================================================================================ 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) ------------------ 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 ------------------ 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 ----- --------------------------- Common Shares, No Par Value 16,829,378
================================================================================ 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 - 2 - 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. - 3 - 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. - 4 - 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. - 5 - 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. - 6 - 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
- 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 $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 - 8 - 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 - 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. - 10 - 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. - 11 - 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. - 12 - 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) - 13 - 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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