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 February 29, 2000
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 incorporation or (I.R.S. Employer
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
11,711,055
________________________________________________________________________________
(Number of shares of $0.01 par value common stock outstanding as of March 31,
2000)
INDEX
-----
PART I Financial Information
Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
February 29, 2000 and May 31, 1999..................... 3
Condensed Consolidated Statements of Income for
the Three Months and Nine Months Ended
February 29, 2000 and February 28, 1999................ 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended February 29, 2000 and
February 28, 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
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Morrison Management Specialists, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
As of As of
February 29, May 31,
2000 1999
--------------------------------
(Unaudited)
Assets
Current assets:
Cash and short-term investments........... $ 10,280 $ 2,780
Receivables - accounts and notes (net).... 36,364 34,035
Inventories............................... 4,221 2,940
Prepaid expenses.......................... 1,375 2,312
Deferred income tax benefits.............. 1,511 1,747
--------------------------------
Total current assets.................... 53,751 43,814
--------------------------------
Property and equipment - at cost............ 35,063 30,975
Less accumulated depreciation............. 14,366 12,376
--------------------------------
20,697 18,599
Cost in excess of net assets acquired, net.. 18,934 18,331
Other assets................................ 21,649 22,183
--------------------------------
Total assets............................ $115,031 $102,927
================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................... $ 20,575 $ 15,091
Other accrued liabilities................. 16,519 12,917
Current portion of long-term debt......... 45 136
--------------------------------
Total current liabilities............... 37,139 28,144
--------------------------------
Long-term debt.............................. 45,751 49,305
Other deferred liabilities.................. 12,563 10,915
Stockholders' equity:
Common stock, $0.01 par value
(authorized 100,000 shares;
issued: 12,989 and 11,977 shares,
FY2000 and FY1999, respectively)......... 130 120
Capital in excess of par value............ - 3,324
Unearned ESOP shares (2,475) (2,806)
Deferred Compensation Plan liability
payable in Company stock................ 1,683 1,518
Company stock held by Deferred
Compensation Plan....................... (1,683) (1,518)
Retained earnings......................... 21,923 13,925
--------------------------------
Total stockholders' equity.................. 19,578 14,563
--------------------------------
Total liabilities and
stockholders' equity.................. $115,031 $102,927
================================
The accompanying notes are an integral part of the financial statements.
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 Nine Months Ended
February 29, February 28, February 29, February 28,
2000 1999 2000 1999
------------------------------------------------------------------
Revenues........................... $115,024 $84,085 $310,192 $234,164
Operating expenses................. 99,599 70,314 263,626 195,541
------------------------------------------------------------------
Gross profit....................... 15,425 13,771 46,566 38,623
Selling, general and administra-
tive expenses.................... 10,797 7,876 28,935 20,789
------------------------------------------------------------------
4,628 5,895 17,631 17,834
Interest expense, net of interest
income........................... 752 644 2,055 1,708
------------------------------------------------------------------
Income before provision for income
taxes............................ 3,876 5,251 15,576 16,126
Provision for federal and state
income taxes..................... 1,546 2,021 6,153 6,320
------------------------------------------------------------------
Net income......................... $ 2,330 $ 3,230 $ 9,423 $ 9,806
==================================================================
Earnings per share - Basic......... $ 0.19 $ 0.26 $ 0.73 $ 0.75
==================================================================
Earnings per share - Diluted....... $ 0.18 $ 0.24 $ 0.71 $ 0.73
==================================================================
Weighted-average common
shares - Basic................... 12,812 13,054 12,978 13,129
Net effect of dilutive stock
options.......................... 357 300 379 253
-----------------------------------------------------------------
Weighted-average common and common
equivalent shares - Diluted...... 13,169 13,354 13,357 13,382
==================================================================
The accompanying notes are an integral part of the financial statements.
Morrison Management Specialists, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
For the Nine Months Ended
February 29, February 28,
2000 1999
------------------------------
Operating activities:
Net income........................................ $ 9,423 $ 9,806
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................. 3,515 2,182
Amortization of intangibles................... 806 610
Deferred income taxes......................... 385 (1,344)
Gain on disposal of assets.................... (153) (101)
Changes in operating assets and liabilities:
Receivables................................ 575 (5,994)
Inventories................................ (1,281) (80)
Prepaid and other assets................... (1,301) (2,921)
Accounts payable, accrued and
other liabilities........................ 10,734 (1,106)
Income taxes receivable.................... (336) 0
------------------------------
Net cash provided by operating activities......... 22,367 1,052
------------------------------
Investing activities:
Purchases of property and equipment............... (6,517) (7,663)
Proceeds from disposal of assets.................. 1,057 763
Cost of acquisitions, net......................... (1,354) (6,528)
------------------------------
Net cash used by investing activities............. (6,814) (13,428)
------------------------------
Financing activities:
Net change in long-term debt...................... (3,645) 16,629
Proceeds from the issuance of stock............... 808 522
Proceeds from exercise of stock options........... 2,151 3,855
Purchase of Treasury Stock........................ (6,510) (10,134)
Dividends paid.................................... (1,390) (1,472)
ESOP shares released.............................. 533 359
------------------------------
Net cash (used)/ provided by financing activities. (8,053) 9,759
------------------------------
Increase/(decrease) in cash and short-term
investments..................................... 7,500 (2,617)
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............................... $10,280 $ 3,103
==============================
The accompanying notes are an integral part of the financial statements.
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 Cash and Stock Dividends
On March 28, 2000, the Company's Board of Directors declared a quarterly cash
dividend of $0.04 per share of outstanding common stock payable on April 28,
2000 to shareholders of record at the close of business on April 14, 2000. The
Company's Board of Directors also declared a 10% stock dividend on the Company's
outstanding common stock. The stock dividend is payable on May 19, 2000 to
shareholders of record at the close of business on May 1, 2000. The condensed
consolidated balance sheet as of February 29, 2000 and the results of
operations, common shares issued, basic and diluted weighted average number of
shares outstanding and the earnings per share information for all prior
reporting periods presented have been restated to reflect the effects of the
stock dividend.
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 nine months
ended February 29, 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 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 $30.3 million or 18.0% to $198.9
million for the quarter and increased $96.2 million or 20.6% to $562.4 million
for the nine months ended February 29, 2000 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 decreased 27.9% to $2.3
million for the quarter and decreased 3.9% to $9.4 million for the nine months
ended February 29, 2000, compared with net income of $3.2 million and $9.8
million reported for the corresponding periods of the prior fiscal year.
Earnings before interest and taxes decreased 21.5% or $1.3 million to $4.6
million for the quarter and decreased 1.1% or $0.2 million to $17.6 million for
the nine months ended February 29, 2000. The decrease from the corresponding
prior year periods was due to start-up costs and expenses for recruiting,
training, relocations and promotions incurred by the Company associated with the
significant volume of new business. In particular, in January, 2000, Tenet
Healthcare Corp., one of the nation's largest healthcare systems, awarded the
Company a five-year contract to provide food and nutrition services to 58 of
Tenet's acute care hospitals. Under the contract, the Company will manage an
estimated $100 million in annual managed volume. The Company believes the
decline in earnings to be short-term and that the long-term rewards will be
significant. The Company continues to experience growth in continuing accounts
and high account retention.
Revenue from operations increased $30.9 million or 36.8% to $115.0 million for
the quarter and increased $76.0 million or 32.5% to $310.2 million for the nine
months ended February 29, 2000 over the corresponding prior year periods. The
increase was primarily attributable to significant new business, the conversion
of client-paid payroll to Company-paid payroll in continuing accounts and
accounts acquired in acquisitions.
OPERATING EXPENSES
Operating expenses increased $29.3 million or 41.6% to $99.6 million for the
quarter and increased $68.1 million or 34.8% to $263.6 million for the nine
months ended February 29, 2000. 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 expenses increased $2.9 million or 37.1% to
$10.8 million for the quarter and increased $8.1 million or 39.2% to $28.9
million for the nine months ended February 29, 2000 as compared to the
corresponding periods of the prior year. This increase is due to start-up and
opening costs related to a significant level of new business and prior year
acquisitions 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
quarter and increased from $1.7 million to $2.1 million for the nine months
ended February 29, 2000 as compared to the corresponding periods of the prior
year. The increase in interest is attributable to a higher effective interest
rate.
INCOME TAXES
The effective income tax rate on continuing operations for the quarter and the
nine months ended February 29, 2000 was 39.9% and 39.5%, respectively, as
compared to 38.5% and 39.2%, respectively, for the quarter and the nine months
ended February 28, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Total assets at February 29, 2000 were $115.0 million, a $12.1 million increase
over $102.9 million as of the prior fiscal year end. This increase is
attributable to an increase in current assets of $9.9 million comprised of
increases in cash, accounts receivable, inventories and an increase in long-term
assets of $2.2 million comprised of increases in fixed assets and goodwill.
Total liabilities at February 29, 2000 were $95.5 million, a $7.1 million
increase from $88.4 million as of the end of the prior fiscal year. This
increase was primarily due to the net of a $5.5 million increase in accounts
payable, a $1.1 increase in accrued payroll and related costs, a $1.6 million
increase in deferred other liabilities and a $3.6 decrease 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. 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 Cash and Stock Dividends
On March 28, 2000, the Company's Board of Directors declared a quarterly cash
dividend of $0.04 per share of outstanding common stock payable on April 28,
2000 to shareholders of record at the close of business on April 14, 2000. The
Company's Board of Directors also declared a 10% stock dividend on the Company's
outstanding common stock. The stock dividend is payable on May 19, 2000 to
shareholders of record at the close of business on May 1, 2000. The condensed
consolidated balance sheet as of February 29, 2000 and the results of
operations, common shares issued, basic and diluted weighted average number of
shares outstanding and the earnings per share information for all prior
reporting periods presented have been restated to reflect the effects of the
stock dividend.
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.
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 Nine Months ended
February 29, 2000
(b) Reports on Form 8-K:
None
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)
04/14/00 By: /S/ K. WYATT ENGWALL
- --------- ---------------------------
DATE K. WYATT ENGWALL
Senior Vice President, Finance
(Senior Vice President and Principal Accounting Officer)
MORRISON MANAGEMENT SPECIALISTS, INC.
LIST OF EXHIBITS
Exhibit
Number Description
- -------------------------------------------------------------------------------
27 Financial Data Schedule - For the Nine Months ended February 29, 2000