-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BpQccdpANUpR5gcTJYj+9XM0bFJ2rHjgT6N1AfPTW7QjGgeod5N9gUtzRSL0VlNz bww1vdwyv9LiERV5ArKi5w== 0001007507-99-000016.txt : 19990415 0001007507-99-000016.hdr.sgml : 19990415 ACCESSION NUMBER: 0001007507-99-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORRISON HEALTH CARE INC CENTRAL INDEX KEY: 0001007507 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 631155966 STATE OF INCORPORATION: GA FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14194 FILM NUMBER: 99593463 BUSINESS ADDRESS: STREET 1: 1955 LAKE PARK DR SE STREET 2: STE 400 CITY: SMYRNA STATE: GA ZIP: 30080-8855 BUSINESS PHONE: 7704373300 MAIL ADDRESS: STREET 1: 1955 LAKE PARK DR SE STREET 2: STE 400 CITY: SMYRNA STATE: GA ZIP: 30080-8855 10-Q 1 FORM 10-Q FOR THE NINE MONTHS ENDED FEB. 28, 1999 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 February 28, 1999 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 1-14194 MORRISON HEALTH CARE, INC. -------------------------------------------------- (Exact name of Registrant as specified in charter) GEORGIA 63-115596 ----------------------------------------- -------------------------- (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No.) 1955 Lake Park Drive, Suite 400, Smyrna, GA 30080-8855 ----------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (770)437-3300 -------------------------- 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___ 12,112,226 ----------------------------------------------------------------------------- (Number of shares of $0.01 par value common stock outstanding as of March 31, 1999) INDEX PART I Financial Information Page Number ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of February 28, 1999 and May 31, 1998.........................3 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended February 28, 1999 and 1998...................................................4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended February 28, 1999 and 1998.......5 Notes to Condensed Consolidated Financial Statements.......6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................7-9 Item 3. Quantitative and Qualitative Disclosures about Market Risk..............................................N/A PART II Other Information Item 1. Legal Proceedings.........................................10 Item 2. Changes in Securities...................................None Item 3. Defaults upon Senior Securities.........................None Item 4. Submission of Matters to a Vote of Security Holders.....None Item 5. Other Information.........................................10 Item 6. Exhibits and Reports on Form 8-K..........................10 Signatures..................................................................11 Index to Exhibits, Financial Statement Schedules, and Reports on Form 8-K...12 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS Morrison Health Care, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (In thousands, except per share data)
As of As of February 28, 1999 May 31, 1998 ---------------------------------------- (Unaudited) (Audited) Assets Current assets: Cash and short-term investments $ 3,103 $ 5,720 Receivables - accounts and notes (net) 34,030 27,753 Inventories 3,015 2,936 Prepaid expenses 645 1,262 Deferred income tax benefits 2,977 1,949 ---------------------------------------- Total current assets 43,770 39,620 Property and equipment - at cost 30,486 24,191 Less accumulated depreciation 11,517 10,232 ---------------------------------------- 18,969 13,959 Cost in excess of net assets acquired, net 18,248 12,097 Deferred charges 6,591 4,083 Other assets 16,026 14,615 ---------------------------------------- Total assets $103,604 $84,374 ======================================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 11,150 $11,975 Disbursements in transit 2,374 2,570 Other accrued liabilities 12,232 12,709 Current portion of long-term debt 11 5,022 ---------------------------------------- Total current liabilities 25,767 32,276 Long-term debt 53,475 31,690 Other deferred liabilities 11,206 10,188 Stockholders' equity: Common stock, $0.01 par value (authorized 100,000 shares; issued: 12,669 and 12,379 shares, 1999 and 1998, respectively) 127 124 Capital in excess of par value 17,321 12,859 Unearned ESOP shares (2,923) (3,195) Deferred Comp Plan liability payable in Company Stock 1,489 1,848 Retained earnings 10,656 2,322 ---------------------------------------- 26,670 13,958 Less cost of treasury stock 13,514 3,738 ---------------------------------------- Total stockholders' equity 13,156 10,220 ---------------------------------------- Total liabilities and stockholders' equity $103,604 $84,374 ======================================== The accompanying notes are an integral part of the financial statements.
Morrison Health Care, Inc. and Subsidiaries Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited)
For the Three Months Ended For the Nine Months Ended --------------------------- --------------------------- February 28, February 28, February 28, February 28, 1999 1998 1999 1998 --------------------------- --------------------------- Revenues $84,085 $63,337 $234,164 $181,737 Operating costs and expenses: Operating expenses 70,314 52,796 195,541 150,481 Selling, general and administrative 7,876 5,925 20,789 16,475 Interest expense, net of interest income 644 324 1,708 780 --------------------------- --------------------------- 78,834 59,045 218,038 167,736 --------------------------- --------------------------- Income before provision for income taxes 5,251 4,292 16,126 14,001 Provision for federal and state income taxes 2,021 1,695 6,320 5,530 --------------------------- --------------------------- Net income $ 3,230 $ 2,597 $ 9,806 $ 8,471 =========================== =========================== Earnings per share - Basic $ 0.28 $ 0.22 $ 0.82 $ 0.71 =========================== =========================== Earnings per share - Diluted $ 0.27 $ 0.21 $ 0.81 $ 0.70 =========================== =========================== Weighted-average common shares - Basic 11,867 11,975 11,935 11,927 Net effect of dilutive stock options 273 283 231 222 --------------------------- --------------------------- Weighted-average common and common equivalent shares - Diluted 12,140 12,258 12,166 12,149 =========================== ===========================
The accompanying notes are an integral part of the financial statements. Morrison Health Care, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Amounts in thousands) (Unaudited)
For the Nine Months Ended ------------------------------- February 28, February 28, 1999 1998 ------------ ------------ Operating activities: Net income $ 9,806 $ 8,471 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,182 1,858 Amortization of intangibles 610 220 Other, net 1,472 734 Deferred income taxes (1,344) (454) Gain on disposition of assets (101) (47) Changes in operating assets and liabilities: Increase in receivables (5,994) (3,974) Increase in inventories (80) (362) Increase in prepaid and other assets (646) (301) Decrease in accounts payable, accrued and other liabilities (1,106) (1,031) Increase in income taxes payable 0 506 ------------ ------------ Net cash provided by operating activities 4,799 5,620 ------------ ------------ Investing activities: Purchases of property and equipment (7,663) (4,911) Proceeds from disposal of assets 763 242 Cost of acquisitions, net (6,528) (6,303) Increase in deferred charges (3,943) (2,253) Other, net 196 (598) ------------ ------------ Net cash used by investing activities (17,175) (13,823) ------------ ------------ Financing activities: Net change in long-term debt 16,629 11,364 Proceeds from the issuance of stock 522 0 Proceeds from exercise of stock options 3,855 2,139 Purchase of treasury stock (10,134) 0 Dividends paid (1,472) (7,391) Decrease/(Increase) in treasury stock held by deferred compensation plan 359 (45) (Decrease)/Increase in deferred compensation liability payable in Company stock (359) 45 ESOP shares released 359 294 ------------ ------------ Net cash provided by financing activities 9,759 6,406 ------------ ------------ Decrease in cash and short-term investments (2,617) (1,797) Cash and short-term investments at the beginning of the period 5,720 6,347 ------------ ------------ Cash and short-term investments at the end of the period $ 3,103 $ 4,550 ============ ============
The accompanying notes are an integral part of the financial statements. Morrison Health Care, Inc. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed 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 accompanying unaudited condensed 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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended May 31, 1998. Certain previously reported amounts have been reclassified to be consistent with current reporting practices. NOTE B - SUBSEQUENT EVENTS Declaration of Quarterly Dividend On March 23, 1999, the Company's Board of Directors declared a quarterly cash dividend of $0.04 per share of outstanding common stock payable on April 30, 1999 to shareholders of record at the close of business on April 9, 1999. NOTE C - LONG-TERM DEBT Refinancing of Credit Facility In June 1998, the Company replaced its $50 million credit facility with a $75 million revolving credit line from four financial institutions. The new credit line has a variable interest rate based upon LIBOR and variable interest payment requirements. The principal is due no later than June 30, 2003. The initial amount borrowed was $35.4 million, all of which was used to repay the balance due on the $50 million and $5 million credit facilities. Industrial Revenue Bonds On September 1, 1998, the Company entered into a loan agreement with Maryland Economic Development Corporation relating to tax-exempt adjustable mode Industrial Development Revenue Bonds in the aggregate principal amount of $2.75 million. The bonds bear interest at a variable rate in accordance with the terms of an Indenture of Trust and are due January 1, 2013. The debt is secured by a stand-by letter of credit. NOTE D - ACQUISITION Acquisition - Culinary Service Network, Inc. In October 1998, the Company acquired for approximately $6 million all of the outstanding common stock of Philadelphia-based Culinary Service Network, Inc. ("CSN"), in a cash transaction. The purchase price may increase contingent on the future earnings of CSN. The acquisition was accounted for using the purchase method. The resulting goodwill is being amortized over twenty years using the straight-line method. The results of CSN have been included from the acquisition date. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion below relates to the results of operations of Morrison Health Care, Inc. ("MHCI" or the "Company") for the quarter and the nine months ended February 28, 1999 compared with the results for the comparable periods of the prior year. RESULTS OF OPERATIONS The Company's net income from continuing operations increased 24.4% to $3.2 million for the quarter and increased 15.8% to $9.8 million for the nine months ended February 28, 1999, compared with net income of $2.6 million and $8.5 million reported for the corresponding periods of the prior fiscal year. Earnings before interest and taxes increased 27.7% or $1.3 million to $5.9 million for the quarter and increased 20.7% or $3.1 million to $17.8 million for the nine months ended February 28, 1999. The increase over the corresponding prior year periods was due to growth in continuing and new accounts and high account retention. MANAGED VOLUME AND REVENUE Due to the difference between the amount of revenue that is reported for the fee accounts (net management fee plus reimbursed expenses) and the profit and loss accounts (gross revenues of meal sales), management uses the concept of managed volume to evaluate the Company's true growth. Managed volume is defined by MHCI as the total cost of operating the foodservices, regardless of which type of contract exists with the client. Managed volume from operations increased $39.4 million or 30.5% to $168.6 million for the quarter and increased $98.5 million or 26.8% to $466.2 million for the nine months ended February 28, 1999 over the corresponding prior year periods due to new accounts, acquired accounts and growth in existing accounts. Revenue from operations increased $20.7 million or 32.8% to $84.1 million for the quarter and increased $52.4 million or 28.8% to $234.2 million for the nine months ended February 28, 1999 over the corresponding prior year periods. The increase was primarily attributable to the conversion of client-paid payroll to MHCI-paid payroll in continuing accounts, new accounts and accounts acquired in acquisitions. OPERATING EXPENSES Operating expenses increased $17.5 million or 33.2% to $70.3 million for the quarter and increased $45.1 million or 29.9% to $195.5 million for the nine months ended February 28, 1999. These expenses have increased over the prior year periods primarily as a result of the addition of new and acquired accounts and the conversion of client-paid payroll to MHCI-paid payroll in continuing accounts. Selling, general and administrative expenses remained constant as a percent of managed volume and increased $2.0 million or 32.9% for the quarter and $4.3 million or 26.2% for the nine months ended February 28, 1999 as compared to the corresponding periods of the prior year. This increase is due to the three acquisitions in the past year, expenses related to the opening of new accounts and increased investment in human resources training and development. INTEREST EXPENSE, Net of Interest Income Net interest expense increased from $0.3 million to $0.6 million for the quarter and increased from $0.8 million to $1.7 million for the nine months ended February 28, 1999 as compared to the corresponding periods of the prior year. Interest on funds used to finance construction of significant additions to property and equipment is capitalized. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset's estimated useful life. The Company capitalized interest totaling $25,000 and $219,000, respectively, for the quarter and the nine months ended February 28, 1999, related to the construction of Advanced Culinary Centers and the development and implementation of a new computer information system. INCOME TAXES The effective income tax rate on continuing operations for the quarter and the nine months ended February 28, 1999 was 38.5% and 39.2%, respectively, as compared to 39.5% for the quarter and the nine months ended February 28, 1998. LIQUIDITY AND CAPITAL RESOURCES Total assets at February 28, 1999 were $103.6 million, a $19.2 million increase over $84.4 million as of the prior fiscal year end. This increase is attributable to an increase of $6.3 million in receivables due to the increase in revenue from new, acquired and continuing accounts, a $6.2 increase in goodwill from acquisitions, an increase in net fixed assets primarily due to the construction of Advanced Culinary Centers and the acquisition and implementation of a new computer information system and an increase in deferred charges. Total liabilities at February 28, 1999 were $90.4 million, an $16.3 million increase from $74.2 million as of the end of the prior fiscal year. This increase was primarily due to a $16.8 million increase in debt to fund the increase in fixed assets, receivables and acquisitions. The Company repurchased 207,450 shares of Common Stock, at an average purchase price of $19.65 per share, during the quarter ended February 28, 1999 and 636,850 shares of Common Stock, at an average purchase price of $18.88 per share, during the nine months ended February 28, 1999. Giving effect to these repurchases, the Company has 363,150 shares remaining available for repurchase under its stock repurchase program authorized by the Board of Directors in March 1998. The Company expects that funds generated from operations and existing lines of credit will be sufficient to meet its normal operating requirements over the near term. See "Special Note Regarding Forward-Looking Information." IMPACT OF YEAR 2000 Currently there is significant uncertainty within the software industry and among software users regarding the impact of installed computer software that has been programmed to accept only two-digit entries in the date code fields and to use such two-digit entries in the software's calculation and report generation formats. Current versions of the Company's software programs have been and are being assessed to determine the impact of becoming Year 2000 compliant. Similarly, as part of its continuing review and improvement of systems and operations, the Company is in the process of modifying and replacing certain software programs to avoid any detrimental effects in its installed software programs while upgrading and enhancing the overall effectiveness of its information management systems. The project is expected to be completed well in advance of December 31, 1999. While this project includes both Year 2000 and general improvements, the estimate of the costs to address both issues is less than $5 million, most of which has already been spent. At this time, the design, testing, and implementation has been completed for approximately 95% of the Company's software programs. Conversion of the remaining software programs has been designed and is in the final testing phase, with implementation scheduled to be completed before the end of the fiscal year. Given the progress to date, the Company does not expect this project to pose significant operational problems for the Company. However, the Company cannot make assurances that the Company will not be exposed to any potential claims resulting from the systems problems associated with the century change. See "Special Note Regarding Forward-Looking Information." SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION The foregoing sections contain "forward-looking" statements which represent the Company's expectations or beliefs concerning future events, including statements regarding liquidity and capital resources and Year 2000 compliance. The Company cautions that a number of important factors could, individually or in the aggregate, cause actual results to differ materially from such forward-looking statements including, without limitation, the following: health care spending trends; the growth of systems and group purchasing organizations; changes in health care regulations; increased competition in the health care food and nutrition market; customer acceptance of the Company's cost savings programs; and changes in laws and regulations affecting labor and employee benefit costs. SUBSEQUENT EVENTS Declaration of Quarterly Dividend On March 23, 1999, the Company's Board of Directors declared a quarterly cash dividend of $0.04 per share of outstanding common stock payable on April 30, 1999 to shareholders of record at the close of business on April 9, 1999. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not Applicable. 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 2 CHANGES IN SECURITIES None ITEM 3 DEFAULTS UPON SENIOR SECURITIES None ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5 OTHER INFORMATION None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27 Financial Data Schedule - For the Nine Months ended February 28, 1999 (b) Reports on Form 8-K: None 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 HEALTH CARE, INC. (Registrant) 04/13/99 By: /S/ K. WYATT ENGWALL - -------- ------------------------ DATE K. WYATT ENGWALL Senior Vice President, Finance (Senior Vice President and Principal Accounting Officer) MORRISON HEALTH CARE, INC. LIST OF EXHIBITS Exhibit Number Description - ------- --------------------------------------------------------------------- 27 Financial Data Schedule - For the Nine Months ended February 28, 1999 EX-27 2 FDS FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999
5 This schedule contains summary financial information extracted from the consolidated balance sheets and consolidated statements of income in the Company's Quarterly Report to Shareholders for the quarter ended February 28, 1999 and is qualified in its entirety by reference to such financial statements. 0001007507 MORRISON HEALTH CARE, INC. 1000 9-MOS MAY-31-1999 JUN-01-1998 FEB-28-1999 3,103 0 27,456 715 3,015 43,770 30,486 11,517 103,604 25,767 53,475 0 0 127 13,029 103,604 234,164 234,164 195,541 195,541 0 0 2,060 16,126 6,320 9,806 0 0 0 9,806 0.82 0.81
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