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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

____________

FORM 10-K

For the fiscal year ended December 29, 2002

O’CHARLEY’S INC.

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

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

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X No

     The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $347.0 million. For purposes of this calculation, shares held by non-affiliates excludes only those shares beneficially owned by officers, directors and shareholders beneficially owning 10% or more of the outstanding common stock.

     The number of shares of common stock outstanding on February 28, 2003 was 19,910,200.

DOCUMENTS INCORPORATED BY REFERENCE

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O’CHARLEY’S INC.

PART I

Item 1. Business.

     As of December 29, 2002, we operated 182 O’Charley’s restaurants in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Ohio, South Carolina, Tennessee and Virginia, and six Stoney River Legendary Steaks restaurants in Georgia, Illinois, Kentucky, and Tennessee. O’Charley’s is a leading casual dining restaurant concept known for its high-quality, freshly prepared food, moderate prices and friendly and attentive customer service. Stoney River Legendary Steaks restaurants are upscale steakhouses that are intended to appeal to both upscale casual dining and fine dining customers by offering the high-quality food and attentive customer service typical of high-end steakhouses at more moderate prices. On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, a casual dining restaurant chain based in Woburn, Massachusetts. At January 27, 2003, Ninety Nine Restaurant and Pub operated 78 restaurants located in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. Ninety Nine Restaurant and Pub is known for providing high-quality food at moderate prices in a comfortable, relaxed atmosphere.

The O’Charley’s Concept

     O’Charley’s restaurants provide fresh, high quality food in a relaxed, friendly atmosphere. Our goal is to differentiate our O’Charley’s restaurants by exceeding customer expectations as to the quality of food and the friendliness of service. The key elements of the O’Charley’s concept include the following:

     Offer High-Quality, Freshly Prepared American Fare. The O’Charley’s menu is mainstream, but innovative and distinctive in taste. The O’Charley’s menu features approximately 50 items including USDA Choice hand-cut and aged steaks, baby-back ribs basted with our own tangy BBQ sauce, chicken that is always fresh and never frozen, fresh salmon and grilled tuna with a spicy ginger sauce, a variety of fresh-cut salads with special recipe salad dressings and O’Charley’s signature caramel pie. All entrees are made from original recipes, are cooked to order and feature side items in addition to our hot, freshly-baked yeast rolls. O’Charley’s restaurants are open seven days a week and serve lunch, dinner and Sunday brunch. Specialty menu items include “limited-time” promotions, O’Charley’s Express Lunch, daily special selections and a special kids menu. We are continually developing new menu items for our O’Charley’s restaurants to respond to changing customer tastes and preferences.

     Provide an Attractive Price-to-Value Relationship. We believe that the pricing strategy for our O’Charley’s restaurants, as well as the generous portions we serve, create an attractive price-to-value relationship. This strategy, coupled with our high food quality, is intended to appeal to a broad spectrum of customers from a diverse income base, including mainstream casual dining customers, as well as upscale casual dining and value oriented customers. Lunch entrees range in price from $6.99 to $9.99, with dinner entrees ranging from $6.99 to $16.99. In 2002, the average check per customer, including beverages, was $9.96 for lunch and $12.74 for dinner.

     Ensure a Superior Dining Experience. Our strategy stresses providing prompt, friendly and attentive service to ensure customer satisfaction. Our strategy is to staff each restaurant with an experienced management team that is dedicated to enhancing customer satisfaction and to keep our table-to-server ratios low. In order to promote customer satisfaction, we adopted the following strategy, which we refer to as “The Promise:”

	•		create a friendly, warm environment;
	•		provide prompt food and service;
	•		present a clean, professional appearance; and
	•		have the knowledge needed to give each guest the best dining experience possible.

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     Our management team, including area supervisors, regional directors and home office personnel, visit our restaurants frequently in order to reinforce our commitment to customer service to our restaurant level managers and hourly employees and communicate with and receive feedback from customers. We also utilize a “mystery shopper” program to independently monitor quality control in areas such as timeliness of service, atmosphere, cleanliness, employee attitude and food quality. Through the use of customer surveys, we receive valuable feedback on our restaurants and, where appropriate, respond promptly to customer comments in order to demonstrate our continuing dedication to customer satisfaction.

     Create a Casual, Neighborhood Atmosphere Through Our Restaurant Design. We seek to create a casual, neighborhood atmosphere in our O’Charley’s restaurants through an open layout and exposed kitchen and by tailoring the decor of our restaurants to the local community. The prototypical O’Charley’s restaurant is a free-standing brick building containing approximately 6,800 internal square feet and seating for approximately 275 customers, including approximately 52 bar seats. The exterior features old-style red brick, bright red and green neon borders, multi-colored awnings and attractive landscaping. The interior is open, casual and well lighted and features warm woods, exposed brick, color prints and hand-painted murals depicting local history, people, places and events. In addition, the kitchen design provides flexibility in the types of food items that can be prepared so that we can adapt to changing customer tastes and preferences. We periodically update the interior and exterior of our restaurants to reflect refinements in the concept and respond to changes in customer tastes and preferences.

     Provide an Attractive Operating Environment for Our Employees. We believe that a well-trained, highly-motivated restaurant management team is critical to achieving our operating objectives. Our training and compensation systems are designed to create accountability at the restaurant management level for the performance of each restaurant. We invest significant resources to train, motivate and educate our restaurant level managers and hourly employees and operate an approximately 9,500 square foot management training facility at our home office in Nashville, Tennessee. Each new manager participates in a comprehensive ten-week training program that combines hands-on experience in one of our training restaurants and instruction at the training facility. To instill a sense of ownership, a portion of the compensation of our restaurant level managers is based upon restaurant operating results, employee turnover and mystery shopper reports. This focus on restaurant level operations is intended to create a “single store mentality” and provide an incentive for managers to improve same store sales and restaurant operating results. We believe our strong focus on employee satisfaction has resulted in a decrease in our employee turnover rate in each of the past five years. Also, in 2003 we have implemented improvements to the insurance benefits for our hourly employees.

     Leverage Our Commissary Operations. We operate an approximately 220,000 square foot commissary in Nashville, Tennessee through which we purchase and distribute a substantial majority of the food products and supplies for our O’Charley’s and Stoney River restaurants. The commissary operates a USDA-approved and inspected facility at which we age and cut our beef and a production facility at which we prepare the yeast rolls, salad dressings and sauces served in our O’Charley’s and Stoney River restaurants. We believe our commissary enhances restaurant operations by maintaining consistent food quality, helping to ensure reliable distribution services to our restaurants and simplifying our restaurant managers’ food cost management responsibilities. We attribute the decreases in food cost as a percentage of our restaurant sales over the past four years, in part, to the financial leverage generated from the increased purchasing volumes and operating efficiencies of our commissary. We believe our Nashville commissary has sufficient capacity to meet a substantial majority of the distribution needs of our existing and planned O’Charley’s and Stoney River restaurants for the next several years.

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     Pursue Disciplined Growth Strategy. During 2002, we opened 24 new O’Charley’s restaurants in the following markets:

     We plan to open 27 to 29 O’Charley’s restaurants in 2003. We intend to continue to develop new O’Charley’s restaurants in our target markets, primarily in the Southeast and Midwest. Our target markets include both metropolitan markets and smaller markets in close proximity to metropolitan markets where we have a significant presence. Our strategy is to cluster our new restaurants to enhance supervisory, marketing and distribution efficiencies.

     Management devotes significant time and resources to analyzing prospective restaurant sites and gathering appropriate cost, demographic and traffic data. We utilize an in-house construction and real estate department to oversee the development of architectural and engineering plans and new construction. While we prefer to develop restaurants based on our prototype O’Charley’s restaurant, we from time to time develop O’Charley’s restaurants in existing buildings. Our ability to remodel an existing building into an O’Charley’s restaurant can permit greater accessibility to quality sites in more developed markets.

The Stoney River Legendary Steaks Concept

     Stoney River restaurants are upscale steakhouses that are intended to appeal to both upscale casual dining and fine dining customers by offering the high-quality food and attentive customer service typical of high-end steakhouses at more moderate prices. Stoney River restaurants have an “upscale mountain lodge” design with a large stone fireplace, plush sofas and rich woods that make the interior of the restaurant inviting and comfortable. The menu features hand-cut, premium midwestern beef along with fresh seafood and a variety of other gourmet entrees. An extensive assortment of freshly prepared salads and side dishes is available a la carte. The menu also includes several specialty appetizers and desserts. The price range of entrees is $16.95 to $29.95. In 2002, the average check per customer was $37.11. Stoney River restaurants are open for dinner during the week and opening times on the weekend vary by location with some opening at noon and others opening in the early afternoon. During 2002, we opened three new Stoney River restaurants, one each in Chicago, Louisville, and Nashville. We plan to open up to two Stoney River restaurants in 2003. Our growth strategy for the Stoney River concept is to concentrate on major metropolitan markets in the Southeast and Midwest with disciplined, controlled development and the potential to accelerate development over the next several years. At December 29, 2002, we operated six Stoney River restaurants in Georgia, Illinois, Kentucky and Tennessee.

     We have established a “managing partner program” for the general managers of our Stoney River restaurants pursuant to which each general manager has acquired a 6% interest in the subsidiary that owns the restaurant that the general manager manages in exchange for a capital contribution to that subsidiary. We have also entered into a five-year employment agreement with each general manager. During the five-year employment term, each general manager is prohibited from selling or otherwise transferring his or her 6% interest. Upon the fifth anniversary of the general manager’s capital contribution to the subsidiary, we have the option, but not the obligation, to purchase the general manager’s 6% interest for fair market value. In the event the general manager’s employment with us terminates prior to the expiration of the five-year term of his employment agreement, we have the option, but not the obligation, to purchase the general manager’s 6% interest. In addition, the general manager’s 6% interest is subject to forfeiture based on certain events.

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The Ninety Nine Restaurant and Pub Concept

     On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, a casual dining chain based in Woburn, Massachusetts. We acquired Ninety Nine Restaurant and Pub for $116 million in cash and approximately 2.35 million shares of our common stock, plus the assumption of certain liabilities. In addition to the purchase price, we have agreed to pay a total of $1.0 million per year, plus accrued interest, on each of January 1, 2004, 2005, 2006 and 2007, to certain key employees of Ninety Nine who we continue to employ at the time of such payments. Of the stock portion of the purchase price, we delivered approximately 941,000 shares at closing, and will deliver approximately 408,000 shares on each of the first, second, and third anniversaries of the closing and 94,000 shares on each of the fourth and fifth anniversaries of the closing.

     At January 27, 2003, Ninety Nine operated 78 restaurants located in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. Ninety Nine has earned a reputation for providing high quality food at moderate prices in a comfortable, relaxed atmosphere. The menu features a wide selection of appetizers, salads, sandwiches, burgers, entrees and desserts, all served in generous portions. The prototype Ninety Nine restaurant is a freestanding, wood building containing approximately 5,500 internal square feet and seating for 170 customers. Signature elements of the Ninety Nine prototype restaurant include an open view kitchen, booth seating, walls covered with historical local community memorabilia and a self-enclosed, centrally located rectangle bar. The restaurant’s interior features slate floors, low ceilings and natural woods, designed to create a cozy, friendly and warm atmosphere. Ninety Nine has expanded through developing new prototype locations as well as through remodeling both traditional and non-traditional restaurant locations.

     Ninety Nine operates a 20,000-square-foot commissary and purchasing operation located in Woburn, Massachusetts through which we purchase and distribute food products and supplies for our Ninety Nine restaurants. The commissary operates a USDA-approved and inspected meat facility at which we cut beef and a production facility at which we prepare the meats, signature soups, sauces and marinades served in our Ninety Nine restaurants. We believe that our Woburn, Massachusetts commissary enhances the operations of our Ninety Nine restaurants by maintaining consistent quality, helping to ensure reliable distribution services to our restaurants and simplifying our restaurant managers’ food cost management responsibilities.

O’Charley’s Restaurant Operations

     Restaurant Management. Each O’Charley’s restaurant requires an effective management team in order to ensure high quality food and attentive service. Each restaurant typically has five to six managers (a general manager, two to three assistant managers, a kitchen manager and an assistant kitchen manager) and an average of approximately 80 full-time and part-time employees. We employ area supervisors who have day-to-day responsibility for the operating performance of approximately three to seven O’Charley’s restaurants. Our nine regional directors each currently supervise 12 to 25 restaurants in their respective regions and are directly involved in the development of new O’Charley’s restaurants. Our Concept President-O’Charley’s oversees all O’Charley’s restaurant operations.

     As an incentive for restaurant managers to improve sales and operating efficiency, we have a monthly incentive compensation plan. Pursuant to this plan, each member of the restaurant management team may earn a bonus, payable during each four-week accounting period, based on a percentage of the sales of the restaurant for which the manager has responsibility. The monthly bonus is earned when budgeted and prior year financial results are exceeded, subject to adjustment based upon same store sales increases and certain operating performance factors. We also offer a restaurant management stock option program pursuant to which each member of the restaurant management team is eligible to receive annual grants of options upon the attainment of certain performance-based goals.

     We also provide a compensation plan that gives general managers of our O’Charley’s restaurants an opportunity to participate in the growth of their restaurant and our company. Pursuant to this compensation plan, general managers receive a competitive minimum base salary, are eligible to receive a bonus calculated quarterly and paid annually, and receive long-term stock options that provide an incentive for general managers to improve restaurant level operating results. The annual bonuses are based on the attainment of certain performance targets that the managers establish each year for their own restaurants.

     We believe that our compensation plans, particularly the bonus plans, encourage the general managers to establish

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and implement an annual strategy. Area supervisors, regional directors and senior management also are eligible to receive performance based cash bonuses and participate in the senior management stock program pursuant to which they receive stock options, the vesting of which can be accelerated based on our achievement of certain specified financial targets.

     Recruiting and Training. We emphasize the careful selection and training of all restaurant employees. The restaurant management recruiting and training program begins with an evaluation and screening program. In addition to multiple interviews and background and experience verification, we conduct a testing procedure designed to identify those applicants who we believe are well suited to manage restaurant operations. Management trainees are required to complete a ten-week training program, a portion of which is conducted at our training center in Nashville, Tennessee. The training facility has a theater-style auditorium, facilities for operational and information services training and an area for team-building exercises. The program familiarizes new managers with the responsibilities required at an individual restaurant and with our operations, management objectives, controls and evaluation criteria before they assume restaurant management responsibility. Each new hourly employee is trained by an in-restaurant trainer called an “ETE” (Educator Through Excellence). Each restaurant has approximately 15 ETE’s who are qualified and tested in their area of responsibility. Restaurant level management is responsible for the hiring and training of servers and kitchen staff, but they typically involve hourly employees in the process.

Commissary Operations

     We operate an approximately 220,000 square foot commissary in Nashville, Tennessee and an approximately 20,000 square foot commissary in Woburn, Massachusetts through which we purchase and distribute a substantial majority of the food products and supplies for our restaurants. Our commissaries operate USDA-approved and inspected facilities at which we cut our beef and production facilities at which we manufacture soups, salad dressings, sauces and other food products and supplies. Our commissaries primarily service our restaurants; however, our Nashville commissary also sells food products and supplies to certain other customers, including retail grocery chains, mass merchandisers and wholesale clubs. Food products and other restaurant supplies are distributed to our restaurants each week by our trucks. Seafood and some produce, which require more frequent deliveries, are typically purchased locally by restaurant management to ensure freshness.

     We believe our commissaries enhance restaurant operations by maintaining consistent food quality, helping to ensure reliable distribution services to our restaurants and simplifying our restaurant managers’ food cost management responsibilities by negotiating prices on food items and supplies for our restaurants. We set food and other product quality standards for our restaurants, and our commissaries negotiate directly with food manufacturers and other suppliers to obtain lower prices for those items through volume purchasing.

O’Charley’s Support Operations

     Quality Control. We use written customer evaluations, which are available to customers in the restaurants, as a means of monitoring customer satisfaction. We also employ a “mystery shopper” program to independently monitor quality control in areas such as timeliness of service, atmosphere, cleanliness, employee attitude and food quality. In addition, our customer service department receives calls from customers and, when necessary, routes comments to the appropriate personnel.

     Advertising and Marketing. We have an ongoing advertising and marketing plan for the development of television, radio and newspaper advertising for our O’Charley’s restaurants and also use point of sale and local restaurant marketing. We focus our marketing efforts on building brand loyalty and emphasizing the distinctiveness of the O’Charley’s atmosphere and menu offerings. We conduct annual studies of changes in customer tastes and preferences and are continually evaluating the quality of our menu offerings. During 2002, our advertising expenses were approximately 3.4% of restaurant sales. In addition to advertising, we encourage unit level personnel to become active in their communities through local charities and other organizations and sponsorships.

     Restaurant Reporting. Our use of technology and management information systems is essential for the management oversight needed to produce strong operating results. We maintain operational and financial controls in each restaurant, including management information systems to monitor sales, inventory, and labor, that provide reports and data to our home office. The management accounting system polls data from our restaurants and generates daily reports of sales, sales mix, customer counts, check average, cash, labor and food cost. Management utilizes this data to monitor the effectiveness of

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controls and to prepare periodic financial and management reports. We also utilize these systems for financial and budgetary analysis, including analysis of sales by restaurant, product mix and labor utilization.

     Real Estate and Construction. We maintain an in-house construction and real estate department to assist in the site selection process, oversee the development of architectural and engineering plans and new construction. We maintain a broad database of possible sites and our Vice President of Real Estate and Development and our management team analyze prospective sites. Once a site is selected, our real estate department oversees the zoning process, obtains required governmental permits, develops detailed building plans and specifications and equips the restaurants.

     Human Resources. We maintain a human resources department that supports restaurant operations through the design and implementation of policies, programs, procedures and benefits for our employees. The human resources department also includes an employee relations manager and maintains a toll-free number for employee comments and questions. We conduct annual “Impact” meetings at our O’Charley’s restaurants that provide a forum for home office management to receive feedback from restaurant managers and hourly employees. We have had in place for several years a plan to foster diversity throughout our workforce.

Restaurant Locations

     The following table sets forth the markets in which our O’Charley’s and Stoney River restaurants were located at December 29, 2002 and in which our Ninety Nine restaurants were located at January 27, 2003, including the number of restaurants in each market.

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Franchising

     We have completed a detailed study of the potential franchising of the O’Charley’s concept and, based upon the results of this study, intend to begin franchising O’Charley’s restaurants in 2003. We expect to enter into franchising arrangements with experienced restaurant operators for the development of O’Charley’s restaurants in areas that are outside of our current development and growth plans. Franchisees will be required to comply with our specifications as to restaurant space, design and décor, menu items, principal food ingredients, employee training and day-to-day operations.

Service Marks

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

Government Regulation

     We are subject to various federal, state, and local laws affecting our business. Our commissaries are licensed and subject to regulation by the USDA. In addition, each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include alcoholic beverage control, health, safety, sanitation, building, and fire agencies in the state or municipality in which the restaurant is located. Most municipalities in which our restaurants are located require local business licenses. Difficulties in obtaining or failures to obtain the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area. We are also subject to federal and state environmental regulations, but those regulations have not had a material adverse effect on our operations to date.

     Approximately 10% of restaurant sales in 2002 was attributable to the sale of alcoholic beverages. Each restaurant, where permitted by local law, has appropriate licenses from regulatory authorities allowing it to sell liquor, beer and wine, and in some states or localities to provide service for extended hours and

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on Sunday. Each restaurant has food service licenses from local health authorities. Similar licenses would be required for each new restaurant. The failure of a restaurant to obtain or retain liquor or food service licenses could adversely affect or, in an extreme case, terminate its operations. We have established standardized procedures for our restaurants designed to assure compliance with applicable codes and regulations.

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

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

     The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental regulations.

     Our restaurant operations are also subject to federal and state minimum wage laws and other laws governing matters such as working conditions, citizenship requirements, overtime and tip credits. In the event a proposal is adopted that materially increases the applicable minimum wage, the wage increase would likely result in an increase in payroll and benefits expense.

Employees

     At December 29, 2002, we employed approximately 5,200 full-time and 10,500 part-time employees, approximately 200 of whom were home office management and staff personnel, approximately 200 of whom were commissary personnel and the remainder of whom were restaurant personnel. Ninety Nine Restaurant and Pub, which we acquired on January 27, 2003, employs approximately 2,100 full-time and 2,300 part-time employees, approximately 70 of whom are corporate management and staff personnel, approximately 30 of whom are commissary personnel and the remainder of whom are restaurant personnel. None of our employees is covered by a collective bargaining agreement. We consider our employee relations to be good.

Risk Factors

     Some of the statements we make in this Annual Report on Form 10-K are forward-looking. Forward-looking statements are generally identifiable by the use of the words “anticipate,” “will,” “believe,” “estimate,” “expect,” “plan,” “intend,” “seek” or similar expressions. These forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief, plans or expectations including, but not limited to, the discussions of our operating and growth strategy, projections of revenue, income or loss, information regarding future restaurant openings and capital expenditures, potential increases in food and other operating costs, and our development, expansion and franchising plans and future operations. Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results in future periods to differ materially from those anticipated in the forward-looking statements. Those risks and uncertainties include, among others, the risks and uncertainties discussed below. Although we believe that the assumptions underlying the forward-looking statements contained herein are reasonable, any of these assumptions could prove to be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this Annual Report on Form 10-K will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by us or any other person that our objectives and plans will be achieved. We do not undertake any 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.

     We May Not Be Able to Successfully Complete the Integration of Ninety Nine Restaurant and Pub, Which Could Adversely Affect Our Business, Financial Condition and Results of Operations.

     On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, a casual dining restaurant company with 78

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locations in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. The acquisition of Ninety Nine was substantially larger than any acquisition we have previously completed, and our management team does not have significant experience integrating the operations of acquired businesses. In addition, our Ninety Nine restaurants are located in markets in which we have not historically operated. Achieving the expected benefits of the Ninety Nine acquisition will depend in large part on our completion of the integration of Ninety Nine’s operations and personnel in a timely and efficient manner. The challenges involved in this integration include the following:

	•		persuading employees of Ninety Nine that our business cultures are compatible and maintaining employee morale;
	•		retaining the senior management team of Ninety Nine, many of whom received significant payments in connection with the acquisition;
	•		maintaining a workforce over expanded geographic locations; and
	•		consolidating corporate, commissary, information technology and administrative infrastructures.

     If we cannot overcome the challenges we face in completing the integration of Ninety Nine, our ability to effectively and profitably manage Ninety Nine’s business could suffer. We cannot assure you that our Ninety Nine Restaurant and Pub restaurants will generate revenues or profit margins consistent with prior years. Moreover, the integration process itself may be disruptive to our business, as it will divert the attention of management from its normal operational responsibilities and duties. We cannot offer any assurance that we will be able to successfully integrate Ninety Nine’s operations or personnel or realize the anticipated benefits of the acquisition. Our failure to successfully complete the integration of Ninety Nine could harm our business, financial condition and results of operations.

     Our Continued Growth Depends On Our Ability To Open New Restaurants And Operate Our New Restaurants Profitably.

     A significant portion of our historical growth has been due to opening new restaurants. We opened 24 new O’Charley’s restaurants and three new Stoney River restaurants in 2002 and plan to open 27 to 29 additional O’Charley’s restaurants, approximately ten Ninety Nine restaurants and approximately two Stoney River restaurants during 2003. Our ability to open new restaurants will depend on a number of factors, such as:

	•		the selection and availability of quality restaurant sites;
	•		our ability to negotiate acceptable lease or purchase terms;
	•		our ability to hire, train and retain the skilled management and other personnel necessary to open new restaurants;
	•		our ability to secure the governmental permits and approvals required to open new restaurants;
	•		our ability to manage the amount of time and money required to build and open new restaurants, including the possibility that adverse weather conditions may delay construction and the opening of new restaurants; and
	•		the availability of adequate financing.

     Many of these factors are beyond our control. We cannot assure you that we will be successful in opening new restaurants in accordance with our current plans or otherwise or that our rate of future growth, if any, will not decline from our recent historical growth rates. Furthermore, we cannot assure you that our new restaurants will generate revenues or profit margins consistent with those of our existing restaurants, or that the new restaurants will be operated profitably. In May 2000, we acquired the Stoney River Legendary Steaks concept, including two Stoney River restaurants in suburban Atlanta. We currently operate six Stoney River restaurants. On January 27, 2003, we acquired Ninety Nine Restaurant and Pub, including 78 Ninety Nine Restaurant and Pub restaurants. We cannot assure you that we will be able to operate these restaurants profitably.

     Our Growth May Strain Our Management And Infrastructure, Which Could Slow Our Development Of New Restaurants And Adversely Affect Our Ability To Manage Existing Restaurants.

     Our growth has placed significant demands upon our management. We also face the risk that our existing systems and procedures, restaurant management systems, financial controls, and information systems will be inadequate to support our planned growth. We cannot predict whether we will be able to respond on a timely basis to all of the changing demands that

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our planned growth will impose on management and these systems and controls. In May 2000, we acquired the Stoney River Legendary Steaks concept. In January 2003, we acquired the Ninety Nine Restaurant and Pub concept. The development of the Stoney River concept and the integration and operation of the Ninety Nine concept will place significant demands on our management. These demands on our management and systems could also adversely affect our ability to manage our existing restaurants. If our management is unable to meet these demands or if we fail to continue to improve our information systems and financial controls or to manage other factors necessary for us to achieve our growth objectives, our operating results or cash flows could be materially adversely affected.

     Unanticipated Expenses And Market Acceptance Could Affect The Results Of Restaurants We Open In New And Existing Markets.

     As part of our growth plans, we may open new restaurants in areas in which we have little or no operating experience and in which potential customers may not be familiar with our restaurants. As a result, we may have to incur costs related to the opening, operation and promotion of those new restaurants that are substantially greater than those incurred in other areas. Even though we may incur substantial additional costs with these new restaurants, they may attract fewer customers than our more established restaurants in existing markets. As a result, the results of operations at new restaurants may be inferior to those of our existing restaurants. The new restaurants may even operate at a loss.

     Another part of our growth plan is to open restaurants in markets in which we already have existing restaurants. We may be unable to attract enough customers to the new restaurants for them to operate at a profit. Even if we are able to attract enough customers to the new restaurants to operate them at a profit, those customers may be former customers of one of our existing restaurants in that market and the opening of a new restaurant in the existing market could reduce the revenue of our existing restaurants in that market.

     We May Experience Higher Operating Costs, Which Would Adversely Affect Our Operating Results If We Cannot Increase Menu Prices To Cover Them.

     Our operating results are significantly dependent on our ability to anticipate and react to increases in food, labor, employee benefits and other costs. The cost of many items we serve in our restaurants are subject to seasonal fluctuations, weather, demand and other factors. We compete with other restaurants for experienced management personnel and hourly employees. Given the low unemployment rates in certain areas in which we operate, we will likely be required to continue to enhance our wage and benefits package in order to attract qualified management and other personnel. For example, we recently announced that we will offer expanded medical benefits for our hourly employees. In addition, any increase in the federal minimum wage rate would likely cause an increase in our labor costs. We cannot assure you that we will be able to anticipate and react to changing costs through our purchasing and hiring practices or menu price increases. As a result, increases in operating costs could have a material adverse effect on our business and could decrease our profitability and the cash available to service our debt obligations.

     We have completed a feasibility study on franchising our O’Charley’s restaurant concept and have begun marketing the franchise concept, but we do not believe we will generate any significant revenue or profits in 2003 related to our franchising activities. We may continue to experience expenditures and losses in implementing our franchising initiative until such time, if ever, that we generate sufficient revenue to cover these expenditures.

     We Could Face Labor Shortages That Could Adversely Affect Our Results Of Operations.

     Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and servers, necessary to continue our operations and to keep pace with our growth. Qualified individuals of the requisite caliber and quantity needed to fill these positions are in short supply. Given the low unemployment rates in certain areas in which we operate, we may have difficulty hiring and retaining qualified management and other personnel. Any inability to recruit and retain sufficient qualified individuals may adversely affect operating results at existing restaurants and delay the planned openings of new restaurants. Any delays in opening new restaurants or any material increases in employee turnover rates in existing restaurants could have a material adverse effect on our business, financial condition, operating results or cash flows. Additionally, we have increased wages and benefits to attract a sufficient number of competent employees, resulting in higher labor costs.

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Fluctuations In Our Operating Results And Other Factors May Result In Decreases In Our Stock Price.

     In recent periods, the stock markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. From time to time, there may be significant volatility in the market price of our common stock. If we are unable to operate our restaurants as profitably as we have in the past, develop restaurants at a pace that reflects the expectations of the market or successfully integrate the operations of Ninety Nine, investors could sell shares of our common stock at or after the time that it becomes apparent that the expectations of the market may not be realized, resulting in a decrease in the market price of our common stock.

     In addition to our operating results, the operating results of other restaurant companies, changes in financial estimates or recommendations by analysts, speculation in the press or investment community, future sales of our common stock, the outbreak of war or other hostilities, adverse weather conditions, which can reduce the number of customers visiting our restaurants, increase operating costs and delay the construction and opening of new restaurants, federal or state legislative, licensing or regulatory changes with respect to zoning, land use, environmental factors, labor, alcoholic beverage control, health and sanitation, changes in general conditions in the economy or the financial markets or other developments affecting us or our industry, such as outbreaks of food-related disease, could cause the market price of our common stock to fluctuate substantially. In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance.

     Our Restaurants Are Concentrated Geographically; If Any One Of The Regions In Which Our Restaurants Are Located Experiences An Economic Downturn, Adverse Weather Or Other Material Change, Our Business Results May Suffer.

     Our O’Charley’s restaurants are located predominately in the Southeastern and Midwestern United States. Our Ninety Nine restaurants are located in the Northeastern United States. We operate 35 of our 186 O’Charley’s restaurants in Tennessee and 53 of our 78 Ninety Nine restaurants in Massachusetts, including 43 in the greater Boston area. As a result, our business and our financial or operating results may be materially adversely affected by adverse economic, weather or business conditions in these markets, as well as in other geographic regions in which we locate restaurants.

     Our Future Performance Depends On Our Senior Management Who Are Experienced In Restaurant Management And Who Could Not Easily Be Replaced With Executives Of Equal Experience And Capabilities.

     We depend significantly on the services of Gregory L. Burns, our Chief Executive Officer, Steven J. Hislop, our President and Chief Operating Officer, and A. Chad Fitzhugh, our Chief Financial Officer. We also depend significantly on the services of each of our Concept Presidents, including Charles F. Doe, Jr., our Concept President-Ninety Nine Restaurant and Pub. Mr. Doe received significant payments at the time of our acquisition of Ninety Nine, and we do not have an employment agreement with Mr. Doe. If we lose the services of members of our senior management for any reason, we may be unable to replace them with qualified personnel, which could have a material adverse effect on our business and development. We do not have employment agreements with any of our executive officers and we do not carry key person life insurance on any of our executive officers.

     Our Restaurants May Not Be Able To Compete Successfully With Other Restaurants, Which Could Adversely Affect Our Results Of Operations.

     If our restaurants are unable to compete successfully with other restaurants in new and existing markets, our results of operations will be adversely affected. The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors with substantially greater financial and other resources than us, including a large number of national and regional restaurant chains. Some of our competitors have been in existence for a substantially longer period than us and may be better established in the markets where our restaurants are or may be located.

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To the extent that we open restaurants in larger cities and metropolitan areas, we expect competition to be more intense in those markets. We also compete with other restaurants for experienced management personnel and hourly employees and with other restaurants and retail establishments for quality sites.

     Changing Consumer Preferences And Discretionary Spending Patterns Could Force Us To Modify Our Concepts And Menus And Could Result In A Reduction In Our Revenues.

     Even if we are able to compete successfully with other restaurant companies, we may be forced to make changes in our concepts and menus in order to respond to changes in consumer tastes or dining patterns. Consumer preferences could be affected by health concerns about the consumption of beef, the primary item on our Stoney River menu, or by specific events such as E. coli food poisoning or outbreaks of “mad cow,” “foot and mouth” or other diseases. If we change a restaurant concept or menu, we may lose customers who do not prefer the new concept or menu, and may not be able to attract a sufficient new customer base to produce the revenue needed to make the restaurant profitable. In addition, we may have different or additional competitors for our intended customers as a result of a concept change and may not be able to compete successfully against those competitors. Our success also depends on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing, either of which could reduce our revenues and profitability.

     Any Disruption In The Operation Of Our Commissaries Could Adversely Affect Our Ability To Operate Our Restaurants

     We operate commissaries in Nashville, Tennessee and Woburn, Massachusetts through which we purchase and distribute a substantial majority of the food products and supplies for our restaurants. If the operations of our commissaries are disrupted, we may not be able to deliver food and supplies to our restaurants. If our commissaries are unable to deliver the food products and supplies required to run our restaurants, we may not be able to find other sources of food or supplies, or, if alternative sources of food or supplies are located, our operating costs may increase. Accordingly, any disruption in the operation of our commissaries could adversely affect our ability to operate our restaurants and our results of operations.

     We May Incur Costs Or Liabilities And Lose Revenue As The Result Of Government Regulation.

     Our restaurants are subject to extensive federal, state and local government regulation, including regulations related to the preparation and sale of food, the sale of alcoholic beverages, zoning and building codes, and other health, sanitation and safety matters. All of these regulations impact not only our current restaurant operations but also our ability to open new restaurants. We will be required to comply with applicable state and local regulations in new locations into which we expand. Any difficulties, delays or failures in obtaining licenses, permits or approvals in such new locations could delay or prevent the opening of a restaurant in a particular area or reduce operations at an existing location, either of which would materially and adversely affect our growth and results of operations. In addition, our commissaries are licensed and subject to regulation by the United States Department of Agriculture and are subject to further regulation by state and local agencies. Our failure to obtain or retain federal, state or local licenses for our commissaries or to comply with applicable regulations could adversely affect our commissary operations and disrupt delivery of food and other products to our restaurants. If one or more of our restaurants was unable to serve alcohol or food for even a short time period, we could experience a reduction in our overall revenue.

     The costs of operating our restaurants may increase if there are changes in laws governing minimum hourly wages, workers’ compensation insurance rates, unemployment tax rates, sales taxes or other laws and regulations, such as the federal Americans with Disabilities Act, which governs access for the disabled. If any of the above costs increase, we cannot assure you that we will be able to offset the increase by increasing our menu prices or by other means, which would adversely affect our results of operations.

     Restaurant Companies Have Been The Target Of Class Actions And Other Lawsuits Alleging Violations Of Federal And State Law.

     We are subject to the risk that our results of operations may be adversely affected by legal or governmental

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proceedings brought by or on behalf of our employees or customers. In recent years, a number of restaurant companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted against us from time to time and we cannot assure you that we will not incur substantial damages and expenses resulting from lawsuits of this type, which could have a material adverse effect on our business.

     We May Incur Costs Or Liabilities As A Result Of Litigation And Publicity Concerning Food Quality, Health And Other Issues That Can Cause Customers To Avoid Our Restaurants.

     We are sometimes the subject of complaints or litigation from customers alleging illness, injury or other food quality or health concerns. Litigation or adverse publicity resulting from these allegations may materially adversely affect us or our restaurants, regardless of whether the allegations are valid or whether we are liable. In addition, our restaurants are subject in each state in which we operate to “dram shop” laws that allow a person to sue us if that person was injured by an intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. A lawsuit under a dram shop law or alleging illness or injury from food may result in a verdict in excess of our liability insurance policy limits, which could result in substantial liability for us and may have a material adverse effect on our results of operations.

     Our Business May Be Adversely Affected By Our Leverage And Our Obligations Under Capital And Operating Leases.

     Our financial performance could be affected by our level of debt. We entered into new senior credit facilities in connection with our acquisition of Ninety Nine which significantly increased our debt. As of December 29, 2002 and after giving effect to the acquisition of Ninety Nine, the total amount of our long-term debt and capitalized lease obligations, including current portion, was approximately $249 million. In addition, as of December 29, 2002 and after giving effect to the acquisition of Ninety Nine, we were a party to operating leases requiring approximately $146 million in minimum future lease payments. In addition, we intend to continue to make borrowings under our revolving credit facility in connection with the development of new restaurants and for other general corporate purposes, and we expect the aggregate amount of our indebtedness and capitalized and operating lease obligations will increase, perhaps substantially.

     The amount of our indebtedness and lease obligations could have important consequences to investors, including the following:

	•		our ability to obtain additional financing in the future may be impaired;
	•		a substantial portion of our cash flow from operations must be applied to pay principal and interest on our indebtedness and lease payments under capitalized and operating leases, thus reducing funds available for other purposes;
	•		some of our borrowings, including borrowings under our revolving credit and term loan facility, are and will continue to be at variable rates based upon prevailing interest rates, which will expose us to the risk of increased interest rates;
	•		we may be substantially more leveraged than some of our competitors, which may place us at a competitive disadvantage; and
	•		our leverage may limit our flexibility to adjust to changing market conditions, reduce our ability to withstand competitive pressures and make us more vulnerable to a downturn in general economic conditions or our business.

     We Are Subject To Restrictive Covenants, Which May Restrict Our Operational Flexibility.

     Our senior credit facilities contain covenants that restrict our ability to incur additional indebtedness, pay dividends on and redeem capital stock, make other restricted payments, including investments, sell our assets and enter into consolidations, mergers and transfers of our assets. Our senior credit facilities also require us to satisfy financial ratio tests. In addition, certain of our lease agreements contain restrictive covenants. Our ability to meet those financial ratio tests and restrictive covenants can be affected by events beyond our control and we cannot assure you that we will continue to meet those tests in the future. The failure to comply with any of these covenants would cause a default under our credit facilities. Any of these defaults, if not waived, could result in the acceleration of all of our debt, in which case the debt would become

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immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing were available, it may not be on terms that are acceptable to us.

     Our Shareholder Rights Plan, Charter And Bylaws And Tennessee Law Could Delay Or Prevent A Change In Control Of Our Company That Our Shareholders Consider Favorable.

     We have a shareholder rights plan that may have the effect of discouraging unsolicited takeover proposals. The rights issued under the shareholder rights plan would cause substantial dilution to a person or group that attempts to acquire us on terms not approved in advance by our board of directors. In addition, provisions in our charter and bylaws and Tennessee law may discourage, delay or prevent a merger, acquisition or change in control involving our company that our shareholders may consider favorable. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors and take other corporate actions. Among other things, these provisions:

	•		authorize us to issue preferred stock, the terms of which may be determined at the sole discretion of our board of directors and may adversely affect the voting or economic rights of our common shareholders;
	•		provide for a classified board of directors with staggered three year terms so that no more than one-third of our directors could be replaced at any annual meeting;
	•		provide that directors may be removed only for cause;
	•		provide that any amendment or repeal of the provisions of our charter establishing our classified board of directors and concerning the removal of directors must be approved by the affirmative vote of the holders of two-thirds of our outstanding shares; and
	•		establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by shareholders at a meeting.

     We also have severance agreements with certain members of our senior management and we are subject to anti-takeover provisions under Tennessee law. These provisions of our charter and bylaws, Tennessee law, our shareholder rights plan and the severance agreements may discourage transactions that otherwise could provide for the payment of a premium over prevailing market prices for our common stock and also could limit the price that investors are willing to pay in the future for shares of our common stock.

     We May Issue A Substantial Number Of Shares Of Our Common Stock Under Our Stock Option And Stock Purchase Plans, And Shareholders May Be Adversely Affected By The Issuance Of Those Shares.

     As of December 29, 2002 and after giving effect to options granted to employees of Ninety Nine upon the consummation of the acquisition, options to purchase 4.1 million shares of our common stock, representing 16.1% of our shares and options outstanding at that date after giving effect to the stock issuable in connection with the acquisition of Ninety Nine, were outstanding. These options had a weighted average exercise price of $13.59 per share. As of December 29, 2002 and after giving effect to options granted to employees of Ninety Nine, we had an additional 1.8 million shares authorized for issuance under our stock purchase and stock option plans which represented 7.2% of our outstanding shares and options at December 29, 2002 after giving effect to the stock issuable in connection with the acquisition of Ninety Nine. We believe that the issuance of stock options is an important tool to motivate our employees and align their interests with those of our shareholders and we intend to continue issuing stock options to our employees. We believe that the shares authorized for issuance under our plans will be sufficient to cover awards to our employees through at least 2003, although there can be no assurance in this regard. The issuance of significant additional shares of our common stock upon the exercise of outstanding options or otherwise pursuant to these stock plans could have a material adverse effect on the market price of our common stock and could significantly dilute the interests of other shareholders. In addition, in connection with our acquisition of Ninety Nine, we are obligated to issue approximately 1.4 million shares of our common stock to the prior owners of Ninety Nine over the five-year period which began on January 27, 2003. The future issuances of these shares will dilute the interests of other shareholders and could adversely affect the market price of our common stock.

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Executive Officers of the Registrant

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

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

     Gregory L. Burns has served as Chairman of the Board and Chief Executive Officer since February 1994. Mr. Burns, a director since 1990, served as President from September 1996 to May 1999 and from May 1993 to February 1994, as Chief Financial Officer from October 1983 to September 1996, and as Executive Vice President and Secretary from October 1983 to May 1993.

     Steven J. Hislop has served as President since May 1999, as Chief Operating Officer since March 1997 and as a director since March 1998. From March 1997 until May 1999, Mr. Hislop served as an Executive Vice President of our company. Mr. Hislop served as Senior Vice President – Operations from January 1993 to March 1997, and as Vice President – Operations from April 1990 to January 1993.

     A. Chad Fitzhugh has served as Chief Financial Officer since September 10, 1996, as Secretary since May 1993, and as Treasurer since April 1990. He served as our Controller from 1987 until his appointment as Chief Financial Officer. Mr. Fitzhugh is a certified public accountant.

     William E. Hall, Jr. has served as Concept President-O’Charley’s since December 2002. Mr. Hall served as Executive Vice President, Operations from September 1999 to December 2002. Mr. Hall served as Vice President, Operations from March 1997 to September 1999, as Director of Operations from December 1996 to March 1997, as a Regional Director from July 1992 to December 1996, and as an Area Supervisor from May 1991 to July 1992.

     Herman A. Moore, Jr. has served as President, Commissary Operations since December 2002. Mr. Moore served as Vice President, Commissary Operations from January 1996 to December 2002. Mr. Moore served as Director of Commissary Operations from 1988 to January 1996.

     Charles F. Doe, Jr. has served as Concept President-Ninety Nine Restaurant and Pub since February 2003. Mr. Doe served as President of Ninety Nine Restaurant and Pub from 1991 until we acquired Ninety Nine Restaurant and Pub. Mr. Doe served in various capacities in the Operations and Real Estate departments for Ninety Nine Restaurant and Pub prior to 1991.

     R. Jeffrey Williams has served as Corporate Controller since February 2003. Mr. Williams served as Controller for the O’Charley’s Concept from July 2001 to February 2003. Mr. Williams served as Controller of The Krystal Company from July 2000 to July 2001. Mr. Williams served as a Director of Financial Planning and Analysis for CBRL Group, Inc. from

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July 1999 to July 2000 and as Accounting Manager for CBRL Group, Inc from November 1996 to July 1999. Mr. Williams is a certified public accountant.

Available Information

     We file reports with the Securities and Exchange Commission (“SEC”), including annual reports of Form 10-K, quarterly reports on Form 10-Q and other reports from time to time. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450  Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC maintains an internet site at http://www.sec.gov that contains the reports, proxy and information statements, and other information filed electronically. Our internet website is http://www.ocharleys.com. We make available free of charge through our website the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material to the SEC. Information contained on our website is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Item 2. Properties.

     At December 29, 2002, we operated 182 O’Charley’s and six Stoney River Legendary Steak restaurants. As of that date, we owned the land and building at 110 of our O’Charley’s restaurants, leased the land and buildings at ten of our O’Charley’s restaurants and leased the land only at 62 of our O’Charley’s restaurants. We own the land and building at three of our Stoney River restaurants and lease the land only at our other three Stoney River restaurants. At January 27, 2003, the date we acquired Ninety Nine Restaurant and Pub, there were 78 Ninety Nine restaurants. We lease the land and building at 62 of our Ninety Nine restaurants and lease the land only at 16 of our Ninety Nine restaurants. Restaurant lease expirations range from 2003 to 2025, with the majority of the leases providing for an option to renew for additional terms ranging from five to 20 years. All of our restaurant leases provide for a specified annual rental, and some leases call for additional rental based on sales volume at the particular location over specified minimum levels. Generally, our restaurant leases are net leases, which require us to pay the cost of insurance and taxes.

     Our executive offices and Nashville commissary are located in Nashville, Tennessee in approximately 290,000 square feet of office and warehouse space. We own these facilities. Our Woburn, Massachusetts commissary is located in approximately 20,000 square feet of warehouse space. We lease that facility.

Item 3. Legal Proceedings.

     We are defendants from time to time in various legal proceedings arising in the ordinary course of our business, including claims relating to the workplace and employment matters, discrimination and similar matters, claims resulting from “slip and fall” accidents and claims from customers 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 operating results, liquidity or financial condition.

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

     No matters were submitted to a vote of shareholders during the fourth quarter ended December 29, 2002.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     Our common stock trades on the NASDAQ National Market under the symbol “CHUX.” As of February 28, 2003, there were approximately 2,800 shareholders of record of our common stock. The following table shows quarterly high and low closing prices for our common stock for the periods indicated, as reported by the NASDAQ National Market.

     We have never paid a cash dividend on our common stock and we presently intend to retain our cash to finance the growth and development of our business. Our revolving credit facility prohibits the payment of cash dividends on our common stock without the consent of the participating banks.

     We did not sell any securities during the fiscal year ended December 29, 2002 without registration under the Securities Act of 1933, as amended.

Item 6. Selected Financial Data

     The selected financial data presented below under the captions “Statement of Earnings Data” and “Balance Sheet Data” for, and as of the end of, each of the fiscal years in the five-year period ended December 29, 2002, were derived from the consolidated financial statements of O’Charley’s Inc. and subsidiaries, which consolidated financial statements have been audited by KPMG LLP, independent auditors. The selected data should be read in conjunction with the consolidated financial statements for the year ended December 29, 2002, and the related notes thereto.

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

General

     As of December 29, 2002, we operated 182 O’Charley’s restaurants in Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Ohio, South Carolina, Tennessee and Virginia and operated six Stoney River restaurants in Georgia, Illinois, Kentucky and Tennessee. In addition, on January 27, 2003, we acquired Ninety Nine Restaurant and Pub. As of January 27, 2003, there were 78 Ninety Nine Restaurant and Pub restaurants in Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. The financial results for the Ninety Nine concept will be included in our results of operations and financial condition beginning January 27, 2003.

     O’Charley’s are casual dining restaurants that are intended to appeal to mainstream casual dining customers as well as upscale casual dining and value oriented customers by offering high quality, freshly prepared food at moderate prices with friendly and attentive customer service. Our growth strategy for the O’Charley’s concept is to continue penetrating existing and new major metropolitan areas while opening new units in smaller secondary markets in close proximity to our metropolitan markets.

     Stoney River restaurants are upscale steakhouses that are intended to appeal to both upscale casual dining and fine dining customers by offering hand-cut, premium mid-western beef along with fresh seafood and other gourmet entrees with attentive service in a warm, friendly and relaxed environment. Our growth strategy for Stoney River is to concentrate on major metropolitan markets in the Southeast and Midwest with disciplined, controlled development and the potential to accelerate development over the next several years. Total revenues for Stoney River were $15.8 million, $10.8 million and $5.4 million for 2002, 2001 and 2000, respectively. The loss before income taxes and the cumulative effect of a change in accounting principle for Stoney River was $1.0 million, $2.3 million and $1.3 million for 2002, 2001 and 2000, respectively. In 2002, the Company adopted SFAS No. 142 and wrote off $9.9 million of goodwill related to the Stoney River acquisition completed in May of 2000.

     Ninety Nine are casual dining restaurants that have earned a reputation for providing high quality food at moderate prices in a comfortable, relaxed atmosphere. The menu features a wide selection of appetizers, salads, sandwiches, burgers, entrees and desserts, all served in generous portions. We plan to operate Ninety Nine as a stand-alone concept, while providing strategic oversight and support. Our growth strategy for Ninety Nine, which is similar to the O’Charley’s growth strategy, includes continuing to penetrate existing markets while adding new restaurants in the same general geographic areas where Ninety Nine currently operates.

     We operate two commissaries for the primary purpose of providing our restaurants with consistent quality food products that meet our specifications while obtaining lower prices for those items through volume purchasing. A substantial majority of the food products served in our O’Charley’s and Stoney River restaurants are distributed to the restaurants by our Nashville commissary. The commissary for Ninety Nine Restaurant and Pub distributes primarily the “center of the plate” items including red meat, poultry and seafood. In addition to purchasing food and other non-food products, the Nashville commissary manufactures certain proprietary products and both of our commissaries cut red meat into steaks in USDA-approved and inspected facilities. We believe our commissaries give us a competitive advantage in servicing our restaurants and a financial advantage. We attribute the decreases in food cost as a percentage of our restaurant sales over the past four years, in part, to the operating leverage generated from the increased purchasing volumes and efficiencies achieved at our Nashville commissary.

     The following tables reflect changes in the number of restaurants we operated during the years presented:

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     Net earnings in 2002 and 2001 each were impacted by certain charges. In 2002, we recorded a non-cash pre-tax charge of $9.9 million ($6.1 million net of tax or $0.31 per diluted share) as a cumulative effect of a change in accounting principle as a result of our evaluation of the goodwill carrying value of the Stoney River reporting unit. We were required to perform this evaluation upon our adoption of SFAS No. 142, which dictates how companies must account for goodwill, and which we adopted on December 31, 2001. We determined the goodwill was impaired based upon our valuation of the fair value of the Stoney River reporting unit and the fair value of its net assets, exclusive of goodwill. The write-off represented the total goodwill associated with the Stoney River acquisition. Additionally, in accordance with SFAS No. 142, beginning in 2002, we no longer amortize goodwill.

     In 2001, we incurred charges of approximately $5.8 million, or approximately $0.20 per diluted share, related to the closing of five stores. These closings were the result of a comprehensive review of the past and expected performance of all locations, taking into consideration the difficult economic environment. We closed one of the five restaurants in fiscal 2001. We closed three additional stores in fiscal 2002. We closed the fifth store during the first quarter of 2003.

     We are pursuing franchising our O’Charley’s restaurant concept and expect to have our first franchise agreement in place in 2003. We will continue to incur certain legal and administrative expenses during the development stage of this program, which will not necessarily be offset by franchising revenue. The establishment of franchising operations could have an adverse effect on our operating results until such time, if ever, as those operations begin to generate revenues in excess of their related expenses. We anticipate approximately $750,000 in expenses for this program in fiscal 2003.

     Revenues consist of restaurant sales and, to a lesser extent, commissary sales. Restaurant sales include food and beverage sales and are net of applicable state and local sales taxes. Commissary sales represent sales to outside parties consisting primarily of sales of O’Charley’s branded food items, primarily salad dressings, to retail grocery chains, mass merchandisers and wholesale clubs.

     Cost of food and beverage primarily consists of the costs of beef, poultry, seafood, produce and alcoholic and non-alcoholic beverages. We believe our menus offer a broad selection of menu items and as a result there is not a high concentration of our food costs in any one product category. The overall food cost environment has been positive during 2002, which has had a positive effect on our earnings. We believe food costs have benefited from the slowing economy and other factors. Although we currently believe there will be nominal food cost inflation in 2003, there can be no assurance that favorable food costs trends will continue. Various factors beyond our control, including adverse weather, cause periodic fluctuations in food and other costs. Generally, temporary increases in these costs are not passed on to customers; however, we have in the past generally 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 and bonuses, hourly wages for restaurant level employees, payroll taxes, workers’ compensation, various health, life and dental insurance programs, vacation expense and sick pay. We have an incentive bonus plan that compensates restaurant management for achieving and exceeding certain restaurant level financial targets and performance goals. In 2003, we have made improvements to the insurance benefits offered to our hourly employees. The cost associated with these improvements is projected to be approximately $3.2 million in fiscal 2003. This amount may vary from our estimate based upon a number of factors, including the number of employees that enroll in the new plan. We believe these improvements will result in an increase to our payroll and related costs and expenses as a percentage of restaurant sales in 2003.

     Restaurant operating costs include occupancy and other expenses at the restaurant level, except property and equipment depreciation and amortization. Supplies, rent, supervisory salaries, bonuses 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.

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     Advertising, general and administrative expenses include all advertising and home office administrative functions that support the existing restaurant base and provide the infrastructure for future growth. Advertising, executive management and support staff salaries, bonuses and related expenses, data processing, legal and accounting expenses and office expenses account for the major expenses in this category.

     Depreciation and amortization primarily includes depreciation on property and equipment calculated on a straight-line basis over an estimated useful life. For periods prior to December 31, 2001, depreciation and amortization also includes amortization of goodwill, which related primarily to the acquisition of the Stoney River concept. In accordance with SFAS No. 142, beginning December 31, 2001, we no longer amortize goodwill.

     Preopening costs include operating costs and expenses incurred prior to a new restaurant opening. Our current practice of expensing preopening costs may cause fluctuations in our results of operations from quarter to quarter and year to year depending on when those costs are incurred. The amount of preopening costs incurred in any one year includes costs incurred during the year for restaurants opened and under development. We incurred average preopening costs of approximately $190,000 for each new restaurant opened during 2002.

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     The following information should be read in conjunction with “Selected Financial Data” and our consolidated financial statements and the related notes thereto included elsewhere herein. The following table reflects our operating results for 2002, 2001, and 2000 as a percentage of total revenues unless otherwise indicated. Fiscal years 2002 and 2001 were comprised of 52 weeks while fiscal year 2000 was comprised of 53 weeks. As a result, some of the variations reflected in the following data may be attributed to the different lengths of the fiscal years. The information contained in the table below reflect O’Charley’s Inc. and subsidiaries as of December 29, 2002 and does not include Ninety Nine Restaurant and Pub.

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Fiscal Year 2002 Compared with Fiscal Year 2001

     Total revenues in 2002 increased $55.0 million, or 12.4%, to $499.9 million from $444.9 million in 2001 primarily as a result of an increase in restaurant sales of $54.2 million, or 12.3%. The increase in restaurant sales was attributable to the net addition of 21 O’Charley’s restaurants, three new Stoney River restaurants opened in 2002 and a 0.6% same store sales increase for the Stoney River concept, partially offset by a 0.1% same store sales decline at our O’Charley’s restaurants. Our overall check average for the O’Charley’s concept was $11.59 in 2002 compared to $11.28 in 2001. Our guest traffic at our O’Charley’s restaurants decreased approximately 2.6% during fiscal 2002. During the second quarter of 2001, we implemented a value menu promotion in response to the slowing economy, which lowered the price of certain entrees. We believe this promotion generated positive guest traffic and lowered our average check in 2001. We believe our guest traffic was lower in 2002, in part, as a result of not having a similar value promotion in 2002. During the third quarter of 2002, we increased menu prices by approximately 3.1% in approximately two-thirds of our O’Charley’s restaurants. During the fourth quarter of 2002, we introduced a new menu in all of our O’Charley’s restaurants that included a menu price increase of approximately 3.1% for the remaining one-third of our stores that had not taken the menu price increase during the third quarter of 2002. We believe the increase in our check average is the result of the combination of the menu price increase taken in 2002 and the absence of a value promotion in 2002 similar to the one in 2001. Additionally, we believe consumer-spending patterns have vacillated due to the uncertain U.S. economy and geopolitical environment, causing a negative effect on our guest traffic. The increase in same store sales at our Stoney River restaurants resulted from an increase in check average, partially offset by a decrease in guest traffic. We expect that the uncertain U.S. economy, the possible outbreak of war or other hostilities and adverse winter weather in many of our markets may adversely effect restaurant sales in 2003.

     Cost of food and beverage in 2002 increased $11.0 million, or 8.5%, to $140.0 million from $129.1 million in 2001. As a percentage of restaurant sales, cost of food and beverage decreased to 28.3% in 2002 from 29.3% in 2001. We attribute the lower food cost percentage in 2002 primarily to an overall reduction in the cost of certain food items and continued improvements in operating efficiencies at our stores and commissary. We experienced lower costs in red meat, pork, poultry and dairy costs, partially offset by increases in certain produce costs. We anticipate a nominal increase in commodity prices in 2003. There can be no assurance that events outside of our control will not result in increases in food costs as a percentage of restaurant sales.

     Payroll and benefits increased $16.3 million, or 11.8%, to $154.3 million in 2002 from $138.0 million in 2001. Payroll and benefits, as a percentage of restaurant sales, declined to 31.2% in 2002 from 31.3% in 2001. The slight decline was attributable to lower restaurant level bonuses and workers compensation expenses, offset by a modest increase in hourly wage rates and increased salaries for restaurant management in 2002. We have implemented improvements to the insurance benefits offered to our hourly employees for 2003, and believe the cost associated with these improvements will be approximately $3.2 million in 2003. This amount may vary based upon a number of factors, including the number of employees that enroll in the new plan. We believe these improvements will result in an increase to our payroll and related costs and expenses as a percentage of restaurant sales in 2003.

     Restaurant operating costs in 2002 increased $9.5 million, or 12.4%, to $86.3 million from $76.8 million in 2001. Restaurant operating costs, as a percentage of restaurant sales, remained relatively flat at 17.4% in 2002 compared to 2001. In 2002, we experienced higher overall store occupancy and operating costs due primarily to increases in repair and maintenance cost, general liability insurance and credit card fees partially offset by lower utility costs compared to 2001. We also experienced a decrease in supervisory expenses in 2002 as a percentage of total restaurant sales due primarily to lower management training salaries. We anticipate higher natural gas costs in 2003 due to increased usage as a result of lower average temperatures to date in 2003 compared to 2002.

     Advertising, general and administrative expenses increased $7.7 million, or 25.7%, to $37.7 million in 2002 from $30.0 million in 2001. As a percentage of total revenues, advertising, general and administrative expenses increased to 7.5% in 2002 from 6.7% in 2001. Advertising expenditures increased 28.1% to $17.0 million in 2002 from $13.3 million in 2001 and, as a percentage of total revenues, increased to 3.4% in 2002 from 3.0% in 2001. The increase in advertising expenditures was in response to the continued weakness of the U.S. economy. An increase in television costs represented the primary share of the overall increase in advertising expenditures. Stoney River restaurants rely primarily on word-of-mouth to attract new customers rather than media advertising. General and administrative expenses increased

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23.9% to $20.7 million in 2002 from $16.7 million in 2001, and as a percentage of total revenues increased to 4.1% in 2002 from 3.8% in 2001. The increase in general and administrative expenses was primarily due to increased bonus expenses and integration costs associated with the acquisition of Ninety Nine partially offset by lower legal costs.

     Depreciation and amortization in 2002 increased $3.4 million, or 15.3%, to $25.5 million in 2002 from $22.1 million in 2001. As a percentage of total revenues, depreciation and amortization increased to 5.1% in 2002 from 5.0% in 2001. The increase in depreciation expense was primarily attributable to new restaurants opened in 2002 and capital expenditures for improvements to existing restaurants, which offset the lack of goodwill amortization in 2002 (see note 1 to the accompanying consolidated financial statements).

     Pre-opening costs in 2002 declined $600,000, or 10.3%, to $5.1 million from $5.7 million in 2001. As a percentage of total revenues, pre-opening costs declined to 1.0% in 2002 from 1.3% in 2001. The decrease in pre-opening costs was primarily attributable to lower average cost per store opening this year versus last year.

     Income from operations increased $12.8 million, or 38.0%, to $46.5 million in 2002 from $33.7 million in 2001. Excluding the effect of the asset impairment and exit costs recorded in 2001, income from operations increased $7.0 million, or 17.7% in 2002.

     Interest expense, net decreased $1.1 million in 2002 to $5.6 million from $6.6 million in 2001. This decrease is the result of overall lower interest rates in 2002. The weighted average interest rate on our revolving credit facility decreased to 3.7% in 2002 as compared with 5.2% in 2001 due to lower short-term LIBOR rates in 2002. We anticipate higher interest expense in 2003 due to the increased borrowings incurred to finance the acquisition of Ninety Nine Restaurant and Pub coupled with higher average interest rates under our new credit facility.

     Earnings before income taxes and cumulative effect of change in accounting principle for 2002 increased $14.2 million, or 52.6%, to $41.1 million from $26.9 million in 2001. Excluding the effect of the asset impairment and exit costs recorded in 2001, earnings before income taxes increased $8.4 million, or 25.6%, in 2002.

     Income taxes for 2002 increased $4.9 million, or 52.6%, to $14.3 million from $9.4 million in 2001. This increase was primarily the result of the increase in earnings before income taxes. Our effective tax rate remained relatively flat at 34.8% of pre-tax earnings.

     In 2002, we recorded a non-cash pre-tax charge of $9.9 million ($6.1 million net of tax or $0.31 per diluted share) as a cumulative effect of a change in accounting principle as a result of our evaluation of the goodwill carrying value of the Stoney River reporting unit.

     The number of diluted weighted shares outstanding was 19.8 million shares in 2002, compared with 18.9 million shares in 2001. This increase is attributable primarily to the effect of the sale of common shares in April 2001 and a higher number of dilutive stock options in 2002.

Fiscal Year 2001 Compared with Fiscal Year 2000

     Total revenues in 2001 increased $67.7 million, or 17.9%, to $444.9 million from $377.3 million in 2000 primarily as a result of an 18.0% increase in restaurant sales to $67.2 million. The increase in restaurant sales was attributable to the addition of 24 new O’Charley’s restaurants, the inclusion of the two original Stoney River restaurants

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for the entire year following their acquisition in May 2000, one new Stoney River restaurant opened in 2001, and an increase in same store sales at our O’Charley’s restaurants of 2.1%. Our overall check average for the O’Charley’s concept was $11.28 in 2001 and $11.13 in 2000. The increases in revenue were partially offset by us having 52 weeks of operations in 2001 as compared to 53 weeks in 2000. In January 2001, we increased menu prices at our O’Charley’s restaurants by approximately 2.0%. We believe we realized the majority of that price increase during the first quarter of 2001, but by the end of the first quarter, we began to see slowing consumer spending which resulted in a lower than expected check average. In response to the slowing consumer spending patterns, we increased our marketing efforts and began to promote lower priced entrees and lowered certain daily entree specials. As a result of this effort, we believe we maintained our increases in customer traffic but lowered our overall check average. Near the end of the third quarter of 2001, we began to see increases in consumer spending which raised our check average but we continued to promote lower priced entrees through the end of 2001.

     Cost of food and beverage in 2001 increased $19.6 million, or 17.9%, to $129.1 million from $109.5 million in 2000. As a percentage of restaurant sales, cost of food and beverage remained flat at 29.3% in 2001 and 2000. Although we experienced an increase in the cost of food and beverage in 2001 due to significantly higher cost for certain commodity food items, including red meat, dairy and baby back ribs, we continued to experience improved purchasing and operating efficiencies in our restaurants and commissary offsetting the higher commodity prices. Additionally, food cost were impacted by our Stoney River restaurants in 2001 where the food costs are higher than O’Charley’s due primarily to a higher percentage of red meat sales. Food costs were also impacted by the promotion of lower priced entrees in 2001.

     Payroll and benefits increased $23.0 million, or 20.0%, to $138.0 million in 2001 from $115.0 million in 2000. Payroll and benefits, as a percentage of restaurant sales, increased to 31.3% in 2001 from 30.8% in 2000. The increase was attributable to increasing salaries for restaurant management along with higher employee benefit costs, including workers’ compensation and health insurance costs in 2001.

     Restaurant operating costs in 2001 increased $12.0 million, or 18.5%, to $76.8 million from $64.8 million in 2000. Restaurant operating costs, as a percentage of restaurant sales, increased to 17.4% in 2001 from 17.3% in 2000. In 2001, we experienced higher utility costs, primarily natural gas, and higher insurance expenses, primarily general and liquor liability insurance. These increases were partially offset by a decrease in supervisory expenses in 2001 as a percentage of total revenue. Overall utilities in 2001 increased 28% as compared to 2000. Natural gas prices were significantly higher during the first three quarters of 2001, but decreased during the fourth quarter to similar levels in the same quarter of 2000.

     Advertising, general and administrative expenses increased $5.5 million, or 22.5%, to $30.0 million in 2001 from $24.5 million in 2000. As a percentage of total revenues, advertising, general and administrative expenses increased to 6.7% in 2001 from 6.5% in 2000. Advertising expenditures increased 39.6% to $13.3 million in 2001 from $9.5 million in 2000 and, as a percentage of restaurant sales, increased to 3.0% in 2001 from 2.5% in 2000. O’Charley’s advertising, as a percentage of O’Charley’s restaurant sales, was 3.1% in 2001 compared to 2.6% in 2000. We increased our advertising expenditures beginning in the second quarter of 2001 through the end of the year in response to the slowing consumer spending trends we began to experience near the end of the first quarter. An increase in television costs represented the primary share of the overall increase in advertising expenditures. General and administrative expenses increased 11.6% to $16.7 million in 2001 from $15.0 million in 2000, but as a percentage of total revenues, decreased to 3.8% in 2001 from 4.0% in 2000. The decrease in general and administrative expenses primarily resulted from a decrease in bonus and legal expenses.

     Depreciation and amortization in 2001 increased $3.9 million, or 21.6%, to $22.1 million in 2001 from $18.2 million in 2000. As a percentage of total revenues, depreciation and amortization increased to 5.0% in 2001 from 4.8% in 2000. The increase in depreciation expense was primarily attributable to the growth in the number of new restaurants and capital expenditures for improvements to existing restaurants.

     Asset impairment and exit costs were $5.8 million during 2001. During the third quarter of 2001, we made the decision to close five restaurants. The decision followed a review of historical and projected cash flows of our stores in view of the difficult economic environment in which we were operating. As a result of this decision, we recognized a

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charge during the third quarter of 2001 for asset impairment of approximately $5.0 million and exit costs of approximately $800,000 primarily associated with certain related lease commitments.

     Pre-opening costs in 2001 increased $1.0 million, or 20.2%, to $5.7 million from $4.7 million in 2000. As a percentage of total revenues, pre-opening costs increased to 1.3% in 2001 from 1.2% in 2000. This increase is attributable primarily to the cost incurred for the new O’Charley’s restaurants in addition to higher pre-opening costs incurred for the new Stoney River restaurant.

     Income from operations decreased $3.5 million, or 9.4%, to $33.7 million in 2001 from $37.2 million in 2000. Excluding the asset impairment and exit costs, income from operations increased $2.3 million, or 6.2%, to $39.5 million, in 2001. This increase was less than our original expectations due primarily to slowing consumer spending, higher than expected costs of certain food commodities, higher utilities, higher insurance costs and increased advertising expenditures.

     Interest expense, net decreased $800,000 in 2001 to $6.6 million from $7.4 million in 2000. This decrease is primarily the result of overall lower interest rates in 2001. The weighted average interest rate on our revolving credit facility decreased to 5.2% in 2001 as compared with 7.4% in 2000 due to lower short-term LIBOR rates in 2001. Additionally, overall interest expense was reduced due to decreased borrowings on our revolver as we used the $41.7 million proceeds from the sale of our common stock in April 2001 to reduce our debt.

     Earnings before income taxes for 2001 decreased $2.9 million, or 9.7%, to $26.9 million from $29.8 million in 2000. Excluding the effect of the asset impairment and exit costs, earnings before income taxes increased 9.8 % to $32.7 million in 2001.

     Income taxes for 2001 decreased $1.1 million, or 10.3%, to $9.3 million from $10.4 million in 2000. This decrease was primarily the result of the decrease in earnings before income taxes. The effective tax rate decreased to 34.8% of pre-tax earnings from 35.0% in 2000 due primarily to higher tax credits.

     The number of diluted weighted shares outstanding was 18.9 million shares in 2001, compared with 16.5 million shares in 2000. The primary reason for this increase is the 2.3 million shares of our common stock sold in April 2001.

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Quarterly Financial and Restaurant Operating Data

     The following is a summary of certain unaudited quarterly results of operations data for each of the last three fiscal years. For accounting purposes, the first quarter consists of 16 weeks and the second, third and fourth quarters each consist of 12 weeks (13 weeks in the fourth quarter of 2000 because it was a 53-week year). As a result, some of the variations reflected in the following table are attributable to the different lengths of the fiscal quarters.

Liquidity and Capital Resources

     Our primary sources of cash have historically been cash provided by operations, borrowings under our revolving credit facility, capitalized lease obligations and sales of our common stock. Our cash needs arise primarily from the purchase and development of new restaurants, equipment replacement, improvements to existing restaurants and the repayment of debt.

     Our working capital historically has had current liabilities in excess of current assets due to cash reinvestments in long-term assets, mostly property and equipment additions, and does not indicate a lack of liquidity. We expect to meet our obligations as they come due through available cash, internally generated funds and borrowings under our revolving credit facility. At December 29, 2002, our working capital deficiency was $21.4 million. The total net increase in cash was $1.9 million in 2002.

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     Net cash provided by operations was $64.9 million in 2002, $46.7 million in 2001, and $40.0 million in 2000. Other sources of cash in 2002 came from net borrowings of $9.0 million under our revolving credit facility, $4.4 million of proceeds from the exercise of stock options and approximately $2.0 million from the sale of assets. Additionally, we financed $8.8 million in new restaurant equipment through capitalized lease obligations. In 2001, we received $41.7 million in net proceeds from the sale of approximately 2.3 million shares of our common stock.

     In 2002, we invested $78.5 million in property and equipment expenditures, including $8.8 million of equipment acquired under capital leases. These expenditures were made primarily for 24 new O’Charley’s restaurants opened during the year, three new Stoney River restaurants opened during the year, restaurants under construction at December 29, 2002, and improvements to existing restaurants and commissary facilities. Other primary uses of cash were $7.6 million in principal payments on capitalized lease obligations and other long-term debt.

     The amount outstanding under the revolving credit facility was $98.0 million on December 29, 2002, an increase of approximately $9.0 million from December 30, 2001. The credit facility required monthly interest payments at a floating rate based on the bank’s prime rate plus or minus a certain percentage spread or the LIBOR rate plus a certain percentage spread. The interest rate spread (85 basis points at December 29, 2002) was based on certain financial ratios and was recomputed quarterly. The weighted average interest rate on the outstanding borrowings under the facility during 2002 was 3.7%, as compared with 5.2% during 2001. On December 29, 2002, the average interest rate on the outstanding balance of the facility was 3.1%, as compared with 4.5% at the end of 2001.

     From time to time, we may enter into interest rate swap agreements with certain financial institutions for the purpose of fixing the amount of interest we pay over a certain period of time at varying notional amounts. At December 29, 2002, there were $20.0 million in aggregate amounts of interest rate swap agreements outstanding that carried a weighted average interest rate of 5.6%. The effective amount of interest we pay on the notional amounts of these swap agreements is calculated using the interest rate of the swap plus the percentage spread on our revolving credit facility. The swap agreements outstanding at December 29, 2002 expire as follows: $10.0 million in January 2004, and $10.0 million in January 2006.

     On January 27, 2003, we consummated the acquisition of Ninety Nine Restaurant and Pub for $116.0 million in cash and approximately 2.35 million shares of our common stock, plus the assumption of certain liabilities of Ninety Nine. Of the stock portion of the purchase price, we delivered approximately 941,000 shares at closing, and will deliver approximately 408,000 shares on each of the first, second and third anniversaries of the closing and 94,000 shares on each of the fourth and fifth anniversaries of the closing.

     In conjunction with the acquisition of Ninety Nine, we entered into a new $300 million senior secured credit facility to fund the purchase price for Ninety Nine, repay our previous revolving credit facility and provide capital for future growth. The new credit facility is comprised of a revolving credit facility with a maximum principal amount of $200 million and a term loan in the original principal amount of $100 million. The revolving credit facility matures on January 27, 2007 and the term loan matures on January 27, 2009. The term loan provides for scheduled quarterly principal amortization of $2.5 million commencing June 30, 2003 and ending March 31, 2008 and quarterly principal amortization of $16.5 million commencing June 30, 2008, with a final payment of $17.0 million due at maturity.

     Amounts outstanding under the new revolving credit facility bear interest, at the Company’s option, at either LIBOR plus a specified margin ranging from 2.25% to 3.0% based on certain financial ratios or the base rate, which is the higher of the lender’s prime rate and the federal funds rate plus 0.5%, plus a specified margin ranging from 1.0% to 1.75% based on certain financial ratios. Amounts outstanding under the term loan bear interest, at the Company’s option, at either LIBOR plus 4.0% or the base rate plus 2.75%. At February 26, 2003, the effective interest rate was 4.0% on the revolving credit facility and 5.3% on the term loan. Our new credit facility imposes restrictions on us with respect to the incurrence of additional indebtedness, sales of assets, mergers, acquisitions, joint ventures, investments, repurchases of stock and the payment of dividends. In addition, the credit facility requires us to comply with certain specified financial covenants, including covenants relating to maximum adjusted debt to EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) ratio, maximum leverage, minimum fixed charge coverage ratio, minimum asset coverage ratio and minimum capital expenditures ratio.

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     During 2001 and 2002, Ninety Nine Restaurant and Pub entered into a sale-leaseback facility under which it sold 30 properties and leased the properties back from the buyer. The total proceeds from the transaction were $50.8 million. The future obligations under this facility are reflected under operating leases in the “Contractual Obligations and Commercial Commitments” table below.

     We have budgeted approximately $100 million to $105 million in 2003 for capital expenditures for the planned 27 to 29 new O’Charley’s restaurants, approximately ten new Ninety Nine restaurants, improvements to existing restaurants, approximately two new Stoney River restaurants, expansion of our commissary facilities, and information systems improvements. There can be no assurance that actual capital expenditures in 2003 will not vary significantly from budgeted amounts based upon a number of factors, including the timing of additional purchases of restaurant sites. We intend to continue financing the furniture, fixtures and equipment for our new restaurants primarily with capitalized lease obligations.

     On May 26, 2000, we purchased two existing Stoney River Legendary Steaks restaurants and all associated trademarks and intellectual property for approximately $15.8 million in cash. The transaction includes an earn-out provision for the benefit of the former owners of up to $1.25 million at the end of 2002, $1.25 million at the end of 2003, and $2.5 million at the end of 2004. The potential earn-out is based on the Stoney River Legendary Steaks concept achieving certain performance thresholds (income before taxes and pre-opening costs) for such year. The performance thresholds were not satisfied as of the end of 2002 and, accordingly, no earnout was paid in 2002. In the event that these performance thresholds are met in future years, we would recognize an expense related to the earn-out provision as all of the goodwill related to the acquisition has been written off.

     Based upon our current level of operations and anticipated growth, we believe that available cash flow from operations, combined with the available borrowings under our new credit facility and capitalized lease arrangements, will be adequate to meet our anticipated future requirements for working capital, capital expenditures and scheduled payments under our new term loan facility through at least December 2003. We have historically produced sufficient cash flow from operations to supplement our capital needs each year. Our ability to meet our capital needs are highly dependent on us continuing to generate sufficient cash from operations and there can be no assurance that we will continue to do so. We continually review our capital structure to determine the optimum structure to fund our operations and anticipated growth. This may result in our repaying from time to time amounts outstanding under our Credit Facility through public or private issuances of debt or equity securities or through a sale-leaseback of certain O’Charley’s properties. In addition, our growth strategy includes possible acquisitions or strategic joint ventures. Any acquisitions, joint ventures or other growth opportunities may require additional external financing. 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.

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Contractual Obligations and Commercial Commitments

     The following tables set forth our contractual obligations and commercial commitments at December 29, 2002.