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:  December 3, 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 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

61,425,092

(Number of shares of common stock, $0.01 par value, outstanding as of January 7, 2014)

RUBY TUESDAY, INC.

INDEX

	Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 3, 2013 AND JUNE 4, 2013	4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS FOR THE THIRTEEN AND TWENTY-SIX
WEEKS ENDED DECEMBER 3, 2013 AND DECEMBER 4, 2012	5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED
DECEMBER 3, 2013 AND DECEMBER 4, 2012	6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS	7-31
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS	32-49
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK	50
ITEM 4. CONTROLS AND PROCEDURES	50
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	51
ITEM 1A. RISK FACTORS	51
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	51
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	51
ITEM 4. MINE SAFETY DISCLOSURES	51
ITEM 5. OTHER INFORMATION	52
ITEM 6. EXHIBITS	52
SIGNATURES	53

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, future capital expenditures, future borrowings and repayments of debt, availability of financing on terms attractive to the Company, compliance with financial covenants in our debt instruments, restaurant growth (both Company-owned and franchised), 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, 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 customers’ 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;

·   customers’ acceptance of changes in menu items;

·   changes in the availability and cost of capital;

·   potential limitations imposed by debt covenants under our debt instruments;

·   mall-traffic trends;

·   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;

·   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)

	DECEMBER 3,			JUNE 4,
	2013			2013
Assets	(NOTE A)
Current assets:
Cash and cash equivalents	$	23,618		$	52,907
Accounts receivable		5,779			4,834
Inventories:
Merchandise		18,220			21,779
China, silver and supplies		9,195			9,093
Income tax receivable		5,343			1,900
Deferred income taxes		4,579			7,296
Prepaid rent and other expenses		14,293			14,180
Assets held for sale		4,432			9,175
Total current assets		85,459			121,164
Property and equipment, net		824,160			859,830
Other assets		62,823			62,189
Total assets	$	972,442		$	1,043,183
Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	25,264		$	14,964
Accrued liabilities:
Taxes, other than income and payroll		11,241			11,311
Payroll and related costs		21,977			25,425
Insurance		8,120			9,095
Deferred revenue – gift cards		15,664			13,454
Rent and other		25,926			22,896
Current portion of long-term debt, including capital leases		9,838			8,487
Total current liabilities		118,030			105,632
Long-term debt and capital leases, less current maturities		263,304			290,515
Deferred income taxes		2,778			5,753
Deferred escalating minimum rent		48,583			46,892
Other deferred liabilities		73,498			77,556
Total liabilities		506,193			526,348
Commitments and contingencies (Note N)
Shareholders’ equity:
Common stock, $0.01 par value; (authorized: 100,000 shares;
issued: 61,415 shares at 12/03/13; 61,248 shares at 6/04/13)		614			612
Capital in excess of par value		72,678			67,596
Retained earnings		402,947			459,572
Deferred compensation liability payable in
Company stock		638			1,094
Company stock held by Deferred Compensation Plan		(638	)		(1,094	)
Accumulated other comprehensive loss		(9,990	)		(10,945	)
Total shareholders’ equity		466,249			516,835
Total liabilities & shareholders’ equity	$	972,442		$	1,043,183

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

4

RUBY TUESDAY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(IN THOUSANDS EXCEPT PER-SHARE DATA)

(UNAUDITED)

	THIRTEEN WEEKS ENDED						TWENTY-SIX WEEKS ENDED
		DECEMBER 3,			DECEMBER 4,			DECEMBER 3,			DECEMBER 4,
		2013			2012			2013			2012
	(NOTE A)						(NOTE A)
Revenue:
Restaurant sales and operating revenue	$	274,719		$	298,597		$	562,811		$	624,864
Franchise revenue		1,490			1,480			3,072			3,136
		276,209			300,077			565,883			628,000
Operating costs and expenses:
Cost of merchandise		77,669			82,847			157,607			170,710
Payroll and related costs		97,517			100,731			200,250			207,923
Other restaurant operating costs		65,289			65,648			132,823			131,502
Depreciation		13,915			14,677			28,124			29,688
Selling, general and administrative, net		37,031			38,541			74,046			81,548
Closures and impairments, net		14,143			1,891			22,176			2,978
Interest expense, net		6,620			6,765			13,373			13,555
Loss/(gain) on extinguishment of debt		672			(155	)		1,183			(155	)
		312,856			310,945			629,582			637,749
Loss from continuing operations before
income taxes		(36,647	)		(10,868	)		(63,699	)		(9,749	)
Benefit for income taxes from continuing
operations		(1,910	)		(6,664	)		(7,063	)		(8,619	)
Loss from continuing operations		(34,737	)		(4,204	)		(56,636	)		(1,130	)
Gain/(loss) from discontinued operations, net of tax		354			(10,864	)		11			(11,339	)
Net loss	$	(34,383	)	$	(15,068	)	$	(56,625	)	$	(12,469	)
Other comprehensive income:
Pension liability reclassification, net of tax		477			380			955			761
Total comprehensive loss	$	(33,906	)	$	(14,688	)	$	(55,670	)	$	(11,708	)
Basic loss per share:
Loss from continuing operations	$	(0.58	)	$	(0.07	)	$	(0.94	)	$	(0.02	)
Gain/(loss) from discontinued operations		0.01			(0.17	)		0.00			(0.18	)
Net loss per share	$	(0.57	)	$	(0.24	)	$	(0.94	)	$	(0.20	)
Diluted loss per share:
Loss from continuing operations	$	(0.58	)	$	(0.07	)	$	(0.94	)	$	(0.02	)
Gain/(loss) from discontinued operations		0.01			(0.17	)		0.00			(0.18	)
Net loss per share	$	(0.57	)	$	(0.24	)	$	(0.94	)	$	(0.20	)
Weighted average shares:
Basic		60,196			62,005			60,111			62,409
Diluted		60,196			62,005			60,111			62,409
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)

	TWENTY-SIX WEEKS ENDED
	DECEMBER 3, 2013			DECEMBER 4, 2012
	(NOTE A)
Operating activities:
Net loss	$	(56,625	)	$	(12,469	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation		28,124			30,512
Amortization		1,370			2,436
Deferred income taxes		(259	)		(21,407	)
Loss on impairments, including disposition of assets		17,746			18,756
Loss/(gain) on extinguishment of debt		1,183			(155	)
Share-based compensation expense		4,049			1,609
Excess tax benefits from share-based compensation		(283	)		(11	)
Lease reserve adjustments		4,205			379
Deferred escalating minimum rent		1,397			1,740
Other, net		1,847			(680	)
Changes in operating assets and liabilities:
Receivables		(937	)		(2,071	)
Inventories		3,457			(10,315	)
Income taxes		(3,443	)		(985	)
Prepaid and other assets		(1,187	)		91
Accounts payable, accrued and other liabilities		(216	)		(6,821	)
Net cash provided by operating activities		428			609
Investing activities:
Purchases of property and equipment		(17,697	)		(18,505	)
Proceeds from sale-leaseback transactions, net		5,637			30,408
Proceeds from disposal of assets		8,457			2,085
Insurance proceeds from property claims		218			–
Reductions in Deferred Compensation Plan assets		115			498
Other, net		(146	)		(372	)
Net cash (used)/provided by investing activities		(3,416	)		14,114
Financing activities:
Principal payments on long-term debt		(25,806	)		(17,485	)
Stock repurchases		(540	)		(20,012	)
Payments for debt issuance costs		(1,718	)		–
Proceeds from exercise of stock options		1,480			173
Excess tax benefits from share-based compensation		283			11
Net cash used by financing activities		(26,301	)		(37,313	)
Decrease in cash and cash equivalents		(29,289	)		(22,590	)
Cash and cash equivalents:
Beginning of year		52,907			48,184
End of quarter	$	23,618		$	25,594
Supplemental disclosure of cash flow information:
Cash paid for:
Interest, net of amount capitalized	$	11,813		$	12,806
Income taxes, net	$	477		$	3,517
Significant non-cash investing and financing activities:
Retirement of fully depreciated assets	$	11,292		$	38,490
Reclassification of properties to assets held for sale	$	3,816		$	763

        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® casual dining and Lime Fresh Mexican Grill® (“Lime Fresh”) fast casual 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 26-week periods ended December 3, 2013 are not necessarily indicative of results that may be expected for the 52-week year ending June 3, 2014.

The Condensed Consolidated Balance Sheet at June 4, 2013 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.  In addition to the reclassification of $0.4 million from Interest expense, net to Gain on extinguishment of debt for both the 13 and 26 weeks ended December 4, 2012, we made certain reclassifications to prior year amounts in our Condensed Consolidated Statements of Operations and Comprehensive Loss to reclassify the results of operations of our discontinued concepts as discontinued operations for all periods presented.  We also made certain reclassifications to prior year amounts in our Condensed Consolidated Statements of Cash Flows to conform to current period presentation (all reclassifications were within Operating activities).

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 4, 2013.

NOTE B – LOSS PER SHARE AND STOCK REPURCHASES

Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during each period presented.  Diluted loss per share 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 Loss (in thousands, except per-share data):

	Thirteen weeks ended						Twenty-six weeks ended
	December 3, 2013			December 4,  2012			December 3,  2013			December 4,  2012
Loss from continuing operations	$	(34,737	)	$	(4,204	)	$	(56,636	)	$	(1,130	)
Gain/(loss) from discontinued operations, net of tax		354			(10,864	)		11			(11,339	)
Net loss	$	(34,383	)	$	(15,068	)	$	(56,625	)	$	(12,469	)
Weighted-average common
shares outstanding		60,196			62,005			60,111			62,409
Dilutive effect of stock
options and restricted stock		–			–			–			–
Weighted average common
and dilutive potential
common shares outstanding		60,196			62,005			60,111			62,409
Loss per share – Basic
Loss from continuing operations	$	(0.58	)	$	(0.07	)	$	(0.94	)	$	(0.02	)
Gain/(loss) from discontinued operations		0.01			(0.17	)		0.00			(0.18	)
Net loss per share	$	(0.57	)	$	(0.24	)	$	(0.94	)	$	(0.20	)

7

Loss per share – Diluted
Loss from continuing operations	$	(0.58	)	$	(0.07	)	$	(0.94	)	$	(0.02	)
Gain/(loss) from discontinued operations		0.01			(0.17	)		0.00			(0.18	)
Net loss per share	$	(0.57	)	$	(0.24	)	$	(0.94	)	$	(0.20	)

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 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 loss per share because their inclusion would have had an anti-dilutive effect (in thousands):

	Thirteen weeks ended						Twenty-six weeks ended
	December 3,  2013			December 4, 2012			December 3, 2013			December 4, 2012
Stock options		2,839	*		3,371	*		2,977	*		3,002	*
Restricted shares		1,074	*		1,647	*		1,160	*		1,376	*
Total		3,913			5,018			4,137			4,378

* Due to a net loss for the 13 and 26 weeks ended December 3, 2013 and December 4, 2012, all then outstanding share-based awards were excluded from the computation of diluted loss per share.

During the first 26 weeks of fiscal 2014, we repurchased 0.1 million shares of our common stock at a cost of $0.5 million.  As of December 3, 2013, the total number of remaining shares authorized by our Board of Directors to be repurchased was 11.8 million.  All shares repurchased during the 26 week period were cancelled as of December 3, 2013.

NOTE C – FRANCHISE PROGRAMS

As of December 3, 2013, our domestic and international franchisees collectively operated 76 Ruby Tuesday restaurants and eight 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 for Ruby Tuesday concept franchisees and 5.25% of monthly sales for Lime Fresh concept franchisees) and require all of our Ruby Tuesday domestic franchisees to contribute a percentage, 1.5% as of December 3, 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 Loss.

In addition to the advertising fee discussed above, our Ruby Tuesday concept franchise agreements allow us to charge up to a 2.0% support service fee and a 1.5% marketing and purchasing fee.  For the 13 and 26 weeks ended December 3, 2013 and December 4, 2012, we recorded $0.3 million and $0.5 million, respectively in fiscal 2014, and $0.1 million and $0.4 million, respectively in fiscal 2013, in support service and marketing and purchasing fees, which were an offset to Selling, general and administrative, net in our Condensed Consolidated Statements of Operations and Comprehensive Loss.

8

NOTE D – DISCONTINUED OPERATIONS

In an effort to focus primarily on the successful sales turnaround of our core Ruby Tuesday concept and secondly, to improve the financial performance of our Lime Fresh concept, we closed all 13 Marlin & Ray’s restaurants, the Company’s one Wok Hay restaurant, and our two Truffles restaurants during fiscal 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					Twenty-six weeks ended
	December 3, 2013		December 4, 2012			December 3, 2013			December 4, 2012
Restaurant sales and operating revenue	$	–	$	4,156		$	–		$	9,154
Gain/(loss) before income taxes	$	453	$	(17,919	)	$	(75	)	$	(18,767	)
Provision/(benefit) for income taxes		99		(7,055	)		(86	)		(7,428	)
Gain/(loss) from discontinued operations	$	354	$	(10,864	)	$	11		$	(11,339	)

As of December 3, 2013 and June 4, 2013, we had $0.8 million and $2.8 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  December 3, 2013 and June 4, 2013 Condensed Consolidated Balance Sheet are $1.3 million and $4.2 million, respectively, 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 December 3, 2013 and June 4, 2013 associated with the closed concept restaurants.

NOTE E – ACCOUNTS RECEIVABLE

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

	December 3, 2013		June 4, 2013
Rebates receivable	$	1,088	$	874
Amounts due from franchisees		1,393		917
Other receivables		3,298		3,043
	$	5,779	$	4,834

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.

As of December 3, 2013 and June 4, 2013, Other receivables consisted primarily of amounts due for third-party gift card sales ($1.8 million for both periods), amounts due from our distributor ($0.7 million and $0.4 million, respectively), and amounts due from landlords ($0.1 million and $0.5 million, respectively).

NOTE F – INVENTORIES

Our merchandise inventory was $18.2 million and $21.8 million as of December 3, 2013 and June 4, 2013, respectively.  In order to ensure adequate supply and competitive pricing, we have historically purchased lobster in advance of our needs and stored it in third-party facilities prior to our distributor taking possession of the inventory.  The decrease in merchandise inventory from the end of the prior fiscal year is due primarily to a reduction in lobster inventory as we have suspended the advance purchasing of lobster to utilize the lobster that is currently on hand.

9

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

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

	December 3, 2013		June 4, 2013
Land	$	218,759	$	222,385
Buildings		439,591		448,681
Improvements		377,432		402,371
Restaurant equipment		253,559		260,576
Other equipment		85,798		91,351
Construction in progress and other*		18,977		23,080
		1,394,116		1,448,444
Less accumulated depreciation		569,956		588,614
	$	824,160	$	859,830

* Included in Construction in progress and other as of December 3, 2013 and June 4, 2013 are $13.5 million and $14.8 million, respectively, of assets held for sale that are not classified as such in the Condensed 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 December 3, 2013 and June 4, 2013 are amounts classified as held for sale totaling $4.4 million and $9.2 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 26 weeks ended December 3, 2013, we sold surplus properties with carrying values of $5.6 million and $8.2 million, respectively, at net gains of $0.3 million and $0.2 million, respectively.  Cash proceeds, net of broker fees, from these sales during the 13 and 26 weeks ended December 3, 2013 totaled $5.8 million and $8.4 million, respectively.  During the 13 and 26 weeks ended December 4, 2012, we sold surplus properties with carrying values of $1.6 million at net gains of $0.5 million for both periods.  Cash proceeds, net of broker fees, from these sales during the 13 and 26 weeks ended December 4, 2012 totaled $2.1 million for both periods.

Approximately 56% of our 724 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 26 weeks ended December 3, 2013, we completed sale-leaseback transactions of the land and building for three Company-owned Ruby Tuesday concept restaurants for gross cash proceeds of $5.9 million, exclusive of transaction costs of approximately $0.3 million.  Equipment was not included.  The carrying value of the properties sold was $4.8 million.  None of these sale-leaseback transactions occurred during the 13 weeks ended December 3, 2013.  During the 13 and 26 weeks ended December 4, 2012, we completed sale-leaseback transactions of the land and building for five and 14 Company-owned Ruby Tuesday concept restaurants, respectively, for gross cash proceeds of $11.7 million and $32.0 million, respectively, exclusive of transaction costs of approximately $0.6 million and $1.6 million, respectively.  Equipment was not included.  The carrying value of the properties sold was $8.4 million and $22.7 million, respectively.  The leases have been classified as operating leases and have initial terms of 15 years, with renewal options of up to 20 years following a rent reset based on fair market value at the end of the initial term.  Net proceeds from fiscal 2013 and 2014’s sale-leaseback transactions have been used for general corporate purposes, including debt payments and the repurchase of shares of our common stock.

10

We realized gains on these transactions during the 26 weeks ended December 3, 2013 and December 4, 2012 of $0.8 million and $7.7 million, respectively, and during the 13 weeks ended December 4, 2012 of $2.7 million, 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 $1.1 million and $1.0 million as of December 3, 2013 and June 4, 2013, 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 $13.5 million and $13.2 million as of December 3, 2013 and June 4, 2013, respectively, and is included in Other deferred liabilities in our Condensed Consolidated Balance Sheets.  Amortization of the deferred gains of $0.3 million and $0.5 million for the 13 and 26 weeks ended December 3, 2013, respectively, and $0.2 million and $0.3 million for the 13 and 26 weeks ended December 4, 2012, respectively, is included within Other restaurant operating costs in our Condensed Consolidated Statement of Operations and Comprehensive Loss.

NOTE H – LONG-TERM DEBT AND CAPITAL LEASES

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

	December 3, 2013			June 4, 2013
Senior unsecured notes	$	222,113		$	235,000
Unamortized discount		(2,753	)		(3,083	)
Senior unsecured notes less unamortized discount		219,360			231,917
Revolving credit facility		–			–
Mortgage loan obligations		53,601			66,883
Capital lease obligations		181			202
		273,142			299,002
Less current maturities		9,838			8,487
	$	263,304		$	290,515

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 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 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

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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.

Under the terms of our December 2013 four-year revolving credit agreement (the “Senior Credit Facility” discussed below) we are allowed, under certain circumstances, to repurchase up to $20.0 million of the Senior Notes in any fiscal year.  During the 26 weeks ended December 3, 2013, we repurchased $12.9 million of the Senior Notes for $13.0 million plus $0.2 million of accrued interest.  We realized losses of $0.5 million on these transactions.  The balance on the Senior Notes was $222.1 million at December 3, 2013 as a result of these repurchases.

On December 3, 2013, we entered into the Senior Credit Facility under which we may borrow up to $50.0 million with the option, subject to certain conditions, to increase the facility by up to $35.0 million.  The Senior Credit Facility, which was obtained to provide capital for general corporate purposes, replaced a previous five-year $200.0 million credit facility that was set to expire in December 2015.  The terms of the Senior Credit Facility provide for a $25.0 million sublimit for the issuance of standby letters of credit.  In connection with entering into the Senior Credit Facility, included within Interest expense, net and Loss/(gain) on extinguishment of debt in our Condensed Consolidated Statements of Operations for the 13 and 26 weeks ended December 3, 2013 are charges of $0.2 million and $0.7 million, respectively, relating to the write-off of the pro rata portion of unamortized debt issuance costs associated with our previous credit facility.

Under the Senior Credit Facility, interest rates charged on borrowings can vary depending on the interest rate option we choose to utilize.  Our options for the rate are a Base Rate or LIBOR, plus an applicable margin.  The Base Rate is defined as the highest of the issuing bank’s prime rate, the Federal Funds rate plus 0.50%, or the Adjusted LIBO rate (as defined in the Senior Credit Facility) plus 1.0%.  The applicable margin for the LIBOR rate-based option is a percentage ranging from 2.50% to 3.50% and for the Base Rate option is a percentage ranging from 1.50% to 2.50%.  We pay commitment fees quarterly ranging from 0.40% to 0.75% on the unused portion of the Senior Credit Facility.

As security for the Senior Credit Facility, we granted the lenders liens and security interests in substantially all of the shares of capital stock of the Company and each of our present and future subsidiaries and substantially all of the personal property of the Company and each of our present and future subsidiaries. Further, we are substantially complete in the process of finalizing a listing of approximately 50 Ruby Tuesday restaurants whose real property, improvements and fixtures would provide additional collateral with a fair market value of approximately $100.0 million as of December 3, 2013.  While the Company has no plans to borrow on the Senior Credit Facility prior to finalization of the collateral, there can be no assurance that the full amount of $50.0 million would be available until we are able to do so.

Under the terms of the Senior Credit Facility, we had no borrowings outstanding at December 3, 2013.  After consideration of letters of credit outstanding, we had $37.6 million available under the Senior Credit Facility as of December 3, 2013.

The Senior Credit Facility contains a number of customary affirmative and negative covenants that, among other things, 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 Senior 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.  The terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than 4.50 to 1.0 and a minimum fixed charge coverage ratio of 1.50 to 1.0 for the quarter ended December 3, 2013.  For the remainder of fiscal 2014, the terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than 4.75 to 1.0 and 5.00 to 1.0 for the quarters ending March 4, 2014 and June 3, 2014, respectively, and a minimum fixed charge coverage ratio of 1.40 to 1.0 and 1.30 to 1.0 for the quarters ending March 4, 2014 and June 3, 2014, respectively.  The minimum required ratios fluctuate thereafter as provided in Article VII of the Senior Credit Facility.

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The Senior Credit Facility terminates not later than December 3, 2017.  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 Senior Credit Facility and any ancillary loan documents.

On December 3, 2013, in connection with our entry into the Senior Credit Facility, the Company and certain of its subsidiaries entered into loan modification agreements (the “Loan Modification Agreements”) with certain mortgage lenders to, among other things, provide waivers and consents under certain of our mortgage loan obligations to enter into the Senior Credit Facility.  The Loan Modification Agreements also, among other things, amend certain financial reporting requirements under the specified loans and modify and/or provide for certain financial covenants for the specified loans, including the minimum consolidated fixed charge coverage ratio and the minimum adjusted total debt to EBITDAR ratio.  In conjunction with one of the loan modification agreements, on January 2, 2014,  we paid approximately $5.0 million to retire a specified portion of certain mortgage loan obligations.

Our $53.6 million in mortgage loan obligations as of December 3, 2013 consists of various loans acquired upon franchise acquisitions.  These loans, which mature between February 2014 and November 2022, have balances which range from $0.1 million to $7.8 million and interest rates of 7.60% to 10.92%.  Many of the properties acquired from franchisees collateralize the loans outstanding.

NOTE I – CLOSURES AND IMPAIRMENTS EXPENSE

Closures and impairments, net include the following for the 13 and 26 weeks ended December 3, 2013 and December 4, 2012 (in thousands):

	Thirteen weeks ended						Twenty-six weeks ended
	December 3, 2013			December 4, 2012			December 3, 2013		December 4, 2012
Closures and impairments from
continuing operations:
Property impairments	$	12,318		$	2,212		$	17,248	$	2,660
Closed restaurant lease reserves		1,702			(99	)		4,297		375
Other closing costs		110			285			578		541
Loss/(gain) on sale of surplus properties		13			(507	)		53		(598	)
Closures and impairments, net	$	14,143		$	1,891		$	22,176	$	2,978
Closures and impairments from
discontinued operations	$	(453	)	$	16,360		$	65	$	16,397

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

	Lease Obligations
	Continuing Operations			Discontinued Concepts			Total
Balance at June 4, 2013	$	6,417		$	2,310		$	8,727
Closing expense including rent and other lease charges		4,297			(92	)		4,205
Payments		(2,503	)		(821	)		(3,324	)
Other adjustments		42			–			42
Balance at December 3, 2013	$	8,253		$	1,397		$	9,650

For the remainder of fiscal 2014 and beyond, our focus will be on obtaining settlements, or subleases as necessary, 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.

As also discussed in Note R to the Condensed Consolidated Financial Statements, on January 7, 2014, the Board of Directors of Ruby Tuesday, Inc. approved a plan to close approximately 27 Ruby Tuesday concept restaurants in the third quarter of fiscal 2014 and three more in the fourth quarter.  Of the 30 restaurants, approximately half are planned to close upon expiration of their lease.  Included within Closures and impairments, net for the 13 and 26 weeks ended December 3, 2013 are impairment charges of $4.4 million in connection with the planned closures.

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In addition to the impairment charges recorded in connection with the planned closures discussed above, during the 13 weeks ended December 3, 2013 we recorded $5.7 million of impairments relating to nine open restaurants with deteriorating operational performance.  At December 3, 2013, we had 58 restaurants that had been open more than one year with rolling 12-month negative cash flows of which 43 have been impaired to salvage value.  Of the 15 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 15 restaurants, six of which are located on owned properties, was $13.7 million at December 3, 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 2014.

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.

To provide a source for the payment of benefits under our non-qualified pension plans, we own whole-life insurance contracts on certain employees.  These policies are maintained in a rabbi trust.  During the second quarter of fiscal 2014, we sold certain of these policies, the proceeds from which we expect to reinvest in new policies during the third quarter of fiscal 2014.  As a result of the sale of these policies, we classified the $8.8 million restricted cash as Other assets in the noncurrent section of our December 3, 2013 Condensed Consolidated Balance Sheet.

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.

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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								Twenty-six weeks ended
	December 3,				December 4,				December 3,				December 4,
	2013				2012				2013				2012
Service cost		$	89			$	115			$	178			$	230
Interest cost			434				525				868				1,050
Expected return on plan assets			(111	)			(102	)			(222	)			(204	)
Amortization of prior service cost (a)			–				26				–				52
Recognized actuarial loss			428				565				856				1,130
Net periodic benefit cost		$	840			$	1,129			$	1,680			$	2,258

	Postretirement Medical and Life Benefits
	Thirteen weeks ended								Twenty-six weeks ended
	December 3,				December 4,				December 3,				December 4,
	2013				2012				2013				2012
Service cost		$	3			$	3			$	6			$	6
Interest cost			17				15				34				30
Amortization of prior service cost (a)			(11	)			(14	)			(22	)			(28	)
Recognized actuarial loss			61				53				122				106
Net periodic benefit cost		$	70			$	57			$	140			$	114

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

During the 13 and 26 weeks ended December 3, 2013, we reclassified $0.5 million and $1.0 million, respectively, of amortized prior service costs and recognized actuarial losses out of accumulated other comprehensive loss and into pension expense, which is included in Selling, general and administrative, net within our Condensed Consolidated Statements of Operations.

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 4, 2013.

Executive Separations and Corporate Support Services Restructuring

On June 7, 2013, our then Executive Vice President, Chief Operations Officer separated employment with the Company.  During the first quarter of fiscal 2014, we recorded severance expense of $0.9 million in connection with the separation agreement for the former executive, which represents obligations pursuant to the Ruby Tuesday, Inc. Severance Pay Plan (the “Severance Plan”) of two times base salary.  Of this amount, $0.5 million was paid to the former executive during the 13 weeks ended September 3, 2013, and the remaining $0.4 million was paid subsequent to December 3, 2013 in accordance with the Severance Plan.

On October 7, 2013, the Company terminated the Severance Plan.

On October 30, 2013, our then Senior Vice President, Chief People Officer separated employment with the Company.  During the second quarter of fiscal 2014, we recorded severance expense of $0.4 million in connection with his separation agreement, an amount representing one year of his annual base salary plus his remaining vacation for fiscal 2014.  Of this amount, an insignificant portion was paid during the quarter and the remaining amounts will be paid over three future installments.

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On November 20, 2013, we eliminated approximately 50 support center management and staff personnel at our Restaurant Support Services Center in Maryville, Tennessee.  These reductions occurred in connection with an ongoing comprehensive review of our cost structure.  These employee separations resulted in second quarter fiscal 2014 transition-related costs of $2.0 million for employee severance and unused vacation.

As of December 3, 2013, a liability of $2.4 million representing unpaid obligations in connection with the restructuring was included within Accrued liabilities: Payroll and related costs in our Condensed Consolidated Balance Sheet.  A roll forward of our obligations in connection with employee separations is as follows (in thousands):

Balance at June 4, 2013	$	310
Employee severance and unused vacation accruals		3,212
Cash payments		(1,139	)
Balance at December 3, 2013	$	2,383

See Notes L and R to the Condensed Consolidated Financial Statements for discussion of the impact of executive separations to our share-based employee compensation costs and further staff reductions subsequent to quarter end, respectively.

NOTE K – INCOME TAXES

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.  Due to changes in our projections, which have fluctuated as we work through our brand repositioning, a reliable projection of our annual effective rate has been difficult to determine.  As such, we recorded a tax benefit for the first two quarters of fiscal 2014 based on the actual year-to-date results, in accordance with ASC 740.

We recorded a tax benefit from continuing operations of $1.9 million and $7.1 million for the 13- and 26-week periods ended December 3, 2013, respectively, compared to $6.7 million and $8.6 million for the 13- and 26-week periods ended December 4, 2012, respectively, to reflect the current benefit of federal and certain state net operating loss carrybacks as well as the recognition of unrecognized tax benefits.  The change in income taxes is attributable to increased pre-tax losses for the 13 and 26 weeks ending December 3, 2013 as compared to the same periods of the prior year, offset by an increase in the valuation allowance for deferred tax assets as discussed below.

We regularly evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize the deferred tax assets in the future.  A valuation allowance assessment is performed each reporting period, with any additions or adjustments reflected in earnings in the period of assessment.  In assessing the need for a valuation allowance, we have considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets for each jurisdiction.

Through the third quarter of fiscal 2013, we had concluded that objective and subjective positive evidence outweighed negative evidence, and concluded it was more likely than not to realize all of our federal and most of our state deferred tax assets, except for loss carryforwards in certain states that have had cumulative losses due to our state tax planning strategies and/or relatively short carryforward periods and annual limits on how much loss carryforward can be used to offset future taxable income.   During the fourth quarter of fiscal 2013, we recorded a valuation allowance following the conclusion that the negative evidence outweighed the positive evidence. 

Our valuation allowance totaled $45.4 million and $24.6 million as of December 3, 2013 and June 4, 2013, respectively.  Netted against our tax benefit from continuing operations for the 13- and 26-week periods ended December 3, 2013 were charges of $14.6 million and $21.9 million, respectively, representing the amount reserved for the increase in deferred tax assets during the periods which primarily related to general business credit carryforwards and state net operating loss carryforwards.

We had a liability for unrecognized tax benefits, exclusive of accrued interest and penalties, of $8.9 million and $13.0 million as of December 3, 2013 and June 4, 2013, respectively.  As of December 3, 2013 and

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June 4, 2013, the total amount of unrecognized tax benefits that, if recognized, would impact our effective tax rate was $3.6 million and $3.5 million, respectively.  The liability for unrecognized tax benefits as of December 3, 2013 includes $1.2 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 December 3, 2013 and June 4, 2013, we had accrued $1.0 million and $0.9 million, respectively, for the payment of interest and penalties.  During the first 26 weeks of fiscal 2014, accrued interest and penalties increased $0.1 million, all of which affected the effective tax rate for the same time period.

At December 3, 2013, we are no longer subject to U.S. federal income tax examinations by tax authorities for fiscal years prior to 2010, and with few exceptions, state and local examinations by tax authorities prior to fiscal year 2009.

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

A committee, appointed by the Board of Directors, administers the Ruby Tuesday, Inc. Stock Incentive Plan (“SIP”) and the Ruby Tuesday, Inc. 1996 Stock Incentive Plan (“1996 SIP”), and has full authority in its discretion to determine the key employees, officers, and non-employee directors to whom share-based incentives are granted and the terms and provisions of share-based incentives.  Option grants under the SIP and 1996 SIP can have varying vesting provisions and exercise periods as determined by such committee.  A majority of currently outstanding options granted under the SIP and 1996 SIP vest within three years following the date of grant and expire seven years after the date of grant.  The SIP and 1996 SIP permit the committee to make awards of shares of common 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 SIP and 1996 SIP have been awarded with an exercise price equal to the fair market value at the time of grant.

At December 3, 2013, we had reserved a total of 4,857,000 and 170,000 shares of common stock for the SIP and 1996 SIP, respectively.  Of the reserved shares at December 3, 2013, 1,984,000 and 102,000 were subject to options outstanding for the 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 December 3, 2013 under the SIP and 1996 SIP were 2,873,000 and 68,000, respectively.  As discussed below, during the second quarter of fiscal 2014 our shareholders approved an amendment to the SIP allowing non-employee directors to participate in the SIP.

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.  On October 9, 2013, our shareholders approved an amendment to the SIP allowing non-employee directors to participate in the SIP instead of requiring that such awards be made from the Directors’ Plan.  The amendment did not increase the number of shares of common stock available for issuance under the SIP.  At December 3, 2013, there were no reserved shares or shares of common stock available for issuance under the Directors’ Plan.  All future share-based compensation granted to non-employee directors will be awarded from shares of common stock available for issuance under the SIP.

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Stock Options

The following table summarizes our stock option activity for the 26 weeks ended December 3, 2013 under these stock option plans (in thousands, except per-share data):

	Stock Options			Weighted Average Exercise Price
Service-based vesting:
Balance at June 4, 2013		1,911		$	8.27
Granted		601			9.34
Exercised		(229	)		6.45
Forfeited		(179	)		9.39
Balance at December 3, 2013		2,104		$	8.68
Exercisable		1,237		$	8.63
Market-based vesting:
Balance at June 4, 2013		250		$	7.81
Granted		570			9.34
Forfeited		(85	)		9.34
Balance at December 3, 2013		735		$	8.82
Exercisable		–		$	–

At December 3, 2013, there was approximately $3.9 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.

During the first quarter of fiscal 2014, we granted 601,000 service-based stock options to certain employees under the terms of the SIP.  The stock options awarded vest in equal annual installments over a three-year period following grant of the award, and have a maximum life of seven years.  

Also during the first quarter of fiscal 2014, we granted 570,000 market-based stock options to certain employees under the terms of the SIP.  The stock options vest if a share of our common stock appreciates to $14 per share or more for a period of 20 consecutive trading days on or before December 3, 2015.  The stock options have a maximum life of seven years.

Restricted Stock

The following table summarizes our restricted stock activity for the 26 weeks ended December 3, 2013 (in thousands, except per-share data):

				Weighted-Average
	Restricted			Grant-Date
	Stock			Fair Value
Performance-based vesting:
Non-vested at June 4, 2013		356		$	7.06
Granted		–			–
Vested		(18	)		7.87
Forfeited		(270	)		6.81
Non-vested at December 3, 2013		68		$	7.81
				Weighted-Average
	Restricted			Grant-Date
	Stock			Fair Value
Service-based vesting:
Non-vested at June 4, 2013		1,136		$	7.92
Granted		405			8.97
Vested		(395	)		8.12
Forfeited		(140	)		8.76
Non-vested at December 3, 2013		1,006		$	8.15

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The fair values of the restricted share awards reflected above were based on the fair market value of our common stock on the grant date.  At December 3, 2013, unrecognized compensation expense related to restricted stock grants expected to vest totaled approximately $5.8 million and will be recognized over a weighted average vesting period of approximately 1.6 years.

During the second quarter of fiscal 2014, RTI granted approximately 60,000 restricted shares to non-employee directors under the terms of the Stock Incentive Plan and Directors’ Plan.  These shares cliff vest over a one year period following grant of the award.

During the first quarter of fiscal 2014, we granted 344,000 shares of service-based restricted stock to certain employees under the terms of the SIP and 1996 SIP, 186,000 of which will cliff vest 2.5 years following the grant date and 158,000 of which will vest in three equal installments over a three-year period following the date of grant.

Also during the first quarter of fiscal 2014, the Executive Compensation Committee of the Board of Directors determined that the performance condition was not achieved for 269,000 shares of performance-based restricted stock granted in fiscal 2013.  As a result, 235,000 shares of restricted stock were cancelled and returned to the pool of shares available for grant under the SIP and 1996 SIP and 34,000 shares of restricted stock awarded to our President and Chief Executive Officer were cancelled and retired.

As discussed further in Note J to the Condensed Consolidated Financial Statements, our Executive Vice President, Chief Operations Officer, Senior Vice President, Chief People Officer, and other management personnel separated employment with the Company during the first two quarters of fiscal 2014.  Several of these individuals held share-based compensation awards at the times of their separations, and these awards were either vested or forfeited in accordance with the terms of the original awards.

Included within share-based compensation expense for the 13- and 26-week periods ended December 3, 2013 are charges of $0.3 million, representing the incremental costs resulting from accelerated vesting, net of forfeitures.

NOTE M – SEGMENT REPORTING

Our President and Chief Executive Officer, who is our chief operating decision maker, with the assistance of our senior management, reviews discrete financial information for both the Ruby Tuesday and Lime Fresh restaurant concepts to assess performance and allocate resources.  We consider the Ruby Tuesday and Lime Fresh concepts to be our reportable segments as we do not believe they have similar economic and other characteristics to be aggregated into a single reportable segment.  Financial results by reportable segment for the 13 and 26 weeks ended December 3, 2013 and December 4, 2012 are as follows (in thousands):

	Thirteen weeks ended						Twenty-six weeks ended
	December 3, 2013			December 4, 2012			December 3, 2013			December 4, 2012
Revenues:
Ruby Tuesday concept	$	270,741		$	296,097		$	554,763		$	619,924
Lime Fresh concept		5,468			3,980			11,120			8,076
Total revenues	$	276,209		$	300,077		$	565,883		$	628,000
Segment (loss)/profit:
Ruby Tuesday concept	$	870		$	17,026		$	10,721		$	46,573
Lime Fresh concept		(1,783	)		(2,032	)		(4,237	)		(2,351	)
Total segment (loss)/profit	$	(913	)	$	14,994		$	6,484		$	44,222
Depreciation and amortization:
Ruby Tuesday concept	$	13,456		$	14,382		$	27,248		$	29,141
Lime Fresh concept		545			576			1,044			1,095
Support center and other		597			571			1,180			1,143
Total depreciation and amortization	$	14,598		$	15,529		$	29,472		$	31,379

19

Capital expenditures:
Ruby Tuesday concept	$	14,114	$	12,197
Lime Fresh concept		2,699		2,873
Support center and other		884		3,435
Total capital expenditures	$	17,697	$	18,505

Total assets by reportable segment as of December 3, 2013 and June 4, 2013 are as follows (in thousands):

	December 3, 2013		June 4, 2013
Total assets:
Ruby Tuesday concept	$	854,707	$	893,750
Lime Fresh concept		19,080		18,943
Support center and other		98,655		130,490
Total assets	$	972,442	$	1,043,183

The following is a reconciliation of segment profit to loss from continuing operations before taxes for the 13 and 26 weeks ended December 3, 2013 and December 4, 2012 (in thousands):

	Thirteen weeks ended						Twenty-six weeks ended
	December 3, 2013			December 4, 2012			December 3, 2013			December 4, 2012
Segment (loss)/profit	$	(913	)	$	14,994		$	6,484		$	44,222
Less:
Depreciation and amortization		(14,598	)		(15,529	)		(29,472	)		(31,379	)
Unallocated general and
administrative expenses		(13,760	)		(3,231	)		(25,657	)		(8,251	)
Preopening expenses		(41	)		(204	)		(395	)		(399	)
Interest expense, net		(6,620	)		(6,765	)		(13,373	)		(13,555	)
Other expense, net		(715	)		(133	)		(1,286	)		(387	)
Loss from continuing operations
before income taxes	$	(36,647	)	$	(10,868	)	$	(63,699	)	$	(9,749	)

NOTE N – 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 matters referred to below, will not have a material adverse effect on our operations, financial position, or cash flows.

On April 17, 2012, a wage and hour case styled Guttentag. et al vs. Ruby Tuesday, Inc. was filed in the United States District Court, Southern District of New York.  The named plaintiffs, and five additional former employees who have joined the suit as opt-in plaintiffs, allege that the Company violated the Fair Labor Standards Act and state wage and hour laws in New York and Florida.  Plaintiffs filed their motion for conditional certification on March 8, 2013, which sought a nationwide putative class of all current and former servers, bartenders, and food runners who worked for the Company between April 17, 2009 and the present.   On June 11, 2013 the court entered an order granting conditional certification of the nationwide class requested by plaintiffs.  Mediation was conducted in early September 2013, but the effort was unsuccessful.  We continue to explore a possible agreed resolution.  The court has made no findings as to the merits or lack of merits of the plaintiffs’ claims and we are vigorously defending this matter.  Notice of the lawsuit and the right to opt-in was mailed to the putative class members in November 2013, and at present approximately 4.5% of the putative class have filed consents to opt-in. 

On September 30, 2009, an age discrimination case styled Equal Employment Opportunity Commission (Pittsburgh) v. Ruby Tuesday, Inc. (the “EEOC Lawsuit”), was filed in the United States District Court for the Western District of Pennsylvania (the “Court”).  The U.S. Equal Employment Opportunity Commission (“EEOC”) Pittsburgh Area Office alleged 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 December 9, 2013, the Court approved a consent decree entered into between the EEOC and the Company in Civil Action No. 09-1330. Without any

20

admission of liability, the Company agreed to make five equal monthly payments totaling $575,000 into a qualified settlement account that individuals aged 40 or older who applied for a position at one of the six restaurants from January 1, 2005 through the date of the decree may apply to receive.  The Company also agreed to make efforts to recruit and hire more individuals aged 40 or older at the three restaurants involved in the litigation that are currently open.  Civil Action 09-1330 is closed, subject to the Court’s continuing jurisdiction over the consent decree.  Not closed, but inactive (as far as we are aware), is the EEOC’s 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 other restaurants in the United States.  On April 30, 2013, the Court entered an order terminating a miscellaneous action filed by the EEOC in furtherance of the DI.   We do not believe that the DI 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 December 3, 2013 and June 4, 2013 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.  On January 10, 2014, a voluntary dismissal without prejudice of this case was entered.

NOTE O – 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		December 3, 2013			June 4, 2013
Deferred compensation plan: other investments – Assets		1	$	9,274		$	8,721
Deferred compensation plan: other investments – Liabilities		1		(9,274	)		(8,721	)
Deferred compensation plan: RTI common stock – Equity		1		638			1,094
Deferred compensation plan: RTI common stock – Equity		1		(638	)		(1,094	)
Total			$	–		$	–

During the 26 weeks ended December 3, 2013 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 based on third-party broker statements.  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 December 3, 2013 and June 4, 2013 (in thousands):

	Fair Value Measurements
	Level		December 3, 2013			June 4, 2013
Long-lived assets held for sale *		2		$	17,942		$	24,006
Long-lived assets held for use		2			12,949			5,802
Total				$	30,891		$	29,808

* Included in the carrying value of long-lived assets held for sale as of December 3, 2013 and June 4, 2013 are $13.5 million and $14.8 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 26 weeks ended December 3, 2013 and December 4, 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 Loss (in thousands):

	Thirteen weeks ended				Twenty-six weeks ended
	December 3,  2013		December 4, 2012		December 3,  2013		December 4, 2012
Included within continuing operations
Long-lived assets held for sale	$	315	$	354	$	584	$	511
Long-lived assets held for use		12,003		1,858		16,664		2,149
	$	12,318	$	2,212	$	17,248	$	2,660
Included within discontinued operations	$	–	$	16,302	$	153	$	16,302

Long-lived assets held for sale are valued using Level 2 inputs, primarily representing 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 we have impaired.  From time to time, this will also include closed restaurants or surplus sites that do not meet the held for sale criteria that we have offered for sale at a price less than 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.

Our financial instruments at December 3, 2013 and June 4, 2013 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 carrying value 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):

	December 3, 2013				June 4, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt and capital leases	$	273,142	$	263,497	$	299,002	$	310,441
Letters of credit		–		405		–		270

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

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NOTE P – SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

As discussed in Note H to the 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 information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(f) of Regulation S-X promulgated by the Securities and Exchange Commission, presents the condensed consolidating financial information separately for 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 December 3, 2013

(In thousands)

	Parent			Guarantors			Eliminations		Consolidated
Assets
Current assets:
Cash and cash equivalents	$	23,313		$	305	$	–		$	23,618
Accounts receivable		2,217			3,562		–			5,779
Inventories		19,477			7,938		–			27,415
Income tax receivable		130,721			–		(125,378	)		5,343
Deferred income taxes		1,377			3,202		–			4,579
Other current assets		15,237			3,488		–			18,725
Total current assets		192,342			18,495		(125,378	)		85,459
Property and equipment, net		611,147			213,013		–			824,160
Investment in subsidiaries		152,303			–		(152,303	)		–
Due from/(to) subsidiaries		90,802			236,998		(327,800	)		–
Other assets		48,465			14,358		–			62,823
Total assets	$	1,095,059		$	482,864	$	(605,481	)	$	972,442
Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	20,934		$	4,330	$	–		$	25,264
Accrued and other current liabilities		47,703			35,225		–			82,928
Current maturities of long-term debt,
including capital leases		(341	)		10,179		–			9,838
Income tax payable		–			125,378		(125,378	)		–
Total current liabilities		68,296			175,112		(125,378	)		118,030
Long-term debt and capital leases,
less current maturities		219,882			43,422		–			263,304
Deferred income taxes		(4,192	)		6,970		–			2,778
Due to/(from) subsidiaries		236,998			90,802		(327,800	)		–
Other deferred liabilities		107,826			14,255		–			122,081
Total liabilities		628,810			330,561		(453,178	)		506,193
Shareholders’ equity:
Common stock		614			–		–			614
Capital in excess of par value		72,678			–		–			72,678
Retained earnings		402,947			152,303		(152,303	)		402,947
Accumulated other comprehensive loss		(9,990	)		–		–			(9,990	)
Total shareholders’ equity		466,249			152,303		(152,303	)		466,249
Total liabilities & shareholders’ equity	$	1,095,059		$	482,864	$	(605,481	)	$	972,442

24

Condensed Consolidating Balance Sheet

As of June 4, 2013

(In thousands)

	Parent			Guarantors			Eliminations		Consolidated
Assets
Current assets:
Cash and cash equivalents	$	52,635		$	272	$	–		$	52,907
Accounts receivable		1,854			2,980		–			4,834
Inventories		21,961			8,911		–			30,872
Income tax receivable		118,329			–		(116,429	)		1,900
Deferred income taxes		5,372			1,924		–			7,296
Other current assets		19,519			3,836		–			23,355
Total current assets		219,670			17,923		(116,429	)		121,164
Property and equipment, net		635,478			224,352		–			859,830
Investment in subsidiaries		167,887			–		(167,887	)		–
Due from/(to) subsidiaries		76,485			230,583		(307,068	)		–
Other assets		46,812			15,377		–			62,189
Total assets	$	1,146,332		$	488,235	$	(591,384	)	$	1,043,183
Liabilities & Shareholders’ Equity
Current liabilities:
Accounts payable	$	11,725		$	3,239	$	–		$	14,964
Accrued and other current liabilities		47,775			34,406		–			82,181
Current maturities of long-term debt,
including capital leases		(347	)		8,834		–			8,487
Income tax payable		–			116,429		(116,429	)		–
Total current liabilities		59,153			162,908		(116,429	)		105,632
Long-term debt and capital leases,
less current maturities		232,462			58,053		–			290,515
Deferred income taxes		(1,070	)		6,823		–			5,753
Due to/(from) subsidiaries		230,583			76,485		(307,068	)		–
Other deferred liabilities		108,369			16,079		–			124,448
Total liabilities		629,497			320,348		(423,497	)		526,348
Shareholders’ equity:
Common stock		612			–		–			612
Capital in excess of par value		67,596			–		–			67,596
Retained earnings		459,572			167,887		(167,887	)		459,572
Accumulated other comprehensive loss		(10,945	)		–		–			(10,945	)
Total shareholders’ equity		516,835			167,887		(167,887	)		516,835
Total liabilities & shareholders’ equity	$	1,146,332		$	488,235	$	(591,384	)	$	1,043,183

25

Condensed Consolidating Statement of Operations and

Comprehensive (Loss)/Income

For the Thirteen Weeks Ended December 3, 2013

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	198,850		$	75,869		$	–		$	274,719
Franchise revenue		98			1,392			–			1,490
		198,948			77,261			–			276,209
Operating costs and expenses:
Cost of merchandise		56,320			21,349			–			77,669
Payroll and related costs		69,365			28,152			–			97,517
Other restaurant operating costs		46,493			18,796			–			65,289
Depreciation		10,208			3,707			–			13,915
Selling, general, and administrative		25,724			11,307			–			37,031
Intercompany selling, general, and
administrative allocations		14,008			(14,008	)		–			–
Closures and impairments		8,058			6,085			–			14,143
Equity in earnings of subsidiaries		104			–			(104	)		–
Interest expense, net		5,171			1,449			–			6,620
Intercompany interest expense/(income)		3,229			(3,229	)		–			–
Loss on extinguishment of debt		672			–			–			672
		239,352			73,608			(104	)		312,856
(Loss)/income from continuing operations
before income taxes		(40,404	)		3,653			104			(36,647	)
(Benefit)/provision for income taxes from
continuing operations		(5,667	)		3,757			–			(1,910	)
(Loss)/income from continuing operations		(34,737	)		(104	)		104			(34,737	)
Gain from discontinued operations, net of tax		354			–			–			354
Net (loss)/income	$	(34,383	)	$	(104	)	$	104		$	(34,383	)
Other comprehensive income:
Pension liability reclassification, net of tax		477			–			–			477
Total comprehensive (loss)/income	$	(33,906	)	$	(104	)	$	104		$	(33,906	)

26

Condensed Consolidating Statement of Operations and

Comprehensive (Loss)/Income

For the Twenty-Six Weeks Ended December 3, 2013

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	408,932		$	153,879		$	–		$	562,811
Franchise revenue		119			2,953			–			3,072
		409,051			156,832			–			565,883
Operating costs and expenses:
Cost of merchandise		114,847			42,760			–			157,607
Payroll and related costs		142,891			57,359			–			200,250
Other restaurant operating costs		94,895			37,928			–			132,823
Depreciation		20,572			7,552			–			28,124
Selling, general, and administrative		51,718			22,328			–			74,046
Intercompany selling, general, and
administrative allocations		28,771			(28,771	)		–			–
Closures and impairments		13,223			8,953			–			22,176
Equity in earnings of subsidiaries		(4,421	)		–			4,421			–
Interest expense, net		10,231			3,142			–			13,273
Intercompany interest expense/(income)		6,414			(6,414	)		–			–
Loss on extinguishment of debt		1,183			–			–			1,183
		480,324			144,837			4,421			629,582
(Loss)/income from continuing operations
before income taxes		(71,273	)		11,995			(4,421	)		(63,699	)
(Benefit)/provision for income taxes from
continuing operations		(14,637	)		7,574			–			(7,063	)
(Loss)/income from continuing operations		(56,636	)		4,421			(4,421	)		(56,636	)
Gain from discontinued operations, net of tax		11			–			–			11
Net (loss)/income	$	(56,625	)	$	4,421		$	(4,421	)	$	(56,625	)
Other comprehensive income:
Pension liability reclassification, net of tax		955			–			–			955
Total comprehensive (loss)/income	$	(55,670	)	$	4,421		$	(4,421	)	$	(55,670	)

27

Condensed Consolidating Statement of Operations and

Comprehensive (Loss)/Income

For the Thirteen Weeks Ended December 4, 2012

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	216,215		$	82,382		$	–		$	298,597
Franchise revenue		41			1,439			–			1,480
		216,256			83,821			–			300,077
Operating costs and expenses:
Cost of merchandise		59,998			22,849			–			82,847
Payroll and related costs		71,486			29,245			–			100,731
Other restaurant operating costs		46,781			18,867			–			65,648
Depreciation		10,773			3,904			–			14,677
Selling, general, and administrative		24,971			13,570			–			38,541
Intercompany selling, general, and
administrative allocations		16,442			(16,442	)		–			–
Closures and impairments		2,137			(246	)		–			1,891
Equity in earnings of subsidiaries		(9,434	)		–			9,434			–
Interest expense, net		5,342			1,423			–			6,765
Intercompany interest expense/(income)		3,434			(3,434	)		–			–
Gain on extinguishment of debt		(155	)		–			–			(155	)
		231,775			69,736			9,434			310,945
(Loss)/income from continuing operations
before income taxes		(15,519	)		14,085			(9,434	)		(10,868	)
(Benefit)/provision for income taxes from
continuing operations		(11,315	)		4,651			–			(6,664	)
(Loss)/income from continuing operations		(4,204	)		9,434			(9,434	)		(4,204	)
Loss from discontinued operations, net of tax		(10,864	)		(580	)		580			(10,864	)
Net (loss)/income	$	(15,068	)	$	8,854		$	(8,854	)	$	(15,068	)
Other comprehensive income:
Pension liability reclassification, net of tax		380			–			–			380
Total comprehensive (loss)/income	$	(14,688	)	$	8,854		$	(8,854	)	$	(14,688	)

28

Condensed Consolidating Statement of Operations and

Comprehensive (Loss)/Income

For the Twenty-Six Weeks Ended December 4, 2012

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Revenue:
Restaurant sales and operating revenue	$	454,187		$	170,677		$	–		$	624,864
Franchise revenue		133			3,003			–			3,136
		454,320			173,680			–			628,000
Operating costs and expenses:
Cost of merchandise		124,200			46,510			–			170,710
Payroll and related costs		147,679			60,244			–			207,923
Other restaurant operating costs		93,601			37,901			–			131,502
Depreciation		21,872			7,816			–			29,688
Selling, general, and administrative		53,992			27,556			–			81,548
Intercompany selling, general, and
administrative allocations		34,484			(34,484	)		–			–
Closures and impairments		2,974			4			–			2,978
Equity in earnings of subsidiaries		(21,466	)		–			21,466			–
Interest expense, net		10,641			2,914			–			13,555
Intercompany interest expense/(income)		6,822			(6,822	)		–			–
Gain on extinguishment of debt		(155	)		–			–			(155	)
		474,644			141,639			21,466			637,749
(Loss)/income from continuing operations
before income taxes		(20,324	)		32,041			(21,466	)		(9,749	)
(Benefit)/provision for income taxes from
continuing operations		(19,194	)		10,575			–			(8,619	)
(Loss)/income from continuing operations		(1,130	)		21,466			(21,466	)		(1,130	)
Loss from discontinued operations, net of tax		(11,339	)		(652	)		652			(11,339	)
Net (loss)/income	$	(12,469	)	$	20,814		$	(20,814	)	$	(12,469	)
Other comprehensive income:
Pension liability reclassification, net of tax		761			–			–			761
Total comprehensive (loss)/income	$	(11,708	)	$	20,814		$	(20,814	)	$	(11,708	)

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Condensed Consolidating Statement of Cash Flows

For the Twenty-Six Weeks Ended December 3, 2013

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Net cash (used)/provided by operating activities	$	(22,630	)	$	36,648		$	(13,590	)	$	428
Investing activities:
Purchases of property and equipment		(12,902	)		(4,795	)		–			(17,697	)
Proceeds from sale-leaseback transactions, net		5,637			–			–			5,637
Proceeds from disposal of assets		7,434			1,023			–			8,457
Other, net		187			–			–			187
Net cash provided/(used) by investing activities		356			(3,772	)		–			(3,416	)
Financing activities:
Principal payments on long-term debt		(12,968	)		(12,838	)		–			(25,806	)
Stock repurchases		(540	)		–			–			(540	)
Payments for debt issuance costs		(1,718	)		–			–			(1,718	)
Proceeds from exercise of stock options		1,480			–			–			1,480
Excess tax benefits from share-based
compensation		283			–			–			283
Intercompany transactions		6,415			(20,005	)		13,590			–
Net cash used by financing activities		(7,048	)		(32,843	)		13,590			(26,301	)
(Decrease)/increase in cash and cash equivalents		(29,322	)		33			–			(29,289	)
Cash and cash equivalents:
Beginning of year		52,635			272			–			52,907
End of quarter	$	23,313		$	305		$	–		$	23,618

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Condensed Consolidating Statement of Cash Flows

For the Twenty-Six Weeks Ended December 4, 2012

(In thousands)

	Parent			Guarantors			Eliminations			Consolidated
Net cash (used)/provided by operating activities	$	(15,104	)	$	27,846		$	(12,133	)	$	609
Investing activities:
Purchases of property and equipment		(14,936	)		(3,569	)		–			(18,505	)
Proceeds from sale-leaseback transactions, net		30,408			–			–			30,408
Proceeds from disposal of assets		885			1,200			–			2,085
Other, net		126			–			–			126
Net cash provided/(used) by investing activities		16,483			(2,369	)		–			14,114
Financing activities:
Principal payments on long-term debt		(10,981	)		(6,504	)		–			(17,485	)
Stock repurchases		(20,012	)		–			–			(20,012	)
Proceeds from exercise of stock options		173			–			–			173
Excess tax benefits from share-based
compensation		11			–			–			11
Intercompany transactions		6,823			(18,956	)		12,133			–
Net cash used by financing activities		(23,986	)		(25,460	)		12,133			(37,313	)
(Decrease)/increase in cash and cash equivalents		(22,607	)		17			–			(22,590	)
Cash and cash equivalents:
Beginning of year		47,986			198			–			48,184
End of quarter	$	25,379		$	215		$	–		$	25,594

NOTE Q – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncements Not Yet Adopted

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”).  The guidance requires an entity to present its unrecognized tax benefits net of its deferred tax assets when settlement in this manner is available under the tax law, which would be based on facts and circumstances as of the balance sheet reporting date and would not consider future events.  Gross presentation in the notes to the financial statements will still be required.  ASU 2013-11 will apply on a prospective basis to all unrecognized tax benefits that exist at the effective date, with the option to apply it retrospectively.  The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (our fiscal 2015 first quarter).  While the adoption of ASU 2013-11 will not have an impact on our results of operations or cash flows, we are currently evaluating the impact of presenting unrecognized tax benefits net of our deferred tax assets where applicable on our Condensed Consolidated Balance Sheets.

NOTE R – SUBSEQUENT EVENTS

Restaurant Closings

As also discussed in Note I to the Condensed Consolidated Financial Statements, on January 7, 2014, the Board of Directors of Ruby Tuesday, Inc. approved a plan to close approximately 27 Ruby Tuesday concept restaurants in the third quarter of fiscal 2014 and three more in the fourth quarter.  Of the 30 restaurants, approximately half are planned to close upon expiration of their lease.  As of the date of this filing, we have closed 25 of the 30 planned restaurants.  For the remainder of fiscal 2014, we anticipate incurring charges of approximately $2.0 million associated with lease termination and other closing costs. 

Corporate Support Services Restructuring

On December 11, 2013, we eliminated 17 additional support center management and staff personnel at our Restaurant Support Services Center in Maryville, Tennessee.  These reductions will result in third quarter fiscal 2014 transition-related costs of $0.3 million for employee severance and unused vacation.

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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® casual dining and Lime Fresh Mexican Grill® (“Lime Fresh”) fast casual restaurants.  As of December 3, 2013, we owned and operated 703, and franchised 76, Ruby Tuesday restaurants.  Ruby Tuesday restaurants can now be found in 45 states, the District of Columbia, 11 foreign countries, and Guam.

As of December 3, 2013, there were 21 Company-owned and operated Lime Fresh restaurants, as well as six domestic and two international Lime Fresh restaurants operated by franchisees.

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 strive to operate at the higher-end of casual dining in terms of the quality of our food and service.  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 Through Repositioning of Our Core Brand

In an effort to stabilize and increase customer traffic, same-restaurant sales, and profitability, we are in the process of implementing new initiatives focused on promoting the Ruby Tuesday brand as more lively and approachable.  These initiatives include the introduction of new menu items, music soundscape upgrades, lighting improvements, and revitalizing the look and feel of our television advertising and other promotional materials to better reflect the variety on our menu and project a more casual, energetic, and approachable brand personality and dining experience.  Our marketing strategy historically has primarily focused on print promotions, digital media and local marketing programs, with a minimal amount spent on television.  However, based on the results from television test markets in fiscal 2012, we deployed a more balanced marketing program beginning in fiscal 2013 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 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 customers.

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 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 that enabled us to better understand the concept’s 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 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 early stages, we believe it has the potential to generate attractive returns for us if we are able to realize our revenue and profitability targets.  We opened four Company-owned Lime Fresh restaurants during the 26 weeks ended December 3, 2013.

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Strengthen our Balance Sheet to Facilitate Growth and Value Creation

During the fourth quarter of fiscal 2012, we strengthened our balance sheet and created additional financial flexibility by issuing $250.0 million in senior unsecured notes 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 certain of our mortgage debt from previous franchise partnership acquisitions, reduce our revolver commitment size, obtain attractive interest rates, and extend the maturity date of the majority of our debt for up to eight years.  Additionally, we recently closed on a new $50.0 million revolving Senior Credit Facility (as defined below) which replaced our existing $200.0 million revolving credit facility.  Our new Senior Credit Facility, which is secured by substantially all of the shares of capital stock of the Company, real property, improvements and fixtures of 47 Ruby Tuesday restaurants, and substantially all of the personal property of the Company and each of its present and future subsidiaries, provides us with more covenant flexibility than our previous revolving credit facility and has a $35.0 million accordion feature which provides us with additional liquidity, in particular since our new $50.0 million revolving Senior Credit Facility is undrawn.

Our 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 for three primary reasons.  First, the program enabled us through a series of transactions to corroborate the estimated market value of our entire remaining real estate portfolio for both our equity and debt holders.  Second, the program enabled us to generate excess cash during fiscal 2013, when our free cash flow was at lower levels, in order to opportunistically pay off debt and repurchase our shares, which we would have been unable to do absent the sale-leaseback transactions.  Third, we were able to complete the sale-leaseback transactions at low capitalization rates with minimal tax leakage.

Our sale-leaseback program, which was completed during the first quarter of fiscal 2014, enabled us to raise approximately $82.5 million of gross proceeds through monetizing 37 restaurants during the entire program tenure, with $5.9 million of these proceeds being realized during fiscal 2014 through the monetization of three restaurants.  The $82.5 million of sale-leaseback gross proceeds were utilized for general corporate purposes, including capital expenditures, debt reduction, and the repurchase of shares of our common stock.  We have no plans at this time to pursue any additional sale-leaseback transactions.  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”).

Our objective over the next several years is to continue to reduce outstanding debt levels in order to lower our leverage, focus on prudent Lime Fresh restaurant development, and opportunistically repurchase outstanding shares under our share repurchase program.  Our success in the key strategic 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 26-week periods ended December 3, 2013:

Net loss increased to $34.4 million for the 13 weeks ended December 3, 2013 compared to $15.1 million for the same quarter of the previous year.  Diluted loss per share for the fiscal quarter ended December 3, 2013 was $0.57 compared to $0.24 for the corresponding quarter of the prior year as a result of the increase in net loss as discussed below.

During the 13 weeks ended December 3, 2013:

·   Incurred severance, payroll tax, share-based compensation, and other charges of $2.5 million in connection with the elimination of approximately 50 positions at our Restaurant Support Services Center;

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

·   Two franchised Ruby Tuesday restaurants were opened and one was closed;

·   We replaced our existing $200.0 million credit facility with a $50.0 million four-year revolving credit agreement (the “Senior Credit Facility”);

·   Our President and Chief Executive Officer, James J. Buettgen, was appointed Chairman of the Board of Directors and Stephen Sadove was appointed Lead Director in connection with the resignation of Matthew Drapkin from the Board;

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·   Our former Senior Vice President, Chief People Officer, Robert LeBoeuf, separated employment with the Company on October 30, 2013; and

·   Same-restaurant sales* at Company-owned Ruby Tuesday restaurants decreased 7.8%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 5.3%.

Net loss increased to $56.6 million for the 26 weeks ended December 3, 2013 compared to $12.5 million for the same period of the previous year.  Diluted loss per share for the 26 weeks ended December 3, 2013 was $0.94 compared to $0.20 for the corresponding period of the prior year as a result of the increase in net loss as discussed below.

During the 26 weeks ended December 3, 2013:

·   Incurred severance, payroll tax, share-based compensation, and other charges of $2.5 million in connection with the elimination of approximately 50 positions at our Restaurant Support Services Center;

·   Four Company-owned Lime Fresh restaurants were opened and one was closed;

·   Three Company-owned Ruby Tueday restaurants were closed;

·   Two franchised Lime Fresh restaurants were opened;

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

·   We replaced our existing $200.0 million credit facility with the $50.0 million Senior Credit Facility;

·   We repurchased $12.9 million of our 7.625% senior notes due 2020 (the "Senior Notes"). The repurchases settled for $13.0 million plus $0.2 of accrued interest. We realized a $0.5 million loss on these transactions;

·   We prepaid and retired 16 mortgage loan obligations for $9.9 million plus prepayment penalties of $0.8 million and accrued interest of $0.1 million;

·   Our President and Chief Executive Officer, James J. Buettgen, was appointed Chairman of the Board of Directors and Stephen Sadove was appointed Lead Director in connection with the resignation of Matthew Drapkin from the Board;

·   Our former Executive Vice President, Chief Operations Officer, Kimberly Grant, separated employment with the Company on June 7, 2013 and Todd Burrowes was appointed President – Ruby Tuesday Concept and Chief Operations Officer on June 11, 2013;

·   Our former Senior Vice President, Chief People Officer, Robert LeBoeuf, separated employment with the Company on October 30, 2013; and

·   Same-restaurant sales* at Company-owned Ruby Tuesday restaurants decreased 9.7%, while same-restaurant sales at domestic franchise Ruby Tuesday restaurants decreased 6.9%.

* 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.

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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				Twenty-six weeks ended
	December 3,		December 4,		December 3,		December 4,
	2013		2012		2013		2012
Revenue:
Restaurant sales and operating revenue	99	.5%	99	.5%	99	.5%	99	.5%
Franchise revenue	0	.5	0	.5	0	.5	0	.5
Total revenue	100	.0	100	.0	100	.0	100	.0
Operating costs and expenses:
Cost of merchandise (1)	28	.3	27	.7	28	.0	27	.3
Payroll and related costs (1)	35	.5	33	.7	35	.6	33	.3
Other restaurant operating costs (1)	23	.8	22	.0	23	.6	21	.0
Depreciation (1)	5	.1	4	.9	5	.0	4	.8
Selling, general and administrative, net	13	.4	12	.8	13	.1	13	.0
Closures and impairments, net	5	.1	0	.6	3	.9	0	.5
Interest expense, net	2	.4	2	.3	2	.4	2	.2
Loss/(gain) on extinguishment of debt	0	.2	(0	.1)	0	.2	0	.0
Loss from continuing operations before
income taxes	(13	.3)	(3	.6)	(11	.3)	(1	.6)
Benefit for income taxes from continuing
operations	(0	.7)	(2	.2)	(1	.2)	(1	.4)
Loss from continuing operations	(12	.6)	(1	.4)	(10	.0)	(0	.2)
Gain/(loss) from discontinued operations, net of tax	0	.1	(3	.6)	0	.0	(1	.8)
Net loss	(12	.4)%	(5	.0)%	(10	.0)%	(2	.0)%

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

The following table shows Company-owned Ruby Tuesday, Lime Fresh, and discontinued concept restaurant activity for the 13- and 26-week periods ended December 3, 2013 and December 4, 2012.

	Ruby Tuesday	Lime Fresh	Discontinued Concepts*	Total
13 weeks ended December 3, 2013
Beginning number	703	21	–	724
Opened	–	1	–	1
Closed	–	(1))	–	(1))
Ending number	703	21	–	724
26 weeks ended December 3, 2013
Beginning number	706	18	–	724
Opened	–	4	–	4
Closed	(3))	(1))	–	(4))
Ending number	703	21	–	724
13 weeks ended December 4, 2012
Beginning number	712	15	14	741
Opened	–	2	2	4
Closed	(3))	–	–	(3))
Ending number	709	17	16	742
26 weeks ended December 4, 2012
Beginning number	714	13	14	741
Opened	–	4	2	6
Closed	(5))	–	–	(5))
Ending number	709	17	16	742

*Discontinued concepts include Marlin & Ray’s, Truffles, and Wok Hay.

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The following table shows franchised Ruby Tuesday and Lime Fresh concept restaurant activity for the 13- and 26-week periods ended December 3, 2013 and December 4, 2012.

	Thirteen weeks ended				Twenty-six weeks ended
	December 3, 2013		December 4, 2012		December 3, 2013		December 4, 2012
Ruby Tuesday
Beginning number		75		78		77		79
Opened		2		1		2		2
Closed		(1)		(2)		(3)		(4)
Ending number		76		77		76		77

Lime Fresh
Beginning number	8	5	6	4
Opened	–	–	2	1
Closed	–	–	–	–
Ending number	8	5	8	5

Revenue

RTI’s restaurant sales and operating revenue for the 13 weeks ended December 3, 2013 decreased 8.0% to $274.7 million compared to the same period of the prior year.  This decrease is primarily the result of a 7.8% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants.

The decrease in Ruby Tuesday concept same-restaurant sales is primarily attributable to a decrease in customer traffic coupled with a reduction in average net check in the second quarter of fiscal 2014 compared with the same quarter of the prior year.  The decrease in average net check was a result of the rollout during the latter part of the first quarter of our new menu including pretzel burgers and flatbreads which featured lower price points.  These declines were partially offset by reduced discounts during the second quarter of the current year compared to the prior year.

Franchise revenue for the 13 weeks ended December 3, 2013 increased 0.1% to $1.5 million compared to the same period of the prior year.  Franchise revenue is predominately comprised of domestic and international franchise royalties, which totaled $1.4 million for both 13-week periods ended December 3, 2013 and December 4, 2012.

For the 26 weeks ended December 3, 2013, sales at Company-owned restaurants decreased 9.9% to $562.8 million compared to the same period of the prior year.  This decrease is primarily the result of a 9.7% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants.

The decrease in Ruby Tuesday concept same-restaurant sales is primarily attributable to a decrease in customer traffic coupled with a reduction in average net check in the first two quarters of fiscal 2014 compared with the same period of the prior year.  The decrease in average net check was primarily the result of  the rollout of a new menu as discussed above which was partially offset by reduced discounts as compared to the same period of the prior year.

For the 26-week period ended December 3, 2013, franchise revenues decreased 2.0% to $3.1 million compared to the same period in the prior year.  Domestic and international royalties totaled $3.0 million for both 26-week periods ending December 3, 2013 and December 4, 2012.

Segment (Loss)/Profit

Our President and Chief Executive Officer, who is our chief operating decision maker, with the assistance of our senior management, reviews discrete financial information for both the Ruby Tuesday and Lime Fresh restaurant concepts to assess performance and allocate resources.  We consider the Ruby Tuesday and Lime Fresh concepts to be our reportable segments as we do not believe they have similar economic and other characteristics to be aggregated into a single reportable segment.  Segment (loss)/profit by reportable segment for the 13 and 26 weeks ended December 3, 2013 and December 4, 2012 are as follows (in thousands):

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	Thirteen weeks ended						Twenty-six weeks ended
	December 3, 2013			December 4, 2012			December 3, 2013			December 4, 2012
Segment (loss)/profit:
Ruby Tuesday concept	$	870		$	17,026		$	10,721		$	46,573
Lime Fresh concept		(1,783	)		(2,032	)		(4,237	)		(2,351	)
Total segment (loss)/profit	$	(913	)	$	14,994		$	6,484		$	44,222

Segment profit for the 13 weeks ended December 3, 2013 for the Ruby Tuesday concept decreased $16.2 million to $0.9 million compared to the second quarter of fiscal 2013 due primarily to the 7.8% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants discussed above, and higher closures and impairments expense of $12.4 million as we recorded impairments in conjunction with a plan to close approximately 27 Ruby Tuesday restaurants in the third quarter of fiscal 2014 and three more in the fourth quarter.  We also recorded impairments on nine open Ruby Tuesday restaurants not planned for closure with deteriorating operational performance.  These were partially offset by lower cost of merchandise ($5.8 million) and payroll and related costs ($3.3 million) compared to the same quarter of the prior year which resulted from the declines in customer traffic, and reductions in advertising spending of $4.6 million (primarily due to reduced television advertising).  Segment losses for the 13 weeks ended December 3, 2013 for the Lime Fresh concept decreased $0.2 million compared to the first quarter of fiscal 2013 to $1.8 million due in part to reductions in impairment charges as compared to the same quarter of the prior year.

Segment profit for the 26 weeks ended December 3, 2013 for the Ruby Tuesday concept decreased $35.9 million to $10.7 million compared to the same period of fiscal 2013 due primarily to the 9.7% decrease in same-restaurant sales at Company-owned Ruby Tuesday restaurants discussed above, and higher closures and impairments expense, for the reasons noted above, of $17.3 million.  These were partially offset by lower cost of merchandise ($14.4 million) and payroll and related costs ($7.3 million) compared to the same 26 week period of the prior year which resulted from the declines in customer traffic and reductions in advertising spending of $11.2 million (primarily due to reduced television advertising).  Segment losses for the 13 weeks ended December 3, 2013 for the Lime Fresh concept increased $1.9 million compared to the same period of fiscal 2013 to $4.2 million due to increases in the lease reserve of $1.7 million related to four undeveloped sites for which a management decision was reached to forego restaurant development.  Excluding the increase to lease reserves of $1.7 million, segment losses for the Lime Fresh concept would have increased $0.2 million as compared to the same quarter of the prior year due to lease reserve charges of $0.9 million recorded on a Lime Fresh restaurant contracted to be sold, offset by lower impairment charges of $0.5 million and lower advertising fees of $0.3 million, due to the termination of a marketing agreement with an agency whose CEO previously sold the Lime Fresh restaurant concept to us.

The following is a reconciliation of segment profit to loss from continuing operations before taxes for the 13 and 26 weeks ended December 3, 2013 and December 4, 2012 (in thousands):

	Thirteen weeks ended						Twenty-six weeks ended
	December 3, 2013			December 4, 2012			December 3, 2013			December 4, 2012
Segment (loss)/profit	$	(913	)	$	14,994		$	6,484		$	44,222
Less:
Depreciation and amortization		(14,598	)		(15,529	)		(29,472	)		(31,379	)
Unallocated general and
administrative expenses		(13,760	)		(3,231	)		(25,657	)		(8,251	)
Preopening expenses		(41	)		(204	)		(395	)		(399	)
Interest expense, net		(6,620	)		(6,765	)		(13,373	)		(13,555	)
Other expense, net		(715	)		(133	)		(1,286	)		(387	)
Loss from continuing operations
before income taxes	$	(36,647	)	$	(10,868	)	$	(63,699	)	$	(9,749	)

Pre-tax Loss from Continuing Operations

Pre-tax loss from continuing operations increased $25.8 million to $36.6 million for the 13 weeks ended December 3, 2013, over the same quarter of the prior year.  The higher pre-tax loss is due to a decrease in same-restaurant sales of 7.8% at Company-owned Ruby Tuesday restaurants, higher closures and impairments expense ($12.3 million), higher loss on extinguishment of debt ($0.8 million), and increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of

37

merchandise, payroll and related costs, other restaurant operating costs, depreciation, and selling, general, and administrative, net.

Pre-tax loss from continuing operations increased $54.0 million to $63.7 million for the 26 weeks ended December 3, 2013, over the same quarter of the prior year.  The higher pre-tax loss is due to a decrease in same-restaurant sales of 9.7% at Company-owned Ruby Tuesday restaurants, higher closures and impairments expense ($19.2 million), losses on the extinguishment of debt ($1.3 million), and increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of cost of merchandise, payroll and related costs, other restaurant operating costs, depreciation, and selling, general, and administrative, net.

In the paragraphs that follow, we discuss in more detail the components of the increase in pre-tax loss from continuing operations for the 13- and 26-week periods ended December 3, 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 $5.2 million (6.3%) to $77.7 million for the 13 weeks ended December 3, 2013, over the corresponding period of the prior year.  As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 27.7% to 28.3%.

Cost of merchandise decreased $13.1 million (7.7%) to $157.6 million for the 26 weeks ended December 3, 2013, over the corresponding period of the prior year.  As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 27.3% to 28.0%.

The absolute dollar decrease for the 13-week and 26-week periods ended December 3, 2013 was the result of lower sales volumes, restaurant closures, and cost savings on certain products as a result of renegotiated contracts with certain vendors since the same periods of fiscal 2013.  These were partially offset by price increases on beef, poultry, and certain other products since the prior year.

As a percentage of restaurant sales and operating revenue, the increase in cost of merchandise for the 13 and 26 weeks ended December 3, 2013 is primarily the result of a shift in menu mix with the introduction of new menu items during the first quarter of fiscal 2014, loss of leveraging associated with lower sales volumes, and price increases in the cost of certain products.

Payroll and Related Costs

Payroll and related costs decreased $3.2 million (3.2%) to $97.5 million for the 13 weeks ended December 3, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 33.7% to 35.5%.

Payroll and related costs decreased $7.7 million (3.7%) to $200.3 million for the 26 weeks ended December 3, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 33.3% to 35.6%.

The absolute dollar decrease in payroll and related costs for the 13- and 26-week periods ended December 3, 2013 was due to lower hourly restaurant labor in connection with lower sales volumes and restaurant closures since the same periods of the prior year.  Other factors contributing to the declines included lower bonus expense, as fewer restaurants achieved the performance goals, and a reduction in the average number of managers per restaurant in the current periods as compared to the same periods of the prior year.  These reductions were partially offset by minimum wage increases in certain states and merit increases since the same periods of the prior year and higher health insurance due to unfavorable claims experience.

As a percentage of restaurant sales and operating revenue, the increase in payroll and related costs for the 13 and 26 weeks ended December 3, 2013 is primarily the result of loss of leveraging associated with lower sales volumes.

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Other Restaurant Operating Costs

Other restaurant operating costs decreased $0.4 million (0.5%) to $65.3 million for the 13-week period ended December 3, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, these costs increased from 22.0% to 23.8%.

For the 13 weeks ended December 3, 2013, the decrease in other restaurant operating costs related to the following (in thousands):

Utilities	$	(620	)
Amortization of intangible assets		(169	)
Other reductions, net		(618	)
Rent and leasing		667
Supplies		381
Net decrease	$	(359	)

In addition to restaurant closures since the second quarter of the prior year, the decrease in other operating costs in absolute dollars for the 13-week period ended December 3, 2013 was a result of decreased utilities based on reduced rates, lower amortization expense due in part to a partial write-off of our Lime Fresh trademark during the prior year, and other reductions.  These decreases were partially offset by higher rent and leasing charges as a result of sale-leaseback transactions since the second quarter of the prior year and increased supplies expense.

As a percentage of restaurant sales and operating revenue, the increase in other operating costs for the 13-week period ended December 3, 2013 is primarily the result of loss of leveraging associated with lower sales volumes.

Other restaurant operating costs increased $1.3 million (1.0%) to $132.8 million for the 26-week period ended December 3, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, these costs increased from 21.0% to 23.6%.

For the 26 weeks ended December 3, 2013, the increase in other restaurant operating costs related to the following (in thousands):

Rent and leasing	$	1,237
Insurance		778
Repairs		544
Other increases, net		354
Utilities		(1,592	)
Net increase	$	1,321

In both absolute dollars and as a percentage of restaurant sales and operating revenue for the 26-week period ended December 3, 2013, the increase in other operating costs was primarily a result of higher rent and leasing as a result of sale-leaseback transactions since the same periods of fiscal 2013, insurance due to favorable general liability claims experience in the prior year periods, and repairs due to building maintenance.  These increased costs were partially offset by restaurant closures since the same periods of the prior year and reduced utilities as a result of reduced rates with new contracts.

Depreciation

Depreciation expense decreased $0.8 million (5.2%) to $13.9 million for the 13-week period ended December 3, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, depreciation expense increased from 4.9% to 5.1%.

Depreciation expense decreased $1.6 million (5.3%) to $28.1 million for the 26-week period ended December 3, 2013, as compared to the corresponding period in the prior year.  As a percentage of restaurant sales and operating revenue, depreciation expense increased from 4.8% to 5.0%.

In terms of absolute dollars, the decrease for the 13- and 26-week periods ended December 3, 2013 is due primarily to assets that became fully depreciated since the same periods of the prior year coupled with sale-

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leaseback transactions and restaurant closures.  As a percentage of restaurant sales and operating revenue, the increase in depreciation for the 13- and 26-week periods ended December 3, 2013 is due to a loss of leveraging associated with lower sales volumes.

Selling, General and Administrative Expenses, Net

Selling, general and administrative expenses, net decreased $1.5 million (3.9%) to $37.0 million for the 13-week period ended December 3, 2013, as compared to the corresponding period in the prior year.

Selling, general and administrative expenses, net decreased $7.5 million (9.2%) to $74.0 million for the 26-week period ended December 3, 2013, as compared to the corresponding period in the prior year.

The decrease for the 13- and 26-week periods ended December 3, 2013 is due to lower advertising costs ($4.8 million and $11.5 million, respectively) primarily as a result of decreased television advertising and reduced direct mail and other promotional activity as compared to the same periods of fiscal 2013.  The lower advertising costs were partially offset by higher general and administrative costs ($3.3 million and $4.0 million, respectively) due primarily to severance, share-based compensation, and other charges in connection with the separation of certain executives and the elimination of 50 positions at our Restaurant Support Services Center during the current year.

Closures and Impairments

Closures and impairments increased $12.3 million to $14.1 million for the 13-week period ended December 3, 2013, as compared to the corresponding period of the prior year.  The increase for the 13-week period ended December 3, 2013 is primarily due to higher property impairment charges ($10.1 million), increased closed restaurant lease reserve expense ($1.8 million), and lower gains on the sale of surplus properties ($0.5 million), which were partially offset by reduced other closing costs ($0.1 million).

Closures and impairments increased $19.2 million to $22.2 million for the 26-week period ended December 3, 2013, as compared to the corresponding period of the prior year.  The increase for the 26-week period ended December 3, 2013 is primarily due to higher property impairment charges ($14.6 million), closed restaurant lease reserve expense ($3.9 million), and lower gains on the sale of surplus properties ($0.7 million).

For both the 13- and 26-week periods ended December 3, 2013, the higher property impairment charges were due in part to a plan formulated by management and approved on January 7, 2014 by the Ruby Tuesday, Inc. Board of Directors to close 27 Ruby Tuesday concept restaurants in the third quarter of fiscal 2014 and three more in the fourth quarter.  Of the 30 restaurants, approximately half are planned to close upon expiration of their lease.  As a result of this decision, a pre-tax impairment charge of $4.4 million was recognized within Closures and Impairments Expense for the 13 and 26 weeks ended December 3, 2013.  We also recorded impairments on nine open Ruby Tuesday restaurants not planned for closure with deteriorating operational performance.  See Note I to our Condensed Consolidated Financial Statements for further information on our closures and impairment charges recorded during the 13 and 26 weeks ended December 3, 2013 and December 4, 2012 and Note R to our Condensed Consolidated Financial Statements for further discussion of the planned closure of these restaurants.

Interest Expense, Net

Interest expense, net decreased $0.1 million to $6.6 million for the 13 weeks ended December 3, 2013, as compared to the corresponding period in the prior year, primarily due to lower interest expense on our Senior Notes due to repurchases since the same quarter of the prior year.  Interest expense, net decreased $0.1 million to $13.4 million for the 26-week period ended December 3, 2013, as compared to the corresponding period in the prior year, primarily for the same reasons mentioned above.

Loss/(gain) on Extinguishment of Debt

Loss on extinguishment of debt was $0.7 million and $1.2 million for the 13 and 26 weeks ended December 3, 2013, respectively.  We incurred a $0.7 million charge in the second quarter of fiscal 2014 relating to the write-off of the pro rata portion of unamortized debt issuance costs associated with the previous credit facility.  During the first quarter of fiscal 2014, we repurchased $12.9 million of the Senior

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Notes for $13.0 million plus $0.2 million of accrued interest.  We realized a $0.5 million loss on the repurchases.  We did not repurchase any of the Senior Notes during the current quarter.

Gain on extinguishment of debt was $0.2 million for the 13 and 26 weeks ended December 4, 2012.  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

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.  Due to changes in our projections, which have fluctuated as we work through our brand repositioning, a reliable projection of our annual effective rate has been difficult to determine.  As such, we recorded a tax benefit for the first two quarters quarter of fiscal 2014 based on the actual year-to-date results, in accordance with ASC 740.

We recorded a tax benefit from continuing operations of $1.9 million and $7.1 million for the 13- and 26-week periods ended December 3, 2013, respectively, compared to $6.7 million and $8.6 million for the 13- and 26-week periods ended December 4, 2012, respectively, to reflect the current benefit of federal and certain state net operating loss carrybacks as well as the recognition of unrecognized tax benefits.  The change in income taxes is attributable to increased pre-tax losses for the 13 and 26 weeks ended December 3, 2013 as compared to the same periods of the prior year offset by an increase in the valuation allowance for deferred tax assets as discussed below.

We regularly evaluate the need for a valuation allowance for deferred tax assets by assessing whether it is more likely than not that we will realize the deferred tax assets in the future.  A valuation allowance assessment is performed each reporting period, with any additions or adjustments reflected in earnings in the period of assessment.  In assessing the need for a valuation allowance, we have considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets for each jurisdiction.

Through the third quarter of fiscal 2013, we had concluded that objective and subjective positive evidence outweighed negative evidence, and concluded it was more likely than not to realize all of our federal and most of our state deferred tax assets, except for loss carryforwards in certain states that have had cumulative losses due to our state tax planning strategies and/or relatively short carryforward periods and annual limits on how much loss carryforward can be used to offset future taxable income.   During the fourth quarter of fiscal 2013, we recorded a valuation allowance following the conclusion that the negative evidence outweighed the positive evidence. 

Our valuation allowance totaled $45.4 million and $24.6 million as of December 3, 2013 and June 4, 2013, respectively.  Netted against our tax benefit from continuing operations for the 13- and 26-week periods ended December 3, 2013 were charges of $14.6 million and $21.9 million, respectively, representing the amount reserved for the increase in deferred tax assets during the periods which primarily related to general business credit carryforwards and state net operating loss carryforwards.

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Discontinued Operations

In an effort to focus primarily on the successful sales turnaround of our core Ruby Tuesday concept and secondly, to improve the financial performance of our Lime Fresh concept, we closed all 13 Marlin & Ray’s restaurants, the Company’s one Wok Hay restaurant, and our two Truffles restaurants during fiscal 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					Twenty-six weeks ended
	December 3, 2013		December 4,  2012			December 3, 2013			December 4, 2012
Restaurant sales and operating revenue	$	–	$	4,156		$	–		$	9,154
Gain/(loss) before income taxes	$	453	$	(17,919	)	$	(75	)	$	(18,767	)
Provision/(benefit) for income taxes		99		(7,055	)		(86	)		(7,428	)
Gain/(loss) from discontinued operations	$	354	$	(10,864	)	$	11		$	(11,339	)

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 4, 2013, we identified our critical accounting policies related to impairment of long-lived assets, income tax valuation allowances and tax accruals, segment reporting, discontinued operations, share-based employee compensation, business combinations, lease obligations, revenue recognition for franchisees, and estimated liability for self-insurance.  During the first 26 weeks of fiscal 2014, there have been no changes in our critical accounting policies.

Liquidity and Capital Resources:

Cash and cash equivalents decreased by $29.3 million and $22.6 million during the first 26 weeks of fiscal 2014 and 2013, respectively.  The change in cash and cash equivalents is as follows (in thousands):

	Twenty-six weeks ended
	December 3,				December 4,
	2013				2012
Cash provided by operating activities		$	428			$	609
Cash (used)/provided by investing activities			(3,416	)			14,114
Cash used by financing activities			(26,301	)			(37,313	)
Decrease in cash and cash equivalents		$	(29,289	)		$	(22,590	)

Operating Activities

Our cash provided by operations is generally derived from cash receipts generated by our restaurant customers and franchisees.  Substantially all of the $562.8 million and $624.9 million of restaurant sales and operating revenue disclosed in our Condensed Consolidated Statements of Operations and Comprehensive Loss for the 26 weeks ended December 3, 2013 and December 4, 2012, respectively, was received in cash either at the point of sale or within two to four days (when our customers paid with debit or credit cards).  Our primary uses of cash for operating activities are food and beverage purchases, payroll

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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 26 weeks of fiscal 2014 decreased $0.2 million (29.7%) from the corresponding period in the prior year to $0.4 million.  The decrease is due primarily to lower EBITDA as a result of a 9.7% decrease in same-restaurant sales at Company-owned Ruby Tuesday concept restaurants.  This was partially offset by decreases in amounts spent on media advertising (approximately $13.3 million), reductions in amounts spent to acquire inventory (approximately $13.8 million) as we have suspended the advance purchasing of lobster in order to utilize the lobster that is currently on hand, lower cash paid for income taxes ($3.0 million), and a decrease in cash paid for interest ($1.0 million) due primarily to lower interest payments on our Senior Notes due to repurchases since the same period of the prior year.

Our working capital deficiency and current ratio as of December 3, 2013 were $32.6 million and 0.7:1, 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 (thereby reducing equity), 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 or converted 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 proceeds from disposal of assets and sale-leaseback transactions for the 26 weeks ended December 3, 2013 and December 4, 2012 were $17.7 million and $18.5 million, respectively.

During the 26 weeks ended December 3, 2013, we completed sale-leaseback transactions of the land and buildings for three Company-owned Ruby Tuesday concept restaurants for gross cash proceeds of $5.9 million, exclusive of transaction costs of approximately $0.3 million.  Equipment was not included.  Net proceeds from the sale-leaseback transactions were used for general corporate purposes, including 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 $11.3 to $15.3 million.  We intend to fund our investing activities with cash currently on hand, cash provided by operations, or borrowings on the Senior Credit Facility.

Financing Activities

Historically our primary sources of cash have been operating activities, coupled with sale-leaseback 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 the Senior 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.

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Interest on the Senior Notes is calculated at 7.625% per annum, payable semiannually on each May 15 and November 15 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 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.

Under the terms of our December 2013 Senior Credit Facility, we are allowed, under certain circumstances, to repurchase up to $20.0 million of the Senior Notes in any fiscal year.  During the 26 weeks ended December 3, 2013, we repurchased $12.9 million of the Senior Notes for $13.0 million plus $0.2 million of accrued interest.  We realized losses of $0.5 million on these transactions.  The balance on the Senior Notes was $222.1 million at December 3, 2013 as a result of these repurchases.

On December 3, 2013, we entered into the Senior Credit Facility under which we may borrow up to $50.0 million with the option, subject to certain conditions, to increase the facility by up to $35.0 million.  The Senior Credit Facility, which was obtained to provide capital for general corporate purposes, replaced a previous five-year $200.0 million credit facility that was set to expire in December 2015.  The terms of the Senior Credit Facility provide for a $25.0 million sublimit for the issuance of standby letters of credit.  In connection with entering into the Senior Credit Facility, included within Interest expense, net and Loss/(gain) on extinguishment of debt in our Condensed Consolidated Statements of Operations for the 13 and 26 weeks ended December 3, 2013 are charges of $0.2 million and $0.7 million, respectively, relating to the write-off of the pro rata portion of unamortized debt issuance costs associated with our previous credit facility.

Under the Senior Credit Facility, interest rates charged on borrowings can vary depending on the interest rate option we choose to utilize.  Our options for the rate are a Base Rate or LIBOR, plus an applicable margin.  The Base Rate is defined as the highest of the issuing bank’s prime rate, the Federal Funds rate plus 0.50%, or the Adjusted LIBO rate (as defined in the Senior Credit Facility) plus 1.0%.  The applicable margin for the LIBOR rate-based option is a percentage ranging from 2.50% to 3.50% and for the Base Rate option is a percentage ranging from 1.50% to 2.50%.  We pay commitment fees quarterly ranging from 0.40% to 0.75% on the unused portion of the Senior Credit Facility.

As security for the Senior Credit Facility, we granted the lenders liens and security interests in substantially all of the shares of capital stock of the Company and each of our present and future subsidiaries and substantially all of the personal property of the Company and each of our present and future subsidiaries.  Further, we are substantially complete in the process of finalizing a listing of approximately 50 Ruby Tuesday restaurants whose real property, improvements and fixtures would provide additional collateral with a fair market value of approximately $100 million as of December 3, 2013.  While the Company has no plans to borrow on the Senior Credit Facility prior to finalization of the collateral, there can be no assurance that the full amount of $50.0 million would be available until we are able to do so.

Under the terms of the Senior Credit Facility, we had no borrowings outstanding at December 3, 2013.  After consideration of letters of credit outstanding, we had $37.6 million available under the Senior Credit Facility as of December 3, 2013.

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The Senior Credit Facility contains a number of customary affirmative and negative covenants that, among other things, 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 Senior 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.  The terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than 4.50 to 1.0 and a minimum fixed charge coverage ratio of 1.50 to 1.0 for the quarter ended December 3, 2013.  For the remainder of fiscal 2014, the terms of the Senior Credit Facility require us to maintain a maximum leverage ratio of no more than 4.75 to 1.0 and 5.00 to 1.0 for the quarters ending March 4, 2014 and June 3, 2014, respectively, and a minimum fixed charge coverage ratio of 1.40 to 1.0 and 1.30 to 1.0 for the quarters ending March 4, 2014 and June 3, 2014, respectively.  The minimum required ratios fluctuate thereafter as provided in Article VII of the Senior Credit Facility.

The Senior Credit Facility terminates not later than December 3, 2017.  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 Senior Credit Facility and any ancillary loan documents.

On December 3, 2013, in connection with our entry into the Senior Credit Facility, the Company and certain of its subsidiaries entered into loan modification agreements (the “Loan Modification Agreements”) with certain mortgage lenders to, among other things, provide waivers and consents under certain of our mortgage loan obligations to enter into the Senior Credit Facility.  The Loan Modification Agreements also, among other things, amend certain financial reporting requirements under the specified loans and modify and/or provide for certain financial covenants for the specified loans, including the minimum consolidated fixed charge coverage ratio and the minimum adjusted total debt to EBITDAR ratio.  In conjunction with one of the loan modification agreements, on January 2, 2014, we paid approximately $5.0 million to retire a specified portion of certain mortgage loan obligations.

Our $53.6 million in mortgage loan obligations as of December 3, 2013 consists of various loans acquired upon franchise acquisitions.  These loans, which mature between February 2014 and November 2022, have balances which range from $0.1 million to $7.8 million and interest rates of 7.60% to 10.92%.  Many of the properties acquired from franchisees collateralize the loans outstanding.

During the 26 weeks ended December 3, 2013, we spent $0.5 million to repurchase 0.1 million shares of RTI common stock.  As of December 3, 2013, the total number of remaining shares authorized to be repurchased was 11.8 million.  We spent $20.0 million to repurchase 2.8 million shares of RTI common stock during the 26 weeks ended December 4, 2012.

During the remainder of fiscal 2014, we expect to fund operations, capital expansion, and any other investments from cash currently on hand, operating cash flows, or our Senior Credit Facility.

Covenant Compliance

Under the terms of the Senior Credit Facility, we are required to satisfy and maintain specified financial ratios and other financial condition tests and covenants.  The financial ratios include maximum funded debt and minimum fixed charge coverage covenants.  Our continued ability to meet those financial ratios, tests and covenants can be affected by events beyond our control, and we cannot assure you that we will meet those ratios, tests and covenants.

Maximum Funded Debt Covenant

Our maximum funded debt covenant is an Adjusted Total Debt to Consolidated EBITDAR ratio.  Adjusted Total Debt, as defined in our covenants, includes items both on-balance sheet (debt and capital lease obligations) and off-balance sheet (such as the present value of leases, letters of credit and guarantees).  In addition to transitionally allowing for the add-back of certain losses from discontinued operations and store closing costs, Consolidated EBITDAR is consolidated net income/(loss) (for the Company and its majority-owned subsidiaries) plus interest charges, income tax, depreciation, amortization, rent and other non-cash charges.  Among other charges, we have reflected share-based compensation, asset impairment and bad debt expense, as non-cash.

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Consolidated EBITDAR and Adjusted Total Debt are not presentations made in accordance with U.S. generally accepted accounting principles (“GAAP”), and, as such, should not be considered a measure of financial performance or condition, liquidity or profitability.  They also should not be considered alternatives to GAAP-based net income or balance sheet amounts or operating cash flows or indicators of the amount of free cash flow available for discretionary use by management, as Consolidated EBITDAR does not consider certain cash requirements such as interest payments, tax payments or debt service requirements and Adjusted Total Debt includes certain off-balance sheet items.  Further, because not all companies use identical calculations, amounts reflected by RTI as Consolidated EBITDAR or Adjusted Total Debt may not be comparable to similarly titled measures of other companies.  We believe the information shown below is relevant as it presents the amounts used to calculate covenants which are provided to our lenders.  Non-compliance with our debt covenants could result in the requirement to immediately repay all amounts outstanding under such agreements.

The following is a reconciliation of our total long-term debt and capital leases, which are GAAP-based, to Adjusted Total Debt as defined in our bank covenants (in thousands):

	December 3, 2013
Current portion of long-term debt, including capital leases	$	9,838
Long-term debt and capital leases, less current maturities		263,304
Total long-term debt and capital leases		273,142
Present value of operating leases*		226,628
Letters of credit*		12,402
Unrestricted cash in excess of $10.0 million		(13,618	)
Unamortized discount of senior unsecured notes		2,753
Unamortized premium of mortgage loan obligations		(976	)
Adjusted Total Debt	$	500,331

* Non-GAAP measure.  See below for discussion regarding reconciliation to GAAP-based amounts.

The following is a reconciliation of net loss, which is a GAAP-based measure of our operating results, to Consolidated EBITDAR as defined in our bank covenants (in thousands):

	Twelve Months
	Ended
	December 3, 2013
Net loss	$	(83,569	)
Rent expense		58,090
Depreciation		57,630
Asset impairments		33,639
Interest expense		26,471
Goodwill impairments		9,022
Share-based compensation expense		6,921
Losses on discontinued operations		3,566
Amortization of intangibles		2,936
Pension curtailment expense		2,481
Restructuring costs		2,121
Income taxes		1,879
Non-cash accruals		1,527
Restaurant closing costs		915
Other		2,639
Consolidated EBITDAR	$	126,268
Adjusted Total Debt to Consolidated EBITDAR – Actual		3.96	x
Maximum allowed per covenant (1)		4.50	x

(1) For the remainder of fiscal 2014, the Senior Credit Facility requires us to maintain a maximum Adjusted Total Debt to EBITDAR ratio of less than or equal to 4.75x for the quarter ending March 4, 2014 and 5.00x for the quarter ending June 3, 2014.  The maximum Adjusted Total Debt to EBITDAR ratio fluctuates thereafter as provided in Article VII of the Senior Credit Facility.

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Minimum Fixed Charge Coverage

Our fixed charge coverage ratio compares Consolidated EBITDAR (as discussed above) to interest and cash-based rents.

The following shows our computation of our fixed charge coverage ratio (in thousands):

	Twelve Months
	Ended
	December 3, 2013
Consolidated EBITDAR		$	126,268
Interest*		$	23,852
Cash rents*			51,662
Total		$	75,514

* Non-GAAP measure.  See below for discussion regarding reconciliation to GAAP-based amounts.

Fixed Charge Covenant – Actual	1.67x
Minimum allowed per covenant (2)	1.50x

(2) For the remainder of fiscal 2014, the Senior Credit Facility requires us to maintain a minimum fixed charge coverage ratio of greater than or equal to 1.40x for the quarter ending March 4, 2014 and 1.30x for the quarter ending June 3, 2014.  The minimum fixed charge coverage ratio fluctuates thereafter as provided in Article VII of the Senior Credit Facility.

Non-GAAP Amounts Used in Debt Covenant Calculations

As previously discussed, we use various non-GAAP amounts in our Adjusted Total Debt, Consolidated EBITDAR, and Fixed Charge covenant calculations.  Two of the amounts presented in the Adjusted Total  Debt calculation, the present value of operating leases and letters of credit, are off-balance sheet and there is no corresponding amount presented in our Condensed Consolidated Balance Sheets.

Our Minimum Fixed Charge Coverage ratio requires interest to be included in the denominator.  The amount we reflect for interest in the denominator of this calculation ($23.9 million on a rolling 12 month basis) differs from interest expense determined in accordance with GAAP ($26.5 million) because of three adjustments we make.  As shown below, we exclude brokerage fees, prepayment penalties, and the amortization of loan fees and fair market value adjustments.  While these items are reflected as interest expense in our Condensed Consolidated Statements of Operations, they don’t require on-going cash payments for servicing and therefore aren’t impacted by future Consolidated EBITDAR.  The table below reconciles debt covenant interest for the preceding 12 months to GAAP interest for the same time period (amounts in thousands):

Interest	$	23,852
Brokerage fees		1,855
Prepayment penalties		1,147
Amortization of loan fees and fair market
value adjustments		(383	)
GAAP-based interest expense	$	26,471

Our Minimum Fixed Charge Coverage ratio also allows for recurring cash rents to be included in the denominator.  Cash rents ($51.7 million on a rolling 12 month basis) differ from rents determined in accordance with GAAP ($58.1 million) by the following (amounts in thousands):

Cash rents	$	51,662
Change in rent accruals		4,076
Rent settlement payments		2,352
GAAP-based rent expense	$	58,090

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Significant Contractual Obligations and Commercial Commitments

Long-term financial obligations were as follows as of December 3, 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)	$	52,806	$	9,832	$	10,395	$	20,218	$	12,361
Senior unsecured notes (a)		222,113		–		–		–		222,113
Interest (b)		125,835		20,639		39,993		36,940		28,263
Operating leases (c)		373,120		46,615		83,175		69,839		173,491
Purchase obligations (d)		104,484		72,584		31,885		15		–
Pension obligations (e)		32,545		3,384		5,142		5,268		18,751
Total (f)	$	910,903	$	153,054	$	170,590	$	132,280	$	454,979

(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 $2.5 million as of December 3, 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 $1.6 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 $8.9 million of unrecognized tax benefits due to the uncertainty regarding the timing of future cash outflows associated with such obligations.

Commercial Commitments as of December 3, 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	$ 12,402	$ 12,402	$         –	$           –	$           –
Divestiture guarantees	6,646	827	1,980	1,643	2,196
Total	$ 19,048	$ 13,229	$ 1,980	$   1,643	$   2,196

At December 3, 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 December 3, 2013 to be $6.0 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.

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Accounting Pronouncements Not Yet Adopted

In July 2013, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2013-11, “Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists” (“ASU 2013-11”).  The guidance requires an entity to present its unrecognized tax benefits net of its deferred tax assets when settlement in this manner is available under the tax law, which would be based on facts and circumstances as of the balance sheet reporting date and would not consider future events.  Gross presentation in the notes to the financial statements will still be required.  ASU 2013-11 will apply on a prospective basis to all unrecognized tax benefits that exist at the effective date, with the option to apply it retrospectively.  The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (our fiscal 2015 first quarter).  While the adoption of ASU 2013-11 will not have an impact on our results of operations or cash flows, we are currently evaluating the impact of presenting unrecognized tax benefits net of our deferred tax assets where applicable on our Condensed Consolidated Balance Sheets.

Known Events, Uncertainties and Trends:

Restaurant Closures

As discussed in Note I to the Condensed Consolidated Financial Statements, we incurred impairment charges of $4.4 million in the second quarter of fiscal 2014 associated with the planned closing of 27 Ruby Tuesday restaurants in the third quarter of fiscal 2014 and three more in the fourth quarter.  Approximately half of these closings are in advance of normal lease expirations.  As of the date of this filing, we have closed 25 of these restaurants.  Accordingly, in conjunction with the closings, our third quarter Closures and Impairments Expense will include costs associated with lease terminations, future lease obligations, severance, and inventory obsolescence charges.  For the remainder of fiscal 2014, we anticipate incurring charges of approximately $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 our common stock.  During the first two quarters of fiscal 2014, we repurchased 0.1 million shares of our common stock at an aggregate cost of $0.5 million.  As of December 3, 2013, the total number of remaining shares authorized to be repurchased was 11.8 million.  To the extent not funded with cash on hand or cash from operating activities, additional repurchases, if any, may be funded by available cash on hand or 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.

Repurchases of Senior Notes

We are allowed under the terms of the Senior Credit Facility to prepay up to $20.0 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 $12.9 million of the Senior Notes during the 26 weeks ended December 3, 2013 for $13.0 million plus $0.2 million of accrued interest.  We realized a $0.5 million loss on these transactions.  As of the date of this filing, we may repurchase an additional $7.1 million of the Senior Notes during the remainder of fiscal 2014.  Any future repurchases of the Senior Notes, if any, will be funded with available cash on hand.

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.

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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 Senior Credit Facility can vary based on the interest rate option we choose to utilize.  Our options for the rate are LIBOR or a Base Rate plus an applicable margin.  The Base Rate is defined as the highest of the issuing bank’s prime rate, the Federal Funds rate plus 0.50%, or the Adjusted LIBO rate (as defined in the Senior Credit Facility) plus 1.0%.  The applicable margin for the LIBOR rate-based option is a percentage ranging from 2.50% to 3.50% and for the Base Rate option is a percentage ranging from 1.50% to 2.50%.  As of December 3, 2013, the total amount of outstanding debt subject to interest rate fluctuations was $2.5 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 December 3, 2013.

Changes in Internal Controls

During the fiscal quarter ended December 3, 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.

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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 customers 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 N to the Condensed Consolidated Financial Statements for further information about our legal proceedings as of December 3, 2013.

ITEM 1A.  RISK FACTORS

Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended June 4, 2013 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 our second fiscal quarter ending December 3, 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
(September 4 to October 8)	–	–	–	11,779,339
Month #2
(October 9 to November 5)	–	–	–	11,779,339
Month #3
(November 6 to December 3)	–	–	–	11,779,339
Total	–	–	–

(1) No shares were repurchased other than through our publicly-announced repurchase programs and authorizations during the first two quarters of our year ending June 3, 2014.

(2) As of December 3, 2013, 11.8 million shares remained available for purchase under existing programs, which consists of 1.8 million shares remaining under a July 11, 2007 authorization by the Board of Directors to repurchase 6.5 million shares and a January 8, 2013 authorization by the Board of Directors, not yet begun, to repurchase 10.0 million shares.  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.

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ITEM 5. OTHER INFORMATION

Restaurant Closures

On January 7, 2014, the Board approved a plan to close approximately 27 Ruby Tuesday concept restaurants in the third quarter of fiscal 2014 and approximately 3 additional locations in the fourth quarter. The closures are part of the Company’s ongoing strategic planning and comprehensive cost reduction initiative.

Of the 30 restaurants, approximately half are planned to close upon the expiration of their lease. As a result of this decision, a pre-tax impairment charge of $4.4 million was recognized within Closures and Impairments Expense for the 13 and 26 weeks ended December 3, 2013, as disclosed in the Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q.
 

Amendment to Senior Credit Facility

As previously disclosed, the Company entered into the Senior Credit Facility on December 3, 2013.  Pursuant to the terms of the Senior Credit Facility, the Company had thirty days from the date of closing to provide the administrative agent certain environmental assessment reports for the properties to be mortgaged as collateral.  On January 10, 2014, the Company and its wholly-owned guarantor subsidiaries entered into an amendment to the Senior Credit Facility with the banks and other financial institutions that are party to the Senior Credit Facility.  The amendment provides additional time for the Company to replace the mortgages on certain real property with mortgages on substitute real property and supply the administrative agent with acceptable environmental assessment reports.  Under the terms of the amendment, the Company has sixty (60) days from the date of the amendment to provide the required mortgages and environmental assessments.  The amendment does not change the requirement that the Company provide mortgages on real property that the administrative agent is reasonably satisfied that the appraised value, in the aggregate, is at least $100,000,000.

ITEM 6. EXHIBITS

The following exhibits are filed as part of this report:

 Exhibit No.

10	.1	Agreement for Separation of Employment.
10	.2	Loan Modification Agreement.
10	.3	Waiver and Consent in Connection with Revolving Credit Facility.
10	.4	First Amendment to Revolving Credit Agreement and Waiver.
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.

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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.

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: January 13, 2014  BY: /s/ MICHAEL O. MOORE —————————————— Michael O. Moore Executive Vice President – Chief Financial Officer and Assistant Secretary (Principal Financial Officer)

Date: January 13, 2014  BY: /s/ FRANKLIN E. SOUTHALL, JR. ————————————————— Franklin E. Southall, Jr. Vice President – Corporate Controller and Principal Accounting Officer (Principal Accounting Officer)

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