17
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report Pursuant to Section 13 or 15(D) of The Securities
Exchange Act of 1934 (No Fee Required)
For the fiscal year ended May 31, 1997
OR
Transition Report Pursuant to Section 13 or 15(D) of The
Securities Exchange Act of 1934 (No Fee Required)
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
Securities Registered Pursuant to Section 12(b) of The Act:
Name of each exchange
Title of each class on which registered
$0.01 par value Common Stock New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of The Act:
None
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on
August 8, 1997 as reported on the New York Stock Exchange, was approximately
$188,305,872. Shares of Common Stock held by each executive officer and
director and by each person who owns 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to be affiliates.
This determination of affiliate status is not necessarily a conclusive
determination for other purposes.
The number of shares of the Registrant's common stock outstanding at
August 8, 1997 was 12,195,650.
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended May 31, 1997 are incorporated by reference into Parts I and II.
Portions of the Registrant's definitive proxy statement dated
August 18, 1997 are incorporated by reference into Part III.
INDEX
PART I
Page
Number
Item 1. Business 3-6
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
Executive Officers of the Company 7-8
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 9
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 8. Financial Statements and Supplementary
Data 9
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 9
PART III
Item 10. Directors and Executive Officers of the
Registrant 10
Item 11. Executive Compensation 10
Item 12. Security Ownership of Certain Beneficial
Owners and Management 10
Item 13. Certain Relationships and Related
Transactions 10
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 11-14
PART I
Item 1. Business.
General
Morrison Health Care, Inc., a Georgia corporation, (the "Company"
or "MHCI"), became an independent publicly owned company in March
1996 as a result of the distribution (the "Distribution") by
Morrison Restaurants Inc., a Delaware corporation ("MRI"), to its
shareholders of all the issued and outstanding shares of common
stock of the Company. As a result of the Distribution, MRI's
shareholders received one share of Company common stock for every
three shares of MRI held. MHCI is the largest independent
company focused exclusively on providing food and nutrition
services to health care facilities. The Company's mission is to
be the leading provider of food and nutrition services to the
health care industry, fully committed to maximizing quality and
value in everything the Company does for its clients, customers,
team members and shareowners. With contracts in 31 states and
Washington D.C., MHCI is one of the leading providers of food and
nutrition services to hospitals and other health care facilities
across North America.
The Company's foodservice business has its origins in the health
care foodservice operations developed by it in the early 1950's.
The Company has expanded through its own marketing and sales
force and by acquiring other foodservice businesses. In August
1994, the Company sold certain of its education, business and
industry ("B&I") contracts and assets and closed the remaining
B&I accounts. This divestiture, which left the Company with only
health care contracts, allowed the Company to concentrate its
capital and management team in the health care industry which
Management believes has a better opportunity for growth and
profitability.
Operations
Morrison Health Care, Inc. operates the food and nutrition
services departments of hospitals and other health care
facilities. These departments typically include retail outlets
for staff and visitors and patient food and nutrition services.
MHCI accounts range in size from 100 bed specialty hospitals to
facilities with over 2,100 beds. The Company has operations in
31 states and Washington, D.C. Approximately 78% of the accounts
are in hospitals.
The Company provides its clients with the flexibility to adjust
programs, staffing and service plans to meet the changing needs
of the industry. MHCI has capitalized on its retail heritage in
operating restaurants to bring a retail-oriented mentality to
health care clients. MHCI offers its clients programs designed
to reduce costs and increase customer (patients and staff)
satisfaction. To better serve its clients and provide them with
specialized expertise, MHCI's staff is organized into regional
teams. Teams may include a regional vice president, regional
director of operations, regional director of nutrition services,
regional director of culinary, human resources director, support
services coordinator and a director of business development who
are dedicated to sharing the best industry practices and
performance improvement ideas. The regional teams are supported
by a corporate staff that includes nutrition services, marketing,
sales, vending, human resources, legal, finance, layout and
design and culinary services.
MHCI offers its services pursuant to three general types of
contracts:(i) profit and loss (or guaranteed cost) contract,
where MHCI assumes the risk of profit or loss for the foodservice
operation; (ii) management fee contract, where the client
reimburses MHCI for all costs incurred in providing the services
contracted for and a negotiated management fee for supervising
the client's food and nutrition services operations; and (iii)
management fee contract with incentives and penalties, under
which MHCI manages the client's food and nutrition operations on
a management fee basis, with the amount of the management fee
determined based on the achievement of predetermined goals.
Approximately 75% of MHCI's accounts are operated pursuant to
management fee contracts, as management fee contracts with
incentives and penalties are becoming more popular. The majority
of MHCI's contracts were awarded through bidding processes.
In addition, MHCI operates "branded concept" restaurants such as
Pizza Hut and Taco Bell on client premises. These branded
concepts accounts are operated pursuant to license arrangements
with the appropriate restaurant company. Currently, MHCI has 13
license arrangements with nationally and regionally recognized
restaurant companies.
The Company has created a new division to develop advanced food
preparation and delivery systems. These systems are designed to
increase customer satisfaction by enhancing production
consistencies and generate significant cost reductions, while
providing quality services for health care facilities nationwide.
MHCI markets its services nationwide through its business
development directors. Each business development director
focuses on potential clients in a specific territory pursuant to
a marketing plan. The business development directors along with
a vice president of health systems also market MHCI's services to
large national accounts. In addition, MHCI personnel market to
existing clients to cross-sell additional services and increase
sales of existing services to complement the facility's
foodservices department.
Research and Development
The Company does not engage in any material research and
development activities. Numerous studies are made, however, on a
continuing basis, to improve menus, equipment, and methods of
operations.
Raw Materials
Raw materials essential to the operation of the Company's
business are obtained principally through national food
distributors. The Company uses short-term purchase commitment
contracts to stabilize the potentially volatile pricing
associated with certain commodities. Because of the relatively
short storage life of inventories, limited storage facilities at
customer locations, MHCI's requirements for freshness and the
numerous sources of goods, a minimum amount of inventory is
maintained at customer locations. If necessary, all essential
food, beverage and operational products are available and can be
obtained from alternative suppliers in all cities where the
Company operates. The Company has entered into a purchasing
arrangement with Ruby Tuesday, Inc.("RTI"), successor to MRI's
casual dining business and Morrison Fresh Cooking, Inc. ("MFCI"),
which held the family dining assets of MRI and was spun off,
along with the Company, in the Distribution, to maintain the
volume purchasing bargaining position enjoyed by the Company
prior to the Distribution.
Trademarks of the Company
The Company has registered certain trademarks and service marks
with the United States Patent and Trademark Office including the
Pro-Health Dining trademark. The Company believes that this and
other related marks are important to its business. Registrations
of the Company's trademarks expire from 2000 to 2009, unless
renewed.
Seasonality
The Company's revenues are not seasonal to any significant
degree.
Working Capital Practices
Cash provided by operations, along with borrowings under the
Company's revolving lines of credit, are used to pay dividends,
invest in new units and renovate existing units.
Additional information concerning the working capital of the
Company is incorporated herein by reference to information
presented within the "Liquidity and Capital Resources" section of
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" of the Company's 1997 Annual Report to
Shareholders.
Customer Dependence
No material part of the business of the Company is dependent upon
a single customer, or a very few customers, the loss of any one
of which would have a material adverse effect on the Company.
Government Contracts
There is no material portion of the Company's business that is
subject to renegotiation of profits or termination of contracts
or sub-contracts at the election of the Government.
Competition
The health care food and nutrition services business is highly
competitive. The Company competes with national and regional
food contract companies that offer the same type of services as
the Company. Management believes that competition in health care
food and nutrition services is based on pricing, quality of
services and reputation. Management believes that it compares
favorably with its competition in these areas.
Government Compliance
The Company is subject to various regulations at both the state
and local levels for items such as sanitation, health and fire
safety, all of which could affect the operation of an existing
account. The Company's business is also subject to various other
regulations at the federal level such as fair labor standards,
occupational safety and health regulations. Compliance with
these regulations has not had, and is not expected to have, a
material adverse effect on the Company's operations.
Environmental Compliance
Compliance with federal, state and local laws and regulations
which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, is not expected to have a material
effect upon the capital expenditures, earnings or competitive
position of the Company.
Personnel
The Company employs approximately 3,600 full-time and part-time
employees. The Company believes that working conditions are
favorable and employee compensation is comparable with its
competition.
Item 2. Properties.
MHCI professionally manages foodservice departments on client-
owned properties and, therefore, does not own any significant
amounts of property. Vending services on client-owned facilities
complement the foodservice program. Under the terms of certain
contracts, MHCI is required to make rent payments to its clients.
See Note 5 of the Notes to Consolidated Financial Statements
included in the Annual Report to Shareholders for the fiscal year
ended May 31, 1997.
Facilities and equipment are repaired and maintained to assure
their adequacy, productive capacity and utilization. The
corporate headquarters is located in approximately 14,000 square
feet of a leased building in Smyrna, Georgia. The headquarters'
lease term ends in 2001 with annual average lease payments of
approximately $239,000. The Company also has administrative
offices in a leased building in Mobile, Alabama. This office has
a lease term ending in 2001 with average annual lease payments of
approximately $105,000.
Item 3. 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.
None.
Executive Officers of the Company
Executive officers of the Company are appointed by and serve at
the discretion of the Company's Board of Directors. Information
regarding the Company's executive officers as of August 8, 1997 is
provided below.
<TABLE>
Name Age Position with the Company
<CAPTION>
<S> <C> <C>
G. A. Davenport 43 President, Chief Executive Officer and Director
K. W. Engwall 49 Senior Vice President, Finance and Assistant Secretary
J. E. Fountain 46 Vice President, General Counsel and Secretary
J. D. Underhill 52 Senior Vice President, Sales and Marketing
C. L. Kolesar 44 Senior Vice President
F. G. Michels 59 Senior Vice President
</TABLE>
Glenn A. Davenport has been President and Chief Executive
Officer of the Company since the Distribution in March 1996. He
was President of the Health Care Division of MRI's Morrison Group
from November 1993 until the Distribution in March 1996. Prior
thereto, he served as Senior Vice President, Hospitality Group of
MRI from February 1990 through November 1993 and in various other
capacities since joining MRI in November 1973.
K. Wyatt Engwall has been Senior Vice President, Finance and
Assistant Secretary of the Company since the Distribution in
March 1996. Prior thereto, he was Vice President, Controller of
MRI's Ruby Tuesday Group from January 1994 until March 1996. He
served as Vice President of Financial Planning of MRI from
January 1993 through January 1994, Vice President and Controller
of MRI's Contract Dining Division from October 1991 through
January 1993 and as Controller of MRI's former Morrison's
Management Services (Contract Dining) Division from October 1986
through October 1991. Mr. Engwall joined MRI in 1983 as a
Financial Systems Analyst.
John E. Fountain has been Vice President, General Counsel
and Secretary of the Company since the Distribution in March
1996. He was Vice President, Legal of MRI's Morrison Group from
August 1994 until March 1996. He served as Senior Attorney of
MRI from December 1991 through August 1994. Prior thereto, he
served as Staff Attorney of MRI from October 1978 through
December 1991.
Jerry D. Underhill has been Senior Vice President, Sales and
Marketing of the Company since the Distribution in March 1996.
He was Senior Vice President of Retail Development of the Health
Care Division of MRI's Morrison Group from September 1995 until
March 1996. Prior thereto, he was Senior Vice President of
Development of the Family Dining Division of MRI's Morrison Group
from March 1993 to September 1995. Mr. Underhill was President
of Mid-Continent Restaurants (currently known as Bravo
Restaurants) from July 1988 to March 1993.
Carolyn L. Kolesar has been a Senior Vice President of the
Company since the Distribution in March 1996. She was Division
Vice President of the Health Care Division of MRI's Morrison
Group from April 1995 until March 1996. Prior thereto, she
served as Regional Vice President of MRI's Health Care Division
from July 1988 to April 1995.
Frances G. Michels has been Senior Vice President, Support
Services of the Company since the Distribution in March 1996.
She was Senior Vice President of Support Services of the Health
Care Division of MRI's Morrison Group from January 1996 until
March 1996. Prior thereto, she served MRI's Health Care Division
in various capacities, including as Vice President of Nutrition
Services from December 1984 through January 1996, Area Manager
for Operations and Nutrition Services from January 1982 through
December 1984, Consulting Dietitian for the Health Care Division
from June 1974 through January 1982, Foodservice Director from
July 1973 through June 1974, and Chief Therapeutic Dietitian from
June 1970 through July 1973.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters.
Certain information required by this item is incorporated herein
by reference to information contained under the caption "Common
Stock Market Prices and Dividends" of the Registrant's Annual
Report to Shareholders for the fiscal year ended May 31, 1997.
The Company intends to continue to pay dividends in the future.
Item 6. Selected Financial Data.
The information contained under the caption "Selected Financial
Data" of the Registrant's Annual Report to Shareholders for the
fiscal year ended May 31, 1997 is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The information contained under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" of the Registrant's Annual Report to Shareholders for
the fiscal year ended May 31, 1997 is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements and the related
report of the Company's independent auditors contained in the
Registrant's Annual Report to Shareholders for the fiscal year
ended May 31, 1997, are incorporated herein by reference:
Consolidated Statements of Income - Fiscal years ended
May 31, 1997, June 1, 1996, and June 3, 1995.
Consolidated Balance Sheets - As of May 31, 1997 and June 1, 1996.
Consolidated Statements of Stockholders' Equity - Fiscal years ended
May 31, 1997, June 1, 1996, and June 3, 1995.
Consolidated Statements of Cash Flows - Fiscal years ended
May 31, 1997, June 1, 1996, and June 3, 1995.
Notes to Consolidated Financial Statements.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Company.
(a) The information regarding directors of the Company is
incorporated herein by reference to the information set forth in
the table captioned "Director and Director Nominee Information"
under "Election of Directors" in the definitive proxy statement
of the Registrant dated August 18, 1997, relating to the
Registrant's annual meeting of shareholders to be held on
September 23, 1997.
(b) Pursuant to Form 10-K General Instruction G(3), the
information regarding executive officers of the Company has been
included in Part I of this Report under the caption "Executive
Officers of the Company."
Item 11. Executive Compensation.
The information required by this Item 11 is incorporated herein
by reference to the information set forth under the captions
"Executive Compensation" and "Election of Directors - Directors'
Fees and Attendance" in the definitive proxy statement of the
Registrant dated August 18, 1997 relating to the Registrant`s
annual meeting of shareholders to be held on September 23, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item 12 is incorporated herein
by reference to the information set forth in the table captioned
"Beneficial Ownership of Common Stock" under "Election of
Directors" in the definitive proxy statement of the Registrant
dated August 18, 1997, relating to the Registrant's annual
meeting of shareholders to be held on September 23, 1997.
Item 13. Certain Relationships and Related Transactions.
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are incorporated by reference into or are filed
as part of this report:
1. Financial Statements:
The following consolidated financial statements and
the independent auditors' report thereon, included in
the Registrant's Annual Report to Shareholders for
the fiscal year ended May 31, 1997, a copy of which
is contained in the exhibits to this report, are
incorporated herein by reference:
Page Reference
in paper version
of Annual Report
to Shareholders
Consolidated Statements of Income for
the fiscal years ended May 31, 1997,
June 1, 1996 and June 3, 1995 20
Consolidated Balance Sheets as of
May 31, 1997 and June 1, 1996 21
Consolidated Statements of Stockholders' Equity
for the fiscal years ended May 31, 1997,
June 1, 1996 and June 3, 1995 23
Consolidated Statements of Cash Flows
for the fiscal years ended May 31, 1997,
June 1, 1996 and June 3, 1995 22
Notes to Consolidated Financial Statements 24 - 35
Report of Independent Auditors 36
Page Reference
in Form 10K
2. Financial statement schedules:
Schedule II - Valuation and Qualifying
Accounts for the fiscal years ended
May 31, 1997 and June 1, 1996 17
Financial statement schedules other than those shown above
are omitted because they are either not required or the
required information is shown in the financial statements or
notes thereto.
3. Exhibits
The following exhibits are filed as part of this report:
MORRISON HEALTH CARE, INC.
LIST OF EXHIBITS
Exhibit
Number Description
3.1 Amended and Restated Articles of Incorporation of Morrison
Health Care, Inc.*
3.2 Bylaws of Morrison Health Care, Inc.*
4.1 Specimen Common Stock Certificate.+
4.2 Amended and Restated Articles of Incorporation of Morrison
Health Care, Inc. (see Exhibit 3.1 hereto).
4.3 Bylaws of Morrison Health Care, Inc. (see Exhibit 3.2 hereto).
4.4 Form of Rights Agreement between Morrison Health Care, Inc.
and AmSouth Bank of Alabama, as Rights Agent.+
4.5 Form of Rights Certificate (attached as Exhibit B to the
Rights Agreement filed as Exhibit 4.4 hereto).
10.1 Form of Distribution Agreement among Morrison Restaurants
Inc., Morrison Fresh Cooking, Inc. and Morrison Health
Care, Inc.*
10.2 Form of Amended and Restated Tax Allocation and
Indemnification Agreement among Morrison Restaurants Inc.,
Custom Management Corporation of Pennsylvania, Custom
Management Corporation, John C. Metz & Associates, Inc.,
Morrison International, Inc., Morrison Custom Management
Corporation of Pennsylvania, Morrison Fresh Cooking, Inc.,
Ruby Tuesday, Inc., a Delaware corporation, Ruby Tuesday
(Georgia), Inc., a Georgia corporation, Galaxy Management,
Inc., Manask Food Service, Inc., Morrison of New Jersey,
Inc., Tias, Inc. and Morrison Health Care, Inc.*
10.3 Form of Agreement Respecting Employee Benefit Matters among
Morrison Restaurants Inc., Morrison Fresh Cooking, Inc. and
Morrison Health Care, Inc.+
10.4 Form of License Agreement between Morrison Fresh Cooking,
Inc. and Morrison Health Care, Inc.*
10.5 Form of License Agreement between Ruby Tuesday, Inc.
and Morrison Health Care, Inc.*
10.6 Form of Amended and Restated Operating Agreement of MRT
Purchasing, LLC among Morrison Restaurants Inc., Ruby
Tuesday, Inc., Morrison Fresh Cooking, Inc. and Morrison
Health Care, Inc.*
10.7** Form of Morrison Health Care, Inc. 1996 Stock Incentive Plan.+
10.8** Form of Morrison Health Care, Inc. Stock Incentive and
Deferred Compensation Plan for Directors.+
10.9** Form of 1996 Non-Executive Stock Incentive Plan.+
10.10** Form of Morrison Health Care, Inc. Executive Supplemental
Pension Plan.+
10.11** Form of Morrison Health Care, Inc. Management Retirement
Plan.+
10.12** Form of Morrison Health Care, Inc. Salary Deferral Plan
together with related form of Trust Agreement.+
10.13** Form of Morrison Health Care, Inc. Deferred Compensation Plan
and related form of Trust Agreement.+
10.14** Form of Morrison Health Care, Inc. Executive Group Life and
Executive Accidental Death and Dismemberment Plan.+
10.15** Form of Morrison Health Care, Inc. Executive Life Insurance
Plan.+
10.16 Form of Indemnification Agreement to be entered into with
executive officers and directors.*
10.17** Form of Change of Control Agreement to be entered into with
executive officers.+
10.18 Non-Qualified Stock Option Agreement between Morrison
Restaurants Inc. and Eugene E. Bishop.+
10.19 Non-Qualified Stock Option Agreement between Morrison
Restaurants Inc. and Samuel E. Beall, III.+
10.20 Form of Second Amendment to Credit Agreement dated
June 14, 1997.
10.21** Form of First Amendment to the Morrison Health Care, Inc.
Executive Supplemental Pension Plan.
10.22** Form of First Amendment to the Morrison Health Care, Inc.
Management Retirement Plan.
10.23** Form of First Amendment to the Morrison Health Care, Inc.
Salary Deferral Plan.
10.24** Form of Second Amendment to the Morrison Health Care, Inc.
Salary Deferral Plan.
10.25** Form of First Amendment to the Morrison Health Care, Inc.
Deferred Compensation Plan.
10.26** Form of Second Amendment to the Morrison Health Care, Inc.
Deferred Compensation Plan.
11 Statement regarding computation of per share earnings.
13 Annual Report to Shareholders for the fiscal year ended
May 31, 1997 (Only portions specifically incorporated by
reference in the Form 10K are incorporated herewith.)
21.1 List of subsidiaries of Morrison Health Care, Inc.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
* Incorporated by reference to Exhibit of the same number
in the Registrant's Registration Statement on Form 10
filed with the Commission on February 8, 1996.
+ Incorporated by reference to Exhibit of the same number
in the Registrant's amendment to Registration Statement
on Form 10/A filed with the Commission on February 29, 1996.
** Denotes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the most recent
fiscal quarter.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date 08/25/97 By:/s/ Glenn A. Davenport
Glenn A. Davenport
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated:
Date 08/25/97 By:/s/ Glenn A. Davenport
Glenn A. Davenport
President, Chief Executive Officer and
Director
Date 08/25/97 By:/s/ K. Wyatt Engwall
K. Wyatt Engwall
Senior Vice President,
Finance and Assistant Secretary
(Principal Accounting Officer)
Date 08/25/97 By:/s/ John. B. McKinnon
J. B. McKinnon
Chairman of the Board
Date 08/25/97 By:/s/ Claire L. Arnold
Claire L. Arnold
Director
Date 08/25/97 By:/s/ E. Eugene Bishop
E. Eugene Bishop
Director
Date 08/21/97 By:/s/ Fred L. Brown
Fred L. Brown
Director
Date 08/19/97 By:/s/ Arthur R. Outlaw, Jr.
Arthur R. Outlaw, Jr.
Director
Date 08/19/97 By:/s/ Dr. Benjamin F. Payton
Dr. Benjamin F. Payton
Director
<TABLE>
Morrison Health Care, Inc.
Schedule II - VALUATION AND QUALIFYING ACCOUNTS
For the Periods Ended May 31, 1997 and June 1, 1996
(Dollars in Thousands)
Column A Column B Column C Column D (A) Column E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs Other End
Description of Period Expenses Accounts Deductions of Period
<S> <C> <C> <C> <C> <C>
<CAPTION>
Year ended May 31, 1997:
Trade receivables:
Allowance for doubtful
accounts............... $1,122 $0 $0 $378 $ 744
Year ended June 1, 1996:
Trade receivables:
Allowance for doubtful
accounts................ $1,641 $0 $0 $519 $1,122
</TABLE>
Notes:
(A) Write-off of trade receivables determined to be uncollectible against
the allowance for doubtful accounts.
Morrison Health Care, Inc.
Exhibit 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands, except per share data)
------------------------------
Year ended
------------------------------
May 31, 1997 June 1, 1996
Primary
Average shares outstanding..... 11,785 11,520
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price................... 56 204
------------ -----------
Total.......................... 11,841 11,724
============ ===========
Net income..................... $10,286 $9,280
============ ===========
Per share amount............... $ 0.87 $ 0.79
============ ===========
Fully Diluted
Average shares outstanding..... 11,785 11,520
Net effect of dilutive stock
options-based on the treasury
stock method using the higher
of period-end or average
market price................... 97 204
------------ -----------
Total.......................... 11,882 11,724
============ ===========
Net income..................... $10,286 $9,280
============ ===========
Per share amount............... $ 0.87 $ 0.79
============ ===========
Morrison Health Care, Inc. and Subsidiaries
Selected Financial Data
The following table summarizes certain selected financial
information with respect to Morrison Health Care, Inc. (MHCI) and
is derived from the Financial Statements of MHCI. The Financial
Statements of MHCI are presented as if MHCI had been a separate
entity for fiscal years 1996, 1995, 1994 and 1993. The
statements of income data for the years ended June 1, 1996, June
3, 1995, June 4, 1994 and June 5, 1993, and the balance sheet
data as of June 1, 1996, June 3, 1995 and June 4, 1994 are
derived from the Audited Financial Statements of MHCI. The
balance sheet data as of June 5, 1993 is derived from the
Unaudited Financial Statements of MHCI and, in the opinion of
Management, includes all adjustments consisting of normal
recurring accruals, which MHCI considered necessary for a fair
representation of the financial position and the results of
operations for that period. The financial information presented
below may not be indicative of MHCI's future performance as an
independent company. The information set forth below should be
read in conjunction with "MHCI Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
the Financial Statements of MHCI and notes thereto and the
Unaudited Pro Forma Financial Information of MHCI included in
Note 2 of the Notes to Consolidated Financial Statements.
Weighted average shares for 1996 were determined as if the shares
issued in connection with the Distribution were outstanding from
the beginning of the year. Earnings per share and dividend data
have not been presented for fiscal years 1995, 1994 and 1993 as
MHCI was not a publicly held company prior to March, 1996.
Fiscal years 1994 and 1993 information includes the results of
B&I operations which were sold in fiscal year 1995. Income
Before Cumulative Effect of Accounting Changes for fiscal year
1995 includes an after tax gain of $25.8 million from the sale of
the B&I operations. See Note 3 of the Notes to Consolidated
Financial Statements for more information on the sale of B&I.
<TABLE>
(In thousands, except per share data)
-------------------------------------------------
Fiscal Year
_________________________________________________
1997 1996 1995 1994 1993
--------- -------- ------- -------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C>
Consolidated statements
of income data:
Managed volume
(estimated and
unaudited)................$464,800 $435,600 $408,300 * *
======== ======== ======== ======== ========
Revenues..................$221,011 $219,995 $225,392 $461,780 $430,145
======== ======== ======== ======== ========
Income before provision for
income taxes and cumulative
effect of accounting
changes.....................$ 17,576 $ 16,011 $ 65,295 $ 21,588 $ 18,122
Provision for federal
and state income taxes...... 7,290 6,731 28,469 8,351 6,980
-------- -------- -------- -------- -------
Income before cumulative
effect of accounting
changes..................... 10,286 9,280 36,826** 13,237 11,142
Cumulative effect of
accounting changes:
Postretirement benefits... 0 0 0 0 (640)
Income taxes.............. 0 0 0 0 426
-------- -------- -------- -------- --------
Net income....................$ 10,286 $ 9,280 $ 36,826**$ 13,237 $ 10,928
======== ======== ======== ======== ========
Earnings per common and
common equivalent share.....$ 0.87 $ 0.79
======== ========
Weighted average common
and common equivalent
shares........................ 11,841 11,724
======== ========
All fiscal years are composed of 52 weeks.
* Fiscal years 1993 and 1994 not presented because they included B&I
information.
** Includes an after tax gain of $25.8 million from the sale of the B&I
operations.
Other Financial Data:
Total assets................$ 57,607 $ 61,101 $ 69,028 $105,964 $107,581
Long-term debt..............$ 15,022 $ 20,034 $ 19,245 $ 3,128 $ 4,686
Stockholders' equity........$ 5,628 $ 4,716 $ 9,015 $ 51,164 $ 56,807
Cash dividends per
share of common stock.....$ 0.82 $ 0.205*** *** *** ***
Working capital.............$ 3,891 $ 8,677 $ 13,318 $ 9,239 $ 19,672
Current ratio............... 1.1:1 1.3:1 1.5:1 1.2:1 1.6:1
</TABLE>
*** Dividends were not paid prior to the fourth quarter of fiscal year 1996.
MORRISON HEALTH CARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the business
information and the Financial Statements and related notes found
on pages 20 to 35.
RESULTS OF OPERATIONS
Effects of Distribution on Results of Operations
Effective March 9, 1996, Morrison Health Care, Inc. (MHCI) was
spun off (the Distribution) from Morrison Restaurants Inc. (MRI)
becoming an independent corporation trading under the symbol MHI
on the New York Stock Exchange. Management believes that the
Distribution, see Note 2 of the Notes to Consolidated Financial
Statements, has had a material impact on the results of
operations due to the added separate company costs that were
incurred by MHCI. The estimated effect of the Distribution on
the results of operations of MHCI for the fiscal years ending
June 1, 1996 and June 3, 1995 are presented in the Unaudited Pro
Forma Financial Information on pages 25 - 27. Such pro forma
financial information is presented as if the Distribution had
been effective as of the dates indicated.
1997 Compared To Unaudited Pro Forma 1996
Overview
In MHCI's first full year as an independent company, fiscal year
1997 showed strong financial results with increases in managed
volume, revenue, operating profit and net income. This is due to
continued focus on cost reduction in accounts and growth in
existing accounts
MHCI is the only national, publicly held company which
specializes exclusively in health care food and nutrition
services. MHCI's client base includes some of the largest and
most prestigious hospitals in the country.
Managed Volume/Revenue
While actual services performed are the same, revenue recognition
varies by type of contract based on the expenses paid by MHCI.
In a management fee account, revenue, in addition to the fee, is
recognized only when the Company pays expenses or employees are
on the Company's payroll. In a profit and loss account where
MHCI assumes the risk of profit or loss for the foodservice
operation, the amount of revenue reported is the actual revenue
generated from meals served to patients, client employees and
visitors. Because of the difference between the amount of
revenue that is reported for the fee account, where MHCI pays all
or part of the cost and the account where no cost is paid, it is
Management's opinion that managed volume is a better measure of
performance. Managed volume is defined as MHCI revenue, as
reported, plus estimated client paid cost. Managed volume
increased $29.2 million or 6.7% in fiscal year 1997 when compared
to fiscal year 1996. This increase is due to growth in existing
accounts and opening accounts with larger managed volume than
those that were closed.
Revenue increased $1.0 million or 0.5% in 1997 as compared to
1996. The increase in revenue was due to the increases in
existing account revenue during 1997. Most of the growth in
existing account revenue is attributable to adding vending
operations and employee payrolls at those accounts.
Gross Profit
Gross profit, revenue less operating expenses, increased $0.4
million or 1% for 1997. The increase in gross profit is
attributed to growth of existing account business and continuing
emphasis on food and labor cost reductions.
Selling, General and Administrative
Selling, general and administrative expenses decreased slightly
as a percentage of revenue due to improved control of expenses.
Interest Expense, net
Interest expense decreased 47% due to much lower debt levels in
fiscal year 1997.
Federal and State Income Taxes
The combined federal and state effective tax rate decreased to
41.5% in 1997, from 42.1% in 1996.
Unaudited Pro Forma 1996 Compared To Unaudited Pro Forma 1995
Overview
Fiscal year 1996 was a transitional year for MHCI due to the
Company's spin-off from MRI. This new independence allowed the
Company's Management to concentrate on its own resources and core
competencies, health care food and nutrition services. In
addition, the Company focused specifically on its own customers,
employees and shareholders. Fiscal 1996 was important as
Management took the opportunity to restructure its sales force.
As a result, the Company's earnings were negatively impacted;
however, positive results were noticeable in the increase of
sales activity.
In the third quarter of fiscal year 1996, MHCI incurred charges
of $2.1 million consisting primarily of estimated professional
and other fees incurred in connection with the Distribution ($1.4
million), relocation costs for personnel moving in connection
with the Distribution ($0.5 million) and miscellaneous other
asset write-offs ($0.2 million).
Managed Volume/Revenue
Managed volume increased 7% in fiscal year 1996 when compared to
fiscal year 1995. This increase was due to growth in existing
accounts and opening accounts with larger managed volume than
those that were closed.
Revenue decreased $5.4 million or 2.4% in 1996 as compared to
1995. The decrease in revenue was due to the net decrease of
accounts during 1996. In addition to loss of accounts, several
accounts converted from MHCI paying for food, payroll and other
costs to directly paying for these costs themselves.
To address lower sales of new accounts, the sales team was
expanded and new sales positions were created. The new sales
organization allows expanded focus on prospecting while
continuing to grow existing relationships with current accounts.
Gross Profit
Gross profit increased $1.4 million or 3.7% in 1996. The increase
in gross profit is attributed to continuing emphasis on food and
labor cost reductions.
Selling, General and Administrative
Selling, general and administrative expenses increased as a
percentage of revenue due to the addition of a regional team,
the expansion of the sales force and the relocation of corporate
headquarters.
Interest Expense, net
Interest expense increased due to increased debt. The increased
debt resulted from the allocation of MRI's debt in connection
with the Distribution.
Federal and State Income Taxes
The combined federal and state effective tax rate decreased to
42.1% in 1996, from 43.6% in 1995. The higher effective rate in
fiscal year 1995 was due to not being able to allocate a portion
of the goodwill tax basis to the sale of the B&I accounts.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow, Capital Expenditures and Financing
Due to the nature of its contract foodservice business, MHCI is
able to maintain a relatively steady cash flow. Cash flow from
operations has historically financed MHCI's capital investments.
MHCI plans for controlled expansion over the next several years
and anticipates that cash flow from operations plus utilization
of the existing lines of credit will be sufficient to provide for
this expansion. See "Special Note Regarding Forward-Looking
Information."
To partially finance its activities, MHCI has obtained a $50
million, five-year credit facility from various financial
institutions. Of the total facility, $30 million is revolving
lines of credit. The Company had no borrowings outstanding under
the terms of these lines of credit at May 31, 1997. The
remaining $20 million of the credit facility is a five-year term
note which will be repaid in quarterly installments of $1.25
million beginning June 30, 1997. The credit facility contains
restrictions on incurring additional indebtedness and certain
funded debt, net worth and fixed charge coverage requirements. On
May 31, 1997, MHCI had $20 million outstanding in total debt, a
decrease of $6.8 million from the prior year.
In the event that the Company requires funds for day-to-day
operating activities, it has obtained additional lines of credit
which will allow borrowing up to $5 million. The Company had no
borrowings outstanding under this agreement at May 31, 1997.
The Company entered into an interest rate swap agreement to
manage the interest costs of the term note. This swap agreement
effectively fixes the interest rate at 6.7% per annum for the
period of the term note.
Trade accounts receivable make up the majority of MHCI's total
current assets. Historically, the average days outstanding in
trade accounts receivable is less than one month and bad debt
expense has been minimal.
MHCI requires capital principally for new accounts, equipment
replacement and remodeling of existing accounts. Cash provided by
operating activities approximated $19.6 million for fiscal year
1997. Capital expenditures were approximately $4.8 million, an
increase of $2.6 million or 118% compared to the prior year
period. Capital expenditures are anticipated to total $5.9
million in fiscal year 1998. MHCI plans to finance this amount
primarily through internally generated funds. See "Special Note
Regarding Forward-Looking Information."
Working Capital
Working capital and the current ratio as of May 31, 1997 were
$3.9 million and 1.1:1, respectively. Working capital and the
current ratio decreased $4.8 million and 0.2, respectively, when
compared to the prior year. This decrease is due primarily to
the use of cash to repay short-term borrowings.
Dividends
MHCI paid approximately $9.7 million in cash dividends to
stockholders during fiscal year 1997. The Company plans to pay
annual dividends of approximately $9.8 million in the next
fiscal year. See "Special Note Regarding Forward-Looking
Information."
Deferred Tax Assets
The recognition of deferred tax assets depends on the anticipated
existence of taxable income in future periods in amounts
sufficient to realize the assets. A valuation allowance must be
provided for the deferred tax asset if such future income is not
likely to be generated. Management believes that future taxable
income should be sufficient to realize all of MHCI's deferred tax
assets based on historical earnings of MHCI; therefore, a
valuation allowance has not been established.
KNOWN EVENTS, UNCERTAINTIES AND TRENDS
New Accounting Standards
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 change is not expected to have a material
impact on the Company's primary or fully diluted earnings per
share.
Impact of Inflation
In the past, MHCI has been able to recover inflationary cost
increases through contract inflation adjustments, increased
productivity and menu changes. There have been and there may be
in the future, delays in contract inflation adjustments and
competitive pressures which limit MHCI's ability to recover such
cost increases in their entirety. Historically, the effects of
inflation on MHCI's net income have not been materially adverse.
Management's Outlook
Management believes that the fiscal year 1997 expansion,
restructuring and training of the sales teams will increase the
number and economic value of accounts sold in fiscal year 1998
and beyond. Management believes that growth will also occur
through expanding services at existing accounts and possible
acquisition of companies that complement our core competencies.
The Company has created a new division to develop advanced food
preparation and delivery systems. These systems are designed to
increase customer satisfaction by enhancing production
consistencies and generate significant cost reductions, while
providing quality services for health care facilities nationwide.
Several MHCI accounts are among the largest acute care and
teaching hospitals in the United States. The Company strives to
maintain its long-term partnerships with these facilities while
continuing to increase quality and lower costs. During the
upcoming year, MHCI believes that additional investments in
people and programs designed to enhance its aggressive sales
drive will add new clients while building stronger relationships
with current accounts. By continuing to focus on its primary
health care market of acute and life care facilities, the Company
believes that it is strategically positioned to continue its
steady growth. See "Special Note Regarding Forward-Looking
Information."
Special Note Regarding Forward-Looking Information
The foregoing section contains various "forward-looking
statements" which represent the Company's expectations or beliefs
concerning future events, including the following: statements
regarding account growth, future capital expenditures and future
borrowings. The Company cautions that a number of important
factors could, individually or in the aggregate, cause actual
results to differ materially from those included in the 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; customers' acceptance of the Company's cost saving
programs; and laws and regulations affecting labor and employee
benefit costs.
Morrison Health Care, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
-------------------------------------------
For the Fiscal Year Ended
-------------------------------------------
May 31, 1997 June 1, 1996 June 3, 1995
-------------------------------------------
Revenues.............. $221,011 $219,995 $225,392
Operating costs and
expenses:
Operating expenses.... 181,233 180,607 187,426
Selling, general and
administrative...... 21,395 20,670 18,946
Restructuring costs... 0 1,398 0
Asset impairment...... 0 193 0
Net gain on sale/
closure of B&I
accounts............ 0 0 (46,782)
Interest expense, net
of interest income,
totaling $687 in
1997, $428 in 1996
and $221 in 1995.... 807 1,116 507
-------- -------- --------
203,435 203,984 160,097
-------- -------- --------
Income before provision
for income taxes.... 17,576 16,011 65,295
Provision for federal
and state income taxes. 7,290 6,731 28,469
-------- -------- --------
Net income............ $10,286 $9,280 $36,826
======== ======== ========
Earnings per common
and common equivalent
share............... $ 0.87 $ 0.79
======== ========
Weighted average common
and common equivalent
shares.............. 11,841 11,724
======== ========
The accompanying notes are an integral part of the financial
statements.
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
(In thousands)
-----------------------------------
May 31, 1997 June 1, 1996
-----------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments.......... $ 3,751 $ 6,088
Receivables:
Trade, less allowance for doubtful
accounts of $744 at May 31, 1997
and $1,122 at June 1, 1996............. 16,387 17,650
Other.................................... 4,884 4,985
Inventories.............................. 2,686 2,662
Prepaid expenses......................... 1,006 1,616
Deferred income tax benefits............. 1,929 2,397
----------------- ----------------
Total current assets..................... 30,643 35,398
----------------- ----------------
Property and equipment - at cost:
Buildings and improvements............... 2,326 3,883
Equipment................................ 14,017 11,346
----------------- ----------------
16,343 15,229
Less accumulated depreciation............ 8,471 9,571
----------------- ----------------
7,872 5,658
Deferred income tax benefits............. 1,610 1,656
Cost in excess of net assets
acquired, net.......................... 4,582 4,736
Notes receivable......................... 3,817 4,940
Deferred charges......................... 2,830 2,833
Other assets............................. 6,253 5,880
----------------- ----------------
Total assets............................. $57,607 $61,101
================= ================
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable.......................... $10,381 $ 8,684
Short-term borrowings..................... 0 6,760
Accrued liabilities:
Taxes, other than income
taxes.................................. 1,546 1,609
Payroll and related costs................ 4,133 3,117
Insurance................................ 3,436 3,819
Other.................................... 2,245 1,786
Income taxes payable..................... 0 935
Current portion of long-term debt........ 5,011 11
----------------- ----------------
Total current liabilities................ 26,752 26,721
----------------- ----------------
Long-term debt........................... 15,022 20,034
Other liabilities........................ 10,205 9,630
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 1997 - 12,165 shares,
1996 - 11,791 shares).................. 122 118
Capital in excess of par value........... 9,717 5,441
Unearned ESOP shares..................... (3,517) 0
Retained earnings........................ 647 86
----------------- ----------------
6,969 5,645
Less cost of treasury stock.............. 1,341 929
----------------- ----------------
Total stockholders' equity............... 5,628 4,716
----------------- ----------------
Total liabilities and
stockholders' equity................... $57,607 $61,101
================= ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
------------------------------------------
For the Fiscal Year Ended
------------------------------------------
May 31, 1997 June 1, 1996 June 3, 1995
------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Operating activities:
Net income.......................... $ 10,286 $ 9,280 $ 36,826
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization... 1,992 2,330 2,238
Amortization of intangibles..... 153 152 153
Gain on sale of B&I contracts
and assets.................... 0 0 (46,782)
Other, net...................... 1,066 1,172 (3,088)
Deferred income taxes........... 514 4,927 (972)
Loss on disposition of assets... 29 170 4,372
Changes in operating assets and
liabilities:
Decrease in receivables............. 2,486 1,345 1,510
(Increase)/Decrease in inventories.. (24) 218 564
Decrease/(Increase) in prepaid and
other assets...................... 631 (2,005) 1,149
Increase/(Decrease) in accounts
payable, accrued and other
liabilities....................... 3,450 (12,112) (25,488)
(Decrease)/Increase in income
taxes payable..................... (935) 6,928 (5,703)
------------------------------------------
Net cash provided (used) by
operating activities.............. 19,648 12,405 (35,221)
------------------------------------------
Investing activities:
Purchases of property and equipment. (4,843) (2,170) (3,482)
Proceeds from disposal of assets.... 459 387 674
Proceeds from sale of B&I
contracts and assets.............. 0 0 100,000
Other, net.......................... (1,456) 764 (2,121)
------------------------------------------
Net cash (used) provided by
investing activities.............. (5,840) (1,019) 95,071
------------------------------------------
Financing activities:
Proceeds from long-term debt........ 0 800 19,200
Principal payments on long-
term debt......................... (11) (11) (4,619)
Net change in short-term
borrowings........................ (6,760) 6,760 0
Proceeds from exercise of stock
options and issuance of stock..... 679 1,544 0
Dividends paid...................... (9,725) (2,403) 0
(Increase)/Decrease in Treasury
Stock held by Deferred
Compensation Plan................. (412) 29 0
ESOP shares released................ 84 0 0
Net transfers to Morrison
Restaurants Inc................... 0 (12,749) (78,975)
------------------------------------------
Net cash used by financing
activities........................ (16,145) (6,030) (64,394)
------------------------------------------
(Decrease)/increase in cash and
short-term investments............ (2,337) 5,356 (4,544)
Cash and short-term investments
at the beginning of the period...... 6,088 732 5,276
------------------------------------------
Cash and short-term investments
at the end of the period.......... $ 3,751 $ 6,088 $ 732
==========================================
Supplemental disclosure of cash
flow information-cash paid for:
Interest........................ $ 1,190 $ 1,533 $ 776
Income taxes.................... $ 8,000 $ 18,586 $ 32,764
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In thousands, except per share data)
For the Fiscal Year Ended
------------------------------------------------
May 31, 1997 June 1, 1996 June 3,1995
---------------- ---------------- -----------
Shares Amounts Shares Amounts Amounts
---------------- ---------------- -----------
<CAPTION>
<S> <C> <C> <C> <C> <C>
COMMON STOCK
Beginning balance............11,791 $ 118 0 $ 0 $ 0
Shares issued pursuant to
spin-off from Morrison
Restaurants Inc............ 0 0 11,678 117 0
Shares issued to ESOP........ 255 3 0 0 0
Shares issued under Stock
Incentive Plans............ 119 1 113 1 0
---------------- ---------------- -----------
Ending balance...............12,165 122 11,791 118 0
---------------- ---------------- -----------
CAPITAL IN EXCESS OF PAR VALUE
Beginning balance............ 5,441 0 0
Shares issued to ESOP........ 3,592 0 0
Shares issued under Stock
Incentive Plans............ 678 1,543 0
Shares released from ESOP.... 6 0 0
Distribution of Morrison
Restaurants Inc.'s
investment in the Company
to Morrison Restaurants
Inc. shareholders.......... 0 3,898 0
---------------- --------------- ----------
Ending balance............... 9,717 5,441 0
---------------- --------------- ----------
MORRISON RESTAURANTS INC. EQUITY INVESTMENT
Beginning balance............ 0 9,015 51,164
Net income for the three
quarters ending March 2,
1996 and the year ended
June 3, 1995............... 0 6,791 36,826
Cash transfers to Morrison
Restaurants Inc............ 0 (12,749) (78,975)
Distribution of Morrison
Restaurants Inc.'s
investment in the Company
to Morrison Restaurants
Inc. shareholders.......... 0 (3,057) 0
---------------- --------------- ----------
Ending balance............... 0 0 9,015
---------------- --------------- ----------
UNEARNED ESOP SHARES
Shares issued to ESOP........ (255) (3,595) 0 0
Shares released from ESOP.... 6 78 0 0
---------------- --------------- ----------
Ending balance............... (249) (3,517) 0 0
---------------- --------------- ----------
RETAINED EARNINGS
Beginning balance............ 86 0 0
Net income for the year
ending May 31, 1997 and
the quarter ending
June 1, 1996............... 10,286 2,489 0
Cash dividends of $0.820
for the year ending
May 31, 1997 and $0.205
per share for the quarter
ending June 1, 1996........ (9,725) (2,403) 0
---------------- --------------- ----------
Ending balance............... 647 86 0
---------------- --------------- ----------
TREASURY STOCK (held by
Deferred Compensation Plan)
Beginning balance............ (929) 0 0
Distribution of Morrison
Restaurants Inc.'s invest-
ment in the Company to
Morrison Restaurants Inc.
shareholders............... 0 (958) 0
(Purchase)/Sale of Treasury
Stock...................... (412) 29 0
---------------- --------------- ----------
Ending balance............... (1,341) (929) 0
---------------- --------------- ----------
TOTAL STOCKHOLDERS' EQUITY... $5,628 $ 4,716 $ 9,015
================ =============== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1. Summary of Significant Accounting Policies
Basis of Presentation
On March 9, 1996, Morrison Health Care, Inc. and Subsidiaries
(the Company or MHCI) was spun off from Morrison Restaurants Inc.
(MRI). Prior to the spin-off, MHCI was a wholly owned health
care contract food and nutrition business of MRI. Prior to
August 8, 1994, the Company's operations included education,
business and industry (B&I) contracts and assets. The B&I
contracts and assets were sold on that date to Gardner Merchant
Food Services, Inc. See Note 3 of Notes to Consolidated
Financial Statements for more information. The accompanying
financial statements have been prepared as if MRI's health care
contract food and nutrition and B&I businesses had operated as a
stand-alone entity for all fiscal years prior to 1997. Such
statements include the assets, liabilities, revenues and expenses
that are directly related to the Company's operations. They also
include an allocation of certain assets, liabilities and general
corporate expenses of MRI, such as executive payroll, legal, data
processing and interest, which are related to the Company.
Amounts were allocated on a specific identification method where
appropriate and on a pro rata basis otherwise. Management
believes the allocation methods used are reasonable.
The preparation of financial statements in conformity with
generally accepted accounting principles requires Management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Morrison Health Care, Inc. and its wholly owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Fiscal Year
The Company's fiscal year ends on the first Saturday after May
30. The fiscal years ended May 31, 1997, June 1, 1996 and June
3, 1995 were comprised of 52 weeks. Starting in fiscal year
1998, the Company will change from a 52-53 week fiscal year to a
12-month fiscal year ending on May 31 each year.
Cash and Short-Term Investments
The Company's cash management program provides for the investment
of excess cash balances in short-term money market instruments.
Short-term investments are stated at cost, which approximates
market. The Company considers marketable securities with a
maturity of three months or less when purchased to be short-term
investments.
Inventories
Inventories consist of materials, food supplies, china and silver
and are stated at the lower of cost (first-in, first-out) or
market.
Reclassifications
Certain amounts have been reclassified in the 1996 and 1995
financial statements to conform with the 1997 financial statement
presentation.
Property and Equipment and Depreciation
Depreciation for financial reporting purposes is computed using
the straight-line method over the estimated useful lives of the
assets. Annual rates of depreciation range from 3% to 5% for
buildings and from 8% to 34% for kitchen and other equipment.
Intangible Assets
Excess of costs over the fair value of net assets acquired of
purchased businesses generally is amortized on a straight-line
basis over 40 years. At May 31, 1997 and June 1, 1996, the
accumulated amortization for costs in excess of net assets
acquired was $1.6 million and $1.4 million, respectively.
The carrying value of goodwill and other intangibles is evaluated
periodically in relation to the operating performance and future
undiscounted cash flows of each operating business acquired.
Adjustments are made if the sum of expected future net cash flows
is less than net book value. The Company believes that the
remaining amounts of these assets have continuing value.
Revenue Recognition
Revenue is recognized upon performance of services. The Company
operates under two major types of contracts, management fee and
profit and loss. While actual services performed are the same,
revenue recognition varies by type of contract based on the
expenses and payroll paid by the Company. In a management fee
account, revenue, in addition to the fee, is recognized only when
the Company pays expenses or employees are on the Company's
payroll. In a profit and loss account, where MHCI assumes the
risk of profit or loss for the foodservice operation, the amount
of revenue reported is the actual revenue generated from meals
served to patients, client employees and visitors.
Income Taxes
For periods prior to the spin-off, the accompanying statements of
income reflect an income tax expense representing the Company's
allocated share of MRI's tax expense and the Company's actual tax
expenses for the fourth quarter of fiscal year 1996. The
allocated income tax expense approximates the tax expense of the
Company on a stand-alone basis.
Deferred income taxes are determined utilizing a liability
approach. This method gives consideration to the future tax
consequences associated with differences between financial
accounting and tax bases of assets and liabilities.
Stock-Based Compensation
During fiscal year 1997, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation", (FAS No. 123) which was effective for
fiscal years beginning after December 15, 1995. Under the
provisions of FAS No. 123, companies can elect to account for
stock-based compensation plans using a fair-value based method or
continue measuring compensation expense for those plans using the
intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees", (APB
No. 25) and related Interpretations. The Company has elected to
continue to account for such plans under the provisions of APB
No. 25 and to provide certain pro forma disclosures (see Note
10). Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock.
Earnings Per Share
Earnings per share (EPS) are computed by dividing net income by
the weighted average number of common and common equivalent
shares outstanding. Weighted average shares for 1996 were
determined as if the shares issued in connection with the
Distribution were outstanding from the beginning of the year.
Earnings per share are not presented for 1995 because the Company
was not publicly held prior to the Distribution date.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share", (FAS No. 128). The provisions of FAS No.
128 are applicable to reporting periods after December 15, 1997,
and supersede Accounting Principles Board Opinion No. 15
"Earnings Per Share." Under FAS No. 128, basic EPS are computed
by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the
period. Early application is not permitted.
Pre-Opening Expenses
Pre-opening costs, such as, salaries, personnel training costs
and other expenses of opening a new account are often reimbursed
by the client. In circumstances when they are not reimbursed,
these costs are charged to expense as incurred.
Financial Instruments
The Company's financial instruments consist of cash and short-
term investments, accounts and notes receivable, an interest rate
swap and long-term debt. The fair value of these financial
instruments approximated the carrying amounts reported in the
balance sheets.
Although substantially all of the Company's trade accounts
receivable are from health care institutions, Management believes
that concentrations of credit risk are limited due to the
geographic diversity of the Company's customer base. The Company
performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral.
Historically, the Company has not experienced significant losses
related to trade accounts receivable from individual customers or
from groups of customers in any geographic area.
2. Distribution
On March 7, 1996, the shareholders of MRI approved the Distribution
by MRI of all the outstanding shares of common stock of Morrison
Health Care, Inc., a wholly owned subsidiary of MRI. The Board of
Directors of MRI believed that the Distribution was in the best
interests of MRI and its stockholders because the separation of MRI's
three lines of business, among other things, (i) allowed management
of each of the three companies to concentrate on its business and to
reward management and employees based on the performance of its
business; (ii) allowed each company to access the capital markets
directly to raise capital; (iii) established a value for each company
that is independent of the other businesses and provided investors
and security analysts a clearer basis on which to understand and
analyze the three businesses; and (iv) allowed MHCI to establish
equity-based benefit plans which hold MHCI common stock.
The following Unaudited Pro Forma Consolidated Statements of Income
have been prepared to illustrate certain estimated effects of the
Distribution. These statements include adjustments for the effect of
costs and expenses which might have been incurred had the
Distribution occurred June 5, 1994. Adjustments are based on the
assumptions set forth below the statement.
<TABLE>
(In thousands, except per share data)
For the Fiscal Year Ended June 1, 1996 June 3, 1995
Unaudited Unaudited
Pro Forma Unaudited Pro Forma Unaudited
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
---------- ----------- --------- ---------- ----------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $219,995 $ 0 $219,995 $225,392 $ 0 $225,392
Operating costs and expenses:
Operating expenses............ 180,607 0 180,607 187,426 0 187,426
Selling, general and
administrative.............. 20,670 1,420(a) 22,090 18,946 1,567(a) 20,513
Restructuring cost............ 1,398 0 1,398 0 0 0
Asset impairment.............. 193 0 193 0 0 0
Net gain on sale/closure of
B&I accounts................ 0 0 0 (46,782) 0 (46,782)
Interest expense, net......... 1,116 400(b) 1,516 507 0 507
---------- ----------- --------- ---------- ----------- ---------
203,984 1,820 205,804 160,097 1,567 161,664
---------- ----------- --------- ---------- ----------- ---------
Income before provision
for income taxes............ 16,011 (1,820) 14,191 65,295 (1,567) 63,728
Provision for federal and
state income taxes.......... 6,731 (760)(c) 5,971 28,469 (683)(c) 27,786
---------- ----------- --------- ---------- ----------- ---------
Net income.................... $9,280 $(1,060) $8,220 $36,826 $ (884) $ 35,942
========== =========== ========= ========== =========== =========
Earnings per common and
common equivalent share..... $ 0.70 $ 3.00
Weighted average common and
common equivalent shares.... 11,811(d) 11,974(d)
</TABLE>
The pro forma adjustments to the accompanying historical statements of
income for the fiscal years ended June 1, 1996 and June 3, 1995 are
described below:
(a) To record the increase in selling, and general and
administrative expenses which presumably would have been
incurred by MHCI had MHCI been a separate and stand-alone entity.
(b) To record the increase in interest expense which would have been
incurred by MHCI had MHCI been a separate and stand-alone entity.
(c) To record the estimated income tax benefit associated with pro
forma adjustments (a) and (b) at an assumed combined state and
federal effective income tax rate of 41.8% and 43.6% for the years
ended June 1, 1996 and June 3, 1995, respectively. 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.
(d) The number of equivalent shares for periods prior to the spin-
off is based on the number of MRI's common and common equivalent
shares adjusted for the 1 for 3 distribution ratio.
Unaudited Pro Forma quarterly financial results for the years ended June 1, 1996
and June 3, 1995 are summarized below. All quarters are composed of 13 weeks.
<TABLE>
(In thousands, except per share data)
--------------------------------------------------------
For the Fiscal Year Ended June 1, 1996
--------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
-------- ------- -------- -------- --------
Revenues..........................$ 56,289 $ 56,592 $ 54,224 $ 52,890 $219,995
======== ======== ======== ======== ========
Gross profit*.....................$ 10,273 $ 10,800 $ 8,417 $ 9,898 $ 39,388
======== ======== ======== ======== ========
Income before restructuring
cost, asset impairment
and income taxes................$ 4,926 $ 4,378 $ 2,187 $ 4,291 $ 15,782
Restructuring cost................ 0 0 (1,398) 0 (1,398)
Asset impairment.................. 0 0 (193) 0 (193)
-------- -------- -------- -------- --------
Income before income taxes........ 4,926 4,378 596 4,291 14,191
Provision for federal and
state income taxes.............. 2,032 1,887 250 1,802 5,971
-------- -------- -------- -------- --------
Net income........................$ 2,894 $ 2,491 $ 346 $ 2,489 $ 8,220
======== ======== ======== ======== ========
Earnings per common and
common equivalent share:
Before restructuring
cost and asset impairment.....$ 0.24 $ 0.22 $ 0.11 $ 0.21 $ 0.78
Restructuring cost and
asset impairment............ 0.00 0.00 (0.08) 0.00 (0.08)
-------- -------- -------- -------- --------
Total..........................$ 0.24 $ 0.22 $ 0.03 $ 0.21 $ 0.70
======== ======== ======== ======== ========
For the fiscal year ended June 3, 1995:
Revenues..........................$ 53,971 $ 56,578 $ 56,578 $ 58,265 $225,392
======== ======== ======== ======== ========
Gross profit*.....................$ 8,594 $ 9,585 $ 8,857 $ 10,930 $ 37,966
======== ======== ======== ======== ========
Income before income taxes........$ 50,575** $ 4,965 $ 2,956 $ 5,232 $ 63,728
Provision for federal and
state income taxes.............. 22,495 1,999 1,185 2,107 27,786
-------- -------- -------- -------- --------
Net income........................$ 28,080 $ 2,966 $ 1,771 $ 3,125 $ 35,942
======== ======== ======== ======== ========
Earnings per common and
common equivalent share***......$ 2.30 $ 0.26 $ 0.17 $ 0.27 $ 3.00
======== ======== ======== ======== ========
</TABLE>
* The Company defines gross profit as revenues less operating expenses.
** Includes a pretax gain of $46,782 realized upon the sale of B&I.
*** The sale of B&I contributed earnings per share of $2.12 in the first
quarter.
3. Sale of the Education, Business and Industry Contracts and Assets
On August 8, 1994, the Company sold certain education, business and
industry (B&I) contracts and assets to Gardner Merchant Services, Inc.,
for a cash payment of $100 million. The remaining B&I accounts were
closed. The sale of the B&I accounts and the discontinuance of the
remaining accounts resulted in a pretax gain of $46.8 million, or $25.8
million after applicable taxes.
<TABLE>
4. Notes Payable
Notes payable consists of the following:
(In thousands)
---------------------------
Fiscal Year Ended
---------------------------
May 31, 1997 June 1, 1996
------------ ------------
<CAPTION>
<S> <C> <C>
6.7% Term note due in equal quarterly
installments of $1,250 from 1998-2001........... $20,000 $20,000
Other notes and mortgages......................... 33 45
------------ ------------
20,033 20,045
Less current maturities........................... 5,011 11
------------ ------------
$15,022 $20,034
============ ============
</TABLE>
Aggregate maturities of long-term borrowings over the next five years
are as follows: 1998 - $5,011; 1999 - $5,011; 2000 - $5,011; 2001 -
$5,000 and 2002 - $0.
In March 1996, the Company entered into a five-year $50 million credit
facility with various banks. The credit facility includes a $30 million
revolving line of credit which allows the Company to borrow under
various interest rate options. Commitment fees of 0.25% per annum are
payable on the unused portion of the credit facility. At May 31, 1997,
the Company did not have any borrowings under the revolver. The balance
of the $50 million credit facility, $20 million, is a term note which
will be repaid in quarterly installments of $1.25 million commencing
June 30, 1997. In order to control the interest cost on the term note,
the Company entered into an interest rate swap agreement. This swap
agreement effectively fixes the interest rate at 6.7% per annum for the
period of the term note.
In addition, the Company had uncommitted demand lines of credit
amounting to $5 million. At May 31, 1997, the Company did not have any
borrowings outstanding under these lines.
The credit facility contains certain restrictions on incurring
additional indebtedness and certain funded debt, net worth and fixed
charge coverage requirements.
5. Rents
Under the terms of certain of its contracts, the Company is required to
make rent payments to its health care institution customers. These
contracts may provide for additional contingent rents based upon sales
volume and contain options to renew. Generally, the underlying
contracts can be canceled upon 60-90 days notice.
Rental expense pursuant to contracts is summarized as follows:
(In thousands)
-----------------------------------
For the Fiscal Year Ended
-----------------------------------
May 31, June 1, June 3,
1997 1996 1995
-------- -------- --------
Minimum rent............................. $1,206 $1,168 $1,585
Contingent rent.......................... 459 291 2,497
-------- -------- --------
$1,665 $1,459 $4,082
======== ======== ========
6. Income Taxes
The components of income tax expense are as follows:
(In thousands)
------------------------------
For the Fiscal Year Ended
------------------------------
May 31, June 1, June 3,
1997 1996 1995
-------- ------- -------
Current:
Federal................................. $5,960 $1,479 $24,486
State................................... 816 325 4,955
-------- ------- -------
6,776 1,804 29,441
Deferred:
Federal................................. 440 4,127 (812)
State................................... 74 800 (160)
-------- ------- -------
514 4,927 (972)
-------- ------- -------
$7,290 $6,731 $28,469
======== ======= =======
Deferred tax assets and liabilities are comprised of the following:
(In thousands)
----------------------------------
Fiscal Year Ended
----------------------------------
May 31, 1997 June 1, 1996
----------------------------------
Deferred tax assets:
Employee benefits.................... $3,547 $3,106
Insurance reserves................... 1,841 2,196
Bad debt reserve..................... 293 447
Other................................ 438 554
-------------- --------------
Total deferred tax assets............ 6,119 6,303
-------------- --------------
Deferred tax liabilities:
Depreciation........................ 254 239
Retirement plans.................... 452 448
Prepaid deductions.................. 133 209
Other............................... 1,741 1,354
-------------- --------------
Total deferred tax liabilities....... 2,580 2,250
-------------- --------------
Net deferred tax asset............... $3,539 $4,053
============== ==============
FAS 109 specifies that deferred tax assets are to be reduced by a
valuation allowance if it is more likely than not that some portion of
the deferred tax assets will not be realized. Management believes that
future taxable income will be sufficient to realize all of the Company's
deferred tax assets based on historical earnings of the Company and,
therefore, a valuation allowance has not been established.
6. Income Taxes (continued)
A reconciliation from the statutory federal income tax expense to the
reported income tax expense is shown below:
(In thousands)
------------------------------
For the Fiscal Year Ended
------------------------------
May 31, June 1, June 3,
1997 1996 1995
-------- ------- --------
Statutory federal income taxes.......... $6,152 $5,604 $22,853
State income taxes net of
federal income tax benefit............ 804 732 2,868
Tax credits............................. 0 0 (346)
B&I divestiture items................... 0 0 2,575
Other, net.............................. 334 395 519
-------- ------- --------
$7,290 $6,731 $28,469
======== ======= ========
The effective income tax rate was 41.5%, 42.0% and 43.6% in 1997, 1996
and 1995, respectively. The high effective income tax rate in fiscal
year 1995 was due to the nondeductibility of acquired goodwill disposed
of in connection with the divestiture of the B&I accounts.
In connection with the Distribution, the Company entered into a tax
allocation agreement with Morrison Fresh Cooking, Inc. (MFC) and Ruby
Tuesday, Inc. (RTI). This agreement provided that the Company will pay
its share of RTI's consolidated tax liability for the periods in which
the Company was included in MRI's consolidated federal income tax
return. It also provides for sharing, where appropriate, of state,
local and foreign taxes attributable to periods prior to the date of
Distribution.
7. Employee Benefit Plans
Salary Deferral Plan
Under the Morrison Health Care, Inc. Salary Deferral Plan, each eligible
employee may elect to make pretax contributions to a trust fund in
amounts ranging from 2% to 10% of their annual earnings. Employees
contributing a pretax contribution of at least 2% may elect to make
after tax contributions not in excess of 10% of annual earnings. The
Company's contribution to the Plan is based on the employee's pretax
contribution and years of service. After three years of service
(including service with MRI prior to the Distribution), the Company
contributes 20% of the employee's pretax contribution, 30% after ten
years of service, and 40% after 20 years of service. Normally, the full
amount of each participant's interest in the trust fund will be paid
upon retirement or total disability. However, the Plan allows
participants to make early withdrawals of pretax and after tax
contributions, subject to certain restrictions. Under the provisions of
the plan, highly compensated employees, as defined by the Internal
Revenue Code, are limited to contributions of 3% and receive a maximum
of a 20% match. The Company's contributions to the trust fund
approximated $257,000, $244,000 and $349,000 for 1997, 1996 and 1995,
respectively.
During fiscal year 1997, the Company began sponsorship of an employee
stock ownership feature (ESOP) covering participants in the Salary
Deferral Plan. The Company loaned the Plan $3.6 million ($3.5 million
outstanding at May 31, 1997) to purchase approximately 255,000 shares of
common stock, at an interest rate of 5.47%. The loan is payable in 120
monthly installments of principal and interest. The Company makes
monthly contributions sufficient to cover principal and interest on the
loan made to the Plan. Shares are released and allocated to participant
accounts monthly as loan repayments are made.
The Company adopted the provisions of AICPA Statement of Position No. 93-
6 which requires that compensation expense be measured based on the fair
value of the shares over the period the shares are earned. Dividends
paid on unallocated shares held by the Plan are used to make principal
and interest payments and are not charged to retained earnings, and
shares not yet committed to be released are not considered outstanding
in the calculation of earnings per share. The fair value of unearned
shares at May 31, 1997 was approximately $4,046,000.
Deferred Compensation Plan
The Company maintains the Morrison Health Care, Inc. Deferred
Compensation Plan for certain selected employees. The provisions of
this Plan are similar to those of the Salary Deferral Plan. Differences
include employees who are eligible to participate and different
limitation amounts on deferral elections that may be made by
participants. The Company's contributions under the Plan approximated
$125,000, $137,000 and $196,000, for 1997, 1996 and 1995, respectively.
Assets of the Plan are held by a rabbi trust. Under current accounting
rules, assets of a rabbi trust must be accounted for as if they are
assets of the Company; therefore, all earnings and expenses are recorded
in the Company's financial statements. The net of the MHCI rabbi
trust's earnings and losses is recorded as additional liability to the
participants and is considered to be interest expense to the Company.
The Company recorded interest income of $17,000 and interest expense of
$12,000 for this Plan in 1997 and 1996, respectively. Assets of the
Plan approximated $4,667,000 at May 31, 1997 and $4,327,000 at June 1,
1996 and includes $1,341,000 and $929,000, respectively, of MHCI common
stock which is accounted for as treasury stock at cost.
Retirement Plan
The Retirement Plan was frozen by RTI (formerly Morrison Restaurants
Inc.) on December 31, 1987 and will remain part of RTI. No additional
benefits accrued and no new participants entered the Plan after that
date. The Company will continue to share in future expenses of the
Plan. Participants will receive benefits based upon salary and length
of service. The Plan's assets include common stock, fixed income
securities, short-term investments and cash. There were no
contributions made to the Plan in 1997, 1996 or 1995.
Executive Supplemental Pension Plan
Under the Morrison Health Care, Inc. Executive Supplemental Pension
Plan, employees with average compensation of at least $120,000 and who
have completed five years (including service with MRI prior to the
Distribution) in a qualifying position become eligible to earn
supplemental retirement payments based upon salary and length of service
(including service as part of MRI prior to the Distribution), reduced by
Social Security benefits and amounts otherwise receivable under the
Retirement Plan.
Management Retirement Plan
Under the Morrison Health Care, Inc. Management Retirement Plan,
individuals who have 15 years of credited service (including service
with MRI prior to the Distribution) and whose average annual
compensation for the immediately preceding three calendar years equaled
or exceeded $40,000, become participants. Participants receive benefits
based upon salary and length of service (including service with MRI
prior to the Distribution), reduced by social security benefits and
benefits payable under the Retirement Plan and Executive Supplemental
Pension Plan.
To provide a funding source for the payment of benefits under the
Executive Supplemental Pension Plan and the Management Retirement Plan,
the Company owns whole-life insurance contracts on some of the
participants. The cash value of these policies, net of loans, was
$1,256,000 at May 31, 1997 and $873,000 at June 1, 1996. The policies
have been placed in a rabbi trust which will hold the policies and death
benefits as they are received.
The following table presents the components of pension expense, the
funded status and amounts recognized in the Company's financial
statements for the Retirement Plan, the Executive Supplemental Pension
Plan and the Management Retirement Plan.
7. Employee Benefit Plans (continued)
<TABLE>
(In thousands)
Accumulated Benefits Exceed Assets -
Assets Exceed Accumulated Benefits - Executive Supplemental Pension Plan
Retirement Plan and Management Retirement Plan
---------------------------------- ------------------------------------
For the Fiscal Year Ended
May 31, June 1, June 3, May 31, June 1, June 3,
1997 1996 1995 1997 1996 1995
---------------------------------- ------------------------------------
Components of pension
(income)/expense:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Service cost...............$ 0 $ 0 $ 0 $ 81 $ 63 $ 82
Interest cost.............. 341 354 544 230 251 315
Actual return on plan assets... (700) (833) (174) 0 0 0
Amortization and deferral...... 341 526 (413) 122 122 141
Curtailment loss............... 0 0 0 0 0 288
Settlement loss (gain)......... 0 0 115 0 0 (162)
Other.......................... 0 0 0 0 0 102
---------------------------------- -------------------------------------
$ (18) $ 47 $ 72 $ 433 $ 436 $ 766
================================== =====================================
Plan assets at fair value......$4,859 $4,766 $6,679 $ 0 $ 0 $ 0
================================== =====================================
Actuarial present value of
projected benefit
obligations:
Accumulated benefit
obligations:
Vested................... 4,210 4,691 6,532 1,950 1,606 3,919
Nonvested................ 0 0 0 0 0 9
Provision for future salary
increases.................... 0 0 0 1,296 1,116 1,009
---------------------------------- -------------------------------------
Total projected benefit
obligations.................. 4,210 4,691 6,532 3,246 2,722 4,937
---------------------------------- -------------------------------------
Excess (deficit) of plan
assets over projected
benefit obligations.......... 649 75 147 (3,246) (2,722) (4,937)
Unrecognized net loss (gain) 150 642 1,300 258 216 (302)
Unrecognized prior service
cost......................... 0 0 0 289 351 760
Unrecognized net transition
obligations.................. 348 412 714 576 541 1,133
Additional minimum liability... 0 0 0 (452) (376) (660)
---------------------------------- -------------------------------------
Prepaid (accrued) pension
cost........................$1,147 $1,129 $2,161 $(2,575) $(1,990) $(4,006)
================================== =====================================
</TABLE>
The weighted average discount rate for all three plans was 8.25%, 7.75% and 8.5%
for 1997, 1996 and 1995, respectively. The rate of increase in compensation
levels for the Executive Supplemental Pension Plan and Management Retirement
Plan was 4% for 1997, 1996 and 1995. The expected long-term rate of return
on plan assets for the Retirement Plan was 10% for all three years.
8. Postretirement Benefits Other Than Pensions
The Company provides health care benefits and life insurance benefits to
eligible retirees. Benefits are funded as medical claims and life
insurance premiums are incurred. Retirees become eligible for
retirement benefits if they have met certain service and minimum age
requirements at date of retirement. The Company accrues expenses
related to postretirement health care and life insurance benefits during
the years an employee provides services.
<TABLE>
The actuarial present value of accumulated postretirement benefit
obligations and the amounts recognized in the Company's balance sheet
are as follows:
(In thousands)
----------------------------------
Fiscal Year Ended
----------------------------------
May 31, 1997 June 1, 1996
----------------------------------
<CAPTION>
<S> <C> <C>
Retirees....................................... $1,609 $1,591
Fully eligible active plan participants........ 202 196
Other active plan participants................. 123 117
----------------------------------
Accumulated postretirement benefit obligation.. 1,934 1,904
Unrecognized net loss.......................... (328) (409)
----------------------------------
Accrued postretirement benefit cost............ $1,606 $1,495
==================================
</TABLE>
The postretirement benefit cost is as follows:
(In thousands)
-------------------------------
For the Fiscal Year Ended
-------------------------------
May 31, June 1, June 3,
1997 1996 1995
-------- ------- --------
Service cost............................ $7 $8 $7
Interest cost........................... 140 155 104
Amortization of unrecognized net loss... 23 28 32
-------- ------- --------
Postretirement benefit cost............. $170 $191 $143
======== ======= ========
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation was 0% because the Company
has frozen current and future contribution levels. Increases in health
care cost due to factors such as inflation, changes in health care
utilization or delivery patterns, technological advances and changes in
the health status of plan participants will be borne by the
participants. Measurement of the accumulated postretirement benefit
obligation was based on an assumed 8.25%, 7.75% and 8.50% discount rate
for fiscal years 1997, 1996 and 1995, respectively.
9. Preferred Stock
Under its Certificate of Incorporation, the Company is authorized to
issue preferred stock with a par value of $0.01 in an amount not to
exceed 250,000 shares which may be divided into and issued in designated
series, with dividend rates, rights of conversion, redemption,
liquidation prices and other terms or conditions as determined by the
Board of Directors. No preferred shares have been issued as of May 31,
1997. The Board of Directors has designated 50,000 of such shares as
Series A Junior Participating Preferred Stock and has issued rights to
acquire such shares, upon certain events, with an exercise price to be
determined, but substantially above the expected trading price. The
rights will expire ten years after the date such rights are issued, and
may be redeemed prior to ten days after the acquisition of 20% or more
of the Company's common stock.
10. Stock Incentive Plans
Under the Company's stock incentive plans, incentive and non-qualified
stock options may be granted to Management, key employees and outside
directors to purchase shares of Company stock. The Morrison Health
Care, Inc. 1996 Stock Incentive Plan and the Morrison Health Care, Inc.
1996 Non-Executive Stock Incentive Plan (the Plans) are administered by
a Committee, appointed by the Board, which has complete discretion to
determine participants and the terms and provisions of stock incentives,
subject to the Plans. The Plans permit the Committee to make awards of
a variety of stock incentives, including (but not limited to) dividend
equivalent rights, incentive stock options, non-qualified stock options,
performance unit awards, phantom shares, stock appreciation rights and
stock awards. These discretionary awards may be made on an individual
basis or pursuant to a program approved by the Committee for the benefit
of a group of eligible persons. All options awarded under the Plans have
been at the prevailing market value at the time of issue or grant. All
options granted have five or ten year terms and become exercisable at
the end of two or three years of continued employment.
At May 31, 1997, the Company had reserved a total of 804,376 shares of
common stock under the Company's 1996 Stock Incentive Plan. At the June
1997 meeting of the Board of Directors, an additional 900,000 shares of
common stock was reserved for this Plan, subject to stockholder
approval.
In March 1997, the Board of Directors approved a resolution to offer the
Company's non-executive employees the opportunity to reprice certain
options which were originally granted under the Company's 1996 Non-
Executive Stock Incentive Plan. The repricing occurred on March 25,
1997, and resulted in the cancellation of approximately 290,000 options
and the granting of approximately 174,000 new options with an exercise
price equal to $13.125, the closing price on March 24,1997. The
canceled options were replaced with fewer new options in accordance with
a formula to result in economic equivalence between the old and new
options. The new options were granted with two year vesting periods and
ten year terms.
At May 31,1997, the Company had reserved a total of 2,582,127 shares of
common stock for this Plan.
The Morrison Health Care, Inc. Stock Incentive and Deferred Compensation
Plan for Directors provides nonmanagement directors with opportunities
to defer the receipt of their retainer fees or to allocate their
retainer fees to purchase shares of the Company. In general, the Plan
sets a target ownership level for nonmanagement directors. To
facilitate attaining the target ownership level, the Plan provides that
the directors must use 60% of their retainer to purchase shares of the
Company. Each director purchasing stock receives additional shares
equal to 15% of the shares purchased and three times the total shares in
options, which after six months vest and become exercisable for five
years from the grant date. All options awarded under the Plan have been
at the prevailing market value at the time of grant. During 1997, 3,782
shares were issued under the Plan. Pursuant to this Plan, a one-time
restricted stock award totaling 5,000 shares was made in fiscal year
1997 to a nonmanagement director. A Committee, appointed by the Board,
administers the Plan on behalf of the Company. At May 31, 1997, the
Company had reserved 85,251 shares of common stock for this Plan.
Under the terms of the Distribution, holders of MRI stock options
received adjusted, substitute options in MHCI, MFC and RTI which, in the
aggregate, preserved the economic value as well as the material terms,
such as option period, vesting provisions and payment terms, the
optionee had in the original MRI options prior to the Distribution. For
FAS No. 123 disclosure purposes, these options, if granted in fiscal
year 1996, were valued as of the original grant date.
The Company applies APB No. 25 and related interpretations in accounting
for its stock incentive plans. Under APB No. 25, because the exercise
price of the Company's employee stock options equals the market price of
the stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share has
been determined as if the Company had accounted for its employee stock
options under the fair value method of FAS No. 123. The fair value for
these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for
1997 and 1996, respectively: risk-free interest rates of 6.6% and 6.0%;
volatility factors of .19 and .22; dividend yields of 4.3% and 4.7%;
and weighted average expected lives of 7.6 and 4.8 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except earnings
per share amounts):
For the Fiscal Year Ended
------------------------------
May 31, June 1,
1997 1996
------ -------
Pro forma net income $9,618 $9,157
Pro forma earnings per share $ 0.82 $ 0.78
The effects of applying FAS No. 123 in this pro forma disclosure are not
indicative of future amounts. FAS No. 123 does not apply to awards made
prior to fiscal year 1996, and additional awards are anticipated.
A summary of the Company's stock option activity and related information
for the years ended May 31, 1997 and June 1, 1996 follows:
May 31, 1997 June 1, 1996
--------------------- --------------------
Weighted Weighted
Average Average
Options Exercise Option Exercise
(000) Price (000) Price
-------- -------- ------ --------
Outstanding - Beginning of year. 2,368 $15.97 0 $ 0.00
Converted MRI options........... 0 0.00 1,493 15.55
Granted......................... 493 13.21 950 16.50
Exercised....................... (200) 9.69 (57) 11.38
Forfeited....................... (354) 16.78 (18) 24.44
- ---------------------------------------------------------------------------
Outstanding - End of year....... 2,307 $15.82 2,368 $15.97
===========================================================================
Exercisable at end of year...... 1,068 $15.95 1,056 $14.52
===========================================================================
Weighted average fair value
of options granted during
the year........................ $1.89 $2.70
===========================================================================
Shares available for future
grants....................... 1,164 1,305
===========================================================================
The following table summarizes information about stock options
outstanding at the end of:
May 31, 1997
Options Outstanding Options Exercisable
----------------------------------- ----------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Number Exercise Contractual Number Exercise
Prices Outstanding Price Life Exercisable Price
- -------------------------------------------------------------------------------
$ 8.98 - $13.13 676 $12.16 5.96 317 $11.15
$13.50 - $15.75 596 $14.56 2.70 475 $14.62
$16.50 - $16.50 622 $16.50 3.84 0 $ 0.00
$17.03 - $31.59 413 $22.61 2.40 276 $23.72
- -------------------------------------------------------------------------------
2,307 $15.82 3.91 1,068 $15.95
===============================================================================
11. Contingencies
At May 31, 1997, the Company was contingently liable for approximately
$6.4 million in letters of credit, issued primarily in connection with
its Workers' Compensation and Casualty insurance programs.
The Company is presently, and from time to time, subject to pending
claims and lawsuits 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 financial position.
Prior to the Distribution, the Company entered into an agreement with
MFC and RTI providing for assumptions of liabilities and cross-
indemnities designed to allocate generally, among the three companies,
effective as of the Distribution date, financial responsibility for
liabilities arising out of or in connection with business activities
prior to the Distribution. No significant amounts were incurred under
this agreement during fiscal year 1997 or 1996.
12. Supplemental Quarterly Financial Data (Unaudited)
Quarterly financial results for the years ended May 31, 1997 and June 1,
1996 are summarized below. All quarters are composed of 13 weeks.
Amounts presented are in thousands.
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
===================================================
<CAPTION>
<S> <C> <C> <C> <C> <C>
For the year ended May 31, 1997
Revenues...........................$52,658 $54,355 $57,483 $56,515 $221,011
===================================================
Gross profit*......................$ 9,634 $10,291 $ 9,416 $10,437 $ 39,778
===================================================
Income before income taxes.........$ 4,619 $ 4,648 $ 3,695 $ 4,614 $ 17,576
Provision for federal and state
income taxes..................... 1,923 1,922 1,533 1,912 7,290
---------------------------------------------------
Net income.........................$ 2,696 $ 2,726 $ 2,162 $ 2,702 $ 10,286
===================================================
Earnings per common and common
equivalent share.................$ 0.23 $ 0.23 $ 0.18 $ 0.23 $ 0.87
For the year ended June 1, 1996:
Revenues...........................$56,289 $56,592 $54,224 $52,890 $219,995
===================================================
Gross profit*......................$10,326 $10,747 $ 8,417 $ 9,898 $ 39,388
===================================================
Income before income taxes.........$ 5,677 $ 4,827 $ 1,216 $ 4,291 $ 16,011
Provision for federal and state
income taxes..................... 2,342 2,082 505 1,802 6,731
---------------------------------------------------
Net income.........................$ 3,335 $ 2,745 $ 711 $ 2,489 $ 9,280
===================================================
</TABLE>
*The Company defines gross profit as revenue less operating expenses.
Common Stock Market Prices and Dividends
Morrison Health Care, Inc. common stock is publicly traded on the New
York Stock Exchange (NYSE) under the ticker symbol MHI. The following
table sets forth the reported high and low prices on the NYSE or the
high and low bid prices for each quarter during fiscal years 1997 and
1996.
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
---------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C>
1997 market price per share:
High.............................$15.000 $14.375 $14.875 $16.500
Low..............................$11.125 $10.750 $13.250 $13.000
1996 market price per share
High............................. N/A N/A N/A $18.375
Low.............................. N/A N/A N/A $13.750
Cash dividends on the common stock of Morrison Health Care, Inc. were
paid during each quarter of fiscal years 1997 and 1996 as follows:
1997 cash dividends per share.......$0.205 $0.205 $0.205 $0.205 $0.820
1996 cash dividends per share...... N/A N/A N/A $0.205 $0.205
</TABLE>
On June 26, 1997, the Company's Board of Directors declared a quarterly
dividend of $0.205 per share payable July 31, 1997, to 5,737
shareholders of record on July 11, 1997.
Report of Independent Auditors
Stockholders and Board of Directors
Morrison Health Care, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Morrison
Health Care, Inc. and Subsidiaries as of May 31, 1997 and June 1, 1996,
and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended
May 31, 1997. These financial statements are the responsibility of the
Company's Management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by Management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Morrison Health Care, Inc. and Subsidiaries at May 31, 1997 and June 1,
1996, and the consolidated results of their operations and their cash
flows for each of the three fiscal years in the period ended May 31,
1997, in conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Atlanta, Georgia
June 19, 1997
The Board of Directors Transfer Agent, Registrar, Annual Meeting
Dividend Disbursing Agent The annual meeting of
John B. McKinnon and Dividend Reinvestment Stockholders will be
Chairman of the Board, Plan Administrator held Tuesday,
Former Dean, Babcock AmSouth Bank, N.A. September 23, 1997,
Graduate School of Post Office Box 11426 starting at 1:00
Management,Wake Forest Birmingham, AL 35202 p.m., EDT, at the
University and Former Renaissance Atlanta
President, Sara Lee Dividend Reinvestment Plan Hotel-Concourse, One
Corporation For information contact the Hartsfield Centre
Shareholders Relations Parkway, Atlanta,
Glenn A. Davenport Department or the Dividend GA 30354.
President and Chief Reinvestment Plan
Executive Officer Administrator. Officers of the
Company
Claire L. Arnold (1, 2) Independent Auditors Glenn A.Davenport
Former Chief Executive Ernst & Young LLP President and Chief
Officer NCC L.P. 600 Peachtree Street Executive Officer
Atlanta, GA 30308
E. Eugene Bishop (1, 2) K. Wyatt Engwall
Former Chairman of the Legal Counsel Senior Vice
Board and Chief Executive Powell, Goldstein, Frazer & President, Finance
Officer of Morrison Murphy, LLP and Assistant
Restaurants Inc. 191 Peachtree Street, N.E. Secretary
Atlanta, GA 30303
Fred L. Brown (1, 2) John E. Fountain
President and Chief Common Stock Vice President,
Executive Officer, The Common Stock of General Counsel
BJC Health Systems Morrison Health Care, Inc. and Secretary
is traded on the New York
Stock Exchange. Carolyn L. Kolesar
Arthur R. Outlaw, Jr. (NYSE symbol: MHI) Senior Vice President
(1, 2)
Chairman of the Board Executive and Operating Frances G. Michels
and Chief Executive Offices Senior Vice
Officer of Marshall 1955 Lake Park Dr. SE, President, Support
Biscuit Company. Suite 400 Services
Smyrna, GA 30080
Dr. Benjamin F. Payton 770-437-3300 Jerry D.Underhill
(1, 2) Senior Vice
President, Tuskegee Form 10-K Information President, Sales and
University A copy of the Company's Marketing
annual report on Form 10-K,
Committees of the Board excluding exhibits, filed
with the Securities and
1. Compensation and Exchange Commission, will
Stock Option* be furnished to any
2. Audit* shareholder without
charge upon written
* Comprised entirely of request to the Shareholders
nonemployee Board Relations Department,
Members 1955 Lake Park Dr. SE,
Suite 400
Smyrna, GA 30080.
Morrison Health Care, Inc.
Exhibit 21.1 List of Subsidiaries
State of Incorporation - Georgia
Culinary Concepts, Inc.
Culinary Solutions, Inc.
State of Incorporation - Pennsylvania
Custom Management Corporation
Custom Management Corporation of Pennsylvania
Morrison Custom Management Corporation of
Pennsylvania
John C. Metz & Associates, Inc.
State of Incorporation - Texas
Morrison's Health Care of Texas, Inc.
Morrison Health Care, Inc.
Exhibit 23 Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Morrison Health Care, Inc. and Subsidiaries of our report dated
June 19, 1997, included in the 1997 Annual Report to Stockholders of
Morrison Health Care, Inc. and Subsidiaries.
Our audits also included the financial statement schedule of Morrison
Health Care, Inc. and Subsidiaries listed in Item 14(a). This schedule
is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements of Morrison Health Care, Inc. and Subsidiaries listed below
of our report dated June 19, 1997, with respect to the consolidated
financial statements incorporated herein by reference, and our report
included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of
Morrison Health Care, Inc. and Subsidiaries.
-Registration Statement No. 333-2098 on Form S-8 dated March 8, 1996
and related Prospectus
-Registration Statement No. 333-2100 on Form S-8 dated March 8, 1996
and related Prospectus
-Registration Statement No. 333-2102 on Form S-8 dated March 8, 1996
and related Prospectus
-Registration Statement No. 333-2104 on Form S-8 dated March 8, 1996
and related Prospectus
-Registration Statement No. 333-2106 on Form S-8 dated March 8, 1996
and related Prospectus
-Registration Statement No. 333-2108 on Form S-8 dated March 8, 1996
and related Prospectus
-Registration Statement No. 333-4504 on Form S-8 dated May 3, 1996
and related Prospectus
-Registration Statement No. 333-4508 on Form S-8 dated May 3, 1996
and related Prospectus
-Registration Statement No. 333-20197 on Form S-8 dated January 22, 1997
and related Prospectus
/s/Ernst & Young LLP
August 20, 1997
Atlanta, Georgia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income on pages 20
and 21 of the Company's 1997 Annual Report to Stockholders and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-END> MAY-31-1997
<CASH> 3,751
<SECURITIES> 0
<RECEIVABLES> 17,131
<ALLOWANCES> 744
<INVENTORY> 2,686
<CURRENT-ASSETS> 30,643
<PP&E> 16,343
<DEPRECIATION> 8,471
<TOTAL-ASSETS> 57,607
<CURRENT-LIABILITIES> 26,752
<BONDS> 15,022
0
0
<COMMON> 122
<OTHER-SE> 5,506
<TOTAL-LIABILITY-AND-EQUITY> 57,607
<SALES> 221,011
<TOTAL-REVENUES> 221,011
<CGS> 181,233
<TOTAL-COSTS> 181,233
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,494
<INCOME-PRETAX> 17,576
<INCOME-TAX> 7,290
<INCOME-CONTINUING> 10,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,286
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.87
</TABLE>
6
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this
"Amendment") dated as of June 14, 1997, by and among MORRISON
HEALTH CARE, INC., a Georgia corporation (the "Borrower"),
SUNTRUST BANK, ATLANTA ("SunTrust"), AMSOUTH BANK OF ALABAMA,
WACHOVIA BANK OF GEORGIA, N.A., FIRST AMERICAN NATIONAL BANK and
HIBERNIA NATIONAL BANK (collectively, the "Lenders") and SUNTRUST
BANK, ATLANTA, as agent for the Lenders (in such capacity, the
"Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the Lenders and the Agent are
parties to a certain Credit Agreement dated as of March 6, 1996,
as amended by that certain First Amendment to Credit Agreement
dated as of April 4, 1996 (as heretofore amended or modified, the
"Credit Agreement"; defined terms used herein without definition
shall have the meanings ascribed to such terms in the Credit
Agreement);
WHEREAS, Borrower has requested, and the Lenders
have agreed, that the Credit Agreement be amended to make certain
modifications to the financial covenants set forth therein, all
as more specifically set forth below;
WHEREAS, the parties wish to amend the Credit
Agreement to reflect this agreement;
NOW, THEREFORE, for and in consideration of the
mutual covenants contained herein and other valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound,
agree as follows:
SECTION 1. Amendments to Credit Agreement.
Subject to the satisfaction of the conditions precedent set forth
in Section 2 hereof, and effective as of the Effective Date (as
hereinafter defined), the Credit Agreement is hereby amended as
follows:
Section 7.08 of the Credit Agreement is hereby amended by
deleting subsections (b) and (d) thereof in their entirety and
substituting the following in lieu thereof:
(b) Adjusted Funded Debt to Total
Capitalization. Maintain at all times, measured as of
the last day of each fiscal quarter of the Borrower, commencing on
the last day of Fiscal Year 1996, a ratio of Adjusted Funded Debt
to Total Capitalization of less than the ratio set forth opposite
the periods set forth below:
Period Ratio
Fiscal Year End 1996 through Fiscal
Year End 1997 1.00:1.00
First day of Fiscal Year 1998 through
Fiscal Year End 1998 0.95:1.00
First day of Fiscal Year 1999 through
Fiscal Year End 1999 0.90:1.00
First day of Fiscal Year 2000 and
thereafter 0.85:1.00
(d) Consolidated Net Worth. Maintain at all
times, as calculated on the last day of each fiscal quarter of
the Borrower, Consolidated Net Worth in an amount not less than
the sum of (i) $100,000.00 plus (ii) the greater of (x) $0, and
(y) the Specified Amount, plus (iii) an amount equal to 100% of
the Net Proceeds of all issuances of stock, warrants,
Subordinated Debt, or other equity of the Borrower issued
following the date hereof. For purposes hereof, "Specified
Amount" shall mean, for each period set forth below, the
percentage set forth opposite such period multiplied by the
Consolidated Net Income (Loss) of the Borrower during such period
(taking into account 100% of all losses during such period):
Period Percentage
Effective Date through
Fiscal Year End 1996 0%
First Day of Fiscal Year 1997
through Fiscal Year End 1997 10%
First Day of Fiscal Year 1998
through Fiscal Year End 1998 10%
First Day of Fiscal Year 1999
through Fiscal Year End 1999 10%
First Day of Fiscal Year 2000
and thereafter 15%
SECTION 2. Conditions of Effectiveness. This
Amendment shall become effective as of the date first above
written (the "Effective Date") on the first day when this
Amendment shall have been executed and delivered by Borrower and
the Lenders to the Agent.
SECTION 3. Representations and Warranties of
Borrower. Borrower, without limiting the representations and
warranties provided in the Credit Agreement, represents and
warrants to the Lenders and the Agent as follows:
1. The execution, delivery and performance by
Borrower of this Amendment are within Borrower's corporate
powers, have been duly authorized by all necessary corporate
action (including any necessary shareholder action) and do not
and will not (a) violate any provision of any law, rule or
regulation, any judgment, order or ruling of any court or
governmental agency, the articles of incorporation or by-laws of
Borrower or any indenture, agreement or other instrument to which
Borrower is a party or by which Borrower or any of its properties
is bound or (b) be in conflict with, result in a breach of, or
constitute with notice or lapse of time or both a default under
any such indenture, agreement or other instrument.
2. This Amendment constitutes the legal, valid and
binding obligation of Borrower, enforceable against Borrower in
accordance with its terms.
3. No Default or Event of Default has occurred and
is continuing as of the Effective Date.
SECTION 4. Survival. Each of the foregoing
representations and warranties and each of the representations
and warranties made in the Credit Agreement shall be made at and
as of the Effective Date. Each of the foregoing representations
and warranties shall constitute a representation and warranty of
Borrower under the Credit Agreement, and it shall be an Event of
Default if any such representation and warranty shall prove to
have been incorrect or false in any material respect at the time
when made. Each of the representations and warranties made under
the Credit Agreement (including those made herein) shall survive
and not be waived by the execution and delivery of this Amendment
or any investigation by the Lenders or the Agent.
SECTION 5. No Waiver, Etc. Borrower hereby
agrees that nothing herein shall constitute a waiver by the
Lenders of any Default or Event of Default, whether known or
unknown, which may exist under the Credit Agreement. Borrower
hereby further agrees that no action, inaction or agreement by
the Lenders, including without limitation, any indulgence,
waiver, consent or agreement altering the provisions of the
Credit Agreement which may have occurred with respect to the non-
payment of any obligation during the terms of the Credit
Agreement or any portion thereof, or any other matter relating to
the Credit Agreement, shall require or imply any future
indulgence, waiver, or agreement by the Lenders. In addition,
Borrower acknowledges and agrees that it has no knowledge of any
defenses, counterclaims, offsets or objections in its favor
against any Lender with regard to any of the obligations due
under the terms of the Credit Agreement as of the date of this
Amendment.
SECTION 6. Affirmation of Covenants. Borrower
hereby affirms and restates as of the date hereof all covenants
set forth in the Credit Agreement, as amended hereby, and such
covenants are incorporated by reference herein as if set forth
herein directly.
SECTION 7. Ratification of Credit Agreement.
Except as expressly amended herein, all terms, covenants and
conditions of the Credit Agreement and the other Loan Documents
shall remain in full force and effect, and the parties hereto do
expressly ratify and confirm the Credit Agreement as amended
herein. All future references to the Credit Agreement shall be
deemed to refer to the Credit Agreement as amended hereby.
SECTION 8. Binding Nature. This Amendment shall
be binding upon and inure to the benefit of the parties hereto,
their respective heirs, successors, successors-in-titles, and
assigns.
SECTION 9. Costs, Expenses and Taxes. Borrower
agrees to pay on demand all reasonable costs and expenses of the
Agent in connection with the preparation, execution and delivery
of this Amendment and the other instruments and documents to be
delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto and with respect to advising the Agent
as to its rights and responsibilities hereunder and thereunder.
In addition, Borrower shall pay any and all stamp and other taxes
payable or determined to be payable in connection with the
execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees
to save the Agent and each Lender harmless from and against any
and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes.
SECTION 10. Governing Law. This Amendment shall
be governed by, and construed in accordance with, the laws of the
State of Georgia.
SECTION 11. Entire Understanding. This Amendment
sets forth the entire understanding of the parties with respect
to the matters set forth herein, and shall supersede any prior
negotiations or agreements, whether written or oral, with respect
thereto.
SECTION 12. Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts and may be delivered by
telecopier. Each counterpart so executed and delivered shall be
deemed an original and all of which taken together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed
this Amendment through their authorized officers as of the date
first above written.
MORRISON HEALTH CARE, INC.
By:/s/ K. Wyatt Engwall
Name: K. Wyatt Engwall
Title: Senior Vice President, Finance
[CORPORATE SEAL]
Attest:/s/ J. Richard Brandon, Jr.
Name: J. Richard Brandon, Jr.
Title: Financial Analyst
SUNTRUST BANK, ATLANTA,
individually and as Agent
By:/s/ Dan Komitor
Name: Dan Komitor
Title: Vice President
AMSOUTH BANK OF ALABAMA
By:/s/ Alan D. Lott
Name: Alan D. Lott
Title: Vice President
WACHOVIA BANK OF GEORGIA, N.A.
By:/s/ John C. Canty
Name: John C. Canty
Title: Banking Officer
FIRST AMERICAN NATIONAL BANK
By:/s/ Russell S. Rogers
Name: Russell S. Rogers
Title: Vice President
HIBERNIA NATIONAL BANK
By:/s/ Troy J. Villafarra
Name: Troy J. Villafarra
Title: Vice President
FIRST AMENDMENT TO THE MORRISON HEALTH CARE, INC.
EXECUTIVE SUPPLEMENTAL PENSION PLAN
THIS FIRST AMENDMENT is made on this 31st day of
December, 1996, by MORRISON HEALTH CARE, INC. (the "Primary
Sponsor"), a corporation organized and existing under the
laws of the State of Georgia.
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Morrison
Health Care, Inc. Executive Supplemental Pension Plan (the
"Plan"), which was established by indenture dated March 7,
1996;
WHEREAS, Ruby Tuesday, Inc. is the successor to
Morrison Restaurants, Inc. which effected that certain plan
of distribution involving the distribution to its
stockholders of all of the outstanding shares of common
stock, respectively, of Morrison Fresh Cooking, Inc. and
Morrison Health Care, Inc. (the "Distributions"); and
WHEREAS, the Primary Sponsor desires to amend the Plan
primarily to clarify how the distributions will affect Plan
participation by certain former employees of Morrison
Restaurants Inc. who did not continue in the employment of
Morrison Health Care, Inc. immediately following the
Distributions;
NOW, THEREFORE, the Plan is hereby amended, effective
immediately, as follows:
1. By adding a new final clause to the final paragraph
of Section 1.6, as follows:
"; provided, however, Continuous Service shall not
include any period of employment by a Former Morrison
Employee with MRI or any of its affiliates completed on or
prior to the effective date of the Distributions."
2. By adding a new final clause to the final sentence of Section
1.9, as follows:
"; provided, however, with respect to any Former
Morrison Employee, Annual Base Salary shall not include any
amounts paid by MRI or any of its affiliates during a
calendar year commencing prior to the effective date of the
Distributions."
3. By adding a new Section 1.6A, as follows:
"1.6A `Distributions' means the distributions by
MRI to its stockholders of all of the outstanding shares of
common stock, respectively, of Morrison Fresh Cooking, Inc.
and Morrison Health Care, Inc."
4. By adding a new Section 1.9A, as follows:
"1.9A `Former Morrison Employee' means an employee of
MRI at any time prior to the effective date of
the Distributions who did not continue in the employ of
Morrison Health Care, Inc. immediately after the
Distributions, but who subsequently has been hired by
Morrison Health Care, Inc."
5. By adding a new final clause to the final sentence of
Section 2.1, as follows:
"; provided, however, the salary and years of service
of a Former Morrison Employee completed with MRI or any of
its affiliates prior to the Spinoff Date shall be
disregarded."
Except as specifically amended hereby, the Plan shall
remain in full force and effect as prior to this First
Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this
First Amendment to be executed as of the day and year first
above written.
MORRISON HEALTH CARE, INC.
By:/s/ Glenn Davenport
Glenn Davenport
Title: President and CEO
ATTEST:
By:/s/ John E. Fountain
John E. Fountain
Title: Secretary
[CORPORATE SEAL]
FIRST AMENDMENT TO THE MORRISON HEALTH CARE, INC.
MANAGEMENT RETIREMENT PLAN
THIS FIRST AMENDMENT is made on this 31st day of
December, 1996, by MORRISON HEALTH CARE, INC. (the "Primary
Sponsor"), a corporation organized and existing under the
laws of the State of Georgia.
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Morrison
Health Care, Inc. Management Retirement Plan (the "Plan"),
which was established by indenture dated March 7, 1996;
WHEREAS, Ruby Tuesday, Inc. is the successor to
Morrison Restaurants Inc. which effected that certain plan
of distribution involving the distribution to its
stockholders of all of the outstanding shares of common
stock, respectively, of Morrison Fresh Cooking, Inc. and
Morrison Health Care, Inc. (the "Distributions"); and
WHEREAS, the Primary Sponsor desires to amend the Plan
primarily to clarify how the Distributions will affect Plan
participation by certain former employees of Morrison
Restaurants Inc. who did not continue in the employment of
Morrison Health Care, Inc. immediately following the
Distributions;
NOW, THEREFORE, the Plan is hereby amended, effective
immediately, as follows:
1. By adding a new Section 1.8A, as follows:
"1.8A `Distributions' means the distributions by
MRI to its stockholders of all of the outstanding shares of
common stock, respectively, of Morrison Fresh Cooking, Inc.
and Morrison Health Care, Inc."
2. By adding a new final clause to the final sentence of Section
1.12, as follows:
"With respect to any Former Morrison Employee,
Compensation shall not include any compensation paid by MRI
or any of its affiliates during any Plan Year commencing
prior to the effective date of the Distributions."
3. By adding a new Section 1.12A, as follows:
"1.12A `Former Morrison Employee' means an
employee of MRI at any time prior to the effective date of
the Distributions who did not continue in the employ of
Morrison Health Care, Inc. immediately after the
Distributions, but who subsequently has been hired by
Morrison Health Care, Inc."
4. By adding a new final clause to Section 1.15(e), as follows:
"; provided, however, for purposes of determining Hours
of Service, a Former Morrison Employee shall not be credited
with any period of employment with MRI or any of its
affiliates completed on or prior to the Spinoff Date."
5. By adding a new final clause to the final sentence of
Section 2.1, as follows:
"; provided, however, a Participant who is a Former
Morrison Employee shall not have included as Compensation
any items of compensation earned with MRI or any of its
Affiliates prior to the Spinoff Date."
Except as specifically amended hereby, the Plan shall
remain in full force and effect as prior to this First
Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this
First Amendment to be executed as of the day and year first
above written.
MORRISON HEALTH CARE, INC.
By:/s/ Glenn Davenport
Glenn Devenport
Title: President and CEO
ATTEST:
BY:/s/ John E. Fountain
John E. Fountain
Title: Secretary
[CORPORATE SEAL]
FIRST AMENDMENT TO THE MORRISON HEALTH CARE, INC.
SALARY DEFERRAL PLAN
THIS FIRST AMENDMENT is made on this 31st day of
December, 1996, by MORRISON HEALTH CARE, INC. (the "Primary
Sponsor"), a corporation organized and existing under the
laws of the State of Georgia.
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Morrison
Health Care, Inc. Salary Deferral Plan (the "Plan"), which
was established by indenture dated March 7, 1996;
WHEREAS, Ruby Tuesday, Inc. is the successor to
Morrison Restaurants Inc. which effected that certain plan
of distribution involving the distribution to its
stockholders of all of the outstanding shares of common
stock, respectively, of Morrison Fresh Cooking, Inc. and
Morrison Health Care, Inc. (the "Distributions"); and
WHEREAS, the Primary Sponsor desires to amend the Plan
primarily to clarify how the Distributions will affect Plan
participation by certain former employees of Morrison
Restaurants Inc. who did not continue in the employment of
Morrison Health Care, Inc., immediately following the
Distributions;
NOW, THEREFORE, the Plan is hereby amended, effective
immediately, as follows:
1. By adding a new Section 1.16A, as follows:
"1.16A `Distributions' means the distributions by
Morrison Restaurants Inc. to its stockholders of all of the
outstanding shares of common stock, respectively, of
Morrison Fresh Cooking, Inc. and Morrison Health Care, Inc."
2. By adding a new Section 1.28A, as follows:
"1.28A `Former Morrison Employee' means an
employee of Morrison Restaurants Inc. at any time prior to
the effective date of the Distributions who did not continue
in the employ of Morrison Health Care, Inc. immediately
after the Distributions, but who subsequently has been hired
by Morrison Health Care, Inc."
3. By adding a new final clause to the final sentence of Section 1.54,
as follows:
"; provided, however, with respect to any Former
Morrison Employee, any Year of Service with Morrison
Restaurants Inc. or any of its affiliates completed on or
prior to the effective date of the Distributions shall be
disregarded."
Except as specifically amended hereby, the Plan shall
remain in full force and effect as prior to this First
Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this
First Amendment to be executed as of the day and year first
above written.
MORRISON HEALTH CARE, INC.
By:/s/ Glenn Davenport
Glenn Davenport
Title: President and CEO
ATTEST:
By:/s/ John E. Fountain
John E. Fountain
Title: Secretary
[CORPORATE SEAL]
SECOND AMENDMENT TO THE MORRISON HEALTH CARE, INC.
SALARY DEFERRAL PLAN
THIS SECOND AMENDMENT is made on this 28th day of
February, 1997, by MORRISON HEALTH CARE, INC., a corporation
duly organized and existing under the laws of the State of
Georgia (the "Primary Sponsor").
W I T N E S S E T H:
WHEREAS, the Primary Sponsor established by indenture
dated March 7, 1996 the Morrison Health Care, Inc. Salary
Deferral Plan (the "Plan"); and
WHEREAS, the Primary Sponsor desires to amend the Plan
primarily to allow participation by highly compensated
employees and to reflect the changes required by the Small
Business Job Protection Act of 1996;
NOW, THEREFORE, the Primary Sponsor does hereby amend
the Plan, effective as of January 1, 1997, except as
otherwise provided herein, as follows:
1. By substituting the phrase"Supplemental Contribution
Account" for the phrase"Supplemental Matching Account" each time
the latter phrase appears in the Plan and by deleting the existing
Subsections (e) and (g) of Section 1.1 and substituting therefor the
following:
"(e) `Pre-Spinoff Matching Account' which shall reflect a Member's
interest in matching contributions made under the Plan through the
date of the first Acquisition Loan.
(g) `Supplemental Contributions Account' which
shall reflect a Member's interest in supplemental
allocations under Plan Section 4.2(b)(3)."
2. By adding new Subsections (j) and (k) to Section 1.1, as follows:
"(j) `Qualified Contributions Account' which shall
reflect a Member's interest in `Qualified Nonelective
Contributions' and `Qualified Matching Contributions', as
those terms are defined in Section 1 of Appendix A as well
as supplemental allocations under Plan Sections 4.2(b)(1)
and (2).
(k) `Unallocated Contributions and Dividends
Account' which shall consist of any Company Stock and cash a
Plan Sponsor contributes during a Plan Year and cash
dividends paid on shares of Company Stock held in the Loan
Suspense Account during a Plan Year until allocated for that
Plan Year pursuant to Plan Section 4."
3. By deleting Subsection (b) of Section 1.5 in its entirety
and substituting therefor the
following:
"(b) [Reserved];"
4. By deleting, effective April 1, 1997, Section 1.19 in its
entirety and substituting therefor the following:
"1.19 `Eligible Employee' means any Employee
of a Plan Sponsor other than an Employee who is (a) an
Employee covered by a collective bargaining agreement
between a union and a Plan Sponsor, provided that retirement
benefits were the subject to good faith bargaining, unless
the bargaining agreement provides for participation in the
Plan; or (b) a leased employee within the meaning of Code
Section 414(n)(2), or deemed to be an Employee of a Plan
Sponsor pursuant to regulations under Code Section 414(o)."
5. By deleting the last sentence of Section 1.25 and
substituting therefor the following:
"The ESOP shall consist of the Supplemental
Contributions Accounts, Company Matching Accounts, Qualified
Contributions Accounts, the Loan Suspense Account, the
Suspense Account and the Unallocated Contributions and
Dividends Account."
6. By replacing the existing Section 1.31 with new Section
1.31, as follows:
"1.31 `Highly Compensated Employee' shall
mean, with respect to a Plan Year, each Employee who:
(a) was at any time during the Plan Year or
the immediately preceding Plan Year an owner of more than
five percent (5%) of the outstanding stock of a Plan Sponsor
or Affiliate or more than five percent (5%) of the total
combined voting power of all stock of a Plan Sponsor or
Affiliate; or
(b) received Annual Compensation in excess
of $80,000 (as adjusted for changes in the cost of living
from time to time by the Secretary of the Treasury) during
the immediately preceding Plan Year.
For purposes of this Section, (1) Annual
Compensation shall include amounts paid by Affiliates and
shall be determined without regard to Annual Compensation
Limit; (2) a former Employee shall be treated as a Highly
Compensated Employee if the former Employee was a Highly
Compensated Employee at the time the former Employee
separated from service with the Plan Sponsor or Affiliate or
the former Employee was a Highly Compensated Employee at any
time after the former Employee attained age 55; and (3)
Employees who are nonresident aliens and who receive no
earned income from a Plan Sponsor or Affiliate from sources
within the United States shall not be treated as Employees.
Notwithstanding the foregoing, the Primary Sponsor
may elect to determine each Highly Compensated Employee
using the snapshot day of December 31, in a manner
consistent with Section 4 of Revenue Procedure 93-42."
7. By adding, effective April 1, 1997, a new final sentence
to Section 2.2 as follows:
"Notwithstanding the foregoing, a Highly Compensated Employee
shall become a Member as of the later of the date
described in the immediately preceding sentence or April 1, 1997."
8. By deleting the second sentence of the second paragraph of
Section 3.1(a) and substituting therefor the following:
"The Plan Administrator may adjust, on a prospective
basis, the percentage of Annual Compensation that may be
made as Deferral Amounts by Highly Compensated Employees,
either as a group, any subgrouping or individually, but in
no event shall the aggregate percentage for any Plan Year
exceed ten percent (10%) of Annual Compensation."
9. By deleting the last sentence of Section 3.2 and substituting
therefor the following:
"Any Member who is or becomes a Highly Compensated
Employee shall be ineligible to make further Voluntary
Contributions."
10. By deleting the second to last sentence of Section 3.3
and by adding a new second paragraph thereto, as follows:
"A cash contribution by a Plan Sponsor pursuant to
this Section shall be used first to make any scheduled or
accelerated amortization payments, or prepayments, on an
Acquisition Loan and then, to the extent of any excess,
shall be used to acquire additional shares of Company Stock,
to the extent practicable."
11. By adding the phrase "and, if applicable, Plan Section 4.4(d)"
immediately after the cross-reference to Section 4.4(b) and by substituting,
effective as of the Effective Date, Section 4.2(a)(2) as the cross-
reference in place of Section 4.2(b) in Section 3.4.
12. By adding new Sections 3.4A and 3.4B, as follows:
"3.4A Qualified Contributions. At the sole
discretion of the Primary Sponsor, each Plan Sponsor shall
make `Qualified Nonelective Contributions' and/or `Qualified
Matching Contributions', as those terms are defined in
Section 1 of Appendix A, in an amount together with any
supplemental allocations under Plan Sections 4.2(b)(1) or
(2) as determined by the Primary Sponsor are necessary to
satisfy, as applicable, the testing requirements of Code
Section 401(k)(3)(A)(ii) and Code Section 401(m)(2)(A).
3.4B Contributions Respecting Qualified Military
Service. Notwithstanding any other provision of the Plan to
the contrary, effective December 12, 1994, contributions,
benefits and service credit with respect to qualified
military service will be provided in accordance with Code
Section 414(u)."
13. By adding the following head language to Section 4.2:
"Plan Sponsor contributions and dividends paid on
shares of Company Stock allocated to the Loan Suspense
Account during a Plan Year shall be credited initially to
the Unallocated Contributions and Dividends Account until such
amounts are further allocated pursuant to this Section 4."
14. By deleting Clause (iv) of Section 4.2(a)(1) in its entirety
and substituting therefor the following:
"(iv) notwithstanding any provision to the contrary
in this Section 4.2(a)(1), in the case of a Member who is a
Highly Compensated Employee for the Plan Year, twenty
percent (20%) of the Member's Annual Compensation deferred
by the Member pursuant to Plan Section 3.1, regardless of
the Member's Years of Service."
15. By deleting Subsection (b) of Section 4.2 in its entirety
and substituting therefor the following:
"(b) Supplemental Allocations. As of each
Valuation Date, if the Fair Market Value of Company Stock
released from the Loan Suspense Account in accordance with
Plan Section 4.4(b) exceeds the value of matching
allocations provided for in Plan Section 4.2(a), the excess
shares of Company Stock so released and any contributions
described in Plan Section 3.4A shall be allocated as
follows:
(1) if the Primary Sponsor so elects, to the
Qualified Contributions Account of each Member who is not a
Highly Compensated Employee who is employed by a Plan
Sponsor on the last day of the Plan Year in an amount,
expressed as a percentage of Annual Compensation which, when
combined with contributions made on behalf of the Member
pursuant to Plan Section 3.1, equals the maximum amount that
the Member could have elected to defer under Plan Section
3.1, but only to those Members who are not Highly
Compensated Employees in ascending order of their respective
Annual Compensation amounts for that Plan Year, beginning
with the individual receiving the least Annual Compensation,
until the testing requirements of Code Section 401(k)(3)(A)(ii)
are satisfied;
(2) if the Primary Sponsor so elects, to the
Qualified Contributions Account of each Member who is not a
Highly Compensated Employee who is employed by a Plan
Sponsor on the last day of the Plan Year in an amount,
expressed as a percentage of Annual Compensation which, when
combined with allocations made on behalf of the Member
pursuant to Plan Section 4.2(a), equals the maximum amount,
expressed as a percentage of Annual Compensation, that the
Member could have received under Plan Section 4.2(a) had the
Member elected to have deferred on his behalf the maximum
percentage of Annual Compensation permitted under Plan
Section 3.1, but only to those Members who are not Highly
Compensated Employees in ascending order of their respective
Annual Compensation amounts for that Plan Year, beginning
with the individual receiving the least Annual Compensation,
until the testing requirements of Code Section 401(m)(2)(A)
are satisfied; and
(3) any remaining excess, to the
Supplemental Account of each Member who is employed by a
Plan Sponsor on the last day of the Plan Year in the
proportion that the Member's Annual Compensation bears to
the Annual Compensation of all Members entitled to an
allocation pursuant to this Section 4.2(b)(3); provided,
however, if and to the extent necessary to satisfy with
respect to the Plan Year the minimum coverage requirements
prescribed in Code Section 410(b) or the minimum
participation requirements under Code Section 401(a)(26) and
the Treasury regulations issued thereunder, Members who are
not Highly compensated Employees who completed more than 500
Hours of Service during the Plan Year, but who terminated
employment before the last day of the Plan Year, shall be
entitled to share in the allocation described in Plan
Section 4.2(b)(3), beginning with the individual receiving
the least Annual Compensation for the Plan Year."
16. By deleting the existing head language of Section 4.3(b)
and substituting therefor the following:
"As of each Valuation Date, the Trustee shall allocate
to each Account under the ESOP (other than the Unallocated
Contributions and Dividends Account) its share of the net
income or net loss of the ESOP Fund as hereinafter set
forth:".
17. By deleting clause (1) from Section 5.1(b) and substituting
therefor the following:
"(1) the Acquisition Loan provides for payments of
principal and interest no less frequently than annually at a
cumulative rate that is not less rapid at any time than
level annual payments of those amounts for ten years,".
18. By deleting the first sentence of Section 5.1(c) in its entirety
and substituting therefor the following:
"No person entitled to payment under an Acquisition
Loan shall have any right to Fund assets other than (1)
collateral given for the Acquisition Loan; (2) contributions
(other than contributions of Company Stock) that are made to
the ESOP under Plan Section 3.3; and (3) earnings
attributable to such collateral and such contributions."
19. By replacing the term "Plan" with the term "ESOP" the first time
the former appears in Section 7.1.
20. By deleting the second sentence of Sections 8.3 and 9.2 in their
entireties and substituting therefor the following:
"If the Member's interest in Company Stock under the
Plan equals or exceeds the value of one hundred (100) shares
of Company Stock, that interest may be distributed in the
form of whole shares of Company Stock if the Member so
elects in such form as the Plan Administrator may
prescribe."
21. By deleting Subsection (c) of Section 11.3 in its entirety and
by substituting therefor the following:
"(c) For purposes of this Plan Section, the term
`required beginning date' means April 1 of the calendar year
following the later of the calendar year in which the Member
attains age 70.5 or the calendar year in which the Member
retires, except that, in the case of a person described in
Section 1(b)(3) of Appendix C, the `required beginning date'
shall be April 1 of the calendar following the calendar year
in which the Member attains age 70.5."
22. By redesignating Section 22 as Section 23 and by adding new
Section 22 as follows:
"SECTION 22
PLAN LOANS"
22.1 Subject to the provisions of the Plan and the
Trust, on and after the date the provisions of this Section
are activated by express written action of the Plan
Administrator, each Member who is an Employee shall have the
right, subject to prior approval by the Plan Administrator,
to borrow from the Fund an amount equal to the lesser of the
value of the Member's accounts under the Profit Sharing Plan
or fifty percent (50%) of the value of the Member's vested
Account. In addition, each "party in interest," as defined
in ERISA Section 3(14), who is (a) a Member but no longer an
Employee, (b) the Beneficiary of a deceased Member, or
(c) an alternate payee of a Member pursuant to the
provisions of a "qualified domestic relations order," as
defined in Code Section 414(p), shall also have the right,
subject to prior approval by the Plan Administrator, to
borrow from the Fund; provided, however, that loans to such
parties in interest may not discriminate in favor of Highly
Compensated Employees.
22.2 In order to apply for a loan, a borrower must
complete and submit to the Plan Administrator documents
provided by the Plan Administrator for this purpose.
22.3 Loans shall be available to all eligible
borrowers on a reasonably equivalent basis which may take
into account the borrower's creditworthiness, ability to
repay, and ability to provide adequate security. Loans
shall not be made available to Highly Compensated Employees,
officers or shareholders of a Plan Sponsor in an amount
greater than the amount made available to other borrowers.
This provision shall be deemed to be satisfied if all
borrowers have the right to borrow the same percentage of
their interest in the Member's vested Account, notwith
standing that the dollar amount of such loans may differ as
a result of differing values of Members' vested Accounts.
22.4 Each loan shall bear a `reasonable rate of
interest' and provide that the loan be amortized in
substantially level payments, made no less frequently than
quarterly, over a specified period of time. A `reasonable
rate of interest' shall be that rate that provides the Plan
with a return commensurate with the interest rates charged
by persons in the business of lending money for loans which
would be made under similar circumstances.
22.5 Each loan shall be adequately secured, with
the security for the outstanding balance of all loans to the
borrower to consist of one-half (1/2) of the borrower's
interest in the Member's vested Account, or such other
security as the Plan Administrator deems acceptable. No
portion of the Member's Employee Deferral Account shall be
used as security for any loan hereunder unless and until
such time as the loan amount exceeds the value of the
borrower's interest in the Member's vested Account in all
other Accounts.
22.6 Each loan, when added to the outstanding
balance of all other loans to the borrower from all
retirement plans of the Plan Sponsor and its Affiliates
which are qualified under Section 401 of the Code, shall not
exceed the lesser of:
(a) $50,000, reduced by the excess, if any, of
(1) the highest outstanding balance of loans
made to the borrower from all retirement plans qualified
under Code Section 401 of the Plan Sponsor and its
Affiliates during the one (1) year period immediately
preceding the day prior to the date on which such loan was
made, over
(2) the outstanding balance of loans made to
the borrower from all retirement plans qualified under Code
Section 401 of the Plan Sponsor and its Affiliates on the
date on which such loan was made, or
(b) one-half (1/2) of the value of the borrower's
interest in the vested Account attributable to the Member's
Account.
For purposes of this Section, the value of the vested
Account attributable to a Member's Account shall be
established as of the latest preceding Valuation Date, or
any later date on which an available valuation was made, and
shall be adjusted for any distributions or contributions
made through the date of the origination of the loan.
22.7 Each loan, by its terms, shall be repaid
within five (5) years, except that any loan which is used to
acquire any dwelling unit which within a reasonable time is
to be used (determined at the time the loan is made) as the
principal residence of the borrower may, by its terms, be
repaid within a longer period of time.
22.8 The Plan Administrator may establish limits
on the number of loans outstanding in favor of any single
borrower at any one time and, for any such loan, a minimum
loan amount, which limitations shall be applied in a uniform
and nondiscriminatory manner.
22.9 The entire unpaid principal sum and accrued
interest shall, at the option of the Plan Administrator,
become due and payable if (a) a borrower fails to make any
loan payment when due, (b) a borrower ceases to be a `party
in interest', as defined in ERISA Section 3(14), (c) the
vested Account held as security under the Plan for the
borrower will, as a result of an impending distribution or
withdrawal, be reduced to an amount less than the amount of
all unpaid principal and accrued interest then outstanding
under the loan, or (d) a borrower makes any untrue
representations or warranties in connection with the
obtaining of the loan. In that event, the Plan
Administrator may take such steps as it deems necessary to
preserve the assets of the Plan, including, but not limited
to, the following: (1) direct the Trustee to deduct the
unpaid principal sum, accrued interest, and any other
applicable charge under the note evidencing the loan from
any benefits that may become payable out of the Plan to the
borrower, (2) direct the Plan Sponsor to deduct and transfer
to the Trustee the unpaid principal balance, accrued
interest, and any other applicable charge under the note
evidencing the loan from any amounts owed by the Plan
Sponsor to the borrower, or (3) liquidate the security given
by the borrower, other than amounts attributable to a
Member's Employee Deferral Account, and deduct from the
proceeds the unpaid principal balance, accrued interest, and
any other applicable charge under the note evidencing the
loan. If any part of the indebtedness under the note
evidencing the loan is collected by law or through an
attorney, the borrower shall be liable for attorneys' fees
in an amount equal to ten percent of the amount then due and
all costs of collection.
22.10 Each loan shall be treated as an
investment of that borrower's Account and shall be made only
in accordance with regulations and rulings of the Internal
Revenue Service and the Department of Labor. The Plan
Administrator shall be authorized to administer the loan
program of this Section and shall act in his sole discretion
to ascertain whether the requirements of such regulations
and rulings and this Section have been met."
23. By deleting the first sentence of Section 2 of Appendix A
and substituting therefor the following:
"In addition to any other limitations set forth in
the Plan, for each Plan Year one of the following tests must
be satisfied:
(a) the actual deferral percentage for the
Highly Compensated Eligible Members for the Plan Year must
not be more than the actual deferral percentage of all other
Eligible Members for the preceding Plan Year multiplied by
1.25; or
(b) the excess of the actual deferral
percentage for the Highly Compensated Eligible Members for
the Plan Year over that of all other Eligible Members for
the preceding Plan Year must not be more than two (2)
percentage points, and the actual deferral percentage for
the Highly Compensated Eligible Members for the Plan Year
must not be more than the actual deferral percentage of all
other Eligible Members for the preceding Plan Year
multiplied by two (2).
Notwithstanding the foregoing, the Plan
Administrator may utilize any transition rule permitted by
Internal Revenue Service 97-2 or otherwise regarding the use
of current year data for calculating actual deferral
percentages."
24. By deleting Subsection (b) of Section 3 of Appendix A in its
entirety and substituting therefor the following:
"(b) the maximum amount of Deferral Amounts
permitted under Section 2 of this Appendix A for the Plan
Year, which shall be determined by reducing the Deferral
Amounts contributed on behalf of Highly Compensated Eligible
Members in order of the amount of Deferral Amounts
contributed by such Eligible Members beginning with the
greatest of such amounts."
25. By deleting the first sentence of Section 5 of Appendix A and
substituting therefor the following:
"In addition to any other limitations set forth in
the Plan, Matching Contributions under the Plan and the
amount of nondeductible employee contributions under the
Plan, for each Plan Year must satisfy one of the following
tests:
(a) The contribution percentage for the
Highly Compensated Eligible Members for the Plan Year must
not exceed 125% of the contribution percentage for all other
Eligible Members for the preceding Plan Year; or
(b) The contribution percentage for Highly
Compensated Eligible Members for the Plan Year must not
exceed the lesser of (1) 200% of the contribution percentage
for all other Eligible Members for the preceding Plan Year,
and (2) the contribution percentage for all other Eligible
Members for the preceding Plan Year plus two (2) percentage
points.
Notwithstanding the foregoing, the Plan Administrator may
utilize any transition rule permitted by Internal Revenue
Service 97-2 or otherwise regarding the use of current year
data for calculating actual contribution percentages."
26. By deleting Subsection (b) of Section 6 of Appendix A in its
entirety and substituting therefor the following:
"(b) the maximum amount of the contributions
permitted under the limitations of Section 5 of this
Appendix A, determined by reducing contributions made on
behalf of Highly Compensated Eligible Members beginning with
the greatest of such amounts."
27. By deleting the last sentence of the second paragraph of
Section 6 of Appendix A.
28. By substituting Section 4.2(b)(3) as the cross-reference in
place of Section 4.2(b) in Section 6(c) of Appendix B.
29. By deleting Section 1(b)(1) of Appendix C in its entirety and
substituting therefor the following:
"(1) An officer of the Plan Sponsor or any
Affiliate whose Annual Compensation was greater than fifty
percent (50%) of the amount in effect under Code Section
415(b)(1)(A) for the calendar year in which the Plan Year
ends, where the term `officer' means an administrative
executive in regular and continual service to the Plan
Sponsor or Affiliate; provided, however, that in no event
shall the number of officers exceed the lesser of Clause (A)
or (B) of this Subparagraph (1), where:
(A) equals fifty (50) Employees; and
(B) equals the greater of (i) three (3)
Employees or (ii) ten percent (10%) of the number of
Employees during the Plan Year, with any non-integer being
increased to the next higher integer.
If for any Plan Year no officer of the Plan Sponsor
meets the requirements of this Subparagraph (1), the highest
paid officer of the Plan Sponsor for the Plan Year shall be
considered an officer for purposes of this Subparagraph."
Except as specifically amended hereby, the Plan shall
remain in full force and effect prior to this Second Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this
Second Amendment to be executed on the day and year first
above written.
MORRISON HEALTH CARE, INC.
By:/s/ K. Wyatt Engwall
K. Wyatt Engwall
Title: Senior Vice President, Finance
ATTEST:
By:/s/ Henry Page
Henry Page
Title: Director of Finance
[CORPORATE SEAL]
FIRST AMENDMENT TO THE MORRISON HEALTH CARE, INC.
DEFERRED COMPENSATION PLAN
THIS FIRST AMENDMENT is made as of this 31st day of
December, 1996, by MORRISON HEALTH CARE, INC. (the "Primary
Sponsor"), a corporation organized and existing under the
laws of the State of Georgia.
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Morrison
Health Care, Inc. Deferred Compensation Plan (the "Plan"),
which was established by indenture dated March 7, 1996;
WHEREAS, Ruby Tuesday, Inc. is the successor to
Morrison Restaurants Inc. which effected that certain plan
of distribution involving the distribution to its
stockholders of all of the outstanding shares of common
stock, respectively, of Morrison Fresh Cooking, Inc. and
Morrison Health Care, Inc. (the "Distributions"); and
WHEREAS, the Primary Sponsor desires to amend the Plan
primarily to clarify how the Distributions will affect Plan
participation by certain former employees of Morrison
Restaurants Inc. who did not continue in the employment of
Morrison Health Care, Inc. immediately following the
Distributions;
NOW, THEREFORE, the Plan is hereby amended, effective
immediately, except as otherwise provided herein, as
follows:
1. By adding a new Section 1.11A, as follows:
"1.11A `Distributions' means the distributions by
MRI to its stockholders of all of the outstanding shares of
common stock, respectively, of Morrison Fresh Cooking, Inc.
and Morrison Health Care, Inc."
2. By adding a new Section 1.15A, as follows:
"1.15A `Former Morrison Employee' means an
employee of MRI at any time prior to the effective date of
the Distributions who did not continue in the employ of
Morrison Health Care, Inc. immediately after the
Distributions, but who subsequently has been hired by
Morrison Health Care, Inc."
3. By deleting, effective January 1, 1997, existing Section 3.3(a)
in its entirety and by substituting therefor the following:
"3.3(a) Each Plan Sponsor proposes to credit on
behalf of each Member employed by that Plan Sponsor for
allocation to that Member's Company Matching Account an
amount equal to (A) twenty percent (20%) of the Deferral
Amounts of a Member in the case of a Member who has been
employed by a Plan Sponsor for at least one (1) year, but
fewer than ten (10) years; (B) thirty percent (30%) of the
Deferral Amounts of a Member in the case of a Member who has
been employed by a Plan Sponsor for at least ten (10) years,
but fewer than twenty (20) years; or (C) forty percent (40%)
of the Deferral Amounts of a Member in the case of a Member
who either (I) has been employed by a Plan Sponsor for at
least twenty (20) years or (II) is designated by the Plan
Administrator, with the consent of the Plan Sponsor, as one
of a select group of Members to receive such a matching
credit. Matching credits under Section 3.3(a) for any Plan
Year shall only be credited with respect to annual Deferral
Amounts of each Member equal to the Code Section 402(g)
limitation, as adjusted annually for inflation. For this
purpose, `Deferral Amounts' credited under the Old Plan for
the benefit of a Member during its plan year commencing
January 1, 1996 shall be applied first in reduction of the
Code Section 402(g) limitation."
4. By adding a new final clause to the final sentence of
Section 3.3(c), as follows:
"; provided, however, with respect to any Former
Morrison Employee, periods of employment with MRI or any of
its affiliates completed on or prior to the effective date
of the Distributions shall be disregarded."
Except as specifically amended hereby, the Plan shall
remain in full force and effect as prior to this First
Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this
First Amendment to be executed as of the day and year first
above written.
MORRISON HEALTH CARE, INC.
By:/s/ Glenn Davenport
Glenn Davenport
Title: President and CEO
ATTEST:
BY:/s/ John E. Fountain
John E. Fountain
Title: Secretary
[CORPORATE SEAL]
SECOND AMENDMENT TO THE MORRISON HEALTH CARE, INC.
DEFERRED COMPENSATION PLAN
THIS SECOND AMENDMENT is made as of this 31st day of
March, 1997, by MORRISON HEALTH CARE, INC. (the "Primary
Sponsor"), a corporation organized and existing under the
laws of the State of Georgia.
W I T N E S S E T H:
WHEREAS, the Primary Sponsor maintains the Morrison
Health Care, Inc. Deferred Compensation Plan (the "Plan"),
which was established by indenture dated March 7, 1996; and
WHEREAS, the Primary Sponsor desires to amend the Plan
to coordinate the participation by a select group of members
in the Morrison Health Care, Inc. Salary Deferral Plan with
participation by that same group in this Plan;
NOW, THEREFORE, the Plan is hereby amended, effective
April 1, 1997, except as otherwise provided herein, as
follows:
1. By deleting, effective as of March 7, 1996, Section 1.9
in its entirety and by substituting therefor the following:
"1.9 `Company Stock Rate of Return' means a
designated rate of return that corresponds, in whole or in
part, to changes in the value of securities of the Primary
Sponsor, any Affiliate, Ruby Tuesday, Inc. or Morrison Fresh
Cooking, Inc."
2. By deleting Section 3 in its entirety and by
substituting therefor the following:
"SECTION 3
DEFERRAL ELECTIONS
3.1 Each Plan Year, a Member who is an Eligible
Employee may elect to defer under the Plan a portion of the
Annual Compensation otherwise payable to the Member for the
Plan Year, which amount shall be at least two percent (2%)
of Annual Compensation and shall be in increments of one
percent (1%) of Annual Compensation, but not in excess of
twenty percent (20%) of Annual Compensation; provided,
however, that, if the Member is then eligible to participate
in the Salary Deferral Plan, the Member then must have in
effect an election under the Salary Deferral Plan to defer
the maximum percentage of Annual Compensation permissible
pursuant to its provisions (a `Maximum Salary Deferral Plan
Election''.
3.2 All elections to defer Annual Compensation
under Plan Section 3.1 may only be made pursuant to an
agreement between the Member and the Plan Sponsor which
shall be in such form and subject to such rules and
limitations as the Plan Administrator may prescribe and
shall specify the amount of Annual Compensation of the
Member that the Member desires to defer. Once a Member has
made an election for a Plan Year, the Member may revoke or
modify his or her election to reduce the rate of future
deferrals, effective as of the beginning of the payroll
period coinciding with or next following the Plan
Administrator's processing of the revocation or modification
pursuant to normal administrative procedures. Once an
election has been revoked or modified, any subsequent
election by the Member shall be effective as of the first
day of the first payroll period coinciding with or next
following the Plan Administrator's processing of the
election pursuant to normal administrative procedures,
except that at the request of a Member in a form acceptable
to the Plan Administrator, the election may be given effect
at a later date. Notwithstanding the other provisions of
this Section 3.2, any election to defer under this Plan
shall be revoked automatically if a Member who is then
eligible to participate in the Salary Deferral Plan revokes
or modifies his election to defer under that plan so that it
no longer constitutes a Maximum Salary Deferral Plan
Election.
3.3 Each Plan Sponsor proposes to credit on
behalf of each Member for allocation to that Member's
Company Matching Account an amount determined in accordance
with the following formula:
(a) first, determine the amount of matching
contributions which would have been made under the Salary
Deferral Plan on behalf of the Member to the sum of the
elective deferral made under the Salary Deferral Plan and
Deferral Amounts under the Plan on behalf of the Member for
the period, with the assumption, however, that a Member with
at least one but fewer than ten Years of Service shall
receive the matching allocation provided for by Section
4.2(a)(1) of the Salary Deferral Plan, but without regard to
(i) any restrictions required by Code Sections 401(k)(3),
401(m) or 415; and (ii) the restriction on the amount of
matching contributions which may be credited on behalf of
Highly Compensated Employees under the Salary Deferral Plan,
as described by Section 4.2(a)(1)(iv) of the Salary Deferral
Plan; and
(b) then reduce the amount determined under
Subsection (a) above by the amount of matching contributions
actually credited to the Member under the Salary Deferral
Plan for the same period; provided, however, a Plan Sponsor
may credit for any period a greater matching allocation on
behalf of any Member under the Plan than that determined by
the preceding provisions of this Section 3.3(a), as
determined by the Plan Sponsor in its sole discretion."
Except as specifically amended hereby, the Plan shall
remain in full force and effect as prior to this Second
Amendment.
IN WITNESS WHEREOF, the Primary Sponsor has caused this
Second Amendment to be executed as of the day and year first
above written.
MORRISON HEALTH CARE, INC.
By:/s/ Glenn Davenport
Glenn Davenport
Title: President and CEO
ATTEST:
By:/s/ John E. Fountain
John E. Fountain
Title: Secretary
[CORPORATE SEAL]
