Introduction

Ruby Tuesday, Inc., including its wholly-owned subsidiaries ("RTI," the "Company," "we" and/or "our"), owns and operates Ruby Tuesday®, Lime Fresh Mexican Grill® ("Lime Fresh"), Marlin & Ray's™, and Wok Hay® casual dining restaurants. We also operate Truffles® restaurants pursuant to a license agreement and franchise the Ruby Tuesday, Lime Fresh, and Wok Hay concepts in selected domestic and international markets. Our mission is to be the best in the bar-grill segment of casual dining 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 the higher-end of casual dining in terms of the quality of our food and service. As of June 5, 2012, we owned and operated 714 Ruby Tuesday restaurants located in 38 states and the District of Columbia. Our traditional franchisees operated 36 domestic and 43 international Ruby Tuesday restaurants in 14 states, Guam, and 12 foreign countries. The Company-owned and operated restaurants are concentrated primarily in the Southeast, Northeast, Mid-Atlantic, and Midwest regions of the United States. We consider these regions to be our core markets.

As of June 5, 2012, there were 13 Company-owned and operated Lime Fresh restaurants, 11 Marlin & Ray's restaurants, two Truffles restaurants, and one Wok-Hay restaurant. In addition, there were four Lime Fresh restaurants operated by domestic franchisees as of June 5, 2012.

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, which includes our 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. 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, employees, advertising and promotion, and the types and quality of food. We compete with other food service operations, including locally-owned restaurants, and other national and regional restaurant chains that offer similar types of services and products as we do. While we are in the bar and grill sector because of our varied menu, we operate at the higher-end of casual dining in terms of the quality of our food and service. Our mission, since we repositioned our brand in 2007, is to be the best in the bar and grill segment of casual dining by delivering to our guests a high-quality casual dining experience with compelling value.

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

In order to entice guests to see the new Ruby Tuesday, increase frequency of visits, drive same-restaurant sales growth and enhance brand visibility, we are increasing our television marketing spend. Our marketing strategy for the last several fiscal years has focused mainly on print promotions, digital media and local marketing programs, with minimal spend on television. In fiscal 2012 we began testing television marketing in certain markets with approximately 20% of our restaurants covered by television advertising in the third quarter and approximately 50% to 100% of our restaurants covered in our fourth quarter through leveraging a mixture of network and national cable at varying media weights. Based on favorable trends exhibited by our test markets in fiscal 2012, at the start of fiscal 2013 we deployed a television marketing program which will cover the entire system of restaurants for a portion of each quarter with the remaining portion of the quarter to be supplemented by high-end direct mail and other promotions. Our creative messaging will support a "pure value and quality" advertisement, in addition to potential limited time offers throughout the year. We believe that having television advertising expense levels more in line with our peers in

tandem with a more balanced approach on our promotional strategies will position us for improvements in same-restaurant sales in the future through driving repeat and new trial of our brand.

In order to fund the incremental television advertising efforts at no dilution to the overall profitability or cash flow of the Company, we have engaged a leading enterprise improvement consulting firm to assist us in identifying potential savings opportunities in a number of key areas including procurement, occupancy, and maintenance costs. The majority of these cost savings will be reinvested into our television marketing programs.

In an effort to be prudent with our capital, we have a strategy to grow our Company in a low-risk, low capital-intensive and high-return manner, with a focus on the fast casual segment. During the fourth quarter of fiscal 2012, we acquired the Lime Fresh concept for $24.1 million. We had previously opened Lime Fresh restaurants under a licensing agreement. However, after over a year of experience with the brand and better understanding its positioning in the high-quality fast casual segment, we decided that we could more quickly grow the concept if we owned it. The fast casual segment of our industry is a proven and growing segment where demand exceeds supply, and we believe opening smaller, inline locations under the Lime Fresh brand is a good potential growth option for us. We also believe Lime Fresh can create good long-term value and strong cash flow with relatively low risk. We opened six Company-owned Lime Fresh restaurants during fiscal 2012 and plan to open 12 to 16 Company-owned Lime Fresh restaurants during fiscal 2013. Over time, we also plan on opening Company-owned, smaller inline-type Ruby Tuesday restaurants as well.

Another part of our long-term plan is to get more out of existing restaurants by generating higher average restaurant volumes and thus more profit and cash flow with minimal capital investment. Therefore, we have been converting certain underperforming Ruby Tuesday concept restaurants into our internally-developed seafood concept, Marlin & Ray's, which is a uniquely-differentiated, high-value casual dining brand. We converted ten Company-owned Ruby Tuesday restaurants to the Marlin & Ray's concept during fiscal 2012 and expect to convert five to seven during fiscal 2013. We believe the low capital requirement and potential increased revenue and EBITDA from these conversions, in addition to the revenue increases we are seeing at neighboring Ruby Tuesday locations, can potentially provide attractive cash-on-cash returns and strong cash flow.

During the fourth quarter of fiscal 2012, we further strengthened our balance sheet and created additional financial flexibility by issuing $250.0 million in a senior unsecured notes offering with an eight year maturity. As a result of the transaction, we were able to pay off all of our outstanding debt with the exception of some of our mortgage debt from the franchise partnership acquisitions, reduce our revolver commitment size from $380.0 million to $200.0 million, obtain attractive interest rates, extend the maturity date of the majority of our debt for up to eight years, and build excess cash which we will reinvest in the future. We continue to maintain a strong balance sheet and have a sufficient amount of liquidity. Our near-term capital expenditure requirements will consist of converting approximately five to seven Ruby Tuesday concept restaurants to the Marlin & Ray's concept, opening one newly-constructed Marlin & Ray's restaurant, and opening approximately 12 to 16 smaller, inline Lime Fresh restaurants during fiscal 2013.

Our strong balance sheet is supported by a high-quality portfolio of owned real estate, and during fiscal 2012 we commenced on a sale-leaseback program on a portion of our properties in order to create greater financial flexibility and generate additional liquidity for debt reduction or reinvestment. We are targeting to raise approximately $50.0 million of gross proceeds from sale-leaseback transactions, of which $22.2 million was raised during fiscal 2012 and utilized for debt reduction. We anticipate the remaining sale-leaseback transactions to be completed over the next one to two quarters and plan to utilize the proceeds for further debt reduction or other corporate purposes. See further discussion in the Investing Activities section of this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

We generated $74.3 million of free cash flow during fiscal 2012, which was used to pay down debt and repurchase stock. We estimate we will generate approximately $20.0 to $30.0 million of free cash flow during fiscal 2013. Included in these estimates is anticipated capital spending of approximately $44.0 to $48.0 million. Our objective over the next several years is to continue to reduce outstanding debt levels in order to reduce our leverage, focus on new

Lime Fresh restaurant development and Marlin & Ray's conversions, and potentially repurchase outstanding shares under our share repurchase program.

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

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 2012 was a 53 week year. All other years discussed throughout this MD&A section contained 52 weeks. In fiscal 2012, the 53rd week added $23.4 million to restaurant sales and operating revenue and $0.03 to diluted earnings per share in our Consolidated Statement of Operations. We remind you that, in order to best obtain an understanding of the significant factors that influenced our performance during the last three fiscal years, this MD&A section should be read in conjunction with the Consolidated Financial Statements and related Notes.

Our same-restaurant sales for Company-owned restaurants decreased 4.5% in fiscal 2012 and our diluted loss per share was $0.00 in fiscal 2012 compared to diluted earnings per share of $0.72 in fiscal 2011. Throughout this MD&A, we discuss our fiscal 2012 financial results in detail, provide insight for fiscal years 2011 and 2010, 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 Annual Report on 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 2008 through fiscal 2012:

                                             International
Fiscal Year Company-Owned Domestic Franchise   Franchise   Total
2012             714              36              43        793
2011             750              43              53        846
2010             656             165              58        879
2009             672             173              56        901
2008             721             170              54        945

Other Concept Restaurants
The table below presents the number of other concept restaurants at each fiscal
year end from fiscal 2008 through fiscal 2012:

                           Lime Fresh                          Company-Owned
Fiscal Year Company-Owned Franchise Total Lime Fresh   Marlin & Ray's Other Concepts*
2012             13           4            17                11              3
2011              -           -            -                 1               3
2010              -           -            -                 -               2
2009              -           -            -                 -               2
2008              -           -            -                 -               1

*Other concepts include Truffles and Wok Hay.

During fiscal 2012:

· 10 Company-owned Ruby Tuesday restaurants, two of which closed in a prior year, were converted to Marlin & Ray's concept restaurants;

· One Company-owned Truffles restaurant was opened;

· Six Company-owned Lime Fresh restaurants were opened. Seven were acquired, along with the royalty stream from five Lime Fresh concept franchised restaurants (one of which was not yet open), and the Lime Fresh brand's intellectual property for $24.1 million;

· One Company-owned Wok Hay restaurant was opened and two were closed. In addition, one franchised Wok Hay restaurant was closed;

· 36 Company-owned Ruby Tuesday restaurants were closed, eight of which were converted into Marlin & Ray's concept restaurants later in the year;

· Six franchised Ruby Tuesday restaurants were opened and 23 were closed;

· We recorded impairment charges of $13.6 million, which included $9.7 million resulting from management's decision in the third quarter to close 25 to 27 restaurants, 23 of which were closed in our fourth quarter and one since;

· We closed on an eight-year, $250.0 million unsecured high yield bond offering and an amendment to our revolving credit facility;

· We recorded a goodwill impairment charge of $16.9 million; and

· We repurchased two million shares of common stock at an aggregate cost of $18.4 million.

During fiscal 2011:

· 109 Company-owned Ruby Tuesday restaurants were acquired, including 106 purchased from certain of our franchise partnerships and three purchased from a traditional domestic franchisee;

· We opened our first Truffles and Marlin & Ray's concept restaurants, each of which was converted from an existing Ruby Tuesday concept restaurant;

· 15 Company-owned Ruby Tuesday restaurants were closed, three of which have been converted to then-existing concepts, one in anticipation of conversion to another high-quality casual dining concept, and two as the result of tornadic activity in April 2011; and

· Aside from the restaurants sold to the Company, seven franchise restaurants were opened and 25 were closed. Additionally, a traditional international franchisee opened one Wok Hay restaurant.

Restaurant Sales
Restaurant sales in fiscal 2012 increased 4.9% from fiscal 2011 for Company-owned restaurants and decreased 39.8% 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)
2012               $ 1,320.1    $ 174.2
2011                 1,258.0     289.4
2010                 1,188.0     368.9
2009                 1,239.1     383.7


2008          1,346.7  412.0

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

Other Revenue Information:
                                 2012             2011          2010
Company restaurant sales (in  $1,320,098       $1,258,015    $1,188,043
thousands)
Company restaurant sales          4.9%             5.9%         (4.1)%
growth-percentage

Franchise revenue (in           $5,738           $7,147        $6,753
thousands) (a)
Franchise revenue                (19.7)%           5.8%         (28.6)%
growth-percentage

Total revenue (in thousands)  $1,325,836       $1,265,162    $1,194,796
Total revenue                     4.8%             5.9%         (4.3)%
growth-percentage

Company same-restaurant         (4.5)%            0.9%          (1.3)%
sales growth percentage

Company average restaurant   $1.75 million    $1.81 million $1.79 million
volumes
Company average restaurant
volumes growth                  (3.8)%            1.5%         (0.9)%
percentage

(a) Franchise revenue includes royalty, license, and development fees paid to us by our franchisees, exclusive of support service fees of $1.1 million, $3.1 million, and $4.6 million, in fiscal years 2012, 2011, and 2010, 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 5, 2012 increased 4.9% to $1,320.1 million compared to the prior year. The increase primarily resulted from the acquisition of 109 restaurants from franchisees in fiscal 2011 coupled with the revenue associated with the 53rd week in fiscal 2012, partially offset by a 4.5% decrease in Ruby Tuesday concept same-restaurant sales. Included in our Restaurant sales and operating revenue for fiscal 2012 is $173.9 million of restaurant sales for 109 restaurants acquired from our franchisees during fiscal 2011. These same restaurants generated sales of $76.1 million in fiscal 2011 from the various dates of acquisition through May 31, 2011.

The decrease in same-restaurant sales is attributable to lower guest counts, which was partially offset by an increase in average net check compared with the prior year. The increase in average net check was a result of menu price increases and a shift in menu mix.

Our Company restaurant sales and operating revenue for the year ended May 31, 2011 increased 5.9% to $1,258.0 million compared to fiscal 2010. The increase primarily resulted from the acquisition of 109 restaurants from franchisees in fiscal 2011 and a 0.9% increase in same-restaurant sales. Included in our Restaurant sales and operating revenue for fiscal 2011 is $76.1 million of restaurant sales for 109 restaurants we acquired from our franchisees during fiscal 2011.

The increase in same-restaurant sales for fiscal 2011 is attributable to higher average net check in fiscal 2011 due to a shift in our value positioning and print incentive strategy since fiscal 2010 and a change in menu mix from the rollout of our menu in August of fiscal 2011, offset by an overall decrease in guest traffic compared to fiscal 2010.

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 19.7% to $5.7 million in fiscal 2012 and increased 5.8% to $7.1 million in fiscal 2011. Franchise revenue is predominantly comprised of domestic and international royalties, which totaled $5.5 million and $6.7 million in 2012 and 2011, respectively. The decrease is due to a $0.7 million decline in royalties from our traditional domestic franchisees due in part to a 5.7% decline in same-restaurant sales for domestic franchise Ruby Tuesday restaurants during fiscal 2012 and a $0.5 million reduction in royalties from our franchise partnerships due to the acquisition of 109 restaurants from our franchise partnerships during fiscal 2011. The increase in fiscal 2011 is due to an increase in royalties from our traditional domestic franchisees as we recognized royalty fees due from a traditional domestic franchisee who previously had been deferring payment in fiscal 2011, coupled with an increase in same-restaurant sales for domestic franchise Ruby Tuesday restaurants of 0.9% for the year ended May 31, 2011.

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 borrowed directly from us. 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 insignificant and $1.2 million as of June 5, 2012 and May 31, 2011, respectively, which are included in Other deferred liabilities and/or Accrued liabilities - Rent and other in the Consolidated Balance Sheets. The decrease in unearned income is primarily attributable to the write-off of unearned fees associated with a traditional domestic franchisee that filed bankruptcy in June 2012.

Total franchise restaurant sales are shown in the table below.
2012 2011 2010 Franchise restaurant sales (in thousands) (a) $174,190 $289,446 $368,937 Franchise restaurant sales growth-percentage (39.8)% (21.5)% (3.9)%

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

The 39.8% and 21.5% decreases in franchise restaurant sales for fiscal 2012 and 2011, respectively, are primarily due to the acquisition of 109 restaurants from franchisees during fiscal 2011.

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 Annual
Report on Form 10-K.

                                                         2012     2011    2010
Restaurant sales and operating revenue                   99.6 %   99.4 %  99.4 %
Franchise revenue                                         0.4      0.6     0.6
  Total revenue                                         100.0    100.0   100.0
Operating costs and expenses:
  (As a percentage of restaurant sales and operating
   revenue):
   Cost of merchandise                                   28.8     29.1    29.0
   Payroll and related costs                             34.5     33.6    33.4
   Other restaurant operating costs                      20.5     20.4    20.3
   Depreciation                                           4.9      5.0     5.4
  (As a percentage of total revenue):
   Selling, general, and administrative, net of support
    service fees                                          8.6      6.8     5.9
   Closures and impairments                               1.4      0.5     0.3
   Goodwill impairment                                    1.3
   Interest expense, net                                  1.5      1.0     1.4
Total operating costs and expenses                      101.1     95.8    95.2
(Loss)/income before income taxes                        (1.1 )    4.2     4.8
(Benefit)/provision for income taxes                     (1.1 )    0.5     1.0
Net (loss)/income                                        (0.0 )%   3.7 %   3.8 %

Pre-tax (Loss)/Income
For fiscal 2012, pre-tax loss was $14.9 million or (1.1)% of total revenue, as compared to pre-tax profit of $52.6 million or 4.2% of total revenue for fiscal 2011. The decrease is primarily due to a decrease in same-restaurant sales of 4.5% at Company-owned Ruby Tuesday restaurants, a goodwill impairment charge of $16.9 million, higher closures and impairments ($12.4 million) and interest expense ($7.3 million), and increases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of payroll and related costs, other restaurant operating costs, and selling, general, and administrative, net. These higher costs were partially offset by decreases, as a percentage of restaurant sales and operating revenue, of cost of merchandise and depreciation.

Pre-tax income decreased $5.1 million (8.9%) from fiscal 2010 to $52.6 million for the year ended May 31, 2011. The lower pre-tax income was due to 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, selling, general, and administrative, net, and closures and impairments, and higher equity in losses from unconsolidated equity-method franchises. These higher costs were partially offset by $3.8 million in pre-tax income on the 109 restaurants acquired from franchisees during fiscal 2011, an increase in same-restaurant sales of 0.9% at Company-owned restaurants, and decreases, as a percentage of restaurant sales and operating revenue or total revenue, as appropriate, of depreciation, and interest expense, net.

In the paragraphs that follow, we discuss in more detail the components of the changes in pre-tax (loss)/income for years ended June 5, 2012 and May 31, 2011 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 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.

Fiscal Year 2011 Franchise Restaurant Acquisitions The table below shows operating results from the dates of acquisition (which occurred between August 4, 2010 and May 4, 2011) for the years ended June 5, 2012 and May 31, 2011 for the 109 restaurants that were acquired from franchisees in fiscal 2011 (in thousands):

                                                       (Unaudited)
                                             June 5, 2012       May 31, 2011

Total revenue                               $      173,949     $       76,068

Cost of merchandise                                 49,913             22,349
Payroll and related costs                           61,807             25,535
Other restaurant operating costs                    36,941             16,499
Depreciation                                         8,409              3,432
Selling, general, and administrative, net           12,557              4,431
                                                   169,627             72,246
Income before income taxes                  $        4,322     $        3,822

Cost of Merchandise
Cost of merchandise increased $14.9 million (4.1%) from the prior year to $380.5 million for the year ended June 5, 2012. As a percentage of restaurant sales and operating revenue, cost of merchandise decreased from 29.1% to 28.8%. Excluding the $27.6 million increase from the 109 restaurants acquired in fiscal 2011, cost of merchandise decreased $12.7 million.

The absolute dollar decrease in cost of merchandise not attributable to the restaurant acquisitions is primarily a result of a decrease in same-restaurant . . .