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O'Charley's Inc.-- SEC Response Letter

August 5, 2005

Mr. Michael Fay

Branch Chief Accountant

Securities and Exchange Commission

Division of Corporate Finance

450 Fifth Street, N.W.

Mail Stop 03-05

Washington, D.C. 20549

    Re:

    O’Charley’s Inc.

    Form 10-K for the year ended December 26, 2004

    File No. 000-18629

    Filed March 28, 2005

Dear Mr. Fay:

      On behalf of O’Charley’s Inc. (the “Company”), and in response to the staff’s comments
contained in your letter dated July 5, 2005 (the “Comment Letter”), I submit this letter containing
the Company’s responses to the Comment Letter. The Company’s responses to the Comment Letter
correspond to the numbered comments in the Comment Letter. On July 6 the staff agreed to extend to
August 5 the Company’s July 19 deadline for responding to the Comment Letter.

Form 10-K for the year ended December 26, 2004

     Item 7: Management’s Discussion and Analysis
     Liquidity and Capital Resources, page 28

    1.

    Please revise future filings to separately quantify your historical capital expenditures, as
discussed on page 30, into growth capital expenditure and maintenance capital expenditure
components. Provide us your intended disclosure.

    RESPONSE: In future filings, the Company intends to separately quantify historical capital
expenditures into new store capital expenditures and other capital expenditures. An example of our
intended disclosure, using the Company’s fiscal year ended December 26, 2004 follows:

    Net cash flows used by investing activities included capital expenditures incurred
principally for building new restaurants, improvements to existing restaurants, new equipment and
improvements at our commissary, and technological improvements at our home office. Excluding new
restaurant equipment financed through capitalized lease

Michael Fay

Branch Chief Accountant

Securities and Exchange Commission

August 5, 2005

Page 2

    obligations of $10.8 million in 2004, $20.0 million in 2003, and 8.7 million in 2002, capital
expenditures were as follows:

    ($ in millions)

    2004

    2003

    2002

    New store capital expenditures

    $
    37.7

    $
    43.7

    $
    54.9

    Other capital expenditures

    22.8

    23.9

    14.8

    Total capital expenditures

    $
    60.5

    $
    67.6

    $
    69.7

    2.

    We note that you have provided certain financial ratios as of the end of fiscal years 2004
and 2003. Please revise future filings to discuss these ratios in relation to the financial
covenants of your credit facility. Highlight the amount of any “headroom” under these
covenants.

    Response: As part of its discussion of Liquidity and Capital Resources, the Company provides a
table that includes the following four financial ratios as of the end of fiscal years 2004 and
2003: total debt to EBITDA; EBITDA to interest expense, net; total debt to total capitalization;
and adjusted total debt to adjusted total capitalization. To the extent these ratios use non-GAAP
financial measures, such measures are defined and reconciled to the most directly comparable GAAP
financial measures in the footnotes to the table. These ratios are not provided to measure
compliance with or “headroom” under the financial covenants contained in the Company’s Senior
Secured Credit Agreement. Rather, these ratios have been included because management believes they
provide useful information to our investors, in particular the holders of our senior subordinated
notes due in 2013, regarding the creditworthiness and financial condition of the Company.

    Item 8: Financial Statements

Note 1 Summary of Significant Accounting Policies, page 45

O’Charley’s Inc., page 45

    3.

    Please explain why the accounts of the Louisiana joint venture franchisee are consolidated in
your financial statements. It is not apparent from your disclosures why the Louisiana joint
venture franchisee is being consolidated. In this regard, we note your statement on page 34
that the Louisiana joint venture is owned equally between you and the joint venture partner.
The usual condition for consolidation is the ownership of a majority voting interest. For
guidance, refer to FAS 94.

    In addition, please tell us how you have evaluated the Louisiana joint venture as a variable
interest entity under consolidation criteria specified in FIN 46.

    Response: As of December 26, 2004, there was one O’Charley’s restaurant located in Lafayette,
Louisiana operated by a franchisee that is a joint venture in which the Company has a 50% equity
interest. As noted on page 34 of the Company’s Form 10-K, the Company’s joint venture partner has
made a capital contribution of $0.5 million, and

Michael Fay

Branch Chief Accountant

Securities and Exchange Commission

August 5, 2005

Page 3

    the Company has agreed to make loans to the joint venture entity in the maximum principal amount of
$0.75 million. The entity is managed by a Board of Managers composed of two individuals designated
by the Company, and two individuals designated by the Company’s joint venture partner.

    In order to assist this first joint venture franchisee to open its first restaurant, the
Company decided to make additional loans to the joint venture, and as of December 26, 2004, the
Company had advanced a total of $2 million to the joint venture. These loans funded most of the
investment in the building and equipment, and the start-up and operating losses incurred since the
restaurant’s opening on November 3, 2004. Although we are not obligated to do so, the Company is
likely to fund future operating losses. The Company will receive all operating profits until its
loans are repaid.

    Under FIN 46(R), the joint venture is a variable interest entity, as it does not have sufficient
equity to fund its operations. The joint venture partner is an individual who has neither the
obligation nor the ability to contribute his proportionate share of expected future losses. Such
losses will require additional financial support from the Company. Since the Company bears a
disproportionate share of the financial risk associated with the joint venture, it is deemed to be
the primary beneficiary of the joint venture, and in accordance with FIN-46(R) must consolidate the
joint venture in its financial statements. The Company intends to more fully explain these
financial arrangements in future filings.

    Property and Equipment, page 45

    4.

    We note you include one renewal period for all equipment under capital leases. Please
explain how one renewal period for all your equipment under capital lease is “reasonably
assured” as defined under FAS 13.

    Response: Upon review of Note 1, the Company has identified an unintended typographical error. The
Company’s capitalized equipment leases do not provide for renewal periods, and equipment under
capitalized leases is amortized to its expected value to the Company at the end of the base lease
term. The Company will correct the typographical error in future filings.

    Managing Partner Program for Stoney River, page 45

    5.

    Please explain to us both how you are accounting for the managing partner program and the
reason your accounting is appropriate. As part of your response, address the accounting for
any periodic payments made under the program and the accounting for the buyback of the
investment. In addition, provide us an analysis of the significant terms and characteristics
of the equity interests that are being issued. Finally, provide an accounting policy for your
program in future filings.

Michael Fay

Branch Chief Accountant

Securities and Exchange Commission

August 5, 2005

Page 4

    Response: The Company has established a “managing partner program” for the general managers of its
Stoney River restaurants pursuant to which each general manager had the opportunity to acquire a 6%
interest in the limited liability company that owns the restaurant that the general manager manages
in exchange for a capital contribution to that subsidiary. The general managers at four of the six
Stoney River restaurants each acquired a 6% interest in their restaurant for a capital contribution
of $25,000. Upon the fifth anniversary of the general manager’s capital contribution to the
subsidiary, the Company has the option, but not the obligation, to purchase the general manager’s
6% interest for fair market value. Under the terms of the agreements between the Company and each
managing partner, fair market value would be determined by negotiations between the parties. If
such negotiations did not result in an agreement on value, a third-party appraisal process would be
used to determine fair market value.

    On a quarterly basis, the managing partner receives an allocation and distribution of 6% of the
operating profit of his or her restaurant. Upon termination, a general manager’s interest would be
repurchased by the Company at the value of the general manager’s Capital Account. “Capital
Account”, under the terms of the agreements between the Company and each managing partner, is
generally based on the general manager’s capital contributions plus respective allocations of the
operating profit of his or her restaurant as described above less distributions to the respective
general manager. Otherwise, the general managers may not withdraw or receive a return of
contributions.

    The managing partner’s minority interest, which totals $100,000 for the four managing partners, is
recorded on the Company’s Consolidated Balance Sheet as other long term liabilities. The quarterly
profit distributions to the managing partners are recorded on the Company’s Consolidated Statement
of Earnings as a minority interest in earnings, which is consolidated in the General and
Administrative Expense line. To date, the Company has not purchased any interest from a managing
partner. In the event we choose to do so, we would account for the transaction using the purchase
method as proscribed for the repurchase of minority interests by paragraphs 14 and A5 of Statement
of Financial Accounting Standards No. 141, “Business Combinations”. In view of the contractual
arrangements governing the managing partners’ equity interests, the Company believes that its
current and anticipated accounting treatment is appropriate. The Company intends to more fully
describe the nature of these arrangements and its accounting for them in future filings.

    Note 17: Litigation and Contingencies, page 63

    6.

    Please explain to us the defenses that you have with respect to the Hepatitis A outbreak
litigation.

    Response: As disclosed in Item 3 of the Company’s Form 10-K for the fiscal year ended 2004, “Each
of the Knox County Health Department, the Centers for Disease Control and Prevention and the Food
and Drug Administration have tentatively associated the

Michael Fay

Branch Chief Accountant

Securities and Exchange Commission

August 5, 2005

Page 5

    outbreak of the hepatitis A virus to eating green onions (scallions).” The report of the Centers
for Disease Control and Prevention further states that the green onions were most likely
contaminated with the Hepatitis A virus prior to delivery to the Company’s restaurant. The Knox
County Health Department has indicated that the Company’s employees appear to have done what they
were supposed to do with respect to washing the produce. Given these findings, the Company’s
primary defense of this litigation is that the responsibility for the outbreak rests primarily with
the producer and the parties in the chain of supply of the green onions, and not with the Company.

    Given the number of cases, which involve numerous different facts and allegations by the
plaintiffs, the Company may assert numerous different defenses based on the individual allegations.
The Company does not believe detailed disclosure of the numerous defenses it may assert in any
individual suit is material to an investor or disclosure of the type contemplated in this situation
under Item 103 of Regulation S-K.

    7.

    Tell us the amount of insurance coverage that you have available for each individual asserted
and unasserted Hepatitis A outbreak claim.

    Response: The Company does have liability insurance for the claims relating to the Hepatitis A
incident. The Company does not believe that the omission of disclosure regarding the amount of
insurance coverage is material or is disclosure of the type contemplated in this situation under
Item 103 of Regulation S-K. The disclosure of this information to existing and potential
plaintiffs, however, could adversely affect the Company’s ability to settle claims on acceptable
terms.

    8.

    Revise future filings to address your response to the two preceding comments.

    Response: For the reasons set forth in the Company’s responses to the two preceding comments, the
Company does not propose to amend its disclosure in future filings relating to its defenses or
amount of available insurance relating to the Hepatitis A incident.

    As you requested in the Comment Letter, I acknowledge on behalf of the Company that:

    •

    The Company is responsible for the adequacy and accuracy of the
disclosure in the filing;

    •

    Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with respect to the filing; and

    •

    The Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.

Michael Fay

Branch Chief Accountant

Securities and Exchange Commission

August 5, 2005

Page 6

Please do not hesitate to contact me if you have any questions or further comments.

    Sincerely,

    Lawrence E. Hyatt

Chief Financial Officer