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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2001
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.)
11419 SUNSET HILLS ROAD
RESTON, VIRGINIA 20190
(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (703) 251-8500
------------------------
Indicate by check 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 11, 2001
Common Shares, no par value 21,401,363
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MAXIMUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2001
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2000
(audited) and March 31, 2001 (unaudited)
Consolidated Statements of Income for the three months and
six months ended March 31, 2000 and 2001 (unaudited)
Consolidated Statements of Cash Flows for the six months
ended March 31, 2000 and 2001 (unaudited)
Notes to Unaudited 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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature
Exhibit Index
THROUGHOUT THIS QUARTERLY REPORT ON FORM 10-Q, THE TERMS "WE," "US," "OUR" AND
"MAXIMUS" REFER TO MAXIMUS, INC. AND ITS SUBSIDIARIES.
MAXIMUS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, MARCH 31,
2000 2001
------------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 36,975 $ 46,994
Marketable securities..................................... 1,359 1,350
Accounts receivable, net.................................. 102,500 94,371
Costs and estimated earnings in excess of billings........ 27,264 37,057
Prepaid expenses and other current assets................. 6,344 6,505
-------- --------
Total current assets........................................ 174,442 186,277
Property and equipment at cost:
Land...................................................... 2,462 2,462
Building and improvements................................. 9,484 10,608
Office furniture and equipment............................ 14,264 15,352
Leasehold improvements.................................... 848 897
-------- --------
27,058 29,319
Less: Accumulated depreciation and amortization........... (8,754) (10,020)
-------- --------
Total property and equipment, net........................... 18,304 19,299
Software development costs.................................. 7,883 11,629
Less: Accumulated amortization............................ (703) (963)
-------- --------
Total software development, net............................. 7,180 10,666
Deferred income taxes....................................... 1,402 1,384
Intangible assets, net...................................... 52,586 49,815
Other assets................................................ 2,989 2,833
-------- --------
Total assets................................................ $256,903 $270,274
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 12,565 $ 11,976
Accrued compensation and benefits......................... 17,747 16,152
Billings in excess of costs and estimated earnings........ 15,648 10,710
Notes payable............................................. 209 284
Other current liabilities................................. 461 432
-------- --------
Total current liabilities................................... 46,630 39,554
Long-term debt.............................................. 555 71
Other liabilities........................................... 785 582
-------- --------
Total liabilities........................................... 47,970 40,207
Shareholders' equity:
Common stock, no par value; 60,000,000 shares authorized;
21,125,844 and 21,233,805 shares issued and outstanding
at September 30, 2000 and March 31, 2001, at stated
amount, respectively.................................... 133,082 135,680
Accumulated other comprehensive loss...................... (26) (13)
Retained earnings......................................... 75,877 94,400
-------- --------
Total shareholders' equity.................................. 208,933 230,067
-------- --------
Total liabilities and shareholders' equity.................. $256,903 $270,274
======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
1
MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------
Revenues............................................. $93,501 $120,605 $183,184 $233,521
Cost of revenues..................................... 64,249 82,046 126,334 159,300
------- -------- -------- --------
Gross profit......................................... 29,252 38,559 56,850 74,221
Selling, general and administrative expenses......... 15,281 20,509 30,707 40,260
Amortization of goodwill and other
acquisition-related intangibles.................... 371 1,359 645 2,751
------- -------- -------- --------
Income from operations............................... 13,600 16,691 25,498 31,210
Interest and other income............................ 1,099 166 2,149 454
------- -------- -------- --------
Income before income taxes........................... 14,699 16,857 27,647 31,664
Provision for income taxes........................... 6,133 6,996 11,421 13,141
------- -------- -------- --------
Net income........................................... $ 8,566 $ 9,861 $ 16,226 $ 18,523
======= ======== ======== ========
Earnings per share:
Basic.............................................. $ 0.41 $ 0.46 $ 0.77 $ 0.87
======= ======== ======== ========
Diluted............................................ $ 0.40 $ 0.45 $ 0.76 $ 0.85
======= ======== ======== ========
Weighted average shares outstanding:
Basic.............................................. 21,036 21,214 21,019 21,179
======= ======== ======== ========
Diluted............................................ 21,535 22,021 21,427 21,804
======= ======== ======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
2
MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED MARCH 31,
-------------------
2000 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 16,226 $ 18,523
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 2,007 4,277
Deferred income taxes................................... 18 (177)
Change in assets and liabilities:
Accounts receivable, net................................ (6,884) 8,129
Costs and estimated earnings in excess of billings...... (2,520) (9,792)
Prepaid expenses and other current assets............... 318 (83)
Other assets............................................ 853 (441)
Accounts payable........................................ (2,713) (589)
Accrued compensation and benefits....................... (3,338) (1,595)
Billings in excess of costs and estimated earnings...... (5,084) (4,939)
Income taxes payable.................................... (2,941) --
Other liabilities....................................... 139 (28)
-------- --------
Net cash (used in) provided by operating activities......... (3,919) 13,285
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of acquired cash......... (21,514) --
Purchase price adjustments, net......................... -- 20
Proceeds from notes receivable.......................... 81 714
Capitalization of software development costs............ (387) (3,746)
Purchase of property and equipment...................... (1,564) (2,261)
Decrease in marketable securities....................... 10,710 21
-------- --------
Net cash used in investing activities....................... (12,674) (5,252)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................ 1,495 2,598
Net payments on borrowings.............................. (38) (612)
-------- --------
Net cash provided by financing activities................... 1,457 1,986
-------- --------
Net (decrease) increase in cash and cash equivalents........ (15,136) 10,019
Cash and cash equivalents, beginning of period.............. 61,647 36,975
-------- --------
Cash and cash equivalents, end of period.................... $ 46,511 $ 46,994
======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
3
MAXIMUS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
IN THESE NOTES TO UNAUDITED FINANCIAL STATEMENTS, THE TERMS THE "COMPANY"
AND "MAXIMUS" REFER TO MAXIMUS, INC. AND ITS SUBSIDIARIES.
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 2001 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,
2000 and 1999 and for each of the three years in the period ended September 30,
2000, included in the Company's Annual Report on Form 10-K for the year ended
September 30, 2000 (File No. 1-12997) filed with the Securities and Exchange
Commission on December 27, 2000.
Certain reclassifications have been made to prior year amounts to conform to
current year presentation.
2. IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101, REVENUE RECOGNITION IN
FINANCIAL STATEMENTS ("SAB 101"). SAB 101 summarizes some of the staff's
interpretations of application of generally accepted accounting principles to
revenue recognition, including presentation in the consolidated financial
statements. The staff provided guidance due, in part, to the large number of
revenue recognition issues that it has encountered in registrant filings. The
Company is currently evaluating the impact that SAB 101 will have on its
financial statements and intends to adopt SAB 101 in the fourth quarter of
fiscal 2001.
3. BUSINESS COMBINATIONS
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 $4,540.
On March 20, 2000, the Company acquired all of the outstanding shares of
capital stock of Crawford Consulting, Inc. for $16,750. In conjunction with the
purchase, the Company recorded intangible assets of $11,887.
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 $1,126 paid by the Company in May 2001 as a result of
achievement of certain objectives. In conjunction with the purchase, the Company
recorded intangible assets of $7,054, excluding the May 2001 earn-out payment.
On April 12, 2000, Asset Solutions (formerly known as CSI-MAXIMUS, Inc.), a
wholly owned subsidiary of the Company, acquired substantially all of the assets
of Asset Works, Inc. for $8,613. In conjunction with the purchase, the Company
recorded intangible assets of $8,674.
4
On April 14, 2000, the Company acquired all of the outstanding shares of
capital stock of Valuation Resource Management, Inc. for $4,500. In conjunction
with the purchase, the Company recorded intangible assets of $3,585.
On April 29, 2000, the Company acquired substantially all of the assets of
Technology Management Resources, Inc. for $9,674. In conjunction with the
purchase, the Company recorded intangible assets of $10,036.
On July 19, 2000, the Company acquired all of the outstanding membership
interests of Strategic Partners International, LLC for $1,800. In conjunction
with the purchase, the Company recorded intangible assets of $1,609.
Intangible assets are amortized using the straight-line method over periods
ranging from two to fifteen years. The accumulated amortization related to
intangible assets at September 30, 2000 and March 31, 2001 was $3,472 and
$6,223, respectively.
4. COMMITMENTS AND CONTINGENCIES
In January 2000, the New York City Human Resources Administration 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. However,
the Comptroller refused to register the contracts, alleging improprieties in the
procurement process and in the Company's conduct. The New York Supreme Court,
Appellate Division--First Department ordered the Comptroller to register the
contracts in October 2000 after finding no wrongdoing in the Company's conduct.
Nevertheless, this matter continues to be 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, are
investigating the facts underlying this matter. During the last year, these
offices reviewed certain documents and interviewed some of the Company's
employees. To the Company's knowledge, there has been no recent activity
involving these investigations. MAXIMUS believes that its actions were lawful
and appropriate and, 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 its 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
unfavorably.
5. EARNINGS PER SHARE
The following table sets forth the components of basic and diluted earnings
per share:
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------
Numerator:
Net income............................................ $ 8,566 $ 9,861 $16,226 $18,523
------- ------- ------- -------
Denominator:
Weighted average shares outstanding................... 21,036 21,214 21,019 21,179
Effect of dilutive securities:
Employee stock options................................ 499 807 408 625
------- ------- ------- -------
Denominator for diluted earnings per share............ 21,535 22,021 21,427 21,804
======= ======= ======= =======
5
6. SEGMENT INFORMATION
In October 2000, the Company completed a reorganization of its divisions in
order to better focus and manage the Company's existing and future technology
assets. Accordingly, prior period reports have been reclassified to reflect
current period presentation of segment information.
The following table provides certain financial information for each business
segment:
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------
Revenues:
Government Operations Group........................ $54,030 $ 66,586 $105,210 $127,069
Consulting Group................................... 27,255 36,763 54,396 72,302
Systems Group...................................... 12,216 17,256 23,578 34,150
------- -------- -------- --------
Total................................................ $93,501 $120,605 $183,184 $233,521
======= ======== ======== ========
Gross Profit:
Government Operations Group........................ $12,347 $ 14,554 $ 23,514 $ 27,340
Consulting Group................................... 10,855 16,655 22,182 31,731
Systems Group...................................... 6,050 7,350 11,154 15,150
------- -------- -------- --------
Total................................................ $29,252 $ 38,559 $ 56,850 $ 74,221
======= ======== ======== ========
Income from operations:
Government Operations Group........................ $ 6,608 $ 6,687 $ 11,569 $ 12,234
Consulting Group................................... 4,733 8,977 9,905 16,069
Systems Group...................................... 2,259 1,027 4,024 2,907
------- -------- -------- --------
Total................................................ $13,600 $ 16,691 $ 25,498 $ 31,210
======= ======== ======== ========
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
We are a leading provider of program management, consulting and systems
services primarily to state and local government agencies throughout the United
States. Since our inception, we have been at the forefront of innovation in
meeting our mission of "Helping Government Serve the People(R)." We use our
expertise, experience and advanced information technology to make government
operations more efficient and cost-effective while improving the quality of
services provided to program beneficiaries. We currently have contracts with
government agencies in all 50 states, 49 of the 50 largest cities and 27 of the
30 largest counties, and have been profitable every year since we were founded
in 1975. For the year ended September 30, 2000, we had revenues of $399 million
and net income of $30.5 million and for the six months ended March 31, 2001, we
had revenues of $233.5 million and net income of $18.5 million.
Prior to October 2000, we conducted our operations through two groups: the
Government Operations Group and the Consulting Group. In October 2000, we
reorganized our groups to better focus and manage our existing and future
technology assets. Our core technology assets were moved from the Consulting
Group to the newly created Systems Group. Accordingly, we have reflected the
segment information for earlier periods as if it were composed of three
reportable segments instead of two reportable segments.
Our revenues are generated from contracts with various payment arrangements,
including: (1) fixed-price; (2) costs incurred plus a negotiated fee
("cost-plus"); (3) performance-based criteria; and (4) time and materials
reimbursement (used primarily by the Consulting Group). For the fiscal year
ended September 30, 2000, the most recent period for which this information is
available, revenues from fixed price contracts were approximately 47% of total
revenues; revenues from cost-plus contracts were approximately 19% of total
revenues; revenues from performance based contracts were approximately 18% of
total revenues; and revenues from time and materials reimbursement contracts
were approximately 16% of total revenues. Traditionally, a majority of the
contracts with state and local government agencies have been fixed-price and
performance-based and federal government contracts have been cost-plus.
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 we are 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, 2000, our
average Government Operations contract duration was approximately 2.3 years. Our
Consulting Group contracts had performance periods ranging from one month to
approximately two years. Our average Systems Group contract duration was 1.5
years.
Our most significant expense is cost of revenues, which consists primarily
of project-related employee salaries and benefits, subcontractors, computer
equipment and travel expenses. Our 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 our fixed-price, performance-based and time and
materials contracts. Service cost variability has little impact on cost-plus
arrangements because allowable costs are reimbursed by the client.
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.
7
BUSINESS COMBINATIONS AND ACQUISITIONS
As part of our growth strategy, we intend to continue to selectively
identify and pursue complementary businesses to expand our geographic reach and
the breadth and depth of our services and to enhance our customer base. During
fiscal 2000, we completed the following transactions:
INTANGIBLE ASSETS
ACQUIRED COMPANY DESCRIPTION OF DATE PURCHASE PRICE RECORDED
BUSINESS
Public Systems, Inc. Client-server October 20, 1999 $5,000,000 $4,540,000
management systems
Crawford Consulting, Web-enabled March 20, 2000 $16,750,000 $11,887,000
Inc. information systems
3-G International, Smart-card systems March 31, 2000 $7,000,000 plus an $7,054,000
Inc. earn-out of (excludes May
$1,126,000 paid May earn-out payment)
2001
Asset Works, Inc. Infrastructure April 12, 2000 $8,613,000 $8,674,000
management systems
Valuation Resource Asset inventorying April 14, 2000 $4,500,000 $3,585,000
Management, Inc. and valuation
services
Technology Child support April 29, 2000 $9,674,000 $10,036,000
Management Resources collection services
Strategic Partners Activity-based July 19, 2000 $1,800,000 $1,609,000
International LLC costing systems
8
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,
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------
Revenues:
Government Operations Group............................... 57.8% 55.2% 57.4% 54.4%
Consulting Group.......................................... 29.1 30.5 29.7 31.0
Systems Group............................................. 13.1 14.3 12.9 14.6
----- ----- ----- -----
Total revenues........................................ 100.0 100.0 100.0 100.0
Gross Profit:
Government Operations Group............................... 22.9 21.9 22.3 21.5
Consulting Group.......................................... 39.8 45.3 40.8 43.9
Systems Group............................................. 49.5 42.6 47.3 44.4
----- ----- ----- -----
Total gross profit as a percent of revenue............ 31.3 32.0 31.0 31.8
Selling, general and administrative expenses.............. 16.3 17.0 16.8 17.2
Amortization of goodwill and other acquisition-related
intangibles............................................. 0.4 1.1 0.3 1.2
----- ----- ----- -----
Income from operations:
Government Operations Group............................... 12.2 10.0 11.0 9.6
Consulting Group.......................................... 17.4 24.4 18.2 22.2
Systems Group............................................. 18.5 6.0 17.1 8.5
----- ----- ----- -----
Total income from operations.......................... 14.6 13.9 13.9 13.4
Interest and other income................................. 1.1 0.1 1.2 0.1
----- ----- ----- -----
Income before income taxes................................ 15.7 14.0 15.1 13.5
Provision for income taxes................................ 6.5 5.8 6.2 5.6
----- ----- ----- -----
Net income................................................ 9.2% 8.2% 8.9% 7.9%
===== ===== ===== =====
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31,
2000
REVENUES. Our total contract revenues increased 29.0% to $120.6 million for
the three months ended March 31, 2001 from $93.5 million for the same period in
2000. Revenues of our Government Operations Group increased 23.2% to $66.6
million for the three months ended March 31, 2001 from $54.0 million for the
same period in 2000. This increase was due to an increase in the number of
contracts plus revenue totaling $1.1 million received this quarter from entities
acquired after the second quarter of the last fiscal year. Revenues of our
Consulting Group increased 34.9% to $36.8 million for the three months ended
March 31, 2001 from $27.3 million for the same period in 2000. This increase was
due to an increase in the number of contracts plus revenue totaling $2.1 million
received this quarter from entities acquired after the second quarter of the
last fiscal year. Revenues of our Systems Group increased 41.3% to $17.3 million
for the three months ended March 31, 2001 from $12.2 million for the same period
in 2000. This increase was primarily due to revenue totaling $5.1 million
received this quarter from entities acquired after the second quarter of the
last fiscal year. For the three months ended March 31, 2001 compared to the
three months ended March 31, 2000, our overall growth in revenue was 20.1%
excluding the revenue from entities we acquired after the period ended March 31,
2000.
9
GROSS PROFIT. Our total gross profit increased 31.8% to $38.6 million for
the three months ended March 31, 2001 from $29.3 million for the same period in
2000. Gross profit of our Government Operations Group increased 17.9% to $14.6
million for the three months ended March 31, 2001 from $12.3 million for the
three months ended March 31, 2000. As a percentage of Government Operations
Group revenues, Government Operations Group gross profit decreased to 21.9% for
the three months ended March 31, 2001 from 22.9% for the same period in 2000.
The decrease was due to a decline in gross margins on a few projects within the
Group. Gross profit of our Consulting Group increased 53.4% to $16.7 million for
the three months ended March 31, 2001 from $10.9 million for the same period in
2000 due to increased revenues and an increased gross profit percentage. As a
percentage of Consulting Group revenues, Consulting Group gross profit increased
to 45.3% for the three months ended March 31, 2001 from 39.8% for the same
period in 2000, primarily due to improved margins. Gross profit of our Systems
Group increased 21.5% to $7.4 million for the three months ended March 31, 2001
from $6.1 million for the same period in 2000 due to increased revenues. As a
percentage of Systems Group revenues, Systems Group gross profit decreased to
42.6% for the three months ended March 31, 2001 from 49.5% for the same period
in 2000, due primarily to a decline in software license sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our total selling, general
and administrative (SG&A) expenses increased 34.2% to $20.5 million for the
three months ended March 31, 2001 from $15.3 million for the same period in
2000. The primary reasons for the increase in SG&A costs were the growth in the
number of our employees to approximately 4,550 at March 31, 2001 from
approximately 3,797 at March 31, 2000, the increase in expenses necessary to
support our growth, the increase in marketing and proposal preparation
expenditures incurred to pursue further growth and, to a lesser extent, the
increase in corporate and administrative staff to 214 at March 31, 2001 from 183
at March 31, 2000. As a percentage of our revenues, our SG&A expenses increased
to 17.0% for the three months ended March 31, 2001 from 16.3% for the same
period in 2000.
AMORTIZATION OF GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES. In the
quarter ended March 31, 2001, we incurred $1.4 million of amortization expense,
as compared to $0.4 million for the same period in 2000. The increase is due to
amortization of $56.0 million of goodwill and other acquisition-related
intangible assets we recorded in connection with acquisitions we completed
through fiscal year 2000.
INTEREST AND OTHER INCOME. The decrease in interest and other income to
$0.2 million for the three months ended March 31, 2001 as compared to $1.1
million for the same period in 2000 was due to a decrease in the average balance
of funds we invested.
PROVISION FOR INCOME TAXES. Our provision for income tax for the three
months ended March 31, 2001 was 41.5% of income before income taxes as compared
to 41.7% for the three months ended March 31, 2000. This decrease was due to
differences in the amounts of certain expense items, primarily amortization of
intangible assets, some of which is not deductible for tax purposes.
SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000
REVENUES. Our total contract revenues increased 27.5% to $233.5 million for
the six months ended March 31, 2001 from $183.2 million for the same period in
2000. Revenues of our Government Operations Group increased 20.8% to $127.1
million for the six months ended March 31, 2001 from $105.2 million for the same
period in 2000. This increase was due to an increase in the number of contracts
plus revenue totaling $2.8 million received during the six month period ended
March 31, 2001 from entities acquired after the start of the six month period
ended March 31, 2000. Revenues of our Consulting Group increased 32.9% to $72.3
million for the six months ended March 31, 2001 from $54.4 million for the same
period in 2000. This increase was due to an increase in the number of
10
contracts plus revenue totaling $4.2 million received during the six month
period ended March 31, 2001 from entities acquired after the start of the six
month period ended March 31, 2000. Revenues of our Systems Group increased 44.8%
to $34.1 million for the six months ended March 31, 2001 from $23.6 million for
the same period in 2000. This increase was primarily due to revenue totaling
$10.1 million received during the six month period ended March 31, 2001 from
entities acquired after the start of the six month period ended March 31, 2000.
For the six months ended March 31, 2001 compared to the six months ended March
31, 2000, our overall growth in revenue was 18.1% excluding the revenue from
entities we acquired after the period ended March 31, 2000.
GROSS PROFIT. Our total gross profit increased 30.6% to $74.2 million for
the six months ended March 31, 2001 from $56.9 million for the same period in
2000. Gross profit of our Government Operations Group increased 16.3% to $27.3
million for the six months ended March 31, 2001 from $23.5 million for the six
months ended March 31, 2000. As a percentage of Government Operations Group
revenues, Government Operations Group gross profit decreased to 21.5% for the
six months ended March 31, 2001 from 22.3% for the same period in 2000. The
decrease was due to a decline in gross margins on a few projects within the
Group. Gross profit of our Consulting Group increased 43.0% to $31.7 million for
the six months ended March 31, 2001 from $22.2 million for the same period in
2000. As a percentage of Consulting Group revenues, Consulting Group gross
profit increased to 43.9% for the six months ended March 31, 2001 from 40.8% for
the same period in 2000, primarily due to improved margins. Gross profit of our
Systems Group increased 35.8% to $15.2 million for the six months ended March
31, 2001 from $11.2 million for the same period in 2000 due to increased
revenues. As a percentage of Systems Group revenues, Systems Group gross profit
decreased to 44.4% for the six months ended March 31, 2001 from 47.3% for the
same period in 2000, due primarily to a decline in software license sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Our SG&A expenses increased
31.1% to $40.3 million for the six months ended March 31, 2001 from $30.7
million for the same period in 2000. The primary reasons for the increase in
SG&A costs were the growth in the number of our employees to approximately 4,550
at March 31, 2001 from approximately 3,797 at March 31, 2000, the increase in
expenses necessary to support our growth, the increase in marketing and proposal
preparation expenditures incurred to pursue further growth and, to a lesser
extent, the increase in corporate and administrative staff to 214 at March 31,
2001 from 183 at March 31, 2000. As a percentage of our revenues, our SG&A
expenses increased to 17.2% for the six months ended March 31, 2001 from 16.8%
for the same period in 2000.
AMORTIZATION OF GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES. In the
quarter ended March 31, 2001, we incurred $2.8 million of amortization expense,
as compared to $0.6 million for the same period in 2000. The increase is due to
amortization of $56.0 million of goodwill and other acquisition-related
intangible assets we recorded in connection with acquisitions we completed
through fiscal year 2000.
INTEREST AND OTHER INCOME. The decrease in interest and other income to
$0.5 million for the six months ended March 31, 2001 as compared to $2.1 million
for the same period in 2000 was due to a decrease in the average balance of
funds we invested.
PROVISION FOR INCOME TAXES. Our provision for income tax for the six months
ended March 31, 2001 was 41.5% of income before income taxes as compared to
41.3% for the six months ended March 31, 2000. This increase was due to
differences in the amounts of certain expense items, primarily amortization of
intangible assets, some of which is not deductible for tax purposes.
11
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended March 31, 2001, cash provided by our operations was
$13.3 million as compared to cash used in our operations of $3.9 million for the
six months ended March 31, 2000. Higher income after adjustment for depreciation
and amortization and changes in working capital accounts has favorably impacted
our operating cash flow. Improvements in realizations on accounts receivable
collections has had a significant positive effect in the first six months of
fiscal 2001, partially offset by an increase in costs and estimated earnings in
excess of billings (i.e., unbilled receivables) and a decrease in billings in
excess of costs and estimated earnings (i.e., deferred revenue). The increase in
unbilled accounts receivable and the decrease in deferred revenues during the
six months ended March 31, 2001 were due to a number of new contract startups
and the impact of a number of contracts for which billings do not match
performance achievement.
For the six months ended March 31, 2001, cash used in investing activities
was $5.3 million as compared to $12.7 million for the six months ended March 31,
2000. Cash used in investing activities for the six months ended March 31, 2001
primarily consisted of expenditures for capitalized software costs totaling $3.8
million and purchases of property and equipment of $2.3 million. During the six
months ended March 31, 2000, we generated cash from sales of marketable
securities, substantially all of which consisted of short-term government
obligations totaling $10.7 million, and used $21.5 million in cash for two
acquisitions.
Cash provided by financing activities during the six months ended March 31,
2001 and the six months ended March 31, 2000 was $2.0 million and $1.5 million,
respectively, which consisted primarily of sales of stock to employees through
our employee stock purchase plan and stock option plan during both periods.
Our management believes that we will have sufficient resources to meet our
liquidity requirements for at least the next twelve months.
FORWARD LOOKING STATEMENTS
From time to time, we may make forward-looking statements that are not
historical facts, including statements about our confidence and strategies and
our expectations about revenues, results of operations, profitability, future
contracts, market opportunities, market demand or acceptance of our products and
services. These statements may involve risks and uncertainties that could cause
our actual results to differ materially from those indicated by such
forward-looking statements. Examples of these risks include reliance on
government clients; risks associated with government contracting; risks involved
in managing government projects; legislative changes and political developments;
opposition from government unions; challenges resulting from growth; adverse
publicity; and legal, economic, and other risks detailed in Exhibit 99 to this
Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe that our exposure to market risk related to the effect of changes
in interest rates, foreign currency exchange rates, commodity prices and equity
prices with regard to instruments entered into for trading or for other purposes
is immaterial.
12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At our Annual Meeting of Shareholders held on March 6, 2001, our
shareholders voted as follows:
(a) To elect Margaret Carrera, Peter B. Pond and James R. Thompson to the
board of directors, each for a three-year term.
NOMINEE TOTAL VOTE "FOR" TOTAL VOTE WITHHELD
- ------- ------------------ -------------------
Margaret Carrera............................. 18,314,126 736,921
Peter B. Pond................................ 18,515,847 535,200
James R. Thompson............................ 18,347,194 703,853
Ms. Carrera resigned from the board of directors immediately after the
March 6, 2001 Annual Meeting. Russell A. Beliveau, Jesse Brown, Lynn P.
Davenport, Thomas A. Grissen, David V. Mastran and Raymond B. Ruddy
continued their terms in office after the meeting.
(b) To approve an amendment to our 1997 Equity Incentive Plan to increase
the number of shares of common stock of MAXIMUS as to which awards may be
granted under the plan to 5,000,000.
Total Vote For the Proposal................................. 10,871,957
Total Vote Against the Proposal............................. 6,989,395
Abstentions................................................. 49,782
(c) To ratify the selection by our board of directors of Ernst & Young LLP
as our independent public accountants for the fiscal year ending
September 30, 2001.
Total Vote For the Proposal................................. 18,980,077
Total Vote Against the Proposal............................. 3,381
Abstentions................................................. 67,589
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 the Exhibits. The Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K. We filed a Current Report on Form 8-K on February
7, 2001 to disclose certain financial segment information for earlier
periods reflecting a reorganization of our principal operating segments
as if we had operated under three groups rather than two groups.
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SIGNATURE
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, 2001 By: /s/ F. ARTHUR NERRET
----------------------------------------------
F. Arthur Nerret
Vice President, Finance, Chief Financial
Officer
(Principal Financial and Accounting Officer)
14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10 1997 Equity Incentive Plan, as amended. Filed herewith.
99 Important Factors Regarding Forward Looking Statements.
Filed herewith.
15