<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- --- 1934
For the quarterly period ended March 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF
- ---
1934 For the transition period from to
------- -------
Commission file number 0-21485
SUPERIOR CONSULTANT HOLDINGS CORPORATION
(exact name of registrant as specified in its charter)
STATE OF DELAWARE 38-3306717
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4000 Town Center, Suite 1100 Southfield, Michigan 48075
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (248) 386-8300
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
--- ---
As of May 8, 1998, 10,273,030 shares of the registrant's common stock (par value
$.01) were outstanding.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION
QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998 and December 31, 3
1997 (unaudited)
Condensed Consolidated Statements of Earnings for the three months ended March 4
31, 1998 and 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows for the three months ended 5
March 31, 1998 and 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 8
Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk Sensitive Instruments 11
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------------- -----------------
ASSETS
<S> <C> <C>
Current assets
Cash $ 1,655 $ 2,795
Short-term investments 76,172 84,458
Accounts receivable, net 23,596 18,464
Accrued interest receivable and prepaid expenses 1,365 1,589
Deferred income taxes 350 352
--------------- -----------------
Total current assets 103,138 107,658
Property and equipment, net 9,266 6,915
Goodwill, net 8,689 4,711
Other long-term assets 102 117
--------------- -----------------
Total Assets $ 121,195 $ 119,401
=============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ - $ 91
Accounts payable 3,935 3,061
Accrued liabilities 3,273 5,016
Deferred revenue 1,104 1,597
Income taxes payable 974 261
--------------- -----------------
Total current liabilities 9,286 10,026
Long-term debt 93 98
Deferred income taxes 487 350
Deferred performance bonuses 564 564
Stockholders' equity
Preferred stock; authorized, 1,000,000 shares of
$.01 par value; no shares issued or outstanding - -
Common stock; authorized, 30,000,000 shares of
$.01 par value; issued and outstanding, 10,224,509 as of
March 31, 1998 and 10,208,024 as of December 31, 1997 102 102
Additional paid-in capital 105,934 105,632
Retained earnings 5,408 3,308
Stockholders' notes receivable (679) (679)
---------------- -----------------
Total stockholders' equity 110,765 108,363
--------------- -----------------
Total Liabilities and Stockholders' Equity $ 121,195 $ 119,401
=============== =================
See notes to condensed consolidated financial statements.
</TABLE>
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1998 1997
(RESTATED)
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<S> <C> <C>
Revenues $ 23,830 $ 16,544
Operating costs and expenses
Cost of services 12,067 8,462
Selling, general and administrative expenses 9,406 6,767
----------- -----------
Total operating costs and expenses 21,473 15,229
----------- -----------
Earnings from operations 2,357 1,315
Other income, principally interest income 1,247 508
----------- -----------
Earnings before income taxes 3,604 1,823
Income taxes 1,504 702
----------- -----------
Net earnings $ 2,100 $ 1,121
=========== ===========
Net earnings per share - basic $ 0.21 $ 0.14
=========== ===========
Net earnings per share - diluted $ 0.20 $ 0.14
=========== ===========
Weighted average number of common and
common equivalent shares outstanding - basic 10,212 8,170
=========== ===========
Weighted average number of common and
common equivalent shares outstanding - diluted 10,442 8,241
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1998 1997
(RESTATED)
--------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,100 $ 1,121
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Depreciation and amortization 474 272
Bad debt expense 21 108
Deferred income taxes (benefit) 139 (248)
Non-cash compensation - 23
Changes in operating assets and liabilities:
Accounts receivable (3,399) (897)
Accrued interest receivable and prepaid expenses 224 38
Other long-term assets 15 (1)
Accounts payable 874 714
Accrued liabilities, deferred bonuses and compensation (1,743) (296)
Deferred revenue (493) (260)
Income taxes payable 713 254
--------------- ----------------
Net cash provided by (used in) operating activities (1,075) 828
Cash flows from investing activities:
Purchase of NSD (5,138) -
Purchase of Novum, Inc. (312) -
Purchase of The Kaufman Group (462) (3,375)
Purchases of property and equipment (2,507) (1,183)
--------------- ----------------
Net cash used in investing activities (8,419) (4,558)
Cash flows from financing activities:
(Repayment of) proceeds from lines of credit, net (91) 4
Exercise of stock options 181 -
Costs of follow on offering (17) -
Repayment of long-term debt (5) (24)
--------------- ----------------
Net cash provided by (used in) financing activities 68 (20)
--------------- ----------------
Net decrease in cash (9,426) (3,750)
Cash and cash equivalents, beginning of period 87,253 36,795
--------------- ----------------
Cash and cash equivalents, end of period $77,827 $33,045
=============== ================
Supplemental disclosure of cash flow information:
Interest payments $ 14 $ 52
Income tax payments $ 1,970 $ 646
Non-cash acquisition costs (Issuance of common
stock for Novum, Inc.) $ 138 $ -
Non-cash acquisition costs (Issuance of common
stock for The Kaufman Group) $ - $ 1,600
See notes to condensed consolidated financial statements.
</TABLE>
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules of the Securities and Exchange Commission
for quarterly reports on Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals and estimated provisions for bonus and
profit-sharing arrangements) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998.
These financial statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto included in the
Company's 1997 annual report on Form 10-K filed by the Company with the
Securities and Exchange Commission on March 31, 1998.
In July and August 1997, the Company acquired the outstanding stock of two
entities, in exchange for shares of the Company's common stock. These
transactions were accounted for as poolings of interests and, accordingly, the
Company's financial statements for the quarter ended March 31, 1997 have been
restated to include the results of the acquired entities.
NOTE 2 - NET EARNINGS PER SHARE
On December 31, 1997, the Company adopted Statement of Financial Accounting
Standard No. 128, Earnings Per Share. As required by SFAS 128, EPS for the
quarter ended March 31, 1997 have been restated to conform to its provisions.
The Company's basic and net earnings per share amounts have been computed by
dividing net earnings by the weighted average number of outstanding common
shares. The Company's diluted net earnings per share is computed by dividing net
earnings by the weighted average number of outstanding common shares and common
share equivalents relating to stock options, when dilutive.
The computation of diluted net earnings per share for the three months
ended March 31, 1998 and 1997 includes approximately 230,000 and 71,000 shares
of common stock equivalents, respectively. Options to purchase approximately
42,000 and 203,000 shares of common stock with a weighted average exercise price
of $36.18 and $23.63 were outstanding at March 31, 1998 and 1997 respectively,
but were excluded from the computation of common share equivalents because to do
so would have been antidilutive for the periods presented.
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NOTE 3 - BUSINESS ACQUISITIONS
On January 16, 1998, the Company purchased the assets and business of the
Network Services Division ("NSD") of Multimedia Medical Systems, Inc. ("MMS").
NSD, located in Burlington, Massachusetts, which specializes in software
implementation and networking technology solutions for healthcare organizations.
The purchase price was approximately $5.2 million in cash. The business
combination was recorded using the purchase method of accounting and,
accordingly, the operating results of NSD have been included in the Company's
consolidated financial statements since the date of acquisition. The excess of
the aggregate purchase price over the fair market value of the net assets
acquired of approximately $3.6 million is being amortized over 15 years.
On March 26, 1998, the Company purchased the assets and business of Novum,
Inc. ("Novum"), located in Gainesville, Georgia, which specializes in
software applications relating to the healthcare industry. The purchase price
was approximately $670,000, consisting of approximately $312,000 in cash
and approximately $138,000 in newly-issued common stock payable at closing, and
an additional contingent payment of up to a maximum of $220,000 payable in
cash and newly-issued common stock over a three year period contingent on the
achievement of certain performance benchmarks by the acquired business. The
business combination was recorded using the purchase method of accounting.
The entire purchase price has been allocated to goodwill and is being amortized
over 15 years.
NOTE 4 - SUBSEQUENT EVENTS
As of April 30, 1998, the Company purchased substantially all of the
business assets of Lincoln Computer Corporation ("Lincoln"), a healthcare
outsourcing business located in Wallingford, Connecticut. The purchase price
was approximately $1.7 million in newly-issued common stock payable at closing,
plus the assumption of approximately $1.2 million in liabilities of the
acquired business, and an additional contingent payment of up to a maximum of
approximately $1.3 million in cash and approximately $5.4 million in
newly-issued common stock payable over a three year period contingent on the
achievement of certain performance benchmarks by the acquired business. The
acquisition will be recorded using the purchase method of accounting.
On May 4, 1998, the Company made a $4.5 million minority equity investment
in Empower Health Corporation ("Empower") of Austin, Texas. Empower's mission
is to improve the quality of people's lives by empowering them with
personalized healthcare information and enabling electronic interactions and
online transactions with the healthcare industry. The investment will be
recorded using the cost method of accounting.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting of Comprehensive Income ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components
(revenues, expense, gains, and losses) in a full set of financial statements.
This statement also requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. This statement will become effective with the full set of
financial statements expected to be filed as of and for the year ended December
31, 1998. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The Company does not anticipate that
adoption of SFAS 130 will have a material effect on the consolidated financial
statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosure about Segments of an Enterprise and Related Information
("SFAS 131"), which establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements, and requires that those enterprises report selected information
about operating segments in interim financial reports issued to stockholders.
This statement also establishes standards for related disclosures about products
and services, geographic areas, and major customers. This statement became
effective January 1, 1998 for annual financial statements. This statement will
be applied to interim financial statements in 1999, and will include comparative
information for 1998 interim periods.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. Forward-looking statements may be
identified by words including "anticipate," "believe," "intends," "estimates,"
"expect" and similar expressions. The Company cautions readers that
forward-looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity, and
income, are subject to numerous risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward looking
statements, due to several important factors herein identified, among others,
and other risks and factors identified from time to time in the Company's
reports filed with the SEC, including the risk factors identified in the
Company's Registration Statement on Form S-1 (File No. 333-1013) and
Registration Statement on Form S-1 (File No. 333-37357).
The Company conducts business through its two primary operating
subsidiaries, Superior Consultant Company, Inc. ("Superior") and Enterprise
Consulting Group, Inc. ("Enterprise"). Superior is a leading healthcare
consulting firm that provides a wide range of information technology consulting
and strategic and operations management consulting services to a broad
cross-section of healthcare industry participants and healthcare information
system vendors. Enterprise assists clients in various industries in developing,
designing, implementing and maintaining groupware and intranet and web based
information systems and solutions, as well as enterprise messaging and custom
applications and legacy systems integration.
The Company derives substantially all of its revenues from fees for
professional services, the substantial majority of which are billed at
contracted hourly rates. The Company establishes standard billing guidelines
based on the type and level of service offered. Actual billing rates are
established on a project by project basis and may vary from the standard
guidelines. Billings are typically made on a bi-weekly basis to monitor client
satisfaction and manage outstanding accounts receivable balances. Revenue on
time and materials contracts is recognized as the services are provided. A
percentage of the Company's projects are billed on a fixed-fee basis. The
Company recognizes revenue on fixed fee projects using the percentage of
completion basis. As of March 31, 1998, the Company has increased the number
and size of projects billed on a fixed-fee basis. Increased use of fixed-fee
contracts subjects the Company to increased risks, including cost overruns. As
of March 31, 1998, the Company has been awarded three significant contracts
to provide healthcare IT outsourcing services. There can be no assurance that
the Company will be able to achieve profit margins on outsourcing contracts
which are consistent with its historical levels of profitability.
The Company's historical revenue growth is attributable to various factors,
including an increase in the number of projects for existing and new clients,
expanded geographic presence and acquisitions. In addition, the Company
seeks to increase revenues by expanding its range of specialty services. The
Company manages its client development efforts through several strategic
services groups, each having specific geographic responsibility and focus.
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The Company's most significant expense is cost of services, which consists
primarily of consultant salaries and benefits. In recent years, consultant
compensation expense has grown faster than consultant billing rates, resulting
in an increase in the Company's cost of services as a percentage of revenues.
The Company has sought to address this issue by adding an additional variable
portion of compensation payable upon the achievement of measurable performance
goals.
The Company's cost of services as a percentage of revenues is also impacted
by its consultant utilization. The Company manages utilization by monitoring
project requirements and timetables. The number of consultants assigned to a
project will vary according to the size, complexity, duration and demands of the
project. Project terminations, completions and scheduling delays may result in
periods when consultants are not fully utilized. An unanticipated termination of
a significant project could cause the Company to experience lower consultant
utilization, resulting in a higher than expected number of unassigned
consultants. In addition, the establishment of new practice areas and the hiring
of consultants in peak hiring periods have resulted in periods of lower
consultant utilization (and resulting downward pressure on margins) until
project volume increases in these new areas. In the future, the establishment of
new practice areas, as well as further geographic expansion, could from time to
time adversely affect utilization. Variations in consultant utilization result
in quarterly variability of the Company's cost of services as a percentage of
revenues. The Company's consultants are generally employed on a full-time basis,
and therefore the Company will, in the short run, incur substantially all of its
employee-related costs even during periods of low utilization.
Selling, general and administrative expenses include the costs of
recruiting, continuing education, marketing, facilities, equipment depreciation,
and administration, including compensation and benefits. Selling, general and
administrative expenses as a percentage of total revenues continues to decrease
as the Company leverages its infrastructure expense across its growing revenue
base.
Many of the Company's engagements involve projects which are critical to
the operations of its clients' business and which provide benefits that may be
difficult to quantify. The Company is currently engaged in assisting clients in
auditing Year 2000 compliance and taking steps to render information systems
Year 2000 compliant. The year 2000 problem is the result of prior computer
programs being written using two digits, rather than four digits, to define the
applicable year. Any of the client's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in major system failure or miscalculations. Additionally, the
Company has assisted and continues to assist its clients in selecting and
implementing software applications for the clients' use in their business. While
the Company is not aware of any existing or potential claims, the occurrence of
Year 2000 related systems failures in the information systems of clients of the
Company could involve the Company in disputes and negatively impact client
relationships, which in turn could have a material adverse effect on the
Company's business, financial condition and results of operations, whether or
not the Company bears any responsibility, legal or otherwise, for the occurrence
of those problems.
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THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
Revenues. Revenues increased by $7.3 million, or 44.0%, to $23.8 million
for the three months ended March 31, 1998, as compared to $16.5 million for the
three months ended March 31, 1997. The revenue increase was due primarily to
continued strong growth in core lines of business, the Company's first quarter
acquisitions and an increased number of new client assignments.
Cost of Services. Cost of services increased by $3.6 million, or 42.6%, to
$12.1 million for the three months ended March 31, 1998, as compared to $8.5
million for the three months ended March 31, 1997. The increase was due to the
additional number of consultants required to support the Company's larger
revenue base, as well as increases in their compensation levels. Cost of
services as a percentage of revenue decreased to 50.6% for the three months
ended March 31, 1998, as compared to 51.1% for the three months ended March 31,
1997. This slight reduction was caused by an increase in the average consultant
billing rate.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $2.6 million, or 39.0%, to $9.4 million for
the three months ended March 31, 1998, as compared to $6.8 million for the three
months ended March 31, 1997. This increase was due to incentive and other
compensation expenses associated with the addition of key personnel, as well as
higher recruiting, marketing and continuing education expenses consistent with
the Company's growth. Selling, general and administrative expenses as a
percentage of revenues decreased to 39.5% from 40.9% primarily due to increased
operating efficiencies resulting from leveraging the Company's infrastructure
expense across its growing revenue base.
Other income and expense. Other income was $1,247,000 for the three months
ended March 31, 1998, as compared to $508,000 of other income for the three
months ended March 31, 1997. The change was due primarily to interest earned on
the investment of the majority of the net proceeds of approximately $60.3
million from the public offering held by the Company in November, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the growth in working
capital required to support its growth in revenues. Prior to the Company's IPO
in October, 1996, the Company's primary source of liquidity was cash flow from
operations. The Company believes that funds generated from operations, together
with the proceeds received from the Company's IPO, the net proceeds of
approximately $60.3 million from the follow-on offering completed in
November 1997, and available credit under its bank credit facility will be
sufficient to finance its working capital and capital expenditure requirements
for at least the next 12 months.
At March 31, 1998, the Company had cash and cash equivalents of $77.8
million and working capital of $94.0 million. Working capital at March 31,
1998 represents a decrease of $3.8 million from December 31, 1997 resulting
primarily from purchases of property and equipment and the acquisitions of NSD
in January, 1998 and Novum, in March, 1998, respectively and an additional
payment made relating to the March, 1997 acquisition of The Kaufman Group
required by the purchase agreement. Currently, the Company's remaining
contingency payable relating to this purchase agreement is approximately $1.0
million payable over the next two years.
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LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company has an unsecured line of credit arrangement at Comerica Bank
N.A. of $3.0 million, which bears interest at the current prime rate. As of
March 31, 1998, the Company had no amounts outstanding under this line of
credit.
Net cash used in operating activities for the three months ended March 31,
1998 was $1,075,000, compared with net cash provided by operations of $828,000
for the three months ended March 31, 1997. The increase in cash used in
operations is primarily due to increases in accounts receivable and decreases in
accrued liabilities; partially offset by higher earnings before depreciation and
goodwill in the current period.
Net cash used in investing activities of $8.4 million during the three
months ended March 31, 1998 consists of additions to property and equipment, the
acquisitions of NSD and Novum, and an additional payment made relating to the
March, 1997 acquisition of The Kaufman Group required by the purchase agreement.
Currently, the Company's remaining contingency payable relating to this purchase
agreement is approximately $1.0 million payable over the next two years.
Net cash provided by financing activities during the three months ended
March 31, 1998, was principally the result of proceeds received from the
exercise of stock options.
On January 16, 1998, the Company purchased the assets and business of
NSD, located in Burlington, Massachusetts, which specializes in software
implementation and networking technology solutions for healthcare
organizations. The purchase price was approximately $5.2 million in cash. The
business combination was recorded using the purchase method of accounting.
On March 26, 1998, the Company purchased the assets and business of Novum,
located in Gainesville, Georgia, which specializes in software applications
relating to the healthcare industry. The purchase price was approximately
$670,000, consisting of approximately $312,000 in cash and approximately
$138,000 in newly-issued common stock payable at closing, and an additional
contingent payment of up to a maximum of $220,000 payable in cash and
newly-issued common stock over a three year period contingent on the achievement
of certain performance benchmarks by the acquired business. The business
combination was recorded using the purchase method of accounting.
As of April 30, 1998, the Company purchased substantially all of the
business assets of Lincoln, a healthcare outsourcing business located in
Wallingford, Connecticut. The purchase price was approximately $1.7 million in
newly-issued common stock payable at closing, plus the assumption of
approximately $1.2 million in liabilities of the acquired business, an
additional contingent payment of up to a maximum of approximately $1.3 million
in cash and approximately $5.4 million in newly-issued common stock payable
over a three year period contingent on the achievement of certain performance
benchmarks by the acquired business. The acquisition will be recorded using
the purchase method of accounting.
On May 4, 1998, the Company made a $4.5 million minority equity investment
in Empower of Austin, Texas. Empower's mission is to improve the quality of
people's lives by empowering them with personalized healthcare information and
enabling electronic interactions and online transactions with the healthcare
industry. The investment will be recorded using the cost method of accounting.
The Company does not believe that inflation has had a material effect on
the results of its operations in the past three years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK SENSITIVE
INSTRUMENTS
The Company currently does not invest excess funds in derivative financial
instruments or other market rate sensitive instruments for the purpose of
managing its foreign currency exchange rate risk or for any other purpose.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d)
On October 9, 1996, the Company's Registration Statement on Form S-1 File
No. 333-10213 was declared effective by the Securities and Exchange Commission
(the "IPO Registration Statement"). The IPO Registration Statement registered
a total of 2,723,623 shares of Common Stock issued and sold by the Company and
a total of 151,377 shares of Common Stock sold by certain shareholders of the
Company (collectively, the "Offering"). All of the shares covered by the
Registration Statement were sold upon termination of the Offering on October
16, 1996 to an underwriting syndicate managed by William Blair & Company,
L.L.C., Donaldson, Lufkin & Jenrette Securities Corporation and Jefferies and
Company, Inc. The shares sold by the Company were sold at an aggregate price of
$43,577,968, netting $40,527,510 to the Company after underwriters' discount of
$3,050,458. The shares sold by the selling shareholders were sold at an
aggregate price of $2,422,032, netting $2,252,490 to the selling shareholders
after underwriters' discount of $169,542. From the effective date of the
Registration Statement, the Company has incurred approximately $994,233 in
expenses in addition to the underwriters' discount described above in
connection with the registration, offering, issuance and sale of the shares in
the Offering, netting estimated proceeds from the Offering to the Company of
approximately $39.5 million.
None of such expenses were paid to any officer, director or 10% or greater
stockholder of the Company or any affiliate of any such persons. Since the
effective date of the Registration Statement, the Net Proceeds have been
applied to the following uses in the following estimated amounts:
Construction of buildings and facilities: $ ---------
-------------------
Purchase and installation of equipment: $ 8,086,000
-------------------
Purchase and improvement of real estate: $ 1,729,000
-------------------
Acquisitions of other business (es): $ 9,287,000
-------------------
Repayment of indebtedness: $ 2,834,000
-------------------
Working Capital: $ ---------
-------------------
Temporary Investment: $ 13,917,000
-------------------
Payment of accrued compensation: $ 3,680,000
-------------------
The temporary investments specified above have consisted primarily of
short-term commercial paper. Except for payment of accrued compensation at the
time of the IPO in the amount of $3,509,000, none of the payments of proceeds
mentioned above were paid to any officer, director or 10% or greater stockholder
of the Company or any affiliate of any such person.
On March 26, 1998, the Company issued approximately 3,805 shares of its
common stock in connection with the acquisition of Novum (valued at
approximately $138,000 based on a market trading average over a 20-day period
ending immediately prior to the consummation of the transaction). On April 30,
1998, the Company issued approximately 48,381 shares of its common stock in
connection with the acquisition of substantially all of the business assets of
Lincoln (valued at approximately $1.7 million based on a market trading average
over a 20-day period ending immediately prior to the consummation of the
transaction). The shares were issued to the shareholders of Novum and certain
shareholders of Lincoln, respectively, as "restricted securities" pursuant to
Section 4(2) of the Securities Act of 1933, as amended, in privately negotiated
transactions not constituting public offerings.
ITEM 5. OTHER INFORMATION
On January 16, 1998, the Company purchased the assets and business of NSD,
located in Burlington, Massachusetts, which specializes in software
implementation and networking technology solutions for healthcare
organizations. The purchase price was approximately $5.2 million in cash. The
business combination was recorded using the purchase method of accounting.
On March 26, 1998, the Company purchased the assets and business of Novum,
located in Gainesville, Georgia, which specializes in software applications
relating to the healthcare industry. The purchase price was approximately
$670,000, consisting of approximately $312,000 in cash and approximately
$138,000 in newly-issued common stock payable at closing, and an additional
contingent payment of up to a maximum of $220,000 payable in cash and
newly-issued common stock over a three year period contingent upon the
achievement of certain performance benchmarks by the acquired business. The
business combination was recorded using the purchase method of accounting.
As of April 30, 1998, the Company purchased substantially all of the
business assets of Lincoln, a healthcare outsourcing business located in
Wallingford, Connecticut. The purchase price was approximately $1.7 million in
newly-issued common stock payable at closing, plus the assumption of
approximately $1.2 million in liabilities of the acquired business, and an
additional contingent payment of up to a maximum of approximately $1.3 million
in cash and approximately $5.4 million in newly-issued common stock payable
over a three year period contingent on the achievement of certain performance
benchmarks by the acquired business. The acquisition will be recorded using
the purchase method of accounting.
On May 4, 1998, the Company made a $4.5 million minority equity investment
in Empower of Austin, Texas. Empower's mission is to improve the quality of
people's lives by empowering them with personalized healthcare information and
enabling electronic interactions and online transactions with the healthcare
industry. The investment will be recorded using the cost method of accounting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27* Financial Data Schedule for the First Quarter ended March 31, 1998
(b) None
_______________________________
* Filed herewith
Page 12
<PAGE> 13
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.
Superior Consultant Holdings Corporation
Date May 15, 1998 By: /s/ Richard D. Helppie, Jr.
Richard D. Helppie, Jr,
President, Chief Executive Officer
(Principal Executive Officer)
Date May 15, 1998 By: /s/ James T. House
James T. House
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 13
<PAGE> 14
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1998 CONTAINED IN
THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
(B) REPORT ON FORM.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 77,827
<SECURITIES> 0
<RECEIVABLES> 26,410
<ALLOWANCES> (657)
<INVENTORY> 0
<CURRENT-ASSETS> 105,295
<PP&E> 13,748
<DEPRECIATION> (4,482)
<TOTAL-ASSETS> 123,352
<CURRENT-LIABILITIES> 11,443
<BONDS> 0
0
0
<COMMON> 102
<OTHER-SE> 110,663
<TOTAL-LIABILITY-AND-EQUITY> 123,352
<SALES> 23,830
<TOTAL-REVENUES> 23,830
<CGS> 0
<TOTAL-COSTS> 12,067
<OTHER-EXPENSES> 9,406
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 3,604
<INCOME-TAX> 1,504
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,100
<EPS-PRIMARY> $0.21
<EPS-DILUTED> $0.20
</TABLE>
