<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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: 0-28166
WHITTMAN-HART, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3797833
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
311 South Wacker Drive, Suite 3500, Chicago, Illinois 60606-6618
- ----------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(312) 922-9200
--------------
Registrant's telephone number, including area code
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 October 31, 1996, there were 10,061,620 shares of common stock of the
registrant outstanding.
<PAGE>
WHITTMAN-HART, INC.
FORM 10-Q
For the quarterly period ended September 30, 1996
TABLE OF CONTENTS
PART - I FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets as of September 30, 1996 (unaudited) and
December 31, 1995 3
Statements of Earnings for the three and nine months
ended September 30, 1996 and 1995 (unaudited) 4
Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
PART - II OTHER INFORMATION 10
SIGNATURES 10
INDEX TO EXHIBITS 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
WHITTMAN-HART, INC.
BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 52,035,646 $ 4,083,178
Short-term investments 11,560,017 -
Trade accounts receivable, net of allowance for doubtful accounts
of $273,006 and $100,000 in 1996 and 1995, respectively 13,154,308 8,785,240
Other receivables 391,602 63,060
Prepaid expenses and other 1,202,404 481,831
Notes and interest receivable - stockholder - 326,356
Notes and interest receivable - executives 18,442 106,355
Deferred income taxes 183,604 50,000
------------ ------------
Total current assets 78,546,023 13,896,020
Property and equipment, net 5,453,386 3,197,330
Notes receivable - executives 160,200 51,500
Other 82,464 84,117
------------ ------------
Total assets $ 84,242,073 $ 17,228,967
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt - 550,363
Notes payable - stockholder - 317,413
Accounts payable 884,484 1,264,048
Accrued compensation and related costs 5,140,587 5,843,859
Income taxes payable 402,199 -
Other accrued liabilities 1,151,943 542,541
Distributions payable - 860,646
Other current liabilities 216,639 321,375
------------ ------------
Total current liabilities 7,795,852 9,700,245
Long-term debt, less current maturities - 1,134,729
Deferred rent 827,417 538,934
------------ ------------
Total liabilities 8,623,269 11,373,908
Redeemable convertible preferred stock, 10%, $.001 par value;
239,019 shares authorized, issued and outstanding (redemption
value $5,683,334) - 5,583,843
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.001 par value; 15,000,000 authorized, 10,050,950
and 5,371,372 shares issued in 1996 and 1995, respectively 10,051 5,371
Additional paid-in capital 72,235,151 289,943
Retained earnings 3,478,554 -
Deferred compensation (104,952) -
------------ ------------
75,618,804 295,314
Common stock held in treasury, at cost, 0 and 7,698 shares in 1996
and 1995, respectively - (24,098)
------------ ------------
Total stockholders' equity 75,618,804 271,216
------------ ------------
Total liabilities and stockholders' equity $ 84,242,073 $ 17,228,967
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
WHITTMAN-HART, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 23,301,500 $ 13,193,660 $ 62,164,250 $ 34,605,590
Cost of services 13,842,490 7,992,900 37,204,470 21,122,940
------------- ------------- ------------- -------------
Gross profit 9,459,010 5,200,760 24,959,780 13,482,650
Costs and expenses:
Selling 926,250 660,090 2,635,790 1,764,410
Recruiting 926,730 642,580 2,533,760 1,656,900
General and administrative 5,244,244 3,342,880 14,889,466 8,601,654
------------- ------------- ------------- -------------
Total costs and expenses 7,097,224 4,645,550 20,059,016 12,022,964
------------- ------------- ------------- -------------
Operating income 2,361,786 555,210 4,900,764 1,459,686
Other income (expense):
Interest expense - (62,040) (47,400) (164,820)
Interest income 498,000 22,220 766,720 39,620
Other, net (192,680) 88,090 (109,600) 74,700
------------- ------------- ------------- -------------
Total other income (expense) 305,320 48,270 609,720 (50,500)
------------- ------------- ------------- -------------
Income before income taxes 2,667,106 603,480 5,510,484 1,409,186
Income taxes 983,240 - 2,081,930 -
------------- ------------- ------------- -------------
Net income $ 1,683,866 $ 603,480 $ 3,428,554 $ 1,409,186
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share $ 0.17 $ 0.40
------------- -------------
------------- -------------
Shares used in computing net income per share 10,137,224 8,582,900
------------- -------------
------------- -------------
Pro forma income data:
Net income as reported $ 603,480 $ 1,409,186
Pro forma adjustment to provision for income
taxes 225,976 527,677
------------- -------------
Pro forma net income $ 377,504 $ 881,509
------------- -------------
------------- -------------
Pro forma net income per share $ 0.05 $ 0.12
------------- -------------
------------- -------------
Shares used in computing pro forma net income
per share 7,067,192 7,121,675
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,428,554 $ 1,409,186
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 841,169 385,055
Deferred income taxes (133,604) -
Gain on disposition of property and equipment (12,607) -
Executive stock expense 29,213 216,668
Changes in assets and liabilities:
Receivables (4,683,592) (3,615,194)
Prepaid expenses and other (720,573) 117,705
Notes receivable 305,569 37,976
Other assets 1,653 (89,377)
Accounts payable (379,564) 66,998
Accrued compensation and related costs (630,355) 790,284
Income taxes payable 402,199 -
Other accrued liabilities 272,554 (147,917)
Deferred rent 288,483 276,326
Other current liabilities (104,736) 44,097
------------ ------------
Net cash used in operating activities (1,095,637) (508,193)
------------ ------------
Cash flows from investing activities:
Purchases of short-term investments (12,571,399) -
Sales and maturities of short-term investments 999,784 -
Purchases of property and equipment (3,096,154) (1,115,390)
Proceeds from disposition of property and equipment 43,122 -
------------ ------------
Net cash used in investing activities (14,624,647) (1,115,390)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred
stock, net of issuance costs - 5,463,241
Proceeds from issuance of bank debt 48,775 500,000
Payments on bank debt (1,733,867) (366,509)
Payments on related party debt (317,413) -
Proceeds from issuance of common stock, net of issuance costs 65,933,251 -
Proceeds from exercise of stock options 72,733 -
Proceeds from employee stock purchase plan 529,919 -
Purchase of common stock - (1,519,868)
Partnership capital distributions (860,646) (104,476)
Checks issued in excess of bank balance - (121,802)
------------ ------------
Net cash provided by financing activities 63,672,752 3,850,586
------------ ------------
Net increase in cash and cash equivalents 47,952,468 2,227,003
------------ ------------
Cash and cash equivalents at beginning of period 4,083,178 -
------------ ------------
Cash and cash equivalents at end of period $ 52,035,646 $ 2,227,003
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information:
Interest paid $ 58,181 $ 186,659
Income taxes paid 1,813,335 -
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of
Whittman-Hart, Inc. (the "Company") have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission for quarterly
reports on Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. The
information furnished herein includes all adjustments which are, in the
opinion of management, necessary for a fair presentation of results for these
interim periods, and all such adjustments are of a normal recurring nature.
The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for the
year ending December 31, 1996.
These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1995, included in the registration statement (No. 333-09617) on
Form S-1 filed by the Company with the Securities and Exchange Commission on
August 6, 1996, as amended.
2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are comprised of certain highly liquid investments with
maturities of less than three months. Short-term investments consist of debt
securities with maturities beyond three months but less than twelve months.
The short-term investments are classified as available-for-sale under the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, these investments are stated at fair value.
3. COMPUTATION OF NET INCOME AND PRO FORMA NET INCOME PER SHARE
Net income and pro forma net income per common and common equivalent
share are computed based on the weighted average of common and common
equivalent shares (redeemable convertible preferred stock and stock options)
outstanding during the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common and common equivalent shares issued during the twelve months
immediately preceding the initial public offering date (using the treasury
stock method and the initial public offering price per share) have been
included in the calculation of common and common equivalent shares as if they
were outstanding through the date of the initial public offering.
4. INCOME TAXES
Prior to December 31, 1995, the Company's business was owned and
operated by Whittman-Hart, L.P., a Delaware limited partnership, therefore,
federal and certain state income tax liabilities were the responsibility of
the partners. The pro forma tax adjustments for the three and nine months
ended September 30, 1995 represent federal and additional state income tax
expense that would have been required had the Company operated as a C
corporation during those periods.
6
<PAGE>
5. STOCKHOLDERS' EQUITY
The Company's Board of Directors approved a 4 for 1 split of the common
stock in the form of a stock dividend effective April 3, 1996. All common
share and per share amounts have been adjusted retroactively to give effect
to the stock split. Additionally, on April 3, 1996, the Company filed an
Amendment to its Certificate of Incorporation effecting an increase in the
number of authorized shares of common stock to 15,000,000 and authorizing
3,000,000 shares of preferred stock. The authorized numbers of shares have
been adjusted to give effect to these increases.
On May 8, 1996, the Company completed an initial public offering of its
common stock in which 2,600,000 shares were sold by the Company, resulting in
net proceeds of approximately $37.8 million. In connection with such
offering, 239,019 shares of redeemable convertible preferred stock were
converted into 956,074 shares of common stock. All accrued and unpaid
dividends related to the redeemable convertible preferred stock were canceled
upon the conversion to common stock.
On August 22, 1996, the Company completed a follow-on public offering of
its common stock in which 1,050,000 shares were sold by the Company resulting
in net proceeds of approximately $27.8 million, after deducting estimated
offering expenses.
6. SUBSEQUENT EVENT
The Company will hold a Special Meeting of Stockholders on November 25,
1996 for voting on an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 15,000,000 shares to 37,000,000 shares and to eliminate the
10% Cumulative Convertible Preferred Stock from the Company's authorized
capital. The increase in the authorized shares of common stock will provide
the Company with additional available shares for general corporate purposes,
future acquisitions and equity financings. Subject to stockholder approval
of this increase and future market conditions, the Company intends to declare
a 2-for-1 stock split effected in the form of a 100% stock dividend.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
REVENUES. Revenues increased 77% to $23.3 million in the third quarter
of 1996 from $13.2 million for the comparable 1995 quarter. Revenues in the
first nine months of 1996 increased 80% to $62.2 million from $34.6 million
for the first nine months of 1995. Each of the Company's branch offices and
significant business units experienced substantial growth in both the third
quarter and first nine months of 1996 as compared to the same periods in
1995. Revenues from the Company's ten most significant clients, expressed as
a percentage of total revenues, declined to 28% in the third quarter of 1996
from 36% in third quarter of 1995 and to 31% in the first nine months of 1996
from 34% in the comparable 1995 period.
GROSS PROFIT. Gross profit increased 82% to $9.5 million in the third
quarter of 1996 from $5.2 million in the third quarter of 1995. Gross profit
in the first nine months of 1996 increased 85% to $25.0 million from $13.5
million in the first nine months of 1995. Gross profit as a percentage of
revenues increased to 41% and 40% in the third quarter and first nine months
of 1996, respectively, from 39% in both comparable 1995 periods. The margin
increase is due to a change in the sales mix toward higher-end service
offerings.
SELLING EXPENSES. Selling expenses increased 40% to $0.9 million in the
third quarter of 1996 from $0.7 million in the comparable 1995 quarter.
Selling expenses in the first nine months of 1996 increased 49% to $2.6
million from $1.8 million in the first nine months of 1995. As a percentage
of revenues, selling expenses decreased to 4% in both the third quarter and
first nine months of 1996 from 5% in the comparable periods in 1995. The
decrease as a percentage of revenues is attributable to a change in the
structure of the sales commission plan.
RECRUITING EXPENSES. Recruiting expenses increased 44% to $0.9 million
in the third quarter of 1996 from $0.6 million in the third quarter of 1995.
Recruiting expenses for the first nine months of 1996 increased 53% to $2.5
million from $1.7 million in the first nine months of 1995. As a percentage
of revenues, recruiting expenses decreased to 4% in both the third quarter
and first nine months of 1996 from 5% in the comparable periods in 1995. The
decrease as a percentage of revenues is due to lower attrition rates and
reduced recruiting costs per hire. The number of consultants increased 72%
to 819 as of September 30, 1996 from 476 as of September 30, 1995, while
total recruiting costs per hire for the first nine months of each year
decreased to approximately $5,900 in 1996 from approximately $6,400 in 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 57% to $5.2 million in the third quarter of 1996 from $3.3
million in the third quarter of 1995. General and administrative expenses
for the first nine months of 1996 increased 73% to $14.9 million from $8.6
million in the first nine months of 1995. The increase is primarily
attributable to a general increase in corporate costs, increased numbers of
branch management personnel to support the growth of new business units and
newer branch locations, increased personal computer leasing due to the
rollout of laptop computers for consultants and the establishment of a new
Dallas branch office. As a percentage of revenues, general and
administrative costs declined to 23% and 24% for the third quarter and first
nine months of 1996, respectively, from 25% in both the third quarter and
first nine months of 1995.
INTEREST INCOME. The increases in interest income in both the third
quarter and first nine months of 1996 as compared to the same periods in 1995
are attributable to interest earned on investments of available net proceeds
from the Company's initial and follow-on public offerings.
8
<PAGE>
INCOME TAXES. The Company's effective tax rate was 37% and 38% for the
third quarter and first nine months of 1996, respectively, as compared to 37%
on a pro forma basis for the same periods of 1995. Prior to December 31,
1995, the Company operated as a partnership. The pro forma tax adjustments
for the three and nine months ended September 30, 1996 represent federal and
additional state income tax expense that would have been required had the
Company operated as a C corporation during those periods.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in May 1996, the Company s primary
source of liquidity had been operating cash flow, periodically supplemented
by borrowings under the Company s revolving credit and term facilities with a
commercial bank. The Company has a Loan Agreement for up to $5.0 million of
unsecured credit with interest, at the Company s option, at LIBOR plus 1.5%
or the lender s prime rate. There were no borrowings under this Loan
Agreement as of October 31, 1996. The Company s Loan Agreement expires on
April 30, 1997.
On May 8, 1996, the Company completed an initial public offering of its
common stock which resulted in net proceeds to the Company of $37.8 million.
A portion of the proceeds from the offering were used to retire the Company s
term facilities. On August 22, 1996, the Company completed a follow-on
public offering of its common stock resulting in net proceeds to the Company
of approximately $27.8 million, after deducting estimated offering expenses.
The Company anticipates the net proceeds of its two public offerings,
together with existing sources of liquidity and funds generated from
operations, will provide adequate cash to fund its anticipated cash needs at
least through the next twelve months.
SAFE HARBOR PROVISION
This Form 10-Q contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Form 10-Q, the words
"anticipate", "believe", "estimate", and "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results, performance or
achievements expressed in, or implied by, these forward-looking statements.
Factors that could cause or contribute to such differences include, but are
not limited to, attracting and retaining highly skilled employees, management
of growth, and management of risks associated with client projects, as well
as those described in the "Risk Factor" section of the Company's registration
statement (No. 333-09617) on Form S-1 filed by the Company with the
Securities and Exchange Commission on August 6, 1996, as amended.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter ended
September 30, 1996.
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.
Whittman-Hart, Inc.
Date: NOVEMBER 11, 1996 By: /S/ ROBERT F. BERNARD
-------------------------- --------------------------------
Robert F. Bernard
Chairman of the Board, President and Chief
Executive Officer
Date: NOVEMBER 11, 1996 By: /S/ KEVIN M. GASKEY
-------------------------- --------------------------------
Kevin M. Gaskey
Chief Financial Officer and Treasurer
10
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
11
<PAGE>
EXHIBIT 11
WHITTMAN-HART, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------------ ------------ ------------ ------------
Net income $ 1,683,866 $ 603,480 $ 3,428,554 $ 1,409,186
Pro forma adjustment to provision for
income taxes - 225,976 - 527,677
------------ ------------ ------------ ------------
Net income attributable to common
stock (pro forma in 1995) $ 1,683,866 $ 377,504 $ 3,428,554 $ 881,509
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares outstanding 9,411,894 5,563,728 7,502,785 5,618,211
Effect of stock options calculated according
to the treasury stock method 725,330 547,390 649,356 547,390
Conversion of redeemable preferred stock - 956,074 430,759 956,074
------------ ------------ ------------ ------------
Weighted average common and common
equivalent shares outstanding 10,137,224 7,067,192 8,582,900 7,121,675
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share (pro forma in 1995) $ 0.17 $ 0.05 $ 0.40 $ 0.12
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1996 AND THE STATEMENT OF EARNINGS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY THE REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 52,036
<SECURITIES> 11,560
<RECEIVABLES> 13,427
<ALLOWANCES> 273
<INVENTORY> 0
<CURRENT-ASSETS> 78,546
<PP&E> 7,760
<DEPRECIATION> 2,307
<TOTAL-ASSETS> 84,242
<CURRENT-LIABILITIES> 7,796
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 75,609
<TOTAL-LIABILITY-AND-EQUITY> 84,242
<SALES> 0
<TOTAL-REVENUES> 62,164
<CGS> 0
<TOTAL-COSTS> 37,204
<OTHER-EXPENSES> 20,059
<LOSS-PROVISION> 304
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 5,510
<INCOME-TAX> 2,082
<INCOME-CONTINUING> 3,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,429
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
</TABLE>
