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 MARCH 1, 1997
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
11,878,095
(Number of shares of $0.01 par value common stock outstanding
as of March 31, 1997)
INDEX
PART I Financial Information
Page
Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 1, 1997 and June 1, 1996 3
Condensed Consolidated Statements of
Income for the Thirteen Weeks and
Thirty-Nine Weeks Ended
March 1, 1997 and March 2, 1996 4
Condensed Consolidated Statements of Cash
Flows for the Thirty-Nine Weeks Ended
March 1, 1997 and March 2, 1996 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)
As of As of
March 1, 1997 June 1, 1996
(Unaudited) (Audited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments $ 5,361 $ 6,088
Receivables - accounts and notes (net) 19,718 22,635
Inventories 2,679 2,662
Prepaid expenses 929 1,616
Deferred income tax benefits 2,280 2,397
Total current assets 30,967 35,398
Property and equipment - at cost 15,337 15,229
Less accumulated depreciation 8,279 9,571
7,058 5,658
Cost in excess of net assets acquired, net 4,620 4,736
Other assets 15,218 15,309
Total assets $57,863 $61,101
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 8,895 $ 8,684
Short-term borrowings 0 6,760
Other accrued liabilities 13,378 11,266
Current portion of long-term debt 3,761 11
Total current liabilities 26,034 26,721
Notes payable 16,272 20,034
Other deferred liabilities 10,408 9,630
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 11,877 and 11,791 shares,
1997 and 1996, respectively) 119 118
Capital in excess of par value 5,815 5,441
Retained earnings 381 86
6,315 5,645
Less cost of treasury stock 1,166 929
Total stockholders' equity 5,149 4,716
Total liabilities and stockholders' equity $57,863 $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)
For the Thirteen Weeks Ended
March 2, 1996
Pro Forma
For the Thirteen Weeks Ended Adjustments
March 1, 1997 Historical Note (C) Pro Forma
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $57,483 $54,224 $ 0 $54,224
Operating costs and expenses:
Operating expenses 48,067 45,807 45,807
Selling, general and administrative 5,517 5,631 220(a) 5,851
Interest expense, net of interest income,
totaling $152 in 1997 and $332 in 1996 204 (21) 400(c) 379
Restructure Costs 0 1,398 1,398
Asset Impairment 0 193 193
53,788 53,008 620 53,628
Income before provision for income taxes 3,695 1,216 (620) 596
Provision for federal and state income taxes 1,533 505 (255)(b) 250
Net income $ 2,162 $ 711 $(365) $ 346
Earnings per common and common
equivalent share $ 0.18 $ 0.03
Weighted average common and common
equivalent shares 11,843 11,770
</TABLE>
<TABLE>
For the Thirty-Nine Weeks Ended
March 2, 1996
Pro Forma
For the Thirty-Nine Weeks Ended Adjustments
March 1, 1997 Historical Note (C) Pro Forma
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $164,496 $167,105 $ 0 $167,105
Operating costs and expenses:
Operating expenses 135,155 137,615 137,615
Selling, general and administrative 15,777 15,447 1,420(a) 16,867
Interest expense, net of interest income,
totaling $566 in 1997 and $403 in 1996 602 732 400(c) 1,132
Restructure Costs 0 1,398 1,398
Asset Impairment 0 193 193
151,534 155,385 1,820 157,205
Income before provision for income taxes 12,962 11,720 (1,820) 9,900
Provision for federal and state income taxes 5,378 4,929 (760)(b) 4,169
Net income $ 7,584 $ 6,791 $(1,060) $ 5,731
Earnings per common and common
equivalent share $ 0.64 $ 0.49
Weighted average common and common
equivalent shares 11,837 11,794
</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)
For the Thirty-Nine Weeks Ended
March 1, 1997 March 2, 1996
<CAPTION>
<S> <C> <C>
Operating activities:
Net income $ 7,584 $ 6,791
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,469 1,826
Amortization of intangibles 116 115
Other, net 811 825
Deferred income taxes (715) 1,722
Loss/(Gain) on disposition of assets 21 (15)
Changes in operating assets and liabilities:
Decrease in receivables 4,004 1,720
(Increase)/Decrease in inventories (17) 138
Decrease/(Increase) in prepaid and other assets 675 (1,549)
Increase/(Decrease) in accounts payable,
accrued and other liabilities 1,988 (10,298)
Increase in income taxes payable 1,113 8,283
Net cash provided by operating activities 17,049 9,558
Investing activities:
Purchases of property and equipment (2,933) (1,795)
Proceeds from disposal of assets 61 170
Other, net (981) 1,613
Net cash used by investing activities (3,853) (12)
Financing activities:
Principal payments on long-term debt (11) (11)
Net change in short-term borrowings (6,761) 7,898
Proceeds from exercise of stock options 375 0
Dividends paid (7,289) 0
Increase in Treasury Stock held by
Deferred Comp Plan (237) 0
Net transfers to Morrison Restaurants Inc. 0 (12,749)
Net cash used by financing activities (13,923) (4,862)
(Decrease)/Increase in cash and short-term investments (727) 4,684
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 $ 5,361 $ 5,416
</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 March 25, 1997 the Company declared a quarterly cash
dividend of $0.205 per share of outstanding common stock
payable on April 30, 1997 to shareholders of record at the
close of business on April 11, 1997.
NOTE C - PRO FORMA ADJUSTMENTS
The prior year historical condensed consolidated financial
statements for the thirteen and thirty-nine weeks ended March
2, 1996 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 thirty-nine
weeks ending March 2, 1996 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 adjustments (a) and (c) at an assumed combined
state and federal effective income tax rate of 41.1% and 41.8%
for the thirteen and thirty-nine week periods ending March 2,
1996. 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.
(c) To adjust interest expense based on the Company's debt
allocation.
Note 2--The historical operating costs and expenses
include certain allocated expenses from MRI.
NOTE D - EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is
required to be adopted for financial statements issued after
December 15, 1997. At that time the Company will be required
to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact
is expected to result in no change in primary or fully diluted
earnings per share for the thirteen or thirty-nine weeks ended
March 1, 1997 and March 2, 1996.
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
thirty-nine week periods ended March 1, 1997 compared with the
pro forma results for the thirteen and thirty-nine week periods
ended March 2,1996. 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
$2.2 and $7.6 million for the thirteen and thirty-nine week
periods ending March 1, 1997, compared with pro forma net
income of $0.3 and $5.7 million reported for the corresponding
periods of the prior fiscal year. The increase in net income
for the thirteen and thirty-nine week periods of fiscal 1997
from the same periods as the prior year primarily relates to
reduced general and administrative costs, the recording in the
corresponding prior year periods of $1.4 million of
restructuring costs associated with the Company's spin-off from
MRI, $0.2 million for the write-down of assets to their net
realizable value and $0.5 million for staffing relocation as a
result of the spin-off.
Revenue
Revenue from operations increased $3.3 million or 6.0% from
$54.2 million for the quarter ended March 1, 1997 and decreased
$2.6 million or 1.6% from $167.1 million for the thirty-nine
weeks ended March 1, 1997 from the comparable periods in the
prior year. The quarterly increase was the result of the
opening of new accounts. The year-to-date decrease was the
result of revenue lost from closed accounts 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 $7.5 million
or 6.8% to $117.8 million for the quarter and increased $19.0
million or 5.8% to $345.3 million for the thirty-nine week
period ended March 1, 1997 from the prior year periods due to
growth in continuing accounts.
Operating Costs
Operating costs increased $2.3 million or 4.9% to $48.1 million
for the quarter and decreased $2.5 million or 1.8% for the
thirty-nine weeks ended March 1, 1997. These costs have
decreased as a percent of revenue from the comparable periods
in the prior year as a result of the implementation of cost
containment programs.
Selling, general and administrative expenses for the quarter
decreased $0.3 million or 5.7% for the quarter and $1.1 million
or 6.5% for the thirty-nine week period ending March 1, 1997 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 $0.2
million for the quarter and decreased to $0.6 million for the
thirty-nine weeks ended March 1, 1997 from $1.1 million for the
same period of the prior year due to a decrease in the
Company's debt.
Income Taxes
The effective income tax rate on continuing operations for the
thirteen and thirty-nine weeks ended March 1, 1997 was 41.5%,
as compared to 41.9% and 42.1%, respectively, for the same
periods of the prior year. The lower effective income tax rate
for the current year is 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 March 1, 1997 were $57.9 million, a $3.2
million decrease from $61.1 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 March 1, 1997 were $52.7 million, a $3.7
million decrease from $56.4 million as of the end of the prior
fiscal year. This decrease was primarily due to a $6.8 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 5 OTHER INFORMATION
At its quarterly meeting held on March 25, 1997, the Board of
Directors declared a cash dividend of $0.205 per share, payable
on April 30, 1997 to shareholders of record at the close of
business on April 11, 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
On January 17, 1997, the Company filed a report with the
Commission on Form 8-K/A to correct a typographical error in the
Registrant's Current Report on Form 8-K filed on March 15, 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)
4/14/97 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)
Thirteen Weeks Ended Thirty-Nine Weeks Ended
March 1, March 1,
1997 1997
<CAPTION>
<S> <C> <C>
Average shares outstanding 11,785 11,783
Net effect of dilutive stock options -
based on the treasury stock method
using average market price 58 54
Total 11,843 11,837
Net Income $2,162 $7,584
Per share amount $ 0.18 $ 0.64
</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 March 1, 1997
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-02-1996
<PERIOD-END> MAR-01-1997
<CASH> 5,361
<SECURITIES> 0
<RECEIVABLES> 17,883
<ALLOWANCES> 877
<INVENTORY> 2,679
<CURRENT-ASSETS> 30,967
<PP&E> 15,337
<DEPRECIATION> 8,279
<TOTAL-ASSETS> 57,863
<CURRENT-LIABILITIES> 26,034
<BONDS> 16,272
0
0
<COMMON> 119
<OTHER-SE> 5,030
<TOTAL-LIABILITY-AND-EQUITY> 57,863
<SALES> 164,496
<TOTAL-REVENUES> 164,496
<CGS> 135,155
<TOTAL-COSTS> 135,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,168
<INCOME-PRETAX> 12,962
<INCOME-TAX> 5,378
<INCOME-CONTINUING> 7,584
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,584
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
