1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-14194
MORRISON HEALTH CARE, INC.
(Exact name of Registrant as specified in charter)
GEORGIA 63-1155966
(State or other jurisdiction of (I.R.S. Employer identifiation No.)
incorporation or organization)
1955 Lake Park Drive, Suite 400, Smyrna, GA 30080-8855
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 437-3300
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months(or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
12,289,950
(Number of shares of $0.01 par value common stock outstanding
as of September 30, 1997)
INDEX
PART I
Financial
Information
Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
of August 31, 1997 and May 31, 1997.......... 3
Condensed Consolidated Statements of
Income for the Quarter Ended
August 31, 1997 and 1996..................... 4
Condensed Consolidated Statements of Cash
Flows for the Quarter Ended
August 31, 1997 and 1996..................... 5
Notes to Condensed Consolidated Financial
Statements................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 7-8
PART II Other Information
Item 1. Legal Proceedings........................... 9
Item 2. Changes in Securities....................... None
Item 3. Defaults upon Senior Securities............. None
Item 4. Submission of Matters to a Vote of
Security Holders............................ None
Item 5. Other Information........................... 9
Item 6. Exhibits and Reports on Form 8-K............ 9
Signatures................................................. 10
Index to Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................ 11
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
As of As of
August 31, May 31,
1997 1997
--------------------------
(Unaudited) (Audited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments................. $ 1,668 $ 6,347
Receivables - accounts and notes (net).......... 24,224 21,271
Inventories..................................... 2,641 2,686
Prepaid expenses................................ 979 1,006
Deferred income tax benefits.................... 1,704 1,929
--------------------------
Total current assets.......................... 31,216 33,239
--------------------------
Property and equipment - at cost.................. 16,792 16,343
Less accumulated depreciation................... 8,674 8,471
--------------------------
8,118 7,872
Cost in excess of net assets acquired, net........ 5,246 4,582
Other assets...................................... 15,713 14,510
--------------------------
Total assets.................................. $60,293 $60,203
==========================
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable................................ $ 9,237 $10,381
Book bank overdrafts............................ 2,061 2,596
Short-term borrowings........................... 1,992 0
Other accrued liabilities....................... 11,443 11,360
Current portion of long-term debt............... 5,011 5,011
--------------------------
Total current liabilities..................... 29,744 29,348
--------------------------
Notes payable..................................... 13,761 15,022
Other deferred liabilities........................ 10,373 10,205
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 12,199 and 12,165 shares,
1998 and 1997, respectively).................. 122 122
Capital in excess of par value.................. 10,127 9,717
Unearned ESOP shares............................ (3,438) (3,517)
Retained earnings............................... 979 647
--------------------------
7,790 6,969
Less cost of treasury stock..................... 1,375 1,341
--------------------------
Total stockholders' equity.................... 6,415 5,628
--------------------------
Total liabilities and stockholders' equity.... $60,293 $60,203
==========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
For the Quarter Ended
--------------------------
August 31, August 31,
1997 1996
--------------------------
<CAPTION>
<S> <C> <C>
Revenues............................................ $57,754 $52,658
Operating costs and expenses:
Operating expenses................................ 47,727 43,024
Selling, general and administrative............... 5,126 4,913
Interest expense, net of interest income,
totaling $177 in 1998 and $294 in 1997.......... 227 102
--------------------------
53,080 48,039
--------------------------
Income before provision for income taxes............ 4,674 4,619
Provision for federal and state income taxes........ 1,846 1,923
--------------------------
Net income.......................................... $ 2,828 $ 2,696
==========================
Earnings per common and common equivalent share..... $ 0.24 $ 0.23
==========================
Weighted-average common and common
equivalent shares.............................. 12,028 11,837
==========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<TABLE>
Morrison Health Care, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
For the Quarter Ended
-------------------------
August 31, August 31,
1997 1996
-------------------------
<CAPTION>
<S> <C> <C>
Operating activities:
Net income........................................... $ 2,828 $ 2,696
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization.................... 580 455
Amortization of intangibles...................... 56 39
Other, net....................................... 214 317
Deferred income taxes............................ 167 (351)
(Gain)/Loss on disposition of assets............. (43) 18
Changes in operating assets and liabilities:
(Increase)/Decrease in receivables............. (3,292) 3,532
Decrease in inventories........................ 43 26
(Increase)/Decrease in prepaid and other
assets....................................... (29) 135
Increase in accounts payable, accrued
and other liabilities........................ 2,615 19
Increase in income taxes payable............... 1,578 601
-------------------------
Net cash (used) provided by operating activities..... (513) 7,487
-------------------------
Investing activities:
Purchases of property and equipment.................. (981) (944)
Proceeds from disposal of assets..................... 197 34
Other, net........................................... (2,073) (330)
-------------------------
Net cash used by investing activities................ (2,857) (1,240)
-------------------------
Financing activities:
Principal payments on long-term debt................. (1,261) (11)
Net change in short-term borrowings.................. 1,992 (1,761)
Proceeds from exercise of stock options.............. 396 134
Dividends paid....................................... (2,496) (2,423)
Increase in Treasury Stock held by
Deferred Comp Plan................................. (33) (66)
ESOP shares.......................................... 93 0
-------------------------
Net cash used by financing activities................ (1,309) (4,127)
-------------------------
(Decrease)/Increase in cash and short-term
investments........................................ (4,679) 2,120
Cash and short-term investments at the
beginning of the period............................ 6,347 6,088
-------------------------
Cash and short-term investments at the
end of the period.................................. $ 1,668 $ 8,208
=========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Morrison Health Care, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
accompanying unaudited condensed consolidated financial
statements reflect all adjustments for normal recurring
accruals. These adjustments are necessary, in the opinion of
Management, for a fair presentation of the financial position,
the results of operations and the cash flows for the interim
periods presented. The results of operations for the interim
period reported herein are not necessarily indicative of
results to be expected for the full year. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on
Form 10-K for the year ended May 31, 1997.
Certain prior reported amounts have been reclassified to be
consistent with current reporting practices.
NOTE B - SUBSEQUENT EVENTS
Declaration of Quarterly Dividend
On September 23, 1997, the Company's Board of Directors
declared a quarterly cash dividend of $0.205 per share of
outstanding common stock payable on October 31, 1997 to
shareholders of record at the close of business on October 10,
1997.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Morrison Health Care, Inc. ("MHCI" or the "Company"), a Georgia
corporation, was spun off from Morrison Restaurants Inc.
("MRI") in March 1996. The discussion below relates to the
results of operations of the Company for the quarter ended
August 31, 1997 compared with the results for the quarter ended
August 31, 1996.
Results of Operations
The Company reported net income from continuing operations of
$2.8 million for the quarter ended August 31, 1997, compared
with income of $2.7 million reported for the corresponding
period of the prior fiscal year.
Revenue
Revenue from operations increased $5.1 million or 9.7% to $57.8
million for the quarter ended August 31, 1997 from the
comparable period in the prior year. The quarterly increase
was primarily attributable to the conversion of client payroll
to MHCI payroll in continuing accounts.
Managed volume (which is the amount of estimated total
operating costs managed) from operations increased $3.9 million
or 3.4% to $117.4 million for the quarter ended August 31, 1997
from the prior year period due to the expansion of the vending
and branded concepts programs in continuing accounts.
Operating Costs
Operating costs increased $4.7 million or 10.9% to $47.7
million for the quarter ended August 31, 1997. These costs
have increased as a percent of revenue from the comparable
period in the prior year primarily as a result of the
conversion of client payroll to MHCI payroll in continuing
accounts.
Selling, general and administrative expenses for the quarter
increased $0.2 million or 4.3% for the quarter ending August
31, 1997 as compared to the same period of the prior year.
Interest Expense (net of Interest Income)
Net interest expense increased to $0.2 million for the quarter
from $0.1 million for the same period of the prior year due to
the receipt of $0.2 million in interest income in the prior
year.
Income Taxes
The effective income tax rate on continuing operations for the
quarter ended August 31, 1997 was 39.5%, as compared to 41.6%
for the same period of the prior year. The Company has lowered
its estimated effective income tax rate for the current year
based upon its anticipated taxable income including anticipated
tax credits.
Earnings per Share
Earnings per share are based on the weighted-average number of
shares outstanding during each quarter and are adjusted for
equivalent shares. Equivalent shares are the assumed
conversion of shares issuable upon exercise of options, after
the assumed repurchase of common shares with the related
proceeds.
Liquidity and Capital Resources
Total assets at August 31, 1997 were $60.3 million, a $0.1
million increase from $60.2 million as of the prior fiscal year
end.
Total liabilities at August 31, 1997 were $53.9 million, a $0.7
million decrease from $54.6 million as of the end of the prior
fiscal year. This decrease was primarily due to a $1.1 million
decrease in accounts payable.
The Company expects that funds generated from operations and
existing lines of credit will be sufficient to meet its normal
operating requirements over the near term.
VHA Inc. Agreement
On August 21, 1997, the Company signed an agreement with VHA
Inc. to serve as a preferred provider of food and nutrition
services for VHA members. VHA is a nationwide network of
leading community-owned health care organizations that
comprises approximately 22 percent of the nation's hospitals.
Management believes that this agreement will give the Company
increased visibility and greater growth potential in the health
care market.
Special Note Regarding Forward-Looking Information
The foregoing sections contain "forward-looking" statements
which represent the Company's expectations or beliefs
concerning future events, including statements regarding
liquidity and capital resources. The Company cautions that a
number of important factors could, individually or in the
aggregate, cause actual results to differ materially from such
forward-looking statements including, without limitation, the
following: health care spending trends; the growth of systems
and group purchasing organizations; changes in health care
regulations; increased competition in the health care food and
nutrition market; customer acceptance of the Company's cost
savings programs; and changes in laws and regulations affecting
labor and employee benefit costs.
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is presently, and from time to time, subject to
pending claims and suits arising in the ordinary course of its
business. In the opinion of management, the ultimate
resolution of these pending legal proceedings will not have a
material adverse effect on the Company's operations or
consolidated financial position.
ITEM 5 OTHER INFORMATION
At its quarterly meeting held on September 23, 1997, the Board
of Directors declared a cash dividend of $0.205 per share,
payable on October 31, 1997 to shareholders of record at the
close of business on October 10, 1997.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 Computation of Earnings per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
MORRISON HEALTH CARE, INC.
(Registrant)
10/14/97 By:/S/ K. WYATT ENGWALL
DATE K. WYATT ENGWALL
Senior Vice President, Finance
(Senior Vice President and Principal Accounting Officer)
MORRISON HEALTH CARE, INC.
LIST OF EXHIBITS
Exhibit
Number Description
------- ---------------------------------------
11 Computation of Earnings per Share
27 Financial Data Schedule
MORRISON HEALTH CARE, INC.
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands, except per share data)
<TABLE>
Quarter Ended
--------------------------
August 31, August 31,
1997 1996
--------------------------
<CAPTION>
<S> <C> <C>
Primary
- -------
Average shares outstanding.......... 11,842 11,781
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price........................ 186 56
----------------------------
Total............................... 12,028 11,837
============================
Net income.......................... $ 2,828 $ 2,696
============================
Per share amount.................... $ 0.24 $ 0.23
============================
Fully Diluted
- -------------
Average shares outstanding.......... 11,842 11,781
Net effect of dilutive stock
options-based on the treasury
stock method using the higher
of period-end or average
market price........................ 249 56
----------------------------
Total............................... 12,091 11,837
============================
Net income.......................... $ 2,828 $ 2,696
============================
Per share amount.................... $ 0.23 $ 0.23
============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income in the
Company's Quarterly Report to Shareholders for the quarter ended
August 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> AUG-31-1997
<CASH> 1,668
<SECURITIES> 0
<RECEIVABLES> 19,240
<ALLOWANCES> 744
<INVENTORY> 2,641
<CURRENT-ASSETS> 31,216
<PP&E> 16,792
<DEPRECIATION> 8,674
<TOTAL-ASSETS> 60,293
<CURRENT-LIABILITIES> 29,744
<BONDS> 13,761
0
0
<COMMON> 122
<OTHER-SE> 6,293
<TOTAL-LIABILITY-AND-EQUITY> 60,293
<SALES> 57,754
<TOTAL-REVENUES> 57,754
<CGS> 47,727
<TOTAL-COSTS> 47,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 404
<INCOME-PRETAX> 4,674
<INCOME-TAX> 1,846
<INCOME-CONTINUING> 2,828
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,828
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
</TABLE>
