<PAGE>
UNITED STATES
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 March 31, 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
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WHITTMAN-HART, INC.
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(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 June 1, 1996, there were 8,951,514 shares of common stock of the
registrant outstanding.
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WHITTMAN-HART, INC.
FORM 10-Q
For the quarterly period ended March 31, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial statements
Balance Sheets as of March 31, 1996
and December 31, 1995 3
Statements of Earnings for the three months
ended March 31, 1996 and 1995 4
Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
INDEX TO EXHIBITS 10
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WHITTMAN-HART, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 174,271 $ 4,083,178
Trade accounts receivable, net of allowance for doubtful accounts
of $229,750 and $100,000 in 1996 and 1995, respectively 10,373,613 8,785,240
Other receivables 33,059 63,060
Prepaid expenses and other 946,438 481,831
Notes and interest receivable - stockholder - 326,356
Notes and interest receivable - executives 86,355 106,355
Deferred income taxes 50,000 50,000
------------ ------------
Total current assets 11,663,736 13,896,020
Property and equipment, net 4,272,406 3,197,330
Notes receivable - executives 71,107 51,500
Other 144,075 84,117
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$ 16,151,324 $ 17,228,967
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------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt 506,321 550,363
Notes payable - stockholder - 317,413
Accounts payable 688,377 1,264,048
Accrued compensation and related costs 4,283,007 5,843,859
Income taxes payable 444,344 -
Other accrued liabilities 736,907 542,541
Distributions payable 860,646 860,646
Other current liabilities 331,887 321,375
------------ ------------
Total current liabilities 7,851,489 9,700,245
Long-term debt, less current maturities 1,083,306 1,134,729
Deferred rent 636,728 538,934
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Total liabilities 9,571,523 11,373,908
Redeemable convertible preferred stock, 10%, $.001 par value,
239,019 shares authorized, issued and outstanding (redemption
value $5,820,834 and $5,683,334 in 1996 and 1995, respectively) 5,726,770 5,583,843
Stockholders' equity:
Preferred stock, $.001 par value, 3,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.001 par value, 15,000,000 authorized, 5,388,136
and 5,371,372 shares issued in 1996 and 1995, respectively 5,388 5,371
Additional paid-in capital 361,005 289,943
Retained earnings 524,705 -
Deferred compensation (13,969) -
------------ ------------
877,129 295,314
Common stock held in treasury, at cost, 7,698 shares in 1996
and 1995 (24,098) (24,098)
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Total stockholders' equity 853,031 271,216
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$ 16,151,324 $ 17,228,967
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</TABLE>
See accompanying notes to financial statements.
3
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WHITTMAN-HART, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
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<S> <C> <C>
Revenues $ 17,793,710 $ 9,671,840
Cost of services 10,675,120 5,946,290
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Gross profit 7,118,590 3,725,550
Costs and expenses:
Selling 799,230 528,010
Recruiting 733,830 479,010
General and administrative 4,467,488 2,329,584
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Total costs and expenses 6,000,548 3,336,604
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Operating income 1,118,042 388,946
Other income (expense):
Interest expense (31,210) (57,770)
Interest income 31,380 6,520
Other, net (5,460) (6,990)
------------ -----------
Total other income (expense) (5,290) (58,240)
------------ -----------
Income before income taxes 1,112,752 330,706
Income taxes 445,120 -
------------ -----------
Net income $ 667,632 $ 330,706
------------ -----------
------------ -----------
Net income per share $ 0.10
------------
------------
Shares used in computing net income per share 6,904,589
------------
------------
Pro forma income data:
Net income as reported $ 330,706
Pro forma adjustment to provision for income taxes 128,000
-----------
Pro forma net income $ 202,706
-----------
-----------
Pro forma net income per share $ 0.03
-----------
-----------
Shares used in computing pro forma net income
per share 7,139,950
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
4
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WHITTMAN-HART, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 667,632 $ 330,706
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 209,370 98,510
Gain on disposition of property and equipment (12,607) -
Executive stock expense 6,866 62,498
Changes in assets and liabilities:
Receivables (1,558,372) (1,134,641)
Prepaid expenses and other (464,607) 35,251
Notes receivable 326,749 (6,519)
Other assets (59,958) (5,370)
Accounts payable (575,671) 379,300
Accrued compensation and related costs (1,511,539) (436,037)
Income taxes payable 444,344 -
Other accrued liabilities 194,366 (327,453)
Deferred rent 97,794 79,241
Other current liabilities 10,512 15,444
----------- -----------
Net cash used in operating activities (2,225,121) (909,070)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,314,030) (477,789)
Proceeds from disposition of property and equipment 43,122 -
----------- -----------
Net cash used in investing activities (1,270,908) (477,789)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of bank debt 48,775 500,000
Payments on bank debt (144,240) (153,954)
Borrowings from revolving credit agreement - 550,000
Payments on related party debt (317,413) -
Checks issued in excess of bank balance - 490,813
----------- -----------
Net cash provided by (used in) financing activities (412,878) 1,386,859
----------- -----------
Net decrease in cash and cash equivalents (3,908,907) -
----------- -----------
Cash and cash equivalents at beginning of period 4,083,178 -
----------- -----------
Cash and cash equivalents at end of period $ 174,271 $ -
----------- -----------
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Supplemental disclosures of cash flow information:
Interest paid $ 31,455 $ 57,474
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</TABLE>
See accompanying notes to financial statements.
5
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NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Whittman-Hart,
Inc. (the Company) have been prepared pursuant to the rules 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, consisting of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair presentation of results for these
interim periods.
The results of operations for the three months ended March 31, 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. 333-1778) on Form S-1 filed by
the Company with the Securities and Exchange Commission on February 29, 1996, as
amended.
NOTE 2 - COMPUTATION OF NET INCOME PER SHARE
Net income per common and common equivalent share is computed based on the
weighted average of common and common equivalent shares (redeemable convertible
preferred stock, 10%, $.001 par value 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 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 for the
entire period presented.
NOTE 3 - 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 adjustment for the three months ended March 31, 1995
represents federal and state income tax expense that would have been required
had the Company operated as a C corporation during that period.
NOTE 4 - SUBSEQUENT EVENTS
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 $38.7 million. Upon the closing of the offering,
239,019 shares of redeemable convertible preferred stock were converted into
956,076 shares of common stock.
Proceeds from the offering were used to retire two promissory notes totaling
approximately $1.5 million at March 31, 1996.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
REVENUES. Revenues increased 84% to $17.8 million in the first quarter of
1996 from $9.7 million for the comparable 1995 quarter. Each of the Company's
five branch offices experienced revenue growth in excess of 75%. Revenues from
the Company's ten most significant clients grew 81%, but as a percentage of
revenues remained constant at approximately 34%.
GROSS PROFIT. Gross profit increased 91% to $7.1 million in the first
quarter of 1996 from $3.7 million in the first quarter of 1995. Gross profit as
a percentage of revenues increased to 40% in the current quarter from 39% in the
comparable 1995 quarter. The Company continued to benefit from prior
investments made in newer branches and business units.
SELLING EXPENSES. Selling expenses increased 51% to $0.8 million in the
first quarter of 1996 from $0.5 million in the comparable first quarter of 1995.
As a percentage of revenues, selling expenses decreased to 4% in the current
quarter from 5% in the first quarter of 1995. The decrease is attributable to a
change in the structure of the sales commission plan.
RECRUITING EXPENSES. Recruiting expenses increased 53% to $0.7 million in
the first quarter of 1996 from $0.5 million in the first quarter of 1995. The
number of consultants increased 69% to 618 from 366 in the prior year's first
quarter. As a percentage of revenues, recruiting expenses decreased to 4% in
the current quarter from 5% in the first quarter of 1995. The decrease is
attributable to a reduction in total recruiting costs per hire to approximately
$5,400 in the first quarter of 1996 from $6,100 in the comparable first quarter
of 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 92% to $4.5 million in the current quarter from $2.3 million in the
first quarter of 1995. The increase is primarily attributable to a general
increase in corporate costs, increased 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 all personnel and
the establishment of a new Dallas branch office. As a percentage of revenues,
general and administrative costs increased to 25% in the current quarter from
24% in the first quarter of 1995.
INCOME TAXES. Income tax expense was $0.4 million in the first quarter of
1996 as compared to $0.1 million provided on a pro forma basis in the first
quarter of 1995. Prior to December 31, 1995, the Company operated as a
partnership. The pro forma tax adjustment for the first quarter of 1995
represents federal and state income tax expense that would have been required
had the Company operated as a C corporation during that period.
NET INCOME. Net income improved by 229% to $0.7 million or $0.10 per share
in the current quarter from $0.2 million or $0.03 per share (based upon pro
forma net income) in the first quarter of 1995. The increase in net income is
primarily the result of significant revenue growth combined with improved gross
margins. Net income as a percentage of revenues improved to 4% in the first
quarter of 1996 from 2% in the comparable quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been operating cash flow,
periodically supplemented by borrowings under the Company's revolving credit and
term facilities with a commercial bank. The Company's revolving credit facility
permits advances equal to the lesser of $2.0 million or 80% of qualified
accounts receivable. Any borrowings against the Company's revolving credit
facility bear
7
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interest, at the Company's option, at LIBOR plus 1.5% or the lender's prime
rate, are due on demand and are secured by a lien on all of the Company's
accounts receivable. There were no borrowings against this revolving credit
facility as of June 1, 1996. The Company's revolving credit facility expires on
July 31, 1996. Based upon the Company's current trade accounts receivable
balance, the Company believes it could renegotiate and substantially increase
its revolving credit facility if necessary.
On May 8, 1996, the Company completed an initial public offering of its
common stock which resulted in net proceeds to the Company of approximately
$38.7 million. The Company believes the net proceeds from this offering,
together with existing sources of liquidity and funds generated from operations,
will provide adequate cash to fund its anticipated cash needs, including funding
the Company's growth strategy, at least through the next twelve months. A
portion of the proceeds from the offering were used to retire the Company's term
facilities.
8
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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
March 31, 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: June 13, 1996 By: /s/ Robert F. Bernard
-------------------- -------------------------------
Robert F. Bernard
Chairman of the Board, President and
Chief Executive Officer
Date: June 13, 1996 By: /s/ Kevin M. Gaskey
-------------------- -------------------------------
Kevin M. Gaskey
Chief Financial Officer and Treasurer
9
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INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule
10
<PAGE>
EXHIBIT 11
WHITTMAN-HART, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------------ -------------
<S> <C> <C>
Net income $ 667,632 $ 330,706
Pro forma adjustment to provision for income taxes - 128,000
---------- ----------
Net income attributable to common stock (pro forma in 1995) $ 667,632 $ 202,706
---------- ----------
---------- ----------
Weighted average common shares outstanding 5,395,438 5,636,484
Effect of stock options calculated according to the
treasury stock method 553,075 547,390
Conversion of redeemable preferred stock 956,076 956,076
---------- ----------
Weighted average common and common equivalent
shares outstanding 6,904,589 7,139,950
---------- ----------
---------- ----------
Net income per share (pro forma in 1995) $ 0.10 $ 0.03
---------- ----------
---------- ----------
</TABLE>
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet as of March 31, 1996 and the statement of earnings for the three months
ended March 31, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 174,000
<SECURITIES> 0
<RECEIVABLES> 10,636,000
<ALLOWANCES> 230,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,664,000
<PP&E> 5,978,000
<DEPRECIATION> 1,706,000
<TOTAL-ASSETS> 16,151,000
<CURRENT-LIABILITIES> 7,851,000
<BONDS> 0
5,727,000
0
<COMMON> 5,000
<OTHER-SE> 848,000
<TOTAL-LIABILITY-AND-EQUITY> 16,151,000
<SALES> 0
<TOTAL-REVENUES> 17,794,000
<CGS> 0
<TOTAL-COSTS> 10,675,000
<OTHER-EXPENSES> 6,001,000
<LOSS-PROVISION> 130,000
<INTEREST-EXPENSE> 31,000
<INCOME-PRETAX> 1,113,000
<INCOME-TAX> 445,000
<INCOME-CONTINUING> 668,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
