-----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, LIaqEZWXHzLi9emGcpw+MrtrTP6N8ztEq/rATNdfzO3NELsnLIdxA6SbR7eAhV+M iqrmGspMAXEkalSn/NQjBQ== 0001007507-99-000005.txt : 19990115 0001007507-99-000005.hdr.sgml : 19990115 ACCESSION NUMBER: 0001007507-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990114 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: 99506464 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 SIX MONTHS ENDED NOV. 30, 1998 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 November 30, 1998 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 63-1155966 - ------------------------------------------------ --------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer 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 12,076,929 - -------------------------------------------------------------------------------- (Number of shares of $0.01 par value common stock outstanding as of December 31, 1998) INDEX PART I Financial Information Page Number ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of November 30, 1998 and May 31, 1998.............................3 Condensed Consolidated Statements of Income for the Three Months and Six Months Ended November 30, 1998 and 1997.......................................................4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended November 30, 1998 and 1997............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...........10 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 November 30, 1998 May 31, 1998 ---------------------------------------- (Unaudited) (Audited) Assets Current assets: Cash and short-term investments $ 2,694 $ 5,720 Receivables - accounts and notes (net) 36,912 27,753 Inventories 2,924 2,936 Prepaid expenses 1,288 1,262 Deferred income tax benefits 2,027 1,949 - ------------------------------------------------------------------------ Total current assets 45,845 39,620 - ------------------------------------------------------------------------ Property and equipment - at cost 28,998 24,191 Less accumulated depreciation 10,967 10,232 - ------------------------------------------------------------------------ 18,031 13,959 Cost in excess of net assets acquired, net 18,159 12,097 Deferred charges 7,009 4,083 Other assets 15,628 14,615 - ------------------------------------------------------------------------ Total assets $104,672 $84,374 ======================================================================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 10,966 $ 11,975 Disbursements in transit 2,936 2,570 Other accrued liabilities 11,682 12,709 Current portion of long-term debt 33 5,022 - ------------------------------------------------------------------------ Total current liabilities 25,617 32,276 - ------------------------------------------------------------------------ Long-term debt 56,475 31,690 Other deferred liabilities 10,827 10,188 Stockholders' equity: Common stock, $0.01 par value (authorized 100,000 shares; issued: 12,509 and 12,379 shares, 1999 and 1998, respectively) 125 124 Capital in excess of par value 14,673 12,859 Unearned ESOP shares (3,015) (3,195) Deferred Comp Plan liability payable in Company Stock 1,461 1,848 Retained earnings 7,919 2,322 - ------------------------------------------------------------------------ 21,163 13,958 Less cost of treasury stock 9,410 3,738 - ------------------------------------------------------------------------ Total stockholders' equity 11,753 10,220 - ------------------------------------------------------------------------ Total liabilities and stockholders' equity $104,672 $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 Six Months Ended November 30, November 30, November 30, November 30, 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------ Revenues $77,833 $60,646 $150,079 $118,400 Operating costs and expenses: Operating expenses 64,578 49,958 125,227 97,685 Selling, general and administrative 6,995 5,424 12,913 10,550 Interest expense, net of interest income 640 229 1,064 456 - ------------------------------------------------------------------------------------------------------------ 72,213 55,611 139,204 108,691 - ------------------------------------------------------------------------------------------------------------ Income before provision for income taxes 5,620 5,035 10,875 9,709 Provision for federal and state income taxes 2,196 1,989 4,299 3,835 - ------------------------------------------------------------------------------------------------------------ Net income $ 3,424 $ 3,046 $ 6,576 $ 5,874 ============================================================================================================ Earnings per share - Basic $ 0.28 $ 0.25 $ 0.54 $ 0.49 ================================================================ Earnings per share - Diluted $ 0.28 $ 0.25 $ 0.54 $ 0.49 ================================================================ Weighted-average common shares - Basic 12,044 11,965 11,970 11,904 Net effect of dilutive stock options 171 196 209 191 ---------------------------------------------------------------- Weighted-average common and common equivalent shares - Diluted 12,215 12,161 12,179 12,095 ================================================================
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 Six Months Ended November 30, 1998 November 30, 1997 ---------------------------------------- Operating activities: Net income $ 6,576 $ 5,874 Adjustments to reconcile net income to net cash used by operating activities: Depreciation and amortization 1,375 1,216 Amortization of intangibles 374 113 Other, net 864 483 Deferred income taxes (59) (295) Gain on disposition of assets (94) (39) Changes in operating assets and liabilities: Increase in receivables (8,663) (4,777) Decrease/(Increase) in inventories 12 (31) Increase in prepaid and other assets (1,183) (209) (Decrease)/Increase in accounts payable, accrued and other liabilities (1,587) 897 (Decrease)/Increase in income taxes payable (174) 688 - -------------------------------------------------------------------------------- Net cash (used)/provided by operating activities (2,559) 3,920 - -------------------------------------------------------------------------------- Investing activities: Purchases of property and equipment (5,878) (2,447) Proceeds from disposal of assets 715 225 Cost of acquisitions, net (6,251) (721) Increase in deferred charges (3,754) (1,292) Other, net 115 (1,120) - -------------------------------------------------------------------------------- Net cash used by investing activities (15,053) (5,355) - -------------------------------------------------------------------------------- Financing activities: Net change in long-term debt 19,629 3,884 Proceeds from the issuance of stock 522 0 Proceeds from exercise of stock options 1,240 1,770 Purchase of Treasury Stock (6,058) 0 Dividends paid (979) (4,914) Decrease in treasury stock held by deferred compensation plan 387 31 Decrease in deferred compensation liability payable in Company stock (387) (31) ESOP shares released 232 190 - -------------------------------------------------------------------------------- Net cash provided by financing activities 14,586 930 - -------------------------------------------------------------------------------- Decrease in cash and short-term investments (3,026) (505) 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 $ 2,694 $ 5,842 ================================================================================ 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 January 7, 1999, the Company's Board of Directors declared a quarterly cash dividend of $0.04 per share of outstanding common stock payable on January 29, 1999 to shareholders of record at the close of business on January 19, 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. At November 30, 1998 the Company had $53.7 million outstanding under the revolving lines of credit. 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 are 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 six months ended November 30, 1998 compared with the results for the comparable periods of the prior year. RESULTS OF OPERATIONS The Company's net income from continuing operations increased 12.4% to $3.4 million for the quarter and increased 12.0% to $6.6 million for the six months ended November 30 , 1998, compared with net income of $3.0 million and $5.9 million reported for the corresponding periods of the prior fiscal year. Earnings before interest and taxes increased 18.9% or $1.0 million to $6.3 million for the quarter and increased 17.5% or $1.8 million to $11.9 million for the six months ended November 30, 1998. The increase over the 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 foodservice. Managed volume from operations increased $34.6 million or 28.6% to $155.6 million for the quarter and increased $59.1 million or 24.8% to $297.6 million for the six months ended November 30, 1998 over the prior year periods due to new accounts, acquired accounts and growth in existing accounts. Revenue from operations increased $17.2 million or 28.3% to $77.8 million for the quarter and increased $31.7 million or 26.8% to $150.1 million for the six months ended November 30, 1998 over the 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 $14.6 million or 29.3% to $64.6 million for the quarter and increased $27.5 million or 28.2% to $125.2 million for the six months ended November 30, 1998. 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 increased $1.6 million or 29.0% for the quarter and increased $2.4 million or 22.4% for the six months ended November 30, 1998 as compared to the corresponding periods of the prior year. This increase is due to the three acquisitions in the past twelve months and the expenses related to the opening of new accounts. INTEREST EXPENSE, Net of Interest Income Net interest expense increased from $0.2 million to $0.6 million for the quarter and increased from $0.5 million to $1.1 million for the six months ended November 30, 1998 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 $119,000 and $194,000, respectively, for the quarter and the six months ended November 30, 1998, 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 six months ended November 30, 1998 was 39.1% and 39.5%, respectively, as compared to 39.5% for the quarter and the six months ended November 30, 1997. LIQUIDITY AND CAPITAL RESOURCES Total assets at November 30, 1998 were $104.7 million, a $20.3 million increase over $84.4 million as of the prior fiscal year end. This increase is attributable to an increase of $9.2 million in receivables due to the increase in revenue from new, acquired and continuing accounts, a $6.1 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 November 30, 1998 were $92.9 million, an $18.8 million increase from $74.2 million as of the end of the prior fiscal year. This increase was primarily due to a $19.8 million increase in debt to fund the increase in fixed assets, accounts receivable and acquisitions. 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 90% 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 January 7, 1999, the Company's Board of Directors declared a quarterly cash dividend of $0.04 per share of outstanding common stock payable on January 29, 1999 to shareholders of record at the close of business on January 19, 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 On September 29, 1998, the Company held its Annual Meeting of Shareholders in Atlanta, Georgia. During the meeting, the following matters were voted upon. Proposal 1 - Election of Directors The following nominees were elected as Class III directors to the Board of Directors for a three year term. Number of Number of Votes Nominees Votes For Withheld John B. McKinnon 8,579,249 61,632 Dr. Benjamin F. Payton 8,573,104 67,777 Other members of the Board of Directors are Claire L. Arnold, E. Eugene Bishop, Fred L. Brown, Michael F. Corbett, Glenn A. Davenport, and Arthur R. Outlaw, Jr. ITEM 5 OTHER INFORMATION None ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27 Financial Data Schedule - For the Six Months ended November 30, 1998 (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) 01/13/99 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 Six Months ended November 30, 1998 EX-27 2 FDS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998
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 November 30, 1998 and is qualified in its entirety by reference to such financial statements. 0001007507 MORRISON HEALTH CARE, INC. 1000 6-MOS MAY-31-1999 JUN-01-1998 NOV-30-1998 2,694 0 29,852 715 2,924 45,845 28,998 10,967 104,672 25,617 56,475 0 0 125 11,628 104,672 150,079 150,079 125,227 125,227 0 0 1,230 10,875 4,299 6,576 0 0 0 6,576 0.54 0.54
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