UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________

FORM 10-Q

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

For the Quarterly Period Ended:  March 5, 2013

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to _________

Commission file number 1-12454

______________

RUBY TUESDAY, INC.

(Exact name of registrant as specified in its charter)

GEORGIA	63-0475239
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

150 West Church Avenue, Maryville, Tennessee 37801

(Address of principal executive offices)  (Zip Code)

        Registrant’s telephone number, including area code: (865) 379-5700

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No o

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

Large accelerated filer o                                                                                                         Accelerated filer x

Non-accelerated filer o (Do not check if a smaller reporting company)                         Smaller reporting company o

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

60,939,946

(Number of shares of common stock, $0.01 par value, outstanding as of April 9, 2013)

RUBY TUESDAY, INC.

INDEX

	Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
MARCH 5, 2013 AND JUNE 5, 2012	4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME/(LOSS) FOR THE THIRTEEN AND THIRTY-
NINE WEEKS ENDED MARCH 5, 2013 AND FEBRUARY 28, 2012	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED MARCH 5, 2013 AND
FEBRUARY 28, 2012	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS	7-32
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS	33-48
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK	49
ITEM 4. CONTROLS AND PROCEDURES	49
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	49
ITEM 1A. RISK FACTORS	50
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	50
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	50
ITEM 4. MINE SAFETY DISCLOSURES	50
ITEM 5. OTHER INFORMATION	50
ITEM 6. EXHIBITS	51
SIGNATURES	52

2

Special Note Regarding Forward-Looking Information

This Quarterly Report on Form 10-Q contains various forward-looking statements, which represent our expectations or beliefs concerning future events, including one or more of the following:  future financial performance and restaurant growth (both Company-owned and franchised), future capital expenditures, future borrowings and repayments of debt, availability of financing on terms attractive to the Company, payment of dividends, stock and bond repurchases, restaurant acquisitions, and changes in senior management and in the Board of Directors.  We caution the reader that a number of important factors and uncertainties could, individually or in the aggregate, cause our actual results to differ materially from those included in the forward-looking statements (such statements include, but are not limited to, statements relating to cost savings that we estimate may result from any programs we implement, our estimates of future capital spending and free cash flow, our targets for annual growth in same-restaurant sales and average annual sales per restaurant, and the benefits of our television marketing), including, without limitation, the following:

·   general economic conditions;

·   changes in promotional, couponing and advertising strategies;

·   changes in our guests’ disposable income;

·   consumer spending trends and habits;

·   increased competition in the restaurant market;

·   laws and regulations affecting labor and employee benefit costs, including further potential increases in state and federally mandated minimum wages, and healthcare reform;

·   guests’ acceptance of changes in menu items;

·   guests’ acceptance of our development prototypes and remodeled restaurants;

·   our ability to successfully integrate acquired companies;

·   mall-traffic trends;

·   changes in the availability and cost of capital;

·   weather conditions in the regions in which Company-owned and franchised restaurants are operated;

·   costs and availability of food and beverage inventory;

·   our ability to attract and retain qualified managers, franchisees and team members;

·   impact of adoption of new accounting standards;

·   impact of food-borne illnesses resulting from an outbreak at either one of our restaurant concepts or other competing restaurant concepts;

·   our ability to complete our planned sale-leaseback transactions;

·   effects of actual or threatened future terrorist attacks in the United States; and

·   significant fluctuations in energy prices.

3

PART I — FINANCIAL INFORMATION

ITEM 1.

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)

	MARCH 5,			JUNE 5,
	2013			2012
Assets	(NOTE A)
Current assets:
Cash and cash equivalents	$	31,760		$	48,184
Accounts receivable		5,067			4,700
Inventories:
Merchandise		24,041			19,918
China, silver and supplies		9,239			9,112
Income tax receivable		2,327			837
Deferred income taxes		35,913			27,134
Prepaid rent and other expenses		13,877			13,670
Assets held for sale		9,193			4,713
Total current assets		131,417			128,268
Property and equipment, net		888,112			966,605
Goodwill		9,022			7,989
Other assets		68,142			70,675
Total assets	$	1,096,693		$	1,173,537
Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	13,877		$	34,948
Accrued liabilities:
Taxes, other than income and payroll		10,614			14,475
Payroll and related costs		30,350			32,546
Insurance		8,479			7,433
Deferred revenue – gift cards		15,759			8,758
Rent and other		26,977			21,610
Current portion of long-term debt, including capital leases		9,167			12,454
Total current liabilities		115,223			132,224
Long-term debt and capital leases, less current maturities		296,666			314,209
Deferred income taxes		22,420			37,567
Deferred escalating minimum rent		45,966			45,259
Other deferred liabilities		75,793			68,054
Total liabilities		556,068			597,313
Commitments and contingencies (Note M)
Shareholders’ equity:
Common stock, $0.01 par value; (authorized: 100,000 shares;
issued: 60,868 shares at 3/05/13; 64,038 shares at 6/05/12)		609			640
Capital in excess of par value		64,420			90,856
Retained earnings		488,712			498,985
Deferred compensation liability payable in
Company stock		860			1,008
Company stock held by Deferred Compensation Plan		(860	)		(1,008	)
Accumulated other comprehensive loss		(13,116	)		(14,257	)
Total shareholders’ equity		540,625			576,224
Total liabilities & shareholders’ equity	$	1,096,693		$	1,173,537

                   The accompanying notes are an integral part of the condensed consolidated financial statements.

4

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME/(LOSS)

(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)

	THIRTEEN WEEKS ENDED						THIRTY-NINE WEEKS ENDED
	March 5, 2013			February 28, 2012			March 5, 2013			February 28, 2012
	(NOTE A)						(NOTE A)
Revenue:
Restaurant sales and operating revenue	$	305,835		$	319,350		$	930,699		$	949,765
Franchise revenue		1,548			1,363			4,684			4,104
		307,383			320,713			935,383			953,869
Operating costs and expenses:
Cost of merchandise		83,795			91,644			254,505			279,078
Payroll and related costs		105,364			108,343			313,287			322,573
Other restaurant operating costs		61,946			61,444			193,448			193,354
Depreciation		14,614			15,941			44,303			48,244
Selling, general and administrative, net		30,276			24,506			111,823			77,451
Closures and impairments, net		2,096			11,630			5,074			12,548
Interest expense, net		6,591			4,400			20,562			13,295
Gain on extinguishment of debt		–			–			(571	)		–
		304,682			317,908			942,431			946,543
Income/(loss) from continuing operations
before income taxes		2,701			2,805			(7,048	)		7,326
Benefit for income taxes from continuing
operations		(2,015	)		(4,064	)		(10,634	)		(2,934	)
Income from continuing operations		4,716			6,869			3,586			10,260
Loss from discontinued operations, net of tax		(2,520	)		(2,333	)		(13,859	)		(4,632	)
Net income/(loss)	$	2,196		$	4,536		$	(10,273	)	$	5,628
Other comprehensive income:
Pension liability reclassification, net of tax		380			307			1,141			923
Total comprehensive income/(loss)	$	2,576		$	4,843		$	(9,132	)	$	6,551
Basic earnings/(loss) per share:
Income from continuing operations	$	0.08		$	0.11		$	0.06		$	0.16
Loss from discontinued operations		(0.04	)		(0.04	)		(0.23	)		(0.07	)
Net earnings/(loss) per share	$	0.04		$	0.07		$	(0.17	)	$	0.09
Diluted earnings/(loss) per share:
Income from continuing operations	$	0.08		$	0.11		$	0.06		$	0.16
Loss from discontinued operations		(0.04	)		(0.04	)		(0.22	)		(0.07	)
Net earnings/(loss) per share	$	0.04		$	0.07		$	(0.16	)	$	0.09
Weighted average shares:
Basic		59,778			62,643			61,532			62,999
Diluted		60,312			63,053			61,986			63,503
Cash dividends declared per share	$	-		$	-		$	-		$	-

                 The accompanying notes are an integral part of the condensed consolidated financial statements.

5

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

	THIRTY-NINE WEEKS ENDED
	MARCH 5, 2013			FEBRUARY 28, 2012
	(NOTE A)
Operating activities:
Net (loss)/income	$	(10,273	)	$	5,628
Adjustments to reconcile net (loss)/income to net cash
provided by operating activities:
Depreciation		45,199			48,939
Amortization of intangibles		2,562			1,550
Deferred income taxes		(25,358	)		(5,179	)
Loss on impairments, including disposition of assets		21,161			12,144
Share-based compensation expense		3,157			4,448
Excess tax benefits from share-based compensation		(87	)		(31	)
Amortization of deferred gain on sale-leaseback transactions		(545	)		–
Gain on franchise partnership acquisitions, net of settlement losses		–			(420	)
Other		139			482
Changes in operating assets and liabilities:
Receivables		(366	)		(946	)
Inventories		(4,250	)		1,165
Income taxes		(1,490	)		2,367
Prepaid and other assets		(1,662	)		(922	)
Accounts payable, accrued and other liabilities		(12,733	)		6,807
Net cash provided by operating activities		15,454			76,032
Investing activities:
Purchases of property and equipment		(27,733	)		(29,112	)
Proceeds from sale-leaseback transactions, net		38,872			–
Proceeds from disposal of assets		5,451			5,330
Insurance proceeds from property claims		–			1,548
Reductions/(increases) in Deferred Compensation Plan assets		788			217
Other, net		(372	)		(429	)
Net cash provided/(used) by investing activities		17,006			(22,446	)
Financing activities:
Net payments on revolving credit facility		–			(22,000	)
Principal payments on other long-term debt		(20,300	)		(14,220	)
Stock repurchases		(30,149	)		(18,441	)
Proceeds from exercise of stock options		1,478			184
Excess tax benefits from share-based compensation		87			31
Net cash used by financing activities		(48,884	)		(54,446	)
Decrease in cash and cash equivalents		(16,424	)		(860	)
Cash and cash equivalents:
Beginning of year		48,184			9,722
End of year	$	31,760		$	8,862
Supplemental disclosure of cash flow information:
Cash paid for:
Interest, net of amount capitalized	$	14,275		$	12,195
Income taxes, net	$	3,892		$	1,571
Significant non-cash investing and financing activities:
Retirement of fully depreciated assets	$	49,190		$	14,606
Reclassification of properties to assets held for sale	$	9,624		$	40,808

                 The accompanying notes are an integral part of the condensed consolidated financial statements.

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – BASIS OF PRESENTATION

Ruby Tuesday, Inc., including its wholly-owned subsidiaries (“RTI,” the “Company,” “we,” and/or “our”), owns and operates Ruby Tuesday® and Lime Fresh Mexican Grill® (“Lime Fresh”) casual dining restaurants.  We also franchise the Ruby Tuesday and Lime Fresh concepts in selected domestic and international markets.  The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, they do notinclude all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.  In the opinion of management, all adjustments (consisting only of normal recurring entries) considered necessary for a fair presentation have been included.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.  Operating results for the 13- and 39-week periods ended March 5, 2013 are not necessarily indicative of results that may be expected for the 52-week year ending June 4, 2013.

The condensed consolidated balance sheet at June 5, 2012 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in RTI’s Annual Report on Form 10-K for the fiscal year ended June 5, 2012.

Immaterial Reclassifications and Corrections of Prior Period Condensed Consolidated Statement of Operations and Comprehensive Income/(Loss)

As shown in the tables below, certain balances in the prior fiscal year have been reclassified to conform with the presentation in the current fiscal year.  As discussed further in Notes D and I to the Condensed Consolidated Financial Statements, on January 9, 2013 we closed all of our Marlin & Ray’s and Wok Hay restaurants.  On April 7, 2013, we closed our two Truffles restaurants.  Consequently, we have classified the results of operations for those concepts as discontinued operations for all periods presented.

Further, we made the following other reclassifications and/or corrections to our Condensed Consolidated Statement of Operations and Comprehensive Income/(Loss) for the 13 and 39 weeks ended February 28, 2012 (in thousands):

·   reclassified certain non-restaurant related sales from Restaurant sales and operating revenue to Selling, general, and administrative, net;

·   reclassified and/or corrected certain employee fringe benefit and payroll tax expenses for corporate employees and field executives from Payroll and related costs, which is intended to capture payroll and related expenses for restaurant level employees, to Selling, general and administrative, net.  Salaries and wages for these employees were already captured within the Selling, general and administrative, net caption;

·   reclassified certain expenses not directly related to restaurant operations from Other restaurant operating costs to Selling, general and administrative, net; and

·   corrected amortization expense of debt issuance costs and fees relating to our revolving credit facility from Other restaurant operating costs to Interest expense, net.

7

	As presented - Thirteen weeks ended February 28, 2012	Reclassifications for Discontinued Operations	Other Reclassifications and Corrections	As adjusted - Thirteen weeks ended February 28, 2012
Restaurant sales and operating revenue	$ 323,464	$       (4,112)	$       (2)	$ 319,350
Cost of merchandise	93,084	(1,440)	–	91,644
Payroll and related costs	111,881	(1,825)	(1,713)	108,343
Other restaurant operating costs	63,299	(1,097)	(758)	61,444
Depreciation	16,239	(298)	–	15,941
Selling, general and administrative, net	22,925	(338)	1,919	24,506
Closures and impairments, net	12,317	(687)	–	11,630
Interest expense, net	3,850	–	550	4,400
Income from continuing operations
before income taxes	1,232	1,573	–	2,805
Income tax benefit	(3,304)	(760)	–	(4,064)
Loss from discontinued operations, net
of tax	–	(2,333)	–	(2,333)
Net income	4,536	–	–	4,536

	As presented - Thirty-nine weeks ended February 28, 2012	Reclassifications for Discontinued Operations	Other Reclassifications and Corrections	As adjusted - Thirty-nine weeks ended February 28, 2012
Restaurant sales and operating revenue	$ 958,521	$       (8,706)	$       (50)	$ 949,765
Cost of merchandise	282,221	(3,143)	–	279,078
Payroll and related costs	332,645	(4,270)	(5,802)	322,573
Other restaurant operating costs	197,383	(2,725)	(1,304)	193,354
Depreciation	48,939	(695)	–	48,244
Selling, general and administrative, net	73,087	(1,190)	5,554	77,451
Closures and impairments, net	13,415	(867)	–	12,548
Interest expense, net	11,793	–	1,502	13,295
Income from continuing operations
before income taxes	3,142	4,184	–	7,326
Income tax benefit	(2,486)	(448)	–	(2,934)
Loss from discontinued operations, net
of tax	–	(4,632)	–	(4,632)
Net income	5,628	–	–	5,628

We made these reclassifications required by GAAP for discontinued operations in addition to the other reclassifications and corrections as we believe that reporting these amounts as shown above will more accurately reflect the nature of the expenses in our Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) and are necessary to conform to the current period presentation and GAAP.  We have determined the reclassifications and corrections made to the prior period Condensed Consolidated Statement of Operations and Comprehensive Income/(Loss) in previous filings to be immaterial.

NOTE B – EARNINGS/(LOSS) PER SHARE AND STOCK REPURCHASES

Basic earnings/(loss) per share for continuing and discontinued operations is computed by dividing net income/(loss) for each by the weighted average number of common shares outstanding during each period presented.  Diluted earnings/(loss) per share for continuing and discontinued operations gives effect to stock options and restricted stock outstanding during the applicable periods, if dilutive.  The following table reflects the calculation of weighted-average common and dilutive potential common shares outstanding as presented in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) (in thousands, except per-share data):

8

	Thirteen weeks ended						Thirty-nine weeks ended
	March 5,  2013			February 28, 2012			March 5,  2013			February 28, 2012
Income from continuing operations	$	4,716		$	6,869		$	3,586		$	10,260
Loss from discontinued operations, net of tax		(2,520	)		(2,333	)		(13,859	)		(4,632	)
Net income/(loss)	$	2,196		$	4,536		$	(10,273	)	$	5,628
Weighted-average common
shares outstanding		59,778			62,643			61,532			62,999
Dilutive effect of stock
options and restricted stock		534			410			454			504
Weighted average common
and dilutive potential
common shares outstanding		60,312			63,053			61,986			63,503
Earnings/(loss) per share – Basic
Income from continuing operations	$	0.08		$	0.11		$	0.06		$	0.16
Loss from discontinued operations		(0.04	)		(0.04	)		(0.23	)		(0.07	)
Net earnings/(loss) per share	$	0.04		$	0.07		$	(0.17	)	$	0.09
Earnings/(loss) per share – Diluted
Income from continuing operations	$	0.08		$	0.11		$	0.06		$	0.16
Loss from discontinued operations		(0.04	)		(0.04	)		(0.22	)		(0.07	)
Net earnings/(loss) per share	$	0.04		$	0.07		$	(0.16	)	$	0.09

Stock options with an exercise price greater than the average market price of our common stock and certain options with unrecognized compensation expense do not impact the computation of diluted earnings/(loss) per share because the effect would be anti-dilutive.  The following table summarizes stock options and restricted shares that did not impact the computation of diluted earnings/(loss) per share because their inclusion would have had an anti-dilutive effect (in thousands):

	Thirteen weeks ended				Thirty-nine weeks ended
	March 5,  2013		February 28, 2012		March 5,  2013		February 28, 2012
Stock options		2,410		2,564		2,116		2,237
Restricted shares		1,119		917		1,203		905
Total		3,529		3,481		3,319		3,142

During the first 39 weeks of fiscal 2013, we repurchased 4.1 million shares of our common stock at a cost of $30.1 million.  As of March 5, 2013, the total number of remaining shares authorized by our Board of Directors to be repurchased was 11.9 million.  All shares repurchased during the 39 week period were cancelled as of March 5, 2013.

NOTE C – FRANCHISE PROGRAMS

As of March 5, 2013, our domestic and international franchisees collectively operated 77 Ruby Tuesday restaurants and five Lime Fresh restaurants.  We do not own any equity interest in our franchisees.

Under the terms of the franchise operating agreements, we charge a royalty fee (generally 4.0% of monthly sales) and require all domestic franchisees to contribute a percentage, 2.25% as of March 5, 2013, of monthly gross sales to a national advertising fund formed to cover their pro rata portion of the production and airing costs associated with our national advertising campaign.  Under the terms of those agreements, we can charge up to 3.0% of monthly gross sales for this national advertising fund.

Advertising amounts received from domestic franchisees are considered by RTI to be reimbursements, recorded on an accrual basis as earned, and have been netted against selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).

In addition to the royalty and advertising fees discussed above, our franchise agreements allow us to charge up to a 1.5% support service fee and a 1.5% marketing and purchasing fee.  For the 13 and 39 weeks ended March 5, 2013 and February 28, 2012, we recorded $0.2 million and $0.6 million, respectively in fiscal 2013, and $0.1 million and $0.8 million, respectively in fiscal 2012, in support service and marketing and

9

purchasing fees, which were an offset to Selling, general and administrative, net in our Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).

On June 20, 2012, RT Midwest Holdings, LLC, RT Chicago Franchise, LLC, RT Midwest Real Estate, LLC, and RT Northern Illinois Franchise, LLC (collectively “RT Midwest”), filed for Chapter 11 protection in the United States Bankruptcy Court for the District of Minnesota.  On January 15, 2013, RT Midwest successfully emerged from its Chapter 11 bankruptcy restructuring.  We resumed invoicing this franchisee, which operated 11 restaurants as of March 5, 2013 (all of which are leased), for franchise fees on March 6, 2013.  See Note E to the Condensed Consolidated Financial Statements for a discussion of the write off of pre-bankruptcy franchise fee receivables due from RT Midwest and Note I to the Condensed Consolidated Financial Statements for a discussion of closed restaurant lease reserve charges recorded during the first quarter of fiscal 2013 in connection with a subleased restaurant that RT Midwest closed during that quarter.

NOTE D – DISCONTINUED OPERATIONS

In an effort to focus on the successful sales turnaround of our core Ruby Tuesday concept and position our Lime Fresh concept for long-term success as a growth vehicle, on January 9, 2013, the Board of Directors of Ruby Tuesday, Inc. approved management’s plan to close all 13 Marlin & Ray’s restaurants as well as the Company’s one Wok Hay restaurant in the third quarter of fiscal 2013.  We closed these restaurants on January 9, 2013.  Additionally, on the same date we announced our intention to seek a buyer for our two Truffles restaurants.  No buyer suitable to our landlords was found as of March 5, 2013 and we consequently opted, on April 7, 2013, to close the restaurants instead.  As a result of these decisions, pre-tax charges of $4.0 million and $20.4 million were recognized for asset impairments, including those of Truffles, lease reserves, and other closing costs within closures and impairments expense from discontinued operations for the 13 and 39 weeks ended March 5, 2013. 

We have classified the results of operations of our Company-owned Marlin & Ray’s, Wok Hay, and Truffles concepts as discontinued operations for all periods presented.  The results of operations of our discontinued operations are as follows (in thousands):

	Thirteen weeks ended						Thirty-nine weeks ended
	March 5,  2013			February 28, 2012			March 5,  2013			February 28, 2012
Restaurant sales and operating revenue	$	2,421		$	4,112		$	11,575		$	8,706
Losses before income taxes	$	(4,405	)	$	(1,573	)	$	(23,172	)	$	(4,184	)
(Benefit)/provision for income taxes		(1,885	)		760			(9,313	)		448
Loss from discontinued operations	$	(2,520	)	$	(2,333	)	$	(13,859	)	$	(4,632	)

As of March 5, 2013 and June 5, 2012, we had $3.7 million and $24.8 million, respectively, of assets associated with the closed concept restaurants, which are included in Property and equipment, net in our Condensed Consolidated Balance Sheets.  Additionally, included within Assets held for sale in our March 5, 2013 Condensed Consolidated Balance Sheet are $5.0 million of assets associated with the closed concept restaurants.  See Note I to the Condensed Consolidated Financial Statements for a discussion of closed restaurant lease reserves as of March 5, 2013 and June 5, 2012 associated with the closed concept restaurants.

10

NOTE E – ACCOUNTS RECEIVABLE

Accounts receivable – current consist of the following (in thousands):

	March 5, 2013		June 5, 2012
Rebates receivable	$	867	$	923
Amounts due from franchisees		726		770
Other receivables		3,474		3,007
Accounts receivable	$	5,067	$	4,700

We negotiate purchase arrangements, including price terms, with designated and approved suppliers on behalf of us and our franchise system.  We receive various volume discounts and rebates based on purchases for our Company-owned restaurants from numerous suppliers.

Amounts due from franchisees consist of royalties, license and other miscellaneous fees, a substantial portion of which represents current and recently-invoiced billings.  Also included in this amount is the current portion of the straight-lined rent receivable from franchise sublessees.

As of March 5, 2013 and June 5, 2012, Other receivables consisted primarily of amounts due for third-party gift card sales ($1.1 million and $1.3 million, respectively), a receivable due from a third-party maintenance provider in connection with a contract settlement ($0.5 million as of March 5, 2013 only), and amounts due from our distributor ($1.3 million and $0.9 million, respectively).

As discussed in Note C to the Condensed Consolidated Financial Statements, our RT Midwest franchise filed for Chapter 11 protection during the first quarter of fiscal 2013.  RT Midwest had indebtedness of $2.3 million owed to RTI at the time of the Chapter 11 filing.  During the fourth quarter of fiscal 2012, we wrote off the $2.3 million in franchise fee receivables due from RT Midwest and the associated unearned franchise fees in anticipation of the Chapter 11 filing.

NOTE F – INVENTORIES

Our merchandise inventory was $24.0 million and $19.9 million as of March 5, 2013 and June 5, 2012, respectively.  In order to ensure adequate supply and competitive pricing, we purchase lobster and crab in advance of our needs and store it in third-party facilities prior to our distributor taking possession of the inventory.  The increase in merchandise inventory from the end of the prior fiscal year is due primarily to advance purchases of lobster in part to ensure adequate supply.

NOTE G – PROPERTY, EQUIPMENT, ASSETS HELD FOR SALE, OPERATING LEASES, AND SALE-LEASEBACK TRANSACTIONS

Property and equipment, net, of continuing operations is comprised of the following (in thousands):

	March 5, 2013		June 5, 2012
Land	$	227,180	$	244,498
Buildings		457,733		494,537
Improvements		409,312		421,143
Restaurant equipment		262,089		276,576
Other equipment		92,185		95,400
Construction in progress and other		26,360		26,473
		1,474,859		1,558,627
Less accumulated depreciation		586,747		592,022
Property and equipment, net	$	888,112	$	966,605

Included in Construction in progress and other as of March 5, 2013 and June 5, 2012 are $19.9 million and $21.8 million, respectively, of assets held for sale that are not classified as such in the Condensed

11

Consolidated Balance Sheets as we do not expect to sell these assets within the next 12 months.  These assets primarily consist of parcels of land upon which we have no intention to build restaurants.

Included within the current assets section of our Condensed Consolidated Balance Sheets at March 5, 2013 and June 5, 2012 are amounts classified as held for sale totaling $9.2 million and $4.7 million, respectively.  Assets held for sale primarily consist of parcels of land upon which we have no intention to build restaurants, land and buildings of closed restaurants, and various liquor licenses.  During the 13 and 39 weeks ended March 5, 2013, we sold surplus properties with carrying values of $3.3 million and $4.9 million, respectively, at net gains that were negligible and $0.5 million, respectively.  Cash proceeds, net of broker fees, from these sales during the 13 and 39 weeks ended March 5, 2013 totaled $3.4 million and $5.5 million, respectively.  During the 13 and 39 weeks ended February 28, 2012, we sold surplus properties with carrying values of $1.5 million and $2.9 million, respectively, at net gains of $0.1 million and $0.2 million, respectively.  Cash proceeds, net of broker fees, from these sales during the 13 and 39 weeks ended February 28, 2012 totaled $1.5 million and $3.1 million, respectively.

Approximately 55% of our 727 restaurants are located on leased properties.  Of these, approximately 66% are land leases only; the other 34% are for both land and building.  The initial terms of these leases expire at various dates over the next 23 years.  These leases may also contain required increases in minimum rent at varying times during the lease term and have options to extend the terms of the leases at a rate that is included in the original lease agreement.  Most of our leases require the payment of additional (contingent) rent that is based upon a percentage of restaurant sales above agreed upon sales levels for the year.  These sales levels vary for each restaurant and are established in the lease agreements.  We recognize contingent rental expense (in annual as well as interim periods) prior to the achievement of the specified target that triggers the contingent rental expense, provided that achievement of that target is considered probable.

During the 13 and 39 weeks ended March 5, 2013, we completed sale-leaseback transactions of the land and building for four and 18 Company-owned Ruby Tuesday concept restaurants, respectively, for gross cash proceeds of $8.8 million and $40.8 million, respectively, exclusive of transaction costs of approximately $0.4 million and $2.0 million, respectively.  Equipment was not included.  The carrying value of the properties sold was $7.3 million and $30.0 million, respectively.  The leases have been classified as operating leases and have initial terms of 15 years, with fair market value-based renewal options of up to 20 years.  Net proceeds from the sale-leaseback transactions were used for general corporate purposes, including the repurchase of shares of our common stock, and debt payments.

We realized gains on these transactions during the 13 and 39 weeks ended March 5, 2013 of $1.1 million and $8.8 million, respectively, which have been deferred and are being recognized on a straight-line basis over the lease term.  The current portion of the deferred gains on all sale-leaseback transactions to date was $0.9 million and $0.3 million as of March 5, 2013 and June 5, 2012, respectively, and is included in Accrued liabilities – Rent and other in our Condensed Consolidated Balance Sheets.  The long-term portion of the deferred gains on all sale-leaseback transactions to date was $11.9 million and $4.2 million as of March 5, 2013 and June 5, 2012, respectively, and is included in Other deferred liabilities in our Condensed Consolidated Balance Sheets.  Amortization of the deferred gains of $0.2 million and $0.5 million is included within Other restaurant operating costs in our Condensed Consolidated Statement of Operations and Comprehensive Income/(Loss) for the 13 and 39 weeks ended March 5, 2013, respectively.

NOTE H – LONG-TERM DEBT AND CAPITAL LEASES

Long-term debt and capital lease obligations consist of the following (in thousands):

	March 5, 2013			June 5, 2012
Senior unsecured notes	$	238,500		$	250,000
Unamortized discount		(3,213	)		(3,646	)
Senior unsecured notes less unamortized discount		235,287			246,354
Mortgage loan obligations		70,352			80,076
Capital lease obligations		194			233
		305,833			326,663
Less current maturities		9,167			12,454
	$	296,666		$	314,209

12

On May 14, 2012, we entered into an indenture (the “Indenture”) among the Company, certain subsidiaries of the Company as guarantors and Wells Fargo Bank, National Association as trustee, governing the Company’s $250.0 million aggregate principal amount of 7.625% senior notes due 2020 (the “Senior Notes”).  The Senior Notes were issued at a discount of $3.7 million, which is being amortized using the effective interest method over the eight-year term of the notes.

The Senior Notes are guaranteed on a senior unsecured basis by our existing and future domestic restricted subsidiaries, subject to certain exceptions.  They rank equal in right of payment with our existing and future senior indebtedness and senior in right of payment to any of our future subordinated indebtedness.  The Senior Notes are effectively subordinated to all of our secured debt, including borrowings outstanding under our revolving credit facility, to the extent of the value of the assets securing such debt and structurally subordinated to all of the liabilities of our existing and future subsidiaries that do not guarantee the Senior Notes.

Interest on the Senior Notes is calculated at 7.625% per annum, payable semiannually on each May 15 and November 15, commencing November 15, 2012, to holders of record on the May 1 or November 1 immediately preceding the interest payment date.  Accrued interest on the Senior Notes and our other long-term debt and capital lease obligations is included in Accrued liabilities – Rent and other in our Condensed Consolidated Balance Sheets.  The Senior Notes mature on May 15, 2020.

At any time prior to May 15, 2016, we may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus an applicable “make-whole” premium and accrued and unpaid interest.  At any time on or after May 15, 2016, we may redeem the Senior Notes, in whole or in part, at the redemption prices specified in the Indenture plus accrued and unpaid interest.  At any time prior to May 15, 2015, we may redeem up to 35% of the Senior Notes from the proceeds of certain equity offerings.  There is no sinking fund for the Senior Notes.

The Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to (i) incur or guarantee additional indebtedness; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make certain investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of their assets; (vi) enter into transactions with affiliates; and (vii) sell or transfer certain assets.  These covenants are subject to a number of important exceptions and qualifications, as described in the Indenture, and certain covenants will not apply at any time when the Senior Notes are rated investment grade by the Rating Agencies, as defined in the Indenture.  The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.

In connection with the issuance of the Senior Notes, we have agreed to register with the SEC notes having substantially identical terms as the Senior Notes, as part of an offer to exchange freely tradable exchange notes for the Senior Notes.  We have agreed: (i) within 270 days after the issue date of the Senior Notes, to file a registration statement enabling holders of the Senior Notes to exchange the privately placed notes for publicly registered notes with substantially identical terms; (ii) to use commercially reasonable efforts to cause the registration statement to become effective within 365 days after the issue date of the Senior Notes; (iii) to consummate the exchange offer within 40 days after the registration statement becomes effective; and (iv) to file a shelf registration statement for resale of the notes if we cannot consummate the exchange offer within the time period listed above.  We have begun the exchange offer and expect its consummation on May 3, 2013.

If we fail to meet any of the remaining targets (each, a “registration default”), the annual interest rate on the Senior Notes will increase by 0.25%.  The annual interest rate on the Senior Notes will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 1.0% per year over the otherwise applicable annual interest rate of 7.625%.  If we cure the registration default, the interest rate on the Senior Notes will revert to the original level.

On August 10, 2012, we entered into the third amendment to our five-year revolving credit agreement (the “Credit Facility” discussed below) which, among other things, allows us to repurchase up to $15.0 million of the Senior Notes in any fiscal year.  During the first 39 weeks of fiscal 2013, we repurchased $11.5 million of the Senior Notes for $10.9 million plus a negligible amount of accrued interest.  We realized a gain of $0.6 million on these transactions.  The balance on the Senior Notes was $238.5 million at March 5,

13

2013 as a result of these repurchases.  As of March 5, 2013, we may repurchase an additional $3.5 million of the Senior Notes during the remainder of fiscal 2013.

On December 1, 2010, we entered into the Credit Facility, under which we could borrow up to $320.0 million with the option to increase our capacity by $50.0 million to $370.0 million.  On May 14, 2012, we entered into the second amendment to our revolving credit facility to, among other things, reduce the maximum aggregate revolving commitment to $200.0 million, secure the revolving credit facility with a lien over the equity interests of certain subsidiaries, modify certain financial covenants and ratios and permit the issuance of the Senior Notes.

The terms of the Credit Facility provide for a $40.0 million letter of credit subcommitment.  The Credit Facility also includes a $50.0 million franchise facility subcommitment (the “Franchise Facility Subcommitment”), which covered our previous guarantees of franchise debt.  The Franchise Facility Subcommitment matures no later than December 1, 2015.  All amounts guaranteed under the Franchise Facility Subcommitment have been settled.

The interest rate charged on borrowings pursuant to the Credit Facility can vary depending on the interest rate option we choose to utilize.  Our Base Rate for borrowings is defined to be the higher of Bank of America’s prime rate, the Federal Funds Rate plus 0.5%, or an adjusted LIBO Rate plus 1.00%, plus an applicable margin ranging from 0.25% to 1.50%.  The applicable margin for our Eurodollar Borrowings ranges from 1.25% to 2.50% depending on our Total Debt to EBITDAR ratio.

A commitment fee for the account of each lender at a rate ranging from 0.300% to 0.450% (depending on our Total Debt to EBITDAR ratio) on the daily amount of the unused revolving commitment of such lender is payable on the last day of each calendar quarter and on the termination date of the Credit Facility.  On the first day after the end of each calendar quarter until the termination date of the Credit Facility, we are required to pay a letter of credit fee for the account of each lender with respect to such lender’s participation in each letter of credit.  The letter of credit fee accrues at the applicable margin for Eurodollar Loans then in effect on the average daily amount of such lender’s letter of credit exposure (excluding any portion attributable to unreimbursed letter of credit disbursements) attributable to such letter of credit during the period from and including the date of issuance of such letter of credit to but excluding the date on which such letter of credit expires or is drawn in full.  Besides the commitment fee and the letter of credit fee, we are also required to pay a fronting fee on the daily amount of the letter of credit exposure (excluding any portion attributable to unreimbursed letter of credit disbursements) on the tenth day after the end of each calendar quarter until the termination date of the Credit Facility.  We must also pay standard fees with respect to issuance, amendment, renewal or extension of any letter of credit or processing of drawings thereunder.

We are entitled to make voluntary prepayments of our borrowings under the Credit Facility at any time, in whole or in part, without premium or penalty.  Subject to certain exceptions, mandatory prepayments will be required upon occurrence of certain events, including the revolving credit exposure of all lenders exceeding the aggregate revolving commitment then in effect, sales of certain assets and any additional debt issuances.

Under the terms of the Credit Facility, we had no borrowings outstanding at either March 5, 2013 or June 5, 2012.  After consideration of letters of credit outstanding, we had $189.8 million available under the Credit Facility as of March 5, 2013.

The Credit Facility contains a number of customary affirmative and negative covenants that, among others, limit or restrict our ability to incur liens, engage in mergers or other fundamental changes, make acquisitions, investments, loans and advances, pay dividends or other distributions, sell or otherwise dispose of certain assets, engage in certain transactions with affiliates, enter into burdensome agreements or certain hedging agreements, amend organizational documents, change accounting practices, incur additional indebtedness and prepay other indebtedness.  In addition, under the Credit Facility, we are required to comply with financial covenants relating to the maintenance of a maximum leverage ratio and a minimum fixed charge coverage ratio and we were in compliance with these financial covenants as of March 5, 2013.  The terms of the Credit Facility require us to maintain a maximum leverage ratio of no more than 4.5 to 1.0 through the fiscal quarter ending on or about June 4, 2013 and 4.25 to 1.0 thereafter and a minimum fixed charge coverage ratio of 1.75 to 1.0 through and including the fiscal quarter ending on or about June 3, 2014 and 1.85 to 1.0 thereafter.

14

The Credit Facility terminates on December 1, 2015.  Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Credit Facility and any ancillary loan documents.

Our $70.4 million in mortgage loan obligations as of March 5, 2013 consists of various loans acquired upon franchise acquisitions.  These loans, which mature between June 2013 and November 2022, have balances which range from negligible to $8.1 million and interest rates of 3.89% to 11.28%.  Many of the properties acquired from franchisees collateralize the loans outstanding.

NOTE I – CLOSURES AND IMPAIRMENTS EXPENSE

As discussed further in Notes A and D to the Condensed Consolidated Financial Statements, on January 9, 2013, the Board of Directors of Ruby Tuesday, Inc. approved management’s plan to close all 13 Marlin & Ray’s restaurants, the Company’s one Wok Hay restaurant, and two of the Company-owned Lime Fresh restaurants in the third quarter of fiscal 2013.  The two Lime Fresh restaurants had been opened by the Company within the prior twelve months and were not among those purchased in April 2012.  We closed these restaurants on January 9, 2013.  Additionally, we announced on the same date our intention to seek a buyer for our two Truffles restaurants.  No buyer suitable to our landlords was found as of March 5, 2013 and we consequently opted, on April 7, 2013, to close the restaurants instead.  As a result of these decisions, pre-tax charges of $4.0 million and $20.4 million were recognized for asset impairments, including those of Truffles, lease reserves, and other closing costs within closures and impairments expense from discontinued operations for the 13 and 39 weeks ended March 5, 2013. 

Closures and impairments, net include the following for the 13 and 39 weeks ended March 5, 2013 and February 28, 2012 (in thousands):

	Thirteen weeks ended						Thirty-nine weeks ended
	March 5,  2013			February 28, 2012			March 5,  2013			February 28, 2012
Closures and impairments from
continuing operations:
Property impairments	$	543		$	10,861		$	3,203		$	11,697
Closed restaurant lease reserves		1,340			776			1,714			624
Other closing costs		263			111			805			425
Gain on sale of surplus properties		(50	)		(118	)		(648	)		(198	)
Closures and impairments, net	$	2,096		$	11,630		$	5,074		$	12,548
Closures and impairments from
discontinued operations	$	3,958		$	687		$	20,355		$	867

A rollforward of our future lease obligations associated with closed properties is as follows (in thousands):

	Lease Obligations
	Continuing Operations			Discontinued Concepts			Total
Balance at June 5, 2012	$	6,227		$	586		$	6,813
Closing expense including rent and other lease charges		1,714			1,289			3,003
Payments		(2,804	)		(359	)		(3,163	)
Transfer of deferred escalating minimum rent balance		729			876			1,605
Other adjustments		207			–			207
Balance at March 5, 2013	$	6,073		$	2,392		$	8,465

For the remainder of fiscal 2013 and beyond, our focus will be on obtaining settlements on as many of these leases as possible and these settlements could be higher or lower than the amounts recorded.  The actual amount of any cash payments made by the Company for lease contract termination costs will be dependent upon ongoing negotiations with the landlords of the leased restaurant properties.

Included within closing expense in the table above are $0.2 million in charges we recorded during the first quarter of fiscal 2013 associated with lease obligations on a restaurant subleased to RT Midwest that has closed.  As of March 5, 2013, we continue to remain a sublease guarantor for three of RT Midwest’s operating restaurants, which have remaining lease terms extending through April 2019.  As of March 5,

15

2013, cash rents of $0.7 million are required under the terms of the subleases.  Should RT Midwest decide to close any of these restaurants we may incur further lease obligations associated with these subleases.

At March 5, 2013, we had 31 restaurants that had been open more than one year with rolling 12-month negative cash flows, of which 17 have been impaired to salvage value.  Of the 14 which remained, we reviewed the plans to improve cash flows at each of the restaurants and determined that no impairment was necessary.  The remaining net book value of these 14 restaurants was $12.5 million at March 5, 2013.

Should sales at these restaurants not improve within a reasonable period of time, further impairment charges are possible.  Considerable management judgment is necessary to estimate future cash flows, including cash flows from continuing use, terminal value, closure costs, salvage value, and sublease income.  Accordingly, actual results could vary significantly from our estimates.

NOTE J – EMPLOYEE POST-EMPLOYMENT BENEFITS

We sponsor three defined benefit pension plans for active employees and offer certain postretirement benefits for retirees.  A summary of each of these is presented below.

Retirement Plan

RTI sponsors the Morrison Restaurants Inc. Retirement Plan (the “Retirement Plan”).  Effective December 31, 1987, the Retirement Plan was amended so that no additional benefits would accrue and no new participants may enter the Retirement Plan after that date.  Participants receive benefits based upon salary and length of service.

Minimum funding for the Retirement Plan is determined in accordance with the guidelines set forth in employee benefit and tax laws.  From time to time we may contribute additional amounts as we deem appropriate.  We estimate that we will be required to make contributions totaling $0.3 million to the Retirement Plan during the remainder of fiscal 2013.

Executive Supplemental Pension Plan and Management Retirement Plan

Under these unfunded defined benefit pension plans, eligible employees earn supplemental retirement income based upon salary and length of service, reduced by social security benefits and amounts otherwise receivable under other specified Company retirement plans.  Effective June 1, 2001, the Management Retirement Plan was amended so that no additional benefits would accrue and no new participants may enter the plan after that date.

On November 30, 2012, Samuel E. Beall, III, our former Chief Executive Officer, stepped down from management and the Board of Directors.  Because he is entitled to receive his entire pension payment in a lump-sum six months following his retirement, we have classified an amount representing that pension payment ($8.1 million) into Accrued liabilities – Payroll and related costs in our March 5, 2013 and June 5, 2012 Condensed Consolidated Balance Sheets.

Postretirement Medical and Life Benefits

Our Postretirement Medical and Life Benefits plans provide medical and life insurance benefits to certain retirees.  The medical plan requires retiree cost sharing provisions that are more substantial for employees who retire after January 1, 1990.

16

The following tables detail the components of net periodic benefit costs and the amounts recognized in our Condensed Consolidated Financial Statements for the Retirement Plan, Management Retirement Plan, and the Executive Supplemental Pension Plan (collectively, the “Pension Plans”) and the Postretirement Medical and Life Benefits plans (in thousands):

	Pension Benefits
	Thirteen weeks ended								Thirty-nine weeks ended
	March 5,				February 28,				March 5,				February 28,
	2013				2012				2013				2012
Service cost		$	115			$	134			$	345			$	402
Interest cost			525				576				1,575				1,728
Expected return on plan assets			(102	)			(126	)			(306	)			(378	)
Amortization of prior service cost (a)			26				64				78				192
Recognized actuarial loss			565				426				1,695				1,278
Net periodic benefit cost		$	1,129			$	1,074			$	3,387			$	3,222

	Postretirement Medical and Life Benefits
	Thirteen weeks ended								Thirty-nine weeks ended
	March 5,				February 28,				March 5,				February 28,
	2013				2012				2013				2012
Service cost		$	3			$	2			$	9			$	6
Interest cost			15				18				45				54
Amortization of prior service cost (a)			(14	)			(14	)			(41	)			(42	)
Recognized actuarial loss			53				34				159				102
Net periodic benefit cost		$	57			$	40			$	172			$	120

(a)   Prior service costs are amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.

We also sponsor two defined contribution retirement savings plans. Information regarding these plans is included in our Annual Report on Form 10-K for the fiscal year ended June 5, 2012.

Executive Retirement

On June 6, 2012, we announced that Samuel E. Beall, III, our founder, President, Chief Executive Officer, and Chairman of the Board of Directors, decided to step down from management and the Board of Directors.  Mr. Beall stepped down on November 30, 2012.  In connection with a transition agreement between the Company and Mr. Beall, the material terms of which were finalized as of June 5, 2012, we accrued $2.2 million of severance during the fourth quarter of fiscal 2012.  Mr. Beall’s severance payment was paid on December 18, 2012.

As previously mentioned, Mr. Beall will receive a lump sum payment of $8.1 million, representing the full amount due to him under the Executive Supplemental Pension Plan, six-months following his retirement.  As Mr. Beall retired on November 30, 2012, this payment will be required in fiscal 2013.  Due to the significance of this payment to the Executive Supplemental Pension Plan as a whole, the payment will constitute a partial plan settlement which will require a special valuation.  In addition to the expense we routinely record for the Executive Supplemental Pension Plan, a charge estimated to approximate $2.8 million will then be recorded, representing the recognition of a pro rata portion (calculated as the percentage reduction in the projected benefit obligation due to the lump-sum payment) of the then unrecognized loss recorded within accumulated other comprehensive loss.

NOTE K – INCOME TAXES

We had a liability for unrecognized tax benefits of $10.1 million and $6.4 million as of March 5, 2013 and June 5, 2012, respectively.  As of March 5, 2013 and June 5, 2012, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $4.2 million and $4.2 million,

17

respectively.  The liability for unrecognized tax benefits as of March 5, 2013 includes $1.4 million related to tax positions for which it is reasonably possible that the total amounts could change within the next twelve months based on the outcome of examinations and negotiations with tax authorities.

Interest and penalties related to unrecognized tax benefits are recognized as components of income tax expense.  As of March 5, 2013 and June 5, 2012, we had accrued $1.3 million and $1.0 million, respectively, for the payment of interest and penalties.  During the first 39 weeks of fiscal 2013, accrued interest and penalties increased by $0.3 million, of which $0.2 million affected the effective tax rate for the same time period.

Under Accounting Standards Codification 740 (“ASC 740”), companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period.  Under ASC 740, companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable.  In this situation, the interim tax rate should be based on the actual year-to-date results.  Based on our current projections, a small change in pre-tax earnings would result in a material change in the estimated annual effective tax rate, producing significant variations in the customary relationship between income tax expense and pre-tax accounting income in interim periods.  As such, and in contrast with our previous methods of recording income tax expense, we recorded a tax benefit for the first and second quarters of fiscal 2013 based on the actual year-to-date results, in accordance with ASC 740.

We recorded a tax benefit from continuing operations of $2.0 million and $10.6 million during the 13- and 39-week periods ended March 5, 2013, respectively, compared to a tax benefit of $4.1 million and $2.9 million during the 13- and 39-week periods ended February 28, 2012.  The change in income taxes was attributable to a change in method of recording interim income tax expense as discussed above coupled with lower pre-tax income for the current year periods as compared to those same periods of the prior year.

At March 5, 2013, we are no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2008 with the exception of our fiscal years 2004 and 2005 as a result of fiscal 2009 NOL carryback, and with few exceptions, state and local examinations by tax authorities prior to fiscal year 2008.

NOTE L – SHARE-BASED EMPLOYEE COMPENSATION

We compensate our employees and directors using share-based compensation through the following plans:

The Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for Directors

Under the Ruby Tuesday, Inc. Stock Incentive and Deferred Compensation Plan for directors (the “Directors’ Plan”), non-employee directors are eligible for awards of share-based incentives.  Restricted shares granted under the Directors’ Plan either cliff vest after a one year period or vest in equal amounts after one, two, and three years provided the director continually serves on the Board of Directors.  Options issued under the Directors’ Plan become vested after 30 months and are exercisable until five years after the grant date.  Stock option exercises are settled with the issuance of new shares of common stock.

All options awarded under the Directors’ Plan have been at the fair market value at the time of grant.  A committee, appointed by the Board of Directors, administers the Directors’ Plan.  At March 5, 2013, we had reserved 36,000 shares of common stock under the Directors’ Plan, 35,000 of which were subject to options outstanding, for a net of 1,000 shares of common stock currently available for issuance under the Directors’ Plan.

The Ruby Tuesday, Inc. 2003 Stock Incentive Plan and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan

A committee, appointed by the Board of Directors, administers the Ruby Tuesday, Inc. 2003 Stock Incentive Plan (“2003 SIP”) and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan (“1996 SIP”), and has full authority in its discretion to determine the key employees and officers to whom share-based incentives are granted and the terms and provisions of share-based incentives.  Option grants under the 2003 SIP and 1996 SIP can have varying vesting provisions and exercise periods as determined by such committee.  Options granted under the 2003 SIP and 1996 SIP vest in periods ranging from immediate to fiscal 2014, with the majority vesting within three years following the date of grant, and the majority expiring five or seven (but some up to 10) years after grant.  A majority of the currently unvested restricted shares granted in fiscal year 2013 are performance-based and a majority of the unvested restricted shares granted in fiscal year 2012 are service-based.  All of the currently unvested restricted shares granted during fiscal 2011 are service-based.  The 2003 SIP and 1996 SIP permit the committee to make awards of shares of common

18

stock, awards of stock options or other derivative securities related to the value of the common stock, and certain cash awards to eligible persons.  These discretionary awards may be made on an individual basis or for the benefit of a group of eligible persons.  All options awarded under the 2003 SIP and 1996 SIP have been awarded with an exercise price equal to the fair market value at the time of grant.

At March 5, 2013, we had reserved a total of 4,849,000 and 798,000 shares of common stock for the 2003 SIP and 1996 SIP, respectively.  Of the reserved shares at March 5, 2013, 1,603,000 and 590,000 were subject to options outstanding for the 2003 SIP and 1996 SIP, respectively.  Stock option exercises are settled with the issuance of new shares.  Net shares of common stock available for issuance at March 5, 2013 under the 2003 SIP and 1996 SIP were 3,246,000 and 208,000, respectively.

Chief Executive Officer Awards

On December 1, 2012, James J. Buettgen became President and CEO of the Company.  In connection with Mr. Buettgen’s appointment as CEO, on December 3, 2012 he received an initial award of approximately 68,000 service-based restricted shares and 102,000 performance-based restricted shares, which both cliff vest 2.5 years following the grant date.  Pursuant to the terms of Mr. Buettgen’s employment agreement, the Company has guaranteed the earning of the performance-based restricted shares at the greater of the target value of the award or based on the Company’s achievement of certain performance conditions related to fiscal 2013 performance, which will be measured in the first quarter of fiscal 2014.

In addition to the above, on December 3, 2012, Mr. Buettgen received a one-time make-whole equity award which was comprised of approximately 179,000 service-based restricted shares and 253,000 service-based stock options.  The restricted shares cliff vest 2.5 years following the grant date and the stock options vest in three equal annual installments over three years following the date of grant.

Finally, on that same date, Mr. Buettgen received a one-time high-performance and inducement award which was comprised of approximately 250,000 service-based restricted shares, 250,000 service-based stock options, and 250,000 performance-based stock options.  The restricted shares cliff vest 2.5 years following the grant date and the service-based stock options vest in three equal annual installments over three years following the date of grant.  The performance-based stock options will cliff vest if and when the Company’s stock price appreciates to $14 per share for a period of 20 consecutive days within Mr. Buettgen’s first three years of employment.

Stock Options

The following tables summarize the activity in options for the 39 weeks ended March 5, 2013 under these stock option plans (in thousands, except per-share data):

				Weighted-
				Average
Service-based vesting:	Options			Exercise Price
Balance at June 5, 2012		2,716		$	8.79
Granted		503			7.81
Exercised		(215	)		6.86
Forfeited		(272	)		16.01
Balance at March 5, 2013		2,732		$	8.05
Exercisable at March 5, 2013		2,124		$	8.03
				Weighted-
				Average
Performance-based vesting:	Options			Exercise Price
Balance at June 5, 2012		–		$	–
Granted		250			7.81
Balance at March 5, 2013		250		$	7.81
Exercisable at March 5, 2013		–		$	–

Included in the outstanding balance shown above are approximately 2.4 million of “out-of-the-money” options.  Of this amount, 0.4 million of these options expired out-of-the-money subsequent to March 5, 2013.

19

At March 5, 2013, there was approximately $2.4 million of unrecognized pre-tax compensation expense related to non-vested stock options.  This cost is expected to be recognized over a weighted-average period of 1.7 years.

Restricted Stock

The following tables summarize our restricted stock activity for the 39 weeks ended March 5, 2013 (in thousands, except per-share data):

				Weighted-Average
	Restricted			Grant-Date
Service-based vesting:	Stock			Fair Value
Non-vested at June 5, 2012		797		$	8.37
Granted		773			7.42
Vested		(337	)		7.55
Forfeited		(116	)		8.92
Non-vested at March 5, 2013		1,117		$	7.90

				Weighted-Average
	Restricted			Grant-Date
Performance-based vesting:	Stock			Fair Value
Non-vested at June 5, 2012		423		$	7.75
Granted		344			6.99
Vested		(89	)		7.31
Forfeited		(322	)		7.82
Non-vested at March 5, 2013		356		$	7.06

The fair values of the restricted share awards reflected above were based on the fair market value of our common stock at the time of grant.  At March 5, 2013, unrecognized compensation expense related to restricted stock grants expected to vest totaled approximately $6.8 million and will be recognized over a weighted average vesting period of approximately 2.1 years.

During the second quarter of fiscal 2013, RTI granted approximately 63,000 restricted shares to non-employee directors under the terms of the Directors’ Plan.  These shares cliff vest over a one year period following grant of the award.

During the first quarter of fiscal 2013, we granted approximately 213,000 service-based restricted shares and 242,000 performance-based restricted shares of our common stock to certain employees under the terms of the 2003 SIP and 1996 SIP.  The service-based restricted shares cliff vest 2.5 years following the grant date.  Vesting of the performance-based restricted shares is also contingent upon the Company’s achievement of certain performance conditions related to fiscal 2013 performance, which will be measured in the first quarter of fiscal 2014.  In addition to satisfaction of the performance conditions for the performance-based restricted shares, recipients must satisfy the same service condition as described above for the service-based restricted shares.

Also during the first quarter of fiscal 2013, the Executive Compensation and Human Resources Committee of the Board of Directors determined that the performance condition was not achieved for 314,000 performance-based restricted shares awarded in August 2011 to vest.  As a result, the restricted shares were cancelled and returned to the pool of shares available for grant under the 2003 SIP and 1996 SIP.

NOTE M – COMMITMENTS AND CONTINGENCIES

Litigation

We are presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business.  We provide reserves for such claims when payment is probable and estimable in accordance with GAAP.  At this time, in the opinion of management, the ultimate resolution of pending legal proceedings, including the matter referred to below, will not have a material adverse effect on our operations, financial position, or cash flows.

On September 30, 2009, an age discrimination case styled Equal Employment Opportunity Commission (Pittsburgh) v. Ruby Tuesday, Inc., was filed in the United States District Court for the Western District of Pennsylvania (the “Lawsuit”).  The U.S. Equal Employment Opportunity Commission (“EEOC”)

20

Pittsburgh Area Office alleges in the suit that the Company violated the Age Discrimination in Employment Act (“ADEA”) by failing to hire employees within the protected age group in five Pennsylvania restaurants and one Ohio restaurant.  On October 19, 2009, the EEOC filed a Notice of an ADEA Directed Investigation (“DI”), regarding potential age discrimination in violation of the ADEA in hiring and discharge for all positions at all restaurant facilities.  On January 10, 2012, the EEOC filed an Order to Show Cause Why an Administrative Subpoena Should Not be Enforced also in the United States District Court for the Western District of Pennsylvania.  We have denied the allegations in the Lawsuit and are vigorously defending against the DI and the administrative subpoena.  Discovery is ongoing in the Lawsuit.  Despite the pending Lawsuit, DI, and administrative subpoena, we do not believe that this matter will have a material adverse effect on our operations, financial position, or cash flows.

On November 8, 2010, a personal injury case styled Dan Maddy v. Ruby Tuesday, Inc., which had been filed in the Circuit Court for Rutherford County, Tennessee, was resolved through mediation.  Included in the Maddy settlement was a payment made by our secondary insurance carrier of $2,750,000.  Despite making this voluntary payment, our secondary insurance carrier filed a claim against us based on our alleged failure to timely notify the carrier of the Maddy case in accordance with the terms of the policy. 

We believe our secondary insurance carrier received timely notice in accordance with the policy and we are vigorously defending this matter.  Should we incur potential liability to our secondary carrier, we believe we have indemnification claims against two claims administrators. 

We believe, and have obtained a consistent opinion from outside counsel, that we have valid coverage under our insurance policies for any amounts in excess of our self-insured retention.  We believe this provides a basis for not recording a liability for any contingency associated with the Maddy settlement.  We further believe we have the right to the indemnification referred to above.  Based on the information currently available, our March 5, 2013 and June 5, 2012 Condensed Consolidated Balance Sheets reflect no accrual relating to the Maddy case.  There can be no assurance, however, that we will be successful in our defense of our carrier’s claim against us.

NOTE N – FAIR VALUE MEASUREMENTS

The following table presents the fair values of our financial assets and liabilities measured at fair value on a recurring basis and the level within the fair value hierarchy in which the measurements fall (in thousands):

	Level	March 5,  2013			June 5, 2012
Deferred compensation plan: other investments – Assets	1	$	8,494		$	7,974
Deferred compensation plan: other investments – Liabilities	1		(8,494	)		(7,974	)
Deferred compensation plan: RTI common stock – Equity	1		860			1,008
Deferred compensation plan: RTI common stock – Equity	1		(860	)		(1,008	)
Total		$	–		$	–

During the 13 and 39 weeks ended March 5, 2013 and February 28, 2012, there were no transfers among levels within the fair value hierarchy.

The Ruby Tuesday, Inc. 2005 Deferred Compensation Plan (the “Deferred Compensation Plan”) and the Ruby Tuesday, Inc. Restated Deferred Compensation Plan (the “Predecessor Plan”) are unfunded, non-qualified deferred compensation plans for eligible employees.  Assets earmarked to pay benefits under the Deferred Compensation Plan and Predecessor Plan are held by a rabbi trust.  We report the accounts of the rabbi trust in our Condensed Consolidated Financial Statements.  The investments held by these plans are reported at fair value.  The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, is recorded in Selling, general and administrative expense in the Condensed Consolidated Financial Statements.

21

The following table presents the fair values for those assets and liabilities measured on a non-recurring basis and remaining on our Condensed Consolidated Balance Sheets as of March 5, 2013 and June 5, 2012 (in thousands):

	Fair Value Measurements
	Level	March 5, 2013		June 5, 2012
Long-lived assets held for sale *	2	$	29,064	$	26,495
Long-lived assets held for use	2		898		385
Total		$	29,962	$	26,880

* Included in the carrying value of long-lived assets held for sale as of March 5, 2013 and June 5, 2012 are $19.9 million and $21.8 million, respectively, of assets included in Construction in progress in the Condensed Consolidated Balance Sheets as we do not expect to sell these assets within the next 12 months.

The following table presents the losses recognized during the 13 and 39 weeks ended March 5, 2013 and February 28, 2012 resulting from fair value measurements of assets and liabilities measured on a non-recurring basis.  The losses associated with continuing operations are included in Closures and impairments, net and the losses associated with discontinued operations are included in Loss from discontinued operations in our Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) (in thousands):

	Thirteen weeks ended				Thirty-nine weeks ended
	March 5,  2013		February 28, 2012		March 5,  2013		February 28, 2012
Included within continuing operations
Long-lived assets held for sale	$	434	$	141	$	945	$	347
Long-lived assets held for use		–		10,720		2,149		11,350
Other closed restaurants		109		–		109		–
	$	543	$	10,861	$	3,203	$	11,697
Included within discontinued operations	$	1,669	$	673	$	17,971	$	673

Long-lived assets held for sale are valued using Level 2 inputs, primarily information obtained through broker listings and sales agreements.  Costs to market and/or sell the assets are factored into the estimates of fair value for those assets included in Assets held for sale on our Condensed Consolidated Balance Sheets.

We review our long-lived assets (primarily property, equipment, and, as appropriate, reacquired franchise rights and favorable leases) related to each restaurant to be held and used in the business, whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset may not be recoverable.

Long-lived assets held for use presented in the table above include restaurants or groups of restaurants that were impaired as a result of our quarterly impairment review or restaurants that were impaired as a result of the Ruby Tuesday, Inc. Board of Directors approving on January 9, 2013 management’s plan to close 13 Marlin & Ray’s restaurants, two Lime Fresh restaurants, and one Wok Hay restaurant during the third quarter of fiscal 2013.  From time to time, the table will also include closed restaurants or surplus sites not meeting held for sale criteria that have been offered for sale at a price less than their carrying value.

The Level 2 fair values of our long-lived assets held for use are based on broker estimates of the value of the land, building, leasehold improvements, and other residual assets.

22

Our financial instruments at March 5, 2013 and June 5, 2012 consisted of cash and cash equivalents, accounts receivable and payable, long-term debt, and letters of credit.  The fair values of cash and cash equivalents and accounts receivable and payable approximated their carrying values because of the short-term nature of these instruments.  The carrying amounts and fair values of our other financial instruments not measured on a recurring basis using fair value, however subject to fair value disclosures are as follows (in thousands):

	March 5, 2013				June 5, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt and capital leases	$	305,833	$	309,920	$	326,663	$	312,225
Letters of credit		–		245		–		222

We estimated the fair value of debt and letters of credit using market quotes and present value calculations based on market rates.

NOTE O – SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As discussed in Note H to the Condensed Consolidated Financial Statements, the Senior Notes are a liability of Ruby Tuesday, Inc. (the “Parent”) and are guaranteed on a senior unsecured basis by our existing and future domestic restricted subsidiaries, subject to certain exceptions (the “Guarantors”).  Each of the Guarantors is wholly-owned by Ruby Tuesday, Inc.  None of the few remaining subsidiaries of Ruby Tuesday, Inc., which were primarily created to hold liquor license assets, guarantee the Senior Notes (the “Non-Guarantors”).  Our Non-Guarantor subsidiaries are immaterial and are aggregated within the Parent information disclosed below.

The following condensed consolidating financial statements present, on a supplemental basis, the financial position, results of operations, and statements of cash flows of the Parent, the Guarantors, and elimination entries necessary to consolidate the Parent and Guarantors.  Investments in wholly-owned subsidiaries are accounted for using the equity method for purposes of the consolidated presentation.  The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

23

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MARCH 5, 2013

(IN THOUSANDS)

	Parent			Guarantors		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	31,517		$	243	$	–		$	31,760
Accounts receivable		2,655			2,412		–			5,067
Inventories		23,622			9,658		–			33,280
Income tax receivable		119,163			–		(116,836	)		2,327
Deferred income taxes		25,088			10,825		–			35,913
Other current assets		18,871			4,199		–			23,070
Total current assets		220,916			27,337		(116,836	)		131,417
Property and equipment, net		660,992			227,120		–			888,112
Goodwill		9,022			–		–			9,022
Investment in subsidiaries		201,066			–		(201,066	)		–
Due from/(to) subsidiaries		73,741			255,562		(329,303	)		–
Other assets		47,029			21,113		–			68,142
Total assets	$	1,212,766		$	531,132	$	(647,205	)	$	1,096,693
Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	11,137		$	2,740	$	–		$	13,877
Accrued and other current liabilities		55,179			37,000		–			92,179
Current maturities of long-term debt,
including capital leases		(346	)		9,513		–			9,167
Income tax payable		–			116,836		(116,836	)		–
Total current liabilities		65,970			166,089		(116,836	)		115,223
Long-term debt and capital leases,
less current maturities		235,820			60,846		–			296,666
Deferred income taxes		8,893			13,527		–			22,420
Due to/(from) subsidiaries		255,562			73,741		(329,303	)		–
Other deferred liabilities		105,896			15,863		–			121,759
Total liabilities		672,141			330,066		(446,139	)		556,068
Shareholders’ equity:
Common stock		609			–		–			609
Capital in excess of par value		64,420			–		–			64,420
Retained earnings		488,712			201,066		(201,066	)		488,712
Accumulated other comprehensive loss		(13,116	)		–		–			(13,116	)
Total shareholders’ equity		540,625			201,066		(201,066	)		540,625
Total liabilities & shareholders’ equity	$	1,212,766		$	531,132	$	(647,205	)	$	1,096,693

24

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JUNE 5, 2012

(IN THOUSANDS)

	Parent			Guarantors		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	47,986		$	198	$	–		$	48,184
Accounts receivable		2,234			2,466		–			4,700
Inventories		20,896			8,134		–			29,030
Income tax receivable		97,290			–		(96,453	)		837
Deferred income taxes		19,030			8,104		–			27,134
Other current assets		15,216			3,167		–			18,383
Total current assets		202,652			22,069		(96,453	)		128,268
Property and equipment, net		727,379			239,226		–			966,605
Goodwill		7,989			–		–			7,989
Investment in subsidiaries		204,386			–		(204,386	)		–
Due from/(to) subsidiaries		78,799			245,257		(324,056	)		–
Other assets		47,144			23,531		–			70,675
Total assets	$	1,268,349		$	530,083	$	(624,895	)	$	1,173,537
Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	28,302		$	6,646	$	–		$	34,948
Accrued and other current liabilities		55,301			29,521		–			84,822
Current maturities of long-term debt,
including capital leases		(344	)		12,798		–			12,454
Income tax payable		–			96,453		(96,453	)		–
Total current liabilities		83,259			145,418		(96,453	)		132,224
Long-term debt and capital leases,
less current maturities		246,892			67,317		–			314,209
Deferred income taxes		20,910			16,657		–			37,567
Due to/(from) subsidiaries		245,257			78,799		(324,056	)		–
Other deferred liabilities		95,807			17,506		–			113,313
Total liabilities		692,125			325,697		(420,509	)		597,313
Shareholders’ equity:
Common stock		640			–		–			640
Capital in excess of par value		90,856			–		–			90,856
Retained earnings		498,985			204,386		(204,386	)		498,985
Accumulated other comprehensive loss		(14,257	)		–		–			(14,257
Total shareholders’ equity		576,224			204,386		(204,386	)		576,224
Total liabilities & shareholders’ equity	$	1,268,349		$	530,083	$	(624,895	)	$	1,173,537

25

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND

COMPREHENSIVE INCOME/(LOSS)

THIRTEEN WEEKS ENDED MARCH 5, 2013

(IN THOUSANDS)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	221,316		$	84,519		$	–		$	305,835
Franchise revenue		25			1,523			–			1,548
		221,341			86,042			–			307,383
Operating costs and expenses:
Cost of merchandise		60,626			23,169			–			83,795
Payroll and related costs		74,802			30,562			–			105,364
Other restaurant operating costs		44,242			17,704			–			61,946
Depreciation		10,751			3,863			–			14,614
Selling, general, and administrative		19,747			10,529			–			30,276
Intercompany selling, general, and
administrative allocations		16,761			(16,761	)		–			–
Closures and impairments		1,235			861			–			2,096
Equity in earnings of subsidiaries		(12,369	)		–			12,369			–
Interest expense, net		5,195			1,396			–			6,591
Intercompany interest expense/(income)		3,482			(3,482	)		–			–
		224,472			67,841			12,369			304,682
(Loss)/income from continuing operations
before income taxes		(3,131	)		18,201			(12,369	)		2,701
(Benefit)/provision for income taxes from
continuing operations		(7,847	)		5,832			–			(2,015	)
Income from continuing operations		4,716			12,369			(12,369	)		4,716
Loss from discontinued operations, net of tax		(2,520	)		(158	)		158			(2,520	)
Net income	$	2,196		$	12,211		$	(12,211	)	$	2,196
Other comprehensive income:
Pension liability reclassification, net of tax		380			–			–			380
Total comprehensive income	$	2,576		$	12,211		$	(12,211	)	$	2,576

26

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND

COMPREHENSIVE INCOME/(LOSS)

THIRTY-NINE WEEKS ENDED MARCH 5, 2013

(IN THOUSANDS)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	675,501		$	255,198		$	–		$	930,699
Franchise revenue		159			4,525			–			4,684
		675,660			259,723			–			935,383
Operating costs and expenses:
Cost of merchandise		184,827			69,678			–			254,505
Payroll and related costs		222,481			90,806			–			313,287
Other restaurant operating costs		137,844			55,604			–			193,448
Depreciation		32,623			11,680			–			44,303
Selling, general, and administrative		73,737			38,086			–			111,823
Intercompany selling, general, and
administrative allocations		51,245			(51,245	)		–			–
Closures and impairments		4,210			864			–			5,074
Equity in earnings of subsidiaries		(33,835	)		–			33,835			–
Interest expense, net		16,252			4,310			–			20,562
Gain on extinguishment of debt		(571	)		–			–			(571	)
Intercompany interest expense/(income)		10,304			(10,304	)		–			–
		699,117			209,479			33,835			942,431
(Loss)/income from continuing operations
before income taxes		(23,457	)		50,244			(33,835	)		(7,048	)
(Benefit)/provision for income taxes from
continuing operations		(27,043	)		16,409			–			(10,634	)
Income from continuing operations		3,586			33,835			(33,835	)		3,586
Loss from discontinued operations, net of tax		(13,859	)		(810	)		810			(13,859	)
Net income/(loss)	$	(10,273	)	$	33,025		$	(33,025	)	$	(10,273	)
Other comprehensive income:
Pension liability reclassification, net of tax		1,141			–			–			1,141
Total comprehensive income	$	(9,132	)	$	33,025		$	(33,025	)	$	(9,132	)

27

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND

COMPREHENSIVE INCOME/(LOSS)

THIRTEEN WEEKS ENDED FEBRUARY 28, 2012

(IN THOUSANDS)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	230,620		$	88,730		$	–		$	319,350
Franchise revenue		53			1,310			–			1,363
		230,673			90,040			–			320,713
Operating costs and expenses:
Cost of merchandise		66,132			25,512			–			91,644
Payroll and related costs		76,056			32,287			–			108,343
Other restaurant operating costs		44,080			17,364			–			61,444
Depreciation		11,772			4,169			–			15,941
Selling, general, and administrative		15,779			8,727			–			24,506
Intercompany selling, general, and
administrative allocations		17,555			(17,555	)		–			–
Closures and impairments		8,909			2,721			–			11,630
Equity in earnings of subsidiaries		(12,769	)		–			12,769			–
Interest expense, net		2,351			2,049			–			4,400
Intercompany interest expense/(income)		3,260			(3,260	)		–			–
		233,125			72,014			12,769			317,908
(Loss)/income from continuing operations
before income taxes		(2,452	)		18,026			(12,769	)		2,805
(Benefit)/provision for income taxes from
continuing operations		(9,321	)		5,257			–			(4,064	)
Income from continuing operations		6,869			12,769			(12,769	)		6,869
Loss from discontinued operations, net of tax		(2,333	)		(1,232	)		1,232			(2,333	)
Net income/(loss)	$	4,536		$	11,537		$	(11,537	)	$	4,536
Other comprehensive income:
Pension liability reclassification, net of tax		307			–			–			307
Total comprehensive income	$	4,843		$	11,537		$	(11,537	)	$	4,843

28

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND

COMPREHENSIVE INCOME/(LOSS)

THIRTY-NINE WEEKS ENDED FEBRUARY 28, 2012

 (IN THOUSANDS)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	686,251		$	263,514		$	–		$	949,765
Franchise revenue		165			3,939			–			4,104
		686,416			267,453			–			953,869
Operating costs and expenses:
Cost of merchandise		201,510			77,568			–			279,078
Payroll and related costs		226,384			96,189			–			322,573
Other restaurant operating costs		137,193			56,161			–			193,354
Depreciation		35,724			12,520			–			48,244
Selling, general, and administrative		50,712			26,739			–			77,451
Intercompany selling, general, and
administrative allocations		51,944			(51,944	)		–			–
Closures and impairments		9,806			2,742			–			12,548
Equity in earnings of subsidiaries		(33,777	)		–			33,777			–
Interest expense, net		7,035			6,260			–			13,295
Intercompany interest expense/(income)		9,754			(9,754	)		–			–
		696,285			216,481			33,777			946,543
(Loss)/income from continuing operations
before income taxes		(9,869	)		50,972			(33,777	)		7,326
(Benefit)/provision for income taxes from
continuing operations		(20,129	)		17,195			–			(2,934	)
Income from continuing operations		10,260			33,777			(33,777	)		10,260
Loss from discontinued operations, net of tax		(4,632	)		(1,839	)		1,839			(4,632	)
Net income/(loss)	$	5,628		$	31,938		$	(31,938	)	$	5,628
Other comprehensive income:
Pension liability reclassification, net of tax		923			–			–			923
Total comprehensive income	$	6,551		$	31,938		$	(31,938	)	$	6,551

29

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THIRTY-NINE WEEKS ENDED MARCH 5, 2013

(IN THOUSANDS)

	Parent			Guarantors			Eliminations			Consolidated
Net cash provided by operating activities	$	(5,902	)	$	47,396		$	(26,040	)	$	15,454
Investing activities:
Purchases of property and equipment		(23,480	)		(4,253	)		–			(27,733	)
Proceeds from sale-leaseback transactions, net		38,872			–			–			38,872
Proceeds from disposal of assets		2,875			2,576			–			5,451
Other, net		416			–			–			416
Net cash used by investing activities		18,683			(1,677	)		–			17,006
Financing activities:
Principal payments on long-term debt		(10,971	)		(9,329	)		–			(20,300	)
Stock repurchases		(30,149	)		–			–			(30,149	)
Proceeds from exercise of stock options		1,478			–			–			1,478
Excess tax benefits from share-based
compensation		87			–			–			87
Intercompany transactions		10,305			(36,345	)		26,040			–
Net cash used by financing activities		(29,250	)		(45,674	)		26,040			(48,884	)
Decrease in cash and cash equivalents		(16,469	)		45			–			(16,424	)
Cash and cash equivalents:
Beginning of year		47,986			198			–			48,184
End of year	$	31,517		$	243		$	–		$	31,760

30

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

THIRTY-NINE WEEKS ENDED FEBRUARY 28, 2012

(IN THOUSANDS)

	Parent			Guarantors			Eliminations			Consolidated
Net cash provided by operating activities	$	43,854		$	63,900		$	(31,722	)	$	76,032
Investing activities:
Purchases of property and equipment		(20,726	)		(8,386	)		–			(29,112	)
Proceeds from disposal of assets		5,170			160			–			5,330
Other, net		1,336			–			–			1,336
Net cash used by investing activities		(14,220	)		(8,226	)		–			(22,446	)
Financing activities:
Net payments on revolving credit facility		(22,000	)		–			–			(22,000	)
Principal payments on long-term debt		(4	)		(14,216	)		–			(14,220	)
Stock repurchases		(18,441	)		–			–			(18,441	)
Proceeds from exercise of stock options		184			–			–			184
Excess tax benefits from share-based
compensation		31			–			–			31
Intercompany transactions		9,755			(41,477	)		31,722			–
Net cash used by financing activities		(30,475	)		(55,693	)		31,722			(54,446	)
Decrease in cash and cash equivalents		(841	)		(19	)		–			(860	)
Cash and cash equivalents:
Beginning of year		9,490			232			–			9,722
End of year	$	8,649		$	213		$	–		$	8,862

31

NOTE P – RELATED PARTY TRANSACTIONS

On June 7, 2012, we entered into two marketing agreements with 50 Eggs Branding Company, LLC (“50 Eggs”).  John Kunkel, the CEO of 50 Eggs, previously was the CEO of LFMG International, LLC, and is a current Lime Fresh franchisee.  Under the terms of the first agreement, 50 Eggs has provided marketing services for our Lime Fresh concept for a monthly fee of $52,500 plus out of pocket expenses.  We have provided notice of our intent to cancel this agreement as of May 5, 2013.  Under the terms of the second agreement, which we cancelled during the current quarter, 50 Eggs provided marketing services for our Marlin & Ray’s concept for a monthly fee of $26,250 plus out of pocket expenses.  Included within Selling, general, and administrative, net in our Consolidated Statements of Operations and Comprehensive Income/(Loss) for the 13 and 39 weeks ended March 5, 2013, are payments we made to 50 Eggs in connection with these agreements of $0.2 million and $0.8 million, respectively.

On July 22, 2010, following the approval of the Audit Committee of our Board of Directors, we entered into a licensing agreement with Gourmet Market, Inc. which is owned by our former Chief Executive Officer’s brother, Price Beall.  The licensing agreement allows us to operate multiple restaurants under the Truffles name.  Truffles is an upscale café concept that currently operates several restaurants in the vicinity of Hilton Head Island, South Carolina.  The Truffles concept offers a diverse menu featuring soups, salads, sandwiches, a signature chicken pot pie, house-breaded fried shrimp, pasta, ribs, steaks, and a variety of desserts.

Under the terms of the agreement, we paid a licensing fee to Gourmet Market, Inc. of 2.0% of gross sales of any Truffles we open.  Additionally, we paid Gourmet Market, Inc. a monthly fee for up to two years for consulting services to be provided by Price Beall to assist us in developing and opening Truffles restaurants under the terms of the licensing agreement.  During the first 12 months of the agreement we paid $20,833 per month for such services.  During the second 12 months of the agreement we paid $10,417 per month.  Gourmet Market, Inc. has the option to terminate future development rights if we do not operate 18 or more Truffles restaurants within five years or 40 or more Truffles within 10 years of the effective date of the agreement.  As discussed further in Notes D and I to the Condensed Consolidated Financial Statements, on January 9, 2013 we announced our desire to sell our two Truffles restaurants.  No buyer suitable to our landlords was found as of March 5, 2013 and we consequently opted, on April 7, 2013, to close the restaurants instead.  During the 13 and 39 weeks ended March 5, 2013 and February 28, 2012, we paid Gourmet Market, Inc. $15,596 and $68,846, and $49,108 and $147,205, respectively, under the terms of the agreement.

NOTE Q – SUBSEQUENT EVENTS

Sale-leaseback transactions

Subsequent to March 5, 2013, we completed sale-leaseback transactions of the land and building for two Company-owned Ruby Tuesday concept restaurants for gross cash proceeds of $5.2 million, exclusive of transaction costs of approximately $0.3 million.  Equipment was not included.  The carrying value of the properties sold was $4.9 million.  The leases have been classified as operating leases and have an initial term of 15 years, with renewal options of up to 20 years.  We realized a negligible gain on one of these transactions and a negligible loss on the other.

32

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The discussion and analysis below for the Company should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the notes to such financial statements included elsewhere in this Quarterly Report on Form 10-Q.  The discussion below contains forward-looking statements which should be read in conjunction with the “Special Note Regarding Forward-Looking Information” included elsewhere in this Quarterly Report on Form 10-Q.

General:

Ruby Tuesday, Inc., including its wholly-owned subsidiaries (“RTI,” the “Company,” “we” and/or “our”), owns and operates Ruby Tuesday® and Lime Fresh Mexican Grill® (“Lime Fresh”) casual dining restaurants.  We also franchise the Ruby Tuesday and Lime Fresh concepts in select domestic and international markets.  As of March 5, 2013, we owned and operated 709, and franchised 77, Ruby Tuesday restaurants.  Ruby Tuesday restaurants can now be found in 45 states, the District of Columbia, 11 foreign countries, and Guam.

As of March 5, 2013, there were 16 Company-owned and operated Lime Fresh restaurants and two Truffles restaurants.  As further discussed in Notes D and I to the Condensed Consolidated Financial Statements, on April 7, 2013 we closed our two Company-owned Truffles restaurants.  In addition, there were five Lime Fresh restaurants operated by domestic franchisees as of March 5, 2013.

Overview and Strategies

Casual dining, the segment of the industry in which we operate, is intensely competitive with respect to prices, services, convenience, locations, employees, advertising and promotion, and the types and quality of food.  We compete with other food service operations, including locally-owned restaurants, and other national and regional restaurant chains that offer similar types of services and products as we do.  While we are in the bar and grill sector as a result of our varied menu, we operate at the higher-end of casual dining in terms of the quality of our food and service.  Our mission is to be the best in the bar and grill segment of casual dining by delivering to our guests a high-quality casual dining experience with compelling value.

We believe there are significant opportunities to grow our business, strengthen our competitive position, enhance our profitability, and create value through the execution of the following strategies:

Enhance Sales and Margins of Our Core Brand

In order to entice guests to see the new Ruby Tuesday, increase frequency of visits, drive same-restaurant sales growth and enhance brand visibility, we are in the early stages of new initiatives focused on promoting the Ruby Tuesday brand as more lively and approachable including the introduction of new menu items, music upgrades, lighting improvements, and revitalizing the look and feel of our television advertising and other promotional materials.  Our marketing strategy for the last several fiscal years has focused mainly on print promotions, digital media and local marketing programs, with a minimal amount spent on television.  Based on favorable trends exhibited in certain of our television test markets in fiscal 2012, at the start of fiscal 2013 we deployed a more balanced marketing program comprised of a mixture of network and national cable television advertising in tandem with direct mail and other print and electronic promotions.  We believe that having a more lively and approachable perception of our restaurants, communicated through television advertising expense levels more in line with our competitive peer group in tandem with a more balanced approach on our promotional strategies will position us for improvements in same-restaurant sales in the future from repeat and new guests.

In order to fund the incremental television advertising efforts, during fiscal 2012 we consulted with a leading enterprise improvement firm to assist us in identifying potential savings opportunities in a number of key areas including procurement, occupancy, and maintenance costs.  The majority of these cost savings are being reinvested into our television marketing programs.

Focus on Low-Capital Intensive Potential Growth in the Fast Casual Sector

We have been focused on growing our Company in a low-capital intensive manner in the fast casual sector through Lime Fresh, our Mexican fast casual concept.  We initially opened Lime Fresh restaurants under a licensing agreement and after over a year of experience which enabled us to better understand the concept’s

33

positioning and potential in the high-quality fast casual segment, we acquired the business for $24.1 million in the fourth quarter of fiscal 2012 since we believed we could more quickly and effectively grow the concept if we owned it.  The fast casual segment of our industry is a proven and growing segment where demand exceeds supply, and we believe opening smaller, inline locations under the Lime Fresh brand provides a low-capital intensive potential growth option for us.  While the concept is still in its infancy, we believe it has the potential to generate attractive returns for us if we are able to realize our targeted revenue levels.  We opened five Company-owned Lime Fresh restaurants during the first three quarters of fiscal 2013 and plan to open approximately four to five additional Company-owned Lime Fresh restaurants during the remainder of the current fiscal year.

Strengthen our Balance Sheet to Facilitate Growth and Value Creation

During the fourth quarter of fiscal 2012, we further strengthened our balance sheet and created additional financial flexibility by issuing $250.0 million in a senior unsecured notes offering with an eight-year maturity.  As a result of the transaction, we were able to pay off all of our outstanding debt with the exception of some of our mortgage debt from previous franchise partnership acquisitions, reduce our revolver commitment size from $380.0 million to $200.0 million, obtain attractive interest rates, extend the maturity date of the majority of our debt for up to eight years, and build excess cash which we will reinvest in the future.  We continue to maintain a strong balance sheet and have a sufficient amount of liquidity.  Our near-term capital expenditure requirements will consist of opening approximately four to five Company-owned Lime Fresh restaurants during the remainder of fiscal 2013.

Our strong balance sheet is supported by a high-quality portfolio of owned real estate, and during fiscal 2012 we commenced a sale-leaseback program on a portion of our properties in order to create greater financial flexibility and generate additional liquidity for debt reduction or reinvestment.  We raised approximately $51.9 million of gross proceeds from our first tranche of sale-leaseback transactions, with the proceeds being utilized for general corporate purposes, including the repurchase of shares of our common stock, capital expenditures, and debt reduction.

Based on the favorable capitalization rates that we realized on the last few transactions in our first sale-leaseback tranche, we are pursuing a smaller second tranche of up to 20 sale-leaseback properties in order to raise additional proceeds of approximately $40.0 million to $45.0 million, of which $11.1 million was realized through the third quarter of fiscal 2013.  Since March 5, 2013, we have raised an additional $5.2 million, and expect to raise an additional $10.0 million to $14.0 million during the remainder of fiscal 2013.  We anticipate the second tranche of sale-leaseback transactions to be completed over the next four to five fiscal quarters.  We plan to utilize the proceeds for general corporate purposes, including further debt reduction.  See further discussion of our sale-leaseback transactions in the Investing Activities section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).

We estimate we will generate approximately $21.0 to $26.0 million of free cash flow during the remainder of fiscal 2013.  Included in these estimates is anticipated capital spending of approximately $10.0 to $14.0 million.  Our objective over the next several years is to continue to reduce outstanding debt levels in order to reduce our leverage, focus on prudent Lime Fresh restaurant development, and opportunistically repurchase outstanding shares under our share repurchase program.

Our success in the key long range plan initiatives outlined above should enable us to improve both our return on assets and return on equity, and to create additional shareholder value.

Results of Operations:

The following is an overview of our results of operations for the 13- and 39-week periods ended March 5, 2013:

Net income was $2.2 million for the 13 weeks ended March 5, 2013 compared to $4.5 million for the same quarter of the previous year.  Diluted earnings per share for the fiscal quarter ended March 5, 2013 was $0.04 compared to $0.07 for the corresponding quarter of the prior year as a result of the decrease in same-restaurant sales as discussed below.

34

During the 13 weeks ended March 5, 2013:

·   Same-restaurant sales* at Company-owned Ruby Tuesday restaurants decreased 2.8%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 1.7%;

·   13 Company-owned Marlin & Ray’s restaurants and one Company-owned Wok Hay restaurant were closed resulting in charges of $4.0 million for asset impairments, including those of Truffles, lease reserves, and other closing costs;

·   One Company-owned Lime Fresh restaurant was opened and two were closed;

·   We repurchased 1.3 million shares of common stock at an aggregate cost of $10.1 million; and

·   Reclassified and/or corrected certain immaterial prior year income statement information which did not change net income.  See Note A to the Condensed Consolidated Financial Statements for more information.

Net loss was $10.3 million for the 39 weeks ended March 5, 2013 compared to net income of $5.6 million for the same period of the previous year.  Diluted loss per share for the 39 weeks ended March 5, 2013 was $0.16 compared to diluted earnings per share of $0.09 for the corresponding period of the prior year as a result of the current year net loss as discussed below.

During the 39 weeks ended March 5, 2013:

·   Our former CEO, Samuel E. Beall, III, stepped down on November 30, 2012 and James J. Buettgen was appointed our new CEO effective December 1, 2012;

·   Same-restaurant sales* at Company-owned Ruby Tuesday restaurants decreased 0.2%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 1.1%;

·   Five Company-owned Ruby Tuesday restaurants were closed;

·   Two franchised Ruby Tuesday restaurants were opened and four were closed;

·   We closed 13 Company-owned Marlin & Ray's restaurants, one Company-owned Wok Hay restaurant, and formulated a plan to close two Company-owned Truffles restaurants, resulting in year-to-date charges of $20.4 million for asset impairments, including those of Truffles, lease reserves, and other closing costs;

·   Five Company-owned Lime Fresh restaurants were opened and two were closed;

·   One franchised Lime Fresh restaurant was opened;

·   We repurchased 4.1 million shares of common stock at an aggregate cost of $30.1 million;

·   We repurchased $11.5 million of our Senior Notes.  The repurchases settled for $10.9 million plus a negligible amount of accrued interest.  We realized a $0.6 million gain on these transactions; and

·   Reclassified and/or corrected certain immaterial prior year income statement information which did not change net income.  See Note A to the Condensed Consolidated Financial Statements for more information.

* We define same-restaurant sales as a year-over-year comparison of sales volumes for restaurants that, in the current year have been open at least 18 months, in order to remove the impact of new openings in comparing the operations of existing restaurants.

  35

The following table sets forth selected restaurant operating data as a percentage of total revenue, except where otherwise noted, for the periods indicated.  All information is derived from our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

	Thirteen weeks ended				Thirty-nine weeks ended
	March 5,		February 28,		March 5,		February 28,
	2013		2012		2013		2012
Revenue:
Restaurant sales and operating revenue	99	.5%	99	.6%	99	.5%	99	.6%
Franchise revenue	0	.5	0	.4	0	.5	0	.4
Total revenue	100	.0	100	.0	100	.0	100	.0
Operating costs and expenses:
Cost of merchandise (1)	27	.4	28	.7	27	.3	29	.4
Payroll and related costs (1)	34	.5	33	.9	33	.7	34	.0
Other restaurant operating costs (1)	20	.3	19	.2	20	.8	20	.4
Depreciation (1)	4	.8	5	.0	4	.8	5	.1
Selling, general and administrative, net	9	.8	7	.6	12	.0	8	.1
Closures and impairments, net	0	.7	3	.6	0	.5	1	.3
Interest expense, net	2	.1	1	.4	2	.2	1	.4
Gain on extinguishment of debt	0	.0	0	.0	(0	.1)	0	.0
Income/(loss) from continuing operations
before income taxes	0	.9	0	.9	(0	.8)	0	.8
Benefit for income taxes from continuing
operations	(0	.7)	(1	.3)	(1	.1)	(0	.3)
Income from continuing operations	1	.5	2	.1	0	.4	1	.1
Loss from discontinued operations, net of tax	(0	.8)	(0	.7)	(1	.5)	(0	.5)
Net income/(loss)	0	.7%	1	.4%	(1	.1)%	0	.6%

(1)     As a percentage of restaurant sales and operating revenue.

The following table shows Company-owned Ruby Tuesday, Lime Fresh, Marlin & Ray’s, and other concept restaurant activity for the 13- and 39-week periods ended March 5, 2013 and February 28, 2012.

	Ruby Tuesday			Lime Fresh			Marlin & Ray’s			Other Concepts*			Total
13 weeks ended March 5, 2013
Beginning number		709			17			13			3			742
Opened		–			1			–			–			1
Closed		–			(2	)		(13	)		(1	)		(16	)
Ending number		709			16			–			2			727
39 weeks ended March 5, 2013
Beginning number		714			13			11			3			741
Opened		–			5			2			–			7
Closed		(5	)		(2	)		(13	)		(1	)		(21	)
Ending number		709			16			–			2			727
13 weeks ended February 28, 2012
Beginning number		742			1			5			5			753
Opened		–			2			2			–			4
Closed		(2	)		–			–			–			(2	)
Ending number		740			3			7			5			755
39 weeks ended February 28, 2012
Beginning number		750			–			1			3			754
Opened		–			3			6			2			11
Closed		(10	)		–			–			–			(10	)
Ending number		740			3			7			5			755

*Other concepts include Truffles and Wok Hay.

36

The following table shows franchised Ruby Tuesday and Lime Fresh concept restaurant activity for the 13- and 39-week periods ended March 5, 2013 and February 28, 2012.

	Thirteen weeks ended					Thirty-nine weeks ended
	March 5,  2013		February 28, 2012			March 5,  2013			February 28, 2012
Ruby Tuesday
Beginning number		77		87			79			96
Opened		–		2			2			5
Closed		–		(4	)		(4	)		(16	)
Ending number		77		85			77			85

Lime Fresh
Beginning number	5	–	4	–
Opened	–	–	1	–
Closed	–	–	–	–
Ending number	5	–	5	–

We expect our domestic and international franchisees to open approximately three to four additional Ruby Tuesday restaurants during the remainder of fiscal 2013.  We currently anticipate opening approximately four to five Lime Fresh restaurants during the remainder of fiscal 2013.

Revenue

RTI’s restaurant sales and operating revenue for the 13 weeks ended March 5, 2013 decreased 4.2% to $305.8 million compared to the same quarter of the prior year.  This decrease is primarily a result of  restaurant closures since the same quarter of the prior year coupled with a 2.8% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants.

The decrease in same-restaurant sales for the 13 weeks ended March 5, 2013 is attributable to lower guest counts partially offset by an increase in average net check in the third quarter of fiscal 2013 compared with the same quarter of the prior year.  The increase in average net check was primarily the result of reduced discounts and price increases since the same quarter of the prior year.

Franchise revenue for the 13 weeks ended March 5, 2013 increased 13.6% to $1.5 million compared to the same quarter of the prior year.  Franchise revenue is predominately comprised of domestic and international franchise royalties, which totaled $1.5 million and $1.3 million for the 13 weeks ended March 5, 2013 and February 28, 2012, respectively.  The increase in franchise royalties for the 13 weeks ended March 5, 2013 was due primarily to increases in domestic franchise royalties attributable to the five Lime Fresh franchise restaurants added since the same quarter of the prior year.

For the 39 weeks ended March 5, 2013, sales at Company-owned restaurants decreased 2.0% to $930.7 million compared to the same period of the prior year.  This decrease is primarily a result of restaurant closures since the same period of the prior year coupled with a 0.2% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants.

The decrease in same-restaurant sales for the 39 weeks ended March 5, 2013 is attributable to lower guest counts partially offset by an increase in average net check for the first three quarters of fiscal 2013 compared with the same period of the prior year.  The increase in average net check was primarily the result of reduced discounts and price increases since the same period of the prior year.

For the 39-week period ended March 5, 2013, franchise revenues increased 14.1% to $4.7 million compared to the same period in the prior year.  Domestic and international royalties totaled $4.5 million and $3.9 million for the 39-week periods ending March 5, 2013 and February 28, 2012, respectively.  This increase is due primarily to higher domestic franchise royalties for the 39 weeks ended March 5, 2013 compared to the same period of the prior year due to the addition of Lime Fresh franchise restaurants as discussed above.

37

Pre-tax Income/(Loss) from Continuing Operations

Pre-tax income from continuing operations was $2.7 million for the 13 weeks ended March 5, 2013, compared to $2.8 million for the same quarter of the prior year.  The decrease in pre-tax income from continuing operations is due to higher selling, general, and administrative, net ($5.8 million) and interest expense ($2.2 million), and increases, as a percentage of restaurant sales and operating revenue, of payroll and related costs and other restaurant operating costs.  These higher costs were partially offset by lower closures and impairments expense associated with continuing operations ($9.5 million) and decreases, as a percentage of restaurant sales and operating revenue, of cost of merchandise and depreciation.

Pre-tax loss from continuing operations was $7.0 million for the 39 weeks ended March 5, 2013, compared to pre-tax income of $7.3 million for the same period of the prior year.  The decrease in pre-tax income is due to higher selling, general, and administrative, net ($34.4 million) and interest expense ($7.3 million), and increases, as a percentage of restaurant sales and operating revenue, of other restaurant operating costs.  These higher costs were partially offset by lower closures and impairments expense associated with continuing operations ($7.5 million), gain on the extinguishment of debt ($0.6 million) related to repurchases of the Senior Notes, and decreases, as a percentage of restaurant sales and operating revenue, of cost of merchandise, payroll and related costs, and depreciation.

In the paragraphs that follow, we discuss in more detail the components of the decrease in pre-tax income from continuing operations for the 13- and 39-week periods ended March 5, 2013, as compared to the comparable periods in the prior year.  Because a significant portion of the costs recorded in the cost of merchandise, payroll and related costs, other restaurant operating costs, and depreciation categories are either variable or highly correlative with the number of restaurants we operate, we evaluate our trends by comparing the costs as a percentage of restaurant sales and operating revenue, as well as the absolute dollar change, to the comparable prior year period.

Cost of Merchandise

Cost of merchandise decreased $7.8 million (8.6%) to $83.8 million for the 13 weeks ended March 5, 2013, over the corresponding quarter in the prior year.  As a percentage of restaurant sales and operating revenue, cost of merchandise decreased from 28.7% to 27.4%.

Cost of merchandise decreased $24.6 million (8.8%) to $254.5 million for the 39 weeks ended March 5, 2013, over the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, cost of merchandise decreased from 29.4% to 27.3%.

The absolute dollar decrease for the 13- and 39-week periods ended March 5, 2013 was the result of cost savings negotiated with our primary food distributor coupled with renegotiated contracts and product specification changes on several items with certain vendors since the same periods of fiscal 2012.  Restaurant closures further contributed to the reduction in cost of merchandise.  Partially offsetting these decreases for the 13-week period were cost increases on beef, poultry, and certain other products since the same quarter of the prior year.

As a percentage of restaurant sales and operating revenue, the decrease in cost of merchandise for the 13 and 39 weeks ended March 5, 2013 is due primarily to cost savings negotiated with our primary food distributor and various other vendors and a reduction in coupons since the same periods of the prior year.

Payroll and Related Costs

Payroll and related costs decreased $3.0 million (2.7%) to $105.4 million for the 13 weeks ended March 5, 2013, as compared to the corresponding quarter in the prior year.  As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 33.9% to 34.5%.

Payroll and related costs decreased $9.3 million (2.9%) to $313.3 million for the 39 weeks ended March 5, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, payroll and related costs decreased from 34.0% to 33.7%.

The absolute dollar decrease in payroll and related costs for the 13- and 39-week periods ended March 5, 2013 was due to restaurant closures, decreases in hourly labor as a result of lower training costs and new staffing guidelines for certain positions in our restaurants, and favorable workers’ compensation claims

38

experience.  These were partially offset by minimum wage increases in certain states, higher field bonus, and higher management labor due to merit increases since the same periods of the prior year.

As a percentage of restaurant sales and operating revenue, the increase in payroll and related costs for the 13 weeks ended March 5, 2013 was primarily the result of unfavorable cost leverage associated with lower sales volumes.

As a percentage of restaurant sales and operating revenue, the decrease in payroll and related costs for the 39 weeks ended March 5, 2013 was primarily the result of decreased hourly labor due to restaurant closures and other reasons as discussed above.

Other Restaurant Operating Costs

Other restaurant operating costs increased $0.5 million (0.8%) to $61.9 million for the 13-week period ended March 5, 2013, as compared to the corresponding quarter in the prior year.  As a percentage of restaurant sales and operating revenue, these costs increased from 19.2% to 20.3%.

For the 13 weeks ended March 5, 2013, the increase in other restaurant operating costs related to the following (in thousands):

Rent and leasing	$	1,303
Repairs		681
Other increases		516
Supplies		(1,290	)
Utilities		(708	)
Net increase	$	502

In both absolute dollars and as a percentage of restaurant sales and operating revenue for the 13-week period ended March 5, 2013, the increase was primarily a result of higher rent and leasing charges as a result of sale-leaseback transactions since the same quarter of the prior year and higher repairs expense incurred as we transitioned to a new maintenance agreement with a third-party provider during the current year.  These increases were partially offset by restaurant closures since the third quarter of the prior year, lower supplies expense due to negotiated contract savings with certain vendors, and decreased utilities based on reduced rates.

Other restaurant operating costs increased $0.1 million to $193.4 million for the 39-week period ended March 5, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, these costs increased from 20.4% to 20.8%.

For the 39 weeks ended March 5, 2013, the increase in other restaurant operating costs related to the following (in thousands):

Repairs	$	4,942
Rent and leasing		3,193
Utilities		(3,044	)
Supplies		(2,697	)
Waste removal		(1,130	)
Credit card expense		(925	)
Other decreases		(245	)
Net increase	$	94

In both absolute dollars and as a percentage of restaurant sales and operating revenue for the 39-week period ended March 5, 2013, in addition to restaurant closures since the same period of the prior year, the increase was a result of higher repairs expense and rent and leasing charges due primarily to reasons as discussed above.  These increases were partially offset by decreased utilities and supplies expense for similar reasons as discussed above, lower credit card expense as a result of a reduction in interchange fees, reduced expenses for waste removal due to new contracts since the same period of the prior year, and other reductions.

39

Depreciation

Depreciation expense decreased $1.3 million (8.3%) to $14.6 million for the 13-week period ended March 5, 2013, as compared to the corresponding quarter in the prior year.  As a percentage of restaurant sales and operating revenue, depreciation expense decreased from 5.0% to 4.8%.

Depreciation expense decreased $3.9 million (8.2%) to $44.3 million for the 39-week period ended March 5, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, depreciation expense decreased from 5.1% to 4.8%.

In terms of both absolute dollars and as a percentage of restaurant sales and operating revenue, the decrease for the 13- and 39-week periods ended March 5, 2013 is due primarily to assets that became fully depreciated since the same periods of the prior year coupled with sale-leaseback transactions and restaurant closures.

Selling, General and Administrative Expenses, Net

Selling, general and administrative expenses, net increased $5.8 million (23.5%) to $30.3 million for the 13-week period ended March 5, 2013, as compared to the corresponding quarter in the prior year.

Selling, general and administrative expenses, net increased $34.4 million (44.4%) to $111.8 million for the 39-week period ended March 5, 2013, as compared to the corresponding period in the prior year.

The increase for the 13- and 39-week periods ended March 5, 2013 is due to higher advertising costs ($6.4 million and $35.8 million, respectively) primarily as a result of increased television advertising.  At the start of fiscal 2013, we deployed a television marketing program which will cover the entire system of restaurants for a portion of each quarter with the remaining portion of the quarter to be supplemented by high-end direct mail and other promotions.  The higher advertising costs were partially offset by lower general and administrative costs ($0.6 million and $1.4 million, respectively) due primarily to reduced consulting fees from the same periods in the prior year.

Closures and Impairments

Closures and impairments decreased $9.5 million to $2.1 million for the 13-week period ended March 5, 2013, as compared to the corresponding period of the prior year.  The decrease for the 13-week period ended March 5, 2013 is primarily due to lower property impairment charges from continuing operations ($10.3 million), which was partially offset by higher closed restaurant lease reserve expense from continuing operations ($0.6 million), and other closing costs ($0.1 million), and lower gains on the sale of surplus properties ($0.1 million).

Closures and impairments decreased $7.5 million to $5.1 million for the 39-week period ended March 5, 2013, as compared to the corresponding period of the prior year.  The decrease for the 39-week period ended March 5, 2013 is primarily due to lower property impairment charges from continuing operations ($8.5 million) and higher gains on the sale of surplus properties ($0.5 million), which were partially offset by higher closed restaurant lease reserve expense from continuing operations ($1.1 million) and other closing costs ($0.4 million).

See Note I to our Condensed Consolidated Financial Statements for further information on our closures and impairment charges recorded for both continuing and discontinued operations during the 13 and 39 weeks ended March 5, 2013 and February 28, 2012.

Interest Expense, Net

Interest expense, net increased $2.2 million to $6.6 million for the 13 weeks ended March 5, 2013, as compared to the third quarter of fiscal 2012, primarily due to interest expense on our Senior Notes which was partially offset by lower expense on our other debt due to pay downs since the prior year.  Interest expense, net increased $7.3 million to $20.6 million for the 39-week period ended March 5, 2013, as compared to the corresponding period in the prior year, primarily for the same reasons mentioned above.

40

Gain on Extinguishment of Debt

Gain on extinguishment of debt was $0.6 million for the 39 weeks ended March 5, 2013.  During the second quarter of fiscal 2013, we repurchased $11.5 million of the Senior Notes for $10.9 million plus a negligible amount of accrued interest.

Benefit for Income Taxes from Continuing Operations

We recorded a tax benefit from continuing operations of $2.0 million and $10.6 million during the 13- and 39-week periods ended March 5, 2013, respectively, compared to a tax benefit from continuing operations of $4.1 million and $2.9 million during the 13- and 39-week periods ended February 28, 2012.  The change in income taxes was attributable to a change in method of recording interim income tax expense coupled with lower pre-tax income for the current year periods as compared to those same periods of the prior year.

Discontinued Operations

In an effort to focus on the successful sales turnaround of our core Ruby Tuesday concept and position our Lime Fresh concept for long-term success as a growth vehicle, on January 9, 2013, the Board of Directors of Ruby Tuesday, Inc. approved management’s plan to close all 13 Marlin & Ray’s restaurants as well as the Company’s one Wok Hay restaurant in the third quarter of fiscal 2013.  We closed these restaurants on January 9, 2013.  Additionally, on the same date we announced our intention to seek a buyer for our two Truffles restaurants.  No buyer suitable to our landlords was found as of March 5, 2013 and we consequently opted, on April 7, 2013, to close the restaurants instead.  As a result of these decisions, pre-tax charges of $4.0 million and $20.4 million were recognized for asset impairments, including those of Truffles, lease reserves, and other closing costs within closures and impairments expense from discontinued operations for the 13 and 39 weeks ended March 5, 2013. 

We have classified the results of operations of our Company-owned Marlin & Ray’s, Wok Hay, and Truffles concepts as discontinued operations for all periods presented.  The results of operations of our discontinued operations are as follows (in thousands):

	Thirteen weeks ended						Thirty-nine weeks ended
	March 5,  2013			February 28, 2012			March 5,  2013			February 28, 2012
Restaurant sales and operating revenue	$	2,421		$	4,112		$	11,575		$	8,706
Losses before income taxes	$	(4,405	)	$	(1,573	)	$	(23,172	)	$	(4,184	)
(Benefit)/provision for income taxes		(1,885	)		760			(9,313	)		448
Loss from discontinued operations	$	(2,520	)	$	(2,333	)	$	(13,859	)	$	(4,632	)

Critical Accounting Policies:

Our MD&A is based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires us to make subjective or complex judgments that may affect the reported financial condition and results of operations.  We base our estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  We continually evaluate the information used to make these estimates as our business and the economic environment changes.

In our Annual Report on Form 10-K for the year ended June 5, 2012, we identified our critical accounting policies related to impairment of long-lived assets, business combinations, share-based employee compensation, income tax valuation allowances and tax accruals, lease obligations, revenue recognition for franchisees, and estimated liability for self-insurance.  During the first 39 weeks of fiscal 2013, we changed our reporting of the operations of three discontinued concepts and our methodology of accounting for income taxes in interim periods as discussed below.

41

Discontinued Operations

As previously discussed in this MD&A, in an effort to focus on the successful sales turnaround of our core Ruby Tuesday concept and position our Lime Fresh concept for long-term success as a growth vehicle, on January 9, 2013, the Board of Directors of Ruby Tuesday, Inc. approved management’s plan to close all 13 Marlin & Ray’s restaurants as well as the Company’s one Wok Hay restaurant in the third quarter of fiscal 2013.  We closed these restaurants on January 9, 2013.  Additionally, on the same date we announced our intention to seek a buyer for our two Truffles restaurants.  No buyer suitable to our landlords was found as of March 5, 2013 and we consequently opted, on April 7, 2013, to close the restaurants instead.

As a result of these decisions and in accordance with GAAP, we have included the results of operations of the discontinued Marlin & Ray’s, Wok Hay, and Truffles concepts within discontinued operations for all periods presented in our Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss).  

Accounting for Income Taxes in Interim Periods

Prior to the 39 weeks ended March 5, 2013, we accounted for income taxes during interim periods by recording tax expense or a tax benefit during the respective quarterly period using the estimated annual effective tax rate for the fiscal year.  Under Accounting Standards Codification 740 (“ASC 740”), companies are required to apply their estimated annual tax rate on a year-to-date basis in each interim period.  Under ASC 740, companies should not apply the estimated annual tax rate to interim financial results if the estimated annual tax rate is not reliably predictable.  In this situation, the interim tax rate should be based on the actual year-to-date results.  Based on our current projections, a small change in pre-tax earnings could result in a material change in the estimated annual effective tax rate, producing significant variations in the customary relationship between income tax expense and pre-tax accounting income in interim periods.  As such, and in contrast with our previous method of recording income tax expense, we recorded a tax benefit for the first 39 weeks of fiscal 2013 based on the actual year-to-date results, in accordance with ASC 740.

Liquidity and Capital Resources:

Cash and cash equivalents decreased by $16.4 million and $0.9 million during the first 39 weeks of fiscal 2013 and 2012, respectively.  The change in cash and cash equivalents is as follows (in thousands):

	Thirty-nine weeks ended
	March 5,				February 28,
	2013				2012
Cash provided by operating activities		$	15,454			$	76,032
Cash provided/(used) by investing activities			17,006				(22,446	)
Cash used by financing activities			(48,884	)			(54,446	)
Decrease in cash and cash equivalents		$	(16,424	)		$	(860	)

Operating Activities

Our cash provided by operations is generally derived from cash receipts generated by our restaurant customers and franchisees.  Substantially all of the $930.7 million and $949.8 million of restaurant sales and operating revenue disclosed in our Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) for the 39 weeks ended March 5, 2013 and February 28, 2012, respectively, was received in cash either at the point of sale or within two to four days (when our guests paid with debit or credit cards).  Our primary uses of cash for operating activities are food and beverage purchases, payroll and benefit costs, restaurant operating costs, general and administrative expenses, and marketing, a significant portion of which are incurred and paid in the same period. 

Cash provided by operating activities for the first 39 weeks of fiscal 2013 decreased $60.6 million from the corresponding period in the prior year to $15.5 million.  The decrease is due primarily to increases in amounts spent on media advertising (approximately $34.3 million), increases in amounts spent to acquire

42

inventory relating primarily to purchases of lobster and crab to ensure adequate supply (approximately $5.4 million), higher cash paid for taxes ($2.3 million), and higher cash paid for interest ($2.1 million) due primarily to interest on the Senior Notes.

Our working capital and current ratio as of March 5, 2013 were $16.2 million and 1.1:1, respectively.  As is common in the restaurant industry, we typically carry current liabilities in excess of current assets because cash (a current asset) generated from operating activities is reinvested in capital expenditures (a long-term asset), debt reduction (a long-term liability), or stock repurchases, and receivable and inventory levels are generally not significant.

Investing Activities

We require capital principally for the maintenance and upkeep of our existing restaurants, limited new restaurant construction, investments in technology, equipment, remodeling of existing restaurants, and on occasion for the acquisition of franchisees or other restaurant concepts.  Property and equipment expenditures purchased with cash provided by operating activities and proceeds from sale-leaseback transactions for the 39 weeks ended March 5, 2013 were $27.7 million.

During the 39 weeks ended March 5, 2013, we completed sale-leaseback transactions of the land and buildings for 18 Company-owned Ruby Tuesday concept restaurants for gross cash proceeds of $40.8 million, exclusive of transaction costs of approximately $2.0 million.  Equipment was not included.  Net proceeds from the sale-leaseback transactions were used for general corporate purposes, including the repurchase of shares of our common stock, capital expenditures, and debt payments.  See Note G to the Condensed Consolidated Financial Statements for further discussion of these transactions.

Capital expenditures for the remainder of the fiscal year are projected to be approximately $10.0 million to $14.0 million based on our planned improvements for existing restaurants and our expectation that we will open approximately four to five Company-owned Lime Fresh restaurants during the remainder of fiscal 2013.  We intend to fund our investing activities with cash currently on hand, cash provided by operations, cash from additional sale-leaseback transactions, or borrowings on our five-year revolving credit agreement (the “Credit Facility”).

Financing Activities

Historically our primary sources of cash have been operating activities and refranchising transactions.  When these alone have not provided sufficient funds for both our capital and other needs, we have obtained funds through the issuance of indebtedness or through the issuance of additional shares of common stock.  Our current borrowings and credit facilities are described below.

On May 14, 2012, we entered into an indenture (the “Indenture”) among the Company, certain subsidiaries of the Company as guarantors and Wells Fargo Bank, National Association as trustee, governing the Company’s $250.0 million aggregate principal amount of 7.625% senior notes due 2020 (the “Senior Notes”).  The Senior Notes were issued at a discount of $3.7 million, which is being amortized using the effective interest method over the eight year term of the notes.

The Senior Notes are guaranteed on a senior unsecured basis by our existing and future domestic restricted subsidiaries, subject to certain exceptions.  They rank equal in right of payment with our existing and future senior indebtedness and senior in right of payment to any of our future subordinated indebtedness.  The Senior Notes are effectively subordinated to all of our secured debt, including borrowings outstanding under our revolving credit facility, to the extent of the value of the assets securing such debt and structurally subordinated to all of the liabilities of our existing and future subsidiaries that do not guarantee the Senior Notes.

Interest on the Senior Notes is calculated at 7.625% per annum, payable semiannually on each May 15 and November 15, commencing November 15, 2012, to holders of record on the May 1 or November 1 immediately preceding the interest payment date.  Accrued interest on the Senior Notes and our other long-term debt and capital lease obligations is included in Accrued liabilities – Rent and other in our Condensed Consolidated Balance Sheets.  The Senior Notes mature on May 15, 2020.

At any time prior to May 15, 2016, we may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount, plus an applicable “make-whole” premium and accrued and

43

unpaid interest.  At any time on or after May 15, 2016, we may redeem the Senior Notes, in whole or in part, at the redemption prices specified in the Indenture plus accrued and unpaid interest.  At any time prior to May 15, 2015, we may redeem up to 35% of the Senior Notes from the proceeds of certain equity offerings.  There is no sinking fund for the Senior Notes.

The Indenture contains covenants that limit, among other things, our ability and the ability of certain of our subsidiaries to (i) incur or guarantee additional indebtedness; (ii) declare or pay dividends, redeem stock or make other distributions to stockholders; (iii) make certain investments; (iv) create liens or use assets as security in other transactions; (v) merge or consolidate, or sell, transfer, lease or dispose of substantially all of their assets; (vi) enter into transactions with affiliates; and (vii) sell or transfer certain assets.  These covenants are subject to a number of important exceptions and qualifications, as described in the Indenture, and certain covenants will not apply at any time when the Senior Notes are rated investment grade by the Rating Agencies, as defined in the Indenture.  The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes to be due and payable immediately.

In connection with the issuance of the Senior Notes, we have agreed to register with the SEC notes having substantially identical terms as the Senior Notes, as part of an offer to exchange freely tradable exchange notes for the Senior Notes.  We have agreed: (i) within 270 days after the issue date of the Senior Notes, to file a registration statement enabling holders of the Senior Notes to exchange the privately placed notes for publicly registered notes with substantially identical terms; (ii) to use commercially reasonable efforts to cause the registration statement to become effective within 365 days after the issue date of the Senior Notes; (iii) to consummate the exchange offer within 40 days after the registration statement becomes effective; and (iv) to file a shelf registration statement for resale of the notes if we cannot consummate the exchange offer within the time period listed above.  We have begun the exchange offer and expect its consummation on May 3, 2013.

If we fail to meet any of the remaining targets (each, a “registration default”), the annual interest rate on the Senior Notes will increase by 0.25%.  The annual interest rate on the Senior Notes will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 1.0% per year over the otherwise applicable annual interest rate of 7.625%.  If we cure the registration default, the interest rate on the Senior Notes will revert to the original level.

On August 10, 2012, we entered into the third amendment to our five-year revolving credit agreement (the “Credit Facility” discussed below) which, among other things, allows us to repurchase up to $15.0 million of the Senior Notes in any fiscal year.  During the first 39 weeks of fiscal 2013, we repurchased $11.5 million of the Senior Notes for $10.9 million plus a negligible amount of accrued interest.  We realized a gain of $0.6 million on these transactions.  The balance on the Senior Notes was $238.5 million at March 5, 2013 as a result of these repurchases.  As of March 5, 2013, we may repurchase an additional $3.5 million of the Senior Notes during the remainder of fiscal 2013.

On December 1, 2010, we entered into the Credit Facility, under which we could borrow up to $320.0 million with the option to increase our capacity by $50.0 million to $370.0 million.  On May 14, 2012, we entered into the second amendment to our revolving credit facility to, among other things, reduce the maximum aggregate revolving commitment to $200.0 million, secure the revolving credit facility with a lien over the equity interests of certain subsidiaries, modify certain financial covenants and ratios and permit the issuance of the Senior Notes.

The terms of the Credit Facility provide for a $40.0 million letter of credit subcommitment.  The Credit Facility also includes a $50.0 million franchise facility subcommitment (the “Franchise Facility Subcommitment”), which covered our previous guarantees of franchise debt.  The Franchise Facility Subcommitment matures no later than December 1, 2015.  All amounts guaranteed under the Franchise Facility Subcommitment have been settled.

The interest rate charged on borrowings pursuant to the Credit Facility can vary depending on the interest rate option we choose to utilize.  Our Base Rate for borrowings is defined to be the higher of Bank of America’s prime rate, the Federal Funds Rate plus 0.5%, or an adjusted LIBO Rate plus 1.00%, plus an applicable margin ranging from 0.25% to 1.50%.  The applicable margin for our Eurodollar Borrowings ranges from 1.25% to 2.50% depending on our Total Debt to EBITDAR ratio.

44

A commitment fee for the account of each lender at a rate ranging from 0.300% to 0.450% (depending on our Total Debt to EBITDAR ratio) on the daily amount of the unused revolving commitment of such lender is payable on the last day of each calendar quarter and on the termination date of the Credit Facility.  On the first day after the end of each calendar quarter until the termination date of the Credit Facility, we are required to pay a letter of credit fee for the account of each lender with respect to such lender’s participation in each letter of credit.  The letter of credit fee accrues at the applicable margin for Eurodollar Loans then in effect on the average daily amount of such lender’s letter of credit exposure (excluding any portion attributable to unreimbursed letter of credit disbursements) attributable to such letter of credit during the period from and including the date of issuance of such letter of credit to but excluding the date on which such letter of credit expires or is drawn in full.  Besides the commitment fee and the letter of credit fee, we are also required to pay a fronting fee on the daily amount of the letter of credit exposure (excluding any portion attributable to unreimbursed letter of credit disbursements) on the tenth day after the end of each calendar quarter until the termination date of the Credit Facility.  We must also pay standard fees with respect to issuance, amendment, renewal or extension of any letter of credit or processing of drawings thereunder.

We are entitled to make voluntary prepayments of our borrowings under the Credit Facility at any time, in whole or in part, without premium or penalty.  Subject to certain exceptions, mandatory prepayments will be required upon occurrence of certain events, including the revolving credit exposure of all lenders exceeding the aggregate revolving commitment then in effect, sales of certain assets and any additional debt issuances.

Under the terms of the Credit Facility, we had no borrowings outstanding at either March 5, 2013 or June 5, 2012.  After consideration of letters of credit outstanding, we had $189.8 million available under the Credit Facility as of March 5, 2013.

The Credit Facility contains a number of customary affirmative and negative covenants that, among others, limit or restrict our ability to incur liens, engage in mergers or other fundamental changes, make acquisitions, investments, loans and advances, pay dividends or other distributions, sell or otherwise dispose of certain assets, engage in certain transactions with affiliates, enter into burdensome agreements or certain hedging agreements, amend organizational documents, change accounting practices, incur additional indebtedness and prepay other indebtedness.  In addition, under the Credit Facility, we are required to comply with financial covenants relating to the maintenance of a maximum leverage ratio and a minimum fixed charge coverage ratio and we were in compliance with these financial covenants as of March 5, 2013.  The terms of the Credit Facility require us to maintain a maximum leverage ratio of no more than 4.5 to 1.0 through the fiscal quarter ending on or about June 4, 2013 and 4.25 to 1.0 thereafter and a minimum fixed charge coverage ratio of 1.75 to 1.0 through and including the fiscal quarter ending on or about June 3, 2014 and 1.85 to 1.0 thereafter.

The Credit Facility terminates on December 1, 2015.  Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the Credit Facility and any ancillary loan documents.

Our $70.4 million in mortgage loan obligations as of March 5, 2013 consists of various loans acquired upon franchise acquisitions.  These loans, which mature between June 2013 and November 2022, have balances which range from negligible to $8.1 million and interest rates of 3.89% to 11.28%.  Many of the properties acquired from franchisees collateralize the loans outstanding.

During the 39 weeks ended March 5, 2013, we spent $30.1 million to repurchase 4.1 million shares of our common stock.  As of March 5, 2013, the total number of remaining shares authorized to be repurchased was 11.9 million.  We spent $18.4 million to repurchase 2.0 million shares of RTI common stock during the 39 weeks ended February 28, 2012.

During the remainder of fiscal 2013, we expect to fund operations, capital expansion, stock repurchases, and any other investments from cash currently on hand, operating cash flows, proceeds from sale-leaseback transactions, and, if necessary, our Credit Facility.

45

Significant Contractual Obligations and Commercial Commitments

Long-term financial obligations were as follows as of March 5, 2013 (in thousands):

	Payments Due By Period
			Less than		1-3		3-5		More than 5
	Total		1 year		years		years		years
Notes payable and other    long-term debt, including
current maturities (a)	$	68,988	$	9,027	$	19,802	$	22,996	$	17,163
Senior unsecured notes (a)		238,500		–		–		–		238,500
Interest (b)		158,120		23,385		44,512		40,925		49,298
Operating leases (c)		385,815		47,068		84,150		69,926		184,671
Purchase obligations (d)		99,841		68,988		26,876		3,977		–
Pension obligations (e)		39,104		11,355		6,946		8,584		12,219
Total (f)	$	990,368	$	159,823	$	182,286	$	146,408	$	501,851

(a)   See Note H to the Condensed Consolidated Financial Statements for more information.

(b)   Amounts represent contractual interest payments on our fixed-rate debt instruments.  Interest payments on our variable-rate notes payable with balances of $3.3 million as of March 5, 2013 have been excluded from the amounts shown above, primarily because the balances outstanding can fluctuate monthly.  Additionally, the amounts shown above include interest payments on the Senior Notes at the current interest rate of 7.625%, respectively.

(c)   This amount includes operating leases totaling $1.1 million for which sublease income from franchisees or others is expected.  Certain of these leases obligate us to pay maintenance costs, utilities, real estate taxes, and insurance, which are excluded from the amounts shown above.  See Note G to the Condensed Consolidated Financial Statements for more information.

(d)   The amounts for purchase obligations include cash commitments under contract for food items and supplies, advertising, utility contracts, and other miscellaneous commitments.

(e)   See Note J to the Condensed Consolidated Financial Statements for more information.

(f)   This amount excludes $10.1 million of unrecognized tax benefits due to the uncertainty regarding the timing of future cash outflows associated with such obligations.

Commercial Commitments as of March 5, 2013 (in thousands):

	Payments Due By Period
		Less than	1-3	3-5	More than 5
	Total	1 year	Years	years	Years
Letters of credit	$   10,227	$   10,227	$         –	$            –	$            –
Divestiture guarantees	7,288	880	1,815	1,799	2,794
Total	$   17,515	$   11,107	$ 1,815	$    1,799	$    2,794

At March 5, 2013, we had divestiture guarantees, which arose in fiscal 1996, when our shareholders approved the distribution of our family dining restaurant business (Morrison Fresh Cooking, Inc., “MFC”) and our health care food and nutrition services business (Morrison Health Care, Inc., “MHC”). Subsequent to that date Piccadilly Cafeterias, Inc. (“Piccadilly”) acquired MFC and Compass Group (“Compass”) acquired MHC. As agreed upon at the time of the distribution, we have been contingently liable for payments to MFC and MHC employees retiring under MFC’s and MHC’s versions of the Management Retirement Plan and the Executive Supplemental Pension Plan (the two non-qualified defined benefit plans) for the accrued benefits earned by those participants as of March 1996.

We estimated our divestiture guarantees at March 5, 2013 to be $6.6 million for employee benefit plans (all of which resides with MHC following Piccadilly’s bankruptcy in fiscal 2004).  We believe the likelihood of being required to make payments for MHC’s portion to be remote due to the size and financial strength of MHC and Compass.

46

Accounting Pronouncements Adopted in Fiscal 2013

In June 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income.  This guidance is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 (our fiscal 2013 first quarter).  The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

In September 2011, the FASB issued guidance modifying the impairment test for goodwill by allowing businesses to first decide whether they need to do the two-step impairment test.  Under the guidance, a business no longer has to calculate the fair value of a reporting unit unless it believes it is very likely that the reporting unit’s fair value is less than the carrying value.  The guidance is effective for impairment tests for fiscal years beginning after December 15, 2011 (our fiscal 2013 first quarter).  The adoption of this guidance did not have a material impact on our Condensed Consolidated Financial Statements.

Accounting Pronouncements Not Yet Adopted

In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets for impairment.  Under the guidance, testing the decline in the realizable value (impairment) of indefinite-lived intangible assets other than goodwill has been simplified.  The guidance allows an organization the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test.  An organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines, based on a qualitative assessment, that it is “more likely than not” that the asset is impaired.  The guidance is effective for impairment tests for fiscal years beginning after September 15, 2012 (our fiscal 2014).  We do not expect the adoption of this guidance to have a material impact on our Condensed Consolidated Financial Statements.

Known Events, Uncertainties and Trends:

Restaurant Closures

As discussed further in Note I to the Condensed Consolidated Financial Statements, on January 9, 2013, the Board of Directors of Ruby Tuesday, Inc. approved management’s plan to close all 13 Marlin & Ray’s restaurants, the Company’s one Wok Hay restaurant, and two of the Company-owned Lime Fresh restaurants in the third quarter of fiscal 2013.  The two Lime Fresh restaurants had been opened by the Company within the prior twelve months and were not among those purchased in April 2012.  We closed these restaurants on January 9, 2013.  Additionally, we announced on the same date our intention to seek a buyer for our two Truffles restaurants.  No buyer suitable to our landlords was found as of March 5, 2013 and we consequently opted, on April 7, 2013, to close the restaurants instead.  As a result of these decisions, pre-tax charges of $4.0 million and $20.4 million were recognized for asset impairments, including those of Truffles, lease reserves, and other closing costs within closures and impairments expense from discontinued operations for the 13 and 39 weeks ended March 5, 2013.  For the remainder of fiscal 2013, we anticipate incurring charges of approximately $1.0 million to $2.0 million associated with lease termination and other closing costs.  The actual amount of any cash payments made by the Company for lease contract termination costs will be dependent upon ongoing negotiations with the landlords of the leased restaurant properties.

Financial Strategy and Stock Repurchase Plan

Our financial strategy is to utilize a prudent amount of debt, including operating leases, letters of credit, and any guarantees, to minimize the weighted average cost of capital while allowing financial flexibility.  This strategy has periodically allowed us to repurchase RTI common stock.  During the first three quarters of fiscal 2013, we repurchased 4.1 million shares of RTI common stock at an aggregate cost of $30.1 million.  As of March 5, 2013, the total number of remaining shares authorized to be repurchased was 11.9 million.  To the extent not funded with cash on hand or cash from operating activities, additional repurchases, if any, may be funded by sale-leaseback transactions and borrowings on the Credit Facility.  The repurchase of shares in any particular future period and the actual amount thereof remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future.

47

Repurchases of Senior Notes

On August 10, 2012, we entered into an amendment of our Credit Facility which allows us to prepay up to $15.0 million of indebtedness in any fiscal year to various holders of the Senior Notes.  As discussed in Note H to the Condensed Consolidated Financial Statements, we repurchased $11.5 million of the Senior Notes during the 39 weeks ended March 5, 2013 for $10.9 million plus a negligible amount of accrued interest.  We realized a $0.6 million gain on these transactions.  As of the date of this filing, we may repurchase an additional $3.5 million of the Senior Notes during the remainder of fiscal 2013.  Future repurchases of the Senior Notes, if any, will be funded with available cash on hand, additional sale-leaseback transactions, or borrowings on the Credit Facility.

Transition of Chief Executive Officer

On June 6, 2012, we announced that Samuel E. Beall, III, our founder, President, Chief Executive Officer, and Chairman of the Board of Directors, had decided to step down from management and the Board of Directors.  Mr. Beall stepped down on November 30, 2012.

Mr. Beall is entitled to receive his entire $8.1 million pension payment in a lump-sum six months following his retirement and we therefore expect that this payment will be made near the end of fiscal 2013.  Due to the significance of Mr. Beall’s lump-sum payment to the Executive Supplemental Pension Plan liability as a whole, the payment will constitute a partial plan settlement which will require a special valuation.  In addition to the expense we routinely record for the Executive Supplemental Pension Plan, a charge estimated to approximate $2.8 million will then be recorded, representing the recognition of a pro rata portion (calculated as the percentage reduction in the projected benefit obligation due to the lump-sum payment) of the then unrecognized loss recorded within accumulated other comprehensive income.

On December 1, 2012, James J. Buettgen became President and CEO of the Company.  See Note L to the Condensed Consolidated Financial Statements for a discussion of share-based compensation awards Mr. Buettgen received upon his appointment as CEO.

Second Tranche of Sale-Leaseback Transactions

Over the last several fiscal quarters, we have been pursuing sale-leaseback transactions on a portion of our real estate in order to create financial flexibility.  We raised $51.9 million of gross proceeds from our first tranche of sale-leaseback transactions, with the proceeds being utilized for general corporate purposes, including the repurchase of shares of our common stock, capital expenditures, and debt reduction.

Based on the favorable capitalization rates that we realized on the last few transactions in our first sale-leaseback tranche, we are pursuing a smaller second tranche of up to 20 sale-leaseback properties in order to raise additional proceeds of approximately $40.0 million to $45.0 million, of which $11.1 million was realized through the third quarter of fiscal 2013.  Since March 5, 2013, we have raised an additional $5.2 million, and expect to raise an additional $10.0 million to $14.0 million during the remainder of fiscal 2013.  

American Taxpayer Relief Act of 2012

On January 2, 2013, the American Taxpayer Relief Act of 2012 (“ATRA”) was signed into law by President Barack Obama.  ATRA’s main tax features impacting the Company, among other features, include 15-year tax depreciation for qualified leasehold improvements and new restaurant construction, extension of 50% bonus depreciation for investment in qualified property placed in service prior to January 1, 2014, and a retroactive extension of the Work Opportunity Tax Credit and Empowerment Zones Tax Credit.

Dividends

During fiscal 1997, our Board of Directors approved a dividend policy as an additional means of returning capital to our shareholders.  Thepayment of a dividend in any particular period and the actual amount thereof remain at the discretion of the Board of Directors, and no assurance can be given that dividends will be paid in the future.

48

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Disclosures about Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in commodity prices.  The interest rate charged on our Credit Facility can vary based on the interest rate option we choose to utilize.  Our Base Rate for borrowings is defined to be the higher of Bank of America’s prime lending rate, the Federal Funds Rate plus 0.5%, or an adjusted LIBO Rate plus 1.00%, plus an applicable margin ranging from 0.25% to 1.50%.  The applicable margin for our Eurodollar Borrowings ranges from 1.25% to 2.50%.  As of March 5, 2013, the total amount of outstanding debt subject to interest rate fluctuations was $3.3 million.  A hypothetical 100 basis point change in short-term interest rates would result in an increase or decrease in interest expense of an insignificant amount per year, assuming a consistent capital structure.

Many of the ingredients used in the products we sell in our restaurants are commodities that are subject to unpredictable price volatility.  This volatility may be due to factors outside our control such as weather and seasonality.  We attempt to minimize the effect of price volatility by negotiating fixed price contracts for the supply of key ingredients.  Historically, and subject to competitive market conditions, we have been able to mitigate the negative impact of price volatility through adjustments to average check or menu mix.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and under the supervision of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 5, 2013.

Changes in Internal Controls

During the fiscal quarter ended March 5, 2013, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business, including claims relating to injury or wrongful death under “dram shop” laws, workers’ compensation and employment matters, claims relating to lease and contractual obligations, and claims from guests alleging illness or injury.  We provide reserves for such claims when payment is probable and estimable in accordance with U.S. generally accepted accounting principles.  At this time, in the opinion of management, the ultimate resolution of pending legal proceedings will not have a material adverse effect on our consolidated operations, financial position, or cash flows.  See Note M to the Condensed Consolidated Financial Statements for further information about our legal proceedings as of March 5, 2013.

49

ITEM 1A.  RISK FACTORS

Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended June 5, 2012 in Part I, Item 1A. Risk Factors.  There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table includes information regarding purchases of our common stock made by us during the quarter ending March 5, 2013:

	(a)	(b)	(c)	(d)
	Total number	Average	Total number of shares	Maximum number of shares
	of shares	price paid	purchased as part of publicly	that may yet be purchased
Period	purchased (1)	per share	announced plans or programs (1)	under the plans or programs (2)
Month #1
(December 5 to January 8)	399,524	$7.91	399,524	12,745,177
Month #2
(January 9 to February 5)	889,610	$7.83	889,610	11,855,567
Month #3
(February 6 to March 5)	1,800	$7.51	1,800	11,853,767

(1) No shares were repurchased other than through our publicly-announced repurchase programs and authorizations during the third quarter of our year ending June 4, 2013.

(2) As of March 5, 2013, 11.9 million shares remained available for purchase under existing programs.  The timing, price, quantity, and manner of the purchases to be made are at the discretion of management upon instruction from the Board of Directors, depending upon market conditions.  The repurchase of shares in any particular future period and the actual amount thereof remain at the discretion of the Board of Directors, and no assurance can be given that shares will be repurchased in the future.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.  OTHER INFORMATION

On April 10, 2013, Greg Ashley, Vice President – Finance, was appointed Vice President – Finance and Treasurer in conjunction with a realignment of reporting duties within the Company’s finance and accounting groups.  Prior to the realignment, Michael Moore, the Company’s Chief Financial Officer, was the Treasurer.  Mr. Moore’s title subsequent to the realignment is Executive Vice President – Chief Financial Officer and Assistant Secretary.

50

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:

 Exhibit No.

10	.1	Ruby Tuesday, Inc. Stock Incentive Plan, amended and restated as of April 10, 2013.
10	.2	Executive Compensation Committee Resolution Authorizing Termination of Ruby Tuesday, Inc.
		Group Health Care Plan Trust, approved as of April 9, 2013.
10	.3	Agreement for Separation of Employment, by and between Daniel P. Dillon and Ruby Tuesday, Inc.,
		dated as of March 4, 2013.
12	.1	Statement regarding computation of Consolidated Ratio of Earnings to Fixed Charges.
31	.1	Certification of James J. Buettgen, President and Chief Executive Officer.
31	.2	Certification of Michael O. Moore, Executive Vice President, Chief Financial Officer.
32	.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
		Sarbanes-Oxley Act of 2002.
32	.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
		Sarbanes-Oxley Act of 2002.
10	1.INS	XBRL Instance Document.
10	1.SCH	XBRL Schema Document.
10	1.CAL	XBRL Calculation Linkbase Document.
10	1.DEF	XBRL Definition Linkbase Document.
10	1.LAB	XBRL Labels Linkbase Document.
10	1.PRE	XBRL Presentation Linkbase Document.

51

SIGNATURES

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

RUBY TUESDAY, INC.

(Registrant)

Date: April 12, 2013  BY: /s/ MICHAEL O. MOORE —————————————— Michael O. Moore Executive Vice President – Chief Financial Officer and Assistant Secretary (Principal Financial Officer)

Date: April 12, 2013  BY: /s/ FRANKLIN E. SOUTHALL, JR. ————————————————— Franklin E. Southall, Jr. Vice President – Corporate Controller and Principal Accounting Officer (Principal Accounting Officer)

52