Annual Report (Form 10-K), fiscal year 1994

Item 1. Business.
A(a) General Development of Business
Morrison Restaurants Inc. (hereinafter referred to as the "Registrant" or "Company"), a Delaware corporation, was founded in 1920 as a unique cafeteria concept in Mobile, Alabama. In 1928, with just eight cafeterias, Morrison Restaurants Inc. had its first and only public stock offering. The first cash dividend on the common shares was declared in 1936, and has been paid continuously for 58 years. Beginning October 21, 1993 Morrison Restaurants Inc. common stock was publicly traded on the New York Stock Exchange under the ticker symbol "RI". Prior to that, it was traded over-the-counter under the NASDAQ- NMS Symbol "MORR".
The Company has grown to a diversified restaurant company. During fiscal 1994 the Company structured its operations into two primary groups: Ruby Tuesday Group, comprised of the Ruby Tuesday Division and the Specialty Division, and Morrison Group, comprised of the Health Care Division, the Family Dining Division and the Hospitality Division. Certain of the contracts and assets of the Hospitality Division were sold by the Company on August 8, 1994, with the remaining accounts to be closed. Collectively, the Registrant operates 733 restaurant operations in 38 states and Washington, D.C. The Company at year end operated 288 Casual Dining Restaurants and 445 retail and hospital cafeterias and Fresh Cooking outlets excluding the units of the Hospitality Division.
Through a corporate planning process begun early in 1982, Morrison has reshaped its business with a series of divestitures and acquisitions which has resulted in a significant managerial realignment with a commitment to enhance its position in the restaurant industry. The Company's strategic objectives were to focus resources and capital on retail restaurants and contract food service and to become a company in the business of feeding people. Important milestones in this process are discussed below.
On April 1, 1982, the Company completed the acquisition of Ruby Tuesday, Incorporated, which allowed the Company to enter into the mid-scale casual dining market. Ruby Tuesday's interiors accented with brass and Tiffany-style lamps, coupled with its specialty selections of salads, soups, burgers, chicken and ethnic dishes, have propelled the chain into national prominence. Following the diversification strategy established by the Company's purchase of Ruby Tuesday, the Company has since developed and expanded into the casual dining market with the following concepts: the L&N Seafood Grill (first unit opened March of 1982), Mozzarella's, formerly Silver Spoon Cafes (first unit opened November 1984) and its newest test concept Sweetpea's (first unit opened June 1993). On June 27, 1994, the Company announced that it will convert 30 of the 38 L&N Seafood Grills to other Ruby Tuesday Group concepts (Ruby Tuesdays, Mozzarella's, or Sweetpea's) that have greater growth opportunities. The remaining eight L&N Seafood Grills will be sold or closed.
The Company acquired Custom Management Corporation located in Kingston, Pennsylvania in fiscal 1987, Dobbs Food Service Management in fiscal 1988 and Manask Food Services, Inc. in fiscal 1989. Combined with
Morrison Management Services, the self developed contract feeding division, this portion of the business later became known as Morrison Hospitality Group, providing food-management contracts nationwide for all types of institutions and industry. In fiscal 1994 the Company structured the contract feeding division of the business into a Health Care Division and a Hospitality Division. In accordance with the business and financial plans of the Company approved in fiscal 1994, on August 8, 1994, the Company disposed of certain education, business and industry contracts and assets (which were a part of the Morrison Group's Hospitality Division) as a part of the Company's strategy to invest in high growth businesses that have or can attain a dominant position in their respective categories.
Another divestiture was completed in fiscal 1989, when Morco Industries, a division of the Registrant distributing food products and food service equipment, was sold to PYA/Monarch, the food service distribution division of Sara Lee Corporation. This sale enabled Morrison to redirect the capital resources invested in Morco Industries into greater growth opportunities.
Fiscal 1992 was a milestone year for the Company as revenues surpassed $1 billion, establishing the Company as one of the premier restaurant companies in the nation. On September 30, 1992, with shareholder approval, management decided to formally change the name of the Company to "Morrison Restaurants Inc." The name change solidified the direction of the Registrant as a restaurant company.
Fiscal 1993 was again a record year in sales and earnings. The Specialty Restaurant Division began testing a new concept, Sweetpea's, a full service restaurant with a casual atmosphere and freshly prepared homemade foods. The Family Dining Division began investing in growth with Fresh Cooking outlets which are located in mall food-courts and serve selected items from the cafeteria menu. This division also began investing in a smaller cafeteria style family restaurant with a more limited menu than existing cafeterias.
Fiscal 1994 marked the Company's third straight year of record sales and earnings. The Company implemented a new financial strategy in fiscal 1994 that focuses on the maintenance of a targeted capital structure utilizing prudent amounts of debt to finance the Company's expansion. The Company's business strategy for the future focuses on more aggressive growth in each division while increasing prior same-store sales.
(b) Financial Information About Industry Segments
The information appearing under the caption "Group Information" of the Registrant's Annual Report to Stockholders for the fiscal year ended June 4, 1994, and Note 2 of the Notes to Consolidated Financial Statements included in the Registrant's Annual Report to Stockholders for the fiscal year ended June 4, 1994 is incorporated herein by reference.
(c) Narrative Description of Business
Morrison Restaurants Inc. is a diversified restaurant company with operations in two primary business groups: Ruby Tuesday Group encompassing casual dining restaurants and Morrison Group encompassing retail cafeteria operations and the food contract management of health care cafeterias. Collectively, the Company operates 733 restaurant operations in 38 states and Washington, D.C.
The Registrant is not engaged in any material research activities relating to the development of new products or services or the improve- ment of existing products or services. Numerous studies are made, however, on a continuing basis, to improve menus, equipment, and methods of operations, including planning for new food service concepts.
Raw materials essential to the operation of its business are obtained from numerous sources but principally from PYA/Monarch under a cost-plus arrangement. The purchases from PYA/Monarch are in accordance with the Supply Agreement between the Company and PYA/Monarch which was entered into on July 8, 1988, in conjunction with the disposal by the Company of the Morco Industries division. If PYA/Monarch is unable to meet the Company's supply needs, other sources may be utilized. Because of the relatively short storage life of inventories, limited storage facilities at the restaurants themselves, the Registrant's requirement for freshness and the numerous sources of goods, a minimum amount of inventory is maintained at the units. Inventories are stated at the lower of cost (first in-first out) or market.
The Registrant has registered certain trademarks and service marks with the United States Patent and Trademark Office; "Morrison's" , "Ruby Tuesday", and "Mozzarella's" are three such marks. The Registrant believes that these and other related marks are of material importance to the Registrant's business. Registrations of trademarks and service marks expire from 1995 to 2014, unless renewed.
Portions of the Company's 1994 working capital were used to fund the investment in capital expenditures and to repurchase shares of the Company's common stock. Cash that is not needed in the day-to-day operation of the Company is invested in temporary investments. The terms for receivables continue to be net 30 days and inventories are maintained only at necessary levels. Payables continue to remain high due to management's program to maximize the use of its assets by taking advantage of the best terms from its vendors.
Additional information concerning the working capital of the Company is incorporated herein by reference to information under the caption "2.4 Working Capital" of the Company's 1994 Annual Report to Stockholders.
No material part of the business of the Registrant is dependent upon a single customer, or a very few customers, the loss of any one of which would have a materially adverse effect on the Registrant.
Backlog of orders is not significant in the business of the Registrant.
There is no material portion of the Registrant's business that is subject to renegotiation of profits or termination of contracts or sub-contracts at the election of the Government.
The Registrant's activities in the restaurant industry and related fields are subject to vigorous competition from numerous companies as well as individuals who are engaged in offering the same type of service and products as the Registrant.
Compliance with Federal, State and local laws, regulations, ordinances, rules and provisions 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 Registrant.
The Registrant employs approximately 33,000 full-time and part-time employees, excluding the employees of the education, business and industry accounts which were sold on August 8, 1994.
(d) Financial Information About Foreign and Domestic Operations and Export Sales.
All of Registrant's wholly owned operations are located within the United States. The Registrant and its subsidiaries have not engaged in material operations in foreign countries.
Item 2.



Item 2. Properties.
Information regarding the locations of the Registrant's Ruby Tuesday Group and Morrison Group (retail and hospital cafeterias) operations is shown in the list below. The nature of the Health Care Division of the Morrison Group is professionally managing food and related service systems on client-owned property. Vending services on client-owned facilities complement this program. Except for 51 company-owned properties, the Ruby Tuesday Group and retail cafeteria operations are conducted in leased premises. Initial lease terms expire at various dates over the next 23 years and may provide for escalations of rents during the lease terms. Most of these leases provide for additional contingent rents based upon sales volume and contain options to renew (at adjusted rentals for some leases). Operating leases expiring in each of the next five fiscal years are: 26 in 1995; 31 in 1996; 15 in 1997; 25 in 1998; and 25 in 1999. The Registrant has a policy to remodel units as needed. Facilities and equipment are repaired and maintained to assure their adequacy, productive capacity and utilization. The administrative personnel of the Registrant are located in the executive and administrative headquarters building located in Mobile, Alabama. The administrative headquarters has a lease term ending in 1998 and provides an option to purchase at a nominal amount at the end of the initial lease term. This building was financed through the sale of Industrial Development Revenue Bonds from the Industrial Development Board of the City of Mobile, Alabama.
Additional information concerning the properties of the Registrant and the lease obligations of the Registrant and its subsidiaries is incorporated herein by reference to Note 9 of the Notes to Consolidated Financial Statements included in the Registrant's Annual Report to Stockholders for the fiscal year ended June 4, 1994.
Item 2. Properties
Item 3.

Item 3. Legal Proceedings.
The Registrant 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 materially adverse effect on the Registrant's operations or consolidated financial position.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
None.
Mr. Beall was elected Chief Executive Officer effective June 6, 1992. Mr. Beall served as President and Chief Operating Officer from September of 1986.
Mr. McClenagan was appointed President of the Ruby Tuesday Division in March 1994. He served as President of the Ruby Tuesday Group from April 1990 to March 1994 and as Senior Vice President of the Specialty Restaurant Division from March 1985 to April 1990.
Mr. Tatum was appointed President of the Family Dining Division in March 1994. Previously, he was Senior Vice President of Morrison's Family Dining Group and was appointed President of Morrison's Family Dining Group in March of 1993.
Mr. Hunt joined the Company in June 1968 and was named Senior Vice President, General Counsel and Secretary in September 1985. From December 1984, to September 1985, he served as Vice President, General Counsel and Secretary.
Mr. Mothershed joined the Company in July 1972 and was named Senior Vice President, Finance in March 1994. He served as Vice President, Controller and Treasurer from March 1989 until March 1994.
Mr. Vilord joined the Company in April 1988 and was named Senior Vice President of Human Resources in June 1993. He served as Vice President of Purchasing from October 1989 until June 1993.
Mr. Johnson was named President, Specialty Division in March, 1994. Prior thereto, he served as Senior Vice President, Marketing from June 1993 to March 1994 and as Vice President, Marketing of the Ruby Tuesday Group from November 1992 to June 1993. Prior to joining the Company in November, 1992, Mr. Johnson was a consultant to the Ruby Tuesday Group.
Mr. Davenport joined the Company in November 1973 and was appointed President of Morrison's Health Care Division in November 1993. Previously, he served as Regional Vice President of the Hospitality Group and was promoted to Senior Vice President, Hospitality Group in February 1990.
PART II
Item 5.

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 13 of the Notes to Consolidated Financial Statements of the Registrant's Annual Report to Stockholders for the fiscal year ended June 4, 1994.
Under various financing agreements, the Company has agreed to restrict dividend payments (other than stock dividends) and purchases of its capital stock to amounts (collectively, "Restricted Payments") based on earnings after fiscal year 1990. Specifically, the maximum amount available for Restricted Payments at any time is an amount equal to the sum of (1) $27,000,000 plus 50% (or minus 100% in the case of a deficit) of Consolidated Net Earnings for the period commencing on June 3, 1990, and terminating at the end of the last fiscal quarter preceding the date of any proposed Restricted Payment, less (2) the sum of (a) the aggregate amount of all dividends and other distributions paid or declared by the Company on any class of its stock after June 2, 1990, and (b) the excess of the aggregate amount expended by the Company, directly, or indirectly, after June 2, 1990, for the redemption, purchase or other acquisition of any shares of its stock, over the aggregate amount received by the Company after June 2, 1990, as the net cash proceeds of the sale of any shares of its stock. At June 4, 1994, the maximum amount of permissible Restricted Payments was $2,146,000.
Item 6.

Item 6. Selected Financial Data.
The information contained under the caption "Summary of Operations" of the Registrant's Annual Report to Stockholders for the fiscal year ended June 4, 1994 is incorporated herein by reference.
Item 7.

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 Stockholders for the fiscal year ended June 4, 1994 is incorporated herein by reference.
Item 8.


Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements and the related report of the Company's independent auditors contained in the Registrant's Annual Report to Stockholders for the fiscal year ended June 4, 1994, are incorporated herein by reference:
Consolidated Statements of Income - Fiscal years ended June 4, 1994, June 5, 1993 and June 6, 1992.
Consolidated Balance Sheets - As of June 4, 1994 and June 5, 1993.
Consolidated Statements of Stockholders' Equity - Fiscal years ended June 4, 1994, June 5, 1993 and June 6, 1992.
Consolidated Statements of Cash Flows - Fiscal years ended June 4, 1994, June 5, 1993 and June 6, 1992.
Notes to Consolidated Financial Statements.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None. PART III
Item 10.



Item 10. Directors and Executive Officers of the Registrant.
(a) The information regarding directors of the Registrant is incorporated herein by reference to the information set forth in the table captioned "Director and Director Nominee Information" under Proposal 1 in the definitive proxy statement of the Registrant dated August 26, 1994, relating to the Registrant's annual meeting of stockholders to be held on September 28, 1994.
(b) Pursuant to Form 10-K General Instruction G(3), the information regarding executive officers of the Registrant has been included in Part I of this Report under the caption "Executive Officers of the Registrant".
Item 11.

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 "Proposal 1 - Election of Directors - Directors' Fees and Attendance" in the definitive proxy statement of the Registrant dated August 26, 1994 relating to the Registrant`s annual meeting of stockholders to be held on September 28, 1994.
Item 12.

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" in the definitive proxy statement of the Registrant dated August 26, 1994, relating to the Registrant's annual meeting of stockholders to be held on September 28, 1994.
Item 13.

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 26, 1994, relating to the Registrant's annual meeting of stockholders to be held on September 28, 1994.
PART IV
Item 14.

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 consolidated financial statements and the independent auditors' report thereon, included in the Registrant's Annual Report to Stockholders for the fiscal year ended June 4, 1994, a copy of which is contained in the exhibits to this report, are incorporated herein by reference:
3. Exhibits
The following exhibits are filed as part of this report:
(b) The Registrant filed no reports on Form 8-K during the last quarter of the period covered by this report.
(c) Exhibits filed with this report are attached hereto.
(d) The financial statement schedules listed in subsection (a) (2) above are attached hereto.
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors Morrison Restaurants Inc.
We have audited the accompanying consolidated balance sheets of Morrison Restaurants Inc. as of June 4, 1994 and June 5, 1993, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended June 4, 1994. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 significant 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Morrison Restaurants Inc. at June 4, 1994 and June 5, 1993, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended June 4, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Ernst & Young
Birmingham, Alabama June 23, 1994, except for Note 12 of Notes to Consolidated Financial Statements as to which the date is August 8, 1994.
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 RESTAURANTS INC.
Date 08/29/94 By:/s/ Samuel E. Beall, III Samuel E. Beall, III Chief Executive Officer and Director
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 08/29/94 By:/s/ E. E. Bishop E. E. Bishop Chairman of the Board
Date 08/29/94 By:/s/ Samuel E. Beall, III Samuel E. Beall, III Chief Executive Officer and Director
Date 08/29/94 By:/s/ J. Russell Mothershed J. Russell Mothershed Senior Vice President, Finance (Principal Accounting Officer)
Date 08/29/94 By:/s/ Arthur R. Outlaw Arthur R. Outlaw Vice-Chairman of the Board
Date 08/29/94 By:/s/ Robert J. Theis, Sr. Robert J. Theis Sr. Director
Date 08/29/94 By:/s/ J. B. McKinnon J. B. McKinnon Director
Date 08/29/94 By:/s/ Dr. Donald Ratajczak Dr. Donald Ratajczak Director
Date Claire L. Arnold Director
Date Dr. Benjamin F. Payton Director
Date Wallace R. Bunn Director
Date Dolph W. Von Arx Director