12
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 AUGUST 31, 1996
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 (I.R.S. Employer identification No.)
incorporation or organization)
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
11,858,164
(Number of shares of $0.01 par value common stock outstanding
as of October 4, 1996)
INDEX
PART I Financial Information
Page
Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
August 31, 1996 and June 1, 1996 3
Condensed Consolidated Statements of
Income for the Thirteen Weeks Ended
August 31, 1996 and September 2, 1995 4
Condensed Consolidated Statements of Cash
Flows for the Thirteen Weeks Ended
August 31, 1996 and September 2, 1995 5
Notes to Condensed Consolidated Financial
Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-9
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 None
Security Holders
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
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
Historical As of As of
August 31, 1996 June 1, 1996
(Unaudited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 8,208 $ 6,088
Receivables - accounts and notes (net) 21,620 24,077
Inventories 2,636 2,662
Prepaid expenses 1,482 1,616
Deferred income tax benefits 2,604 2,397
Total current assets 36,550 36,840
Property and equipment - at cost 15,520 15,229
Less accumulated depreciation 9,422 9,571
6,098 5,658
Cost in excess of net assets acquired, net 4,697 4,736
Other assets 14,666 15,309
Total assets $62,011 $62,543
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 8,398 $ 8,684
Short-term borrowings 5,000 6,760
Other accrued liabilities 11,386 11,266
Current portion of long-term debt 1,261 11
Total current liabilities 26,045 26,721
Notes payable 18,772 20,034
Other deferred liabilities 12,137 11,072
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 11,849 and 11,848 shares,
1997 and 1996, respectively) 118 118
Capital in excess of par value 5,576 5,441
Retained earnings 358 86
6,052 5,645
Less cost of treasury stock 995 929
Total stockholders' equity 5,057 4,716
Total liabilities and stockholders' equity $62,011 $62,543
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<CAPTION>
For the Thirteen Weeks Ended
September 2, 1995
Pro Forma
For the Thirteen Weeks Ended Adjustments
August 31, 1996 Historical Note (C) Pro Forma
<S> <C> <C> <C> <C>
Revenues $52,658 $56,289 $ 0 $56,289
Operating costs and expenses:
Operating expenses 43,024 45,963 53 (a) 46,016
Selling, general and administrative 4,913 4,287 698 (a) 4,985
Interest expense, net of interest income,
totaling $294 in 1997 and $34 in 1996 102 362 362
48,039 50,612 751 51,363
Income before provision for income taxes 4,619 5,677 (751) 4,926
Provision for federal and state income taxes 1,923 2,342 (310)(b) 2,032
Net income $ 2,696 $ 3,335 $(441) $ 2,894
Earnings per common and common equivalent share $ 0.23 $ 0.24
Weighted average common and common
equivalent shares 11,837 11,850
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<CAPTION>
Historical
For the Thirteen Weeks Ended
August 31, 1996 September 2, 1995
<S> <C> <C>
Operating activities:
Net income $ 2,696 $ 3,335
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 455 689
Amortization of intangibles 39 38
Other, net 317 296
Deferred income taxes (351) 2,416
(Gain)/loss on disposition of assets 18 (8)
Changes in operating assets and liabilities:
Decrease in receivables 3,460 2,393
(Increase)/decrease in inventories 26 (63)
Decrease in prepaid and other assets 135 321
Increase/(decrease) in accounts payable,
accrued and other liabilities 91 (5,433)
Increase in income taxes payable 601 5,291
Net cash provided by operating activities 7,487 9,275
Investing activities:
Purchases of property and equipment (944) (1,679)
Proceeds from disposal of assets 34 40
Other, net (330) 171
Net cash used by investing activities (1,240) (1,468)
Financing activities:
Proceeds from long-term debt 0 9,216
Principal payments on long-term debt (11) (11)
Net change in short-term borrowings (1,761) 0
Proceeds from exercise of stock options 134 0
Dividends paid (2,423) 0
(Increase) in Treasury Stock held by
Deferred Comp Plan (66) 0
Net transfers to Morrison Restaurants Inc. 0 (16,872)
Net cash used by financing activities (4,127) (7,667)
Increase/(decrease) in cash and short-term investments 2,120 140
Cash and short-term investments at the
beginning of the period 6,088 732
Cash and short-term investments at the
end of the period $ 8,208 $ 872
</TABLE>
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 June 1, 1996.
NOTE B - SUBSEQUENT EVENTS
Declaration of Quarterly Dividend
On September 26, 1996 the Company declared a quarterly cash
dividend of $0.205 per share of outstanding common stock
payable on October 31, 1996 to shareholders of record at the
close of business on October 11, 1996.
NOTE C - PRO FORMA ADJUSTMENTS
The prior year historical condensed consolidated financial
statements for the thirteen weeks ended September 2, 1995
reflect a period during which the Company did not operate as a
separate, independent company, and certain assumptions were
made in preparing such statements. Therefore, such historical
statements may not necessarily reflect the consolidated results
of operations or financial position that would have existed had
the Company been a separate, independent company.
The pro forma information presents the Company's results as if
the spin-off from Morrison Restaurants Inc. ("MRI") occurred on
June 5, 1994 and reflects adjustments for the estimated
additional costs of being a separate, independent company.
Note 1--The pro forma adjustments to the accompanying
historical statement of income for the thirteen weeks ending
September 2, 1995 are described below:
(a) To record the increase in operating and selling,
general and administrative expenses which presumably would
have been incurred by the Company as a separate, stand-alone
entity.
(b) To record the estimated income tax benefit associated
with pro forma adjustment (a) at an assumed combined state and
federal effective income tax rate of 41.3% for the thirteen
week period ending September 2, 1995. The assumed effective
income tax rate is comprised of a 35% statutory federal income
tax rate plus applicable state income taxes and permanent
differences, less applicable tax credits.
Note 2--The historical operating costs and expenses
include certain allocated expenses from MRI.
NOTE D - EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
shares outstanding during each quarter and are adjusted for
equivalent shares. Equivalent shares are 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.
The number of equivalent shares used for the prior year for
purposes of calculating pro forma earnings per share is based
on the number of shares of Morrison Restaurants Inc. common
stock and common stock equivalents for such period adjusted for
the one for three distribution ratio.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Morrison Health Care, Inc. ("MHCI" or the "Company"), a Georgia
corporation, was spun off from Morrison Restaurants Inc. in
March 1996. The discussion below relates to the results of
operations of the Company for the thirteen week period ending
August 31, 1996. The pro forma financial information for the
first quarter of fiscal 1996 presents the Company's results as
if the spin-off from Morrison Restaurants Inc. had occurred on
June 5, 1994, and reflects adjustments for the estimated
additional costs of being an independent company. The
equivalent shares for periods prior to the spin-off are based
on the number of shares of Morrison Restaurants Inc. common
stock and common stock equivalents adjusted for the one for
three distribution ratio.
Results of Operations
The Company reported net income from continuing operations of
$2.7 million for the thirteen week period ended August 31,
1996, compared with pro forma net income of $2.9 million
reported for the corresponding period of the prior fiscal year.
The decrease in net income from the prior year primarily
relates to increased insurance costs.
Revenue
Revenue from continuing operations decreased $3.6 million or
6.5% from $56.3 million for the quarter ended August 31, 1996.
The decrease was the result of a net decrease in the number of
accounts and contract shifts from a profit or loss account type
to a management fee account type.
Managed volume (which is defined as MHCI revenue, as reported,
plus client paid cost) from continuing operations increased
$4.2 million or 3.8% from $109.4 million for the quarter ended
August 31, 1996. The increase was due to growth in continuing
accounts.
Operating Costs
Operating costs decreased $3.0 million or 6.5% to $43.0 million
for the quarter ended August 31, 1996. These costs have
decreased from the comparable periods in the prior year as a
result of a change in the mix of account types where the
Company pays operating expenses to account types where the
client pays such expenses.
Selling, general and administrative expenses for the quarter
were flat as compared to the same period of the prior year.
Interest Expense (net of Interest Income)
Net interest expense decreased to $0.1 million for the quarter
ended August 31, 1996 from $.4 million for the same period of
the prior year due to a decrease in the Company's debt and
receipt of $.2 million in interest income.
Income Taxes
The effective income tax rate on continuing operations for the
thirteen weeks ended August 31, 1996 was 41.6% as compared to
41.3% for the same period of 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
equivalent shares. Equivalent shares are 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.
The number of equivalent shares used for the prior year for
purposes of calculating pro forma earnings per share is based
on the number of shares of Morrison Restaurants Inc. common
stock and common stock equivalents for such period adjusted for
the one for three distribution ratio.
Liquidity and Capital Resources
Total assets at August 31, 1996 were $62.0 million, a $.5
million decrease from $62.5 million as of the prior fiscal year
end. This decrease is attributable to a decrease in accounts
receivable and the early collection of a note receivable net of
an increase in cash.
Total liabilities at August 31, 1996 were $57.0 million, a $.9
million decrease from $57.8 million as of the end of the prior
fiscal year. This decrease was primarily due to a $1.3 million
decrease in debt.
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.
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. 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; changes in health care
regulations; increased competition in the health care food and
nutrition market; customer's acceptance of the Company's cost
savings programs; and changes in laws and regulations affecting
labor and employee benefit costs.
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 5 OTHER INFORMATION
At its quarterly meeting held on September 26, 1996, the Board
of Directors declared a cash dividend of $0.205 per share,
payable on October 31, 1996 to shareholders of record at the
close of business on October 11, 1996.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 Computation of Earnings per Share and
Pro Forma Earnings per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the fiscal quarter ended August 31, 1996.
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)
10/15/96 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
11 Computation of Earnings per Share and
Pro Forma Earnings per Share
27 Financial Data Schedule
Morrison Health Care, Inc.
Exhibit 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE
EARNINGS
(Amounts in thousands except per share data)
Thirteen Weeks Ended
August 31, 1996
Primary
Average shares outstanding 11,781
Net effect of dilutive stock
options - based on the
treasury stock method using 56
average market price
Total 11,837
Net income $ 2,696
Per share amount $ 0.23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 August 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> AUG-31-1996
<CASH> 8,208
<SECURITIES> 0
<RECEIVABLES> 17,615
<ALLOWANCES> 1,114
<INVENTORY> 2,636
<CURRENT-ASSETS> 36,550
<PP&E> 15,520
<DEPRECIATION> 9,422
<TOTAL-ASSETS> 62,011
<CURRENT-LIABILITIES> 26,045
<BONDS> 18,772
0
0
<COMMON> 118
<OTHER-SE> 4,939
<TOTAL-LIABILITY-AND-EQUITY> 62,011
<SALES> 52,658
<TOTAL-REVENUES> 52,658
<CGS> 43,024
<TOTAL-COSTS> 43,024
<OTHER-EXPENSES> 4,913
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 396
<INCOME-PRETAX> 4,619
<INCOME-TAX> 1,923
<INCOME-CONTINUING> 2,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,696
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
