<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 June 30, 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, including 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 July 31, 1997, there were 20,495,731 shares of common stock of the
registrant outstanding.
<PAGE>
WHITTMAN-HART, INC.
FORM 10-Q
For the quarterly period ended June 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 (unaudited) and December 31, 3
1996
Statements of Earnings for the three and six months
ended June 30, 1997 and 1996 (unaudited) 4
Statements of Cash Flows for the six months
ended June 30, 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 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,
1997 1996
----------- -------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $14,211,064 $35,898,095
Short-term investments 49,221,561 30,901,003
Trade accounts receivable, net of
allowance for doubtful accounts
of $260,000 and $160,000 in 1997
and 1996, respectively 22,870,186 15,564,791
Income tax receivable - 140,154
Prepaid expenses and other current assets 1,939,772 1,290,798
Notes and interest receivable 46,286 28,885
Deferred income taxes 635,241 342,732
----------- -------------
Total current assets 88,924,110 84,166,458
Property and equipment, net 9,528,376 5,843,921
Notes receivable 132,766 148,263
Other assets 1,993,281 454,379
----------- -------------
Total assets $100,578,533 $90,613,021
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $817,295 $1,333,854
Accrued compensation and related costs 10,310,887 8,600,608
Income taxes payable 422,532 -
Accrued expenses and other liabilities 1,304,369 981,718
----------- -------------
Total current liabilities 12,855,083 10,916,180
Deferred income taxes 158,476 89,472
Deferred rent 963,249 888,165
----------- -------------
Total liabilities 13,976,808 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, 20,469,881
and 20,134,680 shares issued in 1997 and 1996, respectively 20,470 20,135
Additional paid-in capital 77,425,910 73,256,942
Retained earnings 10,085,637 5,552,755
Deferred compensation (930,292) (97,831)
----------- -------------
86,601,725 78,732,001
Common stock held in treasury, at cost; 6,605 shares in 1996 - (12,797)
----------- -------------
Total stockholders' equity 86,601,725 78,719,204
----------- -------------
Total liabilities and stockholders' equity $100,578,533 $90,613,021
----------- -------------
----------- -------------
</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,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $34,731,660 $21,069,040 $63,777,790 $38,862,750
Cost of services 20,571,630 12,686,860 37,936,540 23,361,980
----------- ---------- ---------- ----------
Gross profit 14,160,030 8,382,180 25,841,250 15,500,770
Costs and expenses:
Selling 1,507,230 910,310 2,711,500 1,709,540
Recruiting 1,378,110 873,200 2,347,700 1,607,030
General and administrative 7,960,140 5,177,734 14,769,693 9,645,222
----------- ---------- ---------- ----------
Total costs and expenses 10,845,480 6,961,244 19,828,893 12,961,792
----------- ---------- ---------- ----------
Operating income 3,314,550 1,420,936 6,012,357 2,538,978
Other income (expense):
Interest expense - (16,190) - (47,400)
Interest income 855,353 237,340 1,750,697 268,720
Other, net (82,201) 88,540 (235,225) 83,080
----------- ---------- ---------- ----------
Total other income 773,152 309,690 1,515,472 304,400
----------- ---------- ---------- ----------
Income before income taxes 4,087,702 1,730,626 7,527,829 2,843,378
Income taxes 1,636,097 653,570 2,994,947 1,098,690
----------- ---------- ---------- ----------
Net income $ 2,451,605 $1,077,056 $ 4,532,882 $1,744,688
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Net income per share $ $0.11 $ $0.06 $ $0.21 $ 0.11
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Shares used in computing net
income per share 21,816,603 17,413,776 21,684,455 15,611,476
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $4,532,882 $1,744,688
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 689,041 488,975
Deferred income taxes (223,505) -
Gain on disposition of property and equipment - (12,607)
Loss on sales of short-term investments (5,703) -
Executive stock expense - 29,213
Changes in assets and liabilities:
Trade accounts receivable, net (7,305,395) (5,313,998)
Prepaid expenses and other current assets (648,974) (794,410)
Notes receivable (1,904) 251,088
Other assets (933,638) 38,935
Accounts payable (516,559) (817,160)
Accrued compensation and related costs 1,710,279 816,420
Income taxes payable 1,938,874 112,608
Accrued expenses and other liabilities 364,286 (87,096)
Deferred rent 75,084 166,039
---------- ----------
Net cash used in operating activities (325,232) (3,377,305)
---------- ----------
Cash flows from investing activities:
Purchases of investments (49,704,989) (7,006,924)
Sales and maturities of investments 31,645,742 -
Payment for acquisitions (605,264)
Purchases of property and equipment (4,305,723) (2,597,172)
Proceeds from disposition of property and equipment - 43,122
---------- ----------
Net cash used in investing activities (22,970,234) (9,560,974)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of bank debt - 48,775
Payments on bank debt - (1,733,867)
Payments on related party debt - (317,413)
Proceeds from issuance of common stock, net of issuance costs - 37,819,903
Proceeds from exercise of stock options 967,981 -
Proceeds from employee stock purchase plan 640,454 -
Partnership capital distributions - (860,646)
---------- ----------
Net cash provided by financing activities 1,608,435 34,956,752
---------- ----------
Net increase (decrease) in cash and cash equivalents (21,687,031) 22,018,473
---------- ----------
Cash and cash equivalents at beginning of period 35,898,095 4,083,178
---------- ----------
Cash and cash equivalents at end of period $14,211,064 $26,101,651
---------- ----------
---------- ----------
Supplemental disclosures of cash flow information:
Interest paid $ - $58,181
Income taxes paid 1,279,578 986,082
Supplemental disclosures of noncash financing activities:
Tax benefit related to stock plans 1,376,188 -
Issuance of restricted stock awards 900,000 -
Issuance of common stock to executives - 102,130
Issuance of common stock for purchase of software 247,874
</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, 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 for all periods presented.
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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Whittman-Hart, Inc. (the "Company") provides strategic information
technology ("IT") business solutions designed to improve its clients'
productivity and competitive position. The Company offers its clients a
single source for a comprehensive range of services required to successfully
design, develop and implement integrated solutions in the client/server, open
systems, midrange and mainframe computing environments. Among the services
offered by the Company are systems integration; strategic IT planning;
software development; package software implementation; business process
reengineering; organizational change management; networking and connectivity;
conventional and multimedia documentation and training; design and
implementation of collaborative computing solutions; and design and
implementation of electronic commerce solutions (such as Internet/intranet
and electronic data interchange). The Company believes this breadth of
services fosters long-term client relationships, affords cross-selling
opportunities and minimizes the Company's dependence on any single technology.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected statements
of earnings data as a percentage of revenues:
Three Months Six Months
Ended June 30, Ended June 30,
------------- --------------
1997 1996 1997 1996
__________________________________________________________________________
STATEMENT OF EARNINGS DATA:
Revenues 100% 100% 100% 100%
Cost of services 59 60 59 60
--- --- --- ---
Gross profit 41 40 41 40
Costs and expenses:
Selling 4 4 4 4
Recruiting 4 4 4 4
General and administrative 23 25 23 25
--- --- --- ---
Total costs and expenses 31 33 31 33
--- --- --- ---
Operating income 10 7 10 7
Other income 2 1 2 -
--- --- --- ---
Income before income taxes 12 8 12 7
Income taxes 5 3 5 3
--- --- --- ---
Net income 7% 5% 7% 4%
--- --- --- ---
--- --- --- ---
REVENUES. Revenues increased 65% to $34.7 million in the second quarter of
1997 from $21.1 million for the comparable 1996 quarter. Revenues in the first
six months of 1997 increased 64% to $63.8 million from $38.9 million for the
first six months of 1996. Each of the Company's branch offices experienced
7
<PAGE>
revenue growth in the second quarter and in the first six months of 1997 as
compared to the same period in 1996. Chicago, the Company's largest branch,
increased its revenues by 35% and 38%, respectively, while all other branches
achieved a combined revenue increase of approximately 120% for both the
second quarter and the first six months. The concentration of revenues within
the Chicago branch decreased to approximately 55% from 65% for both the
second quarter and the first six months. Revenues from the Company's ten most
significant clients declined to 20% in both the second quarter and the first
six months of 1997, from 33% in both the second quarter and first six months
of 1996.
GROSS PROFIT. Gross profit increased 69% to $14.2 million in the second
quarter of 1997 from $8.4 million in the second quarter of 1996. Gross profit in
the first six months of 1997 increased 67% to $25.8 million from $15.5 million
in the first six months of 1996. As a percentage of revenues, gross margin
increased to 41% for both the second quarter and the first six months of 1997,
compared to 40% in both the second quarter and first six months of 1996. This
increase is attributable to improved margins from newer branch locations.
SELLING EXPENSES. Selling expenses increased 66% to $1.5 million in the
second quarter of 1997 from $0.9 million in the comparable 1996 quarter. Selling
expenses in the first six months of 1997 increased 59% to $2.7 million from $1.7
million in the first six months of 1996. As a percentage of revenues, selling
expenses remained constant at 4%.
RECRUITING EXPENSES. Recruiting expenses increased 58% to $1.4 million in
the second quarter of 1997 from $0.9 million in the second quarter of 1996.
Recruiting expenses for the first six months of 1997 increased 46% to $2.3
million from $1.6 million in the first six months of 1996. The number of
consultants increased 49% to 1,070 as of June 30, 1997 from 718 as of June 30,
1996, while total recruiting costs per hire for the first six months of each
year increased to $6,200 in 1997 from $5,700 in 1996. This increase is
attributable to expanding the Company's recruiting infrastructure to support
the anticipated hiring needs. As a percentage of revenues, recruiting expenses
remained constant at 4%.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 54% to $8.0 million in the second quarter of 1997 from $5.2 million in
the second quarter of 1996. General and administrative expenses for the first
six months of 1997 increased 53% to $14.8 million from $9.6 million in the first
six months 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 23% in both the second quarter and first
six months of 1997 from 25% in both the second quarter and first six months of
1996 due to operating efficiencies and economies of scale.
OTHER INCOME. The increase in other income in both the second quarter
and first six months of 1997 as compared to the same periods 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 40% and 39.8% for the
second quarter and first six months of 1997, respectively, as compared to 37.8%
and 38.6% for the same periods in 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had approximately $63.4 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 payable, 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, 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.
In March 1997, the Company acquired the business operations and select
assets of Organizational Change Dynamics, Inc., a Chicago-based firm
dedicated to strategic business consulting. The purchase price included a
cash payment of $600,000 and $900,000 (53,850 shares) worth of restricted
common stock that vests, pro rata, over a four year period.
On April 15, 1997, the Company purchased a 37,000 square foot building and
its adjoining land for approximately $2.0 million. The building, located in
Chicago, was purchased to facilitate the Company's growth.
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
9
<PAGE>
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.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders was held on May 14, 1997.
(c) The Stockholders voted to elect two directors of the first class to the
Company's Board of Directors.
AUTHORITY BROKER
DIRECTORS FOR WITHHELD NON-VOTES
--------- ------ --------- ---------
Lawrence P. Roches 18,501,669 93,822 --
Robert F. Steel 18,501,594 93,897 --
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, 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: August 14, 1997 By: /s/ Robert F. Bernard
------------------ ---------------------------
Robert F. Bernard
Chairman of the Board, President and
Chief Executive Officer
Date: August 14, 1997 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----- ----- ---- -----
<S> <C> <C> <C> <C>
Net income $2,451,605 $1,077,056 $4,532,882 $1,744,688
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares outstanding 20,388,245 15,402,048 20,290,074 13,096,462
Effect of stock options calculated according
to the treasury stock method 1,428,358 1,339,324 1,394,381 1,222,738
Conversion of redeemable preferred stock - 672,404 1,292,276
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 21,816,603 17,413,776 21,684,455 15,611,476
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share $0.11 $0.06 $0.21 $0.11
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997 AND THE STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED
JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,211
<SECURITIES> 49,222
<RECEIVABLES> 23,130
<ALLOWANCES> 260
<INVENTORY> 0
<CURRENT-ASSETS> 88,924
<PP&E> 13,119
<DEPRECIATION> 3,590
<TOTAL-ASSETS> 100,579
<CURRENT-LIABILITIES> 12,855
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 86,581
<TOTAL-LIABILITY-AND-EQUITY> 100,579
<SALES> 0
<TOTAL-REVENUES> 63,778
<CGS> 0
<TOTAL-COSTS> 37,937
<OTHER-EXPENSES> 19,829
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,528
<INCOME-TAX> 2,995
<INCOME-CONTINUING> 4,533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,533
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
