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, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 1-14194
MORRISON MANAGEMENT SPECIALISTS, INC.
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(Exact name of Registrant as specified in charter)
GEORGIA 63-1155966
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1955 Lake Park Drive, Suite 400, Smyrna, GA 30080-8855
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Registrant's telephone number, including area code: (770)437-3300
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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
12,844,012
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(Number of shares of $0.01 par value common stock outstanding as of
September 30, 2000)
<PAGE>
INDEX
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Page
Number
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PART I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of August 31, 2000
and May 31, 2000.................................................. 3
Condensed Consolidated Statements of Income for the Three Months
Ended August 31, 2000 and August 31, 1999......................... 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended August 31, 2000 and August 31, 1999.................. 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,
2000 2000
---------------------------------
(Unaudited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash...................................... $ 3,748 $ 3,645
Receivables - accounts and notes (net).... 41,908 40,417
Inventories............................... 4,986 4,909
Prepaid expenses.......................... 5,352 3,209
Deferred income tax benefits.............. 1,397 1,397
--------------------------------
Total current assets.................... 57,391 53,577
--------------------------------
Property and equipment - at cost............ 42,066 40,799
Less accumulated depreciation............. 15,881 15,408
--------------------------------
26,185 25,391
Cost in excess of net assets acquired, net.. 18,132 18,670
Other assets................................ 25,138 22,822
--------------------------------
Total assets............................ $126,846 $120,460
================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................... $ 19,166 $ 19,290
Accrued other liabilities................. 17,746 17,389
Current portion of long-term debt......... 1 28
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Total current liabilities............... 36,913 36,707
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Long-term debt.............................. 57,120 54,865
Other deferred liabilities.................. 13,585 13,803
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 12,819 and 12,704 shares,
Aug. 31, 2000 and May 31, 2000,
respectively).......................... 128 127
Capital in excess of par value............ 16,680 16,488
Unearned ESOP shares...................... (2,167) (2,292)
Deferred Compensation Plan liability
payable in Company stock................ 1,651 1,645
Company stock held by Deferred
Compensation Plan....................... (1,651) (1,645)
Retained earnings......................... 4,587 762
--------------------------------
Total stockholders' equity.................. 19,228 15,085
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Total liabilities and stockholders' equity.. $126,846 $120,460
================================
</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,
2000 1999
---------------------------------
<CAPTION>
<S> <C> <C>
Revenues...................................... $131,029 $93,983
Operating expenses............................ 113,065 78,952
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Gross profit.................................. 17,964 15,031
Selling, general and administrative expenses.. 9,980 8,382
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7,984 6,649
Interest expense, net of interest income,
totaling $69 and $72, in fiscal 2001
and fiscal 2000, respectively............... 847 629
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Income before provision for income taxes...... 7,137 6,020
Provision for federal and state income taxes.. 2,819 2,375
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Net income.................................... $ 4,318 $ 3,645
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Earnings per share - Basic.................... $ 0.34 $ 0.28
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Earnings per share - Diluted.................. $ 0.33 $ 0.27
=================================
Weighted-average common shares - Basic........ 12,657 13,079
Net effect of dilutive stock options.......... 618 406
---------------------------------
Weighted-average common and common
equivalent shares - Diluted.............. 13,275 13,485
=================================
</TABLE>
The prior year's share data and earnings per share amounts have been adjusted to
reflect the May 2000 stock dividend.
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
(In thousands)
(Unaudited)
For the Three Months Ended
August 31, August 31,
2000 1999
-----------------------------
<CAPTION>
<S> <C> <C>
Operating activities:
Net income......................................... $ 4,318 $ 3,645
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 1,331 1,122
Amortization of intangibles.................... 265 260
Deferred income taxes.......................... 0 276
Gain on disposition of assets.................. 0 (12)
Changes in operating assets and liabilities:
Receivables................................. (1,465) 770
Inventories................................. (76) (157)
Prepaid expenses and other assets........... (1,486) (2,151)
Accounts payable, accrued and
other liabilities......................... 289 (3,799)
Income taxes payable........................ 0 1,883
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Net cash provided by operating activities.......... 3,176 1,837
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Investing activities:
Purchases of property and equipment................ (2,166) (935)
Proceeds from disposal of assets................... 41 141
Investment in foodbuy.com.......................... (3,000) 0
Cost of acquisitions, net.......................... 0 46
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Net cash used by investing activities.............. (5,125) (748)
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Financing activities:
Net proceeds from long-term debt................... 10,000 0
Principal payments on long-term debt............... (7,771) (1,849)
Proceeds from exercise of stock options and
issuance of stock, net of income tax benefits.... 7,918 1,793
Payments to acquire Treasury Stock................. (7,871) 0
Dividends paid..................................... (495) (474)
ESOP shares released............................... 271 191
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Net cash provided/(used) by financing activities... 2,052 (339)
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Increase in cash and short-term investments........ 103 750
Cash and short-term investments at the
beginning of the period.......................... 3,645 2,780
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Cash and short-term investments at the
end of the period................................ $ 3,748 $ 3,530
=============================
</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, 2000.
Certain prior reported amounts and balances have been reclassified to conform to
the current year presentation.
NOTE B - SUBSEQUENT EVENTS
Declaration of Cash Dividend
On September 28, 2000, the Company's Board of Directors declared a quarterly
cash dividend of $0.04 per share of outstanding common stock payable on October
31, 2000 to shareholders of record at the close of business on October 13, 2000.
<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. ("MMS" or the "Company") for the quarter ended August 31, 2000
compared with the results for the comparable period of the prior year.
MANAGED VOLUME
The Company generally performs its services pursuant to either management fee or
profit and loss contracts. While the services performed are the same, revenue
recognition varies by type of contract. In a management fee account, MMS 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, any earned incentives, plus any expenses or employee
payroll costs paid by the Company and charged back to the client. In a profit
and loss account, MMS assumes the risk of profit or loss for the foodservice
operation. For such accounts, the amount of revenue reported is the actual
revenue generated from meals served to patients, client employees and visitors.
Due to the difference between the amount of revenue that is reported for a fee
account (net management fees plus reimbursed expenses) and a profit and loss
account (gross revenues from meal sales), Management uses the concept of managed
volume as an important indicator of the Company's growth and performance. MMS
defines and estimates managed volume as the total cost of operating all client
accounts as if MMS performed all services on a profit and loss basis. Management
uses managed volume as an additional indicator of performance and not as a
replacement of financial measures, such as revenues, as defined and required by
accounting principles generally accepted in the United States.
Managed volume from operations for the three months ended August 31, 2000
increased $35.6 million or 19.9% to $214.4 million compared to $178.8 million
for corresponding prior year period due to growth in new and existing accounts.
RESULTS OF OPERATIONS
The Company's net income increased 18.5% to $4.3 million for the quarter as
compared with net income of $3.6 million reported for the corresponding period
of the prior fiscal year. Earnings before interest and taxes increased 20.1% or
$1.3 million to $8.0 million for the quarter as compared to $6.6 million for the
prior year quarter. The increase from the corresponding prior year period was
due to growth in new account income. The Company also continues to experience
high account retention.
For the three months ended August 31, 2000, revenue from operations increased
$37.0 million or 39.4% to $131.0 million as compared to $94.0 million in revenue
for the corresponding prior year period. The increase was primarily attributable
to the conversion of client-paid payroll to Company-paid payroll in continuing
accounts and opening new accounts.
OPERATING EXPENSES
Operating expenses increased $34.1 million or 43.2% to $113.1 million for the
three months ended August 31, 2000 as compared to $79.0 million reported for the
corresponding period of the prior fiscal year. These expenses have increased
over the prior year period primarily as a result of costs associated with the
addition of new accounts and the conversion of client-paid payroll to
Company-paid payroll in continuing accounts.
Selling, general and administrative expenses increased $1.6 million or 19.1% to
$10.0 million for the three months ended August 31, 2000 as compared to $8.4
million for the corresponding period of the prior fiscal year. This increase is
due to costs related to 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 increased from $0.6 million to $0.8 million for the three
months ended August 31, 2000 as compared to the same period 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 three months
ended August 31, 2000 and for the corresponding period of the prior year was
39.5%.
LIQUIDITY AND CAPITAL RESOURCES
Due to the nature of its contract foodservice business, the Company is able to
maintain a relatively steady cash flow. Cash flow from operations has
historically financed MMS's capital investments. MMS requires capital
principally for acquisitions, new accounts, equipment replacement and remodeling
of existing accounts, and the construction of Advanced Culinary CentersTM. The
Company did not have material commitments for capital expenditures as of August
31, 2000. MMS has plans for expansion over the next several years and expects
that cash flow from operations plus utilization of the existing lines of credit
will be sufficient to provide for this expansion. See "Special Note Regarding
Forward-Looking Information."
The Company has a $75 million revolving credit facility from four financial
institutions extending through July 2, 2003. Borrowings under the credit
facility bear interest based on LIBOR. 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.
Total assets at August 31, 2000 were $126.8 million, a $6.4 million increase
over $120.5 million in total assets of the prior fiscal year end. This increase
is attributable to an increase in current assets of $3.8 million comprised of
increases in accounts receivable and prepaid assets and an increase in long-term
assets of $2.6 million comprised of increases in fixed assets, investments and
deferred other assets.
Total liabilities at August 31, 2000 were $107.6 million, a $2.2 million
increase from $105.4 million as of the end of the prior fiscal year. This
increase was primarily due to a $2.3 million increase in long-term debt.
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. 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 or senior living markets; 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.
<PAGE>
SUBSEQUENT EVENTS
Declaration of Cash Dividend
On September 28, 2000, the Company's Board of Directors declared a quarterly
cash dividend of $0.04 per share of outstanding common stock payable on October
31, 2000 to shareholders of record at the close of business on October 13, 2000.
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, 2000
(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)
10/11/00 By:/s/K. WYATT ENGWALL
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DATE K. WYATT ENGWALL
Chief Financial Officer and Assistant Secretary
(Principal Accounting Officer)
<PAGE>
MORRISON MANAGEMENT SPECIALISTS, INC.
LIST OF EXHIBITS
Exhibit
Number Description
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27 Financial Data Schedule - For the Three Months ended
August 31, 2000
