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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12997
MAXIMUS, INC.
(Exact name of registrant as specified in its charter)
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VIRGINIA 54-1000588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1356 BEVERLY ROAD
MCLEAN, VIRGINIA 22101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 734-4200
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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 [ ]
Class Outstanding at May 13, 1998
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Common Shares, No Par Value 16,829,378
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MAXIMUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of March 31, 1998 (unaudited) and September 30, 1997
Statements of Income for the three months and six months ended March
31, 1998 and 1997 (unaudited)
Statements of Cash Flows for the six months ended March 31, 1998 and
1997 (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities; Use of Proceeds from Registered Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
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MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $10,960 $14,721
Marketable securities . . . . . . . . . . . . . . . . . . . . 40,869 30,838
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 33,651 37,782
Costs and estimated earnings in excess of billings . . . . . . 5,605 8,206
Prepaid expenses and other current assets . . . . . . . . . . 1,292 534
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 729 -
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 93,106 92,081
Property and equipment at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 662
Building and improvements . . . . . . . . . . . . . . . . . . 1,721 1,721
Office furniture and equipment . . . . . . . . . . . . . . . . 1,645 2,286
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 188 192
------- -------
4,216 4,861
Less: Accumulated depreciation and amortization . . . . . . . (1,346) (1,811)
------- -------
Total property and equipment, net . . . . . . . . . . . . . . . . . . . 2,870 3,050
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . - 955
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 849 716
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $96,825 $96,802
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $3,099 $4,597
Accrued compensation and benefits . . . . . . . . . . . . . . 5,874 6,515
Billings in excess of costs and estimated earnings . . . . . . 11,749 11,289
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . 188 -
Income taxes payable . . . . . . . . . . . . . . . . . . . . . 3,881 804
Deferred income taxes . . . . . . . . . . . . . . . . . . . . - 545
S Corporation distribution payable 5,748 -
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 30,539 23,750
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 147 -
------- -------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,686 23,750
------- -------
Contingencies (Note 3)
Shareholders' equity:
Common stock, no par value; 30,000,000 shares authorized;
14,790,470 and 15,662,220 shares issued and outstanding at
September 30, 1997 and March 31, 1998, at stated amount . . . 66,730 66,796
Retained earnings (deficit) . . . . . . . . . . . . . . . . . (591) 6,256
------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 66,139 73,052
------- -------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . $96,825 $96,802
======= =======
See notes to financial statements.
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MAXIMUS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------------- ---------------
1997 1998 1997 1998
---- ---- ---- ----
Revenues . . . . . . . . . . . . . . . . . . $31,518 $44,006 $68,762 $80,362
Cost of revenues . . . . . . . . . . . . . . 23,323 32,670 52,857 59,970
------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . . . 8,195 11,336 15,905 20,392
Selling, general and administrative expenses 3,972 6,010 8,011 11,356
Stock option compensation expense . . . . . . 150 - 150 -
------- ------- ------- -------
Income from operations . . . . . . . . . . . 4,073 5,326 7,744 9,036
Interest and other income . . . . . . . . . . 64 556 148 1,131
------- ------- ------- -------
Income before income taxes . . . . . . . . . 4,137 5,882 7,892 10,167
Provision for income taxes . . . . . . . . . 93 2,375 150 4,067
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . $ 4,044 $ 3,507 $ 7,742 $ 6,100
======= ======= ======= =======
Earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . $ 0.36 $ 0.22 $ 0.69 $ 0.40
======= ======= ======= =======
Diluted . . . . . . . . . . . . . . . . . . . $ 0.35 $ 0.22 $ 0.68 $ 0.39
======= ======= ======= =======
Shares used in computing earnings per share:
Basic . . . . . . . . . . . . . . . . . . . . 11,110 15,651 11,282 15,216
------ ====== ====== ======
Diluted 11,474 16,042 11,464 15,607
====== ====== ====== ======
See notes to financial statements.
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MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED MARCH 31,
---------------
1997 1998
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,742 $ 6,100
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 141 259
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 -
Change in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . (5,286) (2,874)
Costs and estimated earnings in excess of billings . . . . . . . (2,582) (2,601)
Prepaid expenses and other current assets . . . . . . . . . . . (265) 886
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 30 172
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 59 268
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 856 1,452
Accrued compensation and benefits . . . . . . . . . . . . . . . 1,639 2
Billings in excess of costs and estimated earnings . . . . . . . 1,552 (460)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 137 (3,077)
------ -------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . 4,173 127
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . (133) (312)
Sale of marketable securities . . . . . . . . . . . . . . . . . . . . . - 10,464
------ -------
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . (133) 10,152
CASH FLOWS FROM FINANCING ACTIVITIES:
S Corporation distributions . . . . . . . . . . . . . . . . . . . . . . (354) (6,368)
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . - 38
Payment of note for purchase of redeemable common stock . . . . . . . . (126) (188)
------ -------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . (480) (6,518)
------ -------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 3,560 3,761
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . 2,326 10,960
------ -------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . $5,886 $14,721
====== =======
See notes to financial statements.
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MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normally recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations for the three month and six month periods ended March 31,
1998 are not necessarily indicative of the results that may be expected for
the full fiscal year. These financial statements should be read in
conjunction with the audited financial statements as of September 30, 1996 and
1997 and for each of the three years in the period ended September 30, 1997,
included in the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission.
2. INITIAL PUBLIC OFFERING
The Company completed an initial public offering ("IPO") of Common
Stock during June 1997. Of the 6,037,500 shares of Common Stock sold in the
IPO, 2,360,000 shares were sold by selling shareholders and 3,677,500 shares
were sold by MAXIMUS, Inc. generating $53,804 in proceeds to the Company, net
of offering expenses.
The Company made cash payments of S corporation distributions (the "S
Corporation Dividend") to shareholders totaling $21,712 and accrued $5,748
during the year ended September 30, 1997. The S Corporation Dividend
represented the undistributed earnings of the Company taxed or taxable to the
shareholders through the date of the IPO. During the quarter ended December
31, 1997, the Company paid the remaining $5,748 of S Corporation Dividend.
See also note 5 and 6.
3. CONTINGENCIES
On February 3, 1997, the Company was named as a third party defendant
by Network Six, Inc. ("Network Six") in a legal action brought by the State of
Hawaii against Network Six. Network Six alleges that the Company is liable to
Network Six on various grounds. The Company believes Network Six's claims are
without merit and intends to vigorously defend this action. The Company
believes this action will not have a material adverse effect on its financial
condition or results of operations and has not accrued for any loss related to
this claim.
On November 28, 1997, an individual who was a former officer, director
and shareholder of the Company, filed a complaint in the United States District
Court for the District of Massachusetts, alleging that at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose
material information to him relating to the potential value of the shares. He
further alleges that the Company and its officers and directors violated
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and
breached various fiduciary duties owed to him and claims damages in excess of
$10 million. The Company does not believe that this action will have a material
adverse effect on the Company's business, and it intends to vigorously defend
this action. However, given the early stage of this litigation, no assurance
may be given that the Company will be successful in its defense.
The Company also is involved in various other legal proceedings in the
ordinary course of business. In the opinion of management, these proceedings
involve amounts that would not have a material effect on the financial position
or results of operations of the Company if such proceedings were disposed of
unfavorably.
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4. REVENUES FROM SIGNIFICANT CONTRACT
Revenues for the three month periods ended March 31, 1998 and 1997
include $0 and $9,082, and for the six month periods ended March 31, 1998 and
1997 include $0 and $31,593, respectively, from a significant contract with
the U.S. Government Social Security Administration which was terminated in
February 1997 pursuant to legislative action.
5. INCOME TAX PROVISION AND PRO FORMA FINANCIAL DATA
Prior to the IPO, the Company and its shareholders elected to be
treated as an S corporation under the Internal Revenue Code. Under the
provisions of the tax code, the Company's shareholders included their pro rata
share of the Company's income in their personal tax returns. Accordingly, the
Company was not subject to federal and most state income taxes during the three
and six month periods ended March 31, 1997.
6. BUSINESS COMBINATIONS
On March 16, 1998, the Company issued 840,000 shares of its common
stock in exchange for all of the common stock of Spectrum Consulting Group,
Inc. and an affiliated company ("Spectrum"), both of San Antonio, Texas. This
merger was accounted for as an immaterial pooling of interests and accordingly,
the Company's financial statements, including earnings per share, were not
restated for periods prior to January 1, 1998.
For the three months ended March 31, 1998, Spectrum contributed
revenues and operating income of $3,097 and $824, respectively to the results
of operations of the Company. Also, during the three months ended March 31,
1998 Spectrum paid S Corporation Dividends totaling $620 based upon estimated
taxable income through March 15, 1998.
On May 12, 1998, the Company issued 1,166,158 shares of it's common
stock in exchange for all of the outstanding common stock of David M. Griffith
and Associates, Ltd. ("DMG"). This merger will be accounted for as a pooling
of interests and accordingly, the Company's future financial statements,
including earnings per share, will be restated to include the financial
position and results of operations of DMG.
7. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. All
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Six Months
Ended March 31, Ended March 31,
1997 1998 1997 1998
--------------------------------------------
Numerator:
Net income . . . . . . . . . . . . . . . . . . . . . . $4,044 $3,507 $7,742 $6,100
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding . . . . . . . 11,110 15,651 11,282 15,216
11,110 15,651 11,282 15,216
------ ------ ------ ------
Stock Options . . . . . . . . . . . . . . . . . . . . . 364 391 182 391
------ ------ ------ ------
Denominator for dilutive earnings per share . . . . . . 11,474 16,042 11,464 15,607
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
MAXIMUS provides program management and consulting services to government
health and human services agencies in the United States. Founded in 1975, the
Company has been profitable every year since inception. The Company conducts
its operations through two groups, the Government Operations Group and the
Consulting Group. The Government Operations Group administers and manages
government health and human services programs, including welfare-to-work and
job readiness, child support enforcement, managed care enrollment and
disability services. The Consulting Group provides health and human services
planning, information technology consulting, strategic program evaluation,
program improvement, communications planning and revenue maximization services.
In October 1996, President Clinton signed into law an amendment to the
Social Security Act of 1935, effective January 1, 1997, that eliminated Social
Security Income and Supplemental Security Disability Insurance benefits based
solely on drug and alcohol disabilities. As a result of this legislative act,
the Social Security Administration terminated a significant contract with the
Company (the "SSA Contract") effective at the end of February 1997. All
services to be provided to the Social Security Administration were completed in
the quarter ended March 31, 1997. The SSA Contract contributed $0 million and
$9.1 million in the three month period ended March 31, 1998 and March 31, 1997
and $0 and $31.6 million in the six month period ended March 31, 1998 and March
31, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues. Total contract revenues increased 39.6% to $44.0 million for
the three months ended March 31, 1998 as compared to $31.5 million for the same
period in 1997. Government Operations Group revenues increased 30.7% to $32.2
million for the three months ended March 31, 1998 from $24.6 million for the
same period in 1997. For the three months ended March 31, 1998, revenues from
the SSA Contract were $0 as compared to $9.1 million for the same period in
1997. Excluding the SSA Contract, Government Operations Group revenues
increased 107.0% for the three months ended March 31, 1998 from $15.6 million
for the same period in 1997. This increase was due to an increase in the
number of contracts in the Child Support Enforcement, Managed Care, and Welfare
Reform divisions of the Government Operations Group. Consulting Group revenues
increased 71.6% to $11.8 million for the three months ended March 31, 1998 from
$6.9 million for the same period in 1997. The increase was due to revenues
totaling $3.1 million resulting from the Spectrum Consulting companies, which
combined with the Company in a transaction accounted for as a pooling of
interests effective January 1, 1998, and an increase in the number of
contracts.
Gross Profit. Gross profit consists of total revenues less cost of
revenues. Total gross profit increased 38.3% to $11.3 million for the three
months ended March 31, 1998 as compared to $8.2 million for the same period in
1997. Government Operations Group gross profit increased 26.4% to $6.3 million
for the three months ended March 31, 1998 from $4.9 million for the three
months ended March 31, 1997. As a percentage of revenues, Government
Operations Group gross profit decreased to 19.4% for the three months ended
March 31, 1998 from 20.7% for the same period in 1997. The decrease was due to
lower gross profit margins on certain Managed Care contracts which were begun
during the quarter, and on one Welfare Reform contract which required a larger
staff and greater expenditures than were anticipated in the contract price.
The Consulting Group gross profit increased 56.4% to $5.1 million for the three
months ended March 31, 1998 from $3.3 million for the same period in 1997
principally due to the increased revenues. As a percentage of revenues,
Consulting Group gross profit decreased to 43.0% for the three months ended
March 31, 1998 from 47.2% for the same period in 1997. This decrease was due
primarily to one contract which, for competitive reasons, was bid using lower
margins.
Selling, General and Administrative Expenses. Total selling, general and
administrative ("SG&A") expenses increased 51.1% to $6.0 million for the three
months ended March 31, 1998 as compared to $4.0 million for the same period in
1997. As a percentage of revenues, SG&A expenses increased to 13.7% for the
three months ended March 31, 1998 from 12.6% for the same period in 1997. The
increase in costs was due to increases in both professional and administrative
personnel necessary to support the Company's growth, marketing and proposal
preparation expenditures to pursue further growth, SGA expenses of Spectrum,
Inc., acquisition costs incurred in connection with
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that business combination and the additional expenses (legal, audit,
communication, printing, and filing fees) incurred as a public company.
Interest and Other Income. The increase in interest and other income to
$0.6 million for the three months ended March 31, 1998 as compared to $0.1
million for the same period in 1997 was due to the increase in invested funds
which were generated as a result of the IPO.
Provision for Income Taxes. Prior to the IPO, the Company and its
shareholders elected to be treated as an S corporation under the Internal
Revenue Code. Under the provisions of the tax code, the Company's shareholders
included their pro rata share of the Company's income in their personal tax
returns. Accordingly, the Company was not subject to federal and most state
income taxes until June 12, 1997, the day prior to the completion of the
initial public offering. Upon completion of the IPO, the Company's S
corporation status was terminated and the Company became subject to federal and
state corporate income taxes.
The Company's income tax provision for the three months ended March 31,
1998 was $2.4 million as compared to $0.1 million for the three months ended
March 31, 1997. The provision for income taxes for the three months ended
March 31, 1998 consisted of state and federal income tax based on an estimated
annual income tax rate of 40%.
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Revenues. Total contract revenues increased 16.9% to $80.4 million for
the six months ended March 31, 1998 as compared to $68.8 million for the same
period in 1997. Government Operations Group revenues increased 8.7% to $60.0
million for the six months ended March 31, 1998 from $55.2 million for the same
period in 1997. For the six months ended March 31, 1998, revenues from the SSA
Contract were $0 as compared to $31.6 million for the same period in 1997.
Excluding the SSA Contract, Government Operations Group revenues increased
154.3% for the six months ended March 31, 1998 from $23.6 million for the same
period in 1997. This increase was due to an increase in the number of
contracts in the Child Support Enforcement, Managed Care, and Welfare Reform
divisions of the Government Operations Group. Consulting Group revenues
increased 50.1% to $20.4 million for the six months ended March 31, 1998 from
$13.6 million for the same period in 1997. The increase was due to revenues
totaling $3.1 million resulting from the Spectrum Consulting companies, which
combined with the Company in a transaction accounted for as a pooling of
interests effective January 1, 1998, and an increase in the number of
contracts.
Gross Profit. Gross profit consists of total revenues less cost of
revenues. Total gross profit increased 28.2% to $20.4 million for the six
months ended March 31, 1998 as compared to $15.9 million for the same period in
1997. Government Operations Group gross profit increased 17.1% to $11.2
million for the six months ended March 31, 1998 from $9.6 million for the six
months ended March 31, 1997. As a percentage of revenues, Government
Operations Group gross profit increased to 18.7% for the six months ended March
31, 1998 from 17.3% for the same period in 1997. The increase was the result
of replacing the SSA revenues with new contracts which earned a higher gross
profit percentage. The Consulting Group gross profit increased 44.9% to $9.2
million for the six months ended March 31, 1998 from $6.4 million for the same
period in 1997 principally due to the increased revenues. As a percentage of
revenues, Consulting Group gross profit decreased to 45.1% for the six months
ended March 31, 1998 from 46.7% for the same period in 1997. This decrease was
due primarily to one contract which, for competitive reasons, was bid using
lower margins.
Selling, General and Administrative Expenses. Total selling, general and
administrative ("SG&A") expenses increased 41.8% to $11.4 million for the six
months ended March 31, 1998 as compared to $8.0 million for the same period in
1997. As a percentage of revenues, SG&A expenses increased to 14.1% for the
six months ended March 31, 1998 from 11.7% for the same period in 1997. The
increase in costs was due to increases in both professional and administrative
personnel necessary to support the Company's growth, marketing and proposal
preparation expenditures to pursue further growth, SGA expenses of Spectrum,
Inc., acquisition costs incurred in connection with that business combination
and the additional expenses (legal, audit, communication, printing, and filing
fees) incurred as a public company.
Interest and Other Income. The increase in interest and other income to
$1.1 million for the six months ended March 31, 1998 as compared to $0.1
million for the same period in 1997 was due to the increase in invested funds
which were generated as a result of the IPO.
- 9 -
10
Provision for Income Taxes. Prior to the IPO, the Company and its
shareholders elected to be treated as an S corporation under the Internal
Revenue Code. Under the provisions of the tax code, the Company's shareholders
included their pro rata share of the Company's income in their personal tax
returns. Accordingly, the Company was not subject to federal and most state
income taxes until June 12, 1997, when the initial public offering was
completed. . Upon completion of the IPO, the Company's S corporation status
was terminated and the Company became subject to federal and state corporate
income taxes.
The Company's income tax provision for the six months ended March 31, 1998
was $4.1 million as compared to $0.2 million for the six months ended March 31,
1997. The provision for income taxes for the six months ended March 31, 1998
consisted of state and federal income tax based on an estimated annual income
tax rate of 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flows from operations for the six months ended March
31, 1998 was $0.1 million as compared to $4.1 million for the six months ended
March 31, 1997. The decrease in cash provided by operations during the six
months ended March 31, 1998 compared to the six months ended March 31, 1997 was
primarily due to the payment of income taxes totaling $4.9 million and employee
bonuses totaling $2.9 million for the year ended September 30, 1997, both of
which were paid during the six months ended March 31, 1998.
Certain marketable securities were sold during the six months ended March
31, 1998 generating $10.5 million in proceeds. These investments were sold to
provide general operating capital and the necessary cash to make income tax
payments discussed above and to pay the final S corporation distribution
discussed below.
During the three months ended December 31, 1997, the Company made final S
corporation distributions totaling $5.7 million. The distributions to
shareholders were based upon the income previously taxed to the S corporation
shareholders and the fiscal 1997 income taxable to the S corporation
shareholders. The amount of the fiscal 1997 taxable income was determined
during the finalization of the Company's income for the full fiscal year ended
September 30, 1997, and the liability for the $5.7 million distribution was
recognized on the September 30, 1997 balance sheet.
The Company has a $10.0 million revolving credit facility (the "Credit
Facility") with a bank, which may be used for borrowing and the issuance of
letters of credit. Outstanding letters of credit totaled $0.5 million at March
31, 1998. The Credit Facility bears interest at a rate equal to LIBOR plus an
amount which ranges from 0.65% to 1.25% depending on the Company's debt to
equity ratio. The Credit Facility contains certain restrictive covenants and
financial ratio requirements, including a minimum net worth requirement of $60
million. The Company has not used the Credit Facility to finance its working
capital needs and, at March 31, 1998, the Company had $9.5 million available
under the Credit Facility.
On May 12, 1998, the Company concluded a transaction in which the
Company acquired 100% of the stock of David M. Griffith and Associates,
Ltd.("DMG"), in exchange for 1,166,158 shares of stock of the Company. The
Company anticipates that approximately $10 million of the Company's cash will
be used in the quarter ending June 30, 1998 to discharge current liabilities of
DMG. In addition, the Company anticipates making the payment during the quarter
ending June 30, 1998 on the purchase of certain Medicaid enrollment contracts
and operations for a cash amount of $5.7 million, subject to adjustments.
Management believes that the Company will have sufficient resources to
meet its cash needs over the next 12 months, which may include start-up costs
associated with new contract awards, obtaining additional office space,
establishing new offices, investment in upgraded systems infrastructure or
acquisitions of other businesses and technologies. Cash requirements beyond
the next 12 months will depend on the Company's profitability, its ability to
manage working capital requirements and its rate of growth.
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YEAR 2000
The Company is aware of the issues that many computer systems will face as
the millennium ("Year 2000") approaches. The Company believes that its own
internal software and hardware is Year 2000 compliant. In addition, in order
to perform on its government contracts, the Company relies to varying extents
on information processing performed by the governmental agencies and entities
with which it contracts. The Company has inquired where necessary of such
agencies and entities of potential Year 2000 problems, and, based on responses
to such inquiries, management believes that the Company will be able to
continue to perform on such contracts without material negative financial
impact.
FORWARD LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence and strategies and the Company's expectations about future
contracts, market opportunities, market demand or acceptance of the Company's
products are forward looking statements that involve risks and uncertainties.
These uncertainties include reliance on government clients; risks associated
with government contracting; risks involved in managing government projects;
legislative change and political developments; opposition from government
unions; challenges resulting from growth; adverse publicity; and legal,
economic and other risks detailed in Exhibit 99 to the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1998.
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Part II. Other Information.
Item 2.
(a) Changes in Securities.
In March 1998, the Company combined with Spectrum Consulting Group, Inc.,
a privately-held Texas corporation ("SCG") and Spectrum Consulting Services,
Inc., a privately-held Texas Corporation ("SCS"). In connection with the
combination, the two sole shareholders of each of SCG and SCS were issued an
aggregate of 840,000 shares of the Company's Common Stock in exchange for 100%
of the outstanding stock of SCG and SCS. The issuances were made in reliance
upon the exemption from registration afforded by Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act").
(b) Use of Proceeds from Registered Securities.
A Registration Statement on Form S-1 (File No. 333-29115) registering
6,037,500 shares of the Company's Common Stock, filed in connection with the
Company's IPO, was declared effective by the Securities and Exchange Commission
on June 12, 1997. The IPO closed on June 18, 1997 and the offering has
terminated. The Company did use any of the net proceeds from the IPO during
the three months ended March 31, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on February 16, 1998, the
Company's shareholders voted as follows:
(a) To reelect Messrs. Robert J. Muzzio and Peter B. Pond to the Board of
Directors, each for a three-year term.
Nominee Total Vote "FOR" Total Vote Withheld
- ------- ---------------- -------------------
Robert J. Muzzio 12,500,938 20,500
Peter B. Pond 12,500,238 21,200
The terms in office of David V. Mastran, Raymond B. Ruddy, Russell A. Beliveau,
Jesse Brown, Lynn P. Davenport and Susan D. Pepin continued after the meeting.
(b) To ratify the selection by the Board of Directors of Ernst & Young LLP
as the Company's independent public accountants for the fiscal year
ending September 30, 1998.
Total Vote For the Proposal 12,521,038
Total Vote Against the Proposal 300
Abstentions 100
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. The Exhibits filed as part of this Form 10-Q are listed on
the Exhibit Index immediately preceding such Exhibits, which Exhibit
Index is incorporated herein by reference.
(b) Reports on Form 8-K. No reports were filed on Form 8-K during the
quarter ended March 31, 1998.
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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.
MAXIMUS, INC.
Date: May 14, 1998 By: /s/ F. Arthur Nerret
--------------------------------
F. Arthur Nerret
Vice President, Finance,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2 Agreement and Plan of Merger dated March 9, 1998 by
and between MAXIMUS, Inc., Maximus Acquisition Corp.
and David M. Griffith and Associates, Ltd. Filed as
Exhibit 2 to the Company's Registration Statement on
Form S-4 (File No. 333-49305) filed with the
Securities and Exchange Commission on April 3, 1998
and incorporated herein by reference.
27 Financial Data Schedules (EDGAR)
99 Important Factors Regarding Forward Looking Statements
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