UNITED STATES
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 DECEMBER 31, 1999
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 FEBRUARY 10, 2000
----- --------------------------------
Common Shares, No Par Value 21,025,484
MAXIMUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1999
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 (unaudited) and
September 30, 1999
Consolidated Statements of Income for the three months ended December
31, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the three months ended
December 31, 1999 and 1998 (unaudited)
Notes to Consolidated 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 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
2
MAXIMUS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1999 1999
----- ----
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ............................................. $ 61,647 $ 59,348
Marketable securities ................................................. 37,235 33,855
Accounts receivable, net .............................................. 75,865 80,847
Costs and estimated earnings in excess of billings .................... 16,150 16,901
Prepaid expenses and other current assets ............................. 2,711 2,682
Deferred income taxes ................................................. 2,997 2,997
------------- -------------
Total current assets ........................................................... 196,605 196,630
Property and equipment at cost:
Land .................................................................. 2,643 2,643
Building and improvements ............................................. 7,921 7,921
Office furniture and equipment ........................................ 10,429 11,360
Leasehold improvements ................................................ 253 188
------------- -------------
21,246 22,112
Less: Accumulated depreciation and amortization ...................... (6,524) (7,019)
------------- ------------
Total property and equipment, net .............................................. 14,722 15,093
Deferred income taxes .......................................................... 363 363
Intangible assets .............................................................. 8,254 12,580
Other assets ................................................................... 3,092 2,688
------------- -------------
Total assets ................................................................... $ 223,036 $ 227,354
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ...................................................... $ 10,265 $ 8,688
Accrued compensation and benefits ..................................... 16,119 11,169
Billings in excess of costs and estimated earnings .................... 16,942 16,686
Income taxes payable .................................................. 2,266 4,919
Other current liabilities ............................................. 541 464
------------- -------------
Total current liabilities ...................................................... 46,133 41,926
Long-term debt (less current portion) .......................................... 578 510
Other liabilities .............................................................. 846 954
------------- -------------
Total liabilities .............................................................. 47,557 43,390
Shareholders' equity:
Common stock, no par value; 30,000,000 shares authorized;
20,986,322 and 21,008,987 shares issued and outstanding at
September 30, 1999 and December 31, 1999, at stated amount ............ 130,518 131,093
Accumulated other comprehensive loss .................................. (280) (30)
Retained earnings ..................................................... 45,241 52,901
------------- -------------
Total shareholders' equity ..................................................... 175,479 183,964
------------- -------------
Total liabilities and shareholders' equity ..................................... $ 223,036 $ 227,354
============= =============
See notes to financial statements.
3
MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS
ENDED DECEMBER 31,
---------------------
1998 1999
------- ------
Revenues................................................ $72,346 $89,683
Cost of revenues........................................ 52,233 62,085
-------- --------
Gross profit............................................ 20,113 27,598
Selling, general and administrative expenses............ 11,261 15,426
Amortization of goodwill and other
acquisition related intangibles......................... - 274
-------- --------
Income from operations.................................. 8,852 11,898
Interest and other income............................... 394 1,050
-------- --------
Income before income taxes.............................. 9,246 12,948
Provision for income taxes.............................. 3,653 5,288
-------- --------
Net income.............................................. $ 5,593 $ 7,660
========= ========
Earnings per share:
Basic................................................... $ 0.29 $ 0.36
========= ========
Diluted................................................. $ 0.28 $ 0.36
========= ========
Shares used in computing earnings per share:
Basic................................................... 19,276 21,001
====== ======
Diluted................................................. 19,746 21,323
====== ======
See notes to financial statements.
4
MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED DECEMBER 31,
1998 1999
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 5,593 $ 7,660
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.................................... 608 1,001
Change in assets and liabilities:
Accounts receivable, net......................................... (11,051) (4,380)
Costs and estimated earnings in excess of billings............... (655) (751)
Prepaid expenses and other current assets........................ (130) 30
Other assets..................................................... 29 404
Accounts payable................................................. (1,945) (1,591)
Accrued compensation and benefits................................ (3,349) (5,367)
Billings in excess of costs and estimated earnings............... 1,084 (256)
Income taxes payable............................................. 2,355 2,654
Other liabilities................................................ 5 17
--------- ----------
Net cash used in operating activities.............................................. (7,456) (579)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses............................................... (707) (4,884)
Purchase of property and equipment...................................... (260) (973)
(Purchase) Sale of marketable securities................................ (53,397) 3,631
--------- ----------
Net cash used in investing activities.............................................. (54,364) (2,226)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secondary offering, net of expenses....................... 61,024 -
Issuance of common stock ............................................... 107 575
Net proceeds from (payments on) borrowings.............................. 200 (69)
--------- ---------
Net cash provided by financing activities.......................................... 61,331 506
--------- ---------
Net decrease in cash and cash equivalents.......................................... (489) (2,299)
Cash flow adjustment for change in accounting period of CSI........................ 31 -
Cash and cash equivalents, beginning of period..................................... 19,403 61,647
--------- ---------
Cash and cash equivalents, end of period........................................... $18,945 $59,348
========= =========
See notes to financial statements.
5
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED DECEMBER 31, 1999 AND 1998
(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 period ended December 31, 1999 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, 1999 and 1998 and for each of the three
years in the period ended September 30, 1999, included in the company's annual
report on Form 10-K, as filed with the Securities and Exchange Commission.
2. SECONDARY PUBLIC OFFERING
The Company completed a secondary public offering (the "secondary
offering") of common stock during December 1998. Of the 4,200,000 shares of
common stock sold in the secondary offering, 2,000,000 shares were sold by
MAXIMUS, Inc. generating $61,024 in proceeds to the Company, net of offering
expenses, and 2,200,000 shares were sold by selling shareholders.
3. BUSINESS COMBINATIONS
On February 26, 1999, the Company issued 700,210 shares of its common
stock in exchange for all of the outstanding common stock of Control Software,
Inc. ("CSI"). This combination was accounted for as a pooling of interests, and
the Company's financial statements, including earnings per share, have been
restated for all periods presented to include the financial position and results
of operations of CSI.
6
On March 31, 1999, the Company acquired all of the outstanding shares of
capital stock of Norman Roberts & Associates, Inc. for $1,930. In conjunction
with the purchase, the Company recorded intangible assets of $1,880.
On June 1, 1999, the Company acquired all of the outstanding shares of
capital stock of Unison Consulting Group, Inc. for $7,074. In conjunction with
the purchase, the Company recorded intangible assets of $4,979.
On September 30, 1999, the Company acquired all of the outstanding
shares of capital stock of Network Design Group, Inc. d/b/a The Center for
Health Dispute Resolution ("CHDR") for $2,070. In conjunction with the purchase,
the Company recorded intangible assets of $771. The purchase is subject to an
upward adjustment of $1,200 if CHDR secures the renewal of a certain contract.
On October 20, 1999, the Company acquired all of the outstanding shares
of capital stock of Public Systems, Inc. for $5,000. In conjunction with the
purchase, the Company recorded intangible assets of $4,735.
4. COMMITMENTS AND 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 alleged that the Company is liable
to Network Six on various grounds. In October 1999, the Company paid Network
Six $50 thousand in full settlement of all claims. The settlement was made
without admission of fault or liability on the part of the Company.
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 to him material information 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 Exchange Act of
1934 and breached various fiduciary duties owed to him and claims damages in
excess of $10 million. The Company believes these claims are without merit
and intends to defend the matter vigorously. Although there can be no
assurance of a favorable outcome, the Company does not believe that this
action will have a material adverse effect on the Company's financial
condition or results of operations and has not accrued for any loss related
to this action.
On May 12, 1998, the Company acquired DMG, which was subsequently
merged into DMG-MAXIMUS, Inc. ("DMG-MAXIMUS"), a wholly-owned subsidiary of
MAXIMUS. DMG-MAXIMUS is currently defending against a lawsuit arising out of
consultation services provided to underwriters of revenue bonds issued by
Superstition Mountains Community Facilities District No. 1 (the "District")
in 1994. The bonds were issued to finance construction of a water waste
treatment plant in Arizona. However, the District was unable to service the
bonds and eventually declared bankruptcy. The District voluntarily came out
of bankruptcy and is currently operating under a forbearance agreement with
the sole purchaser of the bonds, Allstate Insurance Company ("Allstate"). A
consolidated action arising out of these events is pending in the U.S.
District Court for the District of Arizona against DMG-MAXIMUS and thirteen
other named defendants. The parties making claims against DMG-MAXIMUS in the
lawsuit, Allstate and the District, allege that DMG made false and misleading
representations in the reports DMG prepared included among the exhibits to
the bond offering memoranda. DMG's reports concerned certain financial
projections made by the District regarding its ability to service the bonds.
Allstate seeks as damages $32.1 million, the principal amount of bonds it
purchased together with accrued and unpaid interest; the District seeks
actual and special damages, prejudgment interest and costs. DMG-MAXIMUS
believes these claims are without merit and intends to defend against this
action vigorously. Although there is no assurance of a favorable outcome, the
Company does not believe that this action will have a material adverse effect
on the Company's financial condition or results of operations and has not
accrued for any loss related to these claims.
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
7
financial position or results of operations of the Company if such proceedings
were resolved in an unfavorable manner to the Company.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months
Ended December 31,
----------------------
1998 1999
------ -------
Numerator:
Net income.............................................. $5,593 $7,660
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding............... 19,276 21,001
Stock options........................................... 470 322
------- -------
Denominator for dilutive earnings per share............. 19,746 21,323
======= =======
Earnings per share:
Basic................................................... $0.29 $ 0.36
======= =======
Diluted................................................. $0.28 $ 0.36
======= =======
6. SEGMENT INFORMATION
The following table provides certain financial information for each
business segment:
Three Months
Ended December 31,
--------------------------
1998 1999
---- ----
Revenues:
Government Operations....................... $ 38,817 $ 51,180
Consulting.................................. 33,529 38,503
-------- --------
Total......................................... $72,346 $ 89,683
======== ========
Income From Operations:
Government Operations....................... $ 2,566 $4,961
Consulting.................................. 6,286 6,937
-------- --------
Total......................................... $ 8,852 $ 11,898
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company provides program management and consulting services primarily
to government agencies in the
8
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
consulting services to state, county and local legislatures and government
agencies, including health and human services, law enforcement, parks and
recreation, taxation, housing, motor vehicles, labor and education.
As an important part of the Company's growth strategy, it has completed
combinations with the following firms: Spectrum Consulting Group, Inc. and
Spectrum Consulting Services, Inc. (collectively, "Spectrum") in March 1998,
David M. Griffith & Associates, Ltd. ("DMG") in May 1998, Carrera Consulting
Group ("Carrera") and Phoenix Planning & Evaluation, Ltd. ("Phoenix") in August
1998, Control Software, Inc. ("CSI") in February 1999, Norman Roberts &
Associates, Inc. ("Roberts") in March 1999, Unison Consulting Group, Inc.
("Unison") in June 1999, Network Design Group, Inc. dba The Center for Health
Dispute Resolution ("CHDR") in September 1999, and Public Systems, Inc. ("PSI")
in October 1999. Spectrum, DMG, Carrera, Phoenix and CSI was each accounted for
as a pooling of interests combination. Roberts, Unison, CHDR and PSI was each
accounted for as a purchase. See "Business Combination." Prior year amounts have
been restated to reflect the combinations with DMG and CSI. The Spectrum,
Carrera and Phoenix combinations were accounted for as immaterial poolings of
interests and, accordingly, the Company's previously issued financial statements
were not restated to reflect these combinations.
The Company's revenues are generated from contracts with various payment
arrangements, including: (i) costs incurred plus a fixed fee ("cost-plus"); (ii)
fixed-price; (iii) performance-based criteria; and (iv) time and materials
reimbursement (utilized primarily by the Consulting Group). For the fiscal year
ended September 30, 1999, revenues from these contract types were approximately
25%, 37%, 19% and 19%, respectively, of total revenues. Traditionally, federal
government contracts have been cost-plus and a majority of the contracts with
state and local government agencies have been fixed-price and performance-based.
Fixed price and performance-based contracts generally offer higher margins but
typically involve more risk than cost-plus or time and materials reimbursement
contracts because the Company is subject to the risk of potential cost overruns
or inaccurate revenue estimates.
The Government Operations Group's contracts generally contain base
periods of one or more years as well as one or more option periods that may
cover more than half of the potential contract duration. As of September 30,
1999, the Company's average Government Operations contract duration was 2 3/4
years. The Company's Consulting Group contracts have performance periods of one
month to in excess of two years.
The Company's most significant expense is cost of revenues, which
consists primarily of project related employee salaries and benefits,
subcontractors, computer equipment and travel expenses. The Company's ability to
accurately predict personnel requirements, salaries and other costs as well as
to effectively manage a project or achieve certain levels of performance can
have a significant impact on the service costs related to the Company's fixed
price and performance-based contracts. Service cost variability has little
impact on cost-plus arrangements because allowable costs are reimbursed by the
client. The profitability of the Consulting Group's contracts is largely
dependent upon the utilization rates of its consultants and the success of its
performance-based contracts.
Selling, general and administrative expenses consist of management,
marketing and administration costs including salaries, benefits, travel,
recruiting, continuing education and training, facilities costs, printing,
reproduction, communications and equipment depreciation.
BUSINESS COMBINATIONS
As part of its growth strategy, the Company expects to continue to
pursue complementary business combinations to expand its geographic reach,
expand the breadth and depth of its service offerings and enhance the
Company's consultant base. In furtherance of this growth strategy, the
Company combined with four consulting firms during fiscal 1999 and, one of
which was accounted for as a pooling of interests, and one firm during the
first quarter of FY 2000 accounted for as a purchase.
9
On February 26, 1999, the Company acquired all of the outstanding shares
of capital stock of CSI in exchange for 700,212 shares of common stock. CSI,
based in Wayne, Pennsylvania, provides fleet management software and related
services to public sector entities. At the time of the combination, CSI had 46
employees.
On March 31, 1999, the Company acquired all of the outstanding shares of
capital stock of Roberts for $1,930,000. Roberts, based in Los Angeles,
California, provides executive search services for the public sector. In
connection with the purchase, the Company recorded intangible assets of
$1,880,000. At the time of the combination, Roberts had 18 employees.
On June 1, 1999, the Company acquired all of the outstanding shares of
capital stock of Unison for $7,074,000. Unison, based in Chicago, Illinois,
provides financial consulting for major government owned airports. In connection
with the purchase, the Company recorded intangible assets of $4,979,000. At the
time of the combination, Unison had 39 employees.
On September 30, 1999, the Company acquired all of the outstanding
shares of capital stock of CHDR for $2,070,000. CHDR, based in Rochester, New
York, is the sole national provider of external reviews for Medicare
beneficiaries enrolled in HMOs. In connection with the purchase, the Company
recorded intangible assets of $771,000. The purchase is subject to an upward
adjustment of $1,200,000 if CHDR secures the renewal of a certain contract. At
the time of the combination, CHDR had 35 employees.
On October 20, 1999 the Company acquired all of the outstanding shares
of capital stock of PSI for $5,000,000. PSI, based in Wilmington, Delaware,
provides client-server and internet-enabled case management systems to
government. In connection with the purchase, the Company recorded intangible
assets of $4,735,000. At the time of the combination, PSI had 26 employees.
RESULTS OF OPERATIONS
10
The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues:
THREE MONTHS ENDED
DECEMBER 31,
1998 1999
------------ -------------
Revenues:
Government Operations Group 53.6% 57.1%
Consulting Group 46.4 42.9
Total revenues 100.0 100.0
Gross Profit:
Government Operations Group 17.2 21.8
Consulting Group 40.0 42.7
Total gross profit as a percent of revenue 27.8 30.8
Selling, general and administrative expenses 17.2
15.6
Amortization of goodwill and other
acquisition related intangibles
0.0 0.3
------------ -------------
Income from operations 12.2 13.3
Interest and other income 0.6 1.1
------------ -------------
Income before income taxes 12.8 14.4
Provision for income taxes 5.1 5.9
------------ -------------
Net income 7.7% 8.5%
============ =============
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1998
REVENUES. Total contract revenues increased 24.0% to $89.7 million for
the three months ended December 31, 1999 from $72.3 million for the same period
in 1998. Government Operations Group revenues increased 31.8% to $51.2 million
for the three months ended December 31, 1999 from $38.8 million for the same
period in 1998. This increase was due to $1.3 million of revenue from CHDR,
which was acquired on September 30, 1999 and an increase in the number of
contracts in three of the four divisions in the Government Operations Group.
Consulting Group revenues increased 14.8% to $38.5 million for the three months
ended December 31, 1999 from $33.5 million for the same period in 1998.
Approximately $2.7 million of the $5.0 million increase in the Consulting Group
revenues were revenues from Roberts, Unison and PSI, which companies were
acquired subsequent to the quarter ended December 31, 1998. The remainder of the
increased revenues was the result of an increase in the number of contracts in
the Consulting Group.
GROSS PROFIT. Total gross profit increased 37.2% to $27.6 million for
the three months ended December 31, 1999 from $20.1 million for the same period
in 1998. Government Operations Group gross profit increased 67.0% to $11.2
million for the three months ended December 31, 1999 from $6.7 million for the
three months ended December 31, 1998. As a percentage of Government Operations
Group revenues, Government Operations Group gross profit increased to 21.8% for
the three months ended December 31, 1999 from 17.2% for the same period in 1998.
The increase was due to improved margins in three of the four divisions of the
Government Operations Group. The Consulting Group gross profit increased 22.4%
to $16.4 million for the three months ended
11
December 31, 1999 from $13.4 million for the same period in 1998 due to the
increased revenues and an increased gross profit percentage. As a percentage of
Consulting Group revenues, Consulting Group gross profit increased to 42.7% for
the three months ended December 31, 1999 from 40.0% for the same period in 1998,
due primarily to improved margins within the CSI and PSI divisions of the Group.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general
and administrative ("SG&A") expenses increased 37.0% to $15.4 million for the
three months ended December 31, 1999 from $11.3 million for the same period
in 1998. The increase in SG&A costs was due to the increased size of the
Company in terms of revenue growth and the increase in the number of
employees to 3,493 at December 31, 1999 from 2,912 at December 31, 1998. As a
percentage of revenues, SG&A expenses increased to 17.2% for the three months
ended December 31, 1999 from 15.6% for the same period in 1998, primarily due
to a significant increase in the size and capability of the Business
Development unit and the Information Services unit, and the incurrence of
expenses in connection with the integration of the merged companies into
MAXIMUS.
AMORTIZATION OF GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES. In
the quarter ended December 31, 1999, the Company incurred $0.3 million of
amortization expense related to the $12.4 million of goodwill and other
acquisition-related intangible assets it recorded in connection with the
acquisitions of Roberts, Unison, CHDR and PSI.
INTEREST AND OTHER INCOME. The increase in interest and other income to
$1.0 million for the three months ended December 31, 1999 as compared to $0.4
million for the same period in 1998 was due to an increase in the average
invested funds. The increase in invested funds was due largely to the receipt of
proceeds of $61.0 million from the secondary public stock offering completed in
December 1998.
PROVISION FOR INCOME TAXES. The provision for income tax for the three
months ended December 31, 1999 was 40.8% of income before income taxes as
compared to 39.5% for the three months ended December 31, 1998. The difference
in percentages was due to differences in the amounts of certain expense items
which are not deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended December 31, 1999, cash used in operations
was $0.6 million as compared to cash used in operations of $7.5 million for
the three months ended December 31, 1998. There were two principal reasons
for the improvement in cash used in operations. First, net income increased
to $7.7 million for the three months ended December 31, 1999 from $5.6
million for the three months ended December 31, 1998. Second, the increase in
accounts receivable, billed and unbilled, used $4.4 million of cash during
the three months ended December 31, 1999, whereas the increase in receivables
used $11.1 million of cash during the three months ended December 31, 1998.
Through effective collection efforts, receivables have been reduced to 99
days of sales outstanding at December 31, 1999 from 117 days of sales at
December 31, 1998. The Company accrues for incentive compensation throughout
the fiscal year and makes payments to employees in October. In October 1999,
those payments totaled $7.0 million.
For the three months ended December 31, 1999, cash used in investing
activities was $2.3 million as compared to $54.4 million for the three months
ended December 30, 1998. During the three months ended December 31, 1999, the
Company generated cash from sales of marketable securities totaling $3.6
million, and used cash totaling $5.9 million in the purchase of PSI and
property and equipment. Cash used in investing activities for the three
months ended December 31, 1998 primarily consisted of the purchase of
marketable securities totaling $53.4 million with the proceeds from the
secondary offering, which occurred in December 1998.
Cash provided by financing activities during the three months ended
December 31, 1999 was $0.6 million, which consisted primarily of sales of
stock to employees through the Company's employee stock purchase plan and
stock option plan. During the three months ended December 31, 1998, cash
provided by financing activities consisted primarily of the proceeds of $61.0
million from the secondary stock offering.
12
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, its rate of growth, the amounts spent on business
acquisitions, if any, and the leasing of new office space, if any.
YEAR 2000
The Company has been aware of the issues that computer,
telecommunication and other infrastructure systems may have faced as the
millennium ("Year 2000") arrived. The Company has audited its internal software,
hardware, and telephone systems and those of its divisions and acquired
companies for Year 2000 compliance and has completed all remediation actions
deemed necessary. In addition, the Company has inquired of vendors, governmental
agencies and entities with which it has contracted about Year 2000 related
problems and system failures that these parties have experienced and based upon
their responses, management believes that the Company will be able to continue
to perform on its contracts with these parties without experiencing material
negative financial impact. There are also a number of other risks associated
with Year 2000 that are beyond the Company's ability to control. The Company's
Year 2000 efforts have been meant to help manage and mitigate these risks. While
the Company has not experienced any specific material Year 2000 related problems
or system failures to date, it continues to monitor developments in this area
and plans to adopt contingency plans in the event that a service outside of the
Company's control experiences Year 2000 related processing problems or failures.
The Company's costs for these efforts have not been material and the Company
does not expect future costs to be material or to have a material effect on its
operations or financial results. Nevertheless, there can be no assurance that
all Year 2000 risks have been completely eliminated or that a Year 2000-related
problem would not have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, the Company has assisted government clients in evaluating,
testing and certifying their systems affected by Year 2000, and has also
provided quality assurance of monitoring Year 2000 compliance conversions
performed for clients by third parties. In providing these services, the Company
has attempted to minimize its potential liability for Year 2000 related system
failures that clients could experience. Although the Company is not aware of any
Year 2000 problems associated with its clients' systems that have arisen to
date, there can be no assurance that the Company would not become subject to
legal action if a client sustains Year 2000 problems. If such a legal action is
brought and resolved against the Company, it could result in a material adverse
effect on the Company's financial condition.
FORWARD LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence and strategies and the Company's expectations regarding its
ability to obtain future contracts, expand its market opportunities or attract
highly-skilled employees, are forward looking statements that involve risks and
uncertainties. These risks and uncertainties include legislative changes and
political developments adverse to the privatization of the provision of
government services; risks related to completed or future acquisitions;
opposition from government employee unions; reliance on key executives; impact
of competition from similar companies; and legal, economic and other risks
detailed in Exhibit 99 to this Quarterly Report on Form 10-Q for the period
ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market risk related to the
effect of changes in interest rates, foreign currency exchange rates, commodity
prices and equity prices on instruments entered into for trading and other
purposes is immaterial.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
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In March 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 in the State of Hawaii Circuit Court of the First
Circuit. Network Six alleged that the Company was liable to Network Six on
various contract and tort based claims and sought damages in an undetermined
amount. As reported in the Company's Annual Report on Form 10-K for the fiscal
year ending September 30, 1999, the Company paid Network Six $50,000 in full
settlement of all claims in October 1999. The settlement was made without
admission of fault or liability on the part of the Company.
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 Current Report on Form 8-K were filed by the
Company during the fiscal quarter ended December 31, 1999.
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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: February 14, 2000 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
27 Financial Data Schedules (EDGAR only)
99 Important Factors Regarding Forward Looking
Statements. Filed herewith.
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