6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________.
Commission file number 1-14194
MORRISON HEALTH CARE, INC.
-------------------------
(Exact name of Registrant as specified in charter)
GEORGIA 63-1155966
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
1955 Lake Park Drive, Suite 400, Smyrna, GA 30080-8855
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 437-3300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes_X_ No___
12,306,776
(Number of shares of $0.01 par value common stock outstanding as of
December 31, 1997)
INDEX
-----
PART I Financial Information
Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as
of November 30, 1997 and May 31, 1997......... 3
Condensed Consolidated Statements of
Income for the Quarter and Six Months Ended
November 30, 1997 and 1996.................... 4
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended
November 30, 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
Item 3. Quantitative and Qualitative Disclosures
about Market Risk............................. N/A
PART II Other Information
Item 1. Legal Proceedings............................. 9
Item 2. Changes in Securities......................... None
Item 3. Defaults upon Senior Securities............... None
Item 4. Submission of Matters to a Vote of
Security Holders.............................. 9
Item 5. Other Information............................. 9
Item 6. Exhibits and Reports on Form 8-K.............. 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
November 30, May 31,
1997 1997
-----------------------------------
(Unaudited) (Audited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments............... $ 5,842 $ 6,347
Receivables - accounts and notes (net)........ 25,738 21,271
Inventories................................... 2,716 2,686
Prepaid expenses.............................. 899 1,006
Deferred income tax benefits.................. 1,686 1,929
-----------------------------------
Total current assets........................ 36,881 33,239
-----------------------------------
Property and equipment - at cost................ 18,031 16,343
Less accumulated depreciation................. 9,113 8,471
-----------------------------------
8,918 7,872
Cost in excess of net assets acquired, net...... 5,190 4,582
Other assets.................................... 17,213 14,510
-----------------------------------
Total assets................................ $68,202 $60,203
===================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.............................. $10,244 $10,381
Book bank overdrafts.......................... 3,201 2,596
Short-term borrowings......................... 2,395 0
Other accrued liabilities..................... 10,921 11,360
Current portion of long-term debt............. 5,011 5,011
-----------------------------------
Total current liabilities................... 31,772 29,348
-----------------------------------
Notes payable................................... 16,511 15,022
Other deferred liabilities...................... 11,339 10,205
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 12,307 and 12,165 shares,
1998 and 1997, respectively)................ 123 122
Capital in excess of par value................ 11,518 9,717
Unearned ESOP shares.......................... (3,359) (3,517)
Retained earnings............................. 1,608 647
-----------------------------------
9,890 6,969
Less cost of treasury stock................... 1,310 1,341
-----------------------------------
Total stockholders' equity.................. 8,580 5,628
-----------------------------------
Total liabilities and stockholders' equity.. $68,202 $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 For the Six Months Ended
----------------------------- ----------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
----------------------------- ----------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Revenues............................ $60,646 $54,355 $118,400 $107,013
Operating costs and expenses:
Operating expenses................ 49,958 44,064 97,685 87,088
Selling, general and
administrative.................. 5,424 5,347 10,550 10,260
Interest expense, net of
interest income, totaling $1,103
and $1,280, respectively, in 1998
and $120 and $414, respectively,
in 1997........................... 229 296 456 398
----------------------------- ----------------------------
55,611 49,707 108,691 97,746
----------------------------- ----------------------------
Income before provision for
income taxes...................... 5,035 4,648 9,709 9,267
Provision for federal and state
income taxes...................... 1,989 1,922 3,835 3,845
----------------------------- ----------------------------
Net income.......................... $ 3,046 $ 2,726 $ 5,874 $ 5,422
============================= ============================
Earnings per common and common
equivalent share.................. $ 0.25 $ 0.23 $ 0.49 $ 0.46
============================= ============================
Weighted average common and common
equivalent shares................. 12,161 11,831 12,095 11,834
============================= ============================
</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 Six Months Ended
------------------------------
November 30, November 30,
1997 1996
------------------------------
<CAPTION>
<S> <C> <C>
Operating activities:
Net income........................................ $ 5,874 $ 5,422
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation and amortization................. 1,216 944
Amortization of intangibles................... 113 78
Other, net.................................... 483 557
Deferred income taxes......................... (295) (777)
(Gain)/Loss on disposition of assets.......... (39) 14
Changes in operating assets and liabilities:
(Increase)/Decrease in receivables.......... (4,777) 2,881
Increase in inventories..................... (31) (51)
Increase in prepaid and other assets........ (209) (85)
Increase in accounts payable, accrued
and other liabilities..................... 866 1,823
Increase in income taxes payable............ 688 49
-------------------------------
Net cash provided by operating activities......... 3,889 10,855
-------------------------------
Investing activities:
Purchases of property and equipment............... (2,447) (1,808)
Proceeds from disposal of assets.................. 225 51
Other, net........................................ (3,133) (677)
-------------------------------
Net cash used by investing activities............. (5,355) (2,434)
-------------------------------
Financing activities:
Principal payments on long-term debt.............. (2,511) (11)
Net change in short-term borrowings............... 6,395 (3,761)
Proceeds from exercise of stock options........... 1,770 306
Dividends paid.................................... (4,914) (4,855)
Decrease/(Increase) in Treasury Stock held by
Deferred Comp Plan............................ 31 (197)
ESOP shares....................................... 190 0
-------------------------------
Net cash provided (used) by financing activities.. 961 (8,518)
-------------------------------
Decrease in cash and short-term investments....... (505) (97)
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............................... $ 5,842 $ 5,991
===============================
</TABLE>
The accompanying notes are an integral part of the financial statements.
Morrison Health Care, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. The
accompanying unaudited condensed consolidated financial
statements reflect all adjustments for normal recurring
accruals. These adjustments are necessary, in the opinion of
Management, for a fair presentation of the financial position,
the results of operations and the cash flows for the interim
periods presented. The results of operations for the interim
periods reported herein are not necessarily indicative of
results to be expected for the full year. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on
Form 10-K for the year ended 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 January 7, 1998, the Company's Board of Directors declared a
quarterly cash dividend of $0.205 per share of outstanding
common stock payable on January 31, 1998 to shareholders of
record at the close of business on January 20, 1998.
NOTE C - NEW ACCOUNTING STANDARD
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 basic 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
earnings per share.
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 and six
months ended November 30, 1997 compared with the results for
the comparable periods of the prior year.
Results of Operations
The Company reported net income from continuing operations of
$3.0 million for the quarter and $5.9 million for the six
months ended November 30, 1997, compared with net income of
$2.7 and $5.4 million reported for the corresponding periods of
the prior fiscal year. Earnings before interest and taxes
increased $0.3 million to $5.3 million for the quarter and
increased $0.5 million to $10.2 million for the six months
ended November 30, 1997.
Revenue
Revenue from operations increased $6.3 million or 11.6% to
$60.6 million for the quarter and increased $11.4 million or
10.6% to $118.4 million for the six months ended November 30,
1997. The increase was primarily attributable to the conversion
of client paid payroll to MHCI paid payroll in continuing
accounts.
Managed volume (which is the amount of estimated total
operating costs managed) from operations increased $7.1 million
or 6.2% to $121.0 million for the quarter and increased $11.0
or 4.8% for the six months ended November 30,1997 from the
prior year period due to the expansion of the vending and
branded concepts programs in continuing accounts.
Operating Costs
Operating costs increased $5.9 million or 13.4% to $50.0
million for the quarter and increased $10.6 million or 12.2%
for the six months ended November 30, 1997. These costs have
increased as a percentage of revenue from the comparable
periods in the prior year primarily as a result of the
conversion of client paid payroll to MHCI paid payroll in
continuing accounts.
Selling, general and administrative expenses for the quarter
increased $0.08 million or 1.4% for the quarter and increased
$0.3 million or 2.8% for the six months ended November 30, 1997
as compared to the same periods of the prior year.
Interest Expense (net of Interest Income)
Net interest expense decreased from $0.3 million to $0.2
million for the quarter and increased to $0.5 million for the
six months ended November 30, 1997 from $0.4 million for the
same period of the prior year.
Income Taxes
The effective income tax rate on continuing operations for the
three months and six months ended November 30, 1997 was 39.5%,
as compared to 41.4% and 41.5%, respectively, for the same
periods of the prior year. The Company has lowered its
estimated effective income tax rate for the current year based
upon anticipated tax credits and a review of the first full
year of tax filings.
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 November 30, 1997 were $68.2 million, a $8.0
million increase from $60.2 million as of the prior fiscal year
end. This increase is attributable to the following: 1) an
increase of $4.5 million in accounts receivable due to the
Thanksgiving holiday being before the end of the quarter; 2) an
increase of $0.8 million in client investments; and 3) a $0.9
million increase in the Company's Deferred Compensation Plan
assets.
Total liabilities at November 30, 1997 were $59.6 million, a
$5.0 million increase from $54.6 million as of the end of the
prior fiscal year. This increase was primarily due to a $3.8
million increase in debt and a $1.1 million increase in
deferred other liabilities related to the Company's Deferred
Compensation Plan.
The Company expects that funds generated from operations and
existing lines of credit will be sufficient to meet its normal
operating requirements over the near term.
Special Note Regarding Forward-Looking Information
The foregoing sections contain "forward-looking" statements
which represent the Company's expectations or beliefs
concerning future events, including statements regarding
liquidity and capital resources. The Company cautions that a
number of important factors could, individually or in the
aggregate, cause actual results to differ materially from such
forward-looking statements including, without limitation, the
following: health care spending trends; the growth of systems
and group purchasing organizations; changes in health care
regulations; increased competition in the health care food and
nutrition market; customer acceptance of the Company's cost
savings programs; and changes in laws and regulations affecting
labor and employee benefit costs.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 23, 1997, the Company held its Annual Meeting of
Shareholders in Atlanta, Georgia. During the meeting, the
following matters were voted upon.
Proposal 1 - Election of Directors
The following nominees were elected as Class II directors to
the Board of Directors for a three year term.
Number of
Number of Votes
Nominees Votes For Withheld
- ------------------------------------------------------
Claire L. Arnold.............10,713,739 88,694
Glenn A. Davenport...........10,751,747 50,686
Other members of the Board of Directors are E. Eugene Bishop,
Fred L. Brown, John B. McKinnon, Arthur R. Outlaw, Jr and Dr.
Benjamin F. Payton.
Proposal 2 - Amendment to 1996 Stock Incentive Plan
The shareholders approved amending the 1996 Stock Incentive
Plan to increase the number of shares authorized for issuance
thereunder the Plan by 900,000. The results of the
shareholders' votes were 8,367,404 shares voted For, 1,076,424
shares voted Against, 52,293 shares Abstained, and 1,982,558
shares subject to broker non-votes.
ITEM 5 OTHER INFORMATION
At its quarterly meeting held on January 7, 1998, the Board of
Directors declared a cash dividend of $0.205 per share, payable
on January 31, 1998 to shareholders of record at the close of
business on January 20, 1998.
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)
01/12/98 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>
Three Months Ended
--------------------------------
November 30, November 30,
1997 1996
--------------------------------
<CAPTION>
<S> <C> <C>
Primary
- -------
Weighted Average shares outstanding......... 11,965 11,784
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price................................ 196 47
--------------------------------
Total....................................... 12,161 11,831
================================
Net income.................................. $3,046 $2,726
================================
Per share amount............................ $ 0.25 $ 0.23
================================
Fully Diluted
- -------------
Weighted Average shares outstanding......... 11,965 11,784
Net effect of dilutive stock
options-based on the treasury
stock method using the higher
of period-end or average
market price................................ 258 80
--------------------------------
Total....................................... 12,223 11,864
================================
Net income.................................. $3,046 $2,726
================================
Per share amount............................ $ 0.25 $ 0.23
================================
</TABLE>
<TABLE>
Six Months Ended
--------------------------------
November 30, November 30,
1997 1996
--------------------------------
<CAPTION>
<S> <C> <C>
Primary
- -------
Weighted Average shares outstanding......... 11,904 11,783
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price................................ 191 51
--------------------------------
Total....................................... 12,095 11,834
================================
Net income.................................. $5,874 $5,422
================================
Per share amount............................ $ 0.49 $ 0.46
================================
Fully Diluted
- -------------
Weighted Average shares outstanding......... 11,904 11,783
Net effect of dilutive stock
options-based on the treasury
stock method using the higher
of period-end or average
market price................................ 253 68
--------------------------------
Total....................................... 12,157 11,851
================================
Net income.................................. $5,874 $5,422
================================
Per share amount............................ $ 0.48 $ 0.46
================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income in the
Company's Quarterly Report to Shareholders for the quarter ended November 30,
1997 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 5,842
<SECURITIES> 0
<RECEIVABLES> 21,627
<ALLOWANCES> 744
<INVENTORY> 2,716
<CURRENT-ASSETS> 36,881
<PP&E> 18,031
<DEPRECIATION> 9,113
<TOTAL-ASSETS> 68,202
<CURRENT-LIABILITIES> 31,772
<BONDS> 16,511
0
0
<COMMON> 123
<OTHER-SE> 8,457
<TOTAL-LIABILITY-AND-EQUITY> 8,580
<SALES> 118,400
<TOTAL-REVENUES> 118,400
<CGS> 97,685
<TOTAL-COSTS> 97,685
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,736
<INCOME-PRETAX> 9,709
<INCOME-TAX> 3,835
<INCOME-CONTINUING> 5,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,874
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.48
</TABLE>
