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, 1999
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 MANAGEMENT SPECIALISTS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in charter)
GEORGIA 63-1155966
- --------------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
12,124,666
- --------------------------------------------------------------------------------
(Number of shares of $0.01 par value common stock outstanding as of
September 30, 1999)
<PAGE>
INDEX
PART I Financial Information
Page
Number
-------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
August 31, 1999 and May 31, 1999....................... 3
Condensed Consolidated Statements of Income for
the Three Months Ended August 31, 1999 and 1998........ 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended August 31, 1999 and 1998........ 5
Notes to Condensed Consolidated Financial Statements... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 7-9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk................................................... 9
PART II Other Information
Item 1. Legal Proceedings ..................................... 10
Item 2. Changes in Securities.................................. 10
Item 3. Defaults upon Senior Securities........................ 10
Item 4. Submission of Matters to a Vote of Security Holders.... 10
Item 5. Other Information...................................... 10
Item 6. Exhibits and Reports on Form 8-K....................... 10
Signatures................................................................. 11
Index to Exhibits, Financial Statement Schedules, and Reports on Form 8-K.. 12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
<TABLE>
Morrison Management Specialists, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
As of As of
August 31, May 31,
1999 1999
--------------------------
(Unaudited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments .................. $ 3,530 $ 2,780
Receivables - accounts and notes (net) ........... 33,325 34,035
Inventories ...................................... 3,097 2,940
Prepaid expenses ................................. 2,712 2,312
Deferred income tax benefits ..................... 2,073 1,747
--------------------------
Total current assets ........................... 44,737 43,814
--------------------------
Property and equipment - at cost ................... 31,420 30,975
Less accumulated depreciation .................... 13,136 12,376
--------------------------
18,284 18,599
Cost in excess of net assets acquired, net.......... 18,077 18,331
Other assets ....................................... 23,217 22,183
--------------------------
Total assets ................................... $104,315 $102,927
==========================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................. $ 13,847 $ 15,091
Other accrued liabilities ........................ 11,902 12,917
Current portion of long-term debt ................ 116 136
--------------------------
Total current liabilities ...................... 25,865 28,144
--------------------------
Long-term debt ..................................... 47,475 49,305
Other deferred liabilities ......................... 11,258 10,915
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 12,076 and 11,977 shares,
2000 and 1999, respectively) ................... 121 120
Capital in excess of par value ................... 5,196 3,324
Unearned ESOP shares ............................. (2,695) (2,806)
Deferred Compensation Plan liability
payable in Company stock ....................... 1,573 1,518
Company stock held by Deferred Compensation Plan.. (1,573) (1,518)
Retained earnings ................................ 17,095 13,925
--------------------------
Total stockholders' equity ..................... 19,717 14,563
--------------------------
Total liabilities and stockholders' equity...... $104,315 $102,927
==========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
Morrison Management Specialists, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
For the Three Months Ended
August 31, August 31,
1999 1998
--------------------------
<CAPTION>
<S> <C> <C>
Revenues ................................... $93,983 $72,246
Operating expenses ......................... 78,952 60,649
--------------------------
Gross profit ............................... 15,031 11,597
Selling, general and administrative
expenses ................................. 8,382 5,918
--------------------------
6,649 5,679
Interest expense, net of interest income,
totaling $72 and $50, in 2000
and 1999, respectively ................... 629 424
--------------------------
Income before provision for income taxes ... 6,020 5,255
Provision for federal and state income taxes 2,375 2,103
--------------------------
Net income ................................. $ 3,645 $ 3,152
==========================
Earnings per share - Basic ................. $ 0.31 $ 0.26
==========================
Earnings per share - Diluted ............... $ 0.30 $ 0.26
==========================
Weighted-average common shares - Basic ..... 11,890 11,895
Net effect of dilutive stock options ....... 369 247
--------------------------
Weighted-average common shares - Diluted ... 12,259 12,142
==========================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
Morrison Management Specialists, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
For the Three Months Ended
August 31, August 31,
1999 1998
-----------------------
<CAPTION>
<S> <C> <C>
Operating activities:
Net income .............................................. $ 3,645 $ 3,152
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation ........................................ 1,122 682
Amortization of intangibles ......................... 260 161
Deferred income taxes ............................... 276 (589)
Gain on disposition of assets ....................... (12) (87)
Changes in operating assets and liabilities:
Receivables ...................................... 770 (1,495)
Inventories ...................................... (157) (22)
Prepaid and other assets ......................... (2,151) (166)
Accounts payable, accrued and
other liabilities .............................. (3,799) (5,332)
Income taxes payable ............................. 1,883 2,337
----------------------
Net cash provided/(used) by operating activities......... 1,837 (1,359)
----------------------
Investing activities:
Purchases of property and equipment ..................... (935) (3,484)
Proceeds from disposal of assets ........................ 141 704
Cost of acquisitions, net ............................... 46 (400)
----------------------
Net cash used by investing activities ................... (748) (3,180)
----------------------
Financing activities:
Net change in long-term debt ............................ (1,849) 4,563
Proceeds from the issuance of stock ..................... 808 522
Proceeds from exercise of stock options ................. 985 606
Purchase of Treasury Stock .............................. 0 (4,418)
Dividends paid .......................................... (474) (488)
ESOP shares released .................................... 191 122
----------------------
Net cash (used)/ provided by financing activities........ (339) 907
----------------------
Increase/(decrease) in cash and short-term investments .. 750 (3,632)
Cash and short-term investments at the
beginning of the period ............................... 2,780 5,720
----------------------
Cash and short-term investments at the
end of the period ..................................... $ 3,530 $ 2,088
======================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Morrison Management Specialists, 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 period 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, 1999.
Certain prior reported amounts and balances have been reclassified to conform to
the current year presentation.
NOTE B - SUBSEQUENT EVENTS
Declaration of Quarterly Dividend
On September 28, 1999, the Company's Board of Directors declared a quarterly
cash dividend of $0.04 per share of outstanding common stock payable on October
29, 1999 to shareholders of record at the close of business on October 8, 1999.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below relates to the results of operations of Morrison Management
Specialists, Inc. ("MMSI" or the "Company") for the three months ended August
31, 1999 compared with the results for the comparable period of the prior year.
RESULTS OF OPERATIONS
The Company's net income from continuing operations increased 15.6% to $3.6
million for the three months ended August 31, 1999, compared with net income of
$3.2 reported for the corresponding period of the prior fiscal year. Earnings
before interest and taxes increased 17.1% or $1.0 million to $6.6 million for
the three months ended August 31, 1999 compared to the same period of the prior
fiscal year. The increase was due to growth in new account income.
MANAGED VOLUME AND REVENUE
Due to the difference between the amount of revenue that is reported for the fee
accounts (net management fee plus reimbursed expenses) and the profit and loss
accounts (gross revenues of meal sales), management uses the concept of managed
volume to evaluate the Company's true growth. Managed volume is defined by MMSI
as the total cost of operating the foodservices, regardless of which type of
contract exists with the client. Managed volume from operations increased $36.9
million or 26.0% to $178.8 million for the three months ended August 31, 1999
from the prior year period due to new and acquired accounts.
Revenue from operations increased $21.7 million or 30.1% to $94.0 million for
the three months ended August 31, 1999 from the prior year period. The increase
was primarily attributable to the conversion of client paid payroll to MMSI paid
payroll in continuing accounts, new accounts and accounts acquired from
acquisitions.
OPERATING EXPENSES
Operating expenses increased $18.3 million or 30.2% to $79.0 million for the
three months ended August 31, 1999. These expenses have increased over the prior
year period primarily as a result of the addition of new and acquired accounts
and the conversion of client paid payroll to MMSI paid payroll in continuing
accounts. These expenses expressed as a percentage of managed volume increased
slightly compared to the prior year period.
Selling, general and administrative expenses increased $2.5 million or 41.6% for
the three months ended August 31, 1999 as compared to the same period last year.
The increase is due to the prior year acquisition of Culinary Services Network
and increased spending in human resources and training due to the growth in new
business. Selling, general and administrative expenses as percentage of managed
volume is consistent with the third and fourth quarters of the prior fiscal
year.
INTEREST EXPENSE, Net of Interest Income
Net interest expense increased from $0.4 million to $0.6 million for the three
months ended August 31, 1999 as compared to the same period of the prior year.
The increase in interest is attributable to higher average borrowings, partially
offset by the capitalization of construction period interest.
<PAGE>
INCOME TAXES
The effective income tax rate on continuing operations for the three months
ended August 31, 1999 was 39.5% as compared to 40.0% for the same period of the
prior year. The decrease is attributable to a lower amount of non-deductible
expenses and additional tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at August 31, 1999 were $104.3 million, a $1.4 million increase
over $102.9 million as of the prior fiscal year end. This increase is
attributable to an increase in current assets of $0.9 million comprised of
increases in prepaid assets and deferred income taxes and an increase in
long-term assets of $1.0 million comprised of increases in other assets.
Total liabilities at August 31, 1999 were $84.6 million, a $3.8 million decrease
from $88.4 million as of the end of the prior fiscal year. This decrease was
primarily due to a $1.8 million decrease in long-term debt and $2.3 million
decrease in current liabilities.
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. See "Special Note Regarding Forward-Looking Information."
YEAR 2000
Currently there is significant uncertainty within the software industry and
among software users regarding the impact of installed computer software that
has been programmed to accept only two-digit entries in the date code fields and
use such two-digit entries in the software's calculation and report generation
formats. The Company is currently addressing the impact of the Year 2000 Issue.
After completing inventories of its technology systems, MMSI elected to replace
its most critical system, a shared-mainframe corporate system, with
client-server systems architected using Year 2000 standards. The transition to
this new system began in June 1997 and was completed in January 1999. The
Company continues its testing and preparations of other systems, which it
anticipates completing before December 31, 1999. In addition, the Company has
verified that all other significant vendor licensed software applications are
either currently Year 2000 compliant or will be by December 31, 1999. The
Company's technology initiatives include both preparations for the Year 2000
Issue and significant system upgrades and enhancements. While it is not possible
to give an estimate of the costs specifically related to the Year 2000 Issue,
the total cost of the Company's technology initiatives is approximately $5
million, substantially all of which has been incurred. Given the progress to
date, the Company does not expect this project to pose significant operational
problems for the Company. However, the Company cannot make assurances that the
Company will not be exposed to any potential claims resulting from the systems
problems associated with the century change. See "Special Note Regarding
Forward-Looking Information."
<PAGE>
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 and impact of the Year 2000 Issue. 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:
healthcare spending trends; the growth of systems and group purchasing
organizations; changes in healthcare regulations; increased competition in the
healthcare food and nutrition market; customer acceptance of the Company's cost
saving programs; impact of the year 2000; and changes in laws and regulations
affecting labor and employee benefit costs.
SUBSEQUENT EVENTS
Declaration of Quarterly Dividend
On September 28, 1999, the Company's Board of Directors declared a quarterly
cash dividend of $0.04 per share of outstanding common stock payable on October
29, 1999 to shareholders of record at the close of business on October 8, 1999.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's swap agreements expose it to market and credit risks which are
inherent in all interest rate swaps. Counterparties to these agreements are
major financial institutions. Consequently, the Company believes that the credit
risk of its swap agreements is minimal. The Company does not believe that any
reasonably likely change in near-term interest rates would have a material
adverse effect on the future earnings or cash flows of the Company.
<PAGE>
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
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedule - For the Three Months ended
August 31, 1999
(b) Reports on Form 8-K:
On July 6, 1999, the Company filed a report on Form
8-K to report its name change to Morrison Management
Specialists, Inc., effective June 30, 1999.
<PAGE>
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 MANAGEMENT SPECIALISTS, INC.
-------------------------------------
(Registrant)
10/15/99 By:/S/ K. WYATT ENGWALL
- -------- ---------------------
DATE K. WYATT ENGWALL
Senior Vice President, Finance
(Senior Vice President and Principal Accounting Officer)
<PAGE>
MORRISON MANAGEMENT SPECIALISTS, INC.
LIST OF EXHIBITS
Exhibit
Number Description
- ------ ---------------------------------------------------------------------
27 Financial Data Schedule - For the Three Months ended August 31, 1999
<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, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001007507
<NAME> MORRISON MANAGEMENT SPECIALISTS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 3,530
<SECURITIES> 0
<RECEIVABLES> 28,275
<ALLOWANCES> 738
<INVENTORY> 3,097
<CURRENT-ASSETS> 44,737
<PP&E> 31,420
<DEPRECIATION> 13,136
<TOTAL-ASSETS> 104,315
<CURRENT-LIABILITIES> 25,865
<BONDS> 47,475
0
0
<COMMON> 121
<OTHER-SE> 19,596
<TOTAL-LIABILITY-AND-EQUITY> 104,315
<SALES> 93,983
<TOTAL-REVENUES> 93,983
<CGS> 78,952
<TOTAL-COSTS> 78,952
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 701
<INCOME-PRETAX> 6,020
<INCOME-TAX> 2,375
<INCOME-CONTINUING> 3,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,645
<EPS-BASIC> 0.31
<EPS-DILUTED> 0.30
</TABLE>
