Morrison Completes Record Year With Earnings Surprise

Business Wire, June 28, 2000

Business Editors

ATLANTA--(BUSINESS WIRE)--June 28, 2000

Morrison Management Specialists, Inc. (NYSE:MHI) announced the completion of a record fiscal year ended May 31, 2000. Diluted earnings per share for the year were $1.07, three cents higher than analyst expectations and inclusive of the 10 percent stock dividend awarded in May.

Fourth Quarter Highlights (compared to fiscal year 1999's fourth
quarter)
          --  19% increase in managed volume to $216.2 million. Managed
            volume is the amount of total operating costs managed and
            a very important indicator of the Company's financial
            health.
          --  44% gain in revenues to $130.9 million
          --  30% increase in net income to $4.8 million
          --  24% growth in diluted earnings per share to $0.36

Fiscal Year Highlights (compared to fiscal year 1999)
          --  20% increase in managed volume to $778.6 million
          --  36% gain in revenues to $441.1 million
          --  5% increase in net income to $14.3 million
          --  5% growth in diluted earnings per share to $1.07

Morrison attributes its growth to record new business and high client retention, which averaged 94% for the fiscal year. The primary driver of the Company's record new business is the accelerating outsourcing trend in the healthcare and senior living industries. Healthcare systems, hospitals and senior living communities are choosing to outsource their food, nutrition and dining services at a faster rate than ever in order to achieve economies of scale and focus on their core operations. Morrison is winning a significant volume of new business generated by this accelerating outsourcing trend, and, most importantly, is retaining almost all of its business.

Chairman and CEO Glenn Davenport credits Morrison's team members for the Company's success. "Our people provide the expertise and specialization that wins and retains our business. Their dedication and tremendous efforts have led Morrison through the most exciting year in our history."

Davenport singles out the Company's contract with Tenet Healthcare as one of its most significant accomplishments. "Earlier this year, we won the largest healthcare foodservice contract ever awarded, which placed us clearly as the number two player in the industry." Morrison was also recently ranked in the top twenty among the best performing companies in Georgia by the Atlanta Journal and Constitution.

"Our greatest accomplishment this year was the roll-out of our five core values and The Morrison Way," Davenport continued. "We are preserving our culture while focusing on growth."

The Company is seeing the results from its record new business flow through to its bottom line. In the fourth quarter, earnings growth exceeded managed volume growth, even though selling, general and administrative expenses as a percent of managed volume were higher compared to the fourth quarter last year. Operating margin, as a percent of managed volume, of 9.3% for the fourth quarter was significantly higher than 8.6% in last year's fourth quarter. Earnings before interest and taxes in the fourth quarter increased 29% to $8.7 million compared to $6.7 million in the fourth quarter last year. The Company's effective interest rate was approximately 6.7% in the fourth quarter. The low rate is due to the $75 million credit facility signed in the first quarter of fiscal year 1999. Morrison has approximately $23 million available under its lines of credit.

For fiscal year 2000, record levels of new business opened, including Tenet, contributed to Morrison's managed volume and revenue growth. Associated with this new business were additional opening costs and required expenses for human resources, training, relocations and promotions. These additional costs and expenses impacted the Company's second and third quarter earnings. As a result, earnings growth for the fiscal year lagged behind the Company's topline growth. But Davenport notes, "As reflected in our fourth quarter results, we are realizing the benefits resulting from our record levels of new business during the past fiscal year. We expect the long-term rewards will be significant."

The Company's operating margin, as a percent of managed volume, of 8.6% for the fiscal year was slightly higher than 8.4% for fiscal year 1999. Earnings before interest and taxes in fiscal year 2000 increased 7% to $26.3 million versus $24.6 million in fiscal year 1999.

Morrison's balance sheet remains strong. Compared to year-end 1999, assets increased to support the Company's rapid growth. Collections remain strong, with accounts receivable days decreasing considerably from year-end 1999. Morrison has grown significantly with only a slight increase in working capital, resulting in substantial operating cash flow of $22 million for the year. The Company's leverage is low with debt less than 2 times EBITDA and with interest coverage of over 8.

"We are extremely proud of our growth and accomplishments during the past fiscal year," said Davenport. "As we look to our future, we are confident that we will continue to achieve tremendous growth and maximize value for our clients, team members and shareowners."