UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 2, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12454
MORRISON RESTAURANTS INC.
(Exact name of registrant as specified in charter)
DELAWARE 63-0475239
(State of incorporation or (I.R.S. Employer identifi-
organization) cation no.)
4721 Morrison Drive
P.O. Box 160266
Mobile, AL 36625
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334)344-3000
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 .
34,589,475
(Number of shares of $0.01 par value common stock outstanding
as of January 6, 1995)
Exhibit Index appears on page 22
INDEX
PAGE
NUMBER
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 2, 1995 AND JUNE 3, 1995................ 3
CONSOLIDATED STATEMENTS OF INCOME FOR
THE THIRTEEN AND TWENTY-SIX WEEKS ENDED
DECEMBER 2, 1995 AND DECEMBER 3, 1994............ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
DECEMBER 2, 1995 AND DECEMBER 3, 1994............ 5
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS....................................... 6-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.................................. 12-15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................. 16
ITEM 2. CHANGES IN SECURITIES.......................... NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................ NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS............................... 16
ITEM 5. OTHER INFORMATION.............................. 16-19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............... 20
SIGNATURES............................................. 21
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
ITEM 1
MORRISON RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<CAPTION>
DEC. 2, 1995 JUNE 3, 1995
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term investments.................. $ 9,617 $ 5,957
Receivables - accounts and notes (net)........... 3,173 2,475
Inventories...................................... 8,868 7,484
Prepaid expenses................................. 9,494 8,043
Deferred income tax benefits..................... 1,848 3,758
Net assets of discontinued operations............ 47,045 52,481
Total current assets........................... 80,045 80,198
PROPERTY AND EQUIPMENT - at cost....................... 458,309 387,070
Less accumulated depreciation and amortization... (132,620) (117,068)
325,689 270,002
COSTS IN EXCESS OF NET ASSETS ACQUIRED................. 21,981 22,298
NET ASSETS OF DISCONTINUED OPERATIONS.................. 108,543 102,726
OTHER ASSETS........................................... 9,719 8,827
TOTAL ASSETS................................. $545,977 $484,051
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 28,182 $ 26,393
Short-term borrowings............................ 17,720 12,638
Accrued liabilities:
Taxes, other than income taxes................. 10,505 9,097
Payroll and related costs...................... 5,113 6,394
Insurance...................................... 6,808 6,396
Rent and other................................. 7,275 11,287
Current portion of long-term debt................. 91 87
Current liabilities of discontinued operations.... 46,182 52,686
Total current liabilities.................... 121,876 124,978
NOTES AND MORTGAGES PAYABLE............................ 69,136 32,003
DEFERRED INCOME TAXES.................................. 16,955 16,864
OTHER DEFERRED LIABILITIES............................. 18,985 18,672
NONCURRENT LIABILITIES OF DISCONTINUED OPERATIONS...... 62,441 46,041
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; (authorized
100,000 shares; issued: 43,644 shares ......... 436 436
Capital in excess of par value................... 84,752 84,515
Retained earnings................................ 308,169 298,181
393,357 383,132
Less common stock held in treasury - at cost
(9,056 shares @ 12/02/95; 9,119 shares @ 06/03/95) (136,773) (137,639)
256,584 245,493
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY..... $545,977 $484,051
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
MORRISON RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
(UNAUDITED)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
Dec. 2, 1995 Dec. 3, 1994 Dec. 2, 1995 Dec. 3, 1994
<S> <C> <C> <C> <C>
Revenues:
Net sales and operating revenues.... $151,172 $120,615 $296,355 $233,675
Other revenues...................... 829 163 1,610 387
152,001 120,778 297,965 234,062
Operating costs and expenses:
Cost of merchandise................ 42,615 31,743 82,031 62,924
Payroll and related costs.......... 52,938 39,895 101,893 75,266
Other, net......................... 33,380 24,908 65,525 47,614
Selling, general and administrative 10,288 10,063 20,861 19,788
Depreciation....................... 8,753 6,202 16,797 11,873
L&N conversion/closing costs....... 0 0 0 19,727
Interest expense, net of
interest income................... 902 (300) 1,522 (168)
148,876 112,511 288,629 237,024
Income (loss) from continuing
operations before income taxes...... 3,125 8,267 9,336 (2,962)
Provision for federal and state
income taxes....................... 1,038 2,945 3,038 (1,839)
Income (loss) from continuing
operations......................... 2,087 5,322 6,298 (1,123)
Income from discontinued operations,
net of applicable income taxes..... 4,647 6,809 9,892 37,764
Net income.......................... $ 6,734 $ 12,131 $ 16,190 $ 36,641
Earnings (loss) per common and
equivalent share:
Continuing Operations.............. $ 0.06 $ 0.15 $ 0.18 $ (0.03)
Discontinued Operations............ 0.13 0.19 0.28 1.04
Earnings per common and common
equivalent share.................. $ 0.19 $ 0.34 $ 0.46 $ 1.01
Weighted average common and common
equivalent shares................. 35,282 36,091 35,416 36,324
The accompanying notes are an integral part of the consolidated financial statements
</TABLE>
</PAGE>
<PAGE>
<TABLE>
MORRISON RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Twenty-Six Weeks Ended
Dec. 2, 1995 Dec. 3, 1994
<S> <C> <C>
Operating Activities:
Income (loss) from continuing operations.......... $ 6,298 $ (1,123)
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principles....................................
Depreciation and amortization................... 16,797 11,873
Amortization of intangibles..................... 333 218
Other, net...................................... (78) 117
Deferred income taxes........................... 1,107 (6,263)
Loss on disposition of assets................... 3,404 102
Changes in operating assets and liabilities:
(Increase)/decrease in receivables............ (698) (2,457)
(Increase)/decrease in inventories............ (1,384) (850)
(Increase)/decrease in prepaid and other
assets...................................... (615) 3,771
Increase/(decrease) in accounts payable,
accrued and other liabilities............... (1,370) 21,674
Increase/(decrease) in income taxes payable... 550 4,509
Cash provided by continuing operations............ 24,344 31,571
Cash provided (used) by discontinued operations... 16,099 (11,316)
Net cash provided by operating activities......... 40,443 20,255
Investing activities:
Purchases of property and equipment............... (76,626) (49,079)
Proceeds from disposal of assets.................. 386 58
Other, net........................................ (972) (988)
Discontinued operations investment activities, net (9,463) 81,797
Net cash provided (used) by investing activities.. (86,675) 31,788
Financing activities:
Proceeds from long-term debt...................... 37,180 20,000
Net change in short-term borrowings............... 5,082 (17,416)
Principal payments on long-term debt and capital
leases.......................................... (43) (7,402)
Proceeds from issuance of stock, including
treasury stock.................................. 1,456 6,349
Stock repurchases................................. (353) (42,117)
Dividends paid.................................... (6,202) (6,008)
Discontinued operations financing activities...... 12,772 (4,656)
Net cash provided (used) by financing activities.. 49,892 (51,250)
Increase in cash and short-term
investments..................................... 3,660 793
Cash and short-term investments:
Beginning of period............................. 5,957 4,420
End of period................................... $ 9,617 $ 5,213
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
</PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The
statements should be read in conjunction with the restated consolidated
financial statements of the Company included in the preliminary proxy
statement filed with the Commission on December 4, 1995, which contains
restated consolidated financial statements and notes thereto of the
Company reflecting the businesses proposed to be spun off as discussed in
Note B below as discontinued operations. The accompanying unaudited
consolidated financial statements reflect all adjustments for normal
recurring accruals. These adjustments are necessary, in the opinion of
management, for a fair presentation of the financial position, the results
of operations and the cash flows for the interim periods presented. The
results of operations for the interim periods reported herein are not
necessarily indicative of results to be expected for the full year.
NOTE B - DISCONTINUED OPERATIONS
The Company intends to distribute the common stock of its family dining
restaurant business (Morrison Fresh Cooking, Inc. ("MFCI")) and its health
care food and nutrition services business (Morrison Health Care, Inc.
("MHCI")) to its shareholders. Morrison shareholders will receive one
share of MFCI for every four shares of Company stock then held and one
share of MHCI for every three shares of Company stock then held. In
accordance with Accounting Principles Board Opinion No. 30, the financial
results of the two businesses to be spun off, together referred to as the
Morrison Group, are reported as discontinued operations.
After the Distribution, the Company will not have any ownership interest
in either MFCI or MHCI, except for stock held in connection with employee
benefit plans. Prior to the spin-off the Company will enter into certain
agreements with both MFCI and MHCI governing certain operating
relationships among the Company, MFCI and MHCI subsequent to the
Distribution.
NOTE C - SUBSEQUENT EVENTS
On January 10, 1996 the Company announced that it will adopt Financial
Accounting Standard No. 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. Also at that time the Company will recognize charges
associated with the spin-off of MFCI and MHCI and other costs associated
with the closing of 16 restaurants that have not met management's
financial performance requirements.
In accordance with the adoption of FAS 121, a pre-tax charge of
$25,460,000 will be recorded comprised of the following: impairment to be
recognized on the 16 units approved for closure within one year by the
Board of Directors on January 10, 1996, $9,915,000; impairment on in-unit
computer equipment ($704,000) and write-offs resulting from management's
decision to abandon an information technology plan approved for disposal
on that same date ($3,815,000); and impairment on units remaining open,
$11,026,000.
Based upon management's review of negative cash flow and operating loss
units and other considerations, the Board approved the closing of ten Ruby
Tuesdays, four Mozzarella's and two Tia's restaurants. The expected loss
on disposal of the long-term assets, net of an assumed salvage value of
$589,000, was $9,915,000. Included in this amount is $592,000 which
represents the goodwill associated with two Tia's units to be closed.
Negative cash flow and operating loss units not recommended for closure
were reviewed for impairment. Management believed these units might have
been impaired based upon poor operating performance. Accordingly,
management estimated the undiscounted future cash flows to be generated by
these units and determined that certain of them would not likely generate
cash flow in excess of carrying value. Management then estimated the fair
value of those units using discounted cash flow as a measure of fair
value. This will result in a write-down of $11,026,000 on those units.
Prior to the announcement of the spin-off on September 27, 1995 the
Company was undertaking an information technology project intended, among
other things, to update or replace certain accounting and human resource
systems for all of the Company. Upon announcement of the intended spin-
off, management of the Company initiated a project by project review of
the information technology plan. Upon completion of its review,
management has decided to abandon certain of the projects in development,
including the project to update or replace certain accounting and human
resource systems. In connection therewith, the Company also plans to
dispose of certain in-unit computer equipment and replace that equipment
with computers more technologically advanced. At the January 10, 1996
board meeting such actions were approved by the Board of Directors.
Accordingly, the Company anticipates recording a charge of $3,815,000 for
the write-off of the information technology projects and $704,000 for the
remaining carrying value of that equipment in the third fiscal quarter.
In addition to the write-down of fixed assets to occur on the 16 units to
be closed, the Company will accrue charges of $3,521,000 relating to the
settlement of the related lease obligations. Management estimates that it
can negotiate lease settlements on units within 36 months and does not
expect to sublease any units. One of the units to be closed is company-
owned.
Other charges of $1,987,000 anticipated to be recorded consist primarily
of estimated professional and other fees to be incurred in accordance
with the spin-off ($1,091,000); severance pay for staff reductions
expected during the quarter ($575,000) and miscellaneous other asset
write-offs ($321,000).
The Company also announced the effect of adoption of FAS 121 on
discontinued operations. MFCI anticipates recording charges associated
with its spin-off from the Company and other costs associated with the
closing of seven traditional cafeterias and 15 Quick Service Restaurants.
In accordance with the adoption of FAS 121, a pre-tax charge of
$11,838,000 will be recorded comprised of the following: impairment to be
recognized on the 22 units approved for closure within one year by the
Board of Directors on January 10, 1996, $6,774,000 and impairment on units
remaining open, $5,064,000.
In addition to the write-down of fixed assets to occur on the 22 units to
be closed, MFCI expects to accrue charges of $8,273,000 relating to the
settlement of the related lease obligations. Management estimates that it
can negotiate lease settlements on units within 48 months and does not
expect to sublease any units.
In connection with the Distribution and the unit closings, MFCI announced
that it expects to incur relocation costs of approximately $650,000 for
personnel moving during the third quarter.
Other charges of $1,184,000 anticipated to be recorded consist primarily
of estimated professional and other fees incurred in accordance with the
Distribution ($1,024,000) and miscellaneous other asset write-offs
($160,000).
MHCI anticipates to record charges in the third quarter of $1,556,000
consisting primarily of estimated professional and other fees to be
incurred in accordance with the Distribution ($1,071,000), relocation
costs for personnel moving in connection with the Distribution expected
during the quarter ($325,000) and miscellaneous asset write-offs
($160,000).
<PAGE>
<TABLE>
ITEM 1
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D- MORRISON RESTAURANTS INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(IN THOUSANDS EXCEPT PER-SHARE DATA)
Morrison Restaurants Inc.
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
DEC. 2, 1995 DEC. 3, 1994 % CHG DEC. 2, 1995 DEC. 3, 1994 % CHG
<S> <C> <C> <C> <C> <C> <C>
SALES:
Continuing operations
Ruby Tuesday Group............. $ 152,135 $ 120,782 26 $ 297,762 $ 234,022 27
Corporate and other............ (134) (4) 203 40
$ 152,001 $ 120,778 26 $ 297,965 $ 234,062 27
OPERATING PROFIT
Continuing operations
Ruby Tuesday Group.............. $ 6,829 $ 10,384 (34) $ 15,605 $ 21,399 (27)
L&N conversion/closing costs..... 0 0 0 (19,727)
Corporate expenses............... (2,802) (2,417) 16 (4,747) (4,802) (1)
Interest income (expense)........ (902) 300 (1,522) 168
Income from continuing operations
before income taxes.............. 3,125 8,267 (62) 9,336 (2,962) 415
Income tax...................... 1,038 2,945 (65) 3,038 5,898 (48)
Income tax on L&N conversion/
closing costs................... 0 0 0 (7,737)
Income from continuing operations 2,087 5,322 (61) 6,298 (1,123) 661
Discontinued operations (net of
taxes)........................... 4,647 6,809 (32) 9,892 37,764 (74)
Net Income....................... $ 6,734 $ 12,131 (44) $ 16,190 $ 36,641 (56)
EPS
Continuing operations............ $ 0.06 $ 0.15 (60) $ 0.18 $ (0.03) 700
Discontinued operations.......... 0.13 0.19 (32) 0.28 1.04 (73)
Earnings per common and common
equivalent share.............. $ 0.19 $ 0.34 (44) $ 0.46 $ 1.01 (54)
Shares........................... 35,282 36,091 35,416 36,324
Profit Margins (before corporate and interest)
Ruby Tuesday Group.............. 4.5% 8.6% 5.2% 9.1%
</TABLE>
</PAGE>
<PAGE>
<TABLE>
<CAPTION>
Morrison Fresh Cooking, Inc. FOR THE THIRTEEN WEEKS ENDED FOR THE TWENTY-SIX WEEKS ENDED
DEC. 2, 1995 DEC. 3, 1994 % CHG DEC. 2, 1995 DEC. 3, 1994 % CHG
<S> <C> <C> <C> <C> <C> <C>
SALES:
Operations....................... $ 67,922 $ 75,157 (10) $ 137,967 $ 149,152 (7)
Corporate and other.............. (33) (1) 51 9
$ 67,889 $ 75,156 (10) $ 138,018 $ 149,161 (7)
OPERATING PROFIT
Operations....................... $ 2,082 $ 5,546 (62) $ 5,356 $ 10,042 (47)
Corporate expenses............... (757) (767) (1) (1,197) (1,429) (16)
Interest income (expense)........ 62 100 109 188
Income before income taxes....... 1,387 4,879 (72) 4,268 8,801 (52)
Income tax....................... 545 1,945 (72) 1,761 3,624 (51)
Net Income....................... $ 842 $ 2,934 (71) $ 2,507 $ 5,177 (52)
Profit Margins
(before corporate and interest) 3.1% 7.4% 3.9% 6.7%
Morrison Health Care, Inc.
Continuing operations
Operations...................... $ 56,627 $ 56,588 0 $ 112,843 $ 110,559 2
Corporate and other............. (46) (22) 38 (10)
$ 56,581 $ 56,566 0 $ 112,881 $ 110,549 2
OPERATING PROFIT
Operations....................... $ 5,977 $ 5,951 0 $ 12,405 $ 10,839 14
Net gain on sale/closure of
B&I accounts................... 0 0 0 0 46,782
Corporate expenses............... (724) (747) (3) (1,148) (1,413) (19)
Interest income (expense)........ (426) 101 (753) (5)
Income before income taxes....... 4,827 5,305 (9) 10,504 56,203 (81)
Income tax....................... 2,082 2,149 (3) 4,424 3,814 (16)
Income tax on sale/closure of
B&I accounts.................... 0 0 0 20,972
Net Income....................... $ 2,745 $ 3,156 (13) $ 6,080 $ 31,417 (81)
Profit Margins
(before corporate and interest) 10.6% 10.5% 11.0% 9.8%
</TABLE>
</PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company reported net income from continuing operations of $2.1 and
$6.3 million for the thirteen and twenty-six week periods ended December
2, 1995, compared with $5.3 and $(1.1) million reported for the
corresponding period of the prior fiscal year. The increase in net income
from the prior twenty-six week period primarily relates to the
conversion/closing costs which resulted from the decision to phase out the
L&N Seafood Grill (L&N) concept. The decrease from the prior thirteen week
period relates to a downward same store sales trend due primarily to
increased competition and decreased customer frequency and spending seen
throughout the retail and restaurant industry.
In the fiscal 1995 period, the Company accrued approximately $19.7 million
for costs to be incurred as a result of the decision announced on June 27,
1994, to phase out the L&N concept. As of December 2, 1995, $18.8 million
of expenses related to operating losses, the write-offs of inventories,
intangibles and other assets, severance pay and other expenses had been
charged against the reserve. The remaining $0.9 million reserve relates
primarily to cash outlays anticipated to be incurred to settle the three
remaining lease obligations on units closed.
The following table shows year to date restaurant openings during the
first two quarters as well as total restaurants open at the end of the
second quarter.
<TABLE>
<CAPTION>
1st and 2nd 1st and 2nd Total Open at End
Qtr. Openings Qtr. Closings of Second Quarter
Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Continuing Operations:
Ruby Tuesday 30 35 3 2 302 256
Mozzarella's 5 10 1 0 48 34
Tia's 3 n/a 0 n/a 17 n/a
Discontinued Operations:
Family Dining 3 3 3 2 151 155
QSRs 3 7 0 0 26 19
Health Care Units 12 14 23 20 278 276
</TABLE>
The Company estimates that approximately 14 additional Ruby Tuesday,
Mozzarella's and Tia's units will be opened during the remainder of fiscal
1996. The Company also anticipates opening two additional Fresh Cooking
restaurants in the remaining two quarters of fiscal 1996.
Company Restaurant Sales:
Company restaurant sales of continuing operations increased $31.2 million
or 25.8% from $120.8 million for the quarter and increased $63.9 million or
27.2% from $234.1 million for the twenty-six weeks ended December 3, 1994.
These increases are the result of a net addition of 77 units including 46
Ruby Tuesdays, 14 Mozzarella's, and 17 Tia's as of December 2, 1995 offset
by declining same store sales.
Cost of Merchandise, Payroll and Related Costs and Other Operating Costs:
Cost of merchandise of continuing operations increased $10.9 million or
34.4% to $42.6 million for the quarter and $19.1 million or 30.4% to $82.0
million for the twenty-six weeks ended December 2, 1995. These costs have
increased as a percentage of sales from the comparable periods in the prior
year as a result of a change in menu items. Additionally, the percentage
of revenues generated from sales of lower-margin menu items increased
during the current period.
Payroll and related costs increased $13.0 million or 32.6% for the quarter
and $26.6 million or 35.3% for the twenty-six weeks ended December 2, 1995.
These increases are due to additional staffing levels and service programs
at Ruby Tuesdays designed to improve guest service and the fixed nature of
Mozzarella's management and kitchen payroll coupled with decreasing same
store sales. These increases were offset by an improvement in the
Company's workers' compensation claims experience as well as a decrease in
other fringes.
Other operating costs increased $8.5 million or 34.1% for the quarter and
$17.9 million or 37.6% for the twenty-six weeks ended December 2, 1995.
Other operating costs have increased as a percent of sales primarily due to
an increase in insurance expense and supplies expense. Insurance expense
increased due to an increase in general liability rates. Supplies expense
increased due to the addition of new units which have higher supply
expenses than existing units.
Selling, general and administrative expenses have decreased as a percentage
of sales for both the quarter and year to date periods. The decrease
resulted from the Company's objective of keeping general and administrative
expenses flat for the year.
Depreciation increased $2.6 million or 41.9% for the quarter and $4.9
million or 41.2% for the twenty-six weeks ended December 2, 1995.
Depreciation has increased as a percentage of revenues due to the Company's
focus on expansion with freestanding restaurants.
Interest Expense (net of Interest Income):
Net interest expense increased to $0.9 and $1.5 million for the quarter and
year to date periods ended December 2, 1995 from $(0.3) and $(0.2) million
for the same period of the prior year due to the addition of $65.7 million
in borrowings on the Company's revolving credit facility and other bank
lines of credit offset by the retirement of the Life of Georgia note during
the thirteen weeks ended September 3, 1994.
Income Taxes
The effective income tax rate on continuing operations for the thirteen and
twenty-six weeks ended December 2, 1995 was 33.2% and 32.5%, as compared to
35.6% and 62.1% for the same period of the prior year. Excluding the
effects of L&N, the effective income tax rate for the twenty-six weeks
ended December 3, 1994 would have been 35.2% for the prior year.
Earnings per Share
Earnings per share are based on the weighted average number of shares
outstanding during each quarter and are adjusted for the assumed conversion
of shares issuable upon exercise of options, after the assumed repurchase
of common shares with the related proceeds. The difference between primary
and fully diluted weighted average shares reflects the maximum extent of
potential dilution that conversions of shares could create.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at December 2, 1995 were $546.0 million, a $61.9 million
increase from $484.1 million as of the prior fiscal year end. Net property
and equipment of continuing operations increased $55.7 million from June 3,
1995. The increase was due to the net result of capital expenditures of
$76.6 million, depreciation expense totaling $16.8 million, and $4.1
million in retirements. The Company anticipates that during the remainder
of fiscal 1996, capital expansion will be financed primarily by funds
generated by operations with minimal incremental financing from borrowings
on lines of credit where necessary.
Total liabilities at December 2, 1995 were $289.4 million, a $50.8 million
increase from $238.6 million as of the end of the prior fiscal year. Long-
term borrowings of continuing operations increased $37.1 million from the
end of the prior fiscal year primarily as a result of $37.2 million of
additional borrowings on the Company's revolving line of credit. Long-term
borrowings of discontinued operations increased $12.8 million from the end
of the prior fiscal year primarily as a result of the allocation of $12.8
million of additional borrowings on the Company's revolving line of credit.
At December 2, 1995 the Company had $100.0 million in borrowings on this
revolving line of credit (including $32.0 allocated to discontinued
operations). The weighted average interest rate on these borrowings
including the effective cost of an interest rate swap agreement during the
quarter was 6.991%.
In addition, at December 2, 1995, the Company had committed lines of credit
amounting to $32.0 million (of which $14.3 million remained available at
December 2, 1995) and non-committed lines of credit amounting to $94.0
million with various banks at varying interest rates. These lines are
subject to periodic review by each bank and may be canceled by the Company
at any time.
Cash dividends paid during the second quarter of fiscal year 1996 amounted
to $3.2 million. Dividends paid per share were $0.092 for the second
quarter, an increase of 5.1% from the prior quarter of $0.0875.
PART II - OTHER INFORMATION
ITEM 1
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 the Company's operations or
consolidated financial position.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on September 27, 1995, the
stockholders of the Company elected Class II Directors to serve a three
year term on the Board. The results of the voting were as follows:
<TABLE>
Proposal 1.
<CAPTION>
Authority
Director Nominees For Withheld
<S> <C> <C>
John B. McKinnon 29,711,026 93,314
Dolph W. von Arx 29,699,801 104,539
</TABLE>
ITEM 5.
OTHER INFORMATION
At its quarterly meeting held on January 10, 1996, the Board of Directors
declared a cash dividend of $0.092 cents per share, payable at the close of
business on January 31, 1996 to shareholders of record as of January 22,
1996.
DISCONTINUED OPERATIONS
The Company intends to distribute the common stock of its family dining
restaurant business, MFCI, and its health care food and nutrition services
business, MHCI, to its shareholders. Morrison shareholders will receive
one share of MFCI for every four shares of Company stock then held and one
share of MHCI for every three shares of Company stock then held. In
accordance with Accounting Principles Board Opinion No. 30, the financial
results of the two businesses to be spun off, together referred to as the
Morrison Group, are reported as discontinued operations.
After the Distribution, the Company will not have any ownership interest in
either MFCI or MHCI, except for stock held in connection with employee
benefit plans. Prior to the spin-off the Company will enter into certain
agreements with both MFCI and MHCI governing certain operating
relationships among the Company, MFCI and MHCI subsequent to the
Distribution.
SUBSEQUENT EVENTS
On January 10, 1996 the Company announced that it will adopt Financial
Accounting Standard No. 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. Also at that time the Company will recognize charges
associated with the spin-off of MFCI and MHCI and other costs associated
with the closing of 16 restaurants that have not met management's financial
performance requirements.
In accordance with the adoption of FAS 121, a pre-tax charge of $25,460,000
will be recorded comprised of the following: impairment to be recognized on
the 16 units approved for closure within one year by the Board of Directors
on January 10, 1996, $9,915,000; impairment on in-unit computer equipment
($704,000) and write-offs resulting from management's decision to abandon
an information technology plan approved for disposal on that same date
($3,815,000); and impairment on units remaining open, $11,026,000.
Based upon management's review of negative cash flow and operating loss
units and other considerations, the Board approved the closing of ten Ruby
Tuesdays, four Mozzarella's and two Tia's restaurants. The expected loss
on disposal of the long-term assets, net of an assumed salvage value of
$589,000, was $9,915,000. Included in this amount is $592,000 which
represents the goodwill associated with two Tia's units to be closed.
Negative cash flow and operating loss units not recommended for closure
were reviewed for impairment. Management believed these units might have
been impaired based upon poor operating performance. Accordingly,
management estimated the undiscounted future cash flows to be generated by
these units and determined that certain of them would not likely generate
cash flow in excess of carrying value. Management then estimated the fair
value of those units using discounted cash flow as a measure of fair value.
This will result in a write-down of $11,026,000 on those units.
Prior to the announcement of the spin-off on September 27, 1995 the Company
was undertaking an information technology project intended, among other
things, to update or replace certain accounting and human resource systems
for all of the Company. Upon announcement of the intended spin-off,
management of the Company initiated a project by project review of the
information technology plan. Upon completion of its review, management has
decided to abandon certain of the projects in development, including the
project to update or replace certain accounting and human resource systems.
In connection therewith, the Company also plans to dispose of certain in-
unit computer equipment and replace that equipment with computers more
technologically advanced. At the January 10, 1996 board meeting such
actions were approved by the Board of Directors. Accordingly, the Company
anticipates recording a charge of $3,815,000 for the write-off of the
information technology projects and $704,000 for the remaining carrying
value of that equipment in the third fiscal quarter.
In addition to the write-down of fixed assets to occur on the 16 units to
be closed, the Company will accrue charges of $3,521,000 relating to the
settlement of the related lease obligations. Management estimates that it
can negotiate lease settlements on units within 36 months and does not
expect to sublease any units. One of the units to be closed is company-
owned.
Other charges of $1,987,000 anticipated to be recorded consist primarily
of estimated professional and other fees to be incurred in accordance
with the spin-off ($1,091,000); severance pay for staff reductions
expected during the quarter ($575,000) and miscellaneous other asset
write-offs ($321,000).
The Company also announced the effect of adoption of FAS 121 on
discontinued operations. MFCI anticipates recording charges associated
with its spin-off from the Company and other costs associated with the
closing of seven traditional cafeterias and 15 Quick Service Restaurants.
In accordance with the adoption of FAS 121, a pre-tax charge of $11,838,000
will be recorded comprised of the following: impairment to be recognized
on the 22 units approved for closure within one year by the Board of
Directors on January 10, 1996, $6,774,000 and impairment on units remaining
open, $5,064,000.
In addition to the write-down of fixed assets to occur on the 22 units to
be closed, MFCI expects to accrue charges of $8,273,000 relating to the
settlement of the related lease obligations. Management estimates that it
can negotiate lease settlements on units within 48 months and does not
expect to sublease any units.
In connection with the Distribution and the unit closings, MFCI announced
that it expects to incur relocation costs of approximately $650,000 for
personnel moving during the third quarter.
Other charges of $1,184,000 anticipated to be recorded consist primarily of
estimated professional and other fees incurred in accordance with the
Distribution ($1,024,000) and miscellaneous other asset write-offs
($160,000).
MHCI anticipates to record charges in the third quarter of $1,556,000
consisting primarily of estimated professional and other fees to be
incurred in accordance with the Distribution ($1,071,000), relocation costs
for personnel moving in connection with the Distribution expected during
the quarter ($325,000) and miscellaneous asset write-offs ($160,000).
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are filed as part of this report:
Exhibit
No.
11 Computation of Primary and Fully Diluted Earnings Per Share
27 Financial Data Schedule
REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on October 5, 1995
announcing the Board approved plan to spin off its family dining and
health-care businesses to shareholders to create three separate publicly
held corporations.
The Company filed a Current Report on Form 8-K on December 14, 1995
including the Independent Accountants consent to the restated consolidated
financial statements included in the preliminary proxy statement filed with
the SEC on December 4, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MORRISON RESTAURANTS INC.
(Registrant)
1/16/96 /s/ J. RUSSELL MOTHERSHED
DATE J. RUSSELL MOTHERSHED
Senior Vice President, Finance
(Senior Vice President and
Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
Number Description
11 Computation of Primary and Fully Diluted Earnings Per Share
27 Financial Data Schedule
21
<PAGE>
<TABLE>
ITEM 6.(a)
EXHIBIT 11: COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
DEC.2, 1995 DEC.3, 1994 DEC.2, 1995 DEC.3, 1994
PRIMARY EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
<S> <C> <C> <C> <C>
Average common shares outstanding...... 34,574 34,636 34,557 34,948
Average additional common shares
issuable on exercise of dilutive
stock options (computed by use of
the "treasury stock method", at the
average market price)................ 708 1,455 859 1,376
TOTALS.............. 35,282 36,091 35,416 36,324
Net Income:
Continuing operations.................. $2,087 $ 5,322 $ 6,298 $(1,123)
Discontinued operations................ 4,647 6,809 9,892 37,764
$6,734 $12,131 $16,190 $36,641
Primary earnings per common and
common equivalent share:
Continuing operations.................. $0.06 $0.15 $0.18 $(0.03)
Discontinued operations................ 0.13 0.19 0.28 1.04
$0.19 $0.34 $0.46 $ 1.01
</TABLE>
</PAGE>
<PAGE>
<TABLE>
ITEM 6.(a) (continued)
EXHIBIT 11: COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
DEC.2, 1995 DEC.3, 1994 DEC.2, 1995 DEC.3, 1994
FULLY DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE
<S> <C> <C> <C> <C>
Average common shares outstanding...... 34,574 34,636 34,557 34,948
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)........................ 708 1,456 859 1,435
TOTALS.............. 35,282 36,092 35,416 36,383
Net Income:
Continuing operations.................. $2,087 $5,322 $ 6,298 $(1,123)
Discontinued operations................ 4,647 6,809 9,892 37,764
$6,734 $12,131 $16,190 $36,641
Fully diluted earnings per common and
common equivalent share:
Continuing operations.................. $0.06 $0.15 $0.18 $(0.03)
Discontinued operations................ 0.13 0.19 0.28 1.04
$0.19 $0.34 $0.46 $1.01
</TABLE>
</PAGE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS REVISED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MORRISON RESTAURANTS INC. FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED
DECEMBER 2, 1995 AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-01-1996
<PERIOD-END> DEC-02-1995
<CASH> 9,617
<SECURITIES> 0
<RECEIVABLES> 213
<ALLOWANCES> 0
<INVENTORY> 8,868
<CURRENT-ASSETS> 80,045
<PP&E> 458,309
<DEPRECIATION> 132,620
<TOTAL-ASSETS> 545,977
<CURRENT-LIABILITIES> 121,876
<BONDS> 69,136
0
0
<COMMON> 436
<OTHER-SE> 256,148
<TOTAL-LIABILITY-AND-EQUITY> 545,977
<SALES> 296,355
<TOTAL-REVENUES> 297,965
<CGS> 82,031
<TOTAL-COSTS> 266,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,522
<INCOME-PRETAX> 9,336
<INCOME-TAX> 3,038
<INCOME-CONTINUING> 6,298
<DISCONTINUED> 9,892
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,190
<EPS-PRIMARY> $0.46
<EPS-DILUTED> $0.46
</TABLE>
