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, 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
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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
12,783,834
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(Number of shares of $0.01 par value common stock outstanding as of
December 31, 2000)
<PAGE>1
INDEX
Page
Number
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PART I Financial Information
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of November 30, 2000
and May 31, 2000.................................................. 3
Condensed Consolidated Statements of Income for the Three and Six
Months Ended November 30, 2000 and November 30, 1999.............. 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended November 30, 2000 and November 30, 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>2
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,
2000 2000
-----------------------------------
(Unaudited)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash....................................... $ 2,542 $ 3,645
Receivables - accounts and notes (net)..... 46,926 40,417
Inventories................................ 5,367 4,909
Prepaid expenses........................... 6,368 3,209
Deferred income tax benefits............... 1,397 1,397
-----------------------------------
Total current assets..................... 62,600 53,577
-----------------------------------
Property and equipment - at cost............. 44,152 40,799
Less accumulated depreciation.............. 16,971 15,408
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27,181 25,391
Cost in excess of net assets acquired, net... 18,358 18,670
Other assets................................. 27,603 22,822
-----------------------------------
Total assets............................. $135,742 $120,460
===================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable........................... $ 19,465 $ 19,290
Accrued other liabilities.................. 18,070 17,389
Current portion of long-term debt.......... 3 28
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Total current liabilities................ 37,538 36,707
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Long-term debt, less current portion......... 63,275 54,865
Other deferred liabilities................... 13,915 13,803
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares; issued:
12,777 and 12,704 shares, Nov. 30, 2000
and May 31, 2000, respectively)......... 128 127
Capital in excess of par value............. 14,198 16,488
Unearned ESOP shares....................... (2,035) (2,292)
Deferred Compensation Plan liability
payable in Company stock................. 1,728 1,645
Company stock held by Deferred
Compensation Plan........................ (1,728) (1,645)
Retained earnings.......................... 8,723 762
-----------------------------------
Total stockholders' equity................... 21,014 15,085
-----------------------------------
Total liabilities and stockholders'
equity................................. $135,742 $120,460
===================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>3
<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,
2000 1999 2000 1999
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<CAPTION>
<S> <C> <C> <C> <C>
Revenues...................................... $132,336 $101,185 $263,365 $195,168
Operating expenses............................ 114,009 85,075 227,074 164,027
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Gross profit.................................. 18,327 16,110 36,291 31,141
Selling, general and administrative
expenses.................................... 9,702 9,756 19,682 18,138
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8,625 6,354 16,609 13,003
Interest expense, net of interest income...... 949 674 1,796 1,303
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Income before provision for income taxes...... 7,676 5,680 14,813 11,700
Provision for federal and state income taxes.. 3,032 2,232 5,851 4,607
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Net income.................................... $ 4,644 $ 3,448 $ 8,962 $ 7,093
=====================================================================
Earnings per share - Basic.................... $ 0.37 $ 0.26 $ 0.71 $ 0.54
=====================================================================
Earnings per share - Diluted.................. $ 0.35 $ 0.26 $ 0.68 $ 0.53
=====================================================================
Weighted-average common shares - Basic........ 12,699 13,043 12,678 13,061
Net effect of dilutive stock options.......... 550 373 584 390
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Weighted-average common shares - Diluted...... 13,249 13,416 13,262 13,451
=====================================================================
Dividends declared per share.................. $ 0.04 $ 0.04 $ 0.08 $ 0.08
=====================================================================
The prior year's share data and earnings per share amounts have been adjusted to reflect the May 2000 stock dividend.
The prior year's dividends declared per share amounts have not been adjusted to reflect the May 2000 stock dividend.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>4
<TABLE>
Morrison Management Specialists, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Six Months Ended
November 30, November 30,
2000 1999
-------------------------------------
<CAPTION>
<S> <C> <C>
Operating activities:
Net income....................................... $ 8,962 $ 7,093
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................. 2,678 2,273
Amortization of intangibles.................. 540 531
Deferred income taxes........................ (256) 132
Loss/(Gain) on disposition of assets......... 8 (118)
Changes in operating assets and liabilities:
Receivables............................... (6,509) (4,257)
Inventories............................... (458) (701)
Prepaid expenses and other assets......... (4,684) (2,364)
Accounts payable, accrued and
other liabilities....................... 1,240 226
Income taxes payable...................... - 189
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Net cash provided by operating activities........ 1,521 3,004
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Investing activities:
Purchases of property and equipment.............. (4,566) (5,321)
Proceeds from disposal of assets................. 90 940
Investment in foodbuy.com........................ (3,000) 0
Cost of acquisitions, net........................ (500) (1,104)
----------------------------------
Net cash used by investing activities............ (7,976) (5,485)
----------------------------------
Financing activities:
Net proceeds from long-term debt................. 17,513 10,000
Principal payments on long-term debt............. (9,128) (3,610)
Proceeds from exercise of stock options and
issuance of stock, net of income tax benefits.. 11,960 2,866
Payments to acquire Treasury Stock............... (14,575) (5,755)
Dividends paid................................... (1,001) (924)
ESOP shares released............................. 583 358
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Net cash provided by financing activities........ 5,352 2,935
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(Decrease)/Increase in cash and short-term
investments.................................... (1,103) 454
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.............................. $ 2,542 $ 3,234
==================================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>5
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, 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 January 9, 2001, the Company's Board of Directors declared a quarterly cash
dividend of $0.04 per share of outstanding common stock payable on January 31,
2001 to shareholders of record at the close of business on January 19, 2001.
<PAGE>6
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 and six months ended
November 30, 2000 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 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 increased $30.2 million or 16.3% to $214.8
million for the quarter and increased $65.8 million or 18.1% to $429.2 million
for the six months ended November 30, 2000 as compared to $184.7 million and
$363.4 million for the corresponding prior year periods due to new accounts,
acquired accounts and growth in existing accounts.
RESULTS OF OPERATIONS
The Company's net income increased 34.7% to $4.6 million for the quarter and
increased 26.4% to $9.0 million for the six months ended November 30, 2000, as
compared with net income of $3.4 million and $7.1 million reported for the
corresponding periods of the prior fiscal year. Earnings before interest and
taxes increased 35.7% or $2.3 million to $8.6 million for the quarter and
increased 27.7% or $3.6 million to $16.6 million for the six months ended
November 30, 2000, as compared with earnings before interest and taxes of $6.4
million and $13.0 million for the corresponding prior year periods. The increase
from the corresponding prior year periods was due to growth in new account
income. The Company also continues to experience high account retention.
Revenue from operations increased $31.2 million or 30.8% to $132.3 million for
the quarter and increased $68.2 million or 34.9% to $263.4 million for the six
months ended November 30, 2000, as compared with revenue of $101.2 million and
$195.2 million for the corresponding prior year periods. 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 $28.9 million or 34.0% to $114.0 million for the
quarter and increased $63.0 million or 38.4% to $227.1 million for the six
months ended November 30, 2000, as compared with operating expenses of $85.1
million and $164.0 million for the corresponding prior year periods. 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.
<PAGE>7
Selling, general and administrative expenses decreased $0.1 million or 0.6% to
$9.7 million for the quarter and increased $1.5 million or 8.5% to $19.7 for the
six months ended November 30, 2000 as compared to $9.8 million and $18.1 million
for the corresponding period of the prior fiscal year. This year to date
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 $0.7 million to $0.9 million for the quarter
and increased from $1.3 million to $1.8 million for the six months ended
November 30, 2000 as compared to the same periods of the prior year. The
increases in interest are attributable to higher average borrowings.
INCOME TAXES
The effective income tax rate for the quarter and six months ended November 30,
2000 was 39.5% as compared to effective income tax rates of 39.3% and 39.4% for
the corresponding periods of the prior year.
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
November 30, 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 November 30, 2000 were $135.7 million, a $15.3 million increase
over $120.5 million in total assets as of the prior fiscal year end. This
increase is attributable to an increase in current assets of $9.0 million
comprised of increases in accounts receivable and prepaid expenses and an
increase in long-term assets of $6.3 million comprised of increases in fixed
assets and other assets.
Total liabilities at November 30, 2000 were $114.7 million, a $9.4 million
increase from $105.4 million as of the end of the prior fiscal year. This
increase was primarily due to an $8.4 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>8
SUBSEQUENT EVENTS
Declaration of Cash Dividend
On January 9, 2001, the Company's Board of Directors declared a quarterly cash
dividend of $0.04 per share of outstanding common stock payable on January 31,
2001 to shareholders of record at the close of business on January 19, 2001.
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>9
PART II - OTHER INFORMATION
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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 27, 2000, the Company held its Annual Meeting of Shareholders in
Atlanta, Georgia. During the meeting, the following matters were voted upon.
Proposal 1 for the election of Directors
----------------------------------------
The following nominees were elected as Class II directors to the Board of
Directors for a three-year term.
Number
Number of of Votes
Nominees Votes For Withheld
--------------------------------------------------------------------------------
Claire L. Arnold Class II 8,990,276 91,964
Glenn A. Davenport Class II 8,990,578 91,662
Other members of the Board of Directors are E. Eugene Bishop, Fred L. Brown,
Michael F. Corbett, John B. McKinnon, Arthur R. Outlaw, Jr. and Dr. Benjamin F.
Payton.
Proposal 2 for the amendment of the Company's 1996 Stock Incentive Plan
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The proposal to amend the Company's 1996 Stock Incentive Plan to increase the
number of shares authorized for issuance thereunder by 500,000 shares received
6,549,323 FOR votes, 2,471,439 AGAINST votes and 61,478 ABSTAINED votes.
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
<PAGE>10
SIGNATURES
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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)
01/11/01 By:/s/ K. WYATT ENGWALL
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DATE K. WYATT ENGWALL
Chief Financial Officer and Assistant Secretary
(Principal Accounting Officer)
<PAGE>11
MORRISON MANAGEMENT SPECIALISTS, INC.
LIST OF EXHIBITS
Exhibit
Number Description
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None
