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 NOVEMBER 30, 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
11,872,138
(Number of shares of $0.01 par value common stock outstanding
as of December 31, 1996)
INDEX
PART I Financial Information
Page
Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
November 30, 1996 and June 1, 1996 3
Condensed Consolidated Statements of Income for
the Thirteen Weeks and Twenty-Six Weeks
Ended November 30, 1996 and December 2, 1995 4
Condensed Consolidated Statements of Cash
Flows for the Twenty-Six Weeks Ended
November 30, 1996 and December 2, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-8
PART II Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities None
Item 3. Defaults upon Senior Securities None
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information 9
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
November 30, 1996 June 1, 1996
(Unaudited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 5,991 $ 6,088
Receivables - accounts and notes (net) 20,793 22,635
Inventories 2,713 2,662
Prepaid expenses 1,304 1,616
Deferred income tax benefits 2,264 2,397
Total current assets 33,065 35,398
Property and equipment - at cost 14,549 15,229
Less accumulated depreciation 8,082 9,571
6,467 5,658
Cost in excess of net assets acquired, net 4,658 4,736
Other assets 15,554 15,309
Total assets $59,744 $61,101
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 9,369 $ 8,684
Short-term borrowings 3,000 6,760
Other accrued liabilities 11,469 11,266
Current portion of long-term debt 2,511 11
Total current liabilities 26,349 26,721
Notes payable 17,522 20,034
Other deferred liabilities 10,481 9,630
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 11,863 and 11,791 shares,
1997 and 1996, respectively) 119 118
Capital in excess of par value 5,746 5,441
Retained earnings 653 86
6,518 5,645
Less cost of treasury stock 1,126 929
Total stockholders' equity 5,392 4,716
Total liabilities and stockholders' equity $59,744 $61,101
</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
December 2, 1995
Pro Forma
For the Thirteen Weeks Ended Adjustments
November 30, 1996 Historical Note (C) Pro Forma
<S> <C> <C> <C> <C>
Revenues $54,355 $56,592 $ 0 $56,592
Operating costs and expenses:
Operating expenses 44,064 45,845 (53)(a) 45,792
Selling, general and administrative 5,347 5,529 502(a) 6,031
Interest expense, net of interest income,
totaling $120 in 1997 and $37 in 1996 296 391 391
49,707 51,765 449 52,214
Income before provision for income taxes 4,648 4,827 (449) 4,378
Provision for federal and state income taxes 1,922 2,082 (195)(b) 1,887
Net income $ 2,726 $ 2,745 $ (254) $ 2,491
Earnings per common and common equivalent share $ 0.23 $ 0.22
Weighted average common and common
equivalent shares 11,831 11,761
</TABLE>
<TABLE>
For the Twenty-Six Weeks Ended
December 2, 1995
Pro Forma
For the Twenty-Six Weeks Ended Adjustments
November 30, 1996 Historical Note (C) Pro Forma
<S> <C> <C> <C> <C>
Revenues $107,013 $112,881 $ 0 $112,881
Operating costs and expenses:
Operating expenses 87,088 91,808 91,808
Selling, general and administrative 10,260 9,816 1,200(a) 11,016
Interest expense, net of interest income,
totaling $414 in 1997 and $71 in 1996 398 753 753
97,746 102,377 1,200 103,577
Income before provision for income taxes 9,267 10,504 (1,200) 9,304
Provision for federal and state income taxes 3,845 4,424 (505)(b) 3,919
Net income $ 5,422 $ 6,080 $ (695) $ 5,385
Earnings per common and common equivalent share $ 0.46 $ 0.46
Weighted average common and common
equivalent shares 11,834 11,805
</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 Twenty-Six Weeks Ended
November 30, 1996 December 2, 1995
<S> <C> <C>
Operating activities:
Net income $ 5,422 $ 6,080
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 944 1,252
Amortization of intangibles 78 77
Other, net 557 424
Deferred income taxes (777) 3,492
(Gain)/loss on disposition of assets 14 (14)
Changes in operating assets and liabilities:
Decrease in receivables 2,881 1,164
(Increase)/decrease in inventories (51) 34
(Increase)/decrease in prepaid and other assets (85) 237
Increase/(decrease) in accounts payable,
accrued and other liabilities 1,823 (6,049)
Increase in income taxes payable 49 2,122
Net cash provided by operating activities 10,855 8,819
Investing activities:
Purchases of property and equipment (1,808) (1,436)
Proceeds from disposal of assets 51 155
Other, net (677) (30)
Net cash used by investing activities (2,434) (1,311)
Financing activities:
Proceeds from long-term debt 0 12,820
Principal payments on long-term debt (11) (11)
Net change in short-term borrowings (3,761) 0
Proceeds from exercise of stock options 306 0
Dividends paid (4,855) 0
(Increase) in Treasury Stock held by
Deferred Comp Plan (197) 0
Net transfers to Morrison Restaurants Inc. 0 (20,299)
Net cash used by financing activities (8,518) (7,490)
(Decrease)/increase in cash and short-term investments (97) 18
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 $ 5,991 $ 750
</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.
Certain prior reported amounts have been reclassified to be
consistent with current reporting practices.
NOTE B - SUBSEQUENT EVENTS
Declaration of Quarterly Dividend
On January 9, 1997 the Company declared a quarterly cash
dividend of $0.205 per share of outstanding common stock
payable on January 31, 1997 to shareholders of record at the
close of business on January 17, 1997.
NOTE C - PRO FORMA ADJUSTMENTS
The prior year historical condensed consolidated financial
statements for the thirteen and twenty-six weeks ended December
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 4, 1995 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 and twenty-six
weeks ending December 2, 1995 are described below:
(a) To record the decrease in operating expenses and the
increase in 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 42.1% for the twenty-six
week period ending December 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.
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.
("MRI") in March 1996. The discussion below relates to the
results of operations of the Company for the thirteen and
twenty-six week periods ending November 30, 1996. The pro
forma financial information for fiscal 1996 presents the
Company's results as if the spin-off from MRI had occurred on
June 4, 1995, 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 MRI 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 and $5.4 million for the thirteen and twenty-six week
periods ending November 30, 1996, compared with pro forma net
income of $2.5 and $5.4 million reported for the corresponding
periods of the prior fiscal year. The increase in net income
for the quarter from the prior year primarily relates to lower
operating costs.
Revenue
Revenue from operations decreased $2.2 million or 4.0% from
$56.6 million for the quarter ended November 30, 1996 and
decreased $5.9 million or 5.2% from $112.9 million for the
twenty-six weeks ended November 30, 1996. The decrease was the
result of revenue lost from closed units and contract shifts
from a profit or loss account type to a management fee account
type.
Managed volume (which is the amount of estimated total
operating costs managed) from operations increased $7.3 million
or 6.9% from $106.6 million for the quarter and increased $11.5
or 5.3% for the twenty-six week period ended November 30,1996
from the prior year due to growth in continuing accounts.
Operating Costs
Operating costs decreased $1.7 million or 3.8% to $44.1 million
for the quarter and decreased $4.7 million or 5.1% for the
twenty-six weeks ended November 30, 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
decreased $0.7 million or 11.3% for the quarter and decreased
$0.8 million or 6.9% for the twenty-six week period ending
November 30, 1996 as compared to the same periods of the prior
year.
Interest Expense (net of Interest Income)
Net interest expense decreased from $0.4 million to $0.3
million for the quarter and decreased to $0.4 million for the
twenty-six weeks ended November 30, 1996 from $0.8 million for
the same period of the prior year due to a decrease in the
Company's debt.
Income Taxes
The effective income tax rates on continuing operations for the
thirteen and twenty-six weeks ended November 30, 1996 were
41.4% and 41.5%, respectively, as compared to 43.1% and 42.1%,
respectively, for the same periods of the prior year. The
lower effective income tax rates for the current year are
primarily attributable to the utilization of Work Opportunity
Tax credits.
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 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 MRI common stock and common
stock equivalents for such period adjusted for the one for
three distribution ratio.
Liquidity and Capital Resources
Total assets at November 30, 1996 were $59.7 million, a $2.8
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.
Total liabilities at November 30, 1996 were $54.4 million, a
$3.5 million decrease from $57.8 million as of the end of the
prior fiscal year. This decrease was primarily due to a $3.8
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; 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.
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
On September 26, 1996 the Company held its first 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 I directors to
the Board of Directors for a three year term.
Number of
Number of Votes
Nominees Votes For % Withheld %
E. Eugene Bishop 9,843,095 98.96 102,944 1.04
Arthur R. Outlaw, Jr .9,845,715 98.99 100,325 1.01
Fred L. Brown 9,844,497 98.98 101,543 1.02
Other members of the Board of Directors are Claire L. Arnold,
Glenn A. Davenport, John B. McKinnon, and Dr. Benjamin F.
Payton.
Proposal 2 - Amendment to 1996 Stock Incentive Plan
The shareholders approved amending the 1996 Stock Incentive
Plan to (i) increase the number of shares authorized for
issuance under the Plan from 500,000 to 850,000 and (ii)
increase from 100,000 to 300,000 the number of shares that may
be granted in the form of options or stock appreciation rights
awards during a fiscal year to any employee who is covered by
the deductibility restrictions of Section 162(m) of the
Internal Revenue Code. The results of the shareholders' votes
were 6,943,649 shares voted For, 2,854,998 shares voted
Against, 97,454 shares Abstained, and 49,939 shares were
subject to broker non-votes.
ITEM 5 OTHER INFORMATION
At its quarterly meeting held on January 9, 1997, the Board of
Directors declared a cash dividend of $0.205 per share, payable
on January 31, 1997 to shareholders of record at the close of
business on January 17, 1997.
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 November 30, 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)
1/13/97 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
<TABLE>
Morrison Health Care, Inc.
Exhibit 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands except per share data)
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
November 30, 1996 November 30, 1996
<S> <C> <C>
Primary
Average shares outstanding 11,784 11,783
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 47 51
Total 11,831 11,834
Net Income Per share amount $0.23 $0.46
</TABLE>
<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 Novemeber 30,
1996 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> NOV-30-1996
<CASH> 5,991
<SECURITIES> 0
<RECEIVABLES> 18,611
<ALLOWANCES> 1,114
<INVENTORY> 2,713
<CURRENT-ASSETS> 33,065
<PP&E> 14,549
<DEPRECIATION> 8,082
<TOTAL-ASSETS> 59,744
<CURRENT-LIABILITIES> 26,349
<BONDS> 17,522
0
0
<COMMON> 119
<OTHER-SE> 5,273
<TOTAL-LIABILITY-AND-EQUITY> 59,744
<SALES> 107,013
<TOTAL-REVENUES> 107,013
<CGS> 87,088
<TOTAL-COSTS> 87,088
<OTHER-EXPENSES> 10,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 812
<INCOME-PRETAX> 9,267
<INCOME-TAX> 3,845
<INCOME-CONTINUING> 5,422
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,422
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
