UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

FORM 10-Q

 

ý                                 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended March 31, 2002

 

OR

 

o                                 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)

 

 

 

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   ý   No   o

 

 

MAXIMUS, Inc.

 

Quarterly Report on Form 10–Q

For the Quarter Ended March 31, 2002

 

 

INDEX

 

PART I.  FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements.
	Consolidated Balance Sheets as of September 30, 2001 (audited) and March 31, 2002 (unaudited)
	Consolidated Statements of Income for the three months and six months ended March 31, 2001 and 2002 (unaudited)
	Consolidated Statements of Cash Flows for the six months ended March 31, 2001 and 2002 (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 5.		Other Information.
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, 2001			March 31, 2002
					(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	114,108		$	113,859
Marketable securities		1,232			160
Accounts receivable — billed		118,988			118,563
Accounts receivable — unbilled		20,436			23,590
Prepaid expenses and other current assets		5,483			9,382
Total current assets		260,247			265,554
Property and equipment, at cost:
Land		2,462			2,462
Building and improvements		11,096			11,298
Office furniture and equipment		17,079			20,064
Leasehold improvements		992			2,019
Less:  Accumulated depreciation and amortization		31,629			35,843
		(11,090		)	(12,237		)
Total property and equipment, net		20,539			23,606
Software development costs		13,961			17,375
Less:  Accumulated amortization		(2,245		)	(3,345		)
Total software development, net		11,716			14,030
Deferred income taxes		2,726			2,726
Intangible assets, net		859			346
Goodwill, net		48,959			53,059
Other assets		2,669			1,517
Total assets		$	347,715		$	360,838
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	12,709		$	11,569
Accrued compensation and benefits		18,611			15,045
Deferred revenue		10,756			5,731
Income taxes payable		1,214			4,545
Deferred income taxes		1,849			1,849
Other current liabilities		642			741
Total current liabilities		45,781			39,480
Other liabilities		520			397
Total liabilities		46,301			39,877
Shareholders’ equity:
Common stock, no par value; 60,000,000 shares authorized; 22,985,806 and 23,094,629 shares issued and outstanding at September 30, 2001 and March 31, 2002, at stated amount, respectively		185,658			186,935
Accumulated other comprehensive loss		(18		)	(50		)
Retained earnings		115,774			134,076
Total shareholders’ equity		301,414			320,961
Total liabilities and shareholders’ equity		$	347,715		$	360,838

 

See notes to unaudited consolidated financial statements.

 

 

1

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2001			2002			2001			2002
Revenues		$	120,257		$	121,953		$	229,503		$	251,523
Cost of revenues		82,046			86,749			159,300			175,535
Gross profit		38,211			35,204			70,203			75,988
Selling, general and administrative expenses		20,509			23,589			40,260			46,117
Amortization of goodwill and other acquisition-related intangibles		1,359			250			2,751			513
Income from operations		16,343			11,365			27,192			29,358
Interest and other income		166			670			454			1,403
Income before income taxes and cumulative effect of accounting change		16,509			12,035			27,646			30,761
Provision for income taxes		6,852			4,968			11,474			12,458
Income before cumulative effect of accounting change		9,657			7,067			16,172			18,303
Cumulative effect of accounting change (See Note 2)		—			—			(3,856		)	—
Net income		$	9,657		$	7,067		$	12,316		$	18,303
Earnings per share:
Income before cumulative effect of accounting change:
Basic		$	0.46		$	0.31		$	0.76		$	0.79
Diluted		$	0.44		$	0.30		$	0.74		$	0.76
Net income:
Basic		$	0.46		$	0.31		$	0.58		$	0.79
Diluted		$	0.44		$	0.30		$	0.56		$	0.76
Weighted average shares outstanding:
Basic		21,214			23,142			21,179			23,121
Diluted		22,021			23,850			21,804			23,937

 

See notes to unaudited consolidated financial statements

 

 

2

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

		Six Months Ended March 31,
		2001			2002
Cash flows from operating activities:
Net income		$	12,316		$	18,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,277			2,760
Deferred income taxes		(177		)	—
Cumulative effect of accounting change		3,856			—
Change in assets and liabilities:
Accounts receivable — billed		8,129			455
Accounts receivable — unbilled		(5,774		)	(3,155		)
Prepaid expenses and other current assets		(83		)	(3,307		)
Other assets		(441		)	470
Accounts payable		(589		)	(1,151		)
Accrued compensation and benefits		(1,595		)	(3,650		)
Income taxes payable		(4,939		)	(5,024		)
Deferred revenue		(1,667		)	3,330
Other liabilities		(28		)	99
Net cash provided by operating activities		13,285			9,130
Cash flows from investing activities:
Acquisition of business, net of acquired cash (See Note 4)		—			(4,100		)
Purchase price adjustments, net		20			—
Proceeds from notes receivable		714			90
Capitalization of software development costs		(3,746		)	(3,415		)
Purchases of property and equipment		(2,261		)	(4,148		)
Decrease in marketable securities		21			1,040
Net cash used in investing activities		(5,252		)	(10,533		)
Cash flows from financing activities:
Employee stock purchases and options exercised		2,598			6,556
Repurchases of common stock (See Note 7)		—			(5,279		)
Net payments on borrowings		(612		)	(123		)
Net cash provided by financing activities		1,986			1,154
Net increase (decrease) in cash and cash equivalents		10,019			(249		)
Cash and cash equivalents, beginning of period		36,975			114,108
Cash and cash equivalents, end of period		$	46,994		$	113,859

 

See notes to unaudited consolidated financial statements.

 

 

3

 

MAXIMUS, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Six Month Periods Ended March 31, 2002 and 2001

(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, 2002 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, 2001 and 2000 and for each of the three years in the period ended September 30, 2001, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2001 (File No. 1–12997) filed with the Securities and Exchange Commission on December 21, 2001.

 

2. Revenue Recognition

 

                During fiscal 2001, the Company changed its method of accounting for revenue recognition in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Effective October 1, 2000, the Company recorded the cumulative effect of the accounting change resulting in a charge to income of $3,856 (net of an income tax benefit of $2,735). As reported in the Company’s fiscal 2001 Annual Report on Form 10-K, the quarterly information originally reported in fiscal 2001 Quarterly Reports on Forms 10-Q was restated for the change in accounting.

 

3. Goodwill and Intangible Assets

 

                The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (“FAS 142”), effective October 1, 2001. Under FAS 142, goodwill is no longer amortized but reviewed for impairment annually, or more frequently if certain indicators arise. The Company was required to complete the initial step of a transitional impairment test within six months of adopting FAS 142 and, if applicable, to complete the final step of the transitional impairment test by the end of the fiscal year.

 

In connection with the impairment provisions of the new rules, the Company has completed the initial step of the goodwill impairment test and has concluded that no adjustment to the balance of goodwill at the date of adoption is required.

 

Had the Company been accounting for its goodwill under FAS 142 for the three and six month periods ended March 31, 2001, the Company’s net income and earnings per share would have been as follows:

 

 

4

 

 

Intangible assets are comprised of employee contracts and customer lists and are amortized using the straight-line method over a period of two and five years, respectively. The accumulated amortization related to intangible assets at September 30, 2001 was $2,256 and at March 31, 2002 was $2,769. The estimated amortization expense for the years ending September 30, 2002, 2003, 2004 and 2005 is $642, $132, $70 and $15, respectively.

 

4. Business Combinations

 

                In fiscal 2001 and 2002, the Company acquired the businesses described below in business combinations accounted for as purchases. Accordingly, the accompanying consolidated financial statements include the results of operations of each acquired business since the date of acquisition.

 

                On May 11, 2001, the Company acquired Opportunity America, LLC for $780. In conjunction with the purchase, the Company recorded goodwill of $593 and intangible assets of $115, which has been assigned to the Human Services Group business segment. Opportunity America, LLC provides program management and consulting services to private sector and to federal, state and local government and human services agencies.

 

                On February 1, 2002, the Company acquired Collins Consulting Group, Inc. for $4,100. In conjunction with the purchase, the Company recorded goodwill of $4,100, which has been assigned to the Systems Group business segment. Collins Consulting Group, Inc. provides information security solutions, information technology, and management consulting. The primary reason for acquiring Collins Consulting Group, Inc. was to enhance the Company’s new business opportunities in the security solutions technologies markets.

 

5. Commitments and Contingencies

 

                The Company is involved in various legal proceedings in the ordinary course of its business. Management does not expect the ultimate outcome of the legal proceedings to have a material adverse effect on the Company’s financial statements or its business operations.

 

6. Earnings per share

 

The following table sets forth the components of basic and diluted earnings per share:

 

 

5

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2001			2002			2001			2002
Numerator:
Net income		$	9,657		$	7,067		$	12,316		$	18,303
Denominator:
Weighted average shares outstanding		21,214			23,142			21,179			23,121
Effect of dilutive securities:
Employee stock options		807			708			625			816
Denominator for diluted earnings per share		22,021			23,850			21,804			23,937

 

7.  Stock Repurchase Program

 

                In May 2000, the Board of Directors authorized the repurchase, at management’s discretion, of up to $30 million of the Company’s common stock. During the three-month period ended March 31, 2002, the Company repurchased 162,769 shares for $5,279 under this program. At March 31, 2002, $24,721 remained available for future stock repurchases under the program.

 

8.  Segment Information

 

                Since fiscal 2001, the Company has reorganized its business into four reportable operating segments in order to better focus and manage its healthcare outsourcing work, which had been part of the Government Operations Group. Accordingly, prior period amounts have been reclassified to reflect current period presentation of segment information.

 

                The following table provides certain financial information for each of the Company’s business segments:

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2001			2002			2001			2002
Revenues:
Consulting Group		$	37,181		$	35,009		$	70,219		$	68,412
Health Management Services Group		31,587			34,567			60,461			74,722
Human Services Group		34,233			34,403			64,673			71,583
Systems Group		17,256			17,974			34,150			36,806
Total		$	120,257		$	121,953		$	229,503		$	251,523
Gross Profit:
Consulting Group		$	17,073		$	16,560		$	29,648		$	32,090
Health Management Services Group		6,056			2,657			11,699			11,125
Human Services Group		7,732			6,958			13,706			14,507
Systems Group		7,350			9,029			15,150			18,266
Total		$	38,211		$	35,204		$	70,203		$	75,988
Income (loss) from operations:
Consulting Group		$	9,395		$	8,425		$	13,986		$	16,376
Health Management Services Group		2,867			(1,011		)	5,473			4,102
Human Services Group		3,054			2,273			4,826			5,573
Systems Group		1,027			1,678			2,907			3,307
Total		$	16,343		$	11,365		$	27,192		$	29,358

 

 

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 services and systems solutions 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^®.” 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 have had contracts with government agencies in all 50 states, 49 of the 50 largest cities and 27 of the 30 largest counties. We have been profitable every year since we were founded in 1975. For the fiscal year ended September 30, 2001, we had revenues of $487.3 million and income, before the cumulative effect of an accounting change, of $40.1 million. For the six months ended March 31, 2002, we had revenues of $251.5 million and net income of $18.3 million.

 

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 six months ended March 31, 2002, revenues from fixed-price contracts were approximately 37% of total revenues; revenues from cost-plus contracts were approximately 22% of total revenues; revenues from performance-based contracts were approximately 27% of total revenues; and revenues from time and materials reimbursement contracts were approximately 14% of total revenues. Traditionally, a majority of our contracts with state and local government agencies have been fixed-price and performance-based and our contracts with the federal government 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 with fixed-price contracts we are subject to the risk of potential cost overruns and with performance-based contracts we have more uncertainty regarding expected future revenue.

 

The Company recognizes revenue on its performance-based contracts as such revenue becomes fixed or determinable, which generally occurs when amounts are billable to customers, rather than as costs are incurred. For certain contracts, this may result in revenue being recognized in large, irregular increments. Additionally, costs related to certain contracts are incurred in periods prior to recognizing revenue. These factors may result in irregular revenues and profit margins for performance-based contracts, which do exist in our Consulting Group, Health Management Services Group and Human Services Group.

 

The Human Services Group and Health Management Services Group 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, 2001, our average Human Services Group and Health Management Services Group contract duration was approximately 2.5 years. Our Consulting Group contracts had performance periods ranging from one month to approximately two years. Our average Systems Group contract duration was 1.2 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. On May 11, 2001, we acquired Opportunity America, LLC for $780. In conjunction with the purchase, we recorded goodwill and other intangible assets of $708, which has been assigned to the Human Services Group business segment. On February 1, 2002, we acquired Collins Consulting Group, Inc. for $4,100. In conjunction with the purchase, we recorded goodwill of $4,100, which has been assigned to the Systems Group business segment. On May 1, 2002, we acquired Leonie Green and Associates (LGA) Group, located in Southport, Queensland, for cash consideration of approximately $10,000, subject to adjustments as provided for in the purchase agreement. LGA provides workforce-related services through performance-based contracts with states in Australia.

 

Results of Operations

 

                The following table sets forth, for the periods indicated, selected statements of income data as a percentage of revenues:

 

		Three Months Ended March  31,				Six Months Ended March  31,
		2001		2002		2001		2002
Revenues:
Consulting Group		30.9	%	28.7	%	30.6	%	27.2	%
Health Management Services Group		26.3		28.3		26.3		29.7
Human Services Group		28.4		28.2		28.2		28.5
Systems Group		14.4		14.8		14.9		14.6
Total revenues		100.0		100.0		100.0		100.0
Gross Profit:
Consulting Group		45.9		47.3		42.2		46.9
Health Management Services Group		19.2		7.7		19.4		14.9
Human Services Group		22.6		20.2		21.2		20.3
Systems Group		42.6		50.2		44.4		49.6
Total gross profit		31.8		28.8		30.6		30.2
Selling, general and administrative expenses		17.1		19.3		17.5		18.3
Amortization of goodwill and other acquisition— related intangibles		1.1		0.2		1.2		0.2
Income (loss) from operations:
Consulting Group		25.3		24.1		19.9		23.9
Health Management Services Group		9.1		(2.9	)	9.1		5.5
Human Services Group		8.9		6.6		7.5		7.8
Systems Group		6.0		9.3		8.5		9.0
Total income from operations		13.6		9.3		11.9		11.7
Interest and other income		0.1		0.6		0.2		0.5
Income before income taxes and cumulative effect of accounting change		13.7		9.9		12.1		12.2
Provision for income taxes		5.7		4.1		5.0		4.9
Income before cumulative effect of accounting change		8.0		5.8		7.1		7.3
Cumulative effect of accounting change		—		—		1.7		—
Net income		8.0	%	5.8	%	5.4	%	7.3	%

 

 

8

 

                Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

 

                Revenues.  Our total revenues increased 1.4% to $122.0 million for the three months ended March 31, 2002 compared to $120.3 million for the same period in fiscal 2001. Revenues of our Consulting Group were $35.0 million for the three months ended March 31, 2002 compared to $37.2 million for the same period in fiscal 2001. This 5.8% decrease was primarily due to a decrease in revenues in our Infrastructure Technologies division and Revenue Services division caused by delays in the start of some projects. Revenues of our Health Management Services Group were $34.6 million for the three months ended March 31, 2002 compared to $31.6 million for the same period in fiscal 2001. This 9.4% increase was due to an increase in the number of contracts in the Group and an increase in revenues on a few existing contracts in the Group. Revenues of our Human Services Group were $34.4 million for the three months ended March 31, 2002 compared to $34.2 million for the same period in fiscal 2001. This 0.5% increase was principally due to $0.8 million of revenues from an entity acquired in May 2001. Revenues of our Systems Group were $18.0 million for the three months ended March 31, 2002 compared to $17.3 million for the same period in fiscal 2001. This 4.2% increase was principally due to $0.8 million of revenues from an entity acquired in February 2002. For the three months ended March 31, 2002 compared to the three months ended March 31, 2001, our overall growth in revenue was 0.1%, excluding revenue related to acquisitions.

 

                Gross Profit.  Our total gross profit was $35.2 million for the three months ended March 31, 2002 compared to $38.2 million for the same period in fiscal 2001. Our gross profit as a percentage of total revenues was 28.8% in the March 2002 quarter compared to 31.8% in the March 2001 quarter. Gross profit of our Consulting Group was $16.6 million for the three months ended March 31, 2002 compared to $17.1 million for the same period in fiscal 2001. As a percentage of Consulting Group revenues, that Group’s gross profit increased to 47.3% for the three months ended March 31, 2002 from 45.9% for the same period in 2001, primarily due to improvements on certain contracts within the Revenue Services and Education divisions. Gross profit of our Health Management Services Group was $2.7 million for the three months ended March 31, 2002 compared to $6.0 million for the three months ended March 31, 2001. As a percentage of Health Management Services Group revenues, that Group’s gross profit decreased to 7.7% for the three months ended March 31, 2002 from 19.2% for the same period in fiscal 2001. The decrease was due primarily to unanticipated costs and a revenue shortfall on one project in which the Group experienced performance problems during the quarter. We recorded a loss on this certain project of approximately $3.5 million during the three months ended March 31, 2002. Management believes that future losses will not be incurred on this project. Gross profit of our Human Services Group was $7.0 million for the three months ended March 31, 2002 compared to $7.7 million for the three months ended March 31, 2001. As a percentage of Human Services Group revenues, Human Services Group gross profit decreased to 20.2% for the three months ended March 31, 2002 from 22.6% for the same period in fiscal 2001. The decrease was primarily due to decreases in margins on two child support enforcement projects. Gross profit of our Systems Group was $9.0 million for the three months ended March 31, 2002 compared to $7.4 million for the same period in fiscal 2001. As a percentage of Systems Group revenues, Systems Group gross profit increased to 50.2% for the three months ended March 31, 2002 from 42.6% for the same period in fiscal 2001, primarily due to increased software license revenue, which carries higher gross margins.

 

                Selling, General and Administrative Expenses. Our total selling, general and administrative (“SG&A”) expenses were $23.6 million for the three months ended March 31, 2002 compared to $20.5 million for the same period in 2001. As a percentage of our revenues, our SG&A expenses increased to 19.3% for the three months ended March 31, 2002 from 17.1% for the same period in 2001. The primary reasons for the increase in SG&A costs were the growth in the number of employees, the increase in expenses necessary to support higher revenues and the increase in marketing and proposal preparation expenditures incurred to pursue further growth.

 

 

9

 

                Amortization of Goodwill and Other Acquisition-Related Intangibles. In the quarter ended March 31, 2002, we incurred $0.3 million of amortization expense, as compared to $1.4 million for the same period in fiscal 2001. The decrease was due to the non-amortization of goodwill under FAS 142 effective October 1, 2001.

 

Interest and Other Income.  The increase in interest and other income to $0.7 million for the three months ended March 31, 2002 as compared to $0.2 million for the same period in fiscal 2001 was due to an increase in the average balance of funds we invested, which were increased as a result of the completion in June 2001 of an equity offering of $31,680 in proceeds to the Company, net of offering expenses.

 

                Provision for Income Taxes.  Our provision for income tax for the three months ended March 31, 2002 was 41.3% of income before income taxes, which is comparable to 41.5% for the three months ended March 31, 2001.

 

                Six Months Ended March 31, 2002 Compared to Six Months Ended March 31, 2001

 

                Revenues.  Our total revenues increased 9.6% to $251.5 million for the six months ended March 31, 2002 compared to $229.5 million for the same period in fiscal 2001. Revenues of our Consulting Group were $68.4 million for the six months ended March 31, 2002 compared to $70.2 million for the same period in fiscal 2001. This 2.6% decrease was primarily due to a decrease in revenues in our Infrastructure Technologies division and Revenue Services division caused by delays in the start of some projects. Revenues of our Health Management Services Group were $74.7 million for the six months ended March 31, 2002 compared to $60.5 million for the same period in fiscal 2001. This 23.6% increase was due to an increase in the number of contracts in the Group and an increase in revenues on a few existing contracts in the Group. Revenues of our Human Services Group were $71.6 million for the six months ended March 31, 2002 compared to $64.7 million for the same period in fiscal 2001. This 10.7% increase was due to an increase in the number of contracts in the Group and revenues totaling $1.5 million from an entity acquired in May 2001. Revenues of our Systems Group were $36.8 million for the six months ended March 31, 2002 compared to $34.1 million for the same period in fiscal 2001. This 7.8% increase was principally due to $0.8 million of revenues from an entity acquired in February 2002, plus increases in revenues in four divisions totaling $6.7 million, offset by decreases in revenues in three divisions totaling $4.8 million. For the six months ended March 31, 2002 compared to the six months ended March 31, 2001, our overall growth in revenue was 8.6%, excluding revenue related to acquisitions.

 

                Gross Profit.  Our total gross profit was $76.0 million for the six months ended March 31, 2002 compared to $70.2 million for the same period in fiscal 2001. Our gross profit as a percentage of total revenues was 30.2% for the six months ended March 31, 2002 compared to 30.6% for the six months ended March 31, 2001. Gross profit of our Consulting Group was $32.1 million for the six months ended March 31, 2002 compared to $29.6 million for the same period in fiscal 2001. As a percentage of Consulting Group revenues, that Group’s gross profit increased to 46.9% for the six months ended March 31, 2002 from 42.2% for the same period in 2001, primarily due to improvements on certain contracts within the Revenue Services and Education divisions. Gross profit of our Health Management Services Group was $11.1 million for the six months ended March 31, 2002 compared to $11.7 million for the six months ended March 31, 2001. As a percentage of Health Management Services Group revenues, that Group’s gross profit decreased to 14.9% for the six months ended March 31, 2002 from 19.3% for the same period in fiscal 2001. The decrease was primarily due to unanticipated costs and a revenue shortfall on one project in which the Group experienced performance problems during the six months ended March 31, 2002. We recorded a loss on this certain project of approximately $3.5 million during the six months ended March 31, 2002. Management believes that future losses will not be incurred on this project. Gross profit of our Human Services Group was $14.5 million for the six months ended March 31, 2002 compared to $13.7 million for the six months ended March 31, 2001. As a percentage of Human Services Group revenues, Human Services Group gross profit decreased to 20.3% for the six months ended March 31, 2002 from 21.2% for the same period in fiscal 2001. The decrease was due primarily to decreases in margins on two child support enforcement projects. Gross profit of our Systems

 

 

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Group was $18.3 million for the six months ended March 31, 2002 compared to $15.2 million for the same period in fiscal 2001. As a percentage of Systems Group revenues, Systems Group gross profit increased to 49.6% for the six months ended March 31, 2002 from 44.4% for the same period in fiscal 2001, primarily due to increased software license revenue, which carries higher gross margins.

 

                Selling, General and Administrative Expenses. Our total SG&A expenses were $46.1 million for the six months ended March 31, 2002 compared to $40.3 million for the same period in 2001. As a percentage of our revenues, our SG&A expenses increased to 18.3% for the six months ended March 31, 2002 from 17.5% for the same period in 2001. The primary reasons for the increase in SG&A costs were the growth in the number of employees, the increase in expenses necessary to support higher revenues and the increase in marketing and proposal preparation expenditures incurred to pursue further growth.

 

                Amortization of Goodwill and Other Acquisition-Related Intangibles. In the six months ended March 31, 2002, we incurred $0.5 million of amortization expense, as compared to $2.8 million for the same period in fiscal 2001. The decrease was due to the non-amortization of goodwill under FAS 142 effective October 1, 2001.

 

Interest and Other Income.  The increase in interest and other income to $1.4 million for the six months ended March 31, 2002 as compared to $0.5 million for the same period in fiscal 2001 was due to an increase in the average balance of funds we invested, which were increased as a result of the completion in June 2001 of an equity offering of $31,680 in proceeds to the Company, net of offering expenses.

 

                Provision for Income Taxes.  Our provision for income tax for the six months ended March 31, 2002 was 40.5% of income before income taxes as compared to 41.5% for the six months ended March 31, 2001. This decrease was due to differences in the amounts of certain expense items and some recently implemented tax reduction strategies.

 

                Liquidity and Capital Resources

 

For the six months ended March 31, 2002, cash provided by our operations was $9.1 million as compared to $13.3 million for the six months ended March 31, 2001. Cash provided by operating activities for the six months ended March 31, 2002 primarily consisted of net income of $18.3 million plus non-cash depreciation and amortization of $2.8 million offset by net uses for working capital of $11.9 million. The Company’s billed accounts receivable decreased $0.5 million during the six months ended March 31, 2002. Days of sales outstanding (“DSOs”) increased to 106 days at March 31, 2002. The increase in DSOs was due to delays in payment by certain customers, which the Company is working to improve. During the six months ended March 31, 2001, cash provided by operating activities consisted primarily of net income of $12.3 million plus non-cash adjustments of $8.0 million offset by net uses for working capital of $7.0 million.

 

For the six months ended March 31, 2002, cash used in investing activities was $10.5 million as compared to $5.3 million for the six months ended March 31, 2001. Cash used in investing activities for the six months ended March 31, 2002 primarily consisted of $4.1 million for a business acquisition, expenditures for capitalized software costs totaling $3.4 million and purchases of property and equipment of $4.1 million. During the six months ended March 31, 2001, we used cash in investing activities primarily for expenditures related to capitalized software costs totaling $3.7 million and purchases of property and equipment of $2.3 million.

 

                For the six months ended March 31, 2002, cash provided by financing activities was $1.2 million as compared to $2.0 million for the six months ended March 31, 2001. Cash provided by financing activities for the six months ended March 31, 2002 primarily consisted of $6.6 million of sales of stock to employees through our Employee Stock Purchase Plan and Equity Incentive Plan offset by $5.3 million of treasury stock repurchases. Cash provided by financing activities for the six months ended March 31, 2001 consisted primarily of $2.6 million of sales of stock to employees through our Employee Stock Purchase Plan and Equity Incentive Plan.

 

 

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                Our management believes that we do not have significant off-balance sheet risk or exposures to liabilities that are not recorded or disclosed in our financial statements.  While we have significant operating lease commitments for office space, those commitments are generally tied to the period of performance under related contracts.  Additionally, although on certain contracts we are bound by performance bond commitments, we have not had any defaults resulting in draws on performance bonds. Also, we do not speculate in derivative transactions.

 

                Our management believes that we will have sufficient resources to meet our currently anticipated capital expenditure and working capital 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, current and 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, 2002.

 

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.

 

 

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PART II.  OTHER INFORMATION

Item 5. Other Information.

 

                Mr. Jesse Brown, formerly one of our Class II directors and a nominee for re-election at our 2002 Annual Meeting, resigned from our board for personal health reasons prior to the 2002 Annual Meeting, effective March 31, 2002. The proxies did not elect another director at the 2002 Annual Meeting. Following the conclusion of the 2002 Annual Meeting, the board of directors considered and ultimately elected Marilyn Seymann to serve as a Class II director and a member of the audit committee.

 

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 4, 2002 to disclose certain financial segment information for earlier periods reflecting a reorganization of our reportable operating segments as if we had operated under four groups rather than three 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 14, 2002			By:	/s/ Richard A. Montoni
				Richard A. Montoni
				Chief Financial Officer
				(Principal Financial and Accounting Officer)

 

 

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EXHIBIT INDEX

 

 

Exhibit No.		Description
10.1		1997 Equity Incentive Plan, as amended. Filed herewith.
10.2		Executive Employment, Non-Compete and Confidentiality Agreement by and between MAXIMUS, Inc. and Richard A. Montoni. Filed herewith.
99		Important Factors Regarding Forward Looking Statements. Filed herewith.

 

 

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