Edgar Filing: RUBY TUESDAY INC

form10-k_2010.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Fiscal Year Ended: June 1, 2010

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 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 and zip code)

(865) 379-5700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

Title of class

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 o No o

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

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 Smaller reporting company o

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

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of the last day of the second fiscal quarter ended December 1, 2009 was $414,050,485 based on the closing stock price of $6.42 on December 1, 2009.

The number of shares of the registrant's common stock outstanding as of July 26, 2010, the latest practicable date prior to the filing of this Annual Report, was 64,783,628.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the Registrant’s 2010 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, is incorporated by reference into Part III hereof.

Index

PART I

Item 1.	Business	4-9
Item 1A.	Risk Factors	10-16
Item 1B.	Unresolved Staff Comments	16
Item 2.	Properties	16-18
Item 3.	Legal Proceedings	18
Item 4.	Reserved	18

PART II

Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21-41
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	41
Item 8.	Financial Statements and Supplementary Data	42-78
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	79
Item 9A.	Controls and Procedures	79
Item 9B.	Other Information	79

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	80
Item 11.	Executive Compensation	80
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	80
Item 13.	Certain Relationships and Related Transactions, and Director Independence	80
Item 14.	Principal Accounting Fees and Services	80

PART IV

Item 15.	Exhibits and Financial Statement Schedule	81
Signatures		82

Special Note Regarding Forward-Looking Information

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

·	general economic conditions;

·	changes in promotional, couponing and advertising strategies;

·	changes in our guests’ disposable income;

·	consumer spending trends and habits;

·	increased competition in the restaurant market;

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

·	guests’ acceptance of changes in menu items;

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

·	mall-traffic trends;

·	changes in the availability and cost of capital;

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

·	costs and availability of food and beverage inventory;

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

·	impact of adoption of new accounting standards;

·	impact of food-borne illnesses resulting from an outbreak at either Ruby Tuesday or other restaurant concepts;

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

·	significant fluctuations in energy prices.

PART I

Item 1. Business

Background

The first Ruby Tuesday® restaurant was opened in 1972 in Knoxville, Tennessee near the campus of the University of Tennessee. The Ruby Tuesday concept, which at the time consisted of 16 restaurants, was acquired by Morrison Restaurants Inc. (“Morrison”) in 1982. During the following years, Morrison grew the concept to over 300 restaurants with concentrations in the Northeast, Southeast, Mid-Atlantic and Midwest regions of the United States and added other casual dining concepts, including the internally-developed American Cafe® and the acquired Tias, Inc., a chain of Tex-Mex restaurants. In a spin-off transaction that occurred on March 9, 1996, shareholders of Morrison approved the distribution of two separate businesses of Morrison to its shareholders, Morrison Fresh Cooking, Inc. (“MFC”) and Morrison Health Care, Inc. (“MHC”). In conjunction with the spin-off, Morrison was reincorporated in the State of Georgia and changed its name to Ruby Tuesday, Inc. Ruby Tuesday, Inc. and its wholly-owned subsidiaries are sometimes referred to herein as “RTI,” the “Company,” “we” and/or “our.”

We began our traditional franchise program in 1997 with the opening of one domestically and two internationally franchised Ruby Tuesday restaurants. The following year, we introduced a program we call our “franchise partnership program,” under which we own 1% or 50% of the equity of each of the entities that own and operate Ruby Tuesday franchised restaurants. We do not own any of the equity of entities that hold franchises under our traditional franchise programs. As of June 1, 2010, we had 46 franchisees, comprised of 13 franchise partnerships, 14 traditional domestic and 19 traditional international franchisees. Of these franchisees, we have signed agreements for the development of new franchised Ruby Tuesday restaurants with 3 franchise partnerships, 11 traditional domestic and 12 traditional international franchisees. In conjunction with the signing of the franchise agreements, between fiscal 1997 and 2002, we sold 124 Ruby Tuesday restaurants in our non-core markets to our franchisees. Seven additional Ruby Tuesday restaurants were sold or leased by the Company to franchise partnerships in fiscal 2007. In addition, the 12 international franchisees hold rights as of June 1, 2010 to develop Ruby Tuesday restaurants in 25 countries.

On November 20, 2000, the American Cafe (including L&N Seafood) and Tia’s Tex-Mex concepts, with 69 operating restaurants, were sold to Specialty Restaurant Group, LLC (“SRG”), a limited liability company owned by the former President of our American Cafe and Tia’s Tex-Mex concepts and certain members of his management team. During fiscal 2007, both SRG, and the company to whom it sold the Tia’s Tex-Mex concept in fiscal 2004, filed for bankruptcy protection.

In fiscal 2008, we acquired certain assets of Wok Hay, LLC. Wok Hay, LLC operated a fast casual Asian restaurant in Knoxville, Tennessee. We have since converted the acquired restaurant to a full-service Asian restaurant and opened a second Wok Hay.

Operations

We own and operate the Ruby Tuesday concept that offers food, quality, and service such that it is positioned to be in the higher end of the bar and grill segment of casual dining. We also offer franchises for the Ruby Tuesday concept in domestic and international markets. As of June 1, 2010, we owned and operated 656 casual dining restaurants, located in 27 states and the District of Columbia. Also, as of June 1, 2010, the franchise partnerships operated 116 restaurants and traditional franchisees operated 49 domestic and 58 international restaurants. A listing of the states and countries in which our franchisees operate is set forth below in Item 2 entitled “Properties.”

Ruby Tuesday restaurants serve simple, fresh, American food with a wide variety of appetizers, handcrafted burgers, a garden bar, which offers up to 46 items, steaks, fresh chicken, crab cakes, lobster, salmon, tilapia, fork-tender ribs, and more. Burger choices include such items as beef, bison, turkey, chicken, and crab. Entree selections typically range in price from $6.99 to $18.99. Where appropriate, we also offer our RubyTueGo® curbside service and a delivered-meals catering program for businesses, organizations, and group events at both Company-owned and franchised restaurants.

Casual dining is intensely competitive with respect to prices, services, convenience, locations, 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. In 2005, our analysis of the bar and grill segment within casual dining indicated that many concepts, including Ruby Tuesday, were not

clearly differentiated. We believed that as the segment continued to mature, the lack of differentiation would make it increasingly difficult to attract new guests. Consequently, we created brand reimaging initiatives discussed below to implement our strategy of clearly differentiating Ruby Tuesday from our competitors. We implemented our strategy in stages, first focusing on food, then service, and in 2007, we embarked on the most capital-intensive aspect of our reimaging program – the creation of a fresh new look for our restaurants. We believe that Ruby Tuesday, as a result of these initiatives, is well positioned for the future.

Uncompromising Freshness and Quality. Our first initiative to reimage our brand focused on our food, with an overall emphasis on freshness. Virtually every item on our menu is made with the freshest of ingredients, in line with our high quality casual dining positioning. Our new differentiated high-quality seafood menu items include lobster and crab cakes made from jumbo lump crab meat. Our chicken breasts are fresh, not frozen, all natural, and contain no growth hormones. Our burgers are made from 100% choice, fresh, never frozen, beef and served with crisp leaf lettuce, and fresh, cold-pack pickles on an artisan bun. Our freshness also applies to our appetizers which include fresh, made-to-order guacamole. We also upgraded our beverage offerings. For example, we make non-alcoholic drinks to-order from fresh berries and fresh lemon, mango, and pomegranate juices. Our cocktails are made with premium call-brand spirits and we also offer an extensive handcrafted beer and wine selection.

Gracious Hospitality. In the second phase of the reimaging, we upgraded our restaurant-level team by implementing new performance standards, advanced training, and a more rigorous selection process. We also implemented a new service system to enable our servers to focus more attention on the guest. Servers are now assisted by service support staff (“Quality Service Specialists”), similar to those found in higher-end restaurants. Recently we changed our restaurant management structure so assistant managers are now designated as either a guest service specialist or a culinary specialist depending upon their individual passions and skill sets, instead of functioning as generalists in our previous management structure. This program is enabling us to more consistently execute at high quality, casual dining levels in both food and service quality.

Fresh New Look. Only after the food and service improvements were implemented did we undertake the capital-intensive restaurant remodeling aspect of our reimaging. We designed a contemporary appearance and atmosphere for our restaurants, which included the elimination of dated elements such as Tiffany-style lamps and antiques and memorabilia that previously adorned our walls. Over an approximately 15-month period ending in the summer of 2008, we invested $62 million to reimage approximately 650 Company-operated restaurants.

Compelling Value. We believe our guests perceive “value” as a combination of food quality, service, restaurant atmosphere, menu variety, and price. However, as the economy has weakened, we believe that price has become increasingly important to our guests. With an average net check of approximately $11.50 to $12.00 for fiscal 2010, we believe our menu pricing provides a compelling value proposition.

At June 1, 2010, we owned and operated restaurants concentrated primarily in the Southeast, Northeast, Mid-Atlantic and Midwest of the United States. We consider these regions to be our core markets. We believe our business sector is overbuilt and demand has declined. In part because of this, we have suspended our new restaurant openings such that there were no openings of Company-owned Ruby Tuesday concept restaurants during fiscal 2010 and, with the exception of restaurants to be added upon acquisition of certain domestic franchisees as discussed below, there are only one or two openings of Ruby Tuesday concept restaurants planned for fiscal 2011.

We have a goal of getting more out of existing restaurants by generating higher revenues and thus more profit and cash flow with minimal capital investment. To that end, on February 17, 2010, we entered into a licensing agreement with Jim N Nicks Barbq Riverchase, Inc. (“Jim ‘N Nick’s”) which allows us to operate multiple restaurants under the Jim ‘N Nick’s Bar-B-Q® name. Jim ‘N Nick’s is an Alabama-based barbeque concept that currently operates 27 restaurants in seven states. Under the terms of the agreement, we will pay a licensing fee to Jim ‘N Nick’s of 3.0% of gross sales of any Jim ‘N Nick’s concept restaurant we open. Jim ‘N Nick’s has the option to terminate future development rights if we do not operate 27 or more Jim ‘N Nick’s concept restaurants within five years of RTI opening the first Jim ‘N Nick’s restaurant. Management has yet to determine if it will open 27 or more Jim ‘N Nick’s restaurants within five years.

In addition, and as disclosed in Note 15 to the Consolidated Financial Statements, on July 22, 2010, we entered into a licensing agreement with Gourmet Market, Inc. which allows us to operate multiple restaurants under the Truffles®

name. Truffles is an upscale café concept that currently operates three restaurants in the vicinity of Hilton Head Island, South Carolina. The Truffles concept offers a diverse menu featuring soups, salads, and sandwiches, a signature chicken pot pie, house-breaded fried shrimp, pasta, ribs, steaks, and a variety of desserts. Under the terms of the agreement, we will pay a licensing fee to Gourmet Market, Inc. of 2.0% of gross sales of any Truffles we open. Gourmet Market, Inc. has the option to terminate future development rights if we do not operate 18 or more Truffles restaurants within five years or 40 or more Truffles within 10 years of the effective date of the agreement. Management has yet to determine if it will open 18 or more Truffles restaurants within five years or 40 or more Truffles within 10 years.

We are currently evaluating the conversion of certain lower performing Ruby Tuesday concept restaurants to the Jim ‘N Nick’s, Truffles, and Wok Hay concept restaurants. We currently anticipate converting one to three company-owned Ruby Tuesday concept restaurants to each of these concepts in fiscal 2011.

Franchising

As previously noted, as of June 1, 2010, we had franchise arrangements with 46 franchise groups which operate Ruby Tuesday restaurants in 27 states, Guam, and in 14 foreign countries.

As of June 1, 2010, there were 223 franchise restaurants, including 116 operated by franchise partnerships. We acquired no restaurants from franchise partnerships in either fiscal 2010 or 2009. We acquired no restaurants from traditional franchisees in fiscal 2010 and one restaurant in fiscal 2009. Franchisees opened six restaurants in fiscal 2010, 19 restaurants in fiscal 2009, and 14 restaurants in fiscal 2008. As discussed further in Management’s Discussion and Analysis of Financial Condition and Results of Operations, which appears in Part II, Item 7 of this Form 10-K, we anticipate acquiring Ruby Tuesday concept restaurants from two franchise partnerships in early fiscal 2011. We anticipate that our remaining franchisees will open approximately six restaurants in fiscal 2011.

Generally, franchise arrangements consist of a development agreement and a separate franchise agreement for each restaurant. Under a development agreement, a franchisee is granted the exclusive right, and undertakes the obligation, to develop multiple restaurants within a specifically described geographic territory. The term of a domestic franchise agreement is generally 15 years, with two five-year renewal options.

For each restaurant developed under a domestic development agreement, a franchisee is currently obligated to pay a development fee of $10,000 per restaurant (at the time of signing a development agreement), an initial franchise fee (which typically is $35,000 for domestic franchisees), and a royalty fee equal to 4.0% of the restaurant’s monthly gross sales, as defined in the franchise agreement. Development and operating fees for international franchise restaurants vary.

Additionally, we offer support service agreements for domestic franchisees. Under the support services agreements, we have one level of support, which is required for franchise partnerships and optional for traditional franchisees, in which we provide specified services to assist the franchisees with various aspects of the business including, but not limited to, processing of payroll, basic bookkeeping and cash management. Fees for these services are typically contracted to be 2.5% of monthly gross sales for franchise partnerships and about 1.5% for traditional franchisees, as defined in the franchise agreement. There is also a required level of support services for traditional franchisees in which we charge a fee to cover certain information technology related support that we provide. All domestic franchisees also are required to pay a marketing and purchasing fee of 1.5% of monthly gross sales. At times of economic downturn, we have occasionally chosen to temporarily lower these fees. Under the terms of the franchise agreements, we also require all domestic franchisees to contribute a percentage of monthly gross sales, currently 0.5%, to a national advertising fund formed to cover their pro rata portion of the costs associated with our national advertising campaign. Under these terms, we can charge up to 3.0% of monthly gross sales for this national advertising fund.

While financing is the responsibility of the franchisee, we make available to the domestic franchisees information about financial institutions that may be interested in financing the costs of restaurant development for qualified franchisees. Additionally, in limited instances, and only with regard to the franchise partnerships, we provide partial guarantees to certain of these lenders.

We provide ongoing training and assistance to all of our franchisees in connection with the operation and management of each restaurant through the Ruby Tuesday Center for Leadership Excellence, our training facility, meetings, on-premises visits, computer-based training (“CBT”), and by written or other material.

Training

The Ruby Tuesday Center for Leadership Excellence, located in our Maryville, Tennessee Restaurant Support Services Center, serves as the centralized training center for all of our and the franchisees’ managers, multi-restaurant operators and other team members. Facilities include classrooms, a test kitchen, and the Ruby Tuesday Culinary Arts Center, which opened in fiscal 2007. The Ruby Tuesday Center for Leadership Excellence provides managers with the opportunity to assemble for intensive, ongoing instruction and hands on interaction through our WOW-U® training sessions. Programs include classroom instruction and various team building activities and competitions, which are designed to contribute to the skill and enhance the dedication of the Company and franchise teams in addition to strengthening our corporate culture. In addition to the centralized training at the Ruby Tuesday Center for Leadership Excellence, we introduced field training classes during fiscal 2010. These field training classes were held for bartenders, managers, and general managers. The field classes partnered the training team along with operational leadership to provide direct training and development in order to reach a large audience faster, and make an immediate impact on our team.

We also offer all team member training materials in a CBT format. CBT enables us to leverage technology to provide an even higher quality interactive training experience and allows for testing at every level to calibrate our team members’ skill levels and promotes self-paced, ongoing development.

Further contributing to the training experience is the Ruby Tuesday LodgeSM, which is located on a wooded campus just minutes from the Restaurant Support Services Center. Ruby Tuesday Lodge serves as the lodging quarters and dining facility for those attending the Ruby Tuesday Center for Leadership Excellence. After a day of instruction, trainees have the opportunity to dine and socialize with fellow team members in a relaxed and tranquil atmosphere where they are fully immersed in our culture. We believe our emphasis on training and retaining high quality restaurant managers is critical to our long-term success and we are committed to the ongoing development of our employees.

Research and Development

We do not engage in any material research and development activities. However, we do engage in ongoing studies to assist with food and menu development. Additionally, we conduct extensive consumer research to determine our guests’ preferences, trends, and opinions, as well as to better understand other competitive brands.

Raw Materials

We negotiate directly with our suppliers for the purchase of raw and processed materials and maintain contracts with select suppliers for both our Company-owned and franchised restaurants. These contracts may include negotiations for distribution of raw materials under a cost plus delivery fee basis and/or specifications that maintain a term-based contract with a renewal option. If any major supplier or distributor is unable to meet our supply needs, we would negotiate and enter into agreements with alternative providers to supply or distribute products to our restaurants.

We use purchase commitment contracts to stabilize the potentially volatile prices of certain commodities. Because of the relatively short storage life of inventories, limited storage facilities at the restaurants, our requirement for fresh products and the numerous sources of goods, a minimum amount of inventory is maintained at our restaurants. In the event of a disruption of supply, all essential food, beverage and operational products can be obtained from secondary vendors and alternative suppliers. We believe these alternative suppliers can provide, upon short notice, items of comparable quality.

Beginning in fiscal 2010, we have purchased lobster in advance of our needs and stored it in third-party facilities prior to our distributor taking possession of the inventory. Once the lobster is moved to our distributor’s facilities, we transfer ownership to the distributor. We later reacquire the inventory from our distributor upon its subsequent delivery to our restaurants.

Trade and Service Marks of the Company

We and our affiliates have registered certain trade and service marks with the United States Patent and Trademark

Office, including the name “Ruby Tuesday.” RTI holds a license to use all such trade and service marks from our affiliates, including the right to sub-license the related trade and service marks. We believe that these and other related marks are of material importance to our business. Registration of the Ruby Tuesday trademark expires in our 2015 fiscal year, unless renewed. We expect to renew this registration at the appropriate time.

Seasonality

Our business is moderately seasonal. Average restaurant sales of our mall-based restaurants, which represent approximately 18% of our total restaurants, are slightly higher during the winter holiday season. Freestanding restaurant sales are generally higher in the spring and summer months.

Competition

Our business is subject to intense competition with respect to prices, services, locations, and the types and quality of food. We are in competition with other food service operations, with locally-owned restaurants, and other national and regional restaurant chains that offer the same or similar types of services and products as we do. In times of economic uncertainty, restaurants also compete with supermarkets as guests may choose to limit spending and eat at home. Some of our competitors may be better established in the markets where our restaurants are or may be located. Changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns, and the types, numbers and locations of competing restaurants often affect the restaurant business. There is active competition for management personnel and for attractive commercial real estate sites suitable for restaurants.

Government Regulation

We and our franchisees are subject to various licensing requirements and regulations at both the state and local levels, related to zoning, land use, sanitation, alcoholic beverage control, and health and fire safety. We have not encountered significant difficulties or failures in obtaining the required licenses or approvals that could delay the opening of a new restaurant or the operation of an existing restaurant nor do we presently anticipate the occurrence of any such difficulties in the future. Our business is subject to various other regulations by federal, state and local governments, such as compliance with various health care, minimum wage, immigration, and fair labor standards. Compliance with these regulations has not had, and is not expected to have, a material adverse effect on our operations.

We are subject to a variety of federal, state, and international laws governing franchise sales and the franchise relationship. In general, these laws and regulations impose certain disclosure and registration requirements prior to the offer and sale of franchises. Rulings of several state and federal courts and existing or proposed federal and state laws demonstrate a trend toward increased protection of the rights and interests of franchisees against franchisors. Such decisions and laws may limit the ability of franchisors to enforce certain provisions of franchise agreements or to alter or terminate franchise agreements. Due to the scope of our business and the complexity of franchise regulations, we may encounter minor compliance issues from time to time. We do not believe, however, that any of these issues will have a material adverse effect on our business.

Environmental Compliance

Compliance with federal, state and local laws and regulations that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had, and is not expected to have a material effect on our capital expenditures, earnings or competitive position.

Personnel

As of June 1, 2010, we employed approximately 20,800 full-time and 14,400 part-time employees, including approximately 373 support center management and staff personnel. We believe that our employee relations are good and that working conditions and employee compensation are comparable with our major competitors. Our employees are not covered by a collective bargaining agreement.

Available Information

We maintain a web site at www.rubytuesday.com. Through the “Investors” section of our web site, we make available free of charge, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as it is reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. We are not including the information contained on or available through our web site as a part of, or incorporating such information into, this Annual Report on Form 10-K. In addition, copies of our corporate governance materials, including, Corporate Governance Guidelines, Nominating and

Governance Committee Charter, Audit Committee Charter, Executive Compensation and Human Resources Committee Charter, Code of Business Conduct and Ethics, Code of Ethical Conduct for Financial Professionals, Categorical Standards for Director Independence, and Whistleblower Policy, are available at the web site, free of charge. We will make available on our web site any waiver of or substantive amendment to our Code of Business Conduct and Ethics or our Code of Ethical Conduct for Financial Professionals within four business days following the date of such waiver or amendment.

A copy of the aforementioned documents will be made available without charge to all shareholders upon written request to the Company. Shareholders are encouraged to direct such requests to our Investor Relations department at the Restaurant Support Services Center, 150 West Church Avenue, Maryville, Tennessee 37801. As an alternative, our Form 10-K can also be printed from the “Investors” section of our web site at www.rubytuesday.com.

Executive Officers

Our executive officers are appointed by and serve at the discretion of our Board of Directors. Information regarding our executive officers as of August 2, 2010, is provided below.

Name	Age	Position

Samuel E. Beall, III	60	Chairman of the Board, President and Chief Executive Officer
Kimberly M. Grant	39	Executive Vice President
Marguerite N. Duffy	49	Senior Vice President, Chief Financial Officer
Nicolas N. Ibrahim	49	Senior Vice President, Chief Technology Officer
Robert F. LeBoeuf	48	Senior Vice President, Chief People Officer
Mark D. Young	43	Senior Vice President, Chief Marketing Officer

Mr. Beall has served as Chairman of the Board and Chief Executive Officer of the Company since May 1995 and also as President of the Company since July 2004. Mr. Beall served as President and Chief Executive Officer of the Company from June 1992 to May 1995 and President and Chief Operating Officer of the Company from September 1986 to June 1992. Mr. Beall founded Ruby Tuesday in 1972.

Ms. Grant joined the Company in June 1992 and was named Executive Vice President in April 2007. From January 2005 to April 2007, Ms. Grant served as Senior Vice President, Operations, from September 2003 to January 2005, as Vice President, Operations, from June 2002 to September 2003, as Regional Partner, Operations, and served in various other positions from June 1992 until June 2002. Ms. Grant earned her Master of Science in Banking and Financial Services Management from Boston University on June 26, 2010.

Ms. Duffy joined the Company in August 1990 and was named Senior Vice President and Chief Financial Officer in June 2001. Ms. Duffy served as Vice President, Operations Controller of the Company from October 1999 to May 2001 and served in various other accounting and finance positions from August 1990 until October 1999.

Mr. Ibrahim joined the Company in July 2001 and was named Senior Vice President, Chief Technology Officer in April 2003. He served as Vice President, Chief Technology Officer from July 2001 to April 2003. Prior to joining the company, Mr. Ibrahim served as a consultant to the Company's Information Technology department from June 1997 to July 2001.

Mr. LeBoeuf joined the Company in July 1986 and was named Senior Vice President, Chief People Officer in June 2003. From August 2001 to June 2003, Mr. LeBoeuf served as Vice President, Human Resources and from July 1986 until August 2001, he held various other positions.

Mr. Young joined the Company in January 1995 and was named Senior Vice President, Chief Marketing Officer in June 2007. From October 2003 to June 2007, Mr. Young served as Vice President, Advertising, from August 1998 to September 2003 as Vice President, Marketing and Culinary, and from January 1995 to August 1998, in various other positions.

Item 1A. Risk Factors

Our business and operations are subject to a number of risks and uncertainties. The risk factors discussed below may cause actual results to differ materially from those expressed in any forward looking statement.

The current economic situation could adversely affect our business, results of operations, liquidity and capital resources.

The U.S. economy continues to experience volatility due to uncertainties related to availability of credit, difficulties in the banking and financial services sectors, softness in the housing market, diminished market liquidity, volatile consumer confidence and high unemployment rates. Our business is dependent to a significant extent on national, regional and local economic conditions, particularly those that affect our guests that frequently patronize our restaurants. In particular, where our customers’ disposable income available for discretionary spending is reduced (such as by job losses, credit constraints and higher housing, taxes, energy, interest or other costs) or where the perceived wealth of customers has decreased (because of circumstances such as lower residential real estate values, increased foreclosure rates, increased tax rates or other economic disruptions), our business could experience lower sales and customer traffic as potential customers choose lower-cost alternatives or choose alternatives to dining out. Any resulting decreases in customer traffic or average value per transaction could negatively impact our financial performance, as reduced revenues may result in downward pressure on margins. These factors could reduce our Company-owned restaurants’ gross sales and profitability. These factors could also reduce gross sales of franchised restaurants, resulting in lower royalty payments from franchisees, and reduce profitability of franchise restaurants, potentially impacting the ability of franchisees to make royalty payments as they become due. Reduction in cash flows from either Company-owned or franchised restaurants could have a material adverse effect on our liquidity and capital resources.

We may fail to reach our growth goals, including sales, which may negatively impact our continued financial and operational success.

We establish sales goals each fiscal year based on a strategy of maintaining and growing same-restaurant sales and, where practical, new market development and further penetration of existing markets. We believe the biggest risk to attaining our growth goals is our ability to maintain or increase restaurant sales in existing markets, which is dependent upon factors both within and outside our control. Among other factors, these desired increases are dependent upon consumer spending, the overall state of the economy, our quality of operations, and the effectiveness of our marketing.

In fiscal 2008 and 2009 we lost a portion of our customer base following an effort to move our brand towards a high quality casual dining restaurant and away from the traditional bar and grill category. While we believe that the changes were necessary for the long-term success of our Company, they were completed at a time when our guests were facing economic pressures due to rising costs of gasoline, utilities and food. We tempered our sales declines in fiscal 2010, after having closed a number of unprofitable restaurants in fiscal 2009, in part by offering value incentives such as “Buy One Entree Get One Free”. Throughout the second half of fiscal 2010, we shifted our strategy such that our value incentives more frequently were “Buy One Entree Get One Free Up to $10”. To continue to turn around our declining sales, we must continue to provide high levels of quality in terms of both food and service and a strong perception of value to our guests. We must also develop a comprehensive marketing approach that overcomes our disadvantage of having a substantially lower advertising budget relative to some of our competitors. The risk of ineffective marketing decisions could further negatively impact our overall sales strategy, and thus continued success.

As mentioned above, one factor integral to our success is our ability to persuade our customers of the compelling value in paying our prices for higher-quality food and guest experience. To deliver on our promise of “Simple, Fresh, American Dining,” we offer steaks, all fresh chicken, crab, lobster, burgers, an enhanced garden bar, and premium beverages. If we are not successful at educating our customer about the value and quality of our products or our customers reject our pricing approach, then we may have to change our marketing or pricing strategies which could also negatively impact our growth goals.

Although a significant portion of our historical growth has been attributable to opening new restaurants, due to a perceived saturation of the market with casual dining restaurants, we have changed our strategy such that we did not

open any Company-owned restaurants in fiscal 2010 and only plan to open up to a few Ruby Tuesday concept restaurants in fiscal 2011. As part of our strategy to find ways to get more sales and profits out of existing assets, and in part due to the placement of certain of our Ruby Tuesday concept restaurants in hypercompetitive markets, our plans for fiscal 2011 include a test as to whether we can successfully grow sales and profits by converting certain existing Ruby Tuesday restaurants into other concepts. Three such choices currently available to us are Jim ‘N Nicks, a restaurant concept specializing in the sale of barbeque and related food items largely prepared “from scratch”, Truffles, an upscale café offering a diverse menu, and Wok Hay, a full service Asian restaurant. We are also exploring the possibilities of selected franchise acquisitions.

Though believed to be a smaller risk than not achieving growth through increased same-restaurant sales, there are risks associated with restaurant openings and conversions, including, but not limited to, selection of sites that will support a profitable level of sales and generate returns on investment that exceed our cost of capital, the acceptance of our concepts in new markets, and the recruitment of qualified operating personnel.

Once opened, we anticipate new restaurants will take four to six months to reach planned operational profitability due to the associated start-up costs. We can provide no assurance that any restaurant we or our franchisees open will be profitable or obtain operating results similar to those of our or their existing restaurants nor can we provide assurance that our remodeling efforts will produce incremental sales sufficient to offset the costs of the remodels.

We may not be successful at operating profitable restaurants.

The success of our brand is dependent upon operating profitable restaurants. The profitability of our restaurants is dependent on several factors, including the following:

·	the hiring, training, and retention of excellent restaurant managers and staff;

·	the ability to timely and effectively meet customer demands and maintain our strong customer base;

·	the ability to manage costs and prudently allocate capital resources;

·	the ability to create and implement an effective marketing/advertising strategy;

·	the ability to leverage sales following the completion of our re-imaging initiative; and

·	the ability to provide menu items with strong customer preference at attractive prices.

The profitability of our restaurants also depends on our ability to adapt the brand in such a way that consumers see us as fresh and relevant. In addition, the results of our currently high performing restaurants may not be indicative of their long-term performance, as factors affecting their success may change. Among others, one potential impact of declining profitability of our restaurants is increased asset impairment charges. This could be significant as property and equipment represented 89% of our total assets at June 1, 2010.

The inability of our franchises to operate profitable restaurants may negatively impact our continued financial success.

We operate franchise programs with domestic franchise partnerships and traditional domestic and international franchisees. In addition to the income (or offsetting the losses) we record under the equity method of accounting from our investment in certain of these franchises, we also collect royalties, marketing, and purchasing fees, and in some cases support service fees, as well as interest and other fees from the franchisees. At times of economic downturn, we have occasionally chosen to temporarily lower these fees. Further, as part of the franchise partnership program, we serve as guarantor for three credit facilities, two of which are no longer active. The ability of these franchise groups to continually generate profits impacts our overall profitability and our brand image.

Growth within the existing franchise base is dependent upon many of the same factors that apply to our Company-owned restaurants, and sometimes the challenges of opening profitable restaurants prove to be more difficult for our franchisees. For example, franchisees may not have access to the financial or management resources that they need to open or continue operating the restaurants contemplated by their franchise agreements with us. In addition, our continued growth is also partially dependent upon our ability to find and retain qualified franchisees in new markets, which may include markets in which the Ruby Tuesday brand may be less well known. Furthermore, the loss of any of our franchisees due to financial concerns and/or operational inefficiencies could impact our profitability and brand.

Our franchisees are obligated in many ways to operate their restaurants according to the specific guidelines set forth by us. We provide training opportunities to our franchise operators to fully integrate them into our operating strategy. However, since we do not have control over these restaurants, we cannot give assurance that there will not be differences in product quality or that there will be adherence to all Company guidelines at these franchise restaurants. In order to mitigate these risks, we do require that our franchisees focus on the quality of their operations, and we periodically visit their restaurants to ensure compliance with Company standards.

Concurrent with these risks, should the financial stability of our franchisees deteriorate and we opt for brand-protective or other reasons to increase our level of support, we could be required to consolidate certain of them under the provisions of guidance issued by the Financial Accounting Standards Board. We have concluded based on our most recent analyses prepared using financial information obtained from the franchise entities that we are not required as of June 1, 2010 to consolidate any of them. However, as the U.S. economy remains volatile, we anticipate that we will receive increased requests for financial support from certain of our franchisees, particularly the franchise partnerships. Should we opt to provide that support, the likelihood we would then be required to consolidate the entities making the requests (most likely those in the weakest financial condition) increases and, our financial performance likely would be negatively impacted. Alternatively, should we opt to not provide requested support, our franchisees’ financial struggles could accelerate and possibly, in a worst case, lead certain of them to bankruptcy, at which point we would likely be required to make payments according to the terms of any loans for which we had previously provided a guaranty in addition to payments on any leases subleased to franchisees for which we remain primarily liable.

Food safety and food-borne and pandemic illness concerns could adversely affect consumer confidence in our restaurants.

We face food safety issues that are common to the food industry. We work to provide a clean, safe environment for both our guests and employees. Otherwise, we risk losing guests and/or employees due to unfavorable publicity and/or a lack of confidence in our ability to provide a safe dining and/or work experience.

Food-borne illnesses, such as E. coli, hepatitis A, trichinosis, or salmonella, are also a concern for our industry. We can and do attempt to purchase food from reputable suppliers/distributors and have certain procedures in place to ensure safety and quality standards, but we can make no assurances regarding whether these supplies may contain contaminated goods. Further, concerns and/or unfavorable publicity over health issues and pandemic illness, such as the impact of the H1N1 influenza A virus or the Norovirus, could have adverse consequences for our industry.

In addition, we cannot ensure the continued health of each of our employees. We provide health-related training for each of our staff and strive to keep ill employees away from other employees, guests, and food items. However, we may not be able to detect when our employees are sick until the time that their symptoms occur, which may be too late if they have prepared/served food for our guests. The occurrence of an outbreak of a food-borne illness, whether at one of our restaurants or one of our competitors, could result in temporary store closings or other negative publicity that could adversely affect our sales and profitability.

We may be required to recognize additional impairment charges.

We assess our goodwill, trademarks and other long-lived assets as and when required by generally accepted accounting principles in the United States to determine whether they are impaired. As discussed further in Note 8 to our Consolidated Financial Statements, given our lowered stock price, declines in same-restaurant sales, and the overall economic conditions and challenging environment for the restaurant industry, we concluded during the second quarter of fiscal 2009 that our goodwill was impaired and recorded a charge of $19.0 million ($14.0 million, net of tax), representing the full value of goodwill. Additionally, during the third quarter of fiscal 2009 we implemented a plan to close 43 restaurants and announced our intention to close an additional 30 restaurants over the next several years. Based upon our reviews in fiscal 2010, 2009, and 2008, we recorded impairments of $3.2 million, $41.1 million, and $4.3 million, respectively. Excluding that relating to goodwill, the majority of these charges were for restaurant impairments.

If market conditions at these restaurants, or system-wide levels, deteriorate, or if operating results decline unexpectedly, we may be required to record additional impairment charges. Additional impairment charges would reduce our reported earnings for the periods in which they are recorded.

We may be unable to remain competitive because we are a leveraged company with restrictive financial covenants, and any potential inability to meet financial covenants contained in any of our indebtedness or guarantees could adversely affect our liquidity, financial condition, or results of operations.

Although we have repaid $204.1 million of our long-term debt during fiscal 2010, we owed $289.3 million in debt and capital lease obligations at June 1, 2010, and guaranteed a further $51.7 million in debt. The indebtedness requires us to dedicate a portion of our cash flows from operating activities to principal and interest payments, which could prevent or limit our ability to proceed with operational improvement initiatives.

The two most significant loans we have are our revolving credit facility ($203.8 million outstanding at June 1, 2010) (the “Credit Facility”) and our Series B senior notes ($48.4 million outstanding at June 1, 2010) (the “Private Placement”). The Credit Facility and Series B senior notes mature in fiscal 2012 and 2013, respectively. We cannot give assurance that we will be able to repay or refinance the Credit Facility and/or Series B senior notes or our other borrowings when due on favorable terms or at all, which could have a material adverse effect on us.

The most significant portion of our guarantees is attributable to a $48 million credit facility which assists franchise partnerships with working capital needs (the “Franchise Facility”). This guaranty can be partial or full for a particular franchise partnership depending upon the financial strength of the particular franchise partnership. As of June 1, 2010, amounts outstanding under the Franchise Facility relating to all of the franchise partnerships that were borrowers thereunder were fully guaranteed by us. Under the guaranty, if the Franchise Facility were to be unwound, we could be required to repay the lenders for all then-outstanding borrowings, not just the amounts which would be owed should individual franchise partnerships default. Actions of the franchise partnerships that are outside of our control, such as franchise partnerships defaulting under the Franchise Facility, could cause the Franchise Facility to be unwound, which would mean that loan commitments under the Franchise Facility can no longer be established, extended or renewed. Additionally, if we fail to pay any amount due under the Franchise Facility, breach any representations or warranties, fail to meet any covenants, file for bankruptcy, fail to pay any debt when due or if a judgment is awarded against us in excess of $10 million and enforcement proceedings have commenced upon such judgment or a stay of enforcement of such judgment has not been in effect for a period of 30 consecutive days, then the lenders under the Franchise Facility could terminate the loan commitment and demand that we purchase all outstanding loans and loan commitments and assume the obligations. Further, in such situation, if 51% of the participating lenders under the Franchise Facility request in writing, they can declare all loans due and payable, which could have a material adverse effect on us. At June 1, 2010, the total amount outstanding under the Franchise Facility was $47.3 million.

While we were successful in negotiating amendments to the Credit Facility, the Private Placement, and the Franchise Facility when needed during fiscal 2008, if we were to violate any of our financial or other covenants in the future and either agreements cannot be reached with our lenders or agreements are reached but we do not meet the revised covenants, our lenders could exercise their rights under the indebtedness and guaranty, including requiring immediate repayment of all borrowings, which could have a material adverse effect on us. Moreover, if any agreements were reached with our lenders, they might require us to pay higher interest rates.

Economic, demographic and other changes, seasonal fluctuations, natural disasters, and terrorism could adversely impact guest traffic and profitability in our restaurants.

Our business can be negatively impacted by many factors, including those which affect the restaurant only at the local level as well as others which attract national or international attention. Risks that could cause us to suffer losses include, but are not necessarily limited to, the following:

·	economic factors (including economic slowdowns or other inflation-related issues);

·	demographic changes, particularly with regard to dining and discretionary spending habits, in the areas in which our restaurants are located;

·	changes in consumer preferences;

·	changes in federal or state income tax laws;

·	seasonal fluctuations due to the days of the week on which holidays occur, which may impact spending patterns;

·	natural disasters such as hurricanes, tornados, blizzards, floods, or other severe weather;

·	effects of war or terrorist activities and any governmental responses thereto; and

·	increased insurance and/or self-insurance costs.

Each of the above items could potentially negatively impact our guest traffic and/or our profitability.

The potential for increased commodity, energy, and other costs may adversely affect our results of operations.

We continually purchase basic commodities such as beef, chicken, cheese and other items for use in many of the products we sell. Although we attempt to maintain control of commodity costs by engaging in volume commitments with third parties for many of our food-related supplies, we cannot assure that the costs of these commodities will not fluctuate, as we often have no control over such items. In addition, we rely on third-party distribution companies to frequently deliver perishable food and supplies to our restaurants. We cannot make assurances regarding the continued supply of our inventory since we do not have control over the businesses of our suppliers. Should our inventories lack in supply, our business could suffer, as we may be unable to meet customer demands. These disruptions may also force us to purchase food supplies from suppliers at higher costs. The result of this is that our operating costs may increase without the desire and/or ability to pass the price increases to our customers.

We must purchase energy-related products such as electricity, oil and natural gas for use in each of our restaurants. Our suppliers must purchase gasoline in order to transport food and supplies to us. Our guests purchase energy to heat and cool their homes and fuel their automobiles. When energy prices, such as those for gasoline, heating and cooling increase, we incur greater costs to operate our restaurants. Likewise our guests have lower disposable income and thus may reduce the frequency in which they dine out and/or feel compelled to choose more inexpensive restaurants when eating outside the home.

The costs of these energy-related items will fluctuate due to factors that may not be predictable, such as the economy, current political/international relations and weather conditions. Because we cannot control these types of factors, there is a risk that prices of energy/utility items will increase beyond our current projections and adversely affect our operations.

We face continually increasing competition in the restaurant industry for guests, staff, locations, supplies, and new products.

Our business is subject to intense competition with respect to prices, services, locations, qualified management personnel and quality of food. We compete with other food service operations, with locally-owned restaurants, and with other national and regional restaurant chains that offer the same or similar types of services and products. Some of our competitors may be better established in the markets where our restaurants are or may be located. Changes in consumer tastes; national, regional, or local economic conditions; demographic trends; traffic patterns and the types, numbers and locations of competing restaurants often affect the restaurant business. There is active competition for management personnel and for attractive commercial real estate sites suitable for restaurants. In addition, factors such as inflation, increased food, labor, equipment, fixture and benefit costs, and difficulty in attracting qualified management and hourly employees may adversely affect the restaurant industry in general and our restaurants in particular.

Litigation could negatively impact our results of operations as well as our future business.

We are subject to litigation and other customer complaints concerning our food safety, service, and/or other operational factors. Guests may file formal litigation complaints that we are required to defend, whether or not we believe them to be true. Substantial, complex or extended litigation could have an adverse effect on our results of operations if it develops into a costly situation and distracts our management. Employees may also, from time to time, subject us to litigation regarding injury, discrimination, wage and hour, and other employment issues. Suppliers, landlords and distributors, particularly those with which we currently maintain purchase commitments/contracts, could

also potentially allege non-compliance with their contracts should they consider our actions to be contrary to our commitments. Additionally, we are subject to the risk of litigation by our shareholders as a result of factors including, but not limited to, matters of executive compensation or performance of our stock price.

In certain states we are subject to “dram shop” statutes, which generally allow a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some dram shop litigation against restaurant companies has resulted in significant judgments, including punitive damages. As disclosed in Note 12 to the Consolidated Financial Statements, we are involved in such a case, Dan Maddy v. Ruby Tuesday, Inc., at the current time. We carry liquor liability coverage as part of our existing comprehensive general liability insurance, but we cannot guarantee that this insurance will be adequate in the event we are found liable in the Maddy case or any other dram shop case.

The cost of compliance with various government regulations may negatively affect our business.

We are subject to various forms of governmental regulations. We are required to follow various international, federal, state, and local laws common to the food industry, including regulations relating to food and workplace safety, sanitation, the sale of alcoholic beverages, environmental issues, minimum wage, overtime, health care, increasing complexity in immigration laws and regulations, and other labor issues. Further changes in these types of laws, including additional state or federal government-imposed increases in minimum wages, overtime pay, paid leaves of absence and mandated health benefits, or a reduction in the number of states that allow tips to be credited toward minimum wage requirements, could harm our operating results. Also, failure to obtain or maintain the necessary licenses and permits needed to operate our restaurants could result in an inability to open new restaurants or force us to close existing restaurants.

Recent health care legislation enacted by the Federal Government mandates menu labeling of certain nutritional aspects of restaurant menu items such as caloric, sugar, sodium, and fat content. Altering our recipes in response to such legislation could increase our costs and/or change the flavor profile of our menu offerings which could have an adverse impact on our results of operations. Additionally, minimum employee health care coverage mandated by state or federal legislation could have an adverse effect on our results of operations and financial condition.

We are also subject to regulation by the Federal Trade Commission and to state and foreign laws that govern the offer, sale and termination of franchises and the refusal to renew franchises. The failure to comply with these regulations in any jurisdiction or to obtain required approvals could result in a ban or temporary suspension on future franchise sales or fines or require us to rescind offers to franchisees, any of which could adversely affect our business and operating costs. Further, any future legislation regulating franchise laws and relationships may negatively affect our operations.

Approximately 10% of our revenue is attributable to the sale of alcoholic beverages. We are required to comply with the alcohol licensing requirements of the federal government, states and municipalities where our restaurants are located. Alcoholic beverage control regulations require applications to state authorities and, in certain locations, county and municipal authorities for a license and permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, the licenses are renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of the restaurants, including minimum age of guests and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. If we fail to comply with federal, state or local regulations, our licenses may be revoked and we may be forced to terminate the sale of alcoholic beverages at one or more of our restaurants.

As a publicly traded corporation, we are subject to various rules and regulations as mandated by the Securities and Exchange Commission and the New York Stock Exchange. Failure to timely comply with these guidelines could result in penalties and/or adverse reactions by our shareholders.

We are dependent on key personnel.

Our future success is highly dependent upon our ability to attract and retain certain key executive and other employees. These personnel serve to maintain a corporate vision for our Company, execute our business strategy, and maintain consistency in the operating standards of our restaurants. The loss of our key personnel or a significant

shortage of high quality restaurant team members could potentially impact our future growth decisions and our future profitability.

Samuel E. Beall, III, our chief executive officer and founder, is currently retirement-eligible. While we are constantly focused on succession plans at all levels, in the event his employment terminates or he becomes incapacitated, we can make no assurance regarding the impact his loss could have on our business and financial results.

Changes in financial accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.

Changes in financial accounting standards can have a significant effect on our reported results and may affect our reporting of transactions completed before the new rules are required to be implemented. Many existing accounting standards require management to make subjective assumptions, such as those required for stock compensation, tax matters, consolidation accounting, franchise acquisitions, litigation, and asset impairment calculations. Changes in accounting standards or changes in underlying assumptions, estimates and judgments by our management could significantly change our reported or expected financial performance.

We could be adversely impacted if our information technology and computer systems do not perform properly or if we fail to protect our customers’ credit card information or our employees’ personal data.

We rely heavily on information technology to conduct our business, and any material failure, interruption of service, or compromised data security could adversely affect our operations. While we expend significant resources to ensure that our information technology operates securely and effectively, any security breaches could result in disruptions to operations or unauthorized disclosure of confidential information. Additionally, if our customers’ credit card or other personal information or our employees’ personal data are compromised our operations could be adversely affected, our reputation could be harmed, and we could be subjected to litigation or the imposition of penalties.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Information regarding the locations of our Ruby Tuesday restaurants is shown in the list below. Of the 656 Company-owned and operated Ruby Tuesday restaurants as of June 1, 2010, we owned the land and buildings for 320 restaurants, owned the buildings and held non-cancelable long-term land leases for 215 restaurants, and held non-cancelable leases covering land and buildings for 121 restaurants. Our Restaurant Support Services Center in Maryville, Tennessee, which was opened in fiscal 1998, is owned by the Company. Our executives and certain other administrative personnel are located in the Restaurant Support Services Center. Since fiscal 2001, we have expanded the Restaurant Support Services Center by opening second and third locations also in Maryville.

Additional information concerning our properties and leasing arrangements is included in Note 6 to the Consolidated Financial Statements appearing in Part II, Item 8 of this Form 10-K.

Under our franchise agreements, we have certain rights to gain control of a restaurant site in the event of default under the franchise agreements.

The following table lists the locations of the Company-owned and franchised Ruby Tuesday restaurants as of June 1, 2010. In addition to the Ruby Tuesday restaurants listed below, we also own and operate two Wok-Hay restaurants in Tennessee.

	Number of Restaurants
State	Company	Franchise	Total System

Domestic:
Alabama	44	–	44
Arizona	7	–	7
Arkansas	–	7	7
California	1	3	4
Colorado	–	11	11
Connecticut	17	–	17
Delaware	7	–	7
Florida	80	1	81
Georgia	59	–	59
Idaho	–	1	1
Illinois	–	24	24
Indiana	4	9	13
Iowa	–	5	5
Kansas	–	2	2
Kentucky	5	4	9
Louisiana	5	–	5
Maine	–	10	10
Maryland	32	–	32
Massachusetts	10	–	10
Michigan	25	1	26
Minnesota	–	12	12
Mississippi	8	–	8
Missouri	–	27	27
Nebraska	–	8	8
Nevada	–	2	2
New Hampshire	5	–	5
New Jersey	26	–	26
New Mexico	–	1	1
New York	25	10	35
North Carolina	56	–	56
North Dakota	–	4	4
Ohio	36	–	36
Oklahoma	–	3	3
Oregon	–	3	3
Pennsylvania	44	–	44
Rhode Island	3	–	3
South Carolina	34	–	34
South Dakota	–	3	3
Tennessee	41	–	41
Texas	2	2	4
Utah	–	6	6
Virginia	68	–	68
Washington	–	5	5
Washington, DC	3	–	3
West Virginia	8	–	8
Wisconsin	1	1	2
Total Domestic	656	165	821


	Number of Restaurants
Country	Company	Franchise	Total System

International:
Canada	–	1	1
Chile	–	10	10
Egypt	–	2	2
Greece	–	4	4
Guam*	–	1	1
Hawaii*	–	4	4
Honduras	–	1	1
Hong Kong	–	4	4
Iceland	–	2	2
India	–	11	11
Jordan	–	1	1
Kuwait	–	6	6
Romania	–	3	3
Saudi Arabia	–	2	2
Trinidad	–	3	3
United Arab Emirates	–	3	3
Total International	–	58	58
	656	223	879

* Guam and Hawaii are treated as international locations for internal purposes.

Item 3. Legal Proceedings

We are presently, and from time to time, subject to pending claims and lawsuits arising in the ordinary course of business, including claims relating to injury or wrongful death under “dram shop” laws, workers’ compensation and employment matters, claims relating to lease and contractual obligations, and claims from guests alleging illness or injury. We provide reserves for such claims when payment is probable and estimable in accordance with U.S. generally accepted accounting principles. At this time, in the opinion of management, the ultimate resolution of pending legal proceedings will not have a material adverse effect on our consolidated operations, financial position or cash flows. See Note 12 to the Consolidated Financial Statements appearing in Part II, Item 8 of this Form 10-K, for more information about our legal proceedings as of June 1, 2010.

Item 4. Reserved

PART II

Item 5. Market for the Registrant's Common Equity,

Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Registrant’s Common Equity and Related Stockholder Matters

Ruby Tuesday, Inc. common stock is publicly traded on the New York Stock Exchange under the ticker symbol RT.

The following table sets forth the reported high and low intraday prices of our common stock and cash dividends paid thereon for each quarter during fiscal 2010 and 2009.

Fiscal Year Ended June 1, 2010				Fiscal Year Ended June 2, 2009
			Per Share				Per Share
			Cash				Cash
Quarter	High	Low	Dividends	Quarter	High	Low	Dividends
First	$8.16	$5.81	--	First	$8.65	$5.07	--
Second	$9.38	$6.12	--	Second	$8.84	$0.96	--
Third	$8.40	$6.37	--	Third	$2.00	$1.00	--
Fourth	$12.55	$8.12	--	Fourth	$8.58	$0.85	--

As of July 26, 2010, there were approximately 3,693 holders of record of the Company’s common stock.

On May 21, 2008, we entered into amendments of the Credit Facility and the notes issued in the Private Placement. Under the terms of the amendments, we were not permitted to pay a dividend until we achieved certain leverage thresholds for two consecutive fiscal quarters. As of June 1, 2010, we have achieved the required thresholds for two consecutive fiscal quarters, and thus are now allowed, if our Board of Directors so chooses, to reinstate dividend payments.

Issuer Purchases of Equity Securities

During the fourth quarter of the year ended June 1, 2010, there were no repurchases made by us or on our behalf, or by any “affiliated purchaser,” of shares of our common stock.

On January 9, 2007, our Board of Directors authorized the repurchase of an additional 5.0 million shares of our common stock under our ongoing share repurchase program. On July 11, 2007, the Board of Directors authorized the repurchase of an additional 6.5 million shares of our common stock. As of June 1, 2010, 3.6 million shares of the January 2007 authorization have been repurchased at a cost of approximately $93.7 million and there were 7.9 million shares available to be repurchased under our share repurchase program.

As previously mentioned, we entered into an amendment to the Credit Facility on May 21, 2008. Under the terms of the amendment we were not permitted to engage in the repurchase of our stock until we achieve certain leverage thresholds for two consecutive fiscal quarters. As of June 1, 2010, we have achieved the required thresholds for two consecutive fiscal quarters, and thus are now allowed, if our Board of Directors so chooses, to repurchase our stock.

Item 6. Selected Financial Data

Summary of Operations

(In thousands except per-share data)

	Fiscal Year
		2010			2009			2008			2007			2006
Revenue	$	1,194,796		$	1,248,556		$	1,360,304		$	1,410,227		$	1,306,240

Income/(loss) before income taxes (a)	$	57,758		$	(42,866	)	$	23,699		$	132,398		$	150,958
Provision/(benefit) for income taxes		12,414			(24,948	)		(2,678	)		40,730			49,981

Net income/(loss)	$	45,344		$	(17,918	)	$	26,377		$	91,668		$	100,977

Earnings/(loss) per share:
Basic	$	0.74		$	(0.35	)	$	0.51		$	1.60		$	1.67
Diluted	$	0.73		$	(0.35	)	$	0.51		$	1.59		$	1.65

Weighted average common and
common equivalent shares:
Basic		61,533			51,395			51,572			57,204			60,544
Diluted		61,870			51,395			51,688			57,633			61,307

Fiscal years 2010, 2009, 2008, and 2007 each included 52 weeks. Fiscal 2006 included 53 weeks. The extra week in fiscal 2006
added $24.5 million to revenue and $0.04 to diluted earnings per share.

Other financial data:
Total assets	$	1,064,029		$	1,124,196		$	1,271,937		$	1,230,256		$	1,171,568
Long-term debt and capital leases, less current
maturities	$	276,490		$	476,566		$	588,142		$	512,559		$	375,639
Shareholders’ equity	$	538,100		$	416,366		$	431,518		$	439,326		$	527,158
Cash dividends per share of common stock		--			--		$	0.25		$	0.50		$	0.045
Closures and impairments (a)	$	3,776		$	54,951		$	6,453		$	6,140		$	1,073
Company same-restaurant sales change		(1.3	)%		(7.9	)%		(9.8	)%		(1.4	)%		1.4	%
Net cash provided by operating activities	$	140,264		$	102,569		$	101,889		$	184,662		$	191,697
Purchases of property and equipment	$	17,672		$	17,186		$	116,918		$	125,827		$	171,640

(a) See Note 8 to the Consolidated Financial Statements for a description of closures and impairments expenses in fiscal 2010, 2009, and 2008 and discussion of a goodwill impairment charge recorded in fiscal 2009.

Item 7. Management's Discussion and Analysis

of Financial Condition and Results of Operations

Introduction

Ruby Tuesday, Inc., including its wholly-owned subsidiaries (“RTI,” the “Company,” “we” and/or “our”), owns and operates Ruby Tuesday® casual dining restaurants. We also franchise the Ruby Tuesday concept in selected domestic and international markets. Our mission is to be the best in the bar-grill sector of the restaurant industry by delivering to our guests a high-quality casual dining experience with compelling value. While we are in the bar-grill sector because of our varied menu, it is our goal to operate at a higher-end casual dining experience in terms of quality, food, and service. As of June 1, 2010, we owned and operated 656 Ruby Tuesday restaurants located in 27 states and the District of Columbia. We also own 1% or 50% of the equity of each of 13 domestic franchisees, with the balance of the equity in these franchisees being owned by the various operators of the franchise businesses. As of year end, these franchisees, which we refer to as “franchise partnerships,” operated 116 restaurants. We have a contractual right to acquire, at predetermined valuation formulas, the remaining equity of any or all of the franchise partnerships. Our other franchisees operated 49 domestic and 58 international restaurants. In total, our franchisees operate restaurants in 27 states, Guam, and 14 foreign countries. In addition, we operate two Wok Hay full-service Asian restaurants. The Company-owned and operated restaurants are concentrated primarily in the Northeast, Southeast, Mid-Atlantic, and Midwest regions of the United States. We consider these regions to be our core markets.

Our fiscal year ends on the first Tuesday following May 30 and, as is the case once every five or six years, we have a 53-week year. Fiscal years 2010, 2009, and 2008 each contained 52 weeks.

References to franchise system revenue contained in this section are presented solely for the purposes of enhancing the investor's understanding of the franchise system, including franchise partnerships and traditional domestic and international franchisees. Franchise system revenue is not included in, and is not, revenue of Ruby Tuesday, Inc. However, we believe that such information does provide the investor with a basis for a better understanding of our revenue from franchising activities, which includes royalties, and, in certain cases, support service income and equity in losses/(earnings) of unconsolidated franchises. Franchise system revenue contained in this section is based upon or derived from information that we obtain from our franchisees in our capacity as franchisor.

Overview and Strategies

Casual dining, the segment of the industry in which we operate, is intensely competitive with respect to prices, services, convenience, locations, 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. In 2005, our analysis of the bar and grill segment within casual dining indicated that many concepts, including Ruby Tuesday, were not clearly differentiated. We believed that as the segment continued to mature, the lack of differentiation would make it increasingly difficult to attract new guests. Consequently, we created brand reimaging initiatives to implement our strategy of clearly differentiating Ruby Tuesday from our competitors, as discussed under the caption “Operations” included earlier in this Annual Report. We implemented our strategy in stages, first focusing on food, then service, and in 2007, we embarked on the most capital-intensive aspect of our reimaging program – the creation of a fresh new look for our restaurants. We believe that Ruby Tuesday, as a result of these initiatives, is well positioned for the future.

While we were in the process of implementing our brand reimaging, consumer spending came under pressure for a variety of reasons, and further weakened in the fourth quarter of calendar 2008. As the economic environment deteriorated, operating results for other casual dining concepts, as well as our operating results, declined significantly. In response, beginning in the second half of fiscal 2009, we implemented several initiatives intended to enhance our sales, reduce costs and improve cash flow, including the following:

Sales initiatives. Our Ruby Tuesday concept sales initiatives aim to increase guest traffic by focusing primarily on two areas, menu and marketing. We have evolved our existing menu items to support our high-quality casual dining position, broaden our appeal with product extensions offering more variety and cravability, and provide our guests with compelling value. Our newest menu introduced late in the second

quarter of fiscal 2010 includes an expanded appetizer line and new dinner entrees, which feature a variety of lobster combinations. Additionally, our new Four-Course Brunch and our Tuesday Steak and Lobster programs have driven incremental sales and traffic, in addition to enhancing the perception of the Ruby Tuesday brand. Through independently-conducted studies, we regularly measure our guests’ perception of our menu offerings and make item modifications to enhance their value proposition, if necessary.

We shifted our marketing strategy to more effectively communicate our brand and value message. Our marketing strategy for the last year and a half has focused on the key pillars of print promotions, digital media, and local marketing programs to entice guests to see the new Ruby Tuesday, increase frequency of visits, and enhance visibility of the brand. We have the ability to customize our marketing to specific markets, down to the individual restaurant level, which enables us to respond quickly with a different program if a market or restaurant is not achieving expected results. We continue to analyze our business by specific periods in order to identify programs to increase sales during off-peak times.

As part of our goal of getting more out of existing restaurants by generating higher average restaurant volumes and thus more profit and cash flow with minimal capital investment, we will be converting certain underperforming Ruby Tuesday concept restaurants into other high-quality casual dining brands which might be better suited for success in selected markets. To that end, on February 17, 2010, we entered into a licensing agreement with Jim N Nicks Barbq Riverchase, Inc. (“Jim ‘N Nick’s”) which allows us to operate multiple restaurants under the Jim ‘N Nick’s Bar-B-Q® name. Jim ‘N Nick’s is an Alabama-based barbeque concept that currently operates 27 restaurants in seven states.

On July 22, 2010, we entered into a licensing agreement with Gourmet Market, Inc. which allows us to operate multiple restaurants under the Truffles® name. Truffles is an upscale casual dining café featuring seafood and steaks which currently operates three restaurants in the vicinity of Hilton Head Island, South Carolina.

We are currently evaluating the conversion of certain lower performing Ruby Tuesday concept restaurants to the Jim ‘N Nick’s, Truffles, and Wok Hay concept restaurants. We currently anticipate converting one to three company-owned Ruby Tuesday restaurants to each of these three concepts in fiscal 2011.

Cost savings. In the second half of fiscal 2009, we implemented initiatives focused on driving substantial cost savings at no dilution to the overall guest experience. These cost savings were the result of labor initiatives, including new scheduling systems and the realignment of field supervisors, which together accounted for approximately half of the savings. Disciplined food cost management, improved operating efficiencies, and the closing of certain underperforming restaurants accounted for the remainder. These initiatives resulted in cost savings of approximately $20.0 million in the second half of fiscal 2009 alone. Furthermore, our low level of management and labor turnover during fiscal 2010 and 2009 benefitted us two-fold: first, a more experienced work force resulted in improved customer service, and second, training costs were greatly reduced.

Restaurant closings. During our second quarter of fiscal 2009 we conducted an analysis of all our Company-operated restaurants based on profitability, brand image, location, and other factors and identified 73 restaurants to close, 43 of which we closed in the third quarter of fiscal 2009 and 16 since. The remaining 14 restaurants will be closed over the next several years as their leases expire, or possibly converted to other high-quality casual dining concepts as part of our conversion strategy outlined above.

Generate free cash flow and improve our balance sheet. Because of our high leverage, we have been focused on maximizing our cash flow and paying down our debt. If we are successful in continuing to stabilize same-restaurant sales and maintaining or lowering our cost structure, we have the opportunity to generate substantial levels of free cash flow. Furthermore, our near-term capital requirements are relatively modest as we anticipate only opening one or two new Ruby Tuesday restaurants in fiscal 2011, and our maintenance capital spending needs are low because we have remodeled virtually all the Company-owned restaurants within the last two fiscal years. We define “free cash flow” to be the net amount remaining when purchases of property and equipment are subtracted from net cash provided by operating activities.

We generated $122.6 million of free cash flow in fiscal 2010, all of which was dedicated to the reduction of debt. We estimate we will generate $100.0 to $110.0 million of free cash flow in fiscal 2011. Included in these estimates is anticipated total capital spending of $23.0 to $26.0 million. Our current intentions are to use a substantial portion of the free cash flow generated in fiscal 2011 to reduce debt. Our objective is to reduce debt as quickly as possible in order to further reduce the financial risk related to our leverage and to resume returning capital to our shareholders. For example, we have reduced our debt by $204.1 million, or 41.4%, in the last 12 months and by $316.2 million, or 52.2%, in the last 24 months. As a means of strengthening our balance sheet, on July 28, 2009, we raised $73.1 million in net proceeds through an underwritten public offering of 11.5 million shares of Ruby Tuesday, Inc. common stock. See further discussion in the Financing Activities section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”).

Our success in the four key initiatives outlined above has helped us to stabilize sales, drive incremental operating efficiencies, strengthen our balance sheet, and put us in a position where we have more financial and operating flexibility than over the last couple of years. Our longer-term strategies are to improve our return on assets and create additional shareholder value.

Our same-restaurant sales for Company-owned restaurants declined 1.3% in fiscal 2010 and our diluted earnings per share increased to $0.73 in fiscal 2010 from a diluted loss per share of $0.35 in fiscal 2009, largely as a result of prior-year charges related to restaurant closures and impairments and goodwill impairment, the majority of which were non-cash charges. Throughout this MD&A, we discuss our fiscal 2010 financial results in detail, provide insight for fiscal years 2008 and 2009, as well as discuss Known Events, Uncertainties, and Trends. We hope our commentary provides insight as to the factors which impacted our performance. We remind you, that, in order to best obtain an understanding of our financial performance during the last three fiscal years, this MD&A section should be read in conjunction with the Consolidated Financial Statements and related Notes appearing in Part II, Item 8 of this Form 10-K.

Results of Operations

Ruby Tuesday Restaurants

The table below presents the number of Ruby Tuesday concept restaurants at each fiscal year end from fiscal 2006 through fiscal 2010:

Fiscal Year	Company-Owned	Domestic Franchise	International Franchise	Total
2010	656	165	58	879
2009	672	173	56	901
2008	721	170	54	945
2007	680	199	54	933
2006	629	204	47	880

During fiscal 2010:

·	No Company-owned Ruby Tuesday restaurants were opened;

·	16 Company-owned Ruby Tuesday restaurants were closed;

·	Six (two domestic and four international) franchise restaurants were opened and 12 (10 domestic and two international) were closed;

·	We sold 11.5 million shares of Ruby Tuesday, Inc. common stock in an underwritten public offering, receiving approximately $73.1 million in net proceeds from the sale of the shares, after deducting underwriting discounts and offering expenses.

During fiscal 2009:

·	Five Company-owned Ruby Tuesday restaurants were opened or acquired, including one purchased from a Texas franchisee;

·	54 Company-owned Ruby Tuesday restaurants were closed;

·	Aside from one restaurant sold to the Company, 19 (10 domestic and nine international) franchise restaurants were opened and 13 (six domestic and seven international) were closed;

·	One Wok-Hay restaurant was opened in a previously-closed Ruby Tuesday location;

We formulated a plan to restructure our property portfolio, which included the closing of 43 restaurants in the third quarter of fiscal 2009 and the planned closing of approximately 30 additional restaurants over the next several years, and wrote-down properties held for sale to facilitate their disposal resulting in closures and impairments expenses as follows: impairments, $41.1 million; closed restaurant lease reserves, $10.3 million; dead site write-offs, $2.2 million; (gain)/loss on the sale of surplus properties, ($0.7) million; and other adjustments, $2.1 million; and

·	We wrote-off our goodwill of $19.0 million as a result of the overall poor economic conditions, declines in fair value, same-restaurant sales trends at Company-owned restaurants, and weak industry conditions.

Restaurant Sales

Restaurant sales in fiscal 2010 decreased 4.1% from fiscal 2009 for Company-owned restaurants and 3.9% for domestic and international franchised restaurants as explained below. The tables presented below reflect restaurant sales for the last five years, and other revenue information for the last three years.

Restaurant Sales (in millions):

Fiscal Year	Company-Owned	Franchise (a)
2010	$ 1,188.0	$ 368.9
2009	1,239.1	383.7
2008	1,346.7	412.0
2007	1,395.2	471.6
2006	1,290.5	458.7

(a)	Includes sales of all domestic and international franchised Ruby Tuesday restaurants.

Other Revenue Information:

	2010	2009	2008
Company restaurant sales (in thousands)	$1,188,043	$1,239,104	$1,346,721
Company restaurant sales growth-percentage	(4.1)%	(8.0)%	(3.5)%

Franchise revenue (in thousands) (a)	$6,753	$9,452	$13,583
Franchise revenue growth-percentage	(28.6)%	(30.4)%	(9.5)%

Total revenue (in thousands)	$1,194,796	$1,248,556	$1,360,304
Total revenue growth-percentage	(4.3)%	(8.2)%	(3.5)%

Company same-restaurant sales growth percentage	(1.3)%	(7.9)%	(9.8)%

Company average restaurant volumes	$1.79 million	$1.80 million	$1.90 million
Company average restaurant volumes growth percentage	(0.9)%	(5.1)%	(9.5)%

(a)

Franchise revenue includes royalty, license, and development fees paid to us by our franchisees, exclusive of support service fees of $4.6 million, $6.3 million, and $6.5 million, in fiscal years 2010, 2009, and 2008, respectively, which are recorded as an offset to selling, general, and administrative expenses.

Our Company restaurant sales and operating revenue for the year ended June 1, 2010 decreased 4.1% to $1,188.0 million compared to the prior year. This decrease primarily resulted from the closing of 54 restaurants in fiscal 2009 and a 1.3% decrease in same-restaurant sales. The 54 restaurants closed in fiscal 2009 produced $29.4 million of restaurant sales in the prior year.

The decrease in same-restaurant sales is attributable to declines in average net check during the first two quarters of fiscal 2010 due to our value positioning and print incentive strategy to motivate new guests to visit our restaurants to experience the reimaged Ruby Tuesday brand.

Our decrease in Company restaurant sales and operating revenue in fiscal 2009 is primarily attributable to the closing of 54 Ruby Tuesday restaurants during fiscal 2009, 43 of which closed during fiscal 2009’s third quarter, and a 7.9% decrease in same-restaurant sales that contributed to lower overall average restaurant volumes. The 54 restaurants closed in fiscal 2009 produced revenues of $29.4 million and $65.3 million in fiscal 2009 and 2008, respectively. The decrease in same-restaurant sales is partially attributable to reductions in customer counts in the first three quarters of fiscal 2009 due to a challenging economic environment and various consumer pressures.

We also believe that other factors contributing to the decline in same-restaurant sales for both fiscal 2009 and 2008 include the loss of some of our customers who did not feel as comfortable in our re-imaged restaurants, the impact of heavy price-focused advertising by some of our traditional competitors, and leveling of sales growth in the casual dining segment of the restaurant industry resulting from the growth of supply outpacing that of demand.

Franchise development and license fees received are recognized when we have substantially performed all material services and the restaurant has opened for business. Franchise royalties (up to 4% of monthly sales) are recognized as franchise revenue on the accrual basis. Franchise revenue decreased 28.6% to $6.8 million in fiscal 2010 and 30.4% to $9.5 million in fiscal 2009. Franchise revenue is predominantly comprised of domestic and international royalties, which totaled $6.5 million and $8.8 million in 2010 and 2009, respectively. The decreases in fiscal 2010 and 2009 are due to franchise store closures, temporarily-reduced royalty rates for certain franchisees, and a decrease in same-restaurant sales for domestic franchise Ruby Tuesday restaurants of 4.3% and 6.6% for fiscal 2010 and 2009, respectively.

Under our accounting policy, we do not recognize franchise fee revenue for any franchise with negative cash flows at times when the negative cash flows are deemed to be anything other than temporary and the franchise has either borrowed directly from us or through a facility for which we provide a guarantee. We also do not recognize additional franchise fee revenue from franchisees with fees in excess of 60 days past due. Accordingly, we have deferred recognition of a portion of franchise revenue from certain franchises. Unearned income for franchise fees was $2.4 million and $1.2 million as of June 1, 2010 and June 2, 2009, respectively, which are included in Other deferred liabilities and/or Accrued liabilities – rent and other in the Consolidated Balance Sheets. The increase in unearned income is primarily due to an increase in unearned fees due from a traditional franchisee ($1.0 million), for whom we agreed to defer fees for a limited period of time while the franchise negotiated with its lenders for extended terms.

Total franchise restaurant sales are shown in the table below.

	2010	2009	2008
Franchise restaurant sales (in thousands) (a)	$368,937	$383,738	$411,968
Franchise restaurant sales growth-percentage	(3.9)%	(6.9)%	(12.7)%

(a)	Includes sales of all domestic and international franchised Ruby Tuesday restaurants.

The 3.9% decrease in fiscal 2010 franchise restaurant sales is primarily due to a decrease in average restaurant volumes as a result of a 4.3% decrease in domestic same-restaurant sales.

The 6.9% decrease in fiscal 2009 franchise restaurant sales is primarily due to a decrease in average restaurant volumes as a result of a 6.6% decrease in domestic same-restaurant sales.

Operating Profits

The following table sets forth selected restaurant operating data as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, for the periods indicated. All information is derived from our Consolidated Financial Statements located in Part II, Item 8 of this Form 10-K.

	2010		2009		2008
Restaurant sales and operating revenue	99.4	%	99.2	%	99.0	%
Franchise revenue	0.6		0.8		1.0
Total revenue	100.0		100.0		100.0
Operating costs and expenses:
(As a percentage of restaurant sales and operating
revenue):
Cost of merchandise	29.0		28.2		27.5
Payroll and related costs	33.4		34.0		33.2
Other restaurant operating costs	20.3		20.7		20.0
Depreciation and amortization	5.4		6.1		7.0
(As a percentage of total revenue):
Selling, general, and administrative, net of support
service fees	5.9		6.6		8.4
Closures and impairments	0.3		4.4		0.5
Goodwill impairment			1.5
Equity in losses/(earnings) of unconsolidated franchises					0.3
Interest expense, net	1.4		2.7		2.3
Total operating costs and expenses	95.2		103.4		98.3
Income/(loss) before income taxes	4.8		(3.4	)	1.7
Provision/(benefit) for income taxes	1.0		(2.0	)	(0.2	)
Net income/(loss)	3.8	%	(1.4	)%	1.9	%

Pre-tax Income/(Loss)

For fiscal 2010, pre-tax income was $57.8 million or 4.8% of total revenue, as compared to a pre-tax loss of $(42.9) million or (3.4)% of total revenue, for fiscal 2009. The increase in pre-tax income from the prior year is due in significant part to reductions in impairment charges as we announced a plan in the prior year to restructure our property portfolio which resulted in closures and impairments expense of $55.0 million during the prior year. During fiscal 2009 we also impaired our goodwill ($19.0 million). The increase also included the elimination of $7.8 million in pre-tax losses recorded in fiscal 2009 on the 54 restaurants closed during fiscal 2009, as well as decreases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of payroll and related costs, other restaurant operating costs, depreciation and amortization, selling, general, and administrative, net, and interest expense, net. These lower costs were partially offset by a decline of 1.3% in same-restaurant sales at Company-owned restaurants, lower franchise revenue, higher losses from unconsolidated equity-method franchises, and increases, as a percentage of restaurant sales and operating revenue, of cost of merchandise.

For fiscal 2009, pre-tax loss was $(42.9) million or (3.4)% of total revenue, as compared to pre-tax income of $23.7 million or 1.7% of total revenue, for fiscal 2008. The decrease in pre-tax income is due in significant part to impairment charges as we restructured our property portfolio which resulted in fiscal 2009 closures and impairments expense of $55.0 million in connection with 54 restaurant closings during 2009. We also recorded a pre-tax impairment charge of $19.0 million to write-off our goodwill. The decrease is also attributable to decreases in same-restaurant sales, coupled with 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, closures and impairment expenses, and interest expense, net. Offsetting these increased expenses was a lower depreciation charge due, in part, to the acceleration of depreciation for the reimaged restaurants in fiscal 2008.

In the paragraphs that follow, we discuss in more detail the components of the changes in pre-tax income/(loss) for years ended June 1, 2010 and June 2, 2009, respectively, as compared to the comparable 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 and amortization categories are either variable or highly correlate 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.

2009 Restaurant Closings

The table below shows operating results for the years ended June 2, 2009 and June 3, 2008 for the 54 restaurants that closed in fiscal 2009 (in thousands):

	2009		2008

Total revenue	$ 29,358		$ 65,252

Cost of merchandise	8,802		18,512
Payroll and related costs	14,172		27,361
Other restaurant operating costs	10,129		18,365
Depreciation and amortization	2,000		4,988
Selling, general, and administrative	2,098		5,021
	37,201		74,247
Net loss	$ (7,843	)	$ (8,995	)

Cost of Merchandise

Cost of merchandise decreased $4.9 million (1.4%) from the prior year to $344.5 million for the year ended June 1, 2010. As a percentage of restaurant sales and operating revenue, cost of merchandise increased from 28.2% to 29.0%. Excluding the $8.8 million decrease from the elimination of 54 restaurants closed in fiscal 2009, cost of merchandise increased $3.9 million (1.1%).

The $3.9 million increase for the year ended June 1, 2010 referred to above is a result of a shift in menu mix corresponding to our value promotions which are driving our guests to order higher-cost menu items, coupled with the introduction of higher food cost items such as lobster entrees on our new menus.

As a percentage of restaurant sales and operating revenue, the increase is due to several promotions offered during fiscal 2010 including freestanding insert coupons in all markets with Company-owned restaurants, direct address label mail pieces, and a value promotion for our So Connected guests offering a “Buy One Get One Free” or a “Buy One Get One Free Up to $10” on our Specialties, Fork-Tender Ribs, and Handcrafted Steaks.

Cost of merchandise decreased $21.3 million (5.8%) from fiscal 2008 to $349.4 million for fiscal 2009. As a percentage of restaurant sales and operating revenue, cost of merchandise increased 0.7% in fiscal 2009 compared to fiscal 2008. Excluding the $9.7 million decrease from the elimination of 54 restaurants closed in fiscal 2009, cost of merchandise decreased $11.6 million.

The $11.6 million remaining decrease for the year ended June 2, 2009 referred to above is primarily a result of a decrease in guest counts from the prior year, offset by increases resulting from fiscal 2009 menu initiatives. The menu initiatives included enhancements such as the introduction of lobster and steak menu items and increasing the Triple Prime burger to eight ounces while offering endless fries with all burgers.

As a percentage of restaurant sales and operating revenue, the increase is due primarily to value initiatives related to our menu, as discussed above, and our marketing. Our marketing initiatives included several promotions offered in fiscal 2009 including freestanding insert and internet coupons offering a “Buy One Get One Free” on various menu items. The marketing initiatives had the impact in the current year of reducing average net check which increased the related food cost as a percentage of restaurants sales and operating revenue.

Payroll and Related Costs

Payroll and related costs decreased $24.1 million (5.7%) from the prior year to $396.9 million for the year ended June 1, 2010. This amount includes $14.2 million of payroll and related costs spent in fiscal 2009 at the 54 restaurants closed in fiscal 2009. As a percentage of restaurant sales and operating revenue, payroll and related costs decreased from 34.0% to 33.4%.

For the year ended June 1, 2010, the remaining decrease of $10.0 million not attributable to closings is primarily due to decreases in hourly labor as a result of new staffing guidelines for certain positions in our restaurants and the elimination of the dedicated To Go positions in our mall restaurants and certain other locations, both of which were partially offset by increases in minimum wage rates and payroll taxes in certain states since the prior year.

As a percentage of restaurant sales and operating revenue, the decrease in payroll and related costs in fiscal 2010 is attributable to the impact of closing 54 restaurants in fiscal 2009, which ran higher than system average labor, and the hourly labor cost savings initiatives discussed in the prior paragraph.

Payroll and related costs decreased $25.9 million (5.8%) from fiscal 2008 to $421.0 million for the year ended June 2, 2009. This reduction includes lowered payroll and related costs ($13.2 million) in fiscal 2009 as compared to fiscal 2008 at the 54 restaurants closed in fiscal 2009. As a percentage of restaurant sales and operating revenue, payroll and related costs increased from 33.2% to 34.0%.

The remaining $12.7 million decrease not attributable to closings is primarily due to decreases in hourly labor as a result of new staffing guidelines for certain positions in our restaurants, reductions in dedicated To Go positions at certain locations, lower hourly turnover, and the elimination of certain positions from fiscal 2008 to 2009.

As a percentage of restaurant sales and operating revenue, the increase in payroll and related costs in fiscal 2009 is primarily due to minimum wage increases in several states during the current year and higher management labor due to loss of operating leverage on lower sales volumes. These increased costs were partially offset by cost savings initiatives implemented in the second half of fiscal 2009 including new labor scheduling systems.

Other Restaurant Operating Costs

Other restaurant operating costs decreased $15.1 million (5.9%) to $240.9 million for the year ended June 1, 2010, as compared to the prior year. This decrease includes $10.1 million of costs incurred on the 54 restaurants closed in fiscal 2009. As a percentage of restaurant sales and operating revenue, these costs decreased from 20.7% to 20.3%.

For the year ended June 1, 2010, the remaining reductions not attributable to fiscal 2009 closings related to the following (in thousands):

Utilities	$	3,277
Bad debt expense		1,960
Rent and leasing		1,535
Supplies		1,050
Visa/MasterCard antitrust settlement		922
Other		889
Repairs		(3,069	)
Insurance		(1,578	)
Net reductions	$	4,986

In both absolute dollars and as a percentage of restaurant sales and operating revenue for year ended June 1, 2010, the decrease is primarily due to decreases in utilities resulting from reductions in overall electric usage and changing natural gas and fuel vendors at certain of our restaurants which resulted in more favorable rates, lower bad debt expense due to larger prior-year adjustments for notes due from certain franchisees, reductions in rent and leasing due to the closure of 16 leased restaurants during fiscal 2010, lower credit card expense resulting from income relating to the net proceeds from the Visa/MasterCard antitrust class action litigation in which we were a class member, and other decreases. These were partially offset by higher repairs and maintenance due to upgrades and repairs at certain of our restaurants and higher general liability insurance expense due to unfavorable claims experience.

Other restaurant operating costs decreased $13.4 million (5.0%) to $256.1 million for the year ended June 2, 2009, as compared to fiscal 2008. This decrease includes $8.2 million of fewer costs incurred in fiscal 2009 as opposed to fiscal 2008 on the 54 restaurants closed in fiscal 2009. As a percentage of restaurant sales and operating revenue, these costs increased 0.7% in fiscal 2009.

For the year ended June 2, 2009, the remaining reductions not attributable to closings related to the following (in thousands):

Repairs	$	5,580
Supplies		4,819
Other		594
Utilities		(3,025	)
Bad debt expense		(2,853	)
	$	5,115

For the year ended June 2, 2009, in both absolute dollars and as a percentage of restaurant sales and operating revenue, the remaining $5.1 million in reductions not attributable to closings related to reductions in repairs expense as a result of lower repairs and maintenance costs due to the completion of a re-imaging of our restaurants in fiscal 2008 and reduced supplies expense due to cost savings from using certain reusable kitchen products in fiscal 2009 compared to disposable products in fiscal 2008 and higher expense in fiscal 2008 as a result of glassware and tablecloth upgrades. These were partially offset by higher utilities, primarily increases in overall electricity usage, and higher bad debt expense due to larger adjustments for notes due from certain franchisees.

Depreciation and Amortization

Depreciation and amortization expense decreased $11.2 million (14.9%) to $63.8 million for fiscal 2010, compared to the prior year. As a percentage of restaurant sales and operating revenue, this expense decreased from 6.1% to 5.4%. In terms of both absolute dollars and as a percentage of restaurant sales and operating revenue, the decrease for fiscal 2010 is primarily due to reduced depreciation for assets that became fully depreciated since the prior year (reductions of $7.1 million). Additionally, contributing to the reduction was the impact of the 54 restaurant closures which incurred depreciation expenses totaling $2.0 million in fiscal 2009.

Depreciation and amortization expense decreased $18.9 million (20.1%) to $75.0 million for fiscal 2009, compared to fiscal 2008. As a percentage of restaurant sales and operating revenue, this expense decreased from 7.0% to 6.1%. In terms of both absolute dollars and as a percentage of restaurant sales and operating revenue, the decrease was due primarily to accelerated depreciation in fiscal 2008 ($12.9 million) for restaurants re-imaged as part of our re-imaging initiative.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses, net of support service fee income, decreased $11.6 million (14.2%) to $70.5 million in fiscal 2010, as compared to the prior year. This decrease includes $2.1 million of costs incurred in fiscal 2009 on the 54 closed restaurants.

The decrease in absolute dollars from fiscal 2009 to 2010 is partially attributable to a reduction in advertising ($15.0 million) as a result of no national cable television advertising during fiscal 2010, reflecting a shift in our marketing strategy to one based more on offering guests incentives through print media rather than through television. Additionally, management labor was lower ($3.5 million) due to the elimination and reduction of certain positions. These were partially offset by higher bonus expense ($3.7 million) and higher share-based employee compensation ($1.3 million) due to improved achievement of performance goals.

Selling, general, and administrative expenses, net of support service fee income, decreased $32.2 million (28.2%) to $82.2 million in fiscal 2009, as compared to fiscal 2008. This decrease includes $2.9 million of lowered costs incurred in fiscal 2009 on the 54 restaurants closed in fiscal 2009 as compared with fiscal 2008.

The decrease in absolute dollars from fiscal 2008 to 2009 is partially attributable to a reduction in advertising expense ($19.4 million) as a result of decreases in cable television advertising due to less air time, advertising agency fees, and new menu printing expense. This reduction was facilitated by our shift in marketing strategy to include more coupons, the effect of which is to lower the average net check and increase food costs. Additionally, management labor was lower ($5.3 million) due to the elimination and reduction of certain positions. Share-based employee compensation decreased $7.0 million, due to smaller grants in fiscal 2009 following a shift in compensation strategy in which management’s annual award, formerly issued each April, was transitioned to July to better coincide with the fiscal year to which it relates. Also contributing to the $7.0 million decrease in share-based compensation for fiscal 2009

was the expensing in fiscal 2008 of $4.3 million for stock options and restricted shares awarded to a retirement-eligible executive.

Closures and Impairments

Closures and impairments expense decreased $51.2 million to $3.8 million for the year ended June 1, 2010, as compared to fiscal 2009. The decrease is due primarily to reductions in impairment charges ($38.0 million), closed restaurant lease reserve expense ($9.5 million), dead site costs ($1.9 million), other closing costs ($1.5 million), and higher gains on the sale of surplus properties ($0.3 million).

Closures and impairments increased $48.5 million to $55.0 million for the year ended June 2, 2009 as compared to fiscal 2008. The increase is due primarily to impairment charges for restaurants ($27.4 million), impairments for discounting surplus properties and the Company airplane in order to better market them for sale ($8.9 million), closed restaurant lease reserve expense ($9.6 million), dead site costs ($0.9 million), other closing costs ($1.9 million), and other impairments ($0.5 million), which were partially offset by higher gains during the period on the sale of surplus properties ($0.7 million).

See Note 8 to our Consolidated Financial Statements for further information on our closures and impairment charges recorded during fiscal 2010, 2009, and 2008.

Goodwill Impairment

We concluded during the second quarter of fiscal 2009 that our goodwill was fully impaired. As a result, we recorded an impairment charge during fiscal 2009 of $19.0 million. See Note 8 to our Consolidated Financial Statements for further information on our goodwill impairment.

Equity in Losses/(Earnings) of Unconsolidated Franchises

For fiscal 2010, our equity in the losses of unconsolidated franchises was $0.3 million compared to negligible equity in earnings for fiscal 2009. The change is attributable to increased losses from investments in three of our six 50%-owned franchise partnerships over the prior year. Contributing to our equity in the losses of unconsolidated franchises were lower same-restaurant sales, which was partially offset by an increase in earnings from investments in the other three 50%-owned franchise partnerships over the prior year and by lower advertising charges during the current year. As of June 1, 2010, we held 50% equity investments in each of six franchise partnerships which collectively operate 70 Ruby Tuesday restaurants.

For fiscal 2009, our equity in the earnings of unconsolidated franchisees was negligible as compared to equity in losses of $3.5 million in fiscal 2008. The change primarily resulted from decreased losses from investments in each of our six 50%-owned franchise partnerships, including three franchise partnerships that experienced losses in the prior year. The decrease in losses primarily resulted from reduced fees charged to certain of the 50%-owned franchise partnerships during fiscal 2009 as compared to the prior year, along with rebates from RTI for $2.2 million of fees, which had the impact of increasing equity in earnings by $1.1 million. The reduced fees, while contributing to improved equity in earnings, had the contrasting impact of lowering our franchise revenue. As of June 2, 2009, we held 50% equity investments in each of six franchise partnerships which collectively operate 71 Ruby Tuesday restaurants.

Net Interest Expense

Net interest expense decreased $17.6 million to $16.4 million for the year ended June 1, 2010, primarily due to lower average debt outstanding on the revolving credit agreement (the “Credit Facility”), the retirement of the Series A senior notes, lower interest rates on the Credit Facility, and other debt payments made since the prior year.

Net interest expense increased $2.6 million in fiscal 2009 due to higher rates on certain of our debt which was restructured in the latter part of fiscal 2008, offset by lower average debt balances for the fiscal year due to applying our free cash flow to the pay down of debt.

Provision/(Benefit) for Income Taxes

The effective tax rate for fiscal 2010 was 21.5% compared to 58.2% for the prior year. The change in the effective tax rate resulted primarily from the fact that the Company reported an operating loss in fiscal 2009 and income in fiscal 2010. FICA Tip Credits and Work Opportunity Tax Credits generated in fiscal 2009 increased the effective tax rate

above the statutory rate. The two tax credits are driven primarily by restaurant sales, rather than closures and impairments and goodwill impairment, which together contributed significantly to the fiscal 2009 operating loss. A similar amount of tax credits generated in fiscal 2010 decreased the effective tax rate.

Our effective tax rate for fiscal 2009 was 58.2% compared to (11.3)% in fiscal 2008. The change in the effective rate was primarily a result of the Company recording a net loss from operations in fiscal 2009 as discussed above coupled with an increase in tax credits compared to the prior year.

Liquidity and Capital Resources

In fiscal 2008, in part reflecting an overall slowdown in consumer spending, our sales and operating cash flow declined and we renegotiated certain of our loan agreements. As discussed in more detail below, these revised loan agreements place restrictions on the use of our free cash flow, limit our ability to borrow additional funds, and require us to reduce our outstanding indebtedness with our excess free cash flow. Following these changes, we adopted a strategy to improve our balance sheet, and during fiscal 2009 and 2010 our cash from operations was principally used to reduce debt.

Sources and Uses of Cash

Our primary source of liquidity is cash provided by operations. The following table presents a summary of our cash flows from operating, investing, and financing activities for the last three fiscal years (in thousands).

	2010				2009				2008
Net cash provided by operating activities		$	140,264			$	102,569			$	101,889
Net cash (used)/provided by investing activities			(9,439	)			3,195				(104,219	)
Net cash used by financing activities			(131,016	)			(112,036	)			(7,530	)
Net decrease in cash and short-term investments		$	(191	)		$	(6,272	)		$	(9,860	)

Operating Activities

Our cash provided by operations is generally derived from cash receipts generated by our restaurant customers and franchisees. Substantially all of the $1,188.0 million, $1,239.1 million, and $1,346.7 million of restaurant sales and operating revenue disclosed in our Consolidated Statements of Operations for fiscal 2010, 2009, and 2008, respectively, was received in cash either at the point of sale or within two to four days (when our guests paid with debit or credit cards). Our primary uses of cash for operating activities are food and beverage purchases, payroll and benefit costs, restaurant operating costs, general and administrative expenses, and marketing, a significant portion of which are incurred and paid in the same period.

Cash provided by operating activities for fiscal 2010 increased $37.7 million (36.8%) from the prior year to $140.3 million. The increase is due to an increase in net income, after non-cash adjustments. The increase in net income of $63.3 million for fiscal 2010 as compared to the prior year was primarily attributable to the after-tax impact of a substantial decline in non-cash impairment charges and lower depreciation in fiscal 2010 compared with that of the prior year. Excluding these items, as well as the other non-cash items which impact net income, the increase in net income was $29.1 million. These and other factors leading to our net income increase are discussed in the “Results of Operations” section of our MD&A.

Net cash collected for income taxes was $14.1 million in fiscal 2010 as opposed to $7.1 million in fiscal 2009 due primarily to a tax accounting method change, as permitted by the Internal Revenue Service, relating to the expensing of certain repairs and a collection of the carryback of the federal net operating losses generated in fiscal 2009. Included in the $29.1 million increase in net income mentioned above are changes in deferred income taxes relating to this tax accounting method change. Offsetting these increases were various uses of cash including additional outlays for inventory ($8.1 million), due in part to the advance purchase of lobster as disclosed in Note 5 to the Consolidated Financial Statements, and increased payments associated with closed store leases ($0.7 million) due to additional payments for lease settlements in fiscal 2010.

Cash provided by operating activities in fiscal 2009 was comparable to that of fiscal 2008 as many of the charges which contributed to our net loss, such as higher asset impairment expense associated with the closing of restaurants and discounting surplus properties, the goodwill impairment, and an increase in bad debt expense were non-cash.

Excluding these items, as well as the other non-cash items which impacted our net loss, the decrease from fiscal 2008 to fiscal 2009 was $22.7 million. These and other factors leading to our net loss for fiscal 2009 are discussed in the “Results of Operations” section of our MD&A. Offsetting the decrease in cash flow attributable to lower cash-based net income was an increase in income taxes collected of $26.7 million.

Our working capital deficiency and current ratio as of June 1, 2010 were $38.5 million and 0.7:1, respectively. As is common in the restaurant industry, we 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) or debt reduction (a long-term liability) and receivable and inventory levels are generally not significant.

Investing Activities

We require capital principally for the maintenance and upkeep of our existing restaurants, limited new restaurant construction, investments in technology, equipment, remodeling of existing restaurants, and on occasion for the acquisition of franchisees or other restaurant concepts. Property and equipment expenditures purchased primarily with internally generated cash flows for fiscal 2010, 2009, and 2008 were $17.7 million, $17.2 million, and $116.9 million, respectively. In addition, proceeds from the disposal of assets produced $5.5 million and $11.7 million of cash in fiscal 2010 and 2009, respectively, following an action taken to aggressively market surplus properties in order to pay down debt.

Amounts reflected for fiscal 2008 included $57.0 million for a Company-wide re-image project. Also during fiscal 2008, we spent $2.5 million, plus assumed debt, to acquire, directly and through our subsidiaries, the remaining member or limited partnership interests of three franchise partnerships and certain assets from Wok Hay, LLC. These acquisitions added 37 restaurants to the Company. Further acquisitions, particularly from franchise partnerships in the eastern United States, are expected to occur during fiscal 2011.

Capital expenditures for fiscal 2011 are budgeted to be $23.0 to $26.0 million based on our planned improvements for existing restaurants and our expectation that we will open approximately one to two Company-owned Ruby Tuesday restaurants and convert approximately one to three Ruby Tuesday concept restaurants to each of the Jim ‘N Nick’s, Truffles, and Wok Hay concepts in fiscal 2011. We intend to fund capital expenditures for Company-owned restaurants with cash provided by operations.

Financing Activities

Historically our primary sources of cash have been operating activities and proceeds from stock option exercises 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, more recently, through the issuance of additional shares of common stock. Our current borrowings and credit facilities and our recent common stock offering are described below.

As further discussed in Note 11 to the Consolidated Financial Statements, on July 28, 2009, we closed an underwritten public offering of 11.5 million shares of Ruby Tuesday, Inc. common stock at $6.75 per share, less underwriting discounts. We received approximately $73.1 million in net proceeds from the sale of the shares, after deducting underwriting discounts and offering expenses. The net proceeds were used to repay indebtedness under our five-year Credit Facility.

On November 19, 2004, we entered into the Credit Facility to provide capital for general corporate purposes. On February 28, 2007, we amended and restated our Credit Facility to increase the aggregate amount we may borrow to $500.0 million. This amount included a $50.0 million subcommitment for the issuance of standby letters of credit and a $50.0 million subcommitment for swingline loans. Due to concerns that at some point in the future we might not be in compliance with certain of our debt covenants, we entered into an additional amendment of the amended and restated Credit Facility on May 21, 2008.

The May 21, 2008 amendment to the Credit Facility, as well as a similarly-dated amendment and restatement of the notes issued in the Private Placement as discussed below, eased financial covenants regarding the minimum fixed charge coverage ratio and maximum funded debt ratio. We are currently in compliance with our debt covenants. In exchange for the new covenant requirements, in addition to higher interest rate spreads and mandatory reductions in capacity and/or prepayments of principal, the amendments also imposed restrictions on future capital expenditures and

required us to achieve certain leverage thresholds for two consecutive fiscal quarters before we may pay dividends or repurchase any of our stock. As of June 1, 2010, we have achieved the required leverage thresholds for two consecutive fiscal quarters, and thus are now allowed, if our Board of Directors so chooses, to reinstate dividend payments and repurchases of our stock.

Following the May 21, 2008 amendment to the Credit Facility, through a series of scheduled quarterly and other required reductions, our original $500.0 million capacity has been reduced, as of June 1, 2010, to $400.6 million. We expect the capacity of the Credit Facility to be further reduced by $26.9 million in fiscal 2011.

Under the 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 the Base Rate or an adjusted LIBO Rate plus an applicable margin. The Base Rate is defined to be the higher of the issuing bank’s prime lending rate or the Federal Funds rate plus 0.5%. The applicable margin is zero to 2.5% for the Base Rate loans and a percentage ranging from 1.0% to 3.5% for the LIBO Rate-based option. We pay commitment fees quarterly ranging from 0.2% to 0.5% on the unused portion of the Credit Facility.

Under the terms of the Credit Facility, we had borrowings of $203.8 million with an associated floating rate of interest of 1.63% at June 1, 2010. As of June 2, 2009, we had $319.1 million outstanding with an associated floating rate of interest of 2.96%. After consideration of letters of credit outstanding, we had $176.7 million available under the Credit Facility as of June 1, 2010. The Credit Facility will mature on February 23, 2012.

On April 3, 2003, we issued notes totaling $150.0 million through a private placement of debt (the “Private Placement”). On May 21, 2008, concurrent with the Credit Facility discussed above, we amended and restated the notes issued in the Private Placement. The May 21, 2008 amendment requires us to offer quarterly and other prepayments, which predominantly consist of semi-annual prepayments to be determined based upon excess cash flows as defined in the Private Placement.

On April 1, 2010, we paid off the remaining balance of $70.1 million of Private Placement Series A Notes using funds borrowed under the Credit Facility. At June 1, 2010, the Private Placement consisted of $48.4 million in notes with an interest rate of 7.17% (the “Series B Notes”). The Series B Notes mature on April 1, 2013. During fiscal 2010, we offered, and our noteholders accepted, principal prepayments of $7.2 million on the Series B Notes. We estimate that we will offer prepayments totaling $8.2 million during the next twelve months. Accordingly, we have classified $8.2 million as current as of June 1, 2010. This amount includes four quarterly offers of $2.0 million each and additional amounts to be determined based upon excess cash flows.

Simultaneous with the other May 21, 2008 amendments, we entered into a pledge agreement with our Credit Facility and Private Placement creditors, as well as those creditors associated with our Franchise Facility (discussed in Note 12 to the Consolidated Financial Statements), whereby we pledged certain subsidiary equity interests as security for the repayment of our obligations under these agreements.

There were no share repurchases or dividends paid during fiscal 2010 or 2009. For fiscal 2008, cash used for share repurchases totaled $39.5 million. Cash used for dividend payments during fiscal 2008 totaled $13.1 million.

Covenant Compliance

Under the terms of the Credit Facility and the notes issued in the Private Placement, we are required to satisfy and maintain specified financial ratios and other financial condition tests and covenants. The financial ratios include maximum funded debt, minimum fixed charge coverage, and minimum net worth 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). 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.

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):

	June 1, 2010
Current portion of long-term debt,
including capital leases	$	12,776
Long-term debt and capital leases,
less current maturities		276,490
Total long-term debt and capital leases		289,266
Present value of operating leases*		186,604
Letters of credit*		20,082
Guarantees*		48,032
Adjusted Total Debt	$	543,984

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

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

	Twelve Months
	Ended
	June 1, 2010
Net income	$	45,344
Interest expense		17,345
Income taxes		12,414
Depreciation		63,767
Amortization of intangibles		652
Rent expense		42,460
Share-based compensation expense		7,266
Asset impairments		3,181
Equity in losses of subsidiaries		328
Bad debt expense		1,730
Amortization of debt issuance costs		1,941
Non-cash accruals		3,584
Other		582
Consolidated EBITDAR	$	200,594

Adjusted Total Debt to Consolidated EBITDAR – Actual	2.71x
Maximum allowed per covenant (1)	3.75x

(1) The Credit Facility and notes issued in the Private Placement require us to maintain a maximum funded debt ratio, defined as Adjusted Total Debt to Consolidated EBITDAR, of less than or equal to 3.75x from March 3, 2010 to

March 1, 2011, 3.50x from March 2, 2011 to March 1, 2012, and, for the notes issued in the Private Placement only, 3.25x thereafter.

We expect to generate free cash flow of $100.0 to $110.0 million during fiscal 2011, a substantial portion of which will be dedicated to the reduction of debt.

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
	June 1, 2010
Consolidated EBITDAR		$	200,594

Interest expense		$	17,345
Cash rents*			39,551
Total		$	56,896

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

Fixed Charge Covenant – Actual	3.53x
Minimum allowed per covenant (2)	2.25x

(2) The Credit Facility and notes issued in the Private Placement require us to maintain a minimum fixed charge coverage ratio of greater than or equal to 2.25x through March 1, 2011, 2.50x from March 2, 2011 to March 1, 2012, and, for the notes issued in conjunction with the Private Placement, 2.75x thereafter.

Minimum Consolidated Net Worth Covenant

Our minimum Consolidated Net Worth covenant requires us to maintain a net worth, primarily comprised of the par value of our common stock, plus additional paid in capital and retained earnings, of at least $300,000,000 plus 25% of our consolidated net income for each completed fiscal year ending after June 4, 2003. For purposes of this requirement, we are allowed to exclude from retained earnings charges recorded for the impairment of goodwill or other intangible assets. During fiscal 2010, we recorded impairment charges of $0.1 million relating to impairments of other intangible assets. During fiscal 2009, we recorded impairment charges of $19.0 million and $0.5 million relating to impairments of goodwill and other intangible assets, respectively.

We reported net income of $476.5 million for the period of fiscal 2004-2008 and fiscal 2010, and a net loss for fiscal 2009. Under our covenants, this level of net income results in a consolidated net worth requirement, as defined, of $419.1 million. Excluding the impact of the goodwill impairment ($14.0 million, net of tax) and other intangible asset impairments ($0.3 million, net of tax), the sum of the par value of our common stock, additional paid in capital, and retained earnings as of June 1, 2010 was $565.6 million.

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 Consolidated Balance Sheets. We do have a $0.8 million liability for guarantees recorded in our Consolidated Balance Sheet. The amount on the balance sheet is the fair value of our guarantee, which is $47.2 million lower than the amount presented in our debt covenant calculations ($48.0 million, the full amount of the guarantee).

Our Minimum Fixed Charge Coverage ratio allows for recurring cash rents to be included in the denominator. Cash rents ($39.6 million on a rolling 12 month basis) differ from rents determined in accordance with GAAP ($42.5 million) by the following (amounts in thousands):

Cash rents	$	39,551
Change in rent accruals		1,260
Change in closed restaurant lease reserve – rent		(4,634	)
Rent settlement payments on closed restaurants		6,283
GAAP-based rent expense	$	42,460

Share Repurchases

From time to time our Board of Directors has authorized the repurchase of shares of our common stock as a means to return excess capital to our shareholders. The timing, price, quantity, and manner of the purchases have been made at the discretion of management, depending upon market conditions and the restrictions contained in our loan agreements. Although 7.9 million shares remained available for purchase under existing programs at June 1, 2010, our loan agreements, as amended in fiscal 2008, prohibit the repurchase of our common stock until we achieve certain leverage thresholds for two consecutive fiscal quarters. These thresholds were not achieved until the end of fiscal 2010 and thus we did not repurchase any shares of RTI common stock during fiscal 2010. 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.

Significant Contractual Obligations and Commercial Commitments

Long-term financial obligations were as follows as of June 1, 2010 (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)	$ 37,024	$ 4,552	$ 10,446	$ 7,154	$ 14,872
Revolving credit facility (a)	203,800		203,800
Senior notes (Series B) (a)	48,442	8,224	40,218
Interest (b)	24,586	6,473	9,648	3,241	5,224
Operating leases (c)	335,608	39,408	71,410	58,492	166,298
Purchase obligations (d)	114,419	56,684	25,867	21,292	10,576
Pension obligations (e)	37,362	10,612	6,070	5,426	15,254
Total (f)	$ 801,241	$ 125,953	$ 367,459	$ 95,605	$ 212,224

(a)	See Note 7 to the Consolidated Financial Statements for more information on our debt.

(b)

Amounts represent contractual interest payments on our fixed-rate debt instruments. Interest payments on our variable-rate revolving credit facility and variable-rate notes payable with balances of $203.8 million and $2.3 million, respectively, as of June 1, 2010 have been excluded from the amounts shown above, primarily because the balance outstanding under our revolving credit facility, described further in Note 7 of the Consolidated Financial Statements, fluctuates daily. Additionally, the amounts shown above include interest payments on the Series B Notes at the current interest rate of 7.17%. This rate could be different in the future based upon certain leverage ratios.

(c)

This amount includes operating leases totaling $18.2 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 6 to the Consolidated Financial Statements for more information.

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

(e)	See Note 9 to the Consolidated Financial Statements for more information.

(f)	This amount excludes $3.4 million of unrecognized tax benefits due to the uncertainty regarding the timing of future cash outflows associated with such obligations.

Commercial commitments were as follows as of June 1, 2010 (in thousands):

	Payments Due By Period
		Less than	1-3	3-5	More than 5
	Total	1 year	years	years	years
Letters of credit (a)	$ 20,082	$ 19,782	$ 300	$	$
Franchise loan guarantees (a)	48,029	47,321	708
Divestiture guarantees	6,479	480	984	995	4,020
Total	$ 74,590	$ 67,583	$ 1,992	$ 995	$ 4,020

(a)

Includes a $3.7 million letter of credit which secures franchisees’ borrowings for construction of restaurants being financed under a franchise loan facility. The franchise loan guarantees totaling $48.0 million also shown in the table exclude the guarantee of $3.7 million for construction to date on the restaurants being financed under the facility.

See Note 12 to the Consolidated Financial Statements for more information.

Off-Balance Sheet Arrangements

See Notes 6 and 12 to the Consolidated Financial Statements for information regarding our operating leases and franchise partnership and divestiture guarantees.

Critical Accounting Policies

Our MD&A is based upon our 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.

We believe that of our significant accounting policies, the following may involve a higher degree of judgment and complexity. Our significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements.

Share-Based Employee Compensation

Share-based compensation expense is estimated for equity awards at fair value at the grant date. We determine the fair value of restricted stock awards based on the closing price of our common stock on the date prior to approval of the award by our Board of Directors. We determine the fair value of stock option awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires various highly judgmental assumptions including the expected dividend yield, stock price volatility and life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period. See Note 11 to the Consolidated Financial Statements for further discussion of share-based employee compensation.

Impairment of Long-Lived Assets

We evaluate the carrying value of any individual restaurant when the cash flows of such restaurant have deteriorated and we believe the probability of continued operating and cash flow losses indicate that the net book value of the restaurant may not be recoverable. In performing the review for recoverability, we consider the future cash flows expected to result from the use of the restaurant and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying value of the restaurant, an impairment loss is recognized for the amount by which the net book value of the asset exceeds its fair value. Otherwise, an impairment loss is not recognized. Fair value is based upon estimated discounted future cash flows expected to be generated from continuing use through the expected disposal date and the expected salvage value. In the instance of a potential sale of a restaurant in a refranchising transaction, the expected purchase price is used as the estimate of fair value.

If a restaurant that has been open for at least one quarter shows negative cash flow results, we prepare a plan to reverse the negative performance. Under our policies, recurring or projected annual negative cash flow signals a potential impairment. Both qualitative and quantitative information are considered when evaluating for potential impairments.

At June 1, 2010, we had 28 restaurants that had been open more than one year with rolling 12 month negative cash flows, of which 16 have been impaired to salvage value. Of the 12 which remained, we reviewed the plans to improve cash flows at each of the restaurants and determined no impairment was necessary. The remaining net book value of these 12 restaurants was $13.9 million at June 1, 2010.

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.

Franchise Accounting

Equity Method Accounting

As of June 1, 2010, we were the franchisor of 116 franchise partnership Ruby Tuesday restaurants and 107 traditional domestic and international franchised restaurants. Based on an analysis prepared using financial information obtained, when necessary, from the franchise entities, we concluded that, for all periods presented, we were not required to consolidate any of the franchise entities under U.S. generally accepted accounting principles. Although we do have loans to and provide guarantees for certain of our franchise partnerships, they each have substantial other business activities. We have not consolidated these entities, as we believe that each of these entities meets the definition of a business and we do not provide more than half of the total of the equity, subordinated debt, and other forms of subordinated financial support to these entities based on an analysis of the fair values of our interests in these entities.

We apply the equity method of accounting to our six 50%-owned franchise partnerships. Accordingly, we recognize our pro rata share of the earnings or losses of the franchise partnerships in the Consolidated Statements of Operations when reported by those franchisees. The cost method of accounting is applied to all 1%-owned franchise partnerships.

Revenue Recognition

We charge our franchise partnerships various monthly fees that are calculated as a percentage of the respective franchise’s monthly sales. Our franchise agreements allow us to charge up to a 4.0% royalty fee, a 2.5% support service fee, a 1.5% marketing and purchasing fee, and an advertising fee of up to 3.0%. We defer recognition of franchise fee revenue for any franchise partnership with negative cash flows at times when the negative cash flows are deemed to be anything other than temporary and the franchise has either borrowed directly from us or through a facility for which we provide a guarantee. We also do not recognize franchise fee revenue from franchises with fees in excess of 60 days past due. Unearned income for franchise fees was $2.4 million and $1.2 million as of June 1, 2010 and June 2, 2009, respectively, which are included in other deferred liabilities and/or accrued liabilities – rent and other in the Consolidated Balance Sheets.

Allowance for Doubtful Notes and Interest Income

We follow a systematic methodology each quarter in our analysis of franchise and other notes receivable in order to estimate losses inherent at the balance sheet date. A detailed analysis of our loan portfolio involves reviewing the following for each significant borrower:

·	terms (including interest rate, original note date, payoff date, and principal and interest start dates);

·	note amounts (including the original balance, current balance, associated debt guarantees, and total exposure); and

other relevant information including whether the borrower is making timely interest, principal, royalty, and support payments, the borrower’s debt coverage ratios, the borrower’s current financial condition and sales trends, the borrower’s additional borrowing capacity, and, as appropriate, management’s judgment on the quality of the borrower’s operations.

Based on the results of this analysis, the allowance for doubtful notes is adjusted as appropriate. No portion of the allowance for doubtful notes is allocated to guarantees. In the event that collection is deemed to be an issue, a number

of actions to resolve the issue are possible, including modification to the terms of payment of franchise fees or note obligations or a restructuring of the borrower’s debt to better position the borrower to fulfill its obligations.

The allowance for doubtful notes represents our best estimate of losses inherent in the notes receivable at the balance sheet date. During fiscal 2010, 2009, and 2008, we increased the reserve $1.7 million, $3.7 million, and $0.8 million, respectively, based on our estimate of the extent of those losses.

We recognize interest income on notes receivable when earned which sometimes precedes collection. A number of our franchise notes have, since the inception of these notes, allowed for the deferral of interest during the first one to three years. All franchisees that issued outstanding notes to us are currently paying interest on these notes. It is our policy to cease accruing interest income and recognize interest on a cash basis when we determine the collection of interest is doubtful. The same analysis noted above for doubtful notes is utilized in determining whether to cease recognizing interest income and thereafter record interest payments on the cash basis.

Lease Obligations

We lease a significant number of our restaurant properties. At the inception of the lease, each property is evaluated to determine whether the lease will be accounted for as an operating or capital lease. The term used for this evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured and failure to exercise such option would result in an economic penalty.

Our lease term used for straight-line rent expense is calculated from the date we take possession of the leased premises through the lease termination date. There is potential for variability in our “rent holiday” period which begins on the possession date and ends on the earlier of the restaurant open date or the commencement of rent payments. Factors that may affect the length of the rent holiday period generally relate to construction-related delays. Extension of the rent holiday period due to delays in restaurant opening will result in greater preopening rent expense recognized during the rent holiday period.

For leases that contain rent escalations, we record the total rent payable during the lease term, as determined above, on the straight-line basis over the term of the lease (including the “rent holiday” period beginning upon possession of the premises), and we record the difference between the minimum rents paid and the straight-line rent as deferred escalating minimum rent.

Certain leases contain provisions that require additional rental payments, called "contingent rents," when the associated restaurants' sales volumes exceed agreed-upon levels. 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.

Estimated Liability for Self-Insurance

We self-insure a portion of our current and past losses from workers’ compensation and general liability claims. We have stop loss insurance for individual claims for workers’ compensation and general liability in excess of stated loss amounts. Insurance liabilities are recorded based on third-party actuarial estimates of the ultimate incurred losses, net of payments made. The estimates themselves are based on standard actuarial techniques that incorporate both the historical loss experience of the Company and supplemental information as appropriate.

The analysis performed in calculating the estimated liability is subject to various assumptions including, but not limited to, (a) the quality of historical loss and exposure information, (b) the reliability of historical loss experience to serve as a predictor of future experience, (c) the reasonableness of insurance trend factors and governmental indices as applied to the Company, and (d) projected payrolls and revenue. As claims develop, the actual ultimate losses may differ from actuarial estimates. Therefore, an analysis is performed quarterly to determine if modifications to the accrual are required.

Income Tax Valuation Allowances and Tax Accruals

We record deferred tax assets for various items. As of June 1, 2010, we have concluded that it is more likely than not that the future tax deductions attributable to our deferred tax assets will be realized and therefore no valuation allowance has been recorded.

As a matter of course, we are regularly audited by federal and state tax authorities. We record appropriate accruals for potential exposures should a taxing authority take a position on a matter contrary to our position. We evaluate these accruals, including interest thereon, on a quarterly basis to ensure that they have been appropriately adjusted for events that may impact our ultimate tax liability.

Recently Issued Accounting Standards Not Yet Adopted

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance related to the consolidation of variable interest entities. The updated guidance eliminates the prior exceptions to consolidating qualifying special-purpose entities, contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. This guidance also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded in applying the provisions of the pre-Codification guidance. The guidance is effective for fiscal years beginning after November 15, 2009 (fiscal 2011 for RTI). We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In January 2010, the FASB issued fair value guidance requiring new disclosures and clarification of existing disclosures for assets and liabilities that are measured at fair value on either a recurring or non-recurring basis. The guidance requires disclosure of transfer activity into and out of Level 1 and Level 2 fair value measurements and also requires more detailed disclosure about the activity within Level 3 fair value measurements. The majority of the requirements in this guidance are effective for interim and annual periods beginning after December 15, 2009 (our fiscal 2010 fourth quarter). The adoption of this guidance did not have a material impact on our Consolidated Financial Statements. Requirements related to Level 3 disclosures are effective for annual and interim periods beginning after December 15, 2010 (our fiscal 2011 fourth quarter). We are currently evaluating the impact of this guidance on our Consolidated Financial Statement disclosures.

Known Events, Uncertainties, and Trends

Financial Strategy and Stock Repurchase Plan

Our financial strategy is to utilize a prudent amount of debt, including operating leases, letters of credit, and any guarantees, to minimize the weighted average cost of capital while allowing financial flexibility. This strategy has periodically allowed us to repurchase RTI common stock. During the year ended June 1, 2010, we repurchased no shares of RTI common stock. The total number of remaining shares authorized to be repurchased, as of June 1, 2010, is approximately 7.9 million. To the extent not funded with cash from operating activities and proceeds from stock option exercises, future repurchases, if any, may be funded by borrowings. However, as previously discussed, under the terms of the amendment to the Credit Facility and the amendment and restatement of the Private Placement, we could not engage in the repurchase of our stock until we achieved certain leverage thresholds for two consecutive fiscal quarters. As of June 1, 2010, we have achieved the required thresholds for two consecutive fiscal quarters, and thus are now allowed, if our Board of Directors so chooses, to repurchase our stock.

Dividends

During fiscal 1997, our Board of Directors approved a dividend policy as an additional means of returning capital to our shareholders. As noted above, following the amendment to the Credit Facility and the amendment and restatement of the notes issued in the Private Placement, we could not pay a dividend until we achieved certain leverage thresholds for two consecutive fiscal quarters. As of June 1, 2010, we have achieved the required thresholds for two consecutive fiscal quarters, and thus are now allowed, if our Board of Directors so chooses, to reinstate dividend payments.

Franchising Agreements

Our agreements with franchise partnerships allow us to purchase an additional 49% equity interest for a specified price. We have chosen to exercise that option in situations in which we expect to earn a return similar to or better than our expected return from investing in new restaurants. During fiscal 2010 and 2009, we did not exercise our right to acquire an additional 49% equity interest in any franchise partnerships. We currently have a 1% ownership in seven of our 13 franchise partnerships which collectively operated 46 Ruby Tuesday restaurants at June 1, 2010.

Our franchise agreements with the franchise partnerships allow us to purchase all remaining equity interests beyond the 1% or 50% we already own, for an amount to be calculated based upon a predetermined valuation formula. We did not exercise our right to acquire the remaining equity interests of any of our franchise partnerships during fiscal 2010 and 2009. We currently have a 50% ownership in six of our 13 franchise partnerships which collectively operated 70 Ruby Tuesday restaurants at June 1, 2010.

In early fiscal 2011 we anticipate acquiring our Long Island franchise, a 1%-owned franchise partnership, and our New England franchise, a 50%-owned franchise partnership, each of which operate 10 Ruby Tuesday concept restaurants, for a nominal amount of cash plus assumed debt. To the extent allowable under our debt facilities, we may choose to sell existing restaurants or exercise our rights to acquire an additional equity interest in franchise partnerships in fiscal 2011 and beyond.

Fiscal Year

RTI’s fiscal 2011 will contain 52 weeks and end on May 31, 2011.

Impact of Inflation

The impact of inflation on the cost of food, labor, supplies, utilities, real estate, and construction costs could adversely impact our operating results. Historically, we have been able to recover certain inflationary cost increases through increased menu prices coupled with more efficient purchasing practices and productivity improvements. Competitive pressures may limit our ability to completely recover such cost increases. Historically, the effect of inflation has not significantly impacted our net income.

Item 7A. Quantitative and Qualitative

Disclosure About Market Risk

We are exposed to market risk from fluctuations in interest rates and changes in commodity prices. The interest rate charged on our Credit Facility can vary based on the interest rate option we choose to utilize. Our options for the rate are the Base Rate or LIBO Rate plus an applicable margin. The Base Rate is defined to be the higher of the issuing bank’s prime lending rate or the Federal Funds rate plus 0.5%. The applicable margin is zero to 2.5% for the Base Rate loans and a percentage ranging from 1.0% to 3.5% for the LIBO Rate-based option. As of June 1, 2010, the total amount of outstanding debt subject to interest rate fluctuations was $206.1 million. A hypothetical 100 basis point change in short-term interest rates would result in an increase or decrease in interest expense of $2.1 million 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 8. Financial Statements and Supplementary Data

Ruby Tuesday, Inc. and Subsidiaries

Index to Consolidated Financial Statements


Consolidated Statements of Operations for the Fiscal Years Ended
June 1, 2010, June 2, 2009, and June 3, 2008	43

Consolidated Balance Sheets as of June 1, 2010 and June 2, 2009	44

Consolidated Statements of Shareholders' Equity and Comprehensive Income/(Loss)
for the Fiscal Years Ended June 1, 2010, June 2, 2009, and June 3, 2008	45

Consolidated Statements of Cash Flows for the Fiscal Years Ended
June 1, 2010, June 2, 2009, and June 3, 2008	46

Notes to Consolidated Financial Statements	47-76

Reports of Independent Registered Public Accounting Firm	77-78

Ruby Tuesday, Inc. and Subsidiaries
Consolidated Financial Statements
Consolidated Statements of Operations
(In thousands, except per-share data)

	For the Fiscal Year Ended
	June 1,		June 2,			June 3,
	2010		2009			2008

Revenue:
Restaurant sales and operating revenue	$	1,188,043	$	1,239,104		$	1,346,721
Franchise revenue		6,753		9,452			13,583
		1,194,796		1,248,556			1,360,304

Operating costs and expenses:
Cost of merchandise		344,462		349,362			370,693
Payroll and related costs		396,877		421,023			446,910
Other restaurant operating costs		240,947		256,063			269,414
Depreciation and amortization		63,767		74,973			93,845
Selling, general, and administrative, net of support service
fee income totaling $4,610 in 2010, $6,295 in 2009
and $6,511 in 2008		70,526		82,167			114,403
Closures and impairments		3,776		54,951			6,453
Goodwill impairment				18,957
Equity in losses/(earnings) of unconsolidated franchises		328		(14	)		3,535
Interest expense, net of interest income totaling
$990 in 2010, $1,052 in 2009 and $1,411 in 2008		16,355		33,940			31,352
		1,137,038		1,291,422			1,336,605

Income/(loss) before income taxes		57,758		(42,866	)		23,699
Provision/(benefit) for income taxes		12,414		(24,948	)		(2,678	)

Net income/(loss)	$	45,344	$	(17,918	)	$	26,377

Earnings/(loss) per share:
Basic	$	0.74	$	(0.35	)	$	0.51
Diluted	$	0.73	$	(0.35	)	$	0.51

Weighted average shares:
Basic		61,533		51,395			51,572
Diluted		61,870		51,395			51,688

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

Ruby Tuesday, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except per-share data)

	June 1, 2010			June 2, 2009
Assets:
Current assets:
Cash and short-term investments	$	9,569		$	9,760
Accounts and notes receivable, net		9,746			8,095
Inventories:
Merchandise		21,145			12,838
China, silver and supplies		7,668			8,187
Income tax receivable					8,632
Deferred income taxes		13,794			15,918
Prepaid rent and other expenses		11,154			13,423
Assets held for sale		3,234			16,120
Total current assets		76,310			92,973

Property and equipment, net		943,486			985,099
Notes receivable, net		269			713
Other assets		43,964			45,411
Total assets	$	1,064,029		$	1,124,196

Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable	$	22,951		$	21,859
Accrued liabilities:
Taxes, other than income taxes		19,905			19,120
Payroll and related costs		22,425			12,688
Insurance		8,219			8,369
Deferred revenue – gift cards		8,473			8,046
Rent and other		18,983			27,076
Current maturities of long-term debt, including capital leases		12,776			16,841
Income tax payable		1,049
Total current liabilities		114,781			113,999

Long-term debt and capital leases, less current maturities		276,490			476,566
Deferred income taxes		40,010			20,706
Deferred escalating minimum rent		42,305			41,010
Other deferred liabilities		52,343			55,549
Total liabilities		525,929			707,830

Commitments and contingencies (Note 12)

Shareholders’ equity:
Common stock, $0.01 par value; (authorized: 100,000 shares;
issued: 2010 – 64,492 shares, 2009 – 52,806 shares)		645			528
Capital in excess of par value		98,337			20,804
Retained earnings		452,295			406,951
Deferred compensation liability payable in Company stock		2,036			2,200
Company stock held by Deferred Compensation Plan		(2,036	)		(2,200	)
Accumulated other comprehensive loss		(13,177	)		(11,917	)
		538,100			416,366
Total liabilities and shareholders' equity	$	1,064,029		$	1,124,196

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

Ruby Tuesday, Inc. and Subsidiaries
Consolidated Statements of Shareholders’ Equity
and Comprehensive Income/(Loss)
(In thousands, except per-share data)
											Company Stock
											Held by the		Accumulated
	Common Stock				Capital In				Deferred		Deferred		Other		Total
	Issued				Excess of		Retained		Compensation		Compensation		Comprehensive		Shareholders’
	Shares		Amount		Par Value		Earnings		Liability		Plan		Loss		Equity

Balance, June 6, 2007	53,240		$532		$2,246		$446,584		$3,861		$(3,861	)	$(10,036	)	$439,326
Net income							26,377								26,377
Pension and post-retirement
benefit plans, net of taxes
of $223													339		339
Comprehensive income															26,716
Adjustment to initially apply
FIN 48							(34	)							(34	)
Issuance of restricted stock	1,073		11		(11	)									0
Shares issued for stock option
exercises	124		1		4,741										4,742
Share-based compensation					13,385										13,385
Cash dividends of $0.25
per common share							(13,126	)							(13,126	)
Stock repurchases	(1,665	)	(16	)	(5,280	)	(34,195	)							(39,491	)
Changes in Deferred
Compensation Plan									(984	)	984				0
Balance, June 3, 2008	52,772		528		15,081		425,606		2,877		(2,877	)	(9,697	)	431,518
Net loss							(17,918	)							(17,918	)
Pension and post-retirement
benefit plans, net of taxes
of $1,372													(2,085	)	(2,085	)
Comprehensive loss															(20,003	)
Adjustment to change measurement
date of pension and post-retirement
benefit plans, net of taxes of $237							(360	)					(135	)	(495	)
and $89, respectively
Adjustment to split-dollar life
insurance, net of taxes of $248							(377	)							(377	)
Shares issued pursuant to
compensation plans, net of
cancellations	34
Share-based compensation, net of
taxes of $274					5,723										5,723
Changes in Deferred
Compensation Plan									(677	)	677				0
Balance, June 2 2009	52,806		528		20,804