<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 June 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
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(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 August 2, 1996, there were 8,952,472 shares of common stock of the
registrant outstanding.
<PAGE>
WHITTMAN-HART, INC.
FORM 10-Q
For the quarterly period ended June 30, 1996
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets as of June 30, 1996
(unaudited) and December 31, 1995 3
Statements of Earnings for the three and six months
ended June 30, 1996 and 1995 (unaudited) 4
Statements of Cash Flows for the six months
ended June 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.
WHITTMAN-HART, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $ 26,101,651 $ 4,083,178
Short-term investments 7,006,924 -
Trade accounts receivable, net of allowance for doubtful accounts
of $211,533 and $100,000 in 1996 and 1995, respectively 14,099,238 8,785,240
Other receivables 138,892 63,060
Prepaid expenses and other 1,106,444 481,831
Notes and interest receivable - stockholder - 326,356
Notes and interest receivable - executives 69,756 106,355
Deferred income taxes 50,000 50,000
------------- -------------
Total current assets 48,572,905 13,896,020
Property and equipment, net 5,276,875 3,197,330
Notes receivable - executives 163,367 51,500
Other 139,147 84,117
------------- -------------
Total assets $ 54,152,294 $ 17,228,967
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt - 550,363
Notes payable - stockholder - 317,413
Accounts payable 446,888 1,264,048
Accrued compensation and related costs 6,587,362 5,843,859
Income taxes payable 112,608 -
Other accrued liabilities 637,069 542,541
Distributions payable - 860,646
Other current liabilities 139,751 321,375
------------- -------------
Total current liabilities 7,923,678 9,700,245
Long-term debt, less current maturities - 1,134,729
Deferred rent 704,973 538,934
------------- -------------
Total liabilities 8,628,651 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, 8,959,210
and 5,371,372 shares issued in 1996 and 1995, respectively 8,959 5,371
Additional paid-in capital 43,757,131 289,943
Retained earnings 1,794,688 -
Deferred compensation (13,037) -
------------- -------------
45,547,741 295,314
Common stock held in treasury, at cost, 7,698 shares in 1996
and 1995 (24,098) (24,098)
------------- -------------
Total stockholders' equity 45,523,643 271,216
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Total liabilities and stockholders' equity $ 54,152,294 $ 17,228,967
------------- -------------
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</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 21,069,040 $ 11,740,090 $ 38,862,750 $ 21,411,930
Cost of services 12,686,860 7,183,750 23,361,980 13,130,040
------------ ------------ ------------ ------------
Gross profit 8,382,180 4,556,340 15,500,770 8,281,890
Costs and expenses:
Selling 910,310 576,310 1,709,540 1,104,320
Recruiting 873,200 535,310 1,607,030 1,014,320
General and administrative 5,177,734 2,929,190 9,645,222 5,258,774
------------ ------------ ------------ ------------
Total costs and expenses 6,961,244 4,040,810 12,961,792 7,377,414
------------ ------------ ------------ ------------
Operating income 1,420,936 515,530 2,538,978 904,476
Other income (expense):
Interest expense (16,190) (45,010) (47,400) (102,780)
Interest income 237,340 10,880 268,720 17,400
Other, net 88,540 (6,400) 83,080 (13,390)
------------ ------------ ------------ ------------
Total other income (expense) 309,690 (40,530) 304,400 (98,770)
------------ ------------ ------------ ------------
Income before income taxes 1,730,626 475,000 2,843,378 805,706
Income taxes 653,570 - 1,098,690 -
------------ ------------ ------------ ------------
Net income $ 1,077,056 $ 475,000 $ 1,744,688 $ 805,706
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share $ 0.12 $ 0.22
------------ ------------
------------ ------------
Shares used in computing net income per share 8,706,888 7,805,738
------------ ------------
------------ ------------
Pro forma income data:
Net income as reported $ 475,000 $ 805,706
Pro forma adjustment to provision for income
taxes 173,701 301,701
------------ ------------
Pro forma net income $ 301,299 $ 504,005
------------ ------------
------------ ------------
Pro forma net income per share $ 0.04 $ 0.07
------------ ------------
------------ ------------
Shares used in computing pro forma net income
per share 7,157,886 7,148,917
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,744,688 $ 805,706
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 488,975 227,178
Gain on disposition of property and equipment (12,607) -
Executive stock expense 29,213 180,656
Changes in assets and liabilities:
receivables (5,389,830) (2,040,749)
Prepaid expenses and other (624,613) 91,252
Notes receivable 251,088 (14,704)
Other assets (55,030) (75,300)
Accounts payable (817,160) (438,532)
Accrued compensation and related costs 816,420 986,643
Income taxes payable 112,608 -
Other accrued liabilities 94,528 (327,273)
Deferred rent 166,039 158,481
Other current liabilities (181,624) 99,200
------------- -----------
Net cash used in operating activities (3,377,305) (347,442)
------------- -----------
Cash flows from investing activities:
Purchase of short-term investments (7,006,924) -
Purchase of property and equipment (2,597,172) (567,807)
Proceeds from disposition of property and equipment 43,122 -
------------- -----------
Net cash used in investing activities (9,560,974) (567,807)
------------- -----------
Cash flows from financing activities:
Proceeds from issuance of bank debt 48,775 500,000
Payments on bank debt (1,733,867) (239,457)
Payments on related party debt (317,413) -
Proceeds from issuance of common stock, net of issuance costs 37,819,903 -
Purchase of common stock - (19,868)
Partnership capital distributions (860,646) (81,022)
Checks issued in excess of bank balance - 755,596
------------- -----------
Net cash provided by financing activities 34,956,752 915,249
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Net increase in cash and cash equivalents 22,018,473 -
------------- -----------
Cash and cash equivalents at beginning of period 4,083,178 -
------------- -----------
Cash and cash equivalents at end of period $ 26,101,651 $ -
------------- -----------
------------- -----------
</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 six months ended June
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.
333-1778) on Form S-1 filed by the company with the Securities and
Exchange Commission on February 29, 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 for all periods
presented.
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 six months ended June 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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
REVENUES. Revenues increased 79% to $21.1 million in the second
quarter of 1996 from $11.7 million for the comparable 1995 quarter.
Revenues in the first six months of 1996 increased 82% to $38.9 million
from $21.4 million for the first six months of 1995. Each of the
company's five established branch offices experienced revenue growth in
excess of 70% in both the second quarter and first six months of 1996
as compared to the same periods in 1995. Revenues from the company's
ten most significant clients grew 61% and 76% for the second quarter
and first six months of 1996, respectively, versus the comparable 1995
periods, but as a percentage of revenues remained constant at
approximately 33%.
GROSS PROFIT. Gross profit increased 84% to $8.4 million in the
second quarter of 1996 from $4.6 million in the second quarter of 1995.
Gross profit in the first six months of 1996 increased 87% to $15.5
million from $8.3 million in the first six months of 1995. Gross
profit as a percentage of revenues increased to 40% in both the second
quarter and first six months of 1996 from 39% in the comparable 1995
periods. The Company continued to benefit from prior investments made
in newer branches and business units.
SELLING EXPENSES. Selling expenses increased 58% to $0.9 million in
the second quarter of 1996 from $0.6 million in the comparable 1995
quarter. Selling expenses in the first six months of 1996 increased
55% to $1.7 million from $1.1 million in the first six months of 1995.
As a percentage of revenues, selling expenses decreased to 4% in both
the second quarter and first six months of 1996 from 5% in the
comparable periods in 1995. The decrease is attributable to a change
in the structure of the sales commission plan.
RECRUITING EXPENSES. Recruiting expenses increased 63% to $0.9
million in the second quarter of 1996 from $0.5 million in the second
quarter of 1995. Recruiting expenses for the first six months of 1996
increased 58% to $1.6 million from $1.0 million in the first six months
of 1995. As a percentage of revenues, recruiting expenses decreased to
4% in both the second quarter and first six months of 1996 from 5% in
the comparable periods in 1995. The number of consultants increased
69% to 718 as of June 30, 1996 from 425 as of June 30, 1995, while
total recruiting costs per hire for the first six months of each year
remained constant at approximately $5,700.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 77% to $5.2 million in the second quarter of 1996
from $2.9 million in the second quarter of 1995. General and
administrative expenses for the first six months of 1996 increased 83%
to $9.6 million from $5.3 million in the first six 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.
General and administrative costs as a percentage of revenues was 25%
for both the second quarter and first six months of 1996 and 1995.
OTHER INCOME (EXPENSE). Other income (expense) increased $0.4
million in both the second quarter and first six months of 1996 as
compared to the same periods in 1995. The increase is primarily
attributable to interest earned on investments of available net
proceeds from the Company's initial public offering.
8
<PAGE>
INCOME TAXES. The effective tax rate was 38% and 39% for the second
quarter and first six 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 six months ended June 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 under which it may apply for up to $5.0 million of 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 July 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. The Company believes the net
proceeds from such 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.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 3, 1996, prior to the Company's initial public offering, the
Company's twenty stockholders unanimously consented to, approved and adopted
the form, terms and provisions of an Amendment to the Company's Certificate
of Incorporation. This Amendment, among other things, increased the number
of authorized shares of the Company's Common Stock, established a class of
"blank-check" Preferred Stock, established a staggered Board of Directors and
added indemnification coverage for directors, officers, employees and agents.
On April 22, 1996, prior to the Company's initial public offering, the
Company's twenty stockholders unanimously consented to, approved and adopted
the form of an Amended and Restated Certificate of Incorporation and
determined that the current directors of the Company should be divided into
the following classes established by the Amendment: Lawrence P. Roches and
Robert F. Steel to serve in the class with a term expiring at the 1997 annual
meeting of stockholders, Paul D. Carbery and Edward V. Szofer to serve in the
class with the term expiring at the 1998 annual meeting of stockholders, and
Robert F. Bernard to serve in the class with the term expiring at the 1999
annual meeting of stockholders.
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 June 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: August 9, 1996 By: /s/ Robert F. Bernard
--------------------------- ---------------------------
Robert F. Bernard
Chairman of the Board,
President and Chief
Executive Officer
Date: August 9, 1996 By: /s/ Kevin M. Gaskey
--------------------------- ---------------------------
Kevin M. Gaskey
Chief Financial Officer and
Treasurer
10
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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 JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net income $ 1,077,056 $ 475,000 $ 1,744,688 $ 805,706
Pro forma adjustment to provision for
income taxes - 173,701 - 301,701
------------- ----------- ------------ -----------
Net income attributable to common
stock (pro forma in 1995) $ 1,077,056 $ 301,299 $ 1,744,688 $ 504,005
------------- ----------- ------------ -----------
------------- ----------- ------------ -----------
Weighted average common shares outstanding 7,701,024 5,654,422 6,548,231 5,645,453
Effect of stock options calculated according
to the treasury stock method 669,662 547,390 611,369 547,390
Conversion of redeemable preferred stock 336,202 956,074 646,138 956,074
------------- ----------- ------------ -----------
Weighted average common and common
equivalent shares outstanding 8,706,888 7,157,886 7,805,738 7,148,917
------------- ----------- ------------ -----------
------------- ----------- ------------ -----------
Net income per share (pro forma in 1995) $ 0.12 $ 0.04 $ 0.22 $ 0.07
------------- ----------- ------------ -----------
------------- ----------- ------------ -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted form the balance
sheet as of June 30, 1996 and the statement of earnings for the six months ended
June 30, 1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 26,102
<SECURITIES> 7,007
<RECEIVABLES> 14,311
<ALLOWANCES> 212
<INVENTORY> 0
<CURRENT-ASSETS> 48,573
<PP&E> 7,261
<DEPRECIATION> 1,984
<TOTAL-ASSETS> 54,152
<CURRENT-LIABILITIES> 7,924
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 45,515
<TOTAL-LIABILITY-AND-EQUITY> 54,152
<SALES> 0
<TOTAL-REVENUES> 38,863
<CGS> 0
<TOTAL-COSTS> 23,362
<OTHER-EXPENSES> 12,962
<LOSS-PROVISION> 237
<INTEREST-EXPENSE> 47
<INCOME-PRETAX> 2,843
<INCOME-TAX> 1,099
<INCOME-CONTINUING> 1,745
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,745
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
