1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 1, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 1-14202
MORRISON FRESH COOKING, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 63-1155967
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
The Hartsfield Colonnade
4893 Riverdale Road, Suite 260
Atlanta, Georgia 30337
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770)991-0351
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
$0.01 par value Common Stock New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of class)
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
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.[ ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant, based upon the closing sale
price of Common Stock on August 9, 1996 as reported on the New
York Stock Exchange, was approximately $47,399,835. Shares of
Common Stock held by each executive officer and director and by
each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
The number of shares of the Registrant's common stock outstanding
at August 9, 1996 was 9,028,540.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to Shareholders for
the fiscal year ended June 1, 1996 are incorporated by reference
into Parts I and II.
Portions of the Registrant's definitive proxy statement dated
August 23, 1996 are incorporated by reference into Part III.
INDEX
PART I
Page
Number
Item 1. Business 4 - 10
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Executive Officers of the Company 13 - 14
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
PART III
Item 10. Directors and Executive Officers of the
Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 17 - 21
PART I
Item 1. Business.
__________________________________________________________________
Introduction
Morrison Fresh Cooking, Inc. (the "Company" or "MFCI"),
incorporated in 1995 in Atlanta, Georgia, owns and operates
cafeterias, buffets and mall food court locations in the
southeastern and mid-Atlantic regions of the United States. As of
June 1, 1996, the Company operated a total of 155 units,
consisting of 133 traditional cafeterias, nine small cafeterias,
10 mall food court units and three buffets located in 13 states,
making it the premier cafeteria company in the southeast.
Prior to March 1996, the Company comprised the family dining
business of Morrison Restaurants Inc. ("MRI"). On March 7, 1996,
the shareholders of MRI approved the distribution of the common
stock of MFCI to its shareholders (the "Distribution"). The
effective date of the Distribution was March 9, 1996, Morrison
Restaurants Inc. shareholders received one share of the Company's
common stock for every four shares of Morrison Restaurants Inc.
common stock then held.
In connection with the Distribution, the Company filed a
Registration Statement with the SEC on Form 10 (together with
subsequent amendments, the "Form 10") under the Securities
Exchange Act of 1934 with respect to the Company's common stock.
The Form 10 became effective on March 4, 1996, and the Company
stock commenced trading on the New York Stock Exchange on March
11, 1996.
___________________________________________________________________
Background
Morrison Restaurants Inc., the former parent company, was founded
in 1920 as a unique cafeteria concept in Mobile, Alabama. In
1928, with just eight cafeterias, the company had its first and
only public stock offering. The first cash dividend on the common
shares was declared in 1936, and dividends have been paid
continuously for 60 years.
___________________________________________________________________
Concept
The Company operates in the "home-meal replacement" (also known
as "comfort" food) segment of the restaurant industry. The
Company's services appeal to customers seeking complete meals at
affordable prices, in a convenient and home-like setting. While
industry observers have labeled "home-meal replacement" as a
trend of the 1990's, Morrison Fresh Cooking, Inc. has been
operating in this market segment for over 76 years.
___________________________________________________________________
Strategy
Morrison Fresh Cooking, Inc.'s business strategy is to:
Emphasize future growth beyond existing mall-based units
into convenient free-standing locations. New units will generally
be smaller, more labor and energy efficient, and will be designed
to evoke a contemporary and comfortable environment.
Re-engineer its cost-structure through state-of-the-art
technology in information services, cooking equipment and quality
control.
Emphasize more health-conscious and contemporary menu items
without losing focus on traditional southern menu favorites.
Achieve operational excellence through competitive pricing,
variety of menu items and employee training.
Focus growth in the southeast and mid-Atlantic regions to
capitalize on existing brand-equity and name-recognition.
___________________________________________________________________
Operations
The Company serves in excess of 45 million meals a year to a
customer base in the southeast and mid-Atlantic regions. In the
1995 American Bus Association's annual survey of tour operators,
the Company was rated as one of the Association's most favorite
restaurant chains. MFCI's meals are classic, all-American and
freshly prepared, and are made from scratch according to their
time tested recipes. Each day's menu offers the customer a wide
variety of selections: fresh salads, home-style entrees, freshly
prepared vegetables, daily baked breads, and home-baked pies or
other desserts.
MFCI's units offer a tremendous variety of menu items including 8-
11 salads, 12 entrees, 12-15 vegetables, 6 types of breads, and
12-15 desserts. Complete or "bundled" meals can be purchased at
prices ranging from $3.99 to $5.89 per meal. In excess of 70% of
MFCI's customers select bundled meals. Menus are rotated daily to
provide a varied dining experience and are adjusted to include
seasonal favorites. This variety encourages customer loyalty and
repeat business. The Company's typical customer visits the
restaurants an average of 3.8 times per month.
The traditional cafeteria, located in a shopping mall or on a
free-standing site (both convenient to shopping and business
developments as well as to residential areas), is approximately
10,000 square feet and seats approximately 250 customers. The new
smaller cafeteria offers a contemporary appearance, featuring a
new serpentine serving area that creates an open, airy
environment to enhance viewing of the menu items by the customer.
The small cafeterias are built in a contemporary design ranging
from 5,500 to 7,500 square feet and seating approximately 225
guests. The dining area, accompanied by booths and wooden tables
and chairs, creates a comfortable at-home atmosphere, and is
intended to appeal to a broader, younger market. The small
cafeterias are designed to provide convenient, customer-friendly
take-out services, and many of the new units will offer drive-
through services (there already being two at June 1, 1996).
The mall food court units ("QSRs" for quick-service restaurants),
are 600 to 1,200 square foot dining facilities, located primarily
in the mid-Atlantic states. They feature many traditional menu
selections for which MFCI is more commonly known, along with some
new items. The QSRs offer several bundled value meal combinations
in addition to a la carte pricing for selected items.
The Company is undergoing a modernization program for its
existing core cafeterias in order to improve their appeal to a
larger customer base and increase the efficiency and customer-
friendliness of the cafeterias service lines. MFCI intends to
continue remodeling efforts by concentrating on its units in
demographic areas where this enhanced atmosphere would achieve
the greatest results.
___________________________________________________________________
Research and Development
The Company does not engage in any material research and
development activities. Numerous studies are made, however, on a
continuing basis, to improve menus, equipment, and methods of
operations, including planning for new food-service concepts.
MFCI tracks customer satisfaction through surveys of
statistically relevant samples of customers at each unit
(approximately 90,000 customers each year). The surveys are
conducted each quarter and track 21 different attributes to
monitor and increase customer satisfaction. In addition, the
Company holds regular "focus group" discussions with existing,
former and potential customers to determine ways to exceed
customer expectations and increase customer satisfaction.
___________________________________________________________________
Raw Materials
Raw materials essential to the operation of the Company's
business are obtained principally through national food
distributors. MFCI negotiates directly with primary suppliers to
obtain competitive prices. The Company uses short-term purchase
commitment contracts to stabilize the potentially volatile
pricing associated with certain commodities. Because of the
relatively short storage life of inventories, limited storage
facilities at the restaurants themselves, MFCI's requirement for
freshness and the numerous sources of goods, a minimum amount of
inventory is maintained at the units. If necessary, all essential
food, beverage and operational products are available and can be
obtained from alternative suppliers in all cities in which the
Company operates.
The Company, Morrison Health Care, Inc. ("MHCI") and Ruby
Tuesday, Inc. ("RTI") have formed MRT Purchasing, LLC, a Georgia
limited liability company ("MRT") to serve as a purchasing
cooperative, to maintain the volume purchasing bargaining
position enjoyed by MRI prior to the Distribution by pooling
their collective purchasing power and coordinating the purchase
of certain food, equipment and services. Pursuant to MRT's
Operating Agreement, MRT serves as the purchasing agent for the
three companies by arranging for the purchase of products to be
made directly between each of the three companies and suppliers.
MRT has complete discretion to select vendors and brands for
certain designated products ("core products") and to negotiate
terms of purchasing arrangements for core products, including
long-term contracts. To the extent feasible, MRT concludes
purchasing arrangements under which each of the three companies
has independent rights and obligations. With respect to any
arrangement where each company's liabilities are not independent,
RTI, MHCI and the Company cross indemnify MRT and each other with
respect to their allocated share of liability for obligations to
be performed and payment for goods purchased.
RTI, MHCI and the Company are obligated to purchase all core
products through MRT arrangements; non-core products may be
purchased independently. The three companies are committed to
these purchasing arrangements for an initial term of five years
from the date of Distribution, which will automatically renew for
five year terms. RTI, MHCI or the Company may terminate its
participation in these purchasing arrangements upon six months
prior notice, provided, however, that it will continue to honor
its commitments under any then existing contract extending beyond
the termination date. Approximately 85% of the total products
purchased by the Company during fiscal 1996 would have
constituted "core products" under the MRT purchasing cooperative.
Each of RTI, MHCI and the Company have an equal equity interest
in MRT. It is not intended, however, that MRT will generate
income or profits. Employees are loaned by one of the three
companies and all expenses incurred in connection with operating
MRT are shared among the three companies pro rata, based on the
relative value of time spent and expenses incurred by MRT on
behalf of each of the companies.
Existing long term purchasing arrangements are managed through
MRT, who acts as agent for RTI, MHCI and the Company. In each
case, purchasing obligations are allocated among the three
companies based on past practice. To the extent feasible, MRT
will seek to amend such arrangements to formalize the allocation
of responsibilities and liabilities. In particular, MRI amended
its agreement ("Supply Agreement") with PYA/Monarch, Inc. ("PYA")
to allocate to the appropriate company certain divisional
obligations to purchase from PYA a minimum percentage of produce,
foodstuff and other supplies. In addition, the aggregate annual
minimum dollar amount of purchases under the Supply Agreement has
been allocated among RTI, MHCI and the Company.
___________________________________________________________________
Trademarks of the Company
The Company has registered trademarks and service marks, with the
United States Patent and Trademark Office, including the
"Morrison'sr trademark". MFCI believes that this and other
related marks are of material importance to the Company's
business. Registrations of the trademark Morrison'sr expires in
2005, unless renewed. In addition, approval is pending for the
registration of the trademark "Morrison's Fresh Cooking" by MFCI.
The Company, MHCI and RTI have entered into Intellectual Property
License Agreements (collectively, "IP Agreements") which provide
for licensing to or among these companies of rights under
trademarks, service marks, trade secrets and certain other
intellectual property (collectively "Intellectual Property")
owned by RTI, MHCI or the Company following the Distribution. The
purpose of these IP Agreements is to provide RTI, MHCI and the
Company with those continuing rights and licenses under such
Intellectual Property following the Distribution necessary for
the continued conduct of their respective businesses in
accordance with practice prior to the Distribution.
___________________________________________________________________
Marketing
The Company's marketing strategy is to increase customer and
potential customers' awareness of MFCI's strengths including
variety, fresh cooking, bundled meals, value-based pricing and
money-back satisfaction guarantee. MFCI's marketing efforts focus
on active advertising in television, radio and print media and
local store promotions. In addition, the Company is committing
resources to increase marketing staff, develop marketing manuals
for each of its restaurants and increase its community
involvement to become more of a part of the neighborhood in which
its restaurants are located.
___________________________________________________________________
Working Capital Practices
Cash provided by operations, along with borrowings under the
Company's revolving line of credit, are invested in new unit
expansion and the renovation of existing units.
Additional information concerning the working capital of the
Company is incorporated herein by reference to information
presented within the "Liquidity and Capital Resources" section of
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" of the Company's 1996 Annual Report to
Shareholders.
___________________________________________________________________
Customer Dependence
No material part of the business of the Company is dependent upon
a single customer, or a very few customers, the loss of any one
of which would have a material adverse effect on MFCI.
___________________________________________________________________
Competition
The Company's activities in the restaurant industry are subject
to vigorous competition relating to restaurant location and
service, as well as quality, variety and value perception of the
food products offered. The Company is in competition with other
food service operations, with locally-owned operations as well as
national and regional chains that offer the same type of services
and products as MFCI. Management believes that competition in the
"home-meal replacement" or "comfort food" market segment is based
on price, food quality, variety and convenience. The Company
believes it compares favorably with its competition in these
areas.
___________________________________________________________________
Impact of Inflation
In the past, the Company has been able to recover inflationary
cost increases through increased menu prices. There have been,
and there may be in the future, delays in implementing such menu
price increases, and competitive pressures may limit MFCI's
ability to recover such cost increases in their entirety.
Historically, the effects of inflation on the Company's net
income have not been materially adverse.
___________________________________________________________________
Government Compliance
The Company is subject to various licensing and regulations at
both the state and local levels for items such as zoning, land
use, sanitation, health and fire safety all of which could delay
the opening of a new restaurant or the operation of an existing
unit. MFCI's business is subject to various other regulations at
the federal level such as health care, minimum wage and fair
labor standards. Compliance with these regulations has not had,
and is not expected to have, a material adverse effect on the
Company's operations.
There is no material portion of the Company's business that is
subject to renegotiation of profits or termination of contracts
or sub-contracts at the election of the Government.
___________________________________________________________________
Environmental Compliance
Compliance with federal, state and local laws and regulations
which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, is not expected to have a material
effect upon the capital expenditures, earnings or competitive
position of the Company.
__________________________________________________________________
Personnel
The Company employs approximately 7,800 full-time and part-time
employees. MFCI believes that its relationship with its employees
is good, that working conditions are favorable and employee
compensation is comparable with its competition. None of the
Company's employees are subject to a collective bargaining
agreement.
___________________________________________________________________
Seasonality
The Company's business is moderately seasonal. Average restaurant
sales of MFCI are slightly higher during the winter months than
during the summer months. As MFCI has many restaurants located in
shopping malls and other retail locations, sales for these units
increase over the holiday season. Overall, the variation is not
material.
___________________________________________________________________
Item 2. Properties.
Information regarding the Company's location by state and the
number of operations is shown below.
Of the 155 Company-operated restaurants, MFCI owns the building
and holds long-term land leases for 10 restaurants, owns the land
and building for 15 restaurants, holds leases covering land and
building for 129 restaurants and owns the land and leases the
building for one unit. These leases have terms that expire on
various dates over the next 20 years, and generally provide for
options to renew, in some cases at adjusted rentals. The leases
may provide for escalation of rent during the lease term and
generally provide for additional contingent lease payments based
upon sales volume. The Company has a policy to remodel units as
needed. Facilities and equipment are repaired and maintained to
assure their adequacy, productive capacity and utilization.
The Company's corporate headquarters for its executive and
administrative personnel is located in Atlanta, Georgia in
approximately 17,000 square feet of a leased building. The lease
has a term ending in 1997, and annual lease payments are
approximately $180,000. Additional administrative support are in
Mobile, Alabama; the lease term expires in 2001.
Additional information concerning the properties of the Company
and the lease obligations of MFCI, is incorporated herein by
reference to Note 2 of the Notes to Financial Statements included
in the Annual Report to Shareholders for the fiscal year ended
June 1, 1996.
As of June 1, 1996, MFCI operated 155 locations in the following
states:
Alabama 18 North Carolina 5
Florida 50 South Carolina 8
Georgia 27 Tennessee 7
Indiana 1 Virginia 16
Kentucky 5 West Virginia 1
Louisiana 3
Maryland 4
Mississippi 10
________________________________________________________________________
Item 3. Legal Proceedings.
The Company is presently, and from time to time, subject to pending
claims and suits arising in the ordinary course of its business. In
the opinion of Management, the ultimate resolution of these pending
legal proceedings will not have a material adverse effect on MFCI's
operations or financial position.
________________________________________________________________________
Item 4. Submission of Matters to a Vote of Security Holders.
None.
________________________________________________________________________
Executive Officers of the Company.
Executive officers of the Company are appointed by and serve at the
discretion of the Company's Board of Directors. Information regarding
the Company's executive officers as of August 9, 1996 is provided
below.
Executive
Officer
Name Age Position with the Company Since
Ronnie L. Tatum 56 Chief Executive Officer 1996
Christopher P. Elliott 42 President and Chief 1996
Operating Officer
Craig D. Nelson 42 Senior Vice President, 1996
Finance and Chief
Financial Officer
Scears Lee, III 40 Vice President, 1996
Human Resources
Mitchell S. Block 43 Vice President, 1996
General Counsel and
Secretary
Ronnie L. Tatum is Chief Executive Officer of the Company. He was
President of the Family Dining Division of MRI's Morrison Group from
March 1994 until the Distribution in March 1996. Mr. Tatum served as
President of MRI's Family Dining Group from March 1993 to March 1994,
and Senior Vice President of MRI's Family Dining Group from 1990 to
March 1993.
Christopher P. Elliott is President and Chief Operating Officer of the
Company. He was Senior Vice President, Operations of the Family Dining
Division of MRI's Morrison Group from January 1995 to March 1996.
Prior thereto Mr. Elliott was employed by Pizza Hut of America from
1981 to 1995. He was Regional Manager from 1986 to 1992 and Senior
Director of Operations from 1992 to 1995.
Craig D. Nelson is Senior Vice President, Finance, Chief Financial
Officer and Assistant Secretary of the Company. He was Vice President,
Controller of MRI's Morrison Group from July 1994 to March 1996. Mr.
Nelson served as Vice President/Controller - Family Dining Division
from November 1990 to July 1994. He joined MRI in 1976.
Scears Lee, III is Vice President of Human Resources of the Company.
He was Vice President, Human Resources of MRI's Family Dining Division
from August 1993 to March 1996. Mr. Lee served as Director of Human
Resources of MRI's Family Dining Division from 1985 to August 1993.
Prior thereto he served in the following positions after joining the
Company in 1978: Assistant/Associate Manager of Morrison Cafeteria
unit, Management Recruiter and Director of Training.
Mitchell S. Block is Vice President, General Counsel and Secretary of
the Company. Previously, he was Real Estate Attorney of MRI's Ruby
Tuesday Group from April 1993 to March 1996. Prior to joining the
Company, Mr. Block was Vice President and General Counsel for Wyatt
Cafeterias, Inc. Real Estate Division, in Dallas, Texas from March
1986 to April 1993.
PART II
________________________________________________________________________
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
Certain information required by this item is incorporated herein by
reference to Note 12 of the Notes to Financial Statements of the
Registrant's Annual Report to Shareholders for the fiscal year ended
June 1, 1996.
________________________________________________________________________
Item 6. Selected Financial Data.
The information contained under the caption "Summary of Operations" of
the Registrant's Annual Report to Shareholders for the fiscal year
ended June 1, 1996 is incorporated herein by reference.
________________________________________________________________________
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information contained under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of the
Registrant's Annual Report to Shareholders for the fiscal year ended
June 1, 1996 is incorporated herein by reference.
________________________________________________________________________
Item 8. Financial Statements and Supplementary Data.
The following financial statements and the related report of the
Company's independent auditors contained in the Registrant's Annual
Report to Shareholders for the fiscal year ended June 1, 1996, are
incorporated herein by reference:
Statements of Operations - fiscal years ended June 1, 1996
June 3, 1995 and June 4, 1994.
Balance Sheets - As of June 1, 1996 and June 3, 1995
Statements of Stockholders' Equity - fiscal years ended
June 1, 1996, June 3, 1995 and June 4, 1994.
Statements of Cash Flows - fiscal years ended June 1, 1996,
June 3, 1995 and June 4, 1994.
Notes to Financial Statements.
________________________________________________________________________
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
________________________________________________________________________
Item 10. Directors and Executive Officers of the Company.
The information regarding directors of the Company is incorporated
herein by reference to the information set forth in the table
captioned "Director and Director Nominee Information" under "Election
of Directors" in the definitive proxy statement of the Registrant
dated August 23, 1996, relating to the Registrant's annual meeting of
shareholders to be held on September 25, 1996.
Pursuant to Form 10-K General Instruction G(3), the information
regarding executive officers of the Company has been included in Part
I of this Report under the caption "Executive Officers of the
Company".
MFCI has established Audit, Compensation and Stock Option, and
Nominating Committees of the Board. Members of the Audit and
Compensation and Stock Option Committees are not to be employees of
the Company.
________________________________________________________________________
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated herein by
reference to the information set forth under the captions "Executive
Compensation" and "Election of Directors - Directors' Fees and
Attendance" in the definitive proxy statement of the Registrant dated
August 23, 1996 relating to the Registrant's annual meeting of
shareholders to be held on September 25, 1996.
________________________________________________________________________
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item 12 is incorporated herein by
reference to the information set forth in the table captioned
"Beneficial Ownership of Common Stock" under "Election of Directors"
in the definitive proxy statement of the Registrant dated August 23,
1996 relating to the Registrant's annual meeting of shareholders to be
held on September 25, 1996.
________________________________________________________________________
Item 13. Certain Relationships and Related Transactions.
The information required by this Item 13 is incorporated herein by
reference to the information set forth under the caption "Certain
Transactions" in the definitive proxy statement of the Registrant
dated August 23, 1996 relating to the Registrant's annual meeting of
shareholders to be held on September 25, 1996.
PART IV
___________________________________________________________________________
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are incorporated by reference into or are
filed as a part of this report:
1. Financial Statements:
The following financial statements and the independent
auditors' report thereon, included in the Registrant's Annual
Report to Shareholders for the fiscal year ended June 1, 1996,
a copy of which is contained in the exhibits to this report,
are incorporated herein by reference:
Page Reference
in paper version
of Annual Report
to Shareholders
Statements of Operations for the fiscal
years ended June 1, 1996, June 3, 1995
and June 4, 1994 19
Balance Sheets as of June 1, 1996 and
June 3, 1995 20
Statements of Stockholders' Equity for
the fiscal years ended June 1, 1996,
June 3, 1995 and June 4, 1994 21
Statements of Cash Flows for the fiscal
years ended June 1, 1996, June 3, 1995
and June 4, 1994 22
Notes to Financial Statements 23 - 31
Report of Independent Auditors 32
2. Financial statement schedules:
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted
3. Exhibits
The following exhibits are filed as part of this report:
MORRISON FRESH COOKING, INC.
LIST OF EXHIBITS
Exhibit
Number Description
3(a) Amended and Restated Articles of Incorporation of
Morrison Fresh Cooking, Inc.(1)
3(b) Bylaws of Morrison Fresh Cooking, Inc.(1)
4(a) Specimen Common Stock Certificate.(2)
4(b) Amended and Restated Articles of Incorporation of
Morrison Fresh Cooking, Inc. (filed as Exhibit 3(a) hereto).
4(c) Bylaws of Morrison Fresh Cooking, Inc. (filed as
Exhibit 3(b) hereto).
4(d) Form of Rights Agreement between Morrison Fresh
Cooking, Inc. and AmSouth Bank of Alabama, as Rights
Agent.(2)
4(e) Form of Rights Certificate (attached as Exhibit B to
the Rights Agreement filed as Exhibit 4(d) hereto).(2)
10(a) Form of Distribution Agreement among Morrison Restaurants
Inc., Morrison Fresh Cooking, Inc. and Morrison Health Care,
Inc.(1)
10(b) Form of Amended and Restated Tax Allocation and
Indemnification Agreement among Morrison Restaurants Inc.,
Custom Management Corporation of Pennsylvania, Custom
Management Corporation, John C. Metz & Associates, Inc.,
Morrison International, Inc., Morrison Custom Management
Corporation of Pennsylvania, Morrison Fresh Cooking, Inc.,
Ruby Tuesday, Inc., a Delaware corporation, Ruby Tuesday
(Georgia), Inc., a Georgia corporation, Galaxy Management,
Inc., Manask Food Service, Inc., Morrison of New Jersey,
Inc., Tias, Inc. and Morrison Health Care, Inc.(1)
10(c) Form of Agreement Respecting Employee Benefit Matters among
Morrison Restaurants Inc., Morrison Fresh Cooking, Inc. and
Morrison Health Care, Inc.(2)
10(d) Form of License Agreement between Morrison Fresh Cooking,
Inc. and Morrison Health Care, Inc.(1)
10(e) Form of Amended and Restated Operating Agreement of MRT
Purchasing, LLC among Morrison Restaurants Inc., Ruby
Tuesday, Inc., Morrison Fresh Cooking, Inc. and Morrison
Health Care, Inc.(1)
Exhibit
Number Description
10(f) Form of Morrison Fresh Cooking, Inc. 1996 Stock Incentive
Plan.(2)
10(g) Form of Morrison Fresh Cooking, Inc. Stock Incentive and
Deferred Compensation Plan for Directors.(2)
10(h) Form of 1996 Non-Executive Stock Incentive Plan.(2)
10(i) Form of Morrison Fresh Cooking, Inc. Executive Supplemental
Pension Plan together with related form of Trust
Agreement.(2)
10(j) Form of Morrison Fresh Cooking, Inc. Management Retirement
Plan together with related form of Trust Agreement.(2)
10(k) Form of Morrison Fresh Cooking, Inc. Salary Deferral Plan
together with related form of Trust Agreement.(2)
10(l) Form of Morrison Fresh Cooking, Inc. Deferred Compensation
Plan together with related form of Trust Agreement.(2)
10(m) Form of Morrison Fresh Cooking, Inc. Executive Group Life
and Executive Accidental Death and Dismemberment Plan.(2)
10(n) Form of Morrison Fresh Cooking, Inc. Executive Life
Insurance Plan.(2)
10(o) Form of Indemnification Agreement to be entered into with
executive officers and directors.(1)
10(p) Form of Change of Control Agreement to be entered into with
executive officers.(2)
10(q) Non-Qualified Stock Option Agreement between Morrison
Restaurants Inc. and Eugene E. Bishop.(2)
10(r) Non-Qualified Stock Option Agreement between Morrison
Restaurants Inc. and Samuel E. Beall, III.(2)
11 Statement regarding computation of per share earnings.
13 Annual Report to Shareholders for the fiscal year ended
June 1, 1996 (only portions specifically incorporated by
reference in the Form 10-K are being filed herewith).
23 Consent of Independent Auditors.
27 Financial Data Schedule.
MORRISON FRESH COOKING, INC.
EXHIBIT FOOTNOTES
Exhibit
Footnote Description
(1) Incorporated by reference to Exhibit of the same number
in the Registrant's Registration Statement on Form 10 filed
with the Commission on February 8, 1996.
(2) Incorporated by reference to Exhibit of the same number
in the Registrant's amendment to Registration Statement on
Form 10/A filed with the Commission on February 29, 1996.
4. Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on March
15, 1996 reporting the distribution of the Registrant's
common stock and the Credit Agreement with SunTrust Bank,
Atlanta.
(b) Exhibits filed with this report are attached hereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MORRISON FRESH COOKING, INC.
Date 08/23/96 By:/s/ Craig D. Nelson
Craig D. Nelson
Senior Vice President, Finance
(Senior Vice President and
Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated:
Date 08/23/96 By:/s/ Dolph W. von Arx
Dolph W. von Arx
Chairman of the Board
Date 08/23/96 By:/s/ Ronnie L. Tatum
Ronnie L. Tatum
Chief Executive Officer
and Director
Date 08/23/96 By:/s/ Christopher P. Elliott
Christopher P. Elliott
President, Chief Operating
Officer and Director
Date 08/23/96 By:/s/ E. Eugene Bishop
E. Eugene Bishop
Director
Date 08/23/96 By:/s/ Donald Ratajczak
Dr. Donald Ratajczak
Director
Date 08/23/96 By:/s/ J. Veronica Biggins
J. Veronica Biggins
Director
Date 08/23/96 By:/s/ Arthur R. Outlaw
Arthur R. Outlaw
Vice Chairman of the Board
MORRISON FRESH COOKING, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS EXCEPT PER-SHARE DATA)
Fiscal Year Ended
June 1, June 3, June 4,
1996 1995 1994
PRIMARY EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Average common shares outstanding......... 8,954 (1) (1)
Average additional common shares
issuable on exercise of dilutive
stock options (computed by use of
the "treasury stock method", at the
average market price)................... *
Number of shares used in computation of
primary earnings per share.............. * 8,954 8,981 9,342
Net Income................................ ($9,894) $11,374 $10,078
Primary earnings per common and
common equivalent share................. ($1.10) $1.27 $1.08
FULLY DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
Average common shares outstanding......... 8,954 (1) (1)
Average additional common shares issuable
on exercise of dilutive stock options
(computed by use of the "treasury stock
method", at the higher of period-end
or average market price)................ *
Number of shares used in computation of
fully diluted earnings per share........ * 8,954 8,981 9,342
Net Income.............................. ($9,894) $11,374 $10,078
Fully diluted earnings per common and
common equivalent share................. ($1.10) $1.27 $1.08
* Per APB 15, due to a net loss dilutive stock options are not reported
because its effect is antidilutive
Weighted average shares and all per share data for prior years have been
restated to give effect to common stock dividends and common stock splits
through June 4, 1994.
(1) Prior to the Distribution earnings per share was calculated based on
the average number of MRI common shares outstanding adjusted for the
1-for-4 distribution ratio
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
report (Form 10-K) of Morrison Fresh Cooking, Inc. of our
report dated June 21, 1996, included in the 1996 Annual
Report to Stockholders of Morrison Fresh Cooking, Inc.
We also consent to the incorporation by reference in the
Registration Statements of Morrison Fresh Cooking, Inc.
listed below of our report dated June 21, 1996, with respect
to the financial statements incorporated herein by
reference, in this Annual Report (Form 10-K) of Morrison
Fresh Cooking, Inc.
Registration Statement No. 333-2086 on Form S-8 dated March
8, 1996 and related Prospectus.
Registration Statement No. 333-2088 on Form S-8 dated March
8, 1996 and related Prospectus.
Registration Statement No. 333-2094 on Form S-8 dated March
8, 1996 and related Prospectus.
Registration Statement No. 333-2090 on Form S-8 dated March
8, 1996 and related Prospectus.
Registration Statement No. 333-2092 on Form S-8 dated March
8, 1996 and related Prospectus.
Registration Statement No. 333-2096 on Form S-8 dated March
8, 1996 and related Prospectus.
Registration Statement No. 333-4498 on Form S-8 dated May 3,
1996 and related Prospectus.
Registration Statement No. 333-4500 on Form S-8 dated May 3,
1996 and related Prospectus.
By: /s/ Ernst & Young LLP
Ernst & Young LLP
Atlanta, Georgia
August 27, 1996
MORRISON FRESH COOKING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For an understanding of the significant factors that influenced the
Company's performance during the past three fiscal years, the following
discussion should be read in conjunction with the Financial Statements
and related Notes found on pages 19 to 31.
RESULTS OF OPERATIONS
On March 9, 1996, Morrison Restaurants Inc., a Delaware corporation
("Morrison"), distributed to its shareholders all of the issued and
outstanding shares of common stock of the Company, which held the family
dining assets and business of Morrison. As a result of the Distribution,
Morrison shareholders received one share of Company common stock for
every four shares of Morrison common stock held. The effective date of
the Distribution for accounting purposes is March 3, 1996, the first day
of the fiscal 1996 fourth quarter of the Company.
1996 Compared to 1995
Net sales decreased $26.9 million, or 9.1%. This decrease was
principally the result of 26 store closings and same store customer
count declines. Partially offsetting these decreases was the addition of
seven new stores and higher average tray prices over the prior year.
Cost of merchandise decreased $3.5 million, or 4.5%, principally
due to the reduction in stores and lower sales volume. However, early in
fiscal year 1996, the menu was modified to offer additional higher-end
products, resulting in a higher cost per meal.
Payroll and related costs decreased $3.8 million, or 3.6%. The
primary factors in this decrease were the reduction in stores, the
implementation of a self-serve beverage counter, a kitchen labor
reduction program and the use of an enhanced labor scheduling tool.
Management and hourly wage rate increases partially offset this
decrease.
Other operating costs decreased $4.4 million, or 7.3%. The
principal contributors to this decrease were reduction in stores, offset
partially by the settlement of a four-year-old claim.
Selling, general and administrative expenses decreased $2.8
million, or 13.6%. The majority of this decrease is associated with the
reduction in advertising promotions conducted by the Company during the
year. For fiscal year 1997, the Company intends to increase advertising
expenditures by more than 40%.
Depreciation and amortization decreased $0.2 million, or 1.9% and
is related to the reduction in stores, offset by the addition of $14.7
million in capital expenditures.
Net interest income decreased $0.4 million as a result of the
reduction in available funds to invest stemming from lower sales volume.
In the third quarter of fiscal 1996, the Company adopted Statement
of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-lived Assets to be Disposed
Of". In the third quarter of fiscal 1996, the Company recorded a $13.8
million charge for loss on impairment of assets, $1.5 million of which
was due to the adoption of FAS 121. $8.7 million of this charge related
to assets to be disposed of, largely due to 15 quick service restaurants
(QSRs) and seven traditional cafeterias that were closed in fiscal 1996,
and the remaining $5.1 million related to a write-down of impaired
assets that will continue to be carried in operations. See Note 9 of the
Financial Statements for more information on this charge.
The Company also recorded an $8.3 million restructure charge in
the third quarter of fiscal 1996. This restructure charge is largely
composed of $6.1 million for costs to be incurred to settle lease
obligations for the 15 quick service restaurants and seven cafeterias
that were closed. The remaining $2.2 million of the charge relates to
various asset write-offs and professional fees associated with the
Distribution. See Note 11 of the Financial Statements for more
information on this charge.
The effective income tax rate (benefit) decreased to (36.5%) in
1996 from 40.5% in 1995. This decrease is due to the nondeductibility of
a portion of the professional fees associated with the restructuring,
which results in a lower tax benefit from the pre-tax loss.
Effects of Distribution on Results of Operations
Management believes that the Distribution will have an impact on
the results of operations due to added separate company costs that will
be incurred by the Company. The effect of the Distribution on the
results of operations of the Company for the fiscal years ended June 1,
1996, June 3, 1995 and June 4, 1994, are presented in the Unaudited Pro
Forma Financial Information in Note 10 of the Financial Statements. Such
pro forma financial information is presented as if the Distribution had
been effected as of the dates indicated.
1995 Compared to 1994
Net sales increased $2.1 million, or 0.7%. This increase in sales
was largely attributable to a 3% menu price increase which led to a 2.9%
same store tray average increase. However, same store sales decreased
1.1% in fiscal 1995 due to a 4.1% decline in customers. During fiscal
year 1995, the Company opened 14 new family dining units consisting of
three small cafeterias, ten mall food-court QSRs, and one Snapp's
restaurant. The Company also closed two cafeterias and four Snapp's
restaurants. A modernization program was implemented for existing
cafeterias in order to improve their appeal to a larger customer base
and increase the efficiency and customer-friendliness of the cafeteria
service lines.
Cost of merchandise decreased $0.6 million, or 0.7%. This decrease
was due to the 3% menu price increase and the success of food cost
control programs implemented during the year. These decreases were
offset partially by nominal inflationary pressures on product costs.
Payroll and related costs decreased $6.2 million, or 5.6%. This
decrease was the result of savings attendant to changes in employee
benefit plans and positive workers' compensation claims experience.
Other operating costs increased $2.1 million, or 3.6% due to
increased expenses associated with new unit openings.
Selling, general and administrative expenses increased $4.6
million, or 29.0% due to increased promotional advertising in local
markets to promote the competitive pricing of the traditional cafeterias
and the inherent value of its bundled-meal program. General and
administrative expenses also increased due to the addition of operations
support personnel.
Depreciation and amortization decreased $0.2 million, or 2.2%.
This decrease was due to a number of existing unit assets becoming fully
depreciated.
Net interest income remained relatively flat during fiscal year
1995 compared to fiscal year 1994.
The effective income tax rate increased to 40.5% in 1995 from 39.7%
in 1994 due to a decline in Targeted Jobs Tax Credit associated with
that program's expiration on December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
Cash flow from operations and advances from Morrison Restaurants
Inc. have historically financed the Company's capital investments. There
were no incremental borrowings under the Company's line of credit as of
June 1, 1996. See the Statements of Cash Flows on page 22 for more
information.
Capital Expenditures
Property and equipment expenditures for fiscal 1996 were $14.7
million, 24.1% lower than the prior year. During 1996, seven cafeteria
style units (five small cafeterias and two QSRs) were opened. Capital
expenditures for fiscal 1997 are expected to be $17.9 million. Expected
openings for fiscal year 1997 include seven small cafeterias. The
Company anticipates that capital expansion will be funded primarily by
operations supplemented by incremental borrowings from its line of
credit when necessary. See "Special Note Regarding Forward-Looking
Information".
Borrowings and Credit Facilities
The Company had a committed line of credit totaling $15.0 million
at June 1, 1996, which was unused as of the fiscal year end. This line
of credit facility provides for certain restrictions on the number of
days the facility is to remain unused as well as certain net worth and
fixed charge coverage requirements. The Company anticipates borrowings
on its line of credit of approximately $7.0 million in fiscal year 1997.
See "Special Note Regarding Forward-Looking Information".
Working Capital Deficit
Working capital deficit and the current ratio as of June 1, 1996,
were $(13.8) million and 0.5:1, respectively. The Company typically
carries current liabilities in excess of current assets because the
restaurant business receives substantially immediate payment for sales,
i.e., carries nominal receivables, while inventories and other current
liabilities normally carry longer payment terms. The seasonal variation
in net working capital is not material.
Dividends
Cash dividends paid to stockholders during 1996 equaled $0.8
million ($0.09 per share). Management does not anticipate a change in
this policy and expects $3.2 million in total dividend payments in
fiscal 1997.
Deferred Tax Assets
The recognition of deferred tax assets depends on the anticipated
existence of taxable income in future periods in amounts sufficient to
realize the assets. Statement of Financial Accounting Standards No. 109
(FAS 109), "Accounting for Income Taxes", specifies that deferred tax
assets are to be reduced if it is believed more likely than not that
some or all of the deferred tax assets will not be realized. Management
believes that future taxable income should be sufficient to realize all
of the Company's deferred tax assets based on the historical earnings of
the Company; therefore, a valuation allowance has not been established.
Effects of Distribution on Financial Condition
The Company has historically generated sufficient operating cash
flows to fund its operations and substantially all of its capital
expansion. As such, Management does not anticipate that the Distribution
will have a material impact on the Company's financial condition.
KNOWN EVENTS, UNCERTAINTIES AND TRENDS
Impact of Inflation
In the past, the Company has been able to recover inflationary cost
increases through increased menu prices. There have been, and there may
be in the future, delays in implementing such menu price increases and
competitive pressures may limit the Company's ability to recover such
cost increases in their entirety. At present, Congress is pursuing a
minimum wage price increase which may negatively impact the Company's
payroll costs in the short-term, but which Management feels can be
negated in the long-term through increased efficiencies in its
operations and possible jobs credit programs also being pursued by
Congress. Historically, the effects of inflation on the Company's net
income have not been materially adverse.
Management's Outlook
The Company is dedicated to increasing the amount and effectiveness
of its advertising through various new and alternative vehicles in
fiscal 1997 in order to expand its customer base and create greater top-
of-mind awareness. Management expects that through this increased
advertising, it can reverse the declining customer counts experienced in
fiscal 1996.
The Company is also developing and refining its small cafeteria
prototype unit, which has been successful in various markets to date, to
propel its growth in future years. Management believes that this new
vehicle will allow the Company to penetrate new and smaller markets and
geographic regions with a smaller investment. In addition, the Company
will continue to strengthen its restaurant management and target its
various short-term and long-term incentive programs toward providing
superior customer satisfaction and producing outstanding business
results.
Special Note Regarding Forward-Looking Information
The foregoing section contains various "forward-looking statements"
which represent the Company's expectations or beliefs concerning future
events, including the following: statements regarding unit growth,
future capital expenditures and future borrowings. The Company cautions
that a number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those included
in the forward-looking statements including, without limitation, the
following: consumer spending trends and habits; mall-traffic trends;
increased competition in the restaurant market; weather conditions in
the regions in which the Company operates restaurants; consumers'
acceptance of the Company's development concepts; and laws and
regulations affecting labor and employee benefit costs.
SUMMARY OF OPERATIONS
MORRISON FRESH COOKING, INC.
(In thousands except per-share data)
<TABLE>
<S> <C> <C> <C> <C> <C>
For the Fiscal Year Ended
June 1, June 3, June 4, June 5, June 6,
1996 1995 1994 1993 1992
Net Sales $ 267,638 $ 294,587 $ 292,493 $ 291,032 $ 304,448
Income (Loss) Before Income Taxes
and Cumulative Effect of Accounting
Changes $ (15,588)$ 19,108 $ 16,724 $ 13,110 $ 10,513
Provision for (Benefit from)
Income Taxes (5,694) 7,734 6,646 4,898 3,932
Income (Loss) Before Cumulative
Effect of Accounting Changes (9,894) 11,374 10,078 8,212 6,581
Cumulative Effect of Accounting
Changes, net:
Postretirement Benefits (1,921)
Income Taxes 1,409
Net Income (Loss) $ (9,894)$ 11,374 $ 10,078 $ 7,700 $ 6,581
Earnings (Loss) Per Common and
Common Equivalent Share $ (1.10)$ 1.27 $ 1.08 $ 0.81 $ 0.70
Weighted Average Common and
Common Equivalent Shares 8,954 8,981 9,342 9,520 9,359
</TABLE>
All fiscal years are composed of 52 weeks except 1992 which contains 53
weeks.
<TABLE>
<S> <C> <C> <C> <C> <C>
Other Financial Data:
Total Assets $ 82,440$ 90,122 $ 77,461 $ 82,077 $ 91,184
Long-Term Capital Leases $ 775$ 848 $ 931 $ 1,008 $ 1,111
Stockholders' Equity $ 39,844$ 47,465 $ 29,303 $ 32,623 $ 48,200
Working Capital Deficit $ (13,754)$(14,916)$ (20,667)$ (18,131)$ (10,393)
Current Ratio 0.5:1 0.4:1 0.4:1 0.5:1 0.7:1
Cash Dividends Per Common
Share $ 0.09 $ 0.00 $ 0.00 $ 0.00 $ 0.00
</TABLE>
MORRISON FRESH COOKING, INC.
STATEMENTS OF OPERATIONS
(In thousands except per-share data)
For the Fiscal Year Ended
June 1, June 3, June 4,
1996 1995 1994
<TABLE>
<S> <C> <C> <C>
Net Sales $267,638 $294,587 $292,493
Operating Costs and Expenses:
Cost of merchandise 75,458 78,987 79,543
Payroll and related costs 101,718 105,472 111,702
Other operating costs 56,184 60,618 58,490
Selling, general and administrative 17,658 20,426 15,837
Depreciation and amortization 10,078 10,277 10,504
Interest expense (income), net 51 (301) (307)
Loss on impairment of assets 13,789 0 0
Restructure costs. 8,290 0 0
283,226 275,479 275,769
Income (Loss) Before Provision
for Income Taxes (15,588) 19,108 16,724
Provision for (Benefit from) Income Taxes ( 5,694) 7,734 6,646
Net Income (Loss)...................... $( 9,894)$ 11,374 $ 10,078
Earnings (Loss) Per Common and
Common Equivalent Share $ (1.10)$ 1.27 $ 1.08
Weighted Average Common and Common
Equivalent Shares 8,954 8,981 9,342
</TABLE>
The accompanying notes are an integral part of the financial statements.
MORRISON FRESH COOKING, INC.
BALANCE SHEETS
(In thousands)
For the Fiscal Year Ended
June 1, June 3,
1996 1995
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments $ 1,561 $ 1,632
Receivables:
Trade 412 434
Other 1,495 1,119
Inventories:
Merchandise 1,335 1,518
China, silver and supplies 1,081 1,717
Prepaid expenses 1,791 2,727
Deferred income tax benefits - current 5,605 2,304
Total Current Assets 13,280 11,451
PROPERTY AND EQUIPMENT - at cost:
Land 6,436 6,636
Buildings 18,762 20,273
Improvements 57,186 73,011
Restaurant equipment 53,143 74,081
Other equipment 13,232 16,153
Construction in progress 6,183 8,959
154,942 199,113
Less accumulated depreciation and amortization (95,828) (129,714)
59,114 69,399
Deferred income tax benefits 2,226 2,039
Other assets 7,820 7,233
TOTAL ASSETS $ 82,440 $ 90,122
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,579 $ 9,581
Accrued liabilities:
Taxes, excluding income taxes 2,983 3,181
Payroll and related costs 4,082 4,522
Insurance 5,829 4,889
Rent and other 4,484 4,111
Current portion of capital lease obligations 77 83
Total Current Liabilities 27,034 26,367
Capital lease obligations 775 848
Employee benefit obligations 8,620 10,756
Other deferred liabilities 6,167 4,686
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value (100,000 shares
authorized; 9,049 shares issued) 90
Capital in excess of par value 40,279 47,465
Accumulated deficit (70)
Treasury stock (455)
Total Stockholders' Equity 39,844 47,465
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 82,440 $ 90,122
</TABLE>
The accompanying notes are an integral part of the financial statements.
STATEMENTS OF CASH FLOWS
MORRISON FRESH COOKING, INC.
(In thousands)
For the Fiscal Year Ended
June 1, June 3, June 4,
1996 1995 1994
<TABLE>
<S> <C> <C> <C>
Operating Activities:
Net Income (Loss).................. $ (9,894) $ 11,374 $10,078
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............ 10,078 10,277 10,504
Deferred income taxes.....................(5,694) 1,624 (171)
Loss on disposition and write-down of
assets 13,789 605 1,333
Changes in operating assets and liabilities:
(Increase) in receivables.................. (354) (450) (60)
(Increase)/decrease in inventories......... 819 (456) 199
(Increase)/decrease in prepaid and
other assets............................ 2,555 (311) 878
Increase/(decrease) in accounts payable,
accrued and other liabilities......... 18 (5,764) (1,890)
Net Cash Provided by Operating Activities...11,317 16,899 20,871
Investing Activities:
Purchases of property and equipment.... (14,742) (19,422) (10,957)
Proceeds from disposal of assets.........1,160 154 64
Other, net.................................. 0 (4,110) (312)
Ne Cash Used by Investing Activities......(13,582) (23,378) (11,205)
Financing Activities:
Principal payments on capital leases........ (79) (75) (106)
Net transfers (to) from Morrison
Restaurants Inc 1,747 6,788 (13,398)
Proceeds from issuance of stock...........1,317 0 0
Dividends paid...............................(791) 0 0
Net Cash Provided(Used) by Financing
Activities 2,194 6,713 (13,504)
Increase/(decrease) in cash and short-term
Investments................................(71) 234 (3,838)
Cash and short-term investments at the beginning
of the year............................1,632 1,398 5,236
Cash and short-term investments at the end of
the year...............................$ 1,561 $ 1,632 $1,398
Supplemental Disclosure of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 45 $ 82 $ 0
Income taxes, net....................$ 0 $ 8,901 $ 6,882
</TABLE>
The accompanying notes are an integral part of the financial statements.
MORRISON FRESH COOKING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except per-share)
Capital in Total
Common Stock Issued Excess of Accumulated Treasury Stock* Stockholders'
Shares Amount Par Value Deficit Shares Amount Equity
Balance, June 5, 1993 $ 32,623 $ 32,623
Net Income 10,078 10,078
Net transfers to MRI (13,398) (13,398)
Balance, June 4, 1994 29,303 29,303
Net Income 11,374 11,374
Net transfers from MRI 6,788 6,788
Balance, June 3, 1995 47,465 47,465
Net Income(Loss)
as of March 2, 1996 (10,615) (10,615)
Post-distribution Net Income 721 721
Net transfers from MRI 1,747 1,747
Shares issued pursuant to the
Distribution 8,839 88 367 48 (455) 0
Shares issued under stock bonus and
stock option
plans 210 2 1,315 1,317
Cash Dividends of $.09
per common share (791) (791)
Balance,
June 1, 1996 9,049 $ 90 $ 40,279 $ (70) 48 $(455) $ 39,844
The accompanying notes are an integral part of the financial statements.
* Treasury shares are held exclusively in a rabbi trust for the Morrison Fresh
Cooking, Inc. Deferred Compensation Plan.
MORRISON FRESH COOKING, INC.
NOTES TO FINANCIAL STATEMENTS
June 1, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The operations of Morrison Fresh Cooking, Inc., a Georgia corporation
(the Company) consist of 155 family style restaurants in the southeastern
and mid-Atlantic regions of the United States, with the largest number in
Florida, Georgia, Virginia, Alabama and Mississippi. The Company's
restaurants provide cafeteria-style service and are located in shopping and
business developments as well as residential areas. The restaurants are
generally open for lunch and dinner service, seven days a week. All
restaurants are Company-owned.
Basis of Presentation
On March 9, 1996, Morrison Restaurants Inc. distributed to its
shareholders all of the issued and outstanding shares of common stock of the
Company, which held the family dining assets and business of Morrison. For
financial reporting purposes, the Distribution is assumed to have become
effective on March 3, 1996, the first day of the fourth quarter of fiscal
year 1996. The accompanying financial statements have been prepared as if
Morrison's family dining business had operated as a stand-alone entity for
all periods presented. Such statements include the assets, liabilities,
revenues and expenses that are directly related to the Company's operations.
For periods prior to the spin-off, they also include an allocation of
certain assets, liabilities and general corporate expenses of Morrison, such
as executive payroll, legal, data processing and interest, which are related
to the Company. Amounts were allocated using a specific identification
method where appropriate and on a pro rata basis otherwise. Management
believes the allocation methods used are reasonable.
Use of Estimates in Financial Statements
Judgement and estimation are exercised by Management in certain areas
of the preparation of financial statements. Some of the more significant
areas include reserves for self insurance of worker's compensation, general
liability and medical benefits; as well as the estimates of impairment
losses, restructuring expenses and the related reserve for unit closings.
Management believes that such estimates have been based on reasonable
assumptions and that provisions and reserves based on such estimates are
adequate. Actual results could differ from those estimates.
Fiscal Year
The Company's fiscal year ends on the first Saturday after May 30. The
fiscal years ended June 1, 1996, June 3, 1995 and June 4, 1994, were
composed of 52 weeks.
Fair Value of Financial Instruments
The Company's financial instruments at June 1, 1996 and June 3, 1995
consisted of cash and short-term investments and receivables. The fair
value of these financial instruments approximated the carrying amounts
reported in the balance sheets. The Company considers short-term marketable
securities with a maturity of three months or less when purchased to be
short-term investments.
Inventories
Inventories consist of food supplies and china and silver, and are
stated at the lower of cost (first in, first out) or market.
Property and Equipment and Depreciation
Depreciation for financial reporting purposes is computed using the
straight-line method over the estimated useful lives of the assets or, for
capital lease property, over the term of the lease, if shorter. Annual rates
of depreciation range from 3% to 5% for buildings and from 8% to 34% for
restaurant and other equipment.
During March, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". FAS 121 requires that, beginning in fiscal years starting
after December 15, 1995, long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Long-lived assets and certain
identifiable intangibles to be disposed of are generally to be reported at
the lower of carrying amount or fair value, less cost to sell. In
association with the Company's adoption of FAS 121 in fiscal year 1996, a
charge of $13.8 million was recorded for the impairment of assets. Included
in this $13.8 million charge is $1.5 million representing the difference
between the fair value of assets and their net realizable value, and is the
net effect of the adoption of FAS 121 . In prior years, the Company
recognized asset impairment upon the decision to close a unit. See Note 9
"Loss on Impairment of Assets" for further information.
Income Taxes
Deferred income taxes are determined utilizing a liability approach.
This method gives consideration to the future tax consequences associated
with differences between financial accounting and tax bases of assets and
liabilities. For periods prior to the spin-off reflected in the accompanying
statements of operations, the income tax expense reflected includes the
Company's allocated share of Morrison's tax expense. The allocated income
tax expense approximates the tax expense of the Company on a stand-alone
basis.
Pre-Opening Expenses
Salaries, personnel training costs and other expenses of opening new
facilities are charged to expense as incurred.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding during the year and are adjusted for the assumed exercise of
options, after the assumed repurchase of shares with the related proceeds
and after the adjustment for any stock splits and stock dividends through
June 1, 1996.
For fiscal year 1996, shares issued on the March 9, 1996, Distribution
date were assumed to have been issued for the entire year. For years prior
to June 1, 1996, the number of shares used in computing earnings per share
is based on the average number of Morrison Restaurants Inc. common shares
outstanding during the applicable fiscal year, adjusted for the 1-for-4
distribution ratio.
Stockholders' Equity
The Company's Certificate of Incorporation provides that authorized
capital stock will consist of 100,000,000 shares of common stock at $0.01
par value and 250,000 shares of preferred stock at $0.01 par value. As a
result of the Distribution, one share of Company common stock was issued for
every four shares of Morrison common stock outstanding. No shares of
preferred stock are issued or outstanding.
Stock-Based Employee Compensation Plans
During October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (FAS 123), "Accounting
for Stock-Based Compensation". FAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. FAS 123
defines a fair value based method of accounting for an employee stock option
or similar equity instrument. FAS 123 allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25 "Accounting for Stock
Issued to Employees". The Company intends to continue to measure
compensation cost following the principles of APB Opinion No. 25; therefore,
beginning in fiscal 1997, the Company will be required to present pro forma
disclosures of net income and earnings per share as if the fair value based
method had been applied.
Insurance Programs
The Company is generally self-insured for costs related to workers'
compensation, health and welfare claims, business interruption resulting
from certain events, and comprehensive general, product and vehicle
liability. Losses are accrued using actuarial assumptions followed in the
insurance industry, adjusted for company-specific history and expectations.
The Company uses commercial insurance as a risk reduction strategy to
minimize catastrophic losses.
2. LEASES
Various operations of the Company are conducted in leased premises.
Initial lease terms expire at various dates over the next 20 years and may
provide for escalation of rent during the lease term. Most of these leases
provide for additional contingent rents based upon sales volume and contain
options to renew (at adjusted rentals for some leases).
Assets recorded under capital leases (included in Property and
Equipment in the accompanying balance sheets) are as follows:
(In thousands)
June 1, June 3,
1996 1995
Buildings.................................. $ 1,542 $ 1,542
Other equipment............................ 4 4
1,546 1,546
Less accumulated amortization.............. (1,121) (1,062)
$ 425 $ 484
At June 1, 1996, the future minimum lease payments under capital leases
and operating leases for the next five years and in the aggregate are as
follows:
(In thousands)
Capital Operating
Leases Leases
1997.................... $ 18 $11,100
1998.................... 185 10,355
1999.................... 185 9,325
2000.................... 185 8,332
2001.................... 174 7,088
Subsequent years........ 538 21,625
Total minimum lease payments........ 1,452 $ 67,825
Less amount representing interest... (600)
Present value of minimum lease payments
under capital leases (including current
maturities of $77)................ $ 852
Rental expense pursuant to operating leases is summarized as follows:
(In thousands)
June 1, June 3, June 4,
1996 1995 1994
Minimum rent............ $11,896 $12,173 $11,823
Contingent rent......... 5,133 3,913 4,390
$17,029 $16,086 $16,213
3. INCOME TAXES
The components of income tax expense (benefit) are as follows:
(In thousands)
June 1, June 3, June 4,
1996 1995 1994
Current:
Federal..........................$ 0 $ 5,047 $ 5,665
State............................ 0 1,063 1,152
0 6,110 6,817
Deferred:
Federal..........................(4,689) 1,445 (139)
State........................... (1,005) 179 (32)
(5,694) 1,624 (171)
$(5,694) $7,734 $ 6,646
Deferred tax assets and liabilities are comprised of the following:
(In thousands)
June 1, June 3,
1996 1995
Deferred Tax Assets
Employee benefits $ 3,808 $ 4,173
Insurance reserves 3,052 3,360
Unit closing reserve 2,155 988
Net operating loss 2,234 0
Other 1,938 833
Total deferred tax assets 13,187 9,354
Deferred Tax Liabilities
Depreciation 1,423 2,460
Retirement plans 827 1,410
Prepaid deductions 226 701
Restructuring 765 0
Intangibles and other 2,115 440
Total deferred tax liabilities 5,356 5,011
Net deferred tax asset $ 7,831 $ 4,343
FAS 109, specifies that deferred tax assets are to be reduced by a
valuation allowance if it is more likely than not that some portion of the
deferred tax assets will not be realized. Management believes that future
taxable income should be sufficient to realize all of the Company's deferred
tax assets based on historical earnings of the Company; therefore, a
valuation allowance has not been established.
A reconciliation from the statutory Federal income tax expense
(benefit) to the reported income tax expense (benefit) is as follows:
(In thousands)
June 1, June 3, June 4,
1996 1995 1994
Statutory Federal income tax
(benefit) $(5,456) $ 6,688 $ 5,853
State income taxes net of
Federal income tax benefit (653) 807 728
Tax credits (20) (346) (174)
Other, net 435 585 239
$(5,694) $ 7,734 $ 6,646
The effective income tax rate (benefit) was (36.5%), 40.5%, and 39.7%
in 1996, 1995, and 1994, respectively.
In connection with the Distribution, the Company entered into a tax
allocation agreement with Morrison Health Care, Inc., which was also spun-
off to the shareholders of Morrison and Ruby Tuesday, Inc., successor to
Morrison. This agreement provides that the Company pay its share of Ruby
Tuesday, Inc.'s (as successor to Morrison) consolidated tax liability for
the tax years that the Company was included in Morrison's consolidated
federal income tax return. The agreement also provides for sharing, where
appropriate, of state, local and foreign taxes attributable to periods prior
to the Distribution Date.
4. EMPLOYEE BENEFIT PLANS
Subsequent to, and as part of the Distribution, the Company established
the following employee benefit plans, which generally mirror those plans of
Morrison Restaurants Inc. in which the Company's employees had been
participating until the Distribution.
Salary Deferral Plan - Under the Morrison Fresh Cooking, Inc. Salary
Deferral Plan each eligible employee may elect to make pre-tax contributions
to a trust fund in amounts ranging from 2% to 10% of their annual earnings.
Employees contributing a pre-tax contribution of at least 2% may elect to
make after-tax contributions not in excess of 10% of annual earnings. The
Company contribution to the Plan is based on the employee's pre-tax contribu
tion and years of service. After three years of service (including service
with Morrison) the Company contributes 20% of the employee's pre-tax
contribution, 30% after ten years of service and 40% after 20 years of
service. Normally, the full amount of each participant's interest in the
trust fund is paid upon termination of employment. However, the Plan allows
participants to make early withdrawals of pre-tax and after-tax
contributions, subject to certain restrictions. The Company's contributions
and allocated contributions to the trust fund approximated $308,000,
$303,000, and $296,000 for 1996, 1995, and 1994, respectively.
Deferred Compensation Plan - The Company maintains the Morrison Fresh
Cooking, Inc. Deferred Compensation Plan for certain selected employees. The
provisions of this Plan are similar to those of the Salary Deferral Plan.
The Company's contributions under the Plan approximated $119,000, $102,000,
and $109,000 for 1996, 1995, and 1994, respectively. Company assets
earmarked to pay benefits under the Plan are held by a rabbi trust. Under
current accounting rules, assets of a rabbi trust must be accounted for as
if they are assets of the Company; therefore, all earnings and expenses are
recorded in the Company's financial statements. The net of the rabbi trust's
earnings and losses is recorded as additional liability to the participants
and is considered to be interest expense to the Company. The Company
recorded $11,000 interest expense for this Plan in 1996. Assets in the rabbi
trust approximated $4,610,000 and include $455,000 of Company common stock
which is accounted for as treasury stock at June 1, 1996.
Retirement Plan - Effective December 31, 1987, the Morrison
Restaurants Inc. Retirement Plan was amended so that no additional benefits
will accrue and no new participants may enter the Plan after that date. The
Company is a co-sponsor of the Plan along with Ruby Tuesday, Inc. and
Morrison Health Care, Inc. Participants will receive benefits based upon
salary and length of service. No contribution was made by the Company in
1996. Net pension expense of $87,000 was recorded by the Company in 1996,
and pension income of $65,000 and $56,000 was recorded in 1995 and 1994,
respectively. The Plan's assets include common stock, fixed income
securities, short-term investments and cash. The Company will continue to
share in future expenses of the Plan, and will make contributions to the
Plan as necessary, on behalf of its employees.
Executive Supplemental Pension Plan - Under the Morrison Fresh Cooking,
Inc. Executive Supplemental Pension Plan, employees with an average
compensation of at least $120,000 and who have completed five years
(including service with Morrison) in a qualifying position become eligible
to earn supplemental retirement income based upon salary and length of
service (including service with Morrison) reduced by social security
benefits and amounts otherwise receivable under the Retirement Plan.
Management Retirement Plan - Under the Morrison Fresh Cooking, Inc.
Management Retirement Plan, individuals who have 15 years of credited
service (including service with Morrison) and whose average annual
compensation equaled or exceeds $40,000, become participants. Participants
will receive benefits based upon salary and length of service (including
service with Morrison) reduced by social security benefits and benefits
payable under the Retirement Plan and Executive Supplemental Pension Plan.
To provide a source for the payment of benefits under the Executive
Supplemental Pension Plan and the Management Retirement Plan, the Company
owns whole-life insurance contracts on some of the participants. The cash
value of these policies net of policy loans is $605,390 at June 1, 1996. The
Company has established a rabbi trust to hold the policies and death
benefits as they are received. Expenses recorded for the Executive
Supplemental Pension Plan and the Management Retirement Plan were $512,000,
$508,000 and $400,000 for 1996, 1995, and 1994, respectively.
The following table details the allocation of the components of pension
expense, as well as a comparison of assets to obligations and amounts
recognized in the Company's financial statements for the Management
Retirement Plan, the Executive Supplemental Pension Plan, and the Retirement
Plan.
(In thousands)
Assets Exceed (Less Than) Accumulated Benefits Exceed Assets-
Accumulated Benefits- Executive Supplemental Pension Plan
Retirement Plan and Management Retirement Plan
June 1, June 3, June 4, June 1, June 3, June 4,
1996 1995 1994 1996 1995 1994
Components of pension expense (income):
Service cost $ $ $ $ 56 $ 66 $ 58
Interest cost 660 820 825 312 250 202
Actual return on
plan assets (1,556) (263) (1,228)
Amortization and
deferral 983 (622) 347 144 111 140
Other 81
$ 87 $ (65) $ (56) $ 512 $ 508 $ 400
Plan assets at
fair value $ 8,903 $ 10,066 $11,728 $ 0 $ 0 $ 0
Actuarial present value of
projected benefit obligations:
Accumulated benefit obligations:
Vested 8,764 9,846 11,463 2,040 3,108 1,713
Nonvested 0 7 491
Provision for future salary
increases 852 799 1,242
Total projected benefit
obligations 8,764 9,846 11,463 2,892 3,914 3,446
Excess (deficit) of plan assets projected
benefit
obligations 139 220 265 (2,892) (3,914) (3,446)
Unrecognized net loss
(gain) 1,200 1,960 1,765 81 (239) 131
Unrecognized prior service
cost 12 450 602 173
Unrecognized net transition
obligation 769 1,077 1,238 710 899 1,059
Additional minimum liability (445) (524) (281)
Prepaid (accrued) pension
cost. $ 2,108 $ 3,257 $ 3,280$ (2,096) $(3,176) $ (2,364)
The weighted-average discount rate for all three plans is 7.75%, 8.5%, and
7.5% for 1996, 1995, and 1994, respectively. The rate of increase in
compensation levels for the Executive Supplemental Pension Plan and Management
Retirement Plan is 4% for 1996 and 1995 and 5% for 1994. The expected long-term
rate of return on Plan assets for the Retirement Plan is 10% for all three
years.
5. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides healthcare benefits to substantially all retired
employees and life insurance benefits to certain retirees. Benefits are
funded as medical claims and life insurance premiums are incurred. Retirees
become eligible for retirement benefits if they have met certain service and
minimum age requirements at date of retirement. The Company accrues expenses
related to postretirement healthcare and life insurance benefits during the
years an employee provides services. The total postretirement benefit costs
for 1996, 1995, and 1994 were $272,000, $424,000, and $394,000,
respectively.
The actuarial present value of accumulated postretirement benefit
obligations and the amounts recognized in the Company's balance sheets are
as follows:
(In thousands)
June 1, June 3,
1996 1995
Retirees $2,035 $3,116
Fully eligible active plan participants 444 492
Other active plan participants 261 333
Accumulated postretirement benefit obligation 2,740 3,941
Unrecognized net loss (848) (896)
Unrecognized prior service cost 284
Accrued postretirement benefit cost $2,176 $3,045
The postretirement benefit cost is as follows:
(In thousands)
June 1, June 3, June 4,
1996 1995 1994
Service cost $ 9 $ 22 $ 27
Interest cost 223 307 273
Amortization of unrecognized net loss 40 95 94
Postretirement benefit cost $ 272 $ 424 $ 394
The assumed healthcare cost trend rate used in measuring the accumulated
postretirement benefit obligation was 0% because at the time of the adoption
of FAS 106, the Company amended its plans to fix current and future
contribution levels at the rates in place at that time. Increases in health
care cost due to factors such as inflation, changes in health care
utilization or delivery patterns, technological advances, and changes in the
health status of plan participants will be borne by the participants.
Measurement of the accumulated postretirement benefit obligation was based
on an assumed 7.75% discount rate for fiscal 1996, 8.5% for fiscal 1995 and
7.5% for fiscal 1994.
6. EMPLOYEE INCENTIVE PLANS
The Company has adopted equity-based compensation plans similar to those
maintained by Morrison prior to the distribution.
The Morrison Fresh Cooking, Inc. 1996 Stock Incentive Plan
In March, 1996, the shareholders of Morrison and the Company approved
the Morrison Fresh Cooking, Inc. 1996 Stock Incentive Plan. A Committee,
appointed by the Board, administers the Plan on behalf of the Company and
has complete discretion to determine participants and the terms and
provisions of stock incentives, subject to the Plan. The Plan permits the
Committee to make awards of shares of common stock, awards of derivative
securities related to the value of the common stock, and certain cash
awards to eligible persons. These discretionary awards may be made on an
individual basis or pursuant to a program approved by the Committee for the
benefit of a group of eligible persons. The Company issued 55,076 shares
under the Plan during 1996. At June 1, 1996, the Company had reserved
445,000 shares of common stock for this Plan.
The Morrison Fresh Cooking, Inc. Stock Incentive and Deferred Compensation
Plan for Directors
In March, 1996, the shareholders of Morrison and the Company approved
the Morrison Fresh Cooking, Inc. Stock Incentive and Deferred Compensation
Plan for Directors. The Plan provides that the directors must use 60% of
their retainer to purchase shares of the Company if they did not attain a
certain specified level of ownership of Company stock. Each director
purchasing stock receives an additional number of shares equal to 15% of
the shares purchased and three times the total shares in options which
become exercisable after six months and have a term of five years from the
grant date. All options awarded under the Plan have been at the prevailing
market value at the time of issue or grant. A Committee, appointed by the
Board, administers the Plan on behalf of the Company. During 1996, 888
shares were issued under the Plan. A one-time restricted stock award
totaling 5,000 shares was made in fiscal 1996 to one non-management
director who was elected after March 2, 1996. At June 1, 1996, the Company
had 99,000 shares of common stock reserved for this Plan.
The Morrison Fresh Cooking, Inc. 1996 Non-Executive Stock Incentive Plan
In March, 1996, the Board of Directors approved the Morrison Fresh
Cooking, Inc. 1996 Non-Executive Stock Incentive Plan. A Committee,
appointed by the Board, administers the Plan on behalf of the Company and
has full authority in its discretion to determine the officers and key
employees to whom stock incentives are granted and the terms and provisions
of stock incentives, subject to the Plan. The Plan permits the Committee to
make awards of shares of common stock, awards of derivative securities
related to the value of the common stock, and certain cash awards to
eligible persons. The Company issued 84,595 shares under the Plan during
1996. At June 1, 1996, the Company had 2,101,000 shares reserved for this
Plan.
Under the terms of the Distribution, employees of the Company who were
holders of Morrison stock options received adjusted, substitute options
which, in the aggregate, preserved the economic value as well as the
material terms, such as option period, vesting provisions and payment terms,
the optionee had in the original Morrison option prior to the distribution.
Vested and non-vested Morrison options were adjusted by granting new option
rights to acquire Ruby Tuesday, Inc. and Morrison Health Care, Inc. stock in
addition to Company stock.
The following table summarizes the activity in options under all plans
subsequent to the Distribution date:
Number of Shares Under Option
(In thousands)
Replacement options granted..... 1,114
Granted......................... 846
Exercised....................... (65)
Forfeited....................... (20)
Balance at end of year.......... 1,875
Exercisable..................... 778
Outstanding options' prices..... $3.11-$11.75
Exercised options' prices....... $3.11-$ 5.86
7. Preferred Stock
Under its Certificate of Incorporation, the Company is authorized to
issue preferred stock with a par value of $0.01 in an amount not to exceed
250,000 shares which may be divided into and issued in designated series,
with dividend rates, rights of conversion, redemption, liquidation prices
and other terms or conditions as determined by the Board of Directors. No
preferred shares have been issued as of June 1, 1996. The Board of
Directors has designated 50,000 of such shares as Series A Junior
Participating Preferred Stock and has issued rights to acquire such shares,
upon certain events, with an exercise price of $50.00 per one one-thousandth
of a share, subject to adjustment. The rights expire on March 1, 2006, and
may be redeemed prior to ten days after the acquisition of 20% or more of
the Company's common stock.
8. Contingencies
At June 1, 1996, the Company was contingently liable for approximately
$11.9 million in letters of credit, issued primarily in connection with its
workers' compensation and casualty insurance programs.
The Company is presently, and from time to time, subject to pending
claims and lawsuits arising in the ordinary course of its business. In the
opinion of Management, the ultimate resolution of these pending legal
proceedings will not have a material adverse effect on the Company's
operations or financial position.
9. Loss on Impairment of Assets
In conjunction with the adoption of FAS 121 in the third quarter of
fiscal 1996, the Company recorded a loss on the impairment of assets of
$13.8 million. This charge was composed of the following: a $6.8 million
asset write-off of 15 QSRs and seven traditional cafeterias which were
approved for closure within one year by the Board of Directors; a $5.1
million asset write-down of impaired units which will continue to be
operated, $1.5 million of which was due solely to the adoption of FAS 121;
and a $1.9 million asset write-down of previously closed locations.
The $6.8 million charge was composed of the expected loss on the
disposal of long-lived assets of units selected for closure, net of an
assumed salvage value of $0.8 million. As of June 1, 1996, the Company had
closed all seven of the traditional cafeterias and 14 of the QSRs which were
selected for closure, at a net loss on disposal of $6.6 million. The
remaining QSR is expected to be closed in fiscal 1997, and the allowance
provided was adequate to record the ultimate loss expected on the disposal
of the assets of this unit.
All operating units not recommended for closure were reviewed for
impairment. Such review consisted of an analysis of each unit's cash flows
and profit trends over the past year. If such review indicated impairment,
Management estimated the undiscounted future net cash flows to be generated
by these units and determined that certain of them would be unlikely to
generate net cash flows in excess of carrying value. Management then
estimated the fair value of those units using discounted net cash flow as a
measure of fair value, which resulted in a write-down of $5.1 million, $1.5
million of which was due to the effect of the discounting of cash flows as
prescribed by FAS 121.
In addition to those units selected for closure and impaired operating
units, the Company recorded a charge of $1.9 million for the write-down of
long-lived assets of previously closed units and certain immovable
properties. This charge was based on Management's estimate of the eventual
loss that would be incurred on the ultimate disposal of these properties.
As of June 1, 1996, the Company had disposed of two of these properties at a
net loss on disposal of $0.9 million and the allowance provided was
adequate for the remaining properties. The Company continues to
systematically analyze its units for signs of impairment, and will record a
loss on impairment when impairment is indicated.
10. PRO FORMA FINANCIAL INFORMATION (unaudited)
The following Unaudited Pro Forma Statements of Operations were prepared to
illustrate certain estimated effects of the Distribution and related
transactions. These statements include adjustments for the effects of
additional payroll and related; other operating; selling, general and
administrative; and depreciation costs and expenses which might have
occurred had the Distribution been effected as of the dates indicated, as
well as the estimated tax benefit associated with these adjustments. The pro
forma statements of operations for the year ended June 1, 1996, June 3,
1995, and June 4, 1994, are prepared assuming the distribution had occurred
as of June 1, 1996, June 3, 1995, and June 4, 1994, respectively. Such pro
forma information may not necessarily be indicative of the results that
would actually have occurred had the transactions occurred on the dates
indicated or of the results that may occur in the future. The Unaudited Pro
Forma Statements of Operations should be read in conjunction with the
historical financial statements, including the notes thereto, and other
financial data of the Company included elsewhere herein.
MORRISON FRESH COOKING, INC.
PRO FORMA - STATEMENTS OF OPERATIONS (unaudited)
(In thousands except per-share data)
For the Fiscal Year Ended
June 1, June 3, June 4,
1996 1995 1994
Net Sales $267,638 $294,587 $292,493
Operating Costs and Expenses:
Cost of merchandise 75,458 78,987 79,543
Payroll and related costs 101,967 105,947 111,702
Other operating costs 56,364 60,960 58,490
Selling, general and administrative 18,416 20,642 16,995
Depreciation and amortization 10,091 10,299 10,504
262,296 276,835 277,234
Operating Income Before Loss on Impairment of Assets
and Restructure Costs 5,342 17,752 15,259
Loss on impairment of assets 13,789
Restructure costs 8,290
Operating Income (Loss) (16,737) 17,752 15,259
Interest expense (income), net 51 (301) (307)
Income (Loss) Before Provision for Income Taxes(16,788) 18,053 15,566
Provision for (Benefit from) Income Taxes (6,165) 7,307 6,185
Net Income (Loss) ........................... $(10,623) $ 10,746 $ 9,381
Earnings (Loss) Per Common
and Common Equivalent Share $ (1.19) $ 1.20 $ 1.00
Weighted Average Common and
Common Equivalent Shares 8,954 8,981 9,342
11. Restructure Costs
The Company recorded restructure costs of $8.3 million during the
fiscal year relating to the settlement of lease obligations of units
selected for closure and costs associated with the Distribution.
In addition to the write-off of the 22 units selected for closure by
the Board of Directors as described in Note 9, the Company accrued charges
of $6.1 million relating to the settlement of the related lease obligations.
Management estimates that it can negotiate lease settlements on closed units
within 36 months. As of June 1, 1996, the Company had negotiated lease
settlements on seven of its closed units at a net cost of $0.8 million, and
had paid $2.3 million in rent and related payments on closed properties. Two
additional lease settlements were negotiated subsequent to the fiscal year
end at an additional cost of $0.4 million. In addition to the lease
obligations of its closed units, the Company recorded charges of $0.3
million for severance payments of personnel employed at the closed units.
The Company also recorded $2.0 million in other charges incurred as a
result of the Distribution. These charges consisted of $1.8 million in
estimated professional and other fees such as stock exchange listing fees,
and $0.2 million of miscellaneous other asset write-offs. As of June 1,
1996, the Company had incurred $1.7 million in professional fees associated
with the Distribution, and had written off $0.2 million of miscellaneous
assets.
12. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (unaudited)
Quarterly financial results for the years ended June 1, 1996, and June
3, 1995, are summarized below. All quarters are composed of 13 weeks.
In thousands FIRST SECOND THIRD FOURTH
(except per-share data) QUARTER QUARTER QUARTER QUARTER TOTAL
For The Year Ended June 1, 1996:
Net Sales................ $ 70,129 $ 67,889 $ 65,260 $ 64,360 $267,638
Gross Profit*..............$ 9,726 $ 8,503 $ 8,774 $ 7,275 $ 34,278
Income (Loss) Before
Income Taxes.. $ 2,881 $ 1,387 $(21,057) $ 1,201 $(15,588)
Provision for (Benefit from)
Income Taxes............. 1,216 545 (7,935) 480 (5,694)
Net Income (Loss)..........$ 1,665 $ 842 $(13,122) $ 721 $ (9,894)
Earnings (Loss) Per Common and
Common Equivalent Share..$ 0.19 $ 0.10 $ (1.49) $ 0.08 $ (1.10)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
For The Year Ended June 3, 1995:
Net Sales...................$ 74,005 $ 75,156 $ 73,485 $ 71,941 $294,587
Gross Profit*...............$ 11,222 $ 13,174 $ 12,225 $ 12,889 $ 49,510
Income Before
Income Taxes......... $ 3,922 $ 4,879 $ 4,322 $ 5,985 $ 19,108
Provision for Federal and State
Income Taxes.............. 1,679 1,945 1,724 2,386 7,734
Net Income..................$ 2,243 $ 2,934 $ 2,598 $ 3,599 $ 11,374
Earnings Per Common and
Common Equivalent Share...$ 0.25 $ 0.33 $ 0.29 $ 0.41 $ 1.27
* The Company defines gross profit as revenues less cost of merchandise,
payroll and related costs, and other operating costs.
Due to weighted average share calculations required by Accounting Principles
Board Opinion No. 15, quarterly earnings per share amounts may not sum to
the fiscal year amount.
Morrison Fresh Cooking, Inc. common stock is publicly traded on the New York
Stock Exchange under the ticker symbol MFC. The following table sets forth
the reported high and low prices from the Distribution Date to June 1, 1996.
For the 12 weeks ended June 1, 1996
Per Share
Cash
Quarter High Low Dividend
Fourth $ 9.00 $ 5.50 $ 0.09
On June 27, 1996 the Company's Board of Directors declared a quarterly
dividend of $0.09 per share payable July 31, 1996 to 6,495 shareholders of
record on July 12, 1996.
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Morrison Fresh Cooking, Inc.
We have audited the accompanying balance sheets of Morrison Fresh
Cooking, Inc. as of June 1, 1996 and June 3, 1995, and the related
statements of operations, stockholders' equity and cash flows for each of
the three fiscal years in the period ended June 1, 1996. These financial
statements are the responsibility of the Company's Management. Our respon
sibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and sig
nificant estimates made by Management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Morrison Fresh
Cooking, Inc. at June 1, 1996 and June 3, 1995, and the results of its
operations and its cash flows for each of the three fiscal years in the
period ended June 1, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 9 to the financial statements, in fiscal year
1996, Morrison Fresh Cooking, Inc. changed its method of accounting relative
to impairment of long-lived assets.
By: /s/ Ernst &Young LLP
Ernst & Young LLP
Atlanta, Georgia
June 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MORRISON
FRESH COOKING, INC. FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED JUNE 1,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> JUN-01-1996
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<RECEIVABLES> 412
<ALLOWANCES> 0
<INVENTORY> 2,416
<CURRENT-ASSETS> 13,280
<PP&E> 154,942
<DEPRECIATION> 95,828
<TOTAL-ASSETS> 82,440
<CURRENT-LIABILITIES> 27,034
<BONDS> 775
90
0
<COMMON> 0
<OTHER-SE> 39,754
<TOTAL-LIABILITY-AND-EQUITY> 82,440
<SALES> 267,638
<TOTAL-REVENUES> 267,638
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<INCOME-PRETAX> (15,588)
<INCOME-TAX> (5,694)
<INCOME-CONTINUING> (9,894)
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<CHANGES> 0
<NET-INCOME> (9,894)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
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