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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 JUNE 30, 1997
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 [ ] No [x]
Class Outstanding at August 8, 1997
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Common Shares, No Par Value 14,790,470
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MAXIMUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1997 (unaudited) and September
30, 1996
Statements of Income for the three months and nine months
ended June 30, 1997 and 1996 (unaudited)
Statements of Cash Flows for the nine months ended June 30,
1997 and 1996 (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
- 2 -
MAXIMUS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, JUNE 30,
1996 1997
------------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $2,326 $6,649
Short-term investments . . . . . . . . . . . . . . . . . . . . . 1,007 40,812
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . 25,352 31,351
Costs and estimated earnings in excess of billings . . . . . . . 2,949 5,721
Prepaid expenses and other current assets . . . . . . . . . . . 605 1,130
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . - 1,809
------------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 32,239 87,472
Property and equipment at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 662 662
Building and improvements . . . . . . . . . . . . . . . . . . . 1,676 1,721
Office furniture and equipment . . . . . . . . . . . . . . . . . 1,206 1,432
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . 188 188
------------- ---------
3,732 4,003
Less: Accumulated depreciation and amortization . . . . . . . . (1,096) (1,306)
------------- ---------
Total property and equipment, net . . . . . . . . . . . . . . . . . . . . 2,636 2,697
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 618 682
------------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,493 $90,851
============= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $2,043 $2,369
Accrued compensation and benefits . . . . . . . . . . . . . . . 1,912 4,564
Billings in excess of costs and estimated earnings . . . . . . . 5,208 11,034
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . . - 388
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 19 990
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 357 -
------------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . 9,539 19,345
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,349
Contingencies (Note 3)
Redeemable common stock:
No par value; 30,000,000 shares authorized; 11,453,145 shares
issued and outstanding at June 30, 1996, at redemption
amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,757 -
Shareholders' equity:
Common stock, no par value; 30,000,000 shares authorized;
14,787,445 shares issued and outstanding at June 30, 1997, at
stated amount . . . . . . . . . . . . . . . . . . . . . . . . . - 72,472
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . 9,197 (3,315)
------------- ---------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 9,197 69,157
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Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $35,493 $90,851
============= =========
See notes to financial statements.
- 3 -
MAXIMUS, INC.
STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Nine Months
Ended June 30, Ended June 30,
1996 1997 1996 1997
------------------------ ------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . . $27,898 $27,315 $67,484 $96,077
Cost of revenues . . . . . . . . . . . . . . . . . . 21,577 18,561 50,566 71,418
------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . . 6,321 8,754 16,918 24,659
Selling, general and administrative expenses . . . . 3,343 4,298 9,229 12,309
Stock option compensation expense (Note 2) . . . . . -- 5,724 -- 5,874
------- ------- ------- -------
Income (loss) from operations . . . . . . . . . . . . 2,978 (1,268) 7,689 6,476
Interest and other income . . . . . . . . . . . . . . 63 185 162 333
------- ------- ------- -------
Income (loss) before income taxes . . . . . . . . . . 3,041 (1,083) 7,851 6,809
Provision for income taxes . . . . . . . . . . . . . 60 1,011 154 1,161
------- ------- ------- -------
Net income (loss) . . . . . . . . . . . . . . . . . . $2,981 ($2,094) $7,697 $5,648
======= ======= ======= =======
Pro forma data:
Historical income (loss) before income taxes. . . $3,041 ($1,083) $7,851 $6,809
Pro forma income tax expense (benefit). . . . . . 1,216 (433) 3,140 2,724
------- ------- ------- -------
Pro forma net income (loss) . . . . . . . . . . . $1,825 ($650) $4,711 $4,085
======= ====== ======= =======
Pro forma net income (loss) per share . . . . . . $0.15 ($0.05) $0.39 $0.33
======= ====== ======= =======
Shares used in computing pro forma net income (loss)
per share . . . . . . . . . . . . . . . . . . . . 12,226 12,611 12,116 12,241
See notes to financial statements.
- 4 -
MAXIMUS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
JUNE 30,
1996 1997
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,697 $5,648
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 210
Stock option compensation expense . . . . . . . . . . . . . . . . . . - 5,874
Change in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . (8,134) (5,999)
Costs and estimated earnings in excess of billings . . . . . . . . . . (987) (2,772)
Prepaid expenses and other current assets . . . . . . . . . . . . . . (326) (609)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135) (64)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,497 326
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . 2,651 2,652
Billings in excess of costs and estimated earnings . . . . . . . . . . 2,852 5,826
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 23 971
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 90 183
----------- ----------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . 5,408 12,246
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . (167) (271)
Purchase of short-term investments . . . . . . . . . . . . . . . . . . . . (1,000) (39,721)
----------- ----------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (1,167) (39,992)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock in initial public offering . . . . . . . . . . . . - 53,943
S Corporation distributions . . . . . . . . . . . . . . . . . . . . . . . . (1,821) (21,636)
Redeemable common stock issued . . . . . . . . . . . . . . . . . . . . . . 228 -
Payment of note for purchase of redeemable common stock . . . . . . . . . . - (238)
----------- ----------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . (1,593) 32,069
----------- ----------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . 2,648 4,323
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . 2,502 2,326
----------- ----------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . $5,150 $6,649
=========== ==========
See notes to financial statements.
- 5 -
MAXIMUS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(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, except as described below) considered necessary
for a fair presentation have been included. The results of operations for the
three and nine month periods ended June 30, 1997 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, 1995 and 1996 and for each of the three years in the period
ended September 30, 1996, included in the Company's registration statement on
Form S-1 (No. 333-21611), 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 $53,943 in proceeds to the
Company, net of offering expenses.
In January 1997, the Company issued options to various
employees to purchase 403,975 shares of the Company's common stock at a formula
price based on book value. Upon completion of the IPO, the Company recorded a
non-recurring charge against income of $5,724 for the difference between the IPO
price and the formula price for all options outstanding. The Company recorded a
deferred tax benefit relating to the charge in the amount of $2,055.
The Company made cash distributions to shareholders in the
period prior to the IPO totaling $1,136. In addition, the Company made a
distribution of $20,500 (the S Corporation Dividend) upon closing the IPO. The S
Corporation Dividend was for a preliminary amount that is not expected to exceed
the undistributed earnings of the Company taxed or taxable to the shareholders
through the date of the IPO. The actual amount of such undistributed earnings
will not be determinable until the Company's taxable income for the full fiscal
year ending September 30, 1997 is determined.
The Company's obligation to purchase common shares from
shareholders terminated upon completion of the IPO. Accordingly, amounts
classified previously as redeemable common stock were reclassified into
shareholders'equity in the June 30, 1997 balance sheet.
See also note 5.
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.
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.
- 6 -
4. REVENUES FROM SIGNIFICANT CONTRACT
Government Operations Group revenues for the nine months ended
June 30, 1997 and 1996 include $31,612 and $35,222 respectively, from a
significant contract with the U.S. Government Social Security Administration
which was terminated pursuant to legislative action. Revenues under this
contract were $19 and $17,170 for the three months ended June 30, 1997 and 1996,
respectively.
5. INCOME TAX PROVISION AND PRO FORMA FINANCIAL DATA
The Company's income tax provision for the three month and
nine month periods ended June 30, 1996 and 1997 consisted of the following:
Three Months Nine Months
Ended June 30, Ended June 30,
------------------------ ----------------------
1996 1997 1996 1997
--------- ---------- -------- -------
State income taxes.............................................. $60 $81 $154 $231
Federal taxes payable - current................................. - 419 - 419
Cumulative deferred income taxes recognized..................... - 2,566 - 2,566
Deferred tax benefit related to stock option compensation
expense......................................................... - (2,055) - (2,055)
--------- ---------- -------- -------
$60 $1,011 $154 $1,161
========= ========== ======== =======
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. Upon completion
of the IPO, the Company's S Corporation status terminated for federal and state
taxation purposes, and the Company recorded a deferred tax charge against income
of $2,566 for the cumulative differences between the financial reporting and
income tax basis of certain assets and liabilities at June 12, 1997.
Pro forma net income and pro forma net income per share are
presented as if the Company had been taxed as a C corporation for the periods
presented. The pro forma tax provision (benefit) has been calculated assuming a
40% combined effective tax rate.
- 7 -
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 $31.6 million and
$35.2 million to the Company's revenues in the nine months ended June 30, 1997
and June 30, 1996.
- 8 -
The Company recognized two significant charges against income during the
quarter ended June 30, 1997. The completion of the offering resulted in the
termination of the Company's S corporation status. As a result, the Company
recorded a one-time income statement charge to operations of $2.6 million to
recognize the cumulative deferred tax liabilities as of June 12, 1997. In
connection with the offering, on January 31, 1997, certain key employees of the
Company surrendered rights to purchase shares of Common Stock of the Company in
exchange for options to purchase shares of Common Stock at an exercise price of
$1.46 per share. The Company recognized a non-cash compensation charge against
income equal to the difference between the initial public offering price of
$16.00 per share and the option exercise price for all outstanding options.
Compensation expense totaling $150,000 had been recognized through March 31,
1997, and upon completion of the offering, the Company recognized an
additional charge against income of $5.7 million. The Company recorded a
deferred tax benefit relating to the charge in the amount of $2.1 million.
The option exercise price is based on the book value of the Common Stock at
September 30, 1996, and was established pursuant to pre-existing compensation
arrangements with these employees.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Revenues. Total contract revenues decreased 2.1% to $27.3 million for the
three months ended June 30, 1997 as compared to $27.9 million for the same
period in 1996. Government Operations Group revenues decreased 13.1% to $19.2
million for the three months ended June 30, 1997 from $22.1 million for the
same period in 1996 due to the termination of the SSA Contract in February
1997. For the three months ended June 30, 1997, revenues from the SSA Contract
were $19,000 as compared to $17.2 million for the same period in 1996.
Excluding the SSA Contract, Government Operations Group revenues increased
291.3% to $19.2 million in the three months ended June 30, 1997 from $4.9
million for the same period in 1996. Consulting Group revenues increased 39.5%
to $8.1 million for the three months ended June 30, 1997 from $5.8 million for
the same period in 1996 due to an increase in the number of contracts.
Gross Profit. Gross profit consists of total revenues less cost of
revenues. Total gross profit increased 38.5% to $8.8 million for the three
months ended June 30, 1997 as compared to $6.3 million for the same period in
1996. Government Operations Group gross profit increased 35.4% to $4.7 million
for the three months ended June 30, 1997 from $3.4 million for the three months
ended June 30, 1996. As a percentage of revenues, Government Operations Group
gross profit increased to 25.9% in the three months ended June 30, 1997 from
15.5% in the same period in 1996, primarily due to the decreased revenue
contribution of the SSA Contract in the June 1997 quarter, which had a lower
gross profit margin than other contracts in the Group, and to favorable profit
recognition adjustments on two large projects. Consulting Group gross profit
increased 42.1% to $4.1 million for the three months ended June 30, 1997 from
$2.9 million for the same period in 1996 due principally to the increased
revenues. As a percentage of revenues, Consulting Group gross profit increased
to 50.5% for the three months ended June 30, 1997 from 49.6% for the same
period in 1996.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 28.6% to $4.3 million for the three months
ended June 30, 1997 as compared to $3.3 million in the same period in 1996.
This increase in costs was due to increases in both professional and
administrative personnel necessary
- 9 -
to support the Company's growth and marketing and proposal preparation
expenditures to pursue further growth. As a percentage of revenues, selling,
general and administrative expenses increased to 15.7% for the three months
ended June 30, 1997 from 12.0% for the same period in 1996.
Stock Option Compensation Expense. In January 1997, the Company issued
options to certain employees to acquire 403,975 shares of the Company's Common
Stock at a formula price based upon book value. Upon completion of the initial
public offering in June 1997, the Company recorded a non-recurring compensation
charge against income for the difference between the IPO price and the formula
price. Compensation expense totaling $150,000 had been recognized through
March 31, 1997, and upon completion of the offering, the Company recorded an
additional charge against income of $5.7 million.
Provision For Income Taxes. Prior to the IPO, the Company and its
tockholders 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 1996 and the period to June 12, 1997. 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 June 30, 1997
was $1.1 million as compared to $60,000 for the three months ended June
30, 1996. The provision for income taxes for the three months ended June 30,
1996 consisted of state income taxes payable. The provision for income taxes
for the three months ended June 30, 1997 consisted of state income taxes
payable in the amount of $154,000, a non-recurring deferred tax charge
against income of $2.6 million for the cumulative differences between the
financial reporting and income tax basis of certain assets and liabilities at
June 12, 1997, current federal taxes owing of $419,000 and a non-recurring
deferred tax benefit related to the stock option compensation charge amounting
to $2.1 million.
NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
Revenues. Total contract revenues increased 42.4% to $96.1 million for the
nine months ended June 30, 1997 as compared to $67.5 million for the same
period in 1996. Government Operations Group revenues increased 51.2% to $74.4
million for the nine months ended June 30, 1997 from $49.2 million for the same
period in 1996 due to an increase in the number of projects, offset by a
decrease in revenues from the SSA Contract from $35.2 million for the nine
months ended June 30, 1996 to $31.6 million for the same period in 1997.
Excluding the SSA Contract, Government Operations Group revenues increased
206.5% to $42.7 million in the nine months ended June 30, 1997 from $13.9
million for the same period in 1996. Consulting Group revenues increased 18.6%
to $21.7 million for the nine months ended June 30, 1997 from $18.3 million for
the same period in 1996 due to an increase in the number of contracts.
Gross Profit. Total gross profit increased 45.8% to $24.7 million for the
nine months ended June 30, 1997 as compared to $16.9 million for the same
period in 1996. Government Operations Group gross profit increased 71.2% to
$14.2 million for the nine months ended June 30, 1997 from $8.3 million for the
nine months ended June 30, 1996. As a percentage of revenues, Government
Operations Group gross profit increased to 19.1% in the nine months ended June
30, 1997 from 16.9% in the same period in 1996, primarily due to the decreased
revenue contribution of the SSA Contract, which had a lower gross profit margin
than other contracts in the Group. Consulting Group gross profit increased
21.3% to $10.5 million for the nine months ended June 30, 1997 from $8.6
million for the same period in 1996 principally due to higher revenues. As a
percentage of revenues, Consulting Group gross profit increased to 48.2% for
the nine months ended June 30, 1997 from 47.1% for the same period in 1996.
Selling, General and Administrative Expenses. Total selling, general and
administrative expenses increased 33.4% to $12.3 million for the nine months
ended June 30, 1997 as compared to $9.2 million for the same period in 1996.
The increase was due to increased professional and administrative personnel
necessary to support the Company's growth and marketing and proposal
preparation expenditures to pursue further growth. As a percentage of
revenues, selling, general and administrative expenses decreased to 12.8% for
the nine months ended June 30, 1997 from 13.6% for the same period in 1996 as
the Company was able to support its revenue growth without a proportionate
increase in associated costs.
Stock Option Compensation Expense. In January 1997, the Company issued
options to certain employees to acquire 403,975 shares of the Company's Common
Stock at a formula price based upon book value. Upon completion of the initial
public offering in June 1997, the Company recorded a
- 10 -
non-recurring compensation charge against income for the difference between the
IPO price and the formula price. Compensation expense totaling $5.9 million
was recognized in the nine months ended June 30, 1997.
Provision for income taxes. The Company's income tax provision for the
nine months ended June 30, 1997 was $1.2 million as compared to $154,000
for the nine months ended June 30, 1996. The increase is directly related to
events occurring during the three months ended June 30, 1997, as discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash flows from operations.
The Company's cash flow from operations for the nine months ended June 30, 1997
was $12.2 million as compared to $5.4 million for the nine months ended June
30, 1996. The increased cash from operations was the result of higher net
income earned during the period, after adjusting for the $5.9 million non-cash
stock compensation charge related to the IPO. Increases in accounts receivable
of $6.0 million were largely offset by increases in accounts payable,
compensation liabilities, and income taxes payable. Accounts receivable
totaled $31.4 million at June 30, 1997, an increase of $6.0 million from
September 30, 1996, the end of fiscal 1996. This increase is due to the
submission of large value invoices in May and June combined with slow payment
from a few large customers. The timing of receipt of contract payments can
vary and, combined with the requirement to provide start-up funding for new
projects, cause cash flows to fluctuate from period to period.
Of the $40.0 million of cash flows used for investing activities for the
nine months ended June 30, 1997, $39.7 million was used to purchase investment
grade interest-bearing securities, which can be readily converted to cash if
needed. The Company has no material commitments for capital expenditures.
Cash flows from financing activities were $32.1 million in the nine months
ended June 30, 1997. The Company received net proceeds of $53.9 million from
the sale of stock in the initial public offering, net of underwriters fees and
other IPO expenses. The Company made S corporation distributions totaling
$21.6 million, of which $20.5 million was paid in June 1997 following the
closing of the initial public offering. The distributions to shareholders were
based upon the income previously taxed to the S corporation shareholders and
the estimated fiscal 1997 income taxable to the S corporation shareholders.
The actual amount of such undistributed earnings will not be determinable until
the Company's taxable income for the full fiscal year ended September 30, 1997
is determined.
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 depend on the Company's profitability, its ability to manage
working capital requirements and its rate of growth.
- 11 -
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 June 30, 1997 filed on August 14,
1997.
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Part II. Other Information.
Item 1. Legal Proceedings.
On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS with a
First Amended Third-Party Complaint filed in the State of Hawaii Circuit Court
of the First Circuit. In this complaint, Network Six named the Company and
other parties as third party defendants in an action by the State of Hawaii
against Network Six. In 1991, the Company's Consulting Group was engaged by the
State of Hawaii to provide assistance in planning for and monitoring the
development and implementation by Hawaii of a statewide automated child support
system. In 1993, Hawaii contracted with Network Six to provide systems
development and implementation services for this project. In 1996 the state
terminated the Network Six contract for cause and filed an action against
Network Six. Network Six counterclaimed against Hawaii that the state breached
its obligations under the contract with Network Six. In the Third Party
Complaint, Network Six alleges that the Company is liable to Network Six on
grounds that: (i) Network Six was an intended third party beneficiary under the
contract between the Company and Hawaii; (ii) the Company engaged in bad faith
conduct and tortiously interfered with the contract and relationship between
Network Six and Hawaii; (iii) the Company negligently breached duties to
Network Six; and (iv) the Company aided and abetted Hawaii in Hawaii's breach
of contract. Network Six's complaint seeks damages, including punitive damages,
from the third party defendants in an amount to be proven at trial. The Company
believes that Network Six was not an intended third party beneficiary under its
contract with Hawaii and that Network Six's claims are without factual or legal
merit. The Company does not believe 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. A decision by the
court in Network Six's favor or any other conclusion of this litigation in a
manner adverse to the Company could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is not a party to any material legal proceedings, except as set
forth above.
Item 2. Changes in Securities.
On June 12, 1997, pursuant to the Company's 1997 Equity Incentive Plan, the
Company granted to certain employees options to purchase an aggregagte of
124,000 shares of Common Stock at an exercise price per share of $16.00. Each
option became exercisable upon the date of grant as to 25% of the shares
represented by such option, and will become exercisable as to an additional 25%
of such shares on each of the next three anniversaries of the date of grant.
Each option will expire upon the earlier of (i) June 12, 2007 or (ii) the
termination of the holder's employment with the Company.
No underwriter was engaged in connection with the foregoing issuance of
securities. Such issuance was made in reliance upon the exemption for the
registration requirements afforded by Section 4(2) of the Securities Act of
1933, as amended, and Rule 701 thereunder as sales of an issuer's securities
pursuant to a written compensatory benefit plan and interests in such a plan
established by the issuer. The Company has reason to believe that all of the
optionees were familiar with or had access to information concerning the
operations and financial condition of the Company, and all of those individuals
acquired their options for investment and not with a view to the distribution
of such options or the underlying shares of Common Stock.
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 June 30, 1997.
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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: August 14, 1997 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
- ----------- -----------
3.1 Amended and Restated Articles
of Incorporation of the Company
3.2 Amended and Restated By-laws
of the Company
4.1 Specimen Common Stock Certificate
11 Computation of Earnings Per Share
27 Financial Data Schedules (EDGAR)
99 Important Factors Regarding
Forward Looking Statements
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