- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 MARCH 31, 2000 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 10, 2000 ----- --------------------------- Common Shares, No Par Value 21,071,980 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- MAXIMUS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 INDEX PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets as of March 31, 2000 (unaudited) and September 30, 1999 Consolidated Statements of Income for the three months and six months ended March 31, 2000 and 1999 (unaudited) Consolidated Statements of Cash Flows for the six months ended March 31, 2000 and 1999 (unaudited) Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II. OTHER INFORMATION Item 1. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders. Item 6. Exhibits and Reports on Form 8-K Signatures Exhibit Index MAXIMUS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
SEPTEMBER 30, MARCH 31, 1999 2000 ------------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ................................ $ 61,647 $ 46,511 Marketable securities .................................... 37,235 26,541 Accounts receivable, net ................................. 75,865 89,424 Costs and estimated earnings in excess of billings ....... 16,150 20,360 Prepaid expenses and other current assets ................ 2,711 3,392 Deferred income taxes .................................... 2,997 2,531 ------------- ----------- Total current assets .............................................. 196,605 188,759 Property and equipment at cost: Land ..................................................... 2,643 2,643 Building and leasehold improvements ...................... 8,174 8,270 Office furniture and equipment ........................... 10,429 12,498 ------------- ----------- 21,246 23,411 Less: Accumulated depreciation and amortization ......... (6,524) (7,793) ------------- ----------- Total property and equipment, net ................................. 14,722 15,618 Software development costs ........................................ -- 5,181 Deferred income taxes ............................................. 363 -- Intangible assets ................................................. 8,254 32,543 Other assets ...................................................... 3,092 2,104 ------------- ----------- Total assets ...................................................... $ 223,036 $ 244,205 ============= =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ......................................... $ 10,265 $ 9,646 Accrued compensation and benefits ........................ 16,119 13,478 Billings in excess of costs and estimated earnings ....... 16,942 12,770 Income taxes payable ..................................... 2,266 -- Notes payable ............................................ -- 4,045 Other current liabilities ................................ 541 7,703 ------------- ----------- Total current liabilities.......................................... 46,133 47,642 Other liabilities ................................................. 1,424 3,347 ------------- ----------- Total liabilities ................................................. 47,557 50,989 Shareholders' equity: Common stock, no par value; 60,000,000 shares authorized; 20,986,322 and 21,070,415 shares issued and outstanding at September 30, 1999 and March 31, 2000, at stated amount .. 130,518 132,013 Accumulated other comprehensive loss ..................... (280) (264) Retained earnings ........................................ 45,241 61,467 ------------- ----------- Total shareholders' equity ........................................ 175,479 193,216 ------------- ----------- Total liabilities and shareholders' equity ........................ $ 223,036 $ 244,205 ============= ===========
See notes to consolidated financial statements. MAXIMUS, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, ------------------- ------------------- 1999 2000 1999 2000 -------- -------- -------- -------- Revenues ............................................. $ 76,290 $ 93,501 $148,636 $183,184 Cost of revenues ..................................... 52,894 64,249 105,127 126,334 -------- -------- -------- -------- Gross profit ......................................... 23,396 29,252 43,509 56,850 Selling, general and administrative expenses ......... 12,784 15,281 24,045 30,707 Deferred compensation, merger and ESOP expenses ...... 118 -- 118 -- Amortization of goodwill and other acquisition related intangibles........................................... -- 371 -- 645 -------- -------- -------- -------- Income from operations ............................... 10,494 13,600 19,346 25,498 Interest and other income ............................ 881 1,099 1,275 2,149 -------- -------- -------- -------- Income before income taxes ........................... 11,375 14,699 20,621 27,647 Provision for income taxes ........................... 4,700 6,133 8,353 11,421 -------- -------- -------- -------- Net income ........................................... $ 6,675 $ 8,566 $ 12,268 $ 16,226 ======== ======== ======== ======== Earnings per share: Basic ........................................... $ 0.32 $ 0.41 $ 0.61 $ 0.77 ======== ======== ======== ======== Diluted ......................................... $ 0.31 $ 0.40 $ 0.60 $ 0.76 ======== ======== ======== ======== Shares used in computing earnings per share: Basic ........................................... 20,944 21,036 20,101 21,019 ======== ======== ======== ======== Diluted ......................................... 21,333 21,535 20,467 21,427 ======== ======== ======== ========
See notes to consolidated financial statements. MAXIMUS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED MARCH 31, -------------------- 1999 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .................................................................... $ 12,268 $ 16,226 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization .......................................... 1,229 2,007 Deferred income taxes .................................................. -- 18 Change in assets and liabilities: Accounts receivable, net ............................................... 4,243 (6,884) Costs and estimated earnings in excess of billings ..................... (2,221) (2,520) Prepaid expenses and other current assets .............................. (10) 318 Prepaid income taxes ................................................... (1,706) -- Other assets ........................................................... (747) 853 Accounts payable ....................................................... (926) (2,713) Accrued compensation and benefits ...................................... (2,397) (3,338) Billings in excess of costs and estimated earnings ..................... 770 (5,084) Income taxes payable ................................................... (3) (2,941) Other liabilities ...................................................... 141 139 -------- -------- Net cash provided by (used in) operating activities ...................................... 10,641 (3,919) CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired ............................... (2,637) (21,889) Capitalization of software development costs .................................. -- (387) Purchase of property and equipment ............................................ (8,953) (1,564) (Purchase) sale of marketable securities ...................................... (54,107) 10,710 -------- -------- Net cash used in investing activities .................................................... (65,697) (13,130) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from secondary offering, net of expenses ............................. 61,010 -- S Corporation distributions ................................................... (756) -- Issuance of common stock ...................................................... 170 1,495 Net (payments on) proceeds from borrowings .................................... (145) 43 -------- -------- Net cash provided by financing activities ................................................ 60,279 1,538 -------- -------- Net increase (decrease) in cash and cash equivalents ..................................... 5,223 (15,511) Cash flow adjustment for change in accounting period of CSI .............................. 31 -- Cash and cash equivalents, beginning of period ........................................... 19,403 62,022 -------- -------- Cash and cash equivalents, end of period ................................................. $ 24,657 $ 46,511 ======== ========
See notes to consolidated financial statements. MAXIMUS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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, 2000 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 AND ACQUISITIONS 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. 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 $7,589. In conjunction with the purchase, the Company recorded intangible assets of $6,328. 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 $827. 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. On March 20, 2000, the Company acquired all of the outstanding shares of capital stock of Crawford Consulting, Inc. for $17,500. In conjunction with the purchase, the Company recorded intangible assets of $13,056. On March 31, 2000, the Company acquired substantially all of the assets of the Government Services division of 3-G International, Inc. for $7,000, plus an earn-out amount of up to $3,000 to be paid by the Company upon the achievement of certain objectives. In conjunction with the purchase, the Company recorded intangible assets of $6,708. 4. COMMITMENTS AND CONTINGENCIES 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 and Exchange Act of 1934 and breached various fiduciary duties owed to him and claims damages in excess of $10 million. This matter is currently scheduled for trial on September 11, 2000. 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 David M. Griffith & Associates, Ltd. ("DMG"), which was subsequently merged into DMG-MAXIMUS, Inc. ("DMG-MAXIMUS"), a wholly-owned subsidiary of MAXIMUS. A consolidated legal action was brought against DMG-MAXIMUS and thirteen other named defendants in the U.S. District Court for the District of Arizona by Superstition Mountains Community Facilities District No. 1 (the "District") and Allstate Insurance Company ("Allstate"), alleging that DMG made false and misleading representations in the reports DMG prepared as a consultant to underwriters of revenue bonds issued by the District and purchased by Allstate. On May 12, 2000, DMG-MAXIMUS agreed to a confidential settlement agreement with the District and Allstate. The settlement amount to be paid by DMG-MAXIMUS is not material and will not have an adverse effect on the Company's financial condition or results of operations. In January 2000, the New York City Human Resources Administration ("HRA") submitted two contracts that it had awarded to the Company for welfare-to-work services to the Comptroller of New York City (the "Comptroller") to be registered. Under New York law, the contracts must be registered in order for the Company to receive payment. However, the Comptroller refused to register the contracts alleging improprieties in the procurement process and in the Company's conduct. The Mayor of the City of New York (the "Mayor") and HRA disagreed with the Comptroller's assertions and, in March 2000, sued the Comptroller in the Supreme Court of the State of New York - New York County (the "Court"), seeking to require the Comptroller to register the contracts. On April 13, 2000, the Court issued a decision and judgment holding that the Comptroller has a mandatory duty to register the contracts. However, as a matter of judicial discretion, the Court refused to require registration, finding that the Comptroller had established that the procurement process had been corrupted. This decision has been appealed by the Mayor and HRA to the New York Supreme Court Appellate Division - First Department (the "Appellate Division"). On April 24, 2000, the Company filed a motion in the Appellate Division to intervene in the lawsuit. The Company is asking for the Court's decision to be set aside on the grounds that it contained findings of fact against the Company not supported by the record and that the Court failed to afford the Company with its constitutional rights to notice of a hearing and an opportunity to be heard. The Appellate Division has agreed to hear the appeal on an expedited basis. A hearing is currently scheduled for June 2000. This matter is also the subject of investigations being conducted by certain governmental agencies. The District Attorney's Office of New York County and the United States Attorney's Office for the Southern District of New York, in response to requests made by the Comptroller, have announced that they are investigating the facts underlying this matter. Both offices issued subpoenas for documents to the Company in early May 2000. The Company believes the Comptroller's claims are without merit and intends to defend against his allegations vigorously. MAXIMUS is believes that its actions were lawful and appropriate and plans to cooperate fully with the governmental reviews of the matter. Although there can be no assurance of a favorable outcome, the Company does not believe that this matter will have a material adverse effect on the Company's financial condition or results of operations. 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 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 SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, ----------------- ----------------- 1999 2000 1999 2000 -------- ------- ------- ------- Numerator: Net income ......................................................... $ 6,675 $ 8,566 $12,268 $16,226 Denominator: Denominator for basic earnings per share: Weighted average shares outstanding .......................... 20,944 21,036 20,101 21,019 Stock options ...................................................... 389 499 366 407 -------- ------- ------- ------- Denominator for dilutive earnings per share ........................ 21,333 21,535 20,467 21,427 ======== ======= ======= ======= Earnings per share: Basic .............................................................. $ 0.32 $ 0.41 $ 0.61 $ 0.77 ======== ======= ======= ======= Diluted ............................................................ $ 0.31 $ 0.40 $ 0.60 $ 0.76 ======== ======= ======= =======
6. SEGMENT INFORMATION The following table provides certain financial information for each business segment:
THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, ------------------- ------------------- Revenues: 1999 2000 1999 2000 -------- -------- -------- -------- Government Operations $ 42,544 $ 54,030 $ 81,361 $105,210 Consulting .......... 33,746 39,471 67,275 77,974 -------- -------- -------- -------- Total ................. $ 76,290 $ 93,501 $148,636 $183,184 ======== ======== ======== ======== Income From Operations: Government Operations $ 4,428 $ 6,608 $ 6,995 $ 11,569 Consulting .......... 6,066 6,992 12,351 13,929 -------- -------- -------- -------- Total ................. $ 10,494 $ 13,600 $ 19,346 $ 25,498 ======== ======== ======== ========
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 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, Public Systems, Inc. ("PSI") in October 1999, and Crawford Consulting, Inc. ("Crawford") in March 2000. Additionally, the Company acquired substantially all of the assets of the Government Services division of 3-G International, Inc. ("3GI") in March 2000. Spectrum, DMG, Carrera, Phoenix and CSI was each accounted for as a pooling of interests combination. Roberts, Unison, CHDR, PSI, Crawford and 3GI was each accounted for as a purchase. See "Business Combinations and Acquisitions" below. 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 AND ACQUISITIONS 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 services and enhance the Company's consultant customer base. The Company combined with four consulting firms during fiscal 1999, one of which was accounted for as a pooling of interests, and two firms during the first half of fiscal 2000, each accounted for as a purchase. Additionally, the Company acquired substantially all of the assets of a division of one firm during the first half of fiscal 2000. On February 26, 1999, the Company acquired all of the outstanding shares of capital stock of CSI in exchange for 700,210 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 $7,589,000. Unison, based in Chicago, Illinois, provides financial consulting for major government owned airports. In connection with the purchase, the Company recorded intangible assets of $6,328,000. 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 $827,000. 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 customers. In connection with the purchase, the Company recorded intangible assets of $4,735,000. At the time of the combination, PSI had 26 employees. On March 20, 2000, the Company acquired all of the outstanding shares of capital stock of Crawford for $17,500,000. Crawford, based in Canton, Ohio, provides web-enabled information systems and consulting services for state and local government courts and justice agencies. In connection with the purchase, the Company recorded intangible assets of $13,056,000. At the time of the combination, Crawford had 101 employees. On March 31, 2000, the Company acquired substantially all of the assets of the Government Services division of 3GI for $7,000,000, plus an earn-out amount of up to $3,000,000 to be paid by the Company upon the achievement of certain objectives. The division of 3GI acquired by MAXIMUS is based in Springfield, Virginia and provides integration services of smart card systems for the public and commercial sectors. In connection with the purchase, the Company recorded intangible assets of $6,708,000. At the time of the acquisition, the Government Services division of 3GI had 90 employees. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected statements of income data as a percentage of revenues:
THREE MONTHS SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, --------------- --------------- 1999 2000 1999 2000 ------ ------ ------ ------ Revenues: Government Operations Group .............. 55.8% 57.8% 54.7% 57.4% Consulting Group ......................... 44.2 42.2 45.3 42.6 ------ ------ ------ ------ Total revenues ............................. 100.0 100.0 100.0 100.0 Gross Profit: Government Operations Group .............. 20.5 22.9 18.9 22.3 Consulting Group ......................... 43.5 42.8 41.8 42.8 Total gross profit as a percent of revenue 30.7 31.3 29.3 31.0 Selling, general and administrative expenses 16.8 16.3 16.7 16.8 Amortization of goodwill and other acquisition related intangibles .......... 0.1 0.4 0.1 0.4 ------ ------ ------ ------ Income from operations ..................... 13.8 14.5 13.0 13.9 Interest and other income .................. 1.1 1.2 0.9 1.2 ------ ------ ------ ------ Income before income taxes ................. 14.9 15.7 13.9 15.1 Provision for income taxes ................. 6.2 6.5 5.6 6.2 ------ ------ ------ ------ Net income ................................. 8.7 9.2 8.3 8.9 ====== ====== ====== ======
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 REVENUES. Total contract revenues increased 22.6% to $93.5 million for the three months ended March 31, 2000 from $76.3 million for the same period in 1999. Government Operations Group revenues increased 27.0% to $54.0 million for the three months ended March 31, 2000 from $42.5 million for the same period in 1999. This increase was due primarily 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 17.0% to $39.5 million for the three months ended March 31, 2000 from $33.8 million for the same period in 1999. Approximately $3.4 million of the $5.7 million increase in the Consulting Group revenues were revenues from Roberts, Unison, PSI and Crawford, which companies were acquired subsequent to the quarter ended March 31, 1999. 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 25.0% to $29.3 million for the three months ended March 31, 2000 from $23.4 million for the same period in 1999. Government Operations Group gross profit increased 41.5% to $12.4 million for the three months ended March 31, 2000 from $8.7 million for the three months ended March 31, 1999. As a percentage of Government Operations Group revenues, Government Operations Group gross profit increased to 22.9% for the three months ended March 31, 2000 from 20.5% for the same period in 1999. The increase was due primarily to improved margins on certain projects in two of the four divisions of the Government Operations Group. That increase was offset by the incurrence of costs related to two contracts with the City of New York for which no revenue was recognized due to disputes regarding the registration of the contracts (See "Legal Proceedings.") The Consulting Group gross profit increased 15.2% to $16.9 million for the three months ended March 31, 2000 from $14.7 million for the same period in 1999 due to the increased revenues offset by a decreased gross profit percentage. As a percentage of Consulting Group revenues, Consulting Group gross profit decreased to 42.8% for the three months ended March 31, 2000 from 43.5% for the same period in 1999, due primarily to slightly reduced margins on a few projects within the Group. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general and administrative ("SG&A") expenses increased 19.5% to $15.3 million for the three months ended March 31, 2000 from $12.8 million for the same period in 1999. SG&A expenses were reduced in the quarter ended March 31, 2000 by the receipt of $819,000 from the settlement of a legal action settlement and were increased by the funding of $150,000 towards a charitable foundation established by the Company. Excluding those two items, SG&A expenses would have been $16.0 million, which is an increase of 24.8% over the same period in 1999. The increase in SG&A expenses was due to the increased size of the Company in terms of revenue growth and the increase in the number of employees to 3,797 at March 31, 2000 from 3,025 at March 31, 1999. As a percentage of revenues, SG&A expenses decreased to 16.3% for the three months ended March 31, 2000 from 16.8% for the same period in 1999, primarily due to the receipt of the settlement of a legal action, offset by an increase in the number of personnel and capability of the Government & Investor Relations unit and the Information Services unit. AMORTIZATION OF GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES. In the quarter ended March 31, 2000, the Company incurred $0.4 million of amortization expense related to the $33.4 million of goodwill and other acquisition-related intangible assets it recorded in connection with the acquisitions of Roberts, Unison, CHDR, PSI, Crawford and 3GI. INTEREST AND OTHER INCOME. The increase in interest and other income to $1.1 million for the three months ended March 31, 2000 as compared to $0.9 million for the same period in 1999 was due to an increase in the average interest rates earned on invested funds. PROVISION FOR INCOME TAXES. The provision for income tax for the three months ended March 31, 2000 was 41.7% of income before income taxes as compared to 41.3% for the three months ended March 31, 1999. The difference in percentages was due to differences in the amounts of certain expense items which are not deductible for tax purposes. SIX MONTHS ENDED MARCH 31, 2000 COMPARED TO SIX MONTHS ENDED MARCH 31, 1999 REVENUES. Total contract revenues increased 23.2% to $183.2 million for the six months ended March 31, 2000 from $148.6 million for the same period in 1999. Government Operations Group revenues increased 29.3% to $105.2 million for the six months ended March 31, 2000 from $81.4 million for the same period in 1999. This increase was due primarily to $2.6 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 15.9% to $78.0 million for the six months ended March 31, 2000 from $67.3 million for the same period in 1999. Approximately $6.1 million of the $10.7 million increase in the Consulting Group revenues were revenues from Roberts, Unison, PSI and Crawford, which companies were acquired subsequent to the quarter ended March 31, 1999. 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 30.7% to $56.9 million for the six months ended March 31, 2000 from $43.5 million for the same period in 1999. Government Operations Group gross profit increased 52.6% to $23.5 million for the six months ended March 31, 2000 from $15.4 million for the six months ended March 31, 1999. As a percentage of Government Operations Group revenues, Government Operations Group gross profit increased to 22.3% for the six months ended March 31, 2000 from 18.9% for the same period in 1999. The increase was due to improved margins in three of the four divisions of the Government Operations Group. That increase was offset by the incurrence of costs related to two contracts with the City of New York for which no revenue was recognized due to disputes regarding the registration of the contracts (See "Legal Proceedings.") The Consulting Group gross profit increased 18.6% to $33.3 million for the six months ended March 31, 2000 from $28.1 million for the same period in 1999 due to the increased revenues and an increased gross profit percentage. As a percentage of Consulting Group revenues, Consulting Group gross profit increased to 42.8% for the six months ended March 31, 2000 from 41.8% for the same period in 1999, due primarily to improved margins within the CSI and PSI divisions of the Group in the first quarter of fiscal year 2000, offset by slightly reduced margins on a few projects within the Group in the second quarter of fiscal year 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general and administrative ("SG&A") expenses increased 27.7% to $30.7 million for the six months ended March 31, 2000 from $24.0 million for the same period in 1999. The increase in SG&A expenses was due to the increased size of the Company in terms of revenue growth and the increase in the number of employees to 3,797 at March 31, 2000 from 3,025 at March 31, 1999. As a percentage of revenues, SG&A expenses increased to 16.8% for the six months ended March 31, 2000 from 16.2% for the same period in 1999, primarily due to the increase in the number of personnel and capability of the Government & Investor Relations unit and the Information Services unit, offset by the receipt of $819,000 from the settlement of a legal action in the second quarter of fiscal year 2000. AMORTIZATION OF GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES. In the six months ended March 31, 2000, the Company incurred $0.6 million of amortization expense related to the $33.4 million of goodwill and other acquisition-related intangible assets it recorded in connection with the acquisitions of Roberts, Unison, CHDR, PSI, Crawford and 3GI. INTEREST AND OTHER INCOME. The increase in interest and other income to $2.1 million for the six months ended March 31, 2000 as compared to $1.3 million for the same period in 1999 was due to an increase in the average interest rates earned on invested funds and to an increase in the amount of 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 six months ended March 31, 2000 was 41.3% of income before income taxes as compared to 40.5% for the six months ended March 31, 1999. 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 six months ended March 31, 2000, cash used in operations was $3.9 million as compared to cash provided by operations of $10.6 million for the six months ended March 31, 1999. The primary reasons for the usage of cash in the six months ended March 31, 2000 were an increase in accounts receivable and costs and estimated earnings in excess of billings of $9.4 million, a decrease in billings in excess of costs and estimated earnings of $5.1 million, a decrease in accrued compensation and benefits of $3.3 million, and a decrease in income taxes payable of $2.9 million. The increase in accounts receivable and costs and estimated earnings in excess of billings was due principally to the increase in revenue to $93.5 million for the three months ended March 31, 2000 from $86.7 million for the three months ended September 30, 1999. The decrease in billings in excess of costs and estimated earnings of $5.1 million was the result of differences between the timing of the proper recognition of revenue and the ability to invoice customers. The decrease in accrued compensation and benefits of $3.3 million is the result of the October 1999 payment of fiscal 1999 annual incentive compensation to employees in the aggregate amount of $7.0 million. As compared to the six months ended March 31, 2000, accounts receivable and costs and estimated earnings in excess of billings used cash of $2.0 million, billings in excess of costs and estimated earnings increased $0.7 million, accrued compensation and benefits decreased $2.4 million, and income taxes payable remained virtually unchanged in the six months ended March 31, 1999. For the six months ended March 31, 2000, cash used in investing activities was $13.1 million as compared to $65.7 million for the six months ended March 31, 1999. During the six months ended March 31, 2000, the Company generated cash from sales of marketable securities totaling $10.7 million, and used $21.9 million in cash for the purchase of PSI and Crawford and $1.5 million in cash for the purchase of property and equipment. Cash used in investing activities for the six months ended March 31, 1999 primarily consisted of the purchase of marketable securities totaling $54.1 million with the proceeds from the secondary offering, which occurred in December 1998, and the purchase of property and equipment totaling $9.0 million. Cash provided by financing activities during the six months ended March 31, 2000 was $1.5 million, which consisted primarily of sales of stock to employees through the Company's employee stock purchase plan and equity incentive plan. During the six months ended March 31, 1999, cash provided by financing activities consisted primarily of the proceeds of $61.0 million from the secondary stock offering. 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. 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 March 31, 2000. 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 On May 12, 1998, the Company acquired David M. Griffith & Associates, Ltd. ("DMG"), which was subsequently merged into DMG-MAXIMUS, Inc. ("DMG-MAXIMUS"), a wholly-owned subsidiary of MAXIMUS. A consolidated legal action was brought against DMG-MAXIMUS and thirteen other named defendants in the U.S. District Court for the District of Arizona by Superstition Mountains Community Facilities District No. 1 (the "District") and Allstate Insurance Company ("Allstate"), alleging that DMG made false and misleading representations in the reports DMG prepared as a consultant to underwriters of revenue bonds issued by the District and purchased by Allstate. On May 12, 2000, DMG-MAXIMUS agreed to a confidential settlement agreement with the District and Allstate. The settlement amount to be paid by DMG-MAXIMUS is not material and will not have an adverse effect on the Company's financial condition or results of operations. In January 2000, the New York City Human Resources Administration ("HRA") submitted two contracts that it had awarded to the Company for welfare-to-work services to the Comptroller of New York City (the "Comptroller") to be registered. Under New York law, the contracts must be registered in order for the Company to receive payment. However, the Comptroller refused to register the contracts citing improprieties in the procurement process and in the Company's conduct. The Mayor of the City of New York (the "Mayor") and HRA disagreed with the Comptroller's assertions and, in March 2000, sued the Comptroller in the Supreme Court of the State of New York - New York County (the "Court"), seeking to require the Comptroller to register the contracts. On April 13, 2000, the Court issued a decision and judgment holding that the Comptroller has a mandatory duty to register the contracts. However, as a matter of judicial discretion, the Court refused to require registration, finding that the Comptroller had established that the procurement process had been corrupted. This decision has been appealed by the Mayor and HRA to the New York Supreme Court Appellate Division - First Department (the "Appellate Division"). On April 24, 2000, the Company filed a motion in the Appellate Division to intervene in the lawsuit. The Company is asking for the Court's decision to be set aside on the grounds that it contained findings of fact against the Company not supported by the record and that the Court failed to afford the Company with its constitutional rights to notice of a hearing and an opportunity to be heard. The Appellate Division has agreed to hear the appeal on an expedited basis. A hearing is currently scheduled for June 2000. This matter is also the subject of investigations being conducted by certain governmental agencies. Specifically, the District Attorney's Office of New York County and the United States Attorney's Office for the Southern District of New York, in response to requests made by the Comptroller, have announced that they are investigating the facts underlying this matter. Both offices issued subpoenas for documents to the Company in early May 2000. The Company believes the Comptroller's claims are without merit and intends to defend against his allegations vigorously. MAXIMUS believes that its actions were lawful and appropriate and plans to cooperate fully with the governmental investigations of the matter. However, no assurance can be made that the contracts will ultimately be registered or that the investigations will not result in civil or criminal penalties or administrative sanctions against the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders held on February 23, 2000, the Company's shareholders voted as follows: (a) To reelect Messrs. Lynn P. Davenport, Thomas A. Grissen, David V. Mastran and Raymond B. Ruddy to the Board of Directors, each for a three-year term.
NOMINEE TOTAL VOTE "FOR". TOTAL VOTE WITHHELD ------- ---------------- ------------------- Lynn P. Davenport 19,275,655 130,461 Thomas A. Grissen 19,275,655 130,561 David V. Mastran 19,275,655 130,461 Raymond B. Ruddy 19,275,655 130,461
The terms in office of Russell A. Beliveau, Jesse Brown, Margaret Carrera, George C. Casey, Louis E. Chappuie, Stephen Goldsmith and Peter B. Pond continued after the meeting. (b) To approve an amendment to the Company's Amended and Restated Articles of Incorporation to increase the number of authorized shares of the Company's Common Stock from 30,000,000 to 60,000,000 shares.
Total Vote For the Proposal 18,914,305 Total Vote Against the Proposal 467,394 Abstentions 24,412
(c) 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, 2000.
Total Vote For the Proposal 19,389,616 Total Vote Against the Proposal 3,300 Abstentions 13,200
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 Reports on Form 8-K were filed by the Company during the fiscal quarter ended March 31, 2000. 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 15, 2000 By: /s/ F. ARTHUR NERRET -------------------------------- F. Arthur Nerret Vice President, Finance, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ----------- ----------- 27 Financial Data Schedules (EDGAR only) 99 Important Factors Regarding Forward Looking Statements. Filed herewith.