<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 September 30, 1998
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.
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(Exact name of registrant as specified in its charter)
Delaware 36-3797833
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(State or other jurisdiction of (IRS 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 November 1, 1998, there were 51,325,520 shares of common stock of the
registrant outstanding.
<PAGE>
WHITTMAN-HART, INC.
FORM 10-Q
For the quarterly period ended September 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 3
and December 31, 1997 (unaudited)
Consolidated Statements of Earnings and Comprehensive Income
for the three and nine months ended September 30, 1998
and September 28, 1997 (unaudited) 4
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and September 28, 1997 (unaudited) 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of operations 8
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
INDEX TO EXHIBITS 14
SIGNATURES 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WHITTMAN-HART, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMEBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 48,714,367 $ 8,986,948
Short-term investments 89,938,435 58,708,379
Trade accounts receivable, net of allowance for
doubtful accounts of $907,946 and $497,746 in 1998
and 1997, respectively 59,626,656 35,642,487
Prepaid expenses and other current assets 4,475,025 3,185,175
Notes and interest receivable 171,188 48,602
Deferred income taxes 1,038,652 801,315
-------------- --------------
Total current assets 203,964,323 107,372,906
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Property and equipment, net 24,264,628 15,359,011
Other assets 2,085,371 1,048,286
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Total assets $ 230,314,322 $ 123,780,203
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 4,084,348 2,096,974
Accrued compensation and related costs 18,523,486 15,764,561
Income taxes payable 2,667,519 1,426,632
Accrued expenses and other liabilities 5,723,431 4,055,667
Current maturities of long-term debt - 924,146
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Total current liabilities 30,998,784 24,267,980
-------------- --------------
Deferred income taxes 849,154 190,562
Deferred rent 1,435,526 1,329,225
Deferred revenue 67,334 -
Other liabilities 85,156 -
Long-term debt less current maturities - 237,313
-------------- --------------
Total liabilities 33,435,954 26,025,080
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Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares
authorized, none issued and outstanding
Common stock, $.001 par value; 75,000,000 authorized - -
51,237,293 and 45,845,762 shares issued and
outstanding in 1998 and 1997, respectively 51,237 45,846
Additional paid-in capital 168,627,415 82,706,429
Retained earnings 29,138,994 16,215,331
Deferred compensation (938,952) (1,209,925)
Accumulated other comprehensive income (326) (2,558)
-------------- --------------
Total stockholders' equity 196,878,368 97,755,123
-------------- --------------
Total liabilities and stockholders' equity $ 230,314,322 $ 123,780,203
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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WHITTMAN-HART, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- ---------------------------------
SEPTEMBER 30, SEPTEMBER 28, SEPTEMBER 30, SEPTEMBER 28,
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 82,105,411 $ 47,944,828 $ 215,513,667 $ 126,963,245
Cost of services 46,588,031 28,146,936 124,746,455 75,446,990
--------------- --------------- --------------- ---------------
Gross profit 35,517,380 19,797,892 90,767,212 51,516,255
Costs and expenses:
Selling 3,506,785 1,825,701 8,294,655 4,877,334
Recruiting 3,156,807 1,895,920 7,955,302 4,514,775
General and administrative 20,887,905 11,739,441 55,422,740 30,199,139
Business combination costs 391,565 - 774,609 -
--------------- --------------- --------------- ---------------
Total costs and expenses 27,943,062 15,461,062 72,447,306 39,591,248
--------------- --------------- --------------- ---------------
Operating income 7,574,318 4,336,830 18,319,906 11,925,007
Other income (expense):
Interest expense (5,481) (20,589) (65,911) (35,492)
Interest income 1,649,660 915,589 3,985,829 2,681,189
Other, net (911) 13,000 7,277 (202,697)
--------------- --------------- --------------- ---------------
Total other income 1,643,268 908,000 3,927,195 2,443,000
--------------- --------------- --------------- ---------------
Income before income taxes 9,217,586 5,244,830 22,247,101 14,368,007
Income taxes:
Income tax 3,742,214 2,093,000 9,243,757 5,810,000
Initial deferred income tax 380,286 - 676,334 -
--------------- --------------- --------------- ---------------
Total income taxes 4,122,500 2,093,000 9,920,091 5,810,000
--------------- --------------- --------------- ---------------
Net income $ 5,095,086 $ 3,151,830 $ 12,327,010 $ 8,558,007
Other comprehensive income-
Foreign currency translation
adjustments 821 - 2,232 -
--------------- --------------- --------------- ---------------
Comprehensive income $ 5,095,907 $ 3,151,830 $ 12,329,242 $ 8,558,007
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Basic earnings per share $ 0.10 $ 0.07 $ 0.25 $ 0.19
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Diluted earnings per share $ 0.09 $ 0.06 $ 0.23 $ 0.18
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average number of
common shares outstanding 51,035,132 45,224,756 48,969,891 44,942,618
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Weighted average number of
common and common equivalent
shares outstanding 55,827,510 48,761,388 53,652,048 48,458,558
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WHITTMAN-HART, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
SEPTEMBER 30, SEPTEMBER 28,
1998 1997
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,327,010 $ 8,558,007
Adjustments to reconcile income to net income to cash
provided by operating activities:
Depreciation and amortization 2,648,118 1,287,183
Deferred income taxes 421,255 (383,212)
Loss on sales of short term investments (9,119) (4,529)
Changes in assets and liabilities, net of acquisitions:
Trade accounts receivable, net (22,761,508) (13,756,679)
Prepaid expenses and other current assets (1,260,028) (1,418,412)
Other assets (1,246,047) 26,855
Accounts payable 1,975,247 1,800,977
Accrued compensation and related costs 3,043,147 1,059,712
Income taxes payable 6,706,702 3,100,332
Accrued expenses and other liabilities 1,949,478 2,095,370
Other, net 290,134 213,196
---------------- ---------------
Net cash provided by operating activities 4,084,389 2,578,800
---------------- ---------------
Cash flows from investing activities:
Purchases of investments (125,413,080) (75,659,324)
Sales and maturities of investments 94,223,867 49,188,986
Purchases of propety and equipment (10,714,129) (8,768,698)
Proceeds from dispostions of property and equipment - 19,960
Payment for acquisitions - (605,264)
---------------- ---------------
Net cash used in investing activities (41,903,342) (35,824,340)
---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of debt 105,634 1,043,384
Proceeds from exercise of stock options 9,222,314 2,235,937
Proceeds from issuance of common stock, net 69,686,452 -
Payment of long-term debt (1,547,962) (223,567)
S corporation distributions - QCC (674,670) -
Proceeds from employee stock purchase plan 754,303 640,455
---------------- ---------------
Net cash provided by financing activities 77,546,071 3,696,209
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 39,727,118 (29,549,331)
Cash and cash equivalents at beginning of period 8,986,949 36,497,003
---------------- ---------------
Cash and cash equivalents at end of period $ 48,714,067 $ 6,947,672
---------------- ---------------
---------------- ---------------
Supplemental disclosures of cash flow information:
Interest paid $ 65,911 $ -
Income taxes paid 1,058,759 2,107,064
Supplemental disclosure of noncash financing activities
Tax benefit related to stock plans 6,357,220 1,711,884
Issuance of restricted stock awards - 900,000
Issuance of common stock for business combinations (shares) 300,000 -
Issuance of common stock for purchase of software - 247,874
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated 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, 1998 are not necessarily
indicative of the results to be expected for the year ending December 31, 1998.
As described in Note 3, the Company acquired North Central Consulting
("NCC") in July 1998. The merger was accounted for under the
pooling-of-interests method of accounting and, accordingly, the historical
financial statements of the Company have been restated to include the financial
position and results of operations of NCC for all periods presented.
These financial statements should be read in conjunction with the
Company's historical audited consolidated financial statements and notes thereto
for the year ended December 31, 1997, included in the Annual Report on Form 10-K
filed by the Company with the Securities and Exchange Commission.
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" as of January 1, 1998. Required
changes are reported in the Consolidated Statements of Earnings and
Comprehensive Income and Consolidated Balance Sheets.
2. COMPUTATION OF EARNINGS PER SHARE
Net income and earnings per share are computed in accordance with
Financial Accounting Standards No. 128, "Earnings per share" ("Statement 128").
3. BUSINESS COMBINATIONS
During March 1998, the Company acquired all the outstanding capital
stock of QCC, Inc. ("QCC") for 600,000 shares of its common stock.
Headquartered in the Boston metropolitan area, QCC's approximately 75
professionals provide the following services: package software evaluation;
business process reengineering; data warehousing; implementation of software
packages developed by SSA-Registered Trademark-, Oracle-Registered
Trademark-, and JDEdwards-Registered Trademark-; application development for
AS/400 and client server applications; and Year 2000 compliance services.
This business combination has been accounted for as a pooling-of-interests
combination. The stockholders' equity and operations of QCC were not material
in relation to those of the Company. As such, the Company has recorded the
combination without restating prior periods' consolidated financial
statements to reflect the pooling-of-interests combination. In connection
with the acquisition of QCC, the Company recorded deferred income tax expense
related to the establishment of deferred income tax assets and liabilities
which arose due to the change in tax status from an S corporation to a C
corporation.
6
<PAGE>
During July 1998, the Company acquired NCC, a Minneapolis-based IT
services firm. The Company issued 638,508 shares of its common stock in the
transaction, which was accounted for as a pooling-of-interests combination.
Headquartered in Minnetonka, Minnesota, with a satellite office in Milwaukee,
NCC's approximately 120 professionals specialize in providing ERP software
implementations, custom application development and internet-enabled solutions
to middle-market manufacturing, distribution and financial services companies,
as well as some divisions and departments of Fortune 500 companies. The
combination of Whittman-Hart's recently opened Minneapolis branch with
approximately 40 employees and NCC's four-year-old office accelerates
Whittman-Hart's ability to provide a full-suite of IT services to its target
customer base.
4. STOCKHOLDERS' EQUITY
On May 8, 1998, the Company completed an offering of its common stock
in which an additional 3,400,000 shares were sold by the Company, resulting in
net proceeds to the Company of $69.7 million.
In July 1998, the Board of Directors approved a 2-for-1 split of the
Company's common shares. Shareholders received one additional common share for
every share held on the record date of July 12, 1998. All of the per share data,
as appropriate, reflect this split. The effect of the split is presented
retroactively within stockholders' equity December 31, 1997 by transferring the
par value for the additional shares issued from the additional paid-in-capital
accounts to common stock account.
7
<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. The Company provides its service
through five business units: Solution Strategies, Package Software Solutions,
Custom Applications, Network Enable Solutions, and Interactive Solutions. Among
the services offered are systems integration; strategic IT planning; business
process reengineering; organizational change management; package software
evaluation and implementation; custom application development; networking and
connectivity; conventional and multimedia documentation and training: and design
and implementation of collaborative computing and 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
consolidated statements of earnings and comprehensive income data as a
percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
Sept. 30, Sept. 28, Sept. 30, Sept 28,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF EARNINGS AND
COMPREHENSIVE INCOME DATA:
Revenues 100% 100% 100% 100%
Cost of services 57 59 58 59
------------ ------------ ------------ ------------
Gross profit: 43 41 42 41
Costs and expenses:
Selling 4 4 4 4
Recruiting 4 4 4 4
General and administrative 25 24 25 24
Business combination costs * *
------------ ------------ ------------ ------------
Total costs and expenses 33 32 33 32
------------ ------------ ------------ ------------
Operating income 10 9 9 9
Other income 2 2 2 2
------------ ------------ ------------ ------------
Income before income taxes: 12 11 11 11
Income taxes 5 4 5 4
Initial deferred income taxes * - * -
------------ ------------ ------------ ------------
Total income taxes 5 4 5 4
------------ ------------ ------------ ------------
Net income 7% 7% 6% 7%
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
*- Less than 1% of total revenues.
8
<PAGE>
REVENUES. Revenues increased 71% to $ 82.1 million for the three months
ended September 30, 1998 from $47.9 million for the three months ended September
28, 1997. Revenues in the first nine months of 1998 increased 70% to $215.5
million from $127.0 million for the nine months of 1997. These increases were
attributable to the addition of new clients and the growth of current client
relationships at existing and new branch locations. Revenues from the Company's
ten most significant clients grew in both the third quarter and first nine
months of 1998 by 31 % and 27 %, respectively, but as a percentage of total
revenues declined to 14 % for both the three and nine months ended September 30,
1998 as compared to 18% for the same periods in the prior year.
GROSS PROFIT. Gross profit consists of revenues less cost of services,
which includes consultant salaries and benefits. Gross profit for the three
months ended September 30, 1998 grew 79% to $35.5 million from $19.8 million for
the three months ended September 28, 1997. Gross profit in the first nine months
of 1998 increased 76% to $90.8 million from $51.5 in the first nine months of
1997. Gross profit as a percentage of revenues was 43% and 42%, respectively,
for both the three and nine months ended September 30, 1998 as compared to 41%
for the three and nine months ended September 28, 1997. These increases were
attributable to a change in the sales mix toward higher-end service offerings
and the Company's established branches reaching critical mass, partially offset
by lower margins in recently opened branches.
SELLING. Selling expenses include the salaries, benefits, commissions,
travel, entertainment and all other direct costs associated with the
Company's direct sales force. Selling expenses for the three months ended
September 30, 1998 increased approximately 92% to $3.5 million from $1.8
million for the three months ended September 30, 1997. Selling expenses in
the first nine months of 1998 increased 70% to $8.3 million from $4.9 million
in the first nine months of 1997. These increases were attributable to higher
commissions, an increased fixed cost structure related to newly acquired
offices and business development initiatives, and other costs associated with
the increase in revenues. As a percentage of revenues, however, selling
expenses for both the three months ended September 30,1998 and for the nine
months ended September 30, 1998 were 4%, consistent with the same period in
the prior year.
RECRUITING. Recruiting expenses consist of costs related to hiring new
personnel. These costs include the salaries, benefits, bonuses and other direct
costs of in-house recruiters, outside recruiting agency fees, sign-on bonuses,
relocation fees and advertising costs. Recruiting expenses for the three months
ended September 30, 1998 increased 67% to $3.2 million from $1.9 million for the
three months ended September 28, 1997. Recruiting expenses for the first nine
months of 1998 increased 76% to $8.0 million from $4.5 million for the first
nine months of 1997. The number of employees increased 60% to 2,750 at September
30, 1998 from 1,719 at September 28, 1997. Total recruiting costs per hire
increased to approximately $5,800 for the nine months ended September 30, 1998
from $5,300 for the nine months ended September 28, 1997. As a percentage of
revenues, recruiting expenses remained at 4% for both the three and nine months
ended September 30, 1998 as compared to the same periods in 1997. As of
September 30, 1998, approximately 78% of the Company's total employees were
consultants.
GENERAL AND ADMINISTRATIVE. General and administrative expenses include
salaries and benefits of management and support personnel, facilities costs,
training, travel, outside professional fees and all other branch and corporate
costs. General and administrative expenses for the three months ended September
30, 1998 increased 78% to $20.9 million from $11.7 million for the three months
ended September 28, 1997.
9
<PAGE>
General and administrative expenses for the first nine months of 1998
increased 84% to $55.4 million from $30.2 million for the first nine months
of 1997. As a percentage of revenues, general and administrative expenses
increased to 25% for the three months and nine months ended September 30,
1998, respectively, from 24% for both the three and nine months ended
September 28, 1997. These increases were attributable to new and newly
acquired offices, integration costs associated with the Company's
acquisitions, corporate initiatives associated with the Company's Focus 2002
strategic plan, costs related to new branch locations and the addition of
management to support the Company's growth strategies.
BUSINESS COMBINATION COSTS. Business combination costs were $0.4 million
and $0.8 million, or less than 1% of revenues, for the three and nine months
ended September 30, 1998, respectively. These costs related to the Company's
acquisitions of QCC Incorporated ("QCC") in March 1998 and North Central
Consulting ("NCC") in July 1998 which were accounted for as
pooling-of-interests. The business combination costs included legal, accounting
and other transaction-related fees and expenses. There were no material
acquisition-related costs in the nine months ended September 30,1997.
INCOME TAXES. The Company's effective tax rate was 45% for both the third
quarter and first nine months of 1998, respectively, as compared to 40% for the
same periods in 1997. The increased tax rate for the first three and nine months
of 1998 was the result of the Company incurring non-deductible business
combination costs and, in addition, recording deferred income tax expense. In
the first and third quarters of 1998 the Company recorded $0.3 million and $0.4
million, respectively, to establish deferred tax assets and liabilities arising
at the times of the combinations with both QCC and NCC.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had approximately $138.7 million of
cash, cash equivalents and short-term investments, compared to $67.7 million at
December 31, 1997. The Company's primary source of liquidity has been cash
provided through equity offerings and cash from operations. 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 September 30, 1998. The
Company's loan agreement expires on April 30, 1999.
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 loan facilities. On August 27, 1996, the Company completed an offering
of its common stock, resulting in net proceeds to the Company of
approximately $27.8 million. On May 8, 1998, the Company completed another
public offering of its common stock, resulting in net proceeds to the Company
of $69.7 million.
Operating activities provided net cash flows of $4.1 million for the nine
months ended September 30, 1998. The increase was due primarily to net income,
increases in accrued compensation, income taxes payable and other accrued
liabilities, which were partly offset by increases in accounts receivable and
other current assets.
10
<PAGE>
The Company plans to use the funds generated from its third public
offering primarily for the development and expansion of its existing operations,
including: (i) expansion of the Company's Chicago West Loop complex from
approximately 40,000 square feet to over 300,000 square feet during the next two
years to accommodate the further development of the Whittman-Hart Institute of
Strategic Education ("WHISE"), the relocation of the Company's headquarters and
the growth of the Company's Chicago branch office; and (ii) general corporate
purposes, including working capital, branch expansion and possible acquisitions
of related businesses.
The Company anticipates the net proceeds of its three 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 12 months.
YEAR 2000
The Company has identified three issues related to Year 2000 compliance; first
is the affect on internal information systems, second are issues related to
vendors performing services for the Company, and finally are the issues related
to consulting activities performed by the Company.
The Company is in the process of replacing its existing internal information
systems. This initiative is expected to be completed in the third quarter of
1999. A contingency plan exists to make existing systems Year 2000 compliant by
the end of the third quarter 1999 in the unlikely event the new systems'
implementation cannot be completed. The cost of this implementation is not
expected to have a material adverse impact on the Company's results of
operations or financial condition.
The Company has relationships with several vendors who provide administration of
compensation and related employee benefits and other vendors who perform banking
and treasury services. The Company is in the process of evaluating the state of
readiness of these vendors and expects to complete its assessment in the first
quarter of 1999. Contingency plans are in place to administer employee
compensation and benefits in the event of non-compliance by any of these
vendors. The cost to the Company in the event of non-compliance with Year 2000
issues by any of these third parties is not expected to have material impact on
the Company's result of operations or its financial condition.
The Company believes that a majority of middle-market companies have yet to
achieve Year 2000 compliance. To resolve the Year 2000 issue, many companies are
electing to install new package software applications, rather than modify
existing systems, thus creating significant demand for package software-related
services such as those provided by the Company. Consequently, the Company
believes that companies' need to address their Year 2000 compliance is creating
significant demand for IT products and services such as those provided by the
Company. There can be no assurance that the passage of the Year 2000 will not
have a material adverse effect on the demand for the Company's services The
Company provides solutions for the IT systems that are critical to companies'
operations. Business interruptions, loss or corruption of data or other major
problems resulting form the failure of a client's IT system to process year 2000
data correctly could have a significant adverse consequences to that client. The
Company cannot currently predict whether or to what extent there will be any
legal claims brought against the Company or whether there will be any other
material adverse effect on the Company's business, financial condition or the
results of operations, as a result of any such adverse consequences to its
clients.
11
<PAGE>
ACQUISITIONS
During March 1998, the Company acquired all the outstanding capital stock
of QCC, Inc. ("QCC") for 600,000 shares (includes the effect of stock split) of
its common stock. Headquartered in the Boston metropolitan area, QCC's
approximately 75 professionals provide the following services: package software
evaluation; business process reengineering; data warehousing; implementation of
software packages developed by SSA(R), Oracle(R) and JDEdwards(R); application
development for AS/400 and client server applications; and Year 2000 compliance
services. This business combination has been accounted for as a
pooling-of-interests combination. The stockholders' equity and operations of QCC
were not material in relation to those of the Company. As such, the Company has
recorded the combination without restating prior periods' consolidated financial
statements to reflect the pooling-of-interests combination.
During July 1998, the Company acquired North Central Consulting, Inc.
("NCC"), a Minneapolis-based IT services firm. The Company issued 638,508 shares
(includes the effect of stock split) of its common stock in the transaction,
which will be accounted as a pooling-of-interests combination and, accordingly,
the Company's historical consolidated financial statements have been restated to
include the financial position and results of operation of NCC for all periods
presented. Headquartered in Minnetonka, Minnesota, with a satellite office in
Milwaukee, NCC's approximately 120 professionals specialize in providing ERP
software implementations, custom application development and internet-enabled
solutions to middle-market manufacturing, distribution and financial services
companies, as well as some divisions and departments of Fortune 500 companies.
The combination of Whittman-Hart's recently opened Minneapolis branch with
approximately 40 employees and NCC's four-year-old office accelerates
Whittman-Hart's ability to provide a full-suite of IT services to its target
customer base.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" and establishes new
standards for reporting information about operating segments in interim and
annual financial statements. This statement is effective for fiscal years
beginning after December 15, 1997. The Company does not believe that SFAS No.
131 will have a significant impact on its financial statements.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for financial statements for fiscal years beginning
after June 15,1999, but may be adopted in earlier periods. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company does not believe that SFAS No. 133 will have a
significant impact on its financial statements.
12
<PAGE>
SAFE HARBOR PROVISION
This Form 10-Q contains certain forward-looking statements (as defined
in Section 21E of the Securities Exchange Act of 1934, as amended) that involve
substantial risks and uncertainties. When used in this Form 10-Q, the words
"plans", "intends", "anticipates", and "expects" 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.
Risks and uncertainties and other 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, risks related to recently
completed and potential future acquisitions; the Company's ability to develop IT
solutions that keep pace with continuing changes in technology, evolving
industry standards and changing client preferences; and risks related to Year
2000 failures in client's information systems. These and other risks are more
fully described in the "Risk Factors" section of the Company's registration
statement (No. 333-50029) on Form S-3 filed by the Company with the Securities
and Exchange Commission on April 14, 1998, as amended.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 8, 1998, the Company acquired all of the outstanding capital stock of
NCC from the shareholders of NCC, in exchange for 638,508 shares of the
Company's Common Stock. The shares of Common Stock were issued in reliance upon
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933 and Regulation D thereunder. There were no underwriters or other
distributors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
(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, 1998.
14
<PAGE>
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 16, 1998 By: /s/ Robert F. Bernard
------------------------------- ---------------------
Robert F. Bernard
Chairman of the Board and
Chief Executive Officer
Date: November 16, 1998 By: /s/ Kevin M. Gaskey
------------------------------- -------------------
Kevin M. Gaskey
Chief Financial Officer and
Treasurer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE STATEMENT OF EARNINGS FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 48,714 48,714
<SECURITIES> 89,938 89,938
<RECEIVABLES> 60,706 60,706
<ALLOWANCES> 908 908
<INVENTORY> 0 0
<CURRENT-ASSETS> 203,964 203,964
<PP&E> 32,116 32,116
<DEPRECIATION> 7,851 7,851
<TOTAL-ASSETS> 230,314 230,314
<CURRENT-LIABILITIES> 30,999 30,999
<BONDS> 0 0
0 0
0 0
<COMMON> 51 51
<OTHER-SE> 196,827 196,827
<TOTAL-LIABILITY-AND-EQUITY> 230,314 230,314
<SALES> 0 0
<TOTAL-REVENUES> 82,105 215,514
<CGS> 0 0
<TOTAL-COSTS> 46,588 124,746
<OTHER-EXPENSES> 27,943 72,447
<LOSS-PROVISION> 834 1,406
<INTEREST-EXPENSE> 5 0
<INCOME-PRETAX> 9,217 22,247
<INCOME-TAX> 4,123 9,920
<INCOME-CONTINUING> 5,095 12,327
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,095 12,327
<EPS-PRIMARY> 0.10 0.25
<EPS-DILUTED> 0.09 0.23
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 28, 1997 HAVE BEEN RESTATED
TO REFLECT THE EFFECT OF THE ACQUISITION OF NCC WHICH WAS ACCOUNTED FOR AS
A POOLING-OF-INTEREST.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-28-1997 SEP-28-1997
<CASH> 6,947 6,947
<SECURITIES> 57,766 57,766
<RECEIVABLES> 33,277 33,277
<ALLOWANCES> 359 359
<INVENTORY> 0 0
<CURRENT-ASSETS> 100,994 100,994
<PP&E> 17,870 17,870
<DEPRECIATION> 4,376 4,376
<TOTAL-ASSETS> 115,624 115,624
<CURRENT-LIABILITIES> 20,736 20,736
<BONDS> 216 216
0 0
0 0
<COMMON> 44 44
<OTHER-SE> 93,451 93,451
<TOTAL-LIABILITY-AND-EQUITY> 115,624 115,624
<SALES> 0 0
<TOTAL-REVENUES> 47,945 126,963
<CGS> 0 0
<TOTAL-COSTS> 28,146 75,447
<OTHER-EXPENSES> 15,461 39,591
<LOSS-PROVISION> 101 201
<INTEREST-EXPENSE> 21 35
<INCOME-PRETAX> 5,244 14,368
<INCOME-TAX> 2,093 5,810
<INCOME-CONTINUING> 3,152 8,558
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,152 8,558
<EPS-PRIMARY> 0.07 0.19
<EPS-DILUTED> 0.06 0.18
</TABLE>
