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, 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
11,827,194
- --------------------------------------------------------------------------------
(Number of shares of $0.01 par value common stock outstanding as of
December 31, 1999)
<PAGE>
INDEX
PART I Financial Information
Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
November 30, 1999 and May 31, 1999..................... 3
Condensed Consolidated Statements of Income for
the Three Months and Six Months Ended
November 30,1999 and 1998.............................. 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended November 30, 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
November 30, May 31,
1999 1999
-------------------------------------
(Unaudited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and short-term investments.......... $ 3,234 $ 2,780
Receivables - accounts and notes (net)... 38,336 34,035
Inventories.............................. 3,641 2,940
Prepaid expenses......................... 2,880 2,312
Deferred income tax benefits............. 1,971 1,747
-------------------------------------
Total current assets................... 50,062 43,814
-------------------------------------
Property and equipment - at cost........... 34,264 30,975
Less accumulated depreciation............ 13,440 12,376
-------------------------------------
20,824 18,599
Cost in excess of net assets acquired, net. 18,957 18,331
Other assets............................... 23,527 22,183
-------------------------------------
Total assets........................... $113,370 $102,927
=====================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable......................... $ 15,500 $ 15,091
Other accrued liabilities................ 12,027 12,917
Current portion of long-term debt........ 81 136
-------------------------------------
Total current liabilities.............. 27,608 28,144
-------------------------------------
Long-term debt............................. 55,750 49,305
Other deferred liabilities................. 11,811 10,915
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 11,837 and 11,977 shares,
FY2000 and FY1999, respectively)....... 119 120
Capital in excess of par value........... 574 3,324
Unearned ESOP shares..................... (2,586) (2,806)
Deferred Compensation Plan liability
payable in Company stock............... 1,635 1,518
Company stock held by Deferred
Compensation Plan....................... (1,635) (1,518)
Retained earnings ....................... 20,094 13,925
-------------------------------------
Total stockholders' equity............. 18,201 14,563
-------------------------------------
Total liabilities and stockholders'
equity............................... $113,370 $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 For the Six Months Ended
----------------------------- -----------------------------
November 30, November 30, November 30, November 30,
1999 1998 1999 1998
----------------------------- -----------------------------
<CAPTION>
<S> <C> <C> <C> <C>
Revenues......................... $101,185 $77,833 $195,168 $150,079
Operating expenses............... 85,075 64,578 164,027 125,227
----------------------------- -----------------------------
Gross profit..................... 16,110 13,255 31,141 24,852
Selling, general and
administrative expenses........ 9,756 6,995 18,138 12,913
----------------------------- -----------------------------
6,354 6,260 13,003 11,939
Interest expense, net of
interest income, totaling
$104 and $133, in FY2000 and
FY1999, respectively........... 674 640 1,303 1,064
----------------------------- -----------------------------
Income before provision for
income taxes................... 5,680 5,620 11,700 10,875
Provision for federal and state
income taxes................... 2,232 2,196 4,607 4,299
----------------------------- -----------------------------
Net income....................... $ 3,448 $ 3,424 $ 7,093 $ 6,576
============================= =============================
Earnings per share - Basic....... $ 0.29 $ 0.28 $ 0.60 $ 0.54
============================= =============================
Earnings per share - Diluted..... $ 0.28 $ 0.28 $ 0.58 $ 0.54
============================= =============================
Weighted-average common
shares - Basic................. 11,857 12,044 11,874 11,970
Net effect of dilutive
stock options.................. 339 171 354 209
----------------------------- -----------------------------
Weighted-average common and
common equivalent shares
- Diluted...................... 12,196 12,215 12,228 12,179
============================= =============================
</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 Six Months Ended
-----------------------------
November 30, November 30,
1999 1998
-----------------------------
<CAPTION>
<S> <C> <C>
Operating activities:
Net income......................................... $ 7,093 $ 6,576
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation................................... 2,273 1,375
Amortization of intangibles.................... 531 374
Deferred income taxes.......................... 132 (59)
Gain on disposition of assets.................. (118) (94)
Changes in operating assets and liabilities:
Receivables................................. (4,257) (8,663)
Inventories................................. (701) 12
Prepaid and other assets.................... (2,364) (3,958)
Accounts payable, accrued and
other liabilities......................... 226 (1,587)
Income taxes payable........................ 189 (174)
-----------------------------
Net cash provided/(used) by operating activities... 3,004 (6,198)
-----------------------------
Investing activities:
Purchases of property and equipment................ (5,321) (5,878)
Proceeds from disposal of assets................... 940 715
Cost of acquisitions, net.......................... (1,104) (6,251)
-----------------------------
Net cash used by investing activities.............. (5,485) (11,414)
-----------------------------
Financing activities:
Net change in long-term debt....................... 6,390 19,629
Proceeds from the issuance of stock................ 808 522
Proceeds from exercise of stock options............ 2,058 1,240
Purchase of Treasury Stock......................... (5,755) (6,058)
Dividends paid..................................... (924) (979)
ESOP shares released............................... 358 232
-----------------------------
Net cash (used)/ provided by financing activities.. 2,935 14,586
-----------------------------
Increase/(decrease) in cash and short-term
investments...................................... 454 (3,026)
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................................ $ 3,234 $ 2,694
=============================
</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 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, 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 January 7, 2000, the Company's Board of Directors declared a quarterly cash
dividend of $0.04 per share of outstanding common stock payable on January 31,
2000 to shareholders of record at the close of business on January 17, 2000.
Tenet Healthcare Corp. Contract
In January, 2000, Tenet Healthcare Corp., one of the nation's largest healthcare
systems, awarded the Company a five-year contract to provide foodservice to 58
of Tenet's acute care hospitals. Under the contract, the Company will manage an
estimated $100 million in annual revenue and managed volume.
<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 quarter and six months ended
November 30, 1999 compared with the results for the comparable periods of the
prior year.
MANAGED VOLUME
The Company generally performs its services pursuant to either management fee or
profit and loss contracts. While actual services performed are the same, revenue
recognition varies by type of contract. In a management fee account, MMSI
manages the services and facilities, but the client is responsible for all or
nearly all the costs. Revenues and fees are recognized for the amount of the
contractually agreed-upon management fee and any earned incentives plus the
amount of any expenses or employee payroll costs paid by the Company and charged
back to the client. In a profit and loss account, MMSI assumes the risk of
profit or loss for the food service operation. For such accounts, 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 (net management fees plus
reimbursed expenses) and the profit and loss account (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 costs of operating
the food services, regardless of which type of contract exists with the client.
Management believes managed volume is its best indicator of performance because
it measures total activity from all client accounts and provides an indication
of what gross revenues would be if the Company performed all services pursuant
to profit and loss contracts. Management uses managed volume as an additional
indicator of performance and not as a replacement of measures such as revenues,
as defined and required by generally accepted accounting principles.
Managed volume from operations increased $29.0 million or 18.6% to $184.7
million for the quarter and increased $65.9 million or 22.1% to $363.4 million
for the six months ended November 30, 1999 over the corresponding prior year
periods due to new accounts, acquired accounts and growth in existing accounts.
RESULTS OF OPERATIONS
The Company's net income from continuing operations was even for the quarter at
$3.4 million and increased 7.9% to $7.1 million for the six months ended
November 30, 1999, compared with net income of $3.4 million and $6.6 million
reported for the corresponding periods of the prior fiscal year. Earnings before
interest and taxes increased 1.5% or $0.9 million to $6.4 million for the
quarter and increased 8.9% or $1.1 million to $13.0 million for the six months
ended November 30, 1999. The increase over the corresponding prior year periods
was due to growth in continuing and new accounts and high account retention
which was partially offset by start-up costs associated with a significant level
of new business and expenses for recruiting, training, relocations and
promotions.
REVENUE
Revenue from operations increased $23.4 million or 30.0% to $101.2 million for
the quarter and increased $45.1 million or 30.0% to $195.2 million for the six
months ended November 30, 1999 over the corresponding prior year periods. The
increase was primarily attributable to the conversion of client-paid payroll to
Company-paid payroll in continuing accounts, new accounts and accounts acquired
in acquisitions.
OPERATING EXPENSES
Operating expenses increased $20.5 million or 31.7% to $85.1 million for the
quarter and increased $38.8 million or 31.0% to $164.0 million for the six
months ended November 30, 1999. These expenses have increased over the prior
year periods primarily as a result of start-up costs associated with the
addition of a significant level of new and acquired accounts and the conversion
of client-paid payroll to Company-paid payroll in continuing accounts.
Selling, general and administrative increased $2.8 million or 39.5% to $9.8
million for the quarter and increased $5.2 million or 40.5% to $18.1 million for
the six months ended November 30, 1999 as compared to the corresponding periods
of the prior year. This increase is due to the prior year acquisitions, start-up
and opening costs related to a significant level of new business and actual
account openings which resulted in increased investments in human resources
recruiting, training and development, relocations and promotions.
INTEREST EXPENSE, Net of Interest Income
Net interest expense was level for the quarter and increased from $1.1 million
to $1.3 million for the six months ended November 30, 1999 as compared to the
corresponding periods of the prior year. The increase in interest is
attributable to higher average borrowings.
INCOME TAXES
The effective income tax rate on continuing operations for the quarter and the
six months ended November 30, 1999 was 39.3% and 39.4%, respectively, as
compared to 39.1% and 39.5%, respectively, for the quarter and the six months
ended November 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at November 30, 1999 were $113.4 million, a $10.4 million increase
over $102.9 million as of the prior fiscal year end. This increase is
attributable to an increase in current assets of $6.2 million comprised of
increases in accounts receivable, inventories and prepaid assets and an increase
in long-term assets of $4.2 million comprised of increases in fixed assets,
goodwill and other assets.
Total liabilities at November 30, 1999 were $95.2 million, a $6.8 million
increase from $88.4 million as of the end of the prior fiscal year. This
increase was primarily due to a $6.4 million increase in long-term debt.
The Company expects that funds generated from operations and existing lines of
credit will be sufficient to meet its normal operating requirements over the
near term. See "Special Note Regarding Forward-Looking Information."
YEAR 2000
The Company has not experienced any disruptions in its business as a result of
the transition to the year 2000. However, the Company cannot give any assurances
that the Company will not encounter year 2000 related issues in the future,
particularly, problems associated with the Company's systems' ability to process
year 2000 as a leap year. The Company will continue to monitor its software
programs and information systems for Year 2000 issues. See "Special Note
Regarding Forward-Looking Information."
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 January 7, 2000, the Company's Board of Directors declared a quarterly cash
dividend of $0.04 per share of outstanding common stock payable on January 31,
2000 to shareholders of record at the close of business on January 17, 2000.
Tenet Healthcare Corp. Contract
In January, 2000, Tenet Healthcare Corp., one of the nation's largest healthcare
systems, awarded the Company a five-year contract to provide foodservice to 58
of Tenet's acute care hospitals. Under the contract, the Company will manage an
estimated $100 million in annual revenue and managed volume.
<PAGE>
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
On September 28, 1999, the Company held its Annual Meeting of Shareholders in
Atlanta, Georgia. During the meeting, the following matters were voted upon.
Proposal for the election of Directors
The following nominees were elected as a Class I or Class III director to the
Board of Directors for a three year term.
Number of
Number of Votes
Nominees Votes For Withheld
- --------------------------------------------------------------------------------
E. Eugene Bishop Class I 9,580,304 62,934
Fred L. Brown Class I 9,581,559 61,679
Arthur R. Outlaw, Jr. Class I 9,582,036 61,202
Michael F. Corbett Class III 9,613,977 29,261
Other members of the Board of Directors are Claire L. Arnold, Glenn A.
Davenport, John B. McKinnon and Dr. Benjamin F. Payton.
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedule - For the Six Months ended
November 30, 1999
(b) Reports on Form 8-K:
None
<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)
01/13/00 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 Six Months ended November 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income from the
Company's Quarterly Report to Shareholders for the quarter ended November 30,
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> 6-MOS
<FISCAL-YEAR-END> May-31-2000
<PERIOD-START> Jun-01-1999
<PERIOD-END> Nov-30-1999
<CASH> 3,234
<SECURITIES> 0
<RECEIVABLES> 33,599
<ALLOWANCES> 768
<INVENTORY> 3,641
<CURRENT-ASSETS> 50,062
<PP&E> 34,264
<DEPRECIATION> 13,440
<TOTAL-ASSETS> 113,370
<CURRENT-LIABILITIES> 27,608
<BONDS> 55,750
0
0
<COMMON> 119
<OTHER-SE> 18,082
<TOTAL-LIABILITY-AND-EQUITY> 113,370
<SALES> 195,168
<TOTAL-REVENUES> 195,168
<CGS> 164,027
<TOTAL-COSTS> 164,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,479
<INCOME-PRETAX> 11,700
<INCOME-TAX> 4,607
<INCOME-CONTINUING> 7,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,093
<EPS-BASIC> 0.60
<EPS-DILUTED> 0.58
</TABLE>
