. The loans to Wi-Tenn Restaurants, LLC, were primarily used to purchase the property and fund construction of its first restaurant.

K. INCOME TAXES

Under SFAS 109, “Accounting for Income Taxes,” companies are required to apply their estimated full year tax rate on a year to date basis in each interim period. Under FASB Interpretation No. 18 (“FIN 18”) “Accounting for Income Taxes in Interim Periods,” companies should not apply the estimated full year tax rate to interim financial results if the estimated full-year tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. Based on the Company’s current projections, a small change in pre-tax earnings would result in a material change in the estimated annual effective rate. As such, the Company recorded a tax benefit through the second quarter based on the actual year-to-date results, in accordance with FIN 18. Through the second quarter, the Company has recorded an income tax benefit of approximately $0.1 million, equivalent to negative 2.9% of year to date pre-tax income. The Company estimates that its tax credits, which are primarily the FICA tip credits and the Work Opportunity Tax Credit (“WOTC”), will be approximately $4.0 million, through the second quarter. The FICA (Social Security and Medicare taxes) tip credit is a non refundable federal income tax credit available to offset a portion of employer’s FICA tax paid on employee cash tips. Given the Company’s year-to-date pretax profit on a GAAP basis, these credits are expected to exceed the tax liability at the applicable statutory rates.

L. RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“SFAS No.141(R)”), which replaces SFAS No. 141, “Business Combinations” (“SFAS No. 141”). SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would also apply the provisions of SFAS No. 141(R). Early adoption is not permitted. The Company has not yet determined the impact if any, that SFAS No. 141(R) may have on its results of operations and financial position.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.51” (“SFAS No. 160”). This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to thenoncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of Accounting Research Bulletin (“ARB”) No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. The Company has not yet determined the impact if any, that SFAS No. 160 may have on its results of operations and financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”), which amends and expands SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 161 requires tabular disclosure of the fair value of derivative instruments and their gains and losses.  This statement also requires disclosure regarding the credit-risk related contingent features in derivative agreements, counterparty credit risk, and strategies and objectives for using derivative instruments. The Company is required to adopt the disclosure provisions of SFAS No. 161 in the first quarter of 2009.  

In May 2008, the FASB staff revisited Emerging Issues Task Force (“EITF”) issue No. 03-6 and issued FASB Staff Position (“FSP”) No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” FSP EITF 03-6-01 requires unvested share-based payments that entitle employees to receive nonrefundable dividends to also be considered participating securities, as defined in EITF 03-6. This FSP is effective for fiscals years beginning after December 15, 2008 and interim periods within those years with early adoption prohibited. The Company has not yet determined the impact if any, that FSP EITF 03-6-1 may have on its results of operations and financial position.

M. SUPPLEMENTARY CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS

In the fourth quarter of 2003, the Company issued $125 million aggregate principal amount of 9 percent senior subordinated notes due 2013. The obligations of the Company under the senior subordinated notes are guaranteed by all of the Company’s subsidiaries, with the exception of certain minor subsidiaries. The guarantees are made on a joint and several basis. The claims of creditors of the non-guarantor subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries. Presented below is supplementary consolidating financial information for the Company and the subsidiary guarantors as of July 13, 2008 and December 30, 2007 and for the 12 and 28-week periods ended July 13, 2008 and July 15, 2007.

10

Consolidating Balance Sheet

As of July 13, 2008

(Unaudited)

								Minor
								Subsidiaries and
	Parent			Subsidiary				Consolidating
	Company			Guarantors				Adjustments				Consolidated
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	3,833			$	(6,375	)		$	8,082			$	5,540
Trade accounts receivable		7,814				6,836				(1,025	)			13,625
Intercompany (payable) receivable		(327,756	)			294,367				33,389				—
Inventories		4,265				15,797				63				20,125
Deferred income taxes		13,653				384				—				14,037
Assets held for sale		2,252				—				—				2,252
Other current assets		2,928				2,757				2,534				8,219
Total current (liabilities) assets		(293,011	)			313,766				43,043				63,798
Property and Equipment, net		291,659				142,994				5,762				440,415
Goodwill		—				93,656				—				93,656
Intangible Assets		25				25,921				—				25,946
Other Assets		226,271				31,701				(229,344	)			28,628
Total Assets (Liabilities)	$	224,944			$	608,038			$	(180,539	)		$	652,443
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable	$	12,951			$	2,552			$	9,485			$	24,988
Accrued payroll and related expenses		12,866				4,221				9				17,096
Accrued expenses		18,643				6,850				(955	)			24,538
Deferred revenue		—				7,808				(602	)			7,206
Federal, state and local taxes (receivable) payable		(10,713	)			24,434				79				13,800
Current portion of long-term debt and capitalized lease obligations		8,623				802				—				9,425
Total current liabilities		42,370				46,667				8,016				97,053
Other Liabilities		35,248				23,014				926				59,188
Long-Term Debt, less current portion		168,973				396				(21,156	)			148,213
Capitalized Lease Obligations, less current portion		3,943				720				—				4,663
Shareholders’ Equity (Deficit):
Common stock		110,078				343,431				(300,664	)			152,845
Retained (deficit) earnings		(135,668	)			193,810				132,339				190,481
Total shareholders’(deficit) equity		(25,590	)			537,241				(168,325	)			343,326
Total Liabilities and Shareholders’ Equity (Deficit)	$	224,944			$	608,038			$	(180,539	)		$	652,443

11

Consolidating Balance Sheet

As of December30, 2007

(Unaudited)

							Minor
							Subsidiaries and
	Parent			Subsidiary			Consolidating
	Company			Guarantors			Adjustments				Consolidated
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	3,680			$	6,269		$	33			$	9,982
Trade accounts receivable		8,549				9,085			(282	)			17,352
Intercompany (payable) receivable		(270,585	)			238,354			32,231				—
Inventories		4,106				14,220			56				18,382
Deferred income taxes		13,409				384			—				13,793
Assets held for sale		1,468				—			1,441				2,909
Other current assets		1,794				1,576			54				3,424
Total current (liabilities) assets		(237,579	)			269,888			33,533				65,842
Property and Equipment, net		291,455				138,374			5,923				435,752
Goodwill		—				93,461			—				93,461
Intangible Assets		25				25,921			—				25,946
Other Assets		224,494				32,802			(229,314	)			27,982
Total Assets (Liabilities)	$	278,395			$	560,446		$	(189,858	)		$	648,983
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Trade accounts payable	$	9,330			$	2,498		$	(1,020	)		$	10,808
Accrued payroll and related expenses		13,275				4,474			12				17,761
Accrued expenses		16,238				7,614			(401	)			23,451
Deferred revenue		—				18,270			(462	)			17,808
Federal, state and local taxes (receivable) payable		(17,053	)			25,535			80				8,562
Current portion of long-term debt and capitalized lease obligations		7,972				573			52				8,597
Total current liabilities		29,762				58,964			(1,739	)			86,987
Other Liabilities		35,001				23,908			923				59,832
Long-Term Debt, less current portion		147,394				320			(20,060	)			127,654
Capitalized Lease Obligations, less current portion		8,221				763			—				8,984
Shareholders’ Equity (Deficit):
Common stock		132,218				343,430			(300,663	)			174,985
Retained (deficit) earnings		(74,201	)			133,061			131,681				190,541
Total shareholders’ equity (deficit)		58,017				476,491			(168,982	)			365,526
Total Liabilities and Shareholders’ Equity (Deficit)	$	278,395			$	560,446		$	(189,858	)		$	648,983

12

Consolidating Statement of Operations

12 Weeks Ended July 13, 2008

(Unaudited)

							Minor
							Subsidiaries and
		Parent		Subsidiary			Consolidating
	Company			Guarantors			Adjustments				Consolidated
				(In thousands)
Revenues:
Restaurant sales	$	123,919		$	91,311			$	5,725		$	220,955
Commissary sales		—			20,974				(20,974	)		—
Franchise and other revenue		212			50				(74	)		188
		124,131			112,335				(15,323	)		221,143
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		35,884			26,888				2,045			64,817
Payroll and benefits		46,420			33,721				(1,490	)		78,651
Restaurant operating costs		22,288			17,592				4,378			44,258
Cost of restaurant sales, exclusive of depreciation and amortization shown separately below		104,592			78,201				4,933			187,726
Cost of commissary sales		—			20,930				(20,930	)		—
Advertising and marketing expenses		—			7,708				43			7,751
General and administrative expenses		934			9,656				(244	)		10,346
Depreciation and amortization of property and equipment		6,767			4,633				205			11,605
Impairment, disposal and restructuring charges, net		1,170			534				24			1,728
Pre-opening costs		734			859				—			1,593
		114,197			122,521				(15,969	)		220,749
Income (loss) from Operations		9,934			(10,186	)			646			394
Other Expense (Income):
Interest expense, net		2,478			42				140			2,660
Other, net		12,392			(12,393	)			—			(1	)
		14,870			(12,351	)			140			2,659
(Loss) Earnings Before Income Taxes		(4,936	)		2,165				506			(2,265	)
Income Tax Expense / (Benefit)		6,561			(992	)			—			5,569
Net (Loss) Earnings	$	(11,497	)	$	3,157			$	506		$	(7,834	)

13

Consolidating Statement of Operations

12 Weeks Ended July 15, 2007

(Unaudited)

							Minor
							Subsidiaries and
		Parent		Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
				(In thousands)
Revenues:
Restaurant sales	$	127,284		$	92,733		$	6,360		$	226,377
Commissary sales		—			66,107			(63,858	)		2,249
Franchise and other revenue		214			—			(85	)		129
		127,498			158,840			(57,583	)		228,755
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		36,646			27,304			2,412			66,362
Payroll and benefits		45,577			32,628			(875	)		77,330
Restaurant operating costs		22,328			16,338			4,455			43,121
Cost of restaurant sales, exclusive of depreciation and amortization shown separately below		104,551			76,270			5,992			186,813
Cost of commissary sales		—			66,190			(64,075	)		2,115
Advertising and marketing expenses		—			7,956			106			8,062
General and administrative expenses		2,402			9,389			(528	)		11,263
Depreciation and amortization of property and equipment		6,706			4,674			284			11,664
Impairment, disposal and restructuring charges, net		142			7,731			—			7,873
Pre-opening costs		360			238			(1	)		597
		114,161			172,448			(58,222	)		228,387
Income (loss) from Operations		13,337			(13,608	)		639			368
Other Expense (Income):
Interest expense, net		2,318			171			192			2,681
Other, net		12,723			(12,729	)		—			(6	)
		15,041			(12,558	)		192			2,675
(Loss) Earnings Before Income Taxes		(1,704	)		(1,050	)		447			(2,307	)
Income Tax (Benefit) / Expense		(1,239	)		78			—			(1,161	)
Net (Loss) Earnings	$	(465	)	$	(1,128	)	$	447		$	(1,146	)

14

Consolidating Statement of Operations

28 Weeks Ended July 13, 2008

(Unaudited)

							Minor
							Subsidiaries and
		Parent		Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
				(In thousands)
Revenues:
Restaurant sales	$	291,440		$	213,049		$	13,642		$	518,131
Commissary sales		—			47,766			(47,766	)		—
Franchise and other revenue		535			140			(168	)		507
		291,975			260,955			(34,292	)		518,638
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		84,725			62,953			4,821			152,499
Payroll and benefits		106,441			77,315			(3,487	)		180,269
Restaurant operating costs		52,477			39,999			10,268			102,744
Cost of restaurant sales, exclusive of depreciation and amortization shown separately below		243,643			180,267			11,602			435,512
Cost of commissary sales		—			47,650			(47,650	)		—
Advertising and marketing expenses		—			18,909			177			19,086
General and administrative expenses		3,803			20,830			(696	)		23,937
Depreciation and amortization of property and equipment		15,647			11,063			478			27,188
Impairment, disposal and restructuring charges, net		1,137			587			(193	)		1,531
Pre-opening costs		1,185			1,227			—			2,412
		265,415			280,533			(36,282	)		509,666
Income (loss) from Operations		26,560			(19,578	)		1,990			8,972
Other Expense (Income):
Interest expense, net		6,100			15			388			6,503
Other, net		29,145			(29,146	)		—			(1	)
		35,245			(29,131	)		388			6,502
(Loss) Earnings Before Income Taxes		(8,685	)		9,553			1,602			2,470
Income Tax Expense / (Benefit)		893			(966	)		—			(73	)
Net (Loss) Earnings	$	(9,578	)	$	10,519		$	1,602		$	2,543

15

Consolidating Statement of Operations

28 Weeks Ended July 15, 2007

(Unaudited)

							Minor
							Subsidiaries and
		Parent		Subsidiary			Consolidating
	Company			Guarantors			Adjustments			Consolidated
				(In thousands)
Revenues:
Restaurant sales	$	303,306		$	217,098		$	15,089		$	535,493
Commissary sales		—			158,377			(152,399	)		5,978
Franchise and other revenue		376			—			(203	)		173
		303,682			375,475			(137,513	)		541,644
Costs and Expenses:
Cost of restaurant sales:
Cost of food and beverage		89,056			63,634			3,592			156,282
Payroll and benefits		106,743			77,258			(1,821	)		182,180
Restaurant operating costs		51,334			38,679			9,965			99,978
Cost of restaurant sales, exclusive of depreciation and amortization shown separately below		247,133			179,571			11,736			438,440
Cost of commissary sales		—			155,829			(150,323	)		5,506
Advertising and marketing expenses		—			17,901			212			18,113
General and administrative expenses		5,120			23,170			(1,110	)		27,180
Depreciation and amortization of property and equipment		15,359			10,902			661			26,922
Impairment, disposal and restructuring charges, net		79			8,707			—			8,786
Pre-opening costs		1,263			496			(47	)		1,712
		268,954			396,576			(138,871	)		526,659
Income (loss) from Operations		34,728			(21,101	)		1,358			14,985
Other Expense (Income):
Interest expense, net		5,727			396			454			6,577
Other, net		30,320			(30,331	)		—			(11	)
		36,047			(29,935	)		454			6,566
(Loss) Earnings Before Income Taxes		(1,319	)		8,834			904			8,419
Income Tax Expense		1,335			222			—			1,557
Net (Loss) Earnings	$	(2,654	)	$	8,612		$	904		$	6,862

16

17

Consolidating Statement of Cash Flows

28 Weeks Ended July 13, 2008

(Unaudited)

									Minor
									Subsidiaries and
	Parent			Subsidiary				Consolidating
	Company			Guarantors				Adjustments				Consolidated
	(In thousands)
Cash Flows from Operating Activities:
Net (loss) earnings	$	(9,578	)		$	10,519		$		1,602			$	2,543
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization of property and equipment		15,647				11,063				478				27,188
Amortization of debt issuance costs		502				—				—				502
Share–based compensation		2,505				—				—				2,505
Amortization of deferred gain on sale-leaseback		(569	)			—				—				(569	)
Deferred income taxes and other income tax related items		(3,037	)			—				—				(3,037	)
Loss on the sale of assets		42				—				—				42
Impairment, disposal and restructuring charges, net		1,133				554				(314	)			1,373
Changes in assets and liabilities:
Trade accounts receivable		735				2,248				744				3,727
Inventories		(160	)			(1,577	)			(6	)			(1,743	)
Other current assets		(1,133	)			(1,181	)			(2,481	)			(4,795	)
Trade accounts payable		3,621				54				10,505				14,180
Deferred revenue		—				(10,462	)			(140	)			(10,602	)
Accrued payroll, accrued expenses, and federal, state and local taxes		7,804				(2,117	)			(558	)			5,129
Other long-term assets and liabilities		809				246				32				1,087
Net cash provided by operating activities		18,321				9,347				9,862				37,530
Cash Flows from Investing Activities:
Additions to property and equipment		(18,121	)			(16,519	)			(341	)			(34,981	)
Proceeds from the sale of assets		834				64				1,779				2,677
Other, net		7,730				(5,536	)			(2,102	)			92
Net cash used in investing activities		(9,557	)			(21,991	)			(664	)			(32,212	)
Cash Flows from Financing Activities:
Proceeds from long-term debt		22,083				—				—				22,083
Payments on long-term debt and capitalized lease obligations		(4,082	)			—				(1,149	)			(5,231	)
Excess tax benefit from share-based payments		—				—				—				—
Dividends paid		(2,603	)			—				—				(2,603	)
Shares repurchased		(24,774	)			—				—				(24,774	)
Other financing activities		137				—				—				137
Proceeds from the exercise of stock options and issuances under stock purchase plan		628				—				—				628
Net cash used in financing activities		(8,611	)			—				(1,149	)			(9,760	)
Increase (Decrease) in Cash and Cash Equivalents		153				(12,644	)			8,049				(4,442	)
Cash and Cash Equivalents at Beginning of the Period		3,680				6,269				33				9,982
Cash and Cash Equivalents at End of the Period	$	3,833			$	(6,375	)	$		8,082			$	5,540

Consolidating Statement of Cash Flows

28 Weeks Ended July 15, 2007

(Unaudited)

								Minor
								Subsidiaries and
	Parent			Subsidiary				Consolidating
	Company			Guarantors				Adjustments			Consolidated
	(In thousands)
Cash Flows from Operating Activities:
Net (loss) earnings	$	(2,654	)		$	8,612		$	904		$	6,862
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Depreciation and amortization of property and equipment		15,359				10,902			661			26,922
Amortization of debt issuance costs		469				—			—			469
Share–based compensation		2,356				—			—			2,356
Amortization of deferred gain on sale-leaseback		(569	)			—			—			(569	)
Deferred income taxes and other income tax related items		(797	)			—			—			(797	)
Loss on the sale of assets		113				—			—			113
Impairment, disposal and restructuring charges, net		(182	)			8,165			—			7,983
Changes in assets and liabilities:
Trade accounts receivable		(193	)			(573	)		403			(363	)
Inventories		(129	)			(5,373	)		21			(5,481	)
Other current assets		(1,504	)			208			(2,004	)		(3,300	)
Trade accounts payable		(4,903	)			(2,332	)		3,042			(4,193	)
Deferred revenue		—				(11,168	)		(52	)		(11,220	)
Accrued payroll, accrued expenses, and federal, state and local taxes		(6,652	)			1,509			(317	)		(5,460	)
Other long-term assets and liabilities		(468	)			421			(56	)		(103	)
Net cash provided by operating activities		246				10,371			2,602			13,219
Cash Flows from Investing Activities:
Additions to property and equipment		(19,927	)			(5,627	)		(825	)		(26,379	)
Proceeds from the sale of assets		—				10,995			—			10,995
Other, net		13,027				(10,923	)		(2,126	)		(22	)
Net cash used in investing activities		(6,900	)			(5,555	)		(2,951	)		(15,406	)
Cash Flows from Financing Activities:
Proceeds from long-term debt		—				—			—			—
Payments on long-term debt and capitalized lease obligations		(7,146	)			—			—			(7,146	)
Excess tax benefit from share-based payments		1,621				—			—			1,621
Dividends paid		(1,477	)			—			—			(1,477	)
Shares repurchased		—				—			—			—
Other financing activities		—				—			—			—
Proceeds from the exercise of stock options and issuances under stock purchase plan		4,666				—			—			4,666
Net cash used in financing activities		(2,336	)			—			—			(2,336	)
(Decrease) Increase in Cash and Cash Equivalents		(8,990	)			4,816			(349	)		(4,523	)
Cash and Cash Equivalents at Beginning of the Period		3,069				16,524			330			19,923
Cash and Cash Equivalents at End of the Period	$	(5,921	)		$	21,340		$	(19	)	$	15,400

18

Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

RESULTS OF OPERATIONS

Note Regarding Forward-Looking Statements

This report contains certain forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. Those statements include, but may not be limited to, all statements regarding our intent, belief and expectations such as statements concerning our estimated results in future periods, operating and growth strategy, and financing plans. These forward-looking statements may be affected by certain risks and uncertainties, including, but not limited to, the adverse effect on our sales of decreases in consumer spending; our ability to successfully implement and realize projected sales increases from our re-branding efforts; our ability to increase operating margins and increase same store sales at our restaurants; the effect that increases in food, labor, energy, interest costs and other expenses have on our results of operations; our ability to successfully implement changes to our supply chain; our ability to sell closed restaurants and other surplus assets; the effect of increased competition; the resolution of outstanding legal proceedings; and the other risks described in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007 under the caption “Risk Factors” and in our other filings with the Securities and Exchange Commission. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

Overview

We are a leading casual dining restaurant company headquartered in Nashville, Tennessee. We own and operate three restaurant concepts under the “O’Charley’s,” “Ninety Nine” and “Stoney River Legendary Steaks” trade names. As of July 13, 2008, we operated 229 O’Charley’s restaurants in 16 states in the Southeast and Midwest regions, 116 Ninety Nine restaurants in nine states throughout New England and the Mid-Atlantic, and ten Stoney River restaurants in six states in the Southeast and Midwest. As of July 13, 2008, we had nine franchised O’Charley’s restaurants, including four franchised O’Charley’s restaurants in Michigan, two franchised O'Charley's restaurants in Ohio, one O’Charley’s franchised restaurant in Iowa, one O’Charley’s franchised restaurant in Pennsylvania and one O’Charley’s franchised restaurant in Tennessee at the Nashville International Airport. As of July 13, 2008, we had two joint venture O’Charley’s restaurants in Louisiana, and one joint venture O'Charley's restaurant in Wisconsin, in all of which we have an ownership interest. Our fiscal year ends on the last Sunday of the calendar year. We have one reportable segment.

Almost three years ago we began our turnaround and transformation process. Our strategy continues to be anchored by three key elements: building a winning team, improving box economics and achieving high guest satisfaction.

Strengthening the organization with a new core of talent and building a winning team. We have assembled a core of executive talent over the past few years with key additions throughout our support, supply chain and operations areas. We believe that we have in place a management team that will be able to execute successfully our turnaround and transformation efforts, and guide the Company through this difficult economic environment. We believe that the success of our Company depends on demonstrating “A Passion to Serve” ^SM with every guest, at every restaurant, every day.

Improving box economics through the execution of product and labor cost management and increasing same store sales through our re-branding initiatives, new product offerings, new marketing, and a more analytical approach to menu pricing. Box economics is the relationship between the investment in our restaurants and the sales and related operating margin that those sales should produce. We are continuing to leverage our development teams, operational teams, and supply chain teams in controlling the capital costs and the ultimate expense associated with our re-branding programs. Our product development teams at all three concepts continue to deliver great tasting menu offerings. As part of the re-branding initiative, we have trained and implemented new service standards, and introduced new kitchen technology and menu engineering. Another important aspect of our re-branding is the introduction of concept specific elements including new uniforms, plateware, menu designs, and Curbside-To-Go service. During the second quarter of 2008, we completed 21 ‘Project RevO’lution’ re-brandings at our O’Charley’s restaurants and 9 ‘Dressed to the Nines’ re-brandings at our Ninety Nine restaurants. As of the end of the second quarter of 2008, we have completed 62 ‘Project RevO’lution’ re-brandings at our O’Charley’s restaurants, and 62 ‘Dressed to the Nines’ re-brandings at our Ninety Nine restaurants. ‘Project RevO’lution’ and ‘Project Dressed to the Nines’ restaurants re-branded during the past four quarters had, in aggregate, positive same store sales in the second quarter. However, in light of the current economic conditions and their impact on consumer spending, we are deferring the restaurant re-brandings scheduled for the remainder of 2008. We are continuing to evaluate and may further adjust our capital expenditure plans.

Achieving high guest satisfaction and intent to return by instilling “A Passion to Serve” ^SM. In 2005, we adopted a vision statement: ‘A Passion to Serve’ ^SM. This statement describes our commitment to our guests, each other, our stakeholders and our communities. Our vision is to be the best of class in food and service in our segments of the restaurant industry. We are holding ourselves to higher standards as measured by our Guest Satisfaction Index or “GSI” as we believe that the best marketing takes place within the four walls of our restaurants. Many of our ‘Project RevO’lution’ and ‘Project Dressed to the Nines’ initiatives are designed to improve the guest experience. Our senior management teams at Ninety Nine and O’Charley’s have implemented a combination of in-store and market focus groups designed to solicit feedback about how we can continue to improve our delivery of great food and service. We believe that increases in check average and guest counts require sustainable improvement in the guest experience. ‘Project RevO’lution’ and ‘Project Dressed to the Nines’ are key elements in our effort to achieve higher guest satisfaction. While recent economic conditions have had a negative impact on our financial performance, we believe that we are taking the appropriate steps to generate profitable and sustainable growth while enhancing shareholder value. In addition to our core strategy, we remain focused on the cost effectiveness of our support functions and our on-going review of general and administrative expenses.

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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 consists of development fees and royalties on sales by franchised units. Our development fees for franchisees 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 in revenue in the period corresponding to the franchisees’ sales.

Cost of Food and Beverage primarily consists of the costs of beef, poultry, seafood, produce and alcoholic and non-alcoholic beverages net of vendor discounts and rebates. The three most significant commodities that may affect our cost of food and beverage are beef, poultry and seafood which accounted for approximately 23 percent, 12 percent and 9 percent, respectively, of our overall cost of food and beverage in the second quarter of 2008. 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, 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 bonus 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 and related expenses, management training salaries, general liability and property insurance, property taxes, utilities, repairs and maintenance, outside services and credit card fees account for the major expenses in this category.

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

General and Administrative Expenses include the costs of restaurant support center administrative functions that support the existing restaurant base and provide the infrastructure for future growth. Executive management and support staff salaries, bonuses, share-based compensation, 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 all recruiting, relocation and most severance-related expenses. Severance costs associated with the 2007 supply chain restructuring 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. It also includes 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 the various costs associated with restructuring our supply chain, 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. 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.

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 revolving credit facility; interest on our 9 percent Senior Subordinated Notes due 2013 (the “Notes”); including the impact of the interest rate swaps on the $78.0 million notional amount of the Notes; amortization of prepaid interest and finance charges; changes in the assets associated with our non-qualified deferred compensation plan resulting from gains and losses in the underlying funds; interest on capital lease obligations; fees for certain unused credit facilities; and interest income from our investments in overnight repurchase agreements.

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

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The following section should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto included elsewhere herein. The following table highlights the operating results for the 12 and 28-week periods ended July 13, 2008 and July 15, 2007 as a percentage of total revenues unless specified otherwise. Certain reclassifications have been made to the prior year information to conform to the current year presentation.

	12 Weeks Ended						28 Weeks Ended
	July 13,			July 15,			July 13,			July 15,
	2008			2007			2008			2007
Revenues:
Restaurant sales		99.9	%		99.0	%		99.9	%		98.9	%
Commissary sales		0.0			1.0			0.0			1.1
Franchise and other revenue		0.1			0.0			0.1			0.0
		100.0	%		100.0	%		100.0	%		100.0	%
Costs and Expenses:
Cost of restaurant sales: (1)
Cost of food and beverage		29.3			29.3			29.4			29.2
Payroll and benefits		35.6			34.2			34.8			34.0
Restaurant operating costs		20.0			19.0			19.8			18.7
Cost of restaurant sales (2)		85.0			82.5			84.0			81.9
Cost of commissary sales (3)		0.0			0.9			0.0			1.0
Advertising and marketing expenses		3.5			3.5			3.7			3.3
General and administrative expenses		4.7			4.9			4.6			5.0
Depreciation and amortization		5.2			5.1			5.2			5.0
Impairment, disposal and restructuring charges, net		0.8			3.4			0.3			1.6
Pre-opening costs		0.7			0.3			0.5			0.3
Income from Operations		0.2			0.2			1.7			2.8
Other Expense:
Interest expense, net		1.2			1.2			1.2			1.2
(Loss) Earnings before Income Taxes		(1.0	)		(1.0	)		0.5			1.6
Income Tax Expense / (Benefit)		2.5			(0.5	)		0.0			0.3
Net (Loss) Earnings		(3.5	)%		(0.5	)%		0.5	%		1.3	%

(1)	Shown as a percentage of restaurant sales.
(2)		Exclusive of depreciation and amortization shown separately.
(3)		Cost of commissary sales as a percentage of commissary sales was 93.9 percent and 92.0 percent, respectively, for the 12 weeks and 28 weeks ended July 15, 2007. Severance cost associated with the closing of our commissary was recorded in the impairment, disposal and restructuring charges line item.

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The following table reflects margin performance of each of our concepts for the 12 and 28-week periods ended July 13, 2008 and July 15, 2007.

	12 Weeks Ended		28 Weeks Ended
	July 13,	July 15,	July 13,	July 15,
	2008	2007	2008	2007
	($ in millions)		($ in millions)
O’Charley’s Concept: (1)
Restaurant Sales	$    140.8	$    144.3	$    331.5	$    344.7
Cost and expenses: (2)
Cost of food and beverage	29.0%	29.0%	29.2%	29.0%
Payroll and benefits	35.5%	34.3%	34.6%	33.8%
Restaurant operating costs (3)	19.2%	18.8%	19.2%	18.0%
Cost of restaurant sales (4)	83.7%	82.1%	83.0%	80.8%
Ninety Nine Concept:
Restaurant Sales	$      71.8	$      73.1	$    166.2	$    169.2
Cost and expenses: (2)
Cost of food and beverage	28.9%	29.0%	29.0%	28.5%
Payroll and benefits	36.6%	34.6%	36.0%	35.3%
Restaurant operating costs (3)	21.8%	19.7%	21.4%	20.2%
Cost of restaurant sales (4)	87.3%	83.3%	86.4%	84.0%
Stoney River Concept:
Restaurant Sales	$        8.3	$        8.9	$      20.4	$      21.6
Cost and expenses: (2)
Cost of food and beverage	37.8%	37.1%	37.3%	37.2%
Payroll and benefits	28.9%	27.8%	28.7%	27.7%
Restaurant operating costs (3)	19.2%	17.6%	18.2%	16.6%
Cost of restaurant sales (4)	85.9%	82.5%	84.2%	81.5%
(1) Includes restaurant sales from O’Charley’s joint venture operations of approximately $1.9 million and $2.1 million for the 12 weeks ended July 13, 2008 and July 15, 2007, and approximately $4.2 million and $5.0 million for the 28 weeks ended July 13, 2008 and July 15, 2007, but excludes revenue from franchised restaurants. (2) Shown as a percentage of restaurant sales. (3) Includes rent, where 100% of the Ninety Nine restaurant locations are leased (land or land and building) as compared to 58% for O’Charley’s and 60% for Stoney River. (4) Exclusive of depreciation and amortization.

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The following table sets forth certain financial and other restaurant data for the quarters ended July 13, 2008 and July 15, 2007:

	July 13,			July 15,
	2008			2007
Number of Restaurants:
O’Charley’s Restaurants:
In operation, beginning of quarter		228			230
Restaurants opened		1			1
Restaurant closed		—			(2	)
In operation, end of quarter		229			229
Ninety Nine Restaurants:
In operation, beginning of quarter		114			113
Restaurants opened		2			1
Restaurants closed		—			(1	)
In operation, end of quarter		116			113
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			9
Restaurants opened		—			2
Restaurants closed		—			—
In operation, end of quarter		12			11
Average Weekly Sales per Store:
O’Charley’s	$	50,761		$	51,605
Ninety Nine		52,154			53,598
Stoney River		69,496			74,432
Change in Same Store Sales (1):
O’Charley’s		(1.4	%)		(2.1	%)
Ninety Nine		(3.1	%)		1.6	%
Stoney River		(6.4	%)		(0.4	%)
Change in Same Store Guest Visits (1):
O’Charley’s		(4.5	%)		(6.2	%)
Ninety Nine		(5.8	%)		(1.3	%)
Stoney River		(13.7	%)		(5.3	%)
Change in Same Store Average Check per Guest (1):
O’Charley’s		3.2	%		4.3	%
Ninety Nine		2.9	%		3.0	%
Stoney River		8.4	%		5.1	%
Average Check per Guest (2):
O’Charley’s	$	12.91		$	12.51
Ninety Nine		14.95			14.53
Stoney River		46.25			42.57

(1)	When computing same store sales and guest visits, restaurants open for at least 78 weeks are compared from period to period.
(2)	The average check per guest is computed using all restaurants open at the end of the quarter.

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Second Fiscal Quarter and First 28 weeks of 2008 Versus Second Fiscal Quarter and First 28 weeksof 2007

Revenues

During the 12 weeks ended July 13, 2008, total revenues decreased 3.3 percent to $221.1 million from $228.8 million for the same prior year period. Total revenues for the first 28 weeks of 2008 decreased 4.2 percent to $518.6 million from $541.6 million in the same prior-year period.

Restaurant sales for company-operated O’Charley’s decreased 2.3 percent to $138.9 million for the second quarter of 2008, reflecting a decline in same store sales of 1.4 percent, and the addition of two new company-operated restaurants and the closing of two company-operated restaurants since the second quarter of 2007. The same-store sales decrease of 1.4 percent was comprised of a 3.2 percent increase in average check offset by a 4.5 percent decrease in guest counts. In addition to weak consumer demand caused by current economic conditions, a number of factors affected the same store sales performance at the O’Charley’s concept. As of the end of the second quarter of 2008, we have completed 62 ‘Project RevO’lution’ re-brandings, including the Nashville, Indianapolis, Knoxville, Chattanooga and Atlanta markets. In the aggregate, sales at these re-branded restaurants continue to outperform the rest of the concept, while the 44 restaurants re-branded during the past four quarters had positive same-store sales in the second quarter of 2008. Year-over-year sales comparisons benefited by the fact that the phase out of Kids Eat Free at most O’Charley’s restaurants occurred more than one year ago. As of the end of the second quarter of 2007, we had reduced the availability of Kids-Eat-Free in our O’Charley’s restaurants by approximately 80 percent since the second quarter of 2006. O’Charley’s same-store sales continue to be negatively impacted by a smoking ban in Tennessee, where we have our largest concentration of restaurants. We estimate that this smoking ban, which was implemented on October 1, 2007 and does not apply uniformly to all eating and drinking establishments, reduced O’Charley’s same-store sales by 0.7 percent in the second quarter. Restaurant sales for company-operated O’Charley’s decreased to $327.3 million for the first 28 weeks of 2008 from $339.7 million for the first 28 weeks of 2007 reflecting a same store sales decrease of 3.4 percent comprised of a 3.4 percent higher average check and offset by a decrease in guest counts of 6.5 percent.

Restaurant sales for Ninety Nine decreased 1.7 percent to $71.8 million in the second quarter of 2008, reflecting a decline in same store sales of 3.1 percent, and the addition of four new restaurants and the closing of one restaurant since the second quarter of 2007. The same-store sales decrease of 3.1 percent was comprised of a 2.9 percent increase in average check offset by a 5.8 percent decrease in guest counts. We believe the significant downturn in Ninety Nine same store sales was primarily due to the continuing deterioration of the economic environment in New England since the second half of 2007 which has continued through the first half of 2008. Average check in the second quarter was $14.95. As of the end of the second quarter of 2008, we have completed 62 ‘Project Dressed to the Nines’ re-brandings, including our core markets in Eastern Massachusetts and are substantially complete in Southern New Hampshire. In the aggregate, sales at these re-branded restaurants continue to outperform the rest of the concept, while the 37 restaurants re-branded during the past four quarters had positive same store-sales in the second quarter of 2008. Restaurant sales for Ninety Nine restaurants decreased to $166.2 million for the first 28 weeks of 2008 from $169.2 million for the first 28 weeks of 2007 reflecting a same store sales decrease of 2.6 percent comprised of a 3.4 percent higher average check offset by a decrease in guest counts of 5.8 percent.

Restaurant sales for Stoney River Legendary Steaks decreased 6.6 percent to $8.3 million, which reflects a same store sales decrease of 6.4 percent. The same-store sales decrease of 6.4 percent consisted of a 8.4 percent increase in average check and a 13.7 percent decrease in guest counts. At the end of the second quarter of 2008, all of the 10 Stoney River restaurants were included in the same store sales base. Restaurant sales for Stoney River restaurants decreased to $20.4 million for the first 28 weeks of 2008 from $21.6 million for the first 28 weeks of 2007, reflecting a same store sales decrease of 4.7 percent comprised of a 8.4 percent higher average check and a decrease in guest counts of 12.0 percent.

We did not have any commissary sales or expenses during the first 28 weeks of 2008 as we outsourced third party sales as part of our supply chain restructuring in 2007. We now receive royalty revenue from those sales which is recognized in other revenue in the consolidated statement of operations.

Cost of Food and Beverage

During the second quarter of 2008, our cost of food and beverage was $64.8 million, or 29.3 percent of restaurant sales, compared with $66.4 million, or 29.3 percent of restaurant sales, in the second quarter of 2007. On a constant mix basis, our commodity costs were 2.8 percent higher in the current year quarter compared to the prior year, driven primarily by the increases in the cost for dairy products, poultry and wheat products. Higher fuel-related distribution costs also contributed to the increase in our food costs. Although offset by the higher commodity and fuel costs, we continue to realize the anticipated savings from the sale of the commissary and restructuring of our supply chain that we completed last year. During the first 28 weeks of 2008, cost of food and beverage was $152.5 million, or 29.4 percent of restaurant sales, compared to $156.3 million, or 29.2 percent of restaurant sales, in the same prior year period.

Payroll and Benefits

During the second quarter of 2008, payroll and benefits were $78.7 million, or 35.6 percent of restaurant sales, compared to $77.3 million, or 34.2 percent of restaurant sales, in the same prior-year period. This increase in labor costs as a percentage of restaurant sales was primarily the result of the deleveraging impact of the reduction in guest counts, higher employee benefits and workers compensation expenses and higher management labor expense on a reduced sales base. During the first 28 weeks of 2008, payroll and benefits were $180.3 million, or 34.8 percent of restaurant sales, compared to $182.2 million, or 34.0 percent of restaurant sales, in the same prior year period.

Restaurant Operating Costs

During the second quarter of 2008, restaurant operating costs were $44.3 million, or 20.0 percent of restaurant sales, compared to $43.1 million, or 19.0 percent of restaurant sales, in the same prior year period. The increase in restaurant operating costs primarily consists of increases in utility costs, combined with the deleveraging impact of reduced sales on rent and other fixed costs. During the first 28 weeks of 2008, restaurant operating costs were $102.7 million, or 19.8 percent of restaurant sales, compared to $100.0 million, or 18.7 percent of restaurant sales, in the same prior year period.

Advertising and Marketing Expenses

During the second quarter of 2008, advertising and marketing expenses were $7.8 million, or 3.5 percent of revenue, as compared to $8.1 million, or 3.5 percent of revenue, in the same prior year period. During the first 28 weeks of 2008, advertising and marketing expenses were $19.1 million, or 3.7 percent of revenue, as compared to $18.1 million, or 3.3 percent of revenue, in the same prior year period.

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General and Administrative Expenses

General and administrative expenses were $10.3 million, or 4.7 percent of revenue, in the second quarter of 2008 compared to $11.3 million, or 4.9 percent of revenue, in the second quarter of 2007. This improvement in spending was primarily the result of organization changes and tight control in most spending categories.

During the first 28 weeks of 2008, general and administrative expenses were $23.9 million, or 4.6 percent of revenue, as compared to $27.1 million, or 5.0 percent of revenue, in the same prior year period.

Depreciation and Amortization, Property and Equipment

During the second quarter of 2008, depreciation and amortization was $11.6 million, or 5.2 percent of revenue, as compared to $11.7 million, or 5.1 percent of revenue, in the same prior year period. During the first 28 weeks of 2008, depreciation and amortization was $ 27.2 million, or 5.2 percent of revenue, as compared to $26.9 million or 5.0 percent of revenue in the same prior year period. The increase in depreciation and amortization is primarily due to additional capital expenditures associated with new restaurants and re-brandings of existing restaurants.

Impairment, Disposal and Restructuring Charges, net

During the second quarter of 2008, impairment, disposal and restructuring charges, net were $1.7 million, or 0.8 percent of revenue, as compared to $7.9 million, or 3.4 percent of revenue, in the same prior year period. During the first 28 weeks of 2008, impairment, disposal and restructuring charges, net were $1.5 million, or 0.3 percent of revenue, as compared to $8.8 million, or 1.6 percent of revenue, in the same prior year period. During the second quarter of 2008, we , incurred an impairment charge of $1.9 million relating to two O’Charley’s restaurants and one Ninety Nine restaurant, all of which will remain open. The reduction in the quarter-over-quarter and year-over-year expense is primarily related to the changes made in our supply chain in 2007. In the second quarter of 2007, we announced the sale of our Nashville commissary and the outsourcing of our entire manufacturing and Nashville-based distribution operations. As a result, we recorded charges in the second quarter of 2007 of approximately $6.7 million for impairment and disposal charges for the sale and write-down of the real estate and manufacturing equipment and approximately $0.9 million in severance and retention costs, legal and transition costs relating to these supply chain changes. During the first quarter of 2007 we recorded impairment charges of $0.9 million for assets related to the closing of our Woburn, Massachusetts commissary and our salad and poultry operations in Nashville, TN.

Pre-opening Costs

Pre-opening costs in the second quarter of 2008 were $1.6 million, or 0.7 percent of revenue, compared to $0.6 million, or 0.3 percent of revenue, in the second quarter of 2007. In the second quarter of 2008 we opened one new company-owned O’Charley’s restaurant and two new Ninety Nine restaurants and we completed 21 ‘Project RevO’lution’ and nine ‘ProjectDressed to the Nine’ re-brandings. During the first 28 weeks of 2008, pre-opening costs were $2.4 million, or 0.5 percent of revenue, as compared to $1.7 million or 0.3 percent of revenue in the same prior year period.

Interest Expense, Net

Interest expense for the second quarter of 2008 was $2.7 million, or 1.2 percent of revenue, compared to $2.7 million, or 1.2 percent of revenue, in the second quarter of 2007. During the first 28 weeks of 2008, interest expense was $6.5 million, or 1.2 percent of revenue, as compared to $6.6 million or 1.2 percent of revenue in the same prior year period. Lower short term interest rates on the company’s variable rate debt, were offset by higher debt levels as the continuing pay down of our capital leases was more than offset by additional borrowing under our revolving credit facility. At the end of the second quarter of 2008, we had $22.1 million of borrowing on our revolving line of credit. At the end of the prior year quarter, we did not have any borrowing under the line.

Income Taxes

Through the second quarter of 2008 we have recorded an income tax benefit of $0.1 million, equivalent to negative 2.9% of year to date pre-tax income. Through the second quarter of 2008, we estimate that the tax credits, which are primarily the FICA tip credits and the Work Opportunity Tax Credit (“WOTC”), will be approximately $4.0 million. Under SFAS 109, “Accounting for Income Taxes,” companies are required to apply their estimated full year tax rate on a year to date basis in each interim period. Under FASB Interpretation No. 18 (“FIN 18”) “Accounting for Income Taxes in Interim Periods,” companies should not apply the estimated full year tax rate to interim financial results if the estimated full-year tax rate is not reliably predictable. In this situation, the interim tax rate should be based on the actual year-to-date results. Based on the our current projections, a small change in pre-tax earnings would result in a material change in the estimated annual effective rate. As such, we have recorded a tax benefit through the second quarter of 2008 based on the actual year-to-date results, in accordance with FIN 18. Through the second quarter of 2008, we have recorded an income tax benefit of approximately $0.1 million, equivalent to negative 2.9% of year to date pre-tax income. We reported a second quarter after-tax loss of $7.8 million, or $0.38 per diluted share, compared with a net loss in the prior year quarter of $1.1 million, or $0.05 per diluted share. In comparison, the effective tax rate applied to our pretax profit in the second quarter of 2007 was 50.3 percent.

Impact of Re-branding Initiatives

Expenses relating to our re-branding initiatives reduced income from operations in the second quarter of 2008 by $2.5 million, or 1.1 percent of revenue, and reduced net earnings by $0.07 per diluted share. These expenses include depreciation expense of $1.7 million, pre-opening expenses of $0.6 million, and advertising expenses of $0.2 million. Of the $1.7 million of depreciation, $0.1 million is attributable to the accelerated depreciation of assets removed from service and $1.6 million is attributable to the depreciation of the new investment made in all restaurants re-branded to date. In comparison, expenses relating to our re-branding initiatives reduced income from operations in the prior year quarter by $1.3 million, and reduced net earnings by $0.03 per diluted share. In the first 28 weeks of 2008, these expenses reduced income from operations by $5.4 million and reduced net earnings by $0.15 per diluted share. We estimate that the ongoing annual depreciation related to our re-branding initiatives completed to date to be approximately $7.3 million, throughout the expected useful lives of the respective assets. As stated in the Outlook section, our guidance for fiscal 2008 includes an estimated reduction to net earnings of $0.26 per diluted share related to the re-brandings completed by the end of the second quarter of 2008. The difference between the reduction in net earnings from our re-branding initiative of $0.15 per diluted share for the first 28 weeks of 2008, and the estimated annual impact of $0.26 per diluted share is the result of ongoing depreciation during the second half of 2008.

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. Like many restaurant companies, our working capital has historically had current liabilities in excess of current assets due to the fact that most of our sales are received as cash or credit card charges, and we have reinvested our cash in new restaurant development, re-branding capital spending and other capital expenditures, or have used our cash to fund stock repurchases or cash dividends. We do not believe this indicates a lack of liquidity. To the extent operations generate cash in excess of working capital and development needs, we have historically invested this cash in overnight repurchase agreements. We have slowed our restaurant development in recent years in order to focus on improving the performance of our existing restaurants and we have opened one Company-owned O’Charley’s restaurant, two Ninety Nine restaurants and no Stoney River restaurants during the second quarter of 2008. We completed 21 O’Charley’s restaurant re-brandings and 9 Ninety Nine restaurant re-brandings during the quarter as part of our continued focus on our existing restaurants. As of the end of the quarter, we have completed 62 restaurant re-brandings for O’Charley’s and 62 for Ninety Nine restaurant re-brandings since inception of the re-branding initiatives.

On October 18, 2006, we entered into a Second Amended and Restated Credit Agreement, (the “Credit Agreement”). The Credit Agreement amended and restated our existing senior secured credit facility entered into on November 4, 2003. The Credit Agreement provided for a five-year, $125.0 million revolving credit facility and permits us to request an increase in the principal amount of the facility of up to $25.0 million. At July 13, 2008, we had approximately $22.1 million outstanding on our revolving credit facility and approximately $12.6 million in letters of credit which reduced our available borrowings under the Credit Agreement. Pursuant to our Credit Agreement, we have approximately $15.0 million in remaining capacity that can be used to repurchase shares and pay dividends.

On July 17, 2008, we amended our Credit Agreement by making changes to certain defined terms and conditions. This amendment allows for the exclusion of re-branding capital expenditures when calculating the fixed charge coverage ratio and reduced the maximum borrowing capacity under our Credit Agreement from $125.0 million to $100.0 million. This amendment is filed with this Form 10-Q as Exhibit No. 10.1.

The Credit Agreement includes certain customary representations and warranties, negative covenants and events of default. It requires us to comply with certain financial covenants, including an adjusted debt to EBITDAR ratio, a senior secured leverage ratio, a fixed-charge coverage ratio and capital expenditures ratio. We were in compliance with such covenants at July 13, 2008.

The interest rates per annum applicable to loans outstanding under the Credit Agreement are, at our option, equal to either a base rate or a LIBOR rate, in each case plus an applicable margin (0.0 percent to 0.5 percent in the case of base rate loans and 0.75 percent to 1.25 percent in the case of LIBOR rate loans), depending on our senior secured leverage ratio. At July 13, 2008, our margin applicable to LIBOR loans was 0.75 percent. In addition to the interest payments required under the Credit Agreement, we are required to pay a commitment fee on the aggregate average daily unused portion of the credit facility equal to 0.25 percent to 0.375 percent per annum, depending on our senior secured leverage ratio. At July 13, 2008, our applicable commitment fee on the aggregate average daily unused portion of the credit facility was 0.25 percent.

Our obligations under the Credit Agreement are secured by liens on substantially all of our assets, including a pledge of the capital stock of our material subsidiaries (but excluding real property acquired after November 3, 2003). Except as otherwise provided in the Credit Agreement, the Credit Agreement will mature on October 18, 2011.

From time to time, we have entered into interest rate swap agreements with certain financial institutions. During the first quarter of 2004, we entered into interest rate swap agreements with a financial institution that effectively convert a portion of the fixed-rate indebtedness related to the $125 million aggregate principal amount of senior subordinated notes due 2013 into variable-rate obligations. The total notional amount of these swaps as of July 13, 2008 is $78.0 million and is based on the six-month LIBOR rate in arrears plus a specified margin, the average of which is 3.9 percent. The total notional amount of the swaps was $100.0 million as of the end of fiscal 2007; however, during the first quarter of 2008, one of the banks participating in the swaps decided to no longer participate, thus reducing the notional amount of our outstanding swaps by $22.0 million. The terms and conditions of these swaps mirror the interest terms and conditions on our 9.0 percent senior subordinated notes due 2013 and are accounted for as fair value hedges. These swap agreements expire in November 2013.

On May 21, 2008, we announced that our Board of Directors approved a quarterly cash dividend on our common stock of $0.06 per share. The dividend was payable on June 27, 2008 to shareholders of record on June 13, 2005. The total dividend of approximately $1.3 million was recorded in the second quarter of 2008 as a reduction to retained earnings. For the 28 weeks ended July 13, 2008, we have paid approximately $2.6 million in dividends.

On February 7, 2008, we announced that our Board of Directors approved a $20 million increase in our share repurchase authorization. During 2007, the Board of Directors approved a $50 million repurchase authorization under which we repurchased $30 million of our common stock by the end of fiscal 2007. During the second quarter of 2008, we repurchased an additional 0.7 million shares for approximately $7.0 million. During 28 weeks ended July 13, 2008, the Company repurchased 2.2 million shares for approximately $24.8 million. The remaining balance that may be repurchased under the current repurchase authorization is $15.2 million. The share repurchase authorization does not have an expiration date and the pace of repurchase activity will depend on factors such as levels of cash generation from operations, cash requirements for strategic initiatives, repayment of debt, current stock price, and other factors. We may repurchase shares from time to time on the open market or in private transactions, including structured transactions. The share repurchase program may be modified or discontinued at any time.

In 2008 and 2007, net cash flows used by investing activities included capital expenditures incurred principally for building new restaurants, improvements to existing restaurants, and technological improvements at our restaurant support center. The Company did not finance any capital expenditures using capital leases during the quarter ended July 15, 2007. Capital expenditures for the 28 weeks ended July 13, 2008 and July 15, 2007, excluding new computer equipment financed through capital lease obligations in 2008 were as follows:

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	July 13,			July 15,
		2008		2007
		(in thousands)
New restaurant capital expenditures		$	11,086	$	11,358
Re-branding capital expenditures (1)			18,591		7,621
Other capital expenditures			5,304		7,400
Total capital expenditures		$	34,981	$	26,379

(1) Certain other expenditures related to our Kitchen Display System (“KDS”) initiative previously shown as other capital expenditures have been reclassified and included as re-branding capital expenditures.

We expect capital expenditures in 2008 to be between $50.0 million and $55.0 million. Given the current conditions in the general economy and casual dining industry, we have deferred the restaurant re-brandings originally scheduled for the remainder of 2008. We expect to open four new company-owned O’Charley’s restaurants, two new Ninety Nine restaurants, and one new Stoney River restaurant in 2008. By the end of the second quarter, five of these seven planned new restaurants have already opened.

The following tables set forth our capital structure and certain financial ratios and financial data as of and for the 28 weeks ended July 13, 2008 and as of and for the year ended December 30, 2007. The presentation of long-term debt throughout the tables that follow represents long-term debt after giving effect to the fair value of the interest rate swap we are using to hedge the variability of the fair value of $78.0 million of the 9% senior notes due in 2013.

	July 13,					December 30,
	2008					2007
	$		%			$		%
	(Dollars in thousands)
Revolving credit facility	$	22,082		4.4	%	$	—		0.0	%
Secured mortgage note payable		60		0.0			76		0.0
GE Capital Financing arrangement		—		0.0			1,149		0.2
Notes payable to Stoney River managing partners		540		0.1			418		0.1
Capitalized lease obligations		13,915		2.8			17,402		3.4
Total senior debt		36,597		7.3			19,045		3.7
Fair value adjustments on hedged debt		704		0.1			1,190		0.2
Senior subordinated notes		125,000		24.7			125,000		24.5
Total debt(1)(2)		162,301		32.1			145,235		28.4
Shareholders’ equity		343,326		67.9			365,526		71.6
Total capitalization	$	505,627		100.0	%	$	510,761		100.0	%
Adjusted total debt(1)(3)	$	419,501				$	411,363
Adjusted total capitalization(1)(3)	$	762,827				$	776,889
EBITDA(1)(4)	$	36,161				$	68,719

(1) We believe EBITDA, total debt, adjusted total debt and adjusted total capitalization are useful measurements to investors because they are commonly used as analytical indicators to evaluate performance, measure leverage capacity and debt service ability. These measures should not be considered as measures of financial performance or liquidity under U.S. generally accepted accounting principles (GAAP). EBITDA, total debt, adjusted total debt and adjusted total capitalization should not be considered in isolation or as alternatives to financial statement data presented in our consolidated financial statements as an indicator of financial performance or liquidity. EBITDA, total debt, adjusted total debt and adjusted total capitalization, as presented, may not be comparable to similarly titled measures of other companies.

(2) Total debt represents the long-term debt and capitalized lease obligations, in each case including current portion. The following table reconciles total debt, as described above, to the long-term debt and capitalized lease obligations, in each case including current portion as reflected in our consolidated balance sheets:

	July 13,	December 30,
	2008	2007
	(inthousands)
Current portion of long-term debt and capitalized lease obligations	$ 9,425	$ 8,597
Add:
Fair value adjustments on hedged debt	704	1,190
Long-term debt, less current portion	147,509	126,464
Capitalized lease obligations, less current portion	4,663	8,984
Total debt	$162,301	$ 145,235

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(3) Adjusted total debt represents the sum of long-term debt and capitalized lease obligations, in each case including current portion, plus the product of (a) rent expense for the 52 weeks ended July 13, 2008 and December 30, 2007, respectively, multiplied by (b) eight. Adjusted total capitalization represents the sum of long-term debt and capitalized lease obligations, in each case including current portion, shareholders’ equity, plus the product of (a) rent expense for the 52 weeks ended July 13, 2008 and December 30, 2007, respectively, multiplied by (b) eight. The following table reconciles adjusted total debt and adjusted total capitalization, as described above, to the long-term debt and capitalized lease obligations, in each case including current portion, shareholders’ equity and rent expense as reflected in our consolidated financial statements and the notes to the consolidated financial statements:

	July 13,		December 30,
	2008		2007
	(in thousands)
Current portion of long-term debt and capitalized leases	$	9,425	$	8,597
Add:
Fair value adjustments on hedged debt		704		1,190
Long-term debt, less current portion		147,509		126,464
Capitalized lease obligations, less current portion		4,663		8,984
Total debt		162,301		145,235
Add eight times rent expense		257,200		266,128
Adjusted total debt		419,501		411,363
Add:
Shareholders’ equity		343,326		365,526
Adjusted total capitalization	$	762,827	$	776,889

(4) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization, as defined in our credit agreement. The following tables reconcile EBITDA, as described above, to net earnings, and to cash flows provided by operating activities as reflected in our consolidated statements of operations and cash flows:

	28 weeks ended July 13,				Year ended December 30,
	2008				2007
	(in thousands)
Net earnings	$	2,543		$	7,232
Add:
Income tax benefit		(73	)		(1,724	)
Interest expense, net		6,503			12,329
Depreciation and amortization		27,188			50,882
EBITDA	$	36,161		$	68,719

	28 weeks Ended		Year ended
	July 13,		December 30,
	2008		2007
	(inthousands)
Net cash provided by operating activities	$ 37,530		$ 64,913
Adjustment for items included in cash provided by operating activities but excluded from the calculation of EBITDA:
Deferred income taxes	3,037		7,760
Share-based compensation	(2,505	)	(4,036	)
Amortization of deferred gain on sale-leasebacks	569		1,056
Impairment, disposal and restructuring charges and loss on sale of assets	(1,415	)	(14,181	)
Changes in operating assets and liabilities	(5,896	)	7,375
Changes in long-term assets and liabilities	(1,087	)	(3,903	)
Income tax benefit	(73	)	(1,724	)
Interest expense, net (1)	6,001		11,459
EBITDA	$ 36,161		$ 68,719

(1) Excludes amortization of debt issuance cost.

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Based upon the current level of operations and anticipated growth for our restaurant concepts, we believe that cash flow from operations and borrowings under our Credit Agreement are sufficient to fund our working capital needs over at least the next 12 months. There can be no assurances that such sources of financing will be available to us or that any such financing would not negatively impact our earnings.

Critical Accounting Policies

In our Annual Report on Form 10-K for the year ended December 30, 2007, we identified our critical accounting policies related to property and equipment, lease accounting, share-based compensation, goodwill and trademarks, impairment of long-lived assets, and income taxes and related financial statement items. We consider an accounting policy to be critical if it is most important to the portrayal of our financial condition and results, and it requires 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. During the first 28 weeks of 2008, there have been no changes in our critical accounting policies.

Contractual Obligations and Commercial Commitments

There were no material changes in our contractual obligations and commercial commitments as of July 13, 2008 as disclosed in our Annual Report on Form 10-K for the year ended December 30, 2007.

Outlook

Given our year-to-date results, current and anticipated economic conditions and the decision to defer the remaining 2008 re-branding initiatives, we haverevised our previously issued earnings guidance for fiscal 2008 and now expect to report net earnings per diluted share of between $0.08 and $0.16 for the fiscal year ending December 28, 2008. Our earnings guidance for the full year includes a full-year tax benefit between $2.5 million and $3.5 million, or between $0.12 to $0.17 per diluted share, and estimated expenses of approximately $9.2 million, or approximately $0.26 per diluted share, related to re-brandings completed by the end of the second quarter. The expected net earnings per diluted share, and specified components, are calculated at our estimated marginal tax rate. We expect same store sales declines in all three concepts for the balance of the year. For the remainder of fiscal 2008, we have locked in our pricing for approximately 95 percent of our estimated requirements or beef, poultry, and pork, and approximately 40 percent of our estimated requirements for seafood. We currently expect to spend between $50 million and $55 million for capital investments during the 2008 fiscal year. Our guidance for the 2008 fiscal year does not reflect any impact for additional share repurchases or organizational changes that the we may make in the second half of the year.

Recent Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“SFAS No.141(R)”), which replaces SFAS No. 141, “Business Combinations” (“SFAS No. 141”). SFAS No. 141(R) retains the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS No. 141(R) would also apply the provisions of SFAS No. 141(R). Early adoption is not permitted. We have not yet determined the impact if any, that SFAS No. 141(R) may have on our results of operations and financial position.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No.51” (“SFAS No. 160”). This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to thenoncontrolling interest will be included in consolidated net income on the face of the income statement. It also amends certain of Accounting Research Bulletin (“ARB”) No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We have not yet determined the impact if any, that SFAS No. 160 may have on our results of operations and financial position.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”), which amends and expands SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 161 requires tabular disclosure of the fair value of derivative instruments and their gains and losses.  This statement also requires disclosure regarding the credit-risk related contingent features in derivative agreements, counterparty credit risk, and strategies and objectives for using derivative instruments. We are required to adopt the disclosure provisions of SFAS No. 161 in the first quarter of 2009. 

In May 2008, the FASB staff revisited Emerging Issues Task Force (“EITF”) issue No. 03-6 and issued FASB Staff Position (“FSP”) No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” FSP EITF 03-6-01 requires unvested share-based payments that entitle employees to receive nonrefundable dividends to also be considered participating securities, as defined in EITF 03-6. This FSP is effective for fiscals years beginning after December 15, 2008 and interim periods within those years with early adoption prohibited. We have not yet determined the impact if any, that FSP EITF 03-6-1 may have on our results of operations and financial position.

Impact of Inflation

The impact of inflation on the cost of food, labor, equipment, land, construction costs, and fuel/energy costs has adversely affected 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. As a result of increased competition and the competitive employment environment in the markets in which our restaurants are located, we have continued to increase wages and benefits in order to attract and retain management personnel and hourly employees. In addition, most of our leases require us to pay taxes, insurance, maintenance,

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repairs and utility costs, and these costs are subject to inflationary pressures. Commodity inflation has had a significant impact on our operating costs. We also believe that increased fuel costs over the past 18 months have had a negative impact on consumer behavior and have increased the cost of operating our remaining Commissary in Bellingham Massachusetts. 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to market risk from exposure to changes in interest rates based on our financing, investing, and cash management activities. We utilize a balanced mix of debt maturities along with both fixed-rate and variable-rate debt to manage our exposures to changes in interest rates. Our fixed-rate debt consists primarily of capitalized lease obligations and senior subordinated notes and our variable-rate debt consists primarily of our revolving credit facility.

At July 13, 2008, we had interest rate swap agreements with a financial institution that effectively converted a portion of the fixed-rate indebtedness related to our $125.0 million senior subordinated notes due 2013 into variable-rate obligations. The total notional amount of these swaps is $78.0 million and is based on six-month LIBOR rates in arrears plus a specified margin, the average of which is 3.9 percent. The terms and conditions of these swaps mirror the interest terms and conditions on the notes and are accounted for as fair value hedges. These swap agreements expire in November 2013.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures effectively and timely provide them with material information relating to us and our consolidated subsidiaries required to be disclosed in the reports we file or submit under the Exchange Act.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during our fiscal quarter ended July 13, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

On November 5, 2007, we filed suit in Davidson County, Tennessee, against Richard Arras, Steven Pahl and Wi-Tenn Investors, LLC, (“Defendants”) alleging breach of contract and breach of fiduciary duty by the Defendants related to Wi-Tenn Restaurants, LLC, a joint venture owned 50% by us and 50% by the Defendants, which developed and operates an O’Charley’s restaurant in Grand Chute, Wisconsin (the “Tennessee Action”). Subsequently, on November 7, 2007, the Defendants filed suit in Outagamie County, Wisconsin, against us and seven of our current and former employees alleging violations of the Wisconsin Franchise Investment Law, Wisconsin Uniform Securities Law, fraud, misrepresentation and unjust enrichment, stemming from Defendants’ ownership in Wi-Tenn Restaurants, LLC (the “Wisconsin Action”). We filed a motion to dismiss Defendants’ complaint in the Wisconsin Action and this motion was granted on August 12, 2008, resulting in dismissal of the Wisconsin Action. On February 15, 2008, Defendants filed a counterclaim in the Tennessee Action against us and the aforementioned current and former employees, pertaining to the same subject matter referenced in the Wisconsin Action (the “Tennessee Counterclaim”). The Tennessee Counterclaim was amended and asserts ten causes of action including the claims asserted in the Wisconsin Action, claims under the Tennessee Securities Act and Delaware Securities Act, claims under the Tennessee Consumer Protection Act, and claims for tortuous interference, breach of fiduciary duty and breach of contract. The Tennessee Counterclaim alleges damages in excess of $75,000. On August 6, 2008, the Court in the Tennessee Action dismissed Defendants’ Counterclaims concerning the Wisconsin Franchise Investment Law, Wisconsin Uniform Securities Law, Tennessee Securities Act and Delaware Securities Act with prejudice and required Defendants to re-plead their claims under the Tennessee Consumer Protection Act and their claims for fraud, misrepresentation, tortuous interference and breach of contract. We deny all liability and intend to vigorously contest the allegations contained in the Tennessee Counterclaim and intends to vigorously prosecute the Tennessee Action against the Defendants. The Tennessee Action is set for trial on July 13, 2009.

We are also a defendant from time to time in various legal proceedings arising in the ordinary course of its business, including claims relating to injury or wrongful death under “dram shop” laws that allow a person to sue 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.

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.

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Item 2. Issuer Purchases of Equity Securities

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 July 13, 2008 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 (2)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
4/21/08-5/18/08	—	—	—	$22,225,320
5/19/08-6/15/08	194,147	$10.99	194,147	$20,090,965
6/16/08-7/13/08	464,633	$10.47	464,633	$15,225,330
Total for the Quarter	658,780	$10.63	658,780	$15,225,330

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

The results of matters voted on at our annual shareholders meeting held on May 21, 2008, were disclosed in Item 4 of our Quarterly Report on Form 10-Q filed on May 28, 2007 for the period ended April 20, 2008 and are hereby incorporated by reference.

Item 6. Exhibits

No.	Description
10.1	Third Amendment, dated as of July 17, 2008, to the Second Amended and Restated Credit Agreement dated October 18, 2006, by and among O’Charley’s Inc., as Borrower, the lenders referred to therein and Wachovia Bank, National Association, as Administrative Agent.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Gregory L. Burns, Chief Executive Officer of O’Charley’s Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Lawrence E. Hyatt, Chief Financial Officer of O’Charley’s Inc., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

O’Charley’s Inc.

(Registrant)

Date: August 20, 2008 By: /s/ Gregory L. Burns

Gregory L. Burns

Chairman and Chief Executive Officer

Date: August 20, 2008 By: /s/ Lawrence E. Hyatt  

Lawrence E. Hyatt

Chief Financial Officer, Secretary andTreasurer

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