<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, 2000
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 12, 2000, 10,474,846 shares of the registrant's common stock (par
value $.01) were outstanding.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2000 and December 31, 3
1999 (unaudited)
Condensed Consolidated Statements of Operations for the three months ended 4
March 31, 2000 and 1999 (unaudited)
Condensed Consolidated Statements of Cash Flows for the three months ended 5
March 31, 2000 and 1999 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk Sensitive
Instruments 13
PART II - OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</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, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 24,005 $ 16,691
Short-term investments -- 13,908
Accounts receivable, net 31,389 38,728
Accrued interest receivable and prepaid expenses 3,995 3,201
Refundable income taxes 4,071 5,482
Deferred income taxes 2,985 --
------------ ------------
Total current assets 66,445 78,010
Property and equipment, net 20,995 20,695
Goodwill, net 18,449 18,097
Investments 40,661 69,683
Other long-term assets 112 112
------------ ------------
Total Assets $ 146,662 $ 186,597
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,965 $ 6,093
Accrued liabilities 4,772 3,624
Deferred revenue 5,050 6,254
Deferred income taxes -- 228
------------ ------------
Total current liabilities 12,787 16,199
Deferred income taxes 7,701 19,463
Stockholders' equity
Preferred stock; authorized, 1,000,000 shares of
$.01 par value; issued and outstanding, 2,000 as of
March 31, 2000 and December 31, 1999 -- --
Common stock; authorized, 30,000,000 shares of
$.01 par value; issued,
10,429,562 as of March 31, 2000
and 10,426,167 as of December 31, 1999 104 104
Additional paid-in capital 114,408 114,174
Accumulated other comprehensive income 11,175 33,588
Retained earnings 3,393 5,975
Treasury stock - at cost, 85,000 shares as of March 31, 2000
and December 31, 1999 (2,270) (2,270)
Stockholders' notes receivable (636) (636)
------------ ------------
Total stockholders' equity 126,174 150,935
------------ ------------
Total Liabilities and Stockholders' Equity $ 146,662 $ 186,597
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
<S> <C> <C>
Revenues $ 28,073 $ 40,029
Operating costs and expenses
Cost of services 23,029 20,749
Selling, general and administrative expenses 18,370 14,897
----------------- ----------------
Total operating costs and expenses 41,399 35,646
----------------- ----------------
Earnings (loss) from operations (13,326) 4,383
Other income, principally realized gains
on sale of investments 9,340 478
----------------- ----------------
Earnings (loss) before income taxes (benefit) (3,986) 4,861
Provision for income taxes (benefit) (1,404) 1,876
----------------- ----------------
Net earnings (loss) $ (2,582) $ 2,985
================= ================
Net earnings (loss) per share - basic $ (0.25) $ 0.29
================= ================
Net earnings (loss) per share - diluted $ (0.25) $ 0.28
================= ================
Weighted average number of common and
common equivalent shares outstanding - basic 10,342 10,347
================= ================
Weighted average number of common and
common equivalent shares outstanding - diluted 10,342 10,609
================= ================
</TABLE>
See notes to condensed consolidated financial statements.
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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,
-----------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (2,582) $ 2,985
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization of property and equipment 1,457 977
Goodwill amortization 390 295
Bad debt expense 493 394
Gain on sale of securities (8,974) --
Deferred income taxes 281 337
Options issued to non-employees 183 --
Interest income on marketable debt security (83) --
Warrants from business partner (30) --
Changes in operating assets and liabilities, 1999 is net of effects
from acquisition:
Accounts receivable 6,846 (5,152)
Accrued interest receivable and prepaid expenses (794) (365)
Refundable income taxes 1,411 --
Accounts payable (3,128) (281)
Accrued liabilities 1,148 (40)
Income taxes payable -- 1,181
Deferred revenue (1,204) (1,502)
---------- ----------
(4,586) (1,171)
Net cash used in operating activities
Cash flows from investing activities:
Proceeds from sale of investments 14,348 --
Purchase of businesses (722) (2,924)
Purchase of property and equipment (1,757) (1,964)
---------- ----------
Net cash provided by (used in) investing activities 11,869 (4,888)
Cash flows from financing activities:
Exercise of stock options 31 834
Repayment of long-term debt -- (61)
---------- ----------
Net cash provided by financing activities 31 773
---------- ----------
Net increase (decrease) in cash 7,314 (5,286)
Cash and cash equivalents, beginning of period 16,691 51,519
---------- ----------
Cash and cash equivalents, end of period $ 24,005 $ 46,233
========== ==========
Supplemental disclosure of cash flow information:
Interest payments $ -- $ 26
Income tax payments $ 25 $ 257
Net unrealized loss on investments, net of deferred
income taxes $ 22,413 $ --
</TABLE>
See notes to condensed consolidated financial statements.
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SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 2000
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, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
These financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto included
in the Company's 1999 annual report on Form 10-K filed by the Company with the
Securities and Exchange Commission on March 30, 2000.
Certain 1999 amounts have been reclassified to conform to the
classifications used in 2000.
NOTE 2 - COST FUNDING FROM BUSINESS PARTNER
During the quarter ended March 31, 2000, operating costs were incurred
in connection with the Company's various new business initiatives. Of these
costs, a portion, $292,000 in costs of services and $708,000 in selling, general
and administrative expenses were funded by a business partner, and were recorded
as a reduction to expense in the accompanying financial statements.
NOTE 3 - NET EARNINGS (LOSS) PER SHARE
The Company accounts for Earnings (Loss) Per Share under the rules of
Statement of Financial Accounting Standard No. 128, "Earnings Per Share". The
Company's basic net earnings (loss) per share amounts have been computed by
dividing net earnings (loss) by the weighted average number of outstanding
common shares. The Company's diluted net earnings (loss) per share is computed
by dividing net earnings (loss) 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 (loss) per share for the three
months ended March 31, 1999 includes approximately 262,000 shares of common
stock equivalents. Options and warrants to purchase approximately 3,021,000 and
945,000 shares of common stock with a weighted average exercise price of $29.25
and $38.49 were outstanding at March 31, 2000 and 1999 respectively, but were
excluded from the computation of common share equivalents because to do so would
have been antidilutive for the periods presented.
NOTE 4 - INVESTMENT
In October 1999, the Company invested $5.0 million in Neoforma.com, a
leading provider of business-to-business e-commerce services in the healthcare
marketplace, and initially recorded its investment at cost. During the quarter
ended March 31, 2000, Neoforma.com completed its initial public offering,
providing a readily determinable fair value of the Company's investment in
Neoforma.com's stock. The Company's investment is restricted by applicable
securities laws and a lock-up agreement, which expires in July 2000. Therefore,
the Company's investment in Neoforma.com is subject to the accounting guidelines
of Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", and as of March 31, 2000, the
Company has recorded its investment at fair value, resulting in an unrealized
gain of approximately $9.4 million.
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NOTE 5 - OTHER COMPREHENSIVE (INCOME) LOSS
Other comprehensive income (loss) includes net unrealized gains and
losses on investments in marketable equity and debt securities, primarily from
the Company's investments in drkoop.com, WebMD, Inc. and Neoforma.com. Total
comprehensive loss is summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------
2000 1999
---- ----
<S> <C> <C>
Net earnings (loss) $ (2,582) $ 2,985
Other comprehensive loss,
net of income tax (22,413) --
-------- -------
Total comprehensive income (loss) $(24,995) $ 2,985
======== =======
</TABLE>
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NOTE 6 - SEGMENT FINANCIAL INFORMATION
The Company conducts its business in three segments through its primary
operating subsidiary, Superior Consultant Company, Inc. ("Superior"). Effective
January 1, 2000, the Company organized into the business segments of consulting,
outsourcing and e-Health. The consulting segment provides information
technology, as well as strategic and operations management consulting and
application support to a broad cross-section of healthcare industry participants
and information systems vendors. The outsourcing segment helps healthcare
providers simplify their management agendas, improve their return on information
systems investment and strengthen their technology management by ensuring client
access to Superior's skilled labor pool. The outsourcing segment offers the
client an array of services, functions, and economic elements that can be
tailored to the specific client program/agenda, including IT management, IT
planning and budgeting, applications support, applications implementation, IT
operations, network and financial management and risk sharing. The e-Health
segment works to leverage the power, speed, and value of Internet
technologies to: achieve efficiencies in business and operations, realize
measurable return on investment, connect with consumers, physicians and trading
partners, and provide total solutions in business-to-business and business-to
consumer e-commerce. From strategic planning and go-to-market strategies to
Internet enabling and development, integration and implementation, Superior
assists its clients to achieve supply chain efficiencies, accelerate
revenue, and manage clinical content. The Company evaluates segment
performance and allocates resources based on gross profit. Intrasegment services
are provided at cost.
Information on the Company's operations for the three months ended
March 31, 2000 and 1999 is summarized as follows in thousands. Amounts for 1999
have been reclassified to conform to the classifications used in 2000:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Revenues
Consulting $ 12,952 $ 30,429
Outsourcing 7,618 9,600
e-Health 7,503 --
--------- ---------
Consolidated revenues $ 28,073 $ 40,029
========= =========
Gross Profit and Income Statement Reconciliation
Consulting $ 3,482 $ 15,588
Outsourcing 2,002 3,692
e-Health (440) --
--------- ---------
Consolidated gross profit 5,044 19,280
Unallocated
SG&A expenses 18,370 14,897
Other income, principally realized gains on sale of investments (9,340) (478)
--------- ---------
Subtotal 9,030 14,419
--------- ---------
Consolidated earnings (loss) before income taxes (benefit) $ (3,986) $ 4,861
========= =========
</TABLE>
During the three months ended March 31, 2000 and 1999, there were no
intercompany sales and there was no change in the basis of measurement of group
earnings or loss.
The Company's reportable segments are business units that offer and
provide different services through different means. The Company's recruiting,
training, information technology, merger and acquisition, accounting, finance
and senior management functions are combined into the unallocated SG&A expenses.
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NOTE 7 - NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133, Derivative Instruments and Hedging
Activities ("SFAS 133"), which is effective for fiscal years beginning after
June 15, 2000. As the Company does not currently participate in any activity
involving derivatives, the Company anticipates that adoption of SFAS 133 will
not have a material effect on its consolidated financial statements.
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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," "promises", "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, without
limitation, the risk factors identified in the Company's Registration Statement
Form S-3 (File No. 333-53339), and Registration Statement on Form S-3 (File No.
333-70337).
The Company conducts its business in three segments through its primary
operating subsidiary, Superior Consultant Company, Inc. ("Superior"). Superior
is a leading provider of Digital Business Transformation (TM) services to the
healthcare industry, connecting online technologies to business processes that
have traditionally been conducted offline. The Company provides healthcare
enterprises with comprehensive end-to-end technology solutions that incorporate
brand management, business to business (B2B) and business to consumer (B2C)
e-commerce, as well as multi-disciplinary e-health business solutions. Effective
January 1, 2000, the Company organized into the business segments of consulting,
outsourcing and e-Health. The consulting segment provides information
technology, as well as strategic and operations management consulting and
application support to a broad cross-section of healthcare industry participants
and information systems vendors. The outsourcing segment helps healthcare
providers simplify their management agendas, improve their return on information
systems investment and strengthen their technology management by ensuring client
access to Superior's skilled labor pool. The outsourcing segment offers the
client an array of services, functions, and economic elements that can be
tailored to the specific client program/agenda, including IT management, IT
planning and budgeting, applications support, applications implementation, IT
operations, network and financial management and risk sharing. The e-Health
segment assists to leverage the power, speed, and value of Internet technologies
to: achieve efficiencies in business and operations, realize measurable return
on investment, connect with consumers, physicians and trading partners, and
provide total solutions in business-to-business and business-to consumer
e-commerce. From strategic planning and go-to-market strategies to Internet
enabling and development, integration and implementation, Superior assists its
clients to achieve supply chain efficiencies, accelerate revenue, and manage
clinical content.
In 1999 and the first quarter of 2000, the Company has expanded its
e-Health, e-commerce and systems integration areas. As healthcare and other
sectors move increasingly to Internet and web-based technologies and
applications, and as the Company continues to innovate services and solutions to
develop and capitalize on this growing market, the Company will incur risks
related to its participation in such untested opportunities in markets and
quickly evolving lines of business. Such risks can include, but are not limited
to, new and unforeseen technologies superseding development of the Internet
and/or the systems integration platforms in which the Company invests; the
e-commerce and/or systems integration markets taking turns not foreseen by the
Company and adverse to the positioning and investments undertaken by the
Company; and increased competition for consultant talent in the e-commerce
field, increasing the Company's cost of providing services.
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The Company derives a substantial portion of its revenues from fees for
professional services. 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 generally contracted to be 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
portion of the Company's projects are billed on a fixed-fee basis, often on a
monthly payment schedule. The Company recognizes revenue on fixed fee
projects in a manner similar to the percentage of completion basis. As of
December 31, 1999, the Company has increased the number of projects billed on
a fixed-fee basis. Increased use of fixed-fee contracts subjects the Company
to increased risks, including cost overruns. For outsourcing engagements,
the Company recognizes revenue in the amount billable under the contract,
which is typically billable on a monthly basis. As of March 31, 2000, the
Company has six significant contracts to provide healthcare IT outsourcing
services. In addition, the Company provides help desk and call center
support, typically billable on a per seat per month basis. 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.
In e-Health, the Company also derives revenues from fees generated from
its Digital Business Transformation partnerships. This revenue is
generally recognized ratably over the life of the contract.
The Company seeks to grow revenue through various means, including an
increase in the number of projects for existing and new clients and expanded
geographic presence. In addition, the Company seeks to increase revenues by
expanding its range of specialty services with a focus on opportunities arising
from the demand for Internet expertise. The Company manages its client
development efforts through several strategic services groups, each having
specific geographic responsibility and focus.
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 foresees this trend continuing as competition for
recruiting and retaining skilled consultants intensifies, particularly in the
area of e-commerce services. The Company has sought to address this issue by
adding an additional variable portion of compensation payable upon the
achievement of measurable performance goals. In addition, the Company has sought
to address compensation expense pressures through increased use of stock options
as an overall part of its compensation package. These efforts have been hampered
by the impact of the Company's current market price.
The Company's cost of services as a percentage of revenues is also
impacted by its consultant utilization. The Company attempts to optimize
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 have and can result in periods when consultants are not fully
utilized. An unanticipated termination of a significant project has and can
cause the Company to experience lower consultant utilization, resulting in a
higher than expected number of unassigned consultants. During 1999, the
healthcare industry experienced a slow-down in consulting expenditures as fiscal
constraints imposed by factors such as the Balanced Budget Act and Y2K
transition concerns combined forces to dampen overall industry demand for new IT
service consulting projects. In addition, the Company's establishment of new
practice areas, lines of business, hiring of consultants in peak hiring periods
and further geographic expansion have and can from time to time adversely affect
utilization. For example, the Company intends to grow its e-Health segment to
capture increased client demand expected to occur in this area, and this growth
will impact utilization as these new areas come online. Also, seasonal factors,
such as vacation days and total business days in a quarter, as well as the
timing of the annual employees' meeting have and can result in lower consultant
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, as the majority
of employment costs of these personnel are fixed.
Selling, general and administrative expenses include the costs of
recruiting and training, continuing education, marketing, facilities,
administration, including compensation and benefits, outside professional fees,
equipment depreciation and amortization of goodwill.
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999
Revenues.
Consulting. Revenues in this segment decreased by $17.5
million, or 57.4%, to $12.9 million for the three months ended March
31, 2000, as compared to $30.4 million for the three months ended March
31, 1999. The revenue decrease was due to significantly lower
consultant utilization for this segment.
Outsourcing. Revenues in this segment decreased by $2.0 million, or
20.7%, to $7.6 million for the three months ended March 31, 2000, as
compared to $9.6 million for the three months ended March 31, 1999. The
decrease is primarily attributable to lower consultant utilization in
this segment resulting from the Company's decision to withdraw from an
outsourcing agreement as a result of the client's decision to compete
against the Company in the local outsourcing market.
e-Health. Revenues in this segment were $7.5 million for the
three months ended March 31, 2000. The Company did not have an e-Health
segment during the three months ended March 31, 1999.
Cost of Services.
Consulting. Cost of services in this segment decreased by $5.4 million,
or 42.9%, to $9.5 million for the three months ended March 31, 2000, as
compared to $14.9 million for the three months ended March 31, 1999.
The decrease was due primarily to adjustments the Company made to
optimize its work force through the redeployment of staff to the
e-Health segment and consultant reductions. Cost of services as a
percentage of revenue for this segment increased to 73.1% for the three
months ended March 31, 2000, as compared to 48.8% for the three months
ended March 31, 1999. The increase is attributable to significantly
lower consultant utilization and a lower revenue base for this segment.
Outsourcing. Cost of services in this segment remained consistent for
the three months ended March 31, 2000, as compared with the three
months ended March 31, 1999. Cost of services as a percentage of
revenue for this segment increased to 73.7% for the three months ended
March 31, 2000, as compared to 61.5% for the three months ended March
31, 1999. The increase is primarily attributable to the development of
additional capacity within outsourcing to capitalize on future demand
and lower consultant utilization in this segment.
e-Health. Cost of services in this segment were $7.9 million
for the three months ended March 31, 2000. These costs consisted
primarily of compensation expenses associated with the Company's
continued pursuit to gain market share in the e-health sector. Cost of
services as a percentage of revenue for this segment was 105.9% for the
three months ended March 31, 2000.
Selling, general and administrative expenses. Selling, general
and administrative expenses increased by $3.5 million, or 23.3%, to
$18.4 million for the three months ended March 31, 2000, as compared to
$14.9 million for the three months ended March 31, 1999. The increase
was due to recruiting and training expenses relating to the new lines
of business as well as higher marketing, outside professional fees,
continuing education and compensation expenses. Selling, general and
administrative expenses as a percentage of revenues increased to 65.4%
from 37.2%. The increase was due to the investment in new lines of
business, higher recruiting, training, marketing and outside
professional fee expenses, as well as a lower revenue base than
anticipated.
Page 12
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THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1999 (Continued)
Other income and expense. Other income was $9.3 million for
the three months ended March 31, 2000, as compared to $0.5 million of
other income for the three months ended March 31, 1999. The increase
was due to the gain realized on the sale of investments during the
first quarter of 2000, in which the Company received proceeds of $14.3
million from the sale of 697,500 and 150,000 shares of drkoop.com and
Healtheon/WebMD common stock, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been and will be to fund its
e-commerce and systems integration initiatives, acquisitions, equity investments
and equipment purchases. The Company believes that its current cash and cash
equivalents, marketable securities, cash generated from operations, plus
available credit under its bank credit facility, will be sufficient to finance
its working capital and capital expenditure requirements for at least the next
twelve months.
At March 31, 2000, the Company had cash and cash equivalents of $24.0
million and working capital of $53.7 million, as compared with cash and cash
equivalents of $16.7 and working capital of $61.8 million at December 31, 1999.
Currently, the Company's remaining maximum contingency payments relating to its
completed business acquisitions total approximately $7.2 million ($1.4 million
in cash and $5.8 million in common stock) payable over the next two years. The
Company owns common stock in three publicly traded companies: drkoop.com,
Healtheon/WebMD and Neoforma.com. Liquidity of the Company's investment in
drkoop.com is subject to volume restrictions under Rule 144. In addition, the
Company's investment in Neoforma.com is restricted by a lock-up agreement, which
expires in July 2000 and will not become eligible for sale under Rule 144 until
October 2000.
The Company has a line of credit arrangement at Comerica Bank N.A. of
$25.0 million collateralized by accounts receivable and equity investments in
public securities of the Company. The line of credit bears interest at 0.25% to
0.50% below the bank's prime rate. As of March 31, 2000, the Company had no
amounts outstanding under the agreement.
Net cash used in operations was $4.6 million for the three months ended
March 31, 2000 as compared to cash used in operations of $1.2 million for the
three months ended March 31, 1999. In the first quarter of 1999, net earnings of
$3.0 million were more than offset by a significant increase in accounts
receivable, which was primarily responsible for the net cash used in operating
activities of $1.2 million. In the first quarter of 2000, the net cash used in
operations was due primarily to the operating loss and a reduction in accounts
payable; which was partially offset by a reduction in accounts receivable.
Net cash of $11.9 million provided by investing activities during the
three months ended March 31, 2000 consists of proceeds from the sale of
investments less additions to property and equipment and contingent payments
made relating to prior acquisitions as required by the applicable purchase
agreements. The investments in the debt security, drkoop.com, Healtheon/ WebMD
and Neoforma.com, which have a cost basis of $15.7 million, have a combined
market value of $21.6 million at May 12, 2000.
Net cash provided by financing activities during the three months ended
March 31, 2000 and 1999, was principally the result of the exercise of stock
options.
The Company does not believe that inflation has had a material effect
on the results of its operations.
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.
Page 13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27* Financial Data Schedule for the First Quarter Ended March 31, 2000
(b) Form 8-K
NONE
- ------------------------
* Filed herewith
Page 14
<PAGE> 15
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
/s/ Richard D. Helppie, Jr.
Date: May 15, 2000 -------------------------------------------
- ------------------ Richard D. Helppie, Jr.
Chairman, Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2000 /s/ James T. House
- ------------------ -------------------------------------------
James T. House
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 15
<PAGE> 16
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FINANCIAL STATEMENTS FOR THE QUARTER ENDED 3/31/00 CONTAINED IN THE COMPANY'S
FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 24,005
<SECURITIES> 0
<RECEIVABLES> 33,436
<ALLOWANCES> (2,047)
<INVENTORY> 0
<CURRENT-ASSETS> 66,445
<PP&E> 34,454
<DEPRECIATION> (13,459)
<TOTAL-ASSETS> 146,662
<CURRENT-LIABILITIES> 12,787
<BONDS> 0
0
0
<COMMON> 104
<OTHER-SE> 126,070
<TOTAL-LIABILITY-AND-EQUITY> 146,662
<SALES> 28,073
<TOTAL-REVENUES> 28,073
<CGS> 0
<TOTAL-COSTS> 23,029
<OTHER-EXPENSES> 18,370
<LOSS-PROVISION> 493
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,986)
<INCOME-TAX> (1,404)
<INCOME-CONTINUING> (2,582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,582)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
