Audited Financial Statements
and Supplemental Schedules
Morrison Health Care, Inc.,
Salary Deferral Plan
Year ended December 31, 1999
and as of December 31, 1998
with Report of Independent
Auditors
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Audited Financial Statements and Supplemental Schedules
Year ended December 31, 1999 and as of December 31, 1998
Contents
Report of Independent Auditors.........................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits........................2
Statement of Changes in Net Assets Available for Benefits..............3
Notes to Financial Statements..........................................4
Supplemental Schedules
Schedule of Assets Held for Investment Purposes at End of Year........13
Schedule of Reportable Transactions...................................14
<PAGE>
Report of Independent Auditors
Plan Administrator
Morrison Health Care, Inc., Salary Deferral Plan
We have audited the accompanying statements of net assets available for benefits
of the Morrison Health Care, Inc. Salary Deferral Plan as of December 31, 1999
and 1998, and the related statement of changes in net assets available for
benefits for the year ended December 31, 1999. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 net assets available for benefits of the Plan as of
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes at the end of year as of December 31, 1999 and
reportable transactions for the year then ended are presented for the purpose of
additional analysis and are not a required part of the financial statements but
are supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The schedules are the responsibility of the Plan's
management. The schedules have been subjected to the auditing procedures applied
in our audits of the financial statements and, in our opinion, are fairly stated
in all material respects in relation to the financial statements taken as a
whole.
/s/Ernst & Young, LLP
Atlanta, GA
May 10, 2000
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Statements of Net Assets Available for Benefits
December 31
1999 1998
-----------------------------
Assets
Investments, at fair value:
Morrison Management Specialists, Inc. common
stock........................................ $ 4,935,000 $ 3,846,539
Unallocated ESOP shares of Morrison
Management Specialists, Inc. common stock...... 3,904,857 4,047,146
Merrill Lynch Stable Value Fund............... 5,024,904 -
Merrill Lynch Retirement Preservation Trust... - 922,695
Merrill Lynch Federal Securities Fund......... 828 3,575,934
Merrill Lynch Growth Fund..................... 1,115,446 926,482
AIM Equity Constellation Fund................. 2,502,927 1,585,769
Merrill Lynch Equity Index Trust Fund......... 3,952,236 2,418,598
Templeton Foreign Fund........................ 1,390,610 989,915
Franklin Small Cap Fund....................... 213,464 -
Hotchkis & Wiley Total Return Fund............ 312,676 -
Money market fund............................. 39,874 75,986
Money market fund (unallocated)............... 231,620 -
Investments, at contract value:
New York Life Insurance Company Guaranteed
Investment Contracts......................... - 1,066,568
Transamerica Occidental Life Insurance
Company Guaranteed Investment Contract....... 267,628 499,865
-----------------------------
Total investments............................... 23,892,070 19,955,497
Contributions receivable:
Participants.................................. 116,106 164,215
Employer (unallocated)........................ 52,187 46,328
-----------------------------
168,293 210,543
Dividends and interest receivable............... 9,305 4,297
-----------------------------
Total Assets.................................... 24,069,668 20,170,337
Liabilities
Accrued Liabilities............................. - 13,371
ESOP note payable (unallocated)................. 2,816,536 3,015,365
-----------------------------
Total Liabilities............................... 2,816,536 3,028,736
-----------------------------
Net assets available for benefits............... $21,253,132 $17,141,601
=============================
See accompanying notes.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Statement of Changes in Net Assets Available for Benefits
Year ended December 31, 1999
Allocated Unallocated Total
----------------------------------------
Additions to net assets attributable to:
Interest and dividend income.......... $ 641,508 $ 32,014 $ 673,522
Contributions:
Participants......................... 2,191,960 - 2,191,960
Employer............................. - 558,719 558,719
----------------------------------------
2,191,960 558,719 2,750,679
----------------------------------------
Total additions......................... 2,833,468 590,733 3,424,201
Deductions from net assets attributable to:
Distributions to participants......... 1,861,367 - 1,861,367
Administrative expenses............... 21,487 - 21,487
ESOP interest expense................. - 154,425 154,425
----------------------------------------
Total deductions........................ 1,882,854 154,425 2,037,279
Net realized and unrealized
appreciation in fair value of
investments........................... 2,224,305 500,304 2,724,609
Allocation of 31,216 shares of
Morrison Management Specialists, Inc.
common stock, at market............... 642,593 (642,593) -
----------------------------------------
Net increase in net assets
available for benefits................ 3,817,512 294,019 4,111,531
Net assets available for benefits:
Beginning of year..................... 16,063,492 1,078,109 17,141,601
----------------------------------------
End of year........................... $19,881,004 $1,372,128 $21,253,132
========================================
See accompanying notes.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements
December 31, 1999
1. Description of the Plan
The Morrison Health Care, Inc. Salary Deferral Plan (the "Plan") is a defined
contribution plan and is sponsored by Morrison Management Specialists, Inc. (the
"Company") (formerly Morrison Health Care, Inc.). The Plan, which covers all
employees of the Company who have attained the age of 21, is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The following description of the Plan provides only general
information. Participants should refer to the Summary Plan Description for a
more complete description of the Plan's provisions.
General
The Plan was established on March 7, 1996 as a result of the Company's spin-off
from Morrison Restaurants Inc. (now named Ruby Tuesday, Inc.) to provide
additional incentive and retirement security for eligible employees of the
Company. In connection with the establishment of the Plan, assets totaling
approximately $10,545,000 were transferred from the Morrison Restaurants Inc.
Salary Deferral Plan.
Effective February 28, 1997, a component of the Plan operates a leveraged
employee stock ownership plan ("ESOP") and is designed to comply with section
4975(e)(7) and the related regulations thereunder of the Internal Revenue Code
of 1986, as amended ("the Code").
Effective October 1, 1997, the Plan changed custodian and recordkeeper from
AmSouth Bank of Alabama to Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as recordkeeper, and Merrill Lynch Trust Company, as trustee.
Contributions
Under the Plan, participants may contribute on a tax deferred basis amounts
ranging from 2% to 10% of their compensation subject to certain limitations of
the Code. Participants contributing a tax-deferred contribution of at least 2%
may elect to make after-tax contributions up to 10% of their annual earnings.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Contributions (continued)
The Company matches 20% of contributions from participants with three to nine
years of service, 30% of contributions from participants with ten to nineteen
years of service and 40% of contributions from participants with twenty or more
years of service. Matching contributions are invested entirely in Company stock.
Participant Accounts
Each participant's account is credited, as appropriate, with the participant's
contribution, the Company's matching contributions and allocations of investment
earnings and losses. Investment results are allocated to participant's accounts
based upon relative balances of the individual accounts on the valuation date as
defined by the Plan.
Participants have the option of allocating their individual accounts, except for
Employer Matching accounts, between various separate investment funds maintained
by the trustee of the Plan. Participants may change their investment options at
any time. Participants may diversify their Company Stock investment held in
their Employer Matching account after completing ten years of participation in
the Plan and attaining age 55.
Vesting
Participants are immediately vested in the value of their contributions,
employer matching contributions, plus actual earnings thereon.
Distributions to Participants
Upon his or her retirement, termination, death or disability, as defined by the
Plan, a participant or his /her beneficiary may elect to receive a lump sum
distribution.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination (or
permanent discontinuance of contributions to the Plan), the Plan's assets are
distributable to the participants or their beneficiaries based on the respective
values of their accounts.
Administrative Costs
The Company pays any administrative costs of the Plan not paid from Plan assets.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements of the Plan are presented on the accrual
basis of accounting.
Valuation of Investments
Investments in mutual funds are stated at fair value based on quoted redemption
values on the last business day of the plan year. Morrison Management
Specialists, Inc. (formerly Morrison Health Care, Inc.) common stock is traded
on the New York Stock Exchange and is valued at the closing sales price on the
last business day of the plan year. Fair values for investments in collective
trust funds are valued by the trustee based upon the quoted market values of the
underlying investments on the last business day of the plan year.
Guaranteed investment contracts held in the Stable Value Fund are fully benefit
responsive and are valued at contract value. Contract value represents the
contributions of employer and participants plus interest, less withdrawals.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Use of Estimates
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 may differ from those estimates.
Reclassification
Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
3. Investments
During 1999, the Plan's investments (including investments purchased, sold, as
well as held during the year) appreciated in fair value as determined by quoted
market prices as follows:
Year ended
December 31,
1999
--------------
Net appreciation in fair value of investments:
Morrison Management Specialists, Inc.
common stock............................... $1,022,954
Mutual Funds................................ 1,158,957
Common/Collective Trust Funds............... 542,698
--------------
$2,724,609
==============
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
3. Investments (continued)
The fair value of individual investments that represent 5 percent or more of the
Plan's net assets is as follows:
December 31
1999 1998
-----------------------------
Merrill Lynch Stable Value Fund........... $5,024,904 $ -
AIM Equity Constellation Fund............. 2,502,927 1,585,769
Morrison Management Specialists, Inc.
common stock*........................... 8,839,857 7,893,685
Merrill Lynch Federal Securities Fund..... ** 3,575,934
Merrill Lynch Equity Index Trust Fund..... 3,952,236 2,418,598
Templeton Foreign Fund.................... 1,390,610 989,415
Merrill Lynch Retirement Preservation
Trust................................... - 922,695
Merrill Lynch Growth Fund................. 1,115,446 926,482
* Nonparticipant-Directed
** Amount is less then 5 percent.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
4. Nonparticipant Directed Investments
Information about the net assets and the significant components of changes in
net assets related to the nonparticipant directed investment is as follows:
December 31
1999 1998
-----------------------------
Investment at fair value:
Morrison Management Specialists, Inc.
common stock ........................... $8,839,857 $7,893,685
Year ended
December 31,
1999
----------------
Change in net assets:
Contributions $ 849,104
Dividends 66,085
Net realized and unrealized appreciation
in fair value 1,022,954
Interfund transfers, net (80,767)
Allocation of common stock (642,593)
Administrative expenses (4,171)
Distributions to participants (264,440)
----------------
$ 946,172
================
5. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service
dated December 19, 1997, stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The Plan Administrator
believes the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believes that the Plan is qualified and
the related trust is tax exempt.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
6. Transactions with Parties-in-Interest
The Plan held 409,974 shares of Morrison Management Specialists, Inc. common
stock valued at $8,839,857 at December 31, 1999. During 1999, the Plan received
$66,085 in dividends on Morrison Management Specialists, Inc. common stock. Also
during 1999, the Plan sold shares of Morrison Management Specialists, Inc.
resulting in a net gain of $279,549.
Certain Plan investments are units of participation in collective trust funds
maintained by the trustee.
7. Guaranteed Investments Contracts
At December 31, 1999 and 1998, the Plan had guaranteed investment contracts with
insurance companies. The fair values of the guaranteed investment contracts are
approximated by contract values based on current interest rates. Deposits made
under these contracts earn interest at guaranteed rates as follows:
December 31,
1999 1998
-----------------------------
Crediting Crediting
Company Interest Rate Interest Rate
------------------------------------------------------------------
New York Life Insurance Company
#GA30795002........................ - 7.2%
#GM30795001........................ - 7.2%
Transamerica Occidental Life
Insurance Company
#51471............................ 7.0% 7.0%
The average yield of each of the foregoing contracts does not differ materially
from the crediting interest rate.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
8. ESOP Fund and Note Payable
On February 28, 1997 and in connection with a private letter ruling from the IRS
concerning the tax-free reorganization of Morrison Restaurants Inc., the Plan,
in conjunction with the Company, created an employee stock ownership feature for
the Plan, which is herein referred to as the "ESOP". In connection with the
ESOP's formation, the Company issued 254,502 shares of its common stock with a
fair market value of $14.125 per share to the Plan in exchange for a 10-year
note (the "note") with a principal amount of $3,594,841 executed by the Plan's
trustee. These shares, together with those already held by the Plan, increased
the Plan's level of ownership of the Company to 3%. The note bears interest at
5.47% and provides for scheduled principal payments totaling $467,520 in each of
the next ten years. The Plan uses employer matching contributions and dividends
received to make loan payments. Shares are released for allocation to
participants based upon the ratio of the year's principal and interest payments
to the sum of the total principal and interest payments expected over the
remaining life of the note. The released shares are allocated to participant
accounts based on a matching formula as defined by the Plan. The loan is
collateralized by the unallocated shares of the Company's stock. Accordingly,
the financial statements of the Plan for 1999 and 1998 present separately the
assets and liabilities and changes therein pertaining to Plan assets which have
been allocated to participant accounts and the Plan assets that are unallocated.
Although participants do not have any investment discretion regarding the ESOP
Fund portions of their account balances, each participant is entitled to
exercise voting rights attributable to shares of Company stock allocated to
his/her account and is notified before such rights are to be exercised. The
trustee votes any unallocated shares and any allocated shares for which it does
not receive voting directions.
<PAGE>
Morrison Health Care, Inc., Salary Deferral Plan
Notes to Financial Statements (continued)
9. Differences Between Financial Statements and Form 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to those per the Form 5500 as of December 31:
1999 1998
------------- -------------
Net assets available for benefits per the
financial statements..................... $21,253,132 $17,141,601
Benefits payable to participants........... - (42,857)
------------- -------------
Net assets available for benefits per the
Form 5500.............................. $21,253,132 $17,098,744
============= =============
The following is a reconciliation of benefits paid to participants per the
financial statements to those per the Form 5500:
Year ended
December 31, 1999
------------------
Benefits paid per the financial statements........ $1,861,367
Benefits payable to participants at
December 31, 1998............................... (42,857)
------------------
Benefits paid per the Form 5500................... $1,818,510
==================
<PAGE>
Supplemental Schedules
<PAGE>
<TABLE>
Morrison Health Care, Inc.,
Salary Deferral Plan
EIN: 63-1155966 Plan No.: 001
Schedule H, Line 4i
Schedule of Assets Held for Investment Purposes at End of Year
December 31, 1999
(b)
Identity of Issue, (c) (e)
Borrower, Lessor or Description of (d) Current
(a) Similar Party Investments Cost Value
----------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
* Morrison Management 409,974 shares of common
Specialists, Inc. stock $6,742,563 $ 8,839,857
* Merrill Lynch & Co., 5,292,532 units Stable
Inc. Value Fund # 5,024,904
* Merrill Lynch & Co., 89 units Federal
Inc. Securities Fund # 828
* Merrill Lynch & Co., 40,680 units Growth Fund # 1,115,446
Inc.
AIM Management Group, 61,785 units AIM Equity
Inc. Constellation Fund # 2,502,927
* Merrill Lynch & Co., 39,053 units Equity Index
Inc. Trust Fund # 3,952,236
Franklin Templeton 123,940 units Templeton
Group Foreign Fund # 1,390,610
Franklin Templeton 4,838 units Small
Group Cap Fund # 213,464
Hotchkis & Wiley 25,094 units Total
Company Return Fund # 312,676
Transamerica Guaranteed investment
Occidental Life contract #51471; matures
Insurance Company 3/27/2000; 7.0% # 267,628
* Merrill Lynch & Co., Money market fund; variable
Inc. rate # 271,494
-------------
Total Investments................................................ $23,892,070
=============
* Indicates a party-in-interest to the Plan.
# Not applicable for participant directed investments.
</TABLE>
<PAGE>
<TABLE>
Morrison Health Care, Inc.,
Salary Deferral Plan
EIN: 63-1155966 Plan No.: 001
Schedule H, Line 4j - Schedule of Reportable Transactions
Year ended December 31, 1999
(h)
Current Value
(b) (c) (d) (g) of Asset on
(a) Description Purchase Selling Cost of Transaction (i)
Identity of Party Involved of Asset Price Price Asset Date Net Gain
-------------------------------------------------------------------------------------------------------------
Category (iii) - Series of securities transactions in excess of 5% of plan assets.
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Morrison Management
Specialists, Inc......... Common stock $1,048,819 $ - $1,048,819 $1,048,819 $ -
Morrison Management
Specialists, Inc......... Common stock - 1,125,601 846,052 1,125,601 279,549
There were no category (i), (ii) or (iv) transactions during the year ended
December 31, 1999.
Note: The information required by columns (e) and (f) is not applicable.
</TABLE>
