NOTE D – FISCAL 2011 BUSINESS AND LICENSE ACQUISITIONS

As part of our strategy to generate incremental revenue and EBITDA through new concept conversions and franchise partnership acquisitions, as discussed below, during fiscal 2011 we acquired 109 Ruby Tuesday restaurants, including 106 purchased from certain of our franchise partnerships and three purchased from a traditional domestic franchisee. Of these 109 Ruby Tuesday restaurants, the following 23 restaurants were acquired as the result of the acquisition of two franchise partnerships and a traditional domestic franchise during the first two quarters of fiscal 2011.

On August 4, 2010, we acquired the remaining 99% and 50% of the membership interests of RT Long Island Franchise, LLC (“RT Long Island”) and RT New England Franchise, LLC (“RT New England”), respectively, thereby increasing our ownership to 100% of these companies. RT Long Island and RT New England, previously franchise partnerships with 10 Ruby Tuesday restaurants each, were acquired for $0.2 million plus assumed debt. As further consideration for the RT Long Island transaction, we surrendered collection of the note receivable and line of credit due from the franchise. The note and line of credit, net of allowances for doubtful accounts and unearned revenue, totaled $0.4 million at the time of the transaction. RT Long Island and RT New England had total debt of $24.3 million at the time of acquisition, $1.9 million of which was payable to RTI.

On October 13, 2010, we acquired three Ruby Tuesday restaurants from a traditional domestic franchise in Kentucky for $1.6 million in cash.

We acquired the remaining 86 restaurants during the final two quarters of fiscal 2011, as follows.

On February 2, 2011, we acquired the remaining 50% of the membership interests of RT Western Missouri Franchise, LLC; RT Omaha Franchise, LLC; RT KCMO Franchise, LLC (“RT KCMO”); and RT St. Louis

Franchise, LLC; and the remaining 99% of the membership interests of RT Indianapolis Franchise, LLC (“RT Indianapolis”); RT Portland Franchise, LLC; and RT Denver Franchise, LP; thereby increasing our ownership to 100% of these seven companies. These franchise partnerships collectively operated 72 restaurants at the time of acquisition, and were acquired for $0.5 million plus assumed debt. As further consideration for these transactions, we surrendered collection of notes receivable and lines of credit due from certain of these franchisees. The notes and lines of credit, net of allowances for doubtful accounts, totaled $0.9 million at the time of the transactions. At the time of acquisition, these franchise partnerships had total debt of $106.6 million, $3.8 million of which was payable to RTI.

On February 25, 2011, we acquired one Ruby Tuesday restaurant from RT Utah Franchise, LLC (“RT Utah”), a franchise partnership in which we had a 1% ownership interest, for $2.0 million. Shortly before completion of this transaction, RT Utah closed its other five restaurants.

On May 4, 2011, we acquired the remaining 50% of the membership interest of RT Minneapolis Franchise, LLC; and the remaining 99% of the membership interest of RT Las Vegas Franchise, LLC; thereby increasing our ownership to 100% of these two companies. These franchise partnerships collectively operated 13 restaurants at the time of acquisition, and were acquired for assumed debt. At the time of acquisition, these franchise partnerships had total debt of $18.7 million, $0.9 million of which was payable to RTI.

Our Condensed Consolidated Financial Statements reflect the results of operations of these acquired restaurants subsequent to the dates of acquisition.

The purchase prices of acquisitions during fiscal 2011 have preliminarily been allocated based on initial fair value estimates as follows (in thousands):

Property and equipment	$	137,075
Goodwill		15,571
Reacquired franchise rights		10,242
Other intangible assets, net of liabilities of $1,288		735
Deferred income taxes		380
Long-term debt and capital leases		(147,005	)
Other net liabilities		(4,536	)
Notes receivable		(1,529	)
Net impact on fiscal 2011 Consolidated Balance Sheet		10,933

Gain on settlement of preexisting contracts, net		(4,906	)
Gain on acquisitions		(1,770	)
Net impact on fiscal 2011 Consolidated Statement of Income		(6,676	)
Aggregate cash purchase prices	$	4,257

The RT Long Island, RT Indianapolis, and RT KCMO acquisitions were considered bargain purchases as the purchase prices were less than the values assigned to the assets and liabilities acquired. For the 26 weeks ended November 30, 2010, a preliminary bargain purchase gain of $2.6 million, as well as a $1.0 million loss on settlement of preexisting contracts, was included in Other restaurant operating costs in our Condensed Consolidated Statements of Operations. These preliminary estimates were adjusted in subsequent quarters as additional information was received. The amounts in the table above include the revised amounts for RT Long Island and RT New England, which were acquired during the first quarter of fiscal 2011, as well as amounts recorded for RT Indianapolis and RT KCMO.

We recorded $15.6 million of goodwill due to the purchase price exceeding the estimated fair value of the net assets acquired in certain of the acquisitions. Of the goodwill recorded, we anticipate that approximately $8.2 million will be nondeductible for tax purposes.

We amortize the $10.2 million of reacquired franchise rights associated with these acquisitions on a straight-line basis over the remaining term of the franchise operating agreements, which are approximately two to 12 years from the dates of acquisition.

Other intangible assets, net of liabilities consist of assets and liabilities resulting from the terms of acquired operating lease contracts being favorable or unfavorable relative to market terms of comparable leases on the acquisition date. These assets and liabilities totaled $2.0 million and $1.3 million, respectively, at the time of acquisition and will be amortized as a component of rent expense over the remaining lives of the leases, which are approximately one to 33 years.

The table below shows operating results attributable to the restaurants acquired from franchisees in fiscal 2011 that are included in our Condensed Consolidated Statements of Operations for the 13 and 26 weeks ended November 29, 2011 and November 30, 2010 (in thousands). Amounts shown for the 13 and 26 weeks ended November 29, 2011 include results for all 109 restaurants acquired during fiscal 2011 while amounts shown for the 13 and 26 weeks ended November 30, 2010 include results for the 23 restaurants acquired during the first two quarters of fiscal 2011 (from August 4, 2010 or October 13, 2010, the dates of acquisition, through November 30, 2010).

	(Unaudited)
	Thirteen weeks ended					Twenty-six weeks ended
	November 29, 2011			November 30, 2010		November 29, 2011		November 30, 2010
Total revenue	$	41,271		$	10,191	$	86,891	$	13,327

Cost of merchandise		12,243			2,954		25,637		3,826
Payroll and related costs		15,128			3,441		30,964		4,403
Other restaurant operating costs		9,010			2,391		18,775		3,104
Depreciation		2,183			698		4,267		817
Selling, general, and administrative, net		2,762			630		5,848		798
		41,326			10,114		85,491		12,948
(Loss)/income before income taxes	$	(55	)	$	77	$	1,400	$	379

The following table presents supplemental pro forma information for the 13 and 26 weeks ended November 30, 2010 as if the 106 restaurants acquired during fiscal 2011 from franchise partnerships had occurred on June 2, 2010 for the 13 and 26 weeks ended November 30, 2010 (in thousands except per-share data):

	(Unaudited)
	Thirteen weeks ended		Twenty-six weeks ended
	November 30, 2010		November 30, 2010

Total revenue	$	325,753	$	672,772
Net income	$	4,643	$	17,075
Basic earnings per share	$	0.07	$	0.27
Diluted earnings per share	$	0.07	$	0.26

The unaudited pro forma consolidated results were prepared using the acquisition method of accounting and are based on the historical financial information of RTI and the franchises, reflected in fiscal 2011 RTI and franchise results of operations. The historical financial information has been adjusted to give effect to the pro forma events that are: (1) directly attributable to the acquisitions, (2) factually supportable and (3) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the acquisitions on June 2, 2010. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company nor do they reflect the expected realization of any cost savings or otherwise improved profits associated with the acquisitions. The unaudited pro forma consolidated results for the 13 and 26 weeks ended November 30, 2010 reflect the following pro forma pre-tax adjustments:

·	Elimination of the franchises' historical intangible asset amortization expense (negligible and approximately $0.1 million, respectively).

·	Elimination of RTI's franchise revenue (negligible and approximately $0.4 million, respectively).

·	Elimination of RTI's support service fee income and marketing reimbursements (approximately $0.2 million and $1.3 million, respectively).

·	Elimination of RTI's equity in earnings of unconsolidated franchises (negligible and approximately $0.2 million, respectively).

·	Elimination of RTI's bad debt charges relating to notes receivable and lines of credit due from the acquired franchises (approximately $0.1 million of expense and $0.1 million of income, respectively).

·	Additional amortization expense (approximately $0.3 million and $0.7 million, respectively) related to reacquired franchise rights.

·	Additional depreciation expense (approximately $0.2 million and $0.5 million, respectively) related to the fair value adjustments to property and equipment acquired.

·	Reduced interest expense (approximately $0.3 million and $0.6 million, respectively) related to the fair value adjustments of acquired franchise debt.

All of the above adjustments were adjusted for the applicable tax impact, which for the above would be the statutory tax rate of 39.7%. In addition, the pro forma net income and earnings per share amounts presented above reflect our estimates of the franchises' FICA Tip and Work Opportunity Tax Credits for the portions of the fiscal year prior to the dates of acquisition. These credits were $0.2 million and $0.5 million, respectively, for the 13 and 26 weeks ended November 30, 2010.

License Acquisitions

On September 13, 2010, we entered into a licensing agreement with LFMG International, LLC which allows us to operate multiple restaurants under the Lime Fresh Mexican Grill® (“Lime”) name. Lime is a fast-casual Mexican concept that currently operates several restaurants primarily in the vicinity of Miami, Florida. The Lime concept menu features items such as homemade tortilla chips, customizable nachos, flautas, salads, soups, fajitas, quesadillas, tacos, burritos, and salsa and guacamole. Under the terms of the agreement, we paid an initial development fee of $1.0 million and will pay a license agreement fee of $5,000 for each Lime restaurant we open up to a maximum of 200 restaurants. In addition, we will pay a royalty fee of 2.0%, and an advertising fee of 1.0%, of gross sales of any Lime restaurant that we open. LFMG International, LLC has the option to terminate future development rights if we do not operate at least 12 Lime restaurants within the first two years of the effective date of the licensing agreement or open at least six restaurants per year for the remainder of the 20-year agreement. As of November 29, 2011, we owned and operated one Lime restaurant. Management has yet to determine how many additional Lime restaurants will be opened.

Additionally, 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 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, and 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 will pay a licensing fee to Gourmet Market, Inc. of 2.0% of gross sales of any Truffles we open. Additionally, we will pay 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 will pay $20,833 per month for such services. During the second 12 months of the agreement we will pay either $20,833 per month if we have a communicated plan to develop three or more Truffles restaurants or $10,417 per month if we have a communicated plan to develop two or fewer Truffles restaurants. 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. Management has yet to determine if it will open 18 or more Truffles restaurants within five years or 40 or more Truffles within 10 years. We opened our first Truffles in Atlanta, Georgia in December 2010 and our second in Orlando, Florida in November 2011. During the 13 and 26 weeks ended November 29, 2011 and November 30, 2010, we paid Gourmet Market, Inc. $38,265 and $98,097, and $62,500 and $83,333, respectively, under the terms of the agreement.