<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 March 31, 1997
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 April 30, 1997, there were 20,340,650 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, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements
Balance Sheets as of March 31, 1997 (unaudited)
and December 31, 1996 3
Statements of Earnings for the three months
ended March 31, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the three months
ended March 31, 1997 and 1996 (unaudited) 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 9
SIGNATURES 9
INDEX TO EXHIBITS 10
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
WHITTMAN-HART, INC.
BALANCE SHEETS
March 31, December 31,
1997 1996
------------ -------------
Assets (Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 12,731,362 $ 35,898,095
Short-term investments 51,499,574 30,901,003
Trade accounts receivable, net of allowance
for doubtful accounts
of $160,000 in 1997 and 1996 18,338,689 15,564,791
Income tax receivable - 140,154
Prepaid expenses and other current assets 1,575,136 1,290,798
Notes and interest receivable 24,329 28,885
Deferred income taxes 477,939 342,732
------------ -------------
Total current assets 84,647,029 84,166,458
Non-current investments 999,629 -
Property and equipment, net 6,466,434 5,843,921
Notes receivable 151,227 148,263
Other assets 965,393 454,379
------------ -------------
Total assets $ 93,229,712 $ 90,613,021
============ =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,133,575 $ 1,333,854
Accrued compensation and related costs 6,533,526 8,600,608
Income taxes payable 666,394 -
Accrued expenses and other liabilities 1,493,354 981,718
------------ -------------
Total current liabilities 9,826,849 10,916,180
Deferred income taxes 119,226 89,472
Deferred rent 925,707 888,165
------------ -------------
Total liabilities 10,871,782 11,893,817
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000
shares authorized, none issued and outstanding - -
Common stock, $.001 par value; 37,000,000 authorized,
20,309,876 and 20,134,680 shares issued in 1997
and 1996, respectively 20,310 20,135
Additional paid-in capital 75,691,274 73,256,942
Retained earnings 7,634,032 5,552,755
Deferred compensation (987,686) (97,831)
------------ -------------
82,357,930 78,732,001
Common stock held in treasury, at cost; 6,605 shares in 1996 - (12,797)
------------ -------------
Total stockholders' equity 82,357,930 78,719,204
------------ -------------
Total liabilities and stockholders' equity $ 93,229,712 $ 90,613,021
============ =============
</TABLE>
See accompanying notes to financial statements.
3
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WHITTMAN-HART, INC.
STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
March 31,
1997 1996
------------ ------------
Revenues $ 29,046,130 $ 17,793,710
Cost of services 17,364,910 10,675,120
------------ ------------
Gross profit 11,681,220 7,118,590
Costs and expenses:
Selling 1,204,270 799,230
Recruiting 969,590 733,830
General and administrative 6,809,553 4,467,488
------------ ------------
Total costs and expenses 8,983,413 6,000,548
------------ ------------
Operating income 2,697,807 1,118,042
Other income (expense):
Interest expense -- (31,210)
Interest income 895,344 31,380
Other, net (153,024) (5,460)
------------ ------------
Total other income (expense) 742,320 (5,290)
------------ ------------
Income before income taxes 3,440,127 1,112,752
Income taxes 1,358,850 445,120
------------ ------------
Net income $ 2,081,277 $ 667,632
============ ============
Net income per share $ 0.10 $ 0.05
============ ============
Shares used in computing net income per share 21,558,201 13,809,174
============ ============
See accompanying notes to financial statements.
4
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WHITTMAN-HART, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,081,277 $ 667,632
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 282,173 209,370
Deferred income taxes (105,453) --
Gain on disposition of property and equipment -- (12,607)
Gain on sales of short-term investments (6,195) --
Executive stock expense -- 6,866
Changes in assets and liabilities:
Trade accounts receivable, net (2,773,898) (1,588,373)
Prepaid expenses and other current assets (261,944) (336,204)
Notes receivable 1,592 326,749
Other assets (261,014) (158,360)
Accounts payable (200,279) (575,671)
Accrued compensation and related costs (2,067,082) (1,511,539)
Income taxes payable 1,413,303 444,344
Accrued expenses and other liabilities 261,636 204,878
Deferred rent 37,542 97,794
------------ -----------
Net cash used in operating activities (1,598,342) (2,225,121)
------------ -----------
Cash flows from investing activities:
Purchases of investments (35,350,749) --
Sales and maturities of investments 13,892,960 --
Purchases of property and equipment (1,028,757) (1,314,030)
Proceeds from disposition of property and equipment -- 43,122
------------ -----------
Net cash used in investing activities (22,486,546) (1,270,908)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of bank debt -- 48,775
Payments on bank debt -- (144,240)
Payments on related party debt -- (317,413)
Proceeds from exercise of stock options 277,701 --
Proceeds from employee stock purchase plan 640,454 --
------------ -----------
Net cash provided by (used in) financing activities 918,155 (412,878)
------------ -----------
Net decrease in cash and cash equivalents (23,166,733) (3,908,907)
------------ -----------
Cash and cash equivalents at beginning of period 35,898,095 4,083,178
------------ -----------
Cash and cash equivalents at end of period $ 12,731,362 $ 174,271
============ ===========
Supplemental disclosures of cash flow information:
Interest paid $ -- $ 31,455
Income taxes paid 51,000 --
Supplemental disclosures of noncash financing activities:
Tax benefit related to stock plans 606,755 --
Issuance of restricted stock awards 900,000 --
Issuance of common stock to executives -- 56,179
</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 months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1997.
These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1996, included in the Form 10-K filed by the Company with the
Securities and Exchange Commission.
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 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.
3. Stockholders' Equity
On May 8, 1996, the Company completed an initial public offering of its
common stock in which 5,200,000 shares were sold by the Company, resulting in
net proceeds of approximately $37.8 million. On August 27, 1996, the Company
completed a follow-on public offering of its common stock in which an additional
2,100,000 shares were sold by the Company, resulting in net proceeds of
approximately $27.8 million.
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. On
November 25, 1996, the Company filed an Amendment to its Certificate of
Incorporation further increasing the number of authorized shares of common stock
to 37,000,000 and eliminating the Redeemable Preferred Stock from the Company's
authorized capital.
The Company's Board of Directors approved a 4-for-1 split of common stock
in the form of a stock dividend effective April 3, 1996. The Board of Directors
approved a 2-for-1 split of common stock in the form of a stock dividend
effective December 10, 1996. All common share and per share amounts have been
adjusted retroactively to give effect to the stock splits.
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 63% to $29.0 million in the first quarter of
1997 from $17.8 million for the comparable 1996 quarter. Each of the Company's
branch offices experienced revenue growth in the first quarter of 1997 as
compared to the same period in 1996. Revenues for the Chicago branch, the
Company's largest, increased 41% while the Company's other branches achieved a
combined revenue increase of 106%. The growth of newer branches has reduced the
concentration of revenues in Chicago to 56% in the first quarter of 1997 from
65% in the comparable 1996 quarter. Revenues from the Company's ten most
significant clients declined to 22% of total revenues in the first quarter of
1997 from 33% in the first quarter of 1996.
Gross Profit. Gross profit increased 64% to $11.7 million in the first
quarter of 1997 from $7.1 million in the first quarter of 1996. Gross profit as
a percentage of revenues remained constant at 40%.
Selling Expenses. Selling expenses increased 51% to $1.2 million in the
first quarter of 1997 from $0.8 million in the comparable 1996 quarter. As a
percentage of revenues, selling expenses decreased to 4% in the first quarter of
1997 from 5% in the comparable period in 1996. The decrease as a percentage of
revenues was attributable to the Company's ability to leverage its fixed selling
costs over a greater revenue base.
Recruiting Expenses. Recruiting expenses increased 32% to $1.0 million in
the first quarter of 1997 from $0.7 million in the first quarter of 1996. The
number of consultants increased 60% to 989 as of March 31, 1997 from 618 as of
March 31, 1996, while total recruiting costs per hire decreased to $4,700 in the
first quarter of 1997 from $5,400 in the comparable 1996 quarter. As a
percentage of revenues, recruiting expenses decreased to 3% in the first quarter
of 1997 from 4% in the comparable period in 1996. The decrease as a percentage
of revenues was attributable to the Company leveraging its internal recruiting
resources over a greater revenue base.
General and Administrative Expenses. General and administrative expenses
increased 52% to $6.8 million in the first quarter of 1997 from $4.5 million in
the first quarter of 1996. The increase was primarily attributable to increased
personnel and facilities costs to support the growth of new and existing
offices, increased marketing efforts and the start-up of the Company's strategic
initiative focused on quality improvements. As a percentage of revenues, general
and administrative costs declined to 24% in the first quarter of 1997 from 25%
in the first quarter of 1996 due to operating efficiencies and economies of
scale.
Other Income (Expense). The increase in other income (expense) in the
first quarter of 1997 as compared to the same period in 1996 is primarily
attributable to interest earned on investments of available net proceeds from
the Company's initial and follow-on public offerings.
Income Taxes. The Company's effective tax rate was 39.5% for the first
quarter of 1997 as compared to 40.0% for the same period of 1996.
7
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Liquidity and Capital Resources
At March 31, 1997, the Company had approximately $64.2 million of cash,
cash equivalents and short-term investments compared to $66.8 million at
December 31, 1996. 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 April 30, 1997. The Company's loan agreement expires on
April 30, 1998.
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 27, 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.
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.
Recently Issued Financial Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("Statement 128"). Implementation of Statement 128 is required for periods
ending after December 15, 1997. The standard establishes new methods for
computing and presenting earnings per share ("EPS") and replaces the
presentation of primary and fully diluted EPS with basic and diluted EPS. The
new methods under this standard are not expected to have a significant impact on
the Company's EPS amounts.
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" 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, difficulties in attracting and
retaining highly skilled employees, the Company's ability to manage rapid growth
and expansion into new geographic areas and service lines, the Company's ability
to manage the risks associated with client projects and risks related to
possible acquisitions. These and other risks are more fully described in the
"Risk Factor" section of the Company's registration statement (No. 333-18059) on
Form S-1 filed by the Company with the Securities and Exchange Commission on
December 17, 1996, as amended.
8
<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
March 31, 1997.
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: May 13, 1997 By: /s/ Robert F. Bernard
---------------------
Robert F. Bernard
Chairman of the Board, President and
Chief Executive Officer
Date: May 13, 1997 By: /s/ Kevin M. Gaskey
---------------------
Kevin M. Gaskey
Chief Financial Officer and Treasurer
9
<PAGE>
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
Three Months Ended
March 31,
1997 1996
----------- -----------
Net income $ 2,081,277 $ 667,632
=========== ===========
Weighted average common shares outstanding 20,190,813 10,790,876
Effect of stock options calculated according
to the treasury stock method 1,367,388 1,106,150
Conversion of redeemable preferred stock -- 1,912,148
----------- -----------
Weighted average common and common
equivalent shares outstanding 21,558,201 13,809,174
=========== ===========
Net income per share $ 0.10 $ 0.05
=========== ===========
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF MARCH 31, 1997 AND THE STATEMENT OF EARNINGS FOR THE
THREE MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 12,731
<SECURITIES> 51,499
<RECEIVABLES> 18,499
<ALLOWANCES> 160
<INVENTORY> 0
<CURRENT-ASSETS> 84,647
<PP&E> 9,594
<DEPRECIATION> 3,127
<TOTAL-ASSETS> 93,230
<CURRENT-LIABILITIES> 9,827
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 82,338
<TOTAL-LIABILITY-AND-EQUITY> 93,230
<SALES> 0
<TOTAL-REVENUES> 29,046
<CGS> 0
<TOTAL-COSTS> 17,365
<OTHER-EXPENSES> 8,983
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,440
<INCOME-TAX> 1,359
<INCOME-CONTINUING> 2,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,081
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
