Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2015

 

Commission File Number: 1-12997

 

MAXIMUS, INC.

(Exact name of registrant as specified in its charter)

 

 

(703) 251-8500

(Registrant’s telephone number, including area code)

 

 

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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of July 31, 2015, there were 65,951,694 shares of the registrant’s common stock (no par value) outstanding.

 

 

Table of Contents

 

MAXIMUS, Inc.

 

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2015

 

INDEX

 

PART I. FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements		3
	Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2015 and 2014 (unaudited)		3
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2015 and 2014 (unaudited)		4
	Consolidated Balance Sheets as of June 30, 2015 (unaudited) and September 30, 2014		5
	Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2015 and 2014 (unaudited)		6
	Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended June 30, 2015 and 2014 (unaudited)		7
	Notes to Unaudited Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		19
Item 4.	Controls and Procedures		20
PART II. OTHER INFORMATION
Item 1A.	Risk Factors		21
Item 6.	Exhibits		21
Signatures			22
Exhibit Index			23

 

Table of Contents

 

Throughout this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “us,” “our” and “MAXIMUS” refer to MAXIMUS, Inc. and its subsidiaries.

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Included in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about us, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements that are not historical facts. Words such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “potential,” “project,” “should,” “will” and similar expressions are intended to identify forward-looking statements and convey uncertainty of future events or outcomes. These statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from such forward-looking statements due to a number of factors, including without limitation:

 

·                  a failure to meet performance requirements in our contracts, which might lead to contract termination and liquidated damages;

 

·                  the outcome of reviews or audits, which might result in financial penalties and reduce our ability to respond to invitations for new work;

 

·                  the effects of future legislative or government budgetary and spending changes;

 

·                  difficulties in integrating acquired businesses;

 

·                  a failure on our part to comply with laws governing our business, which might result in us being subject to fines, penalties and other sanctions;

 

·                  our failure to successfully bid for and accurately price contracts to generate our desired profit;

 

·                  our ability to maintain relationships with key government entities upon whom a substantial portion of our revenue is derived;

 

·                  the ability of government customers to terminate contracts on short notice, with or without cause;

 

·                  our ability to manage capital investments and start-up costs incurred before receiving related contract payments;

 

·                  our ability to maintain technology systems and otherwise protect confidential or protected information;

 

·                  the costs and outcome of litigation;

 

·                  matters related to business we have disposed of or divested; and

 

·                  other factors set forth in Exhibit 99.1 of our Annual Report on Form 10-K for the year ended September 30, 2014, filed with the Securities and Exchange Commission on November 17, 2014.

 

As a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. Additionally, we caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. Except as otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future events or otherwise.

 

2

Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements.

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2015			2014			2015			2014
Revenue		$	572,301		$	419,899		$	1,521,138		$	1,265,506
Cost of revenue		428,503			307,296			1,133,728			926,315
Gross profit		143,798			112,603			387,410			339,191
Selling, general and administrative expenses		66,997			55,838			178,350			160,727
Amortization of intangible assets		3,275			1,542			6,182			4,365
Acquisition-related expenses		2,459			—			4,573			—
Legal and settlement expenses		—			—			—			600
Operating income		71,067			55,223			198,305			173,499
Interest and other income/(expense), net		(681		)	495			439			1,304
Income before income taxes		70,386			55,718			198,744			174,803
Provision for income taxes		28,127			21,290			75,108			65,559
Net income		42,259			34,428			123,636			109,244
Income attributable to noncontrolling interests		(593		)	(290		)	(1,302		)	(40		)
Net income attributable to MAXIMUS		$	41,666		$	34,138		122,334			$	109,204
Basic earnings per share attributable to MAXIMUS		$	0.63		$	0.50		$	1.86		$	1.61
Diluted earnings per share attributable to MAXIMUS		$	0.62		$	0.49		$	1.83		$	1.57
Dividends paid per share		$	0.045		$	0.045		$	0.135		$	0.135
Weighted average shares outstanding:
Basic		65,901			67,659			65,900			67,982
Diluted		67,098			69,031			67,003			69,369

 

See notes to unaudited consolidated financial statements.

 

3

Table of Contents

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

 

		Three months Ended June 30,						Nine months Ended June 30,
		2015			2014			2015			2014
Net income		$	42,259		$	34,428		$	123,636		$	109,244
Foreign currency translation adjustments		8,339			6,366			(12,694		)	4,919
Interest rate hedge, net of income taxes		(23		)	—			(23		)	—
Comprehensive income		50,575			40,794			110,919			114,163
Comprehensive income attributable to noncontrolling interests		(593		)	(290		)	(1,302		)	(40		)
Comprehensive income attributable to MAXIMUS		$	49,982		$	40,504		$	109,617		$	114,123

 

See notes to unaudited consolidated financial statements.

 

4

Table of Contents

 

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

		June 30, 2015			September 30, 2014
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	81,877		$	158,112
Accounts receivable — billed and billable, net of reserves of $4,331 and $3,138		377,729			263,011
Accounts receivable — unbilled		27,578			26,556
Deferred income taxes		31,567			28,108
Prepaid expenses and other current assets		64,336			56,673
Total current assets		583,087			532,460
Property and equipment, net		118,169			80,246
Capitalized software, net		34,787			39,734
Goodwill		379,895			170,626
Intangible assets, net		106,621			39,239
Deferred contract costs, net		19,715			12,046
Deferred compensation plan assets		20,904			17,126
Other assets, net		12,467			9,519
Total assets		$	1,275,645		$	900,996
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	164,486		$	103,181
Accrued compensation and benefits		88,413			94,137
Deferred revenue		63,586			55,878
Income taxes payable		38,640			4,693
Other liabilities		10,843			7,432
Total current liabilities		365,968			265,321
Deferred revenue, less current portion		56,734			32,257
Deferred income taxes		16,543			21,383
Long-term debt		166,844			1,060
Deferred compensation plan liabilities, less current portion		20,906			18,768
Other liabilities		8,252			6,022
Total liabilities		635,247			344,811
Shareholders’ equity:
Common stock, no par value; 100,000 shares authorized; 65,932 and 66,613 shares issued and outstanding at June 30, 2015 and September 30, 2014, at stated amount, respectively		442,135			429,857
Accumulated other comprehensive income/(loss)		(12,487		)	230
Retained earnings		208,404			125,875
Total MAXIMUS shareholders’ equity		638,052			555,962
Noncontrolling interests		2,346			223
Total equity		640,398			556,185
Total liabilities and equity		$	1,275,645		$	900,996

 

See notes to unaudited consolidated financial statements.

 

5

Table of Contents

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

		Nine Months Ended June 30,
		2015			2014
Cash flows from operating activities:
Net income		$	123,636		$	109,244
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and capitalized software		37,617			31,932
Amortization of intangible assets		6,182			4,365
Deferred income taxes		(8,921		)	(577		)
Stock compensation expense		12,785			12,809
Change in assets and liabilities:
Accounts receivable — billed and billable		(81,430		)	(1,362		)
Accounts receivable — unbilled		2,209			3,280
Prepaid expenses and other current assets		(3,496		)	(1,343		)
Deferred contract costs		(7,390		)	556
Accounts payable and accrued liabilities		45,064			(5,686		)
Accrued compensation and benefits		(4,546		)	2,510
Deferred revenue		32,424			88
Income taxes		37,476			6,162
Other assets and liabilities		(10,630		)	3,172
Cash provided by operating activities		180,980			165,150
Cash flows from investing activities:
Purchases of property and equipment		(68,243		)	(18,389		)
Capitalized software costs		(4,924		)	(9,177		)
Acquisition of businesses, net of cash acquired		(289,612		)	(2,670		)
Proceeds from note receivable		406			350
Cash used in investing activities		(362,373		)	(29,886		)
Cash flows from financing activities:
Cash dividends paid		(8,966		)	(9,181		)
Repurchases of common stock		(32,616		)	(59,354		)
Tax withholding related to RSU vesting		(12,451		)	(14,681		)
Expansion of credit facility		(1,444		)	—
Borrowings under credit facility		255,993			15,000
Repayment of credit facility and other long-term debt		(90,112		)	(15,122		)
Tax benefit/(provision) due to option exercises and restricted stock units vesting		(1,208		)	2,925
Stock option exercises		521			1,145
Cash provided by/(used in) financing activities		109,717			(79,268		)
Effect of exchange rate changes on cash and cash equivalents		(4,559		)	1,329
Net increase/(decrease) in cash and cash equivalents		(76,235		)	57,325
Cash and cash equivalents, beginning of period		158,112			125,617
Cash and cash equivalents, end of period		$	81,877		$	182,942

 

See notes to unaudited consolidated financial statements.

 

6

Table of Contents

 

MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)

 

		Common Shares Outstanding		Common Stock			Accumulated Other Comprehensive Income/(Loss)			Retained Earnings			Noncontrolling Interest			Total
Balance at September 30, 2014		66,613		$	429,857		$	230		$	125,875		$	223		$	556,185
Net income		—		—			—			122,334			1,302			123,636
Foreign currency translation		—		—			(12,694		)	—			—			(12,694		)
Interest rate hedge, net of income taxes		—		—			(23		)	—			—			(23		)
Cash dividends		—		—			—			(8,891		)	(75		)	(8,966		)
Dividends on RSUs		—		296			—			(296		)	—			—
Repurchases of common stock		(753	)	—			—			(30,618		)	—			(30,618		)
Stock compensation expense		—		12,785			—			—			—			12,785
Stock compensation tax provision		—		(1,208		)	—			—			—			(1,208		)
Tax withholding related to RSU vesting		—		(116		)	—			—			—			(116		)
Stock options exercised and RSUs vested		72		521			—			—			—			521
Addition of noncontrolling interest from acquisition		—		—			—			—			896			896
Balance at June 30, 2015		65,932		$	442,135		$	(12,487	)	$	208,404		$	2,346		$	640,398

 

		Common Shares Outstanding		Common Stock			Accumulated Other Comprehensive Income			Retained Earnings			Noncontrolling Interest			Total
Balance at September 30, 2013		68,525		$	415,271		$	7,987		$	106,250		$	267		$	529,775
Net income		—		—			—			109,204			40			109,244
Foreign currency translation		—		—			4,919			—			—			4,919
Cash dividends		—		—			—			(9,181		)	—			(9,181		)
Dividends on RSUs		—		369			—			(369		)	—			—
Repurchases of common stock		(1,406	)	—			—			(60,950		)	—			(60,950		)
Stock compensation expense		—		12,809			—			—			—			12,809
Stock compensation tax benefit		—		2,925			—			—			—			2,925
Tax withholding related to RSU vesting		—		(1,877		)	—			—			—			(1,877		)
Stock options exercised and RSUs vested		247		1,145			—			—			—			1,145
Balance at June 30, 2014		67,366		$	430,642		$	12,906		$	144,954		$	307		$	588,809

 

See notes to unaudited consolidated financial statements.

 

7

Table of Contents

 

MAXIMUS, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three and Nine Months Ended June 30, 2015 and 2014

 

In these Notes to Unaudited Consolidated Financial Statements, the terms “Company,” “MAXIMUS,” “us,” “we” or “our” refer to MAXIMUS, Inc. and its subsidiaries.

 

1. Organization and Basis of Presentation

 

General

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 notes required by generally accepted accounting principles (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three and nine months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at September 30, 2014 has been derived from the audited financial statements at that date but does not include all of the information and notes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made from prior year to conform with current presentation.

 

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill, and amounts related to income taxes, certain accrued liabilities and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

 

These financial statements should be read in conjunction with the consolidated audited financial statements and the notes thereto at September 30, 2014 and 2013 and for each of the three years ended September 30, 2014, included in our Annual Report on Form 10-K for the year ended September 30, 2014 which was filed with the Securities and Exchange Commission on November 17, 2014.

 

8

Table of Contents

 

2. Segment Information

 

The table below provides certain financial information for each of our business segments. The presentation of segments has been updated from our presentation in the prior year to show amortization of intangible assets separately and to reflect the transfer of a small business division from the Health Services Segment to the Human Services Segment.

 

		Three Months Ended June 30,										Nine Months Ended June 30,
(Amounts in thousands)		2015			% (1)		2014			% (1)		2015			% (1)		2014			% (1)
Revenue:
Health Services		$	439,560		100	%	$	305,253		100	%	$	1,161,242		100	%	$	927,435		100	%
Human Services		132,741			100	%	114,646			100	%	359,896			100	%	338,071			100	%
Total		572,301			100	%	419,899			100	%	1,521,138			100	%	1,265,506			100	%
Gross Profit:
Health Services		104,593			23.8	%	79,532			26.1	%	281,895			24.3	%	240,906			26.0	%
Human Services		39,205			29.5	%	33,071			28.8	%	105,515			29.3	%	98,285			29.1	%
Total		143,798			25.1	%	112,603			26.8	%	387,410			25.5	%	339,191			26.8	%
Selling, general, and administrative expense:
Health Services		44,587			10.1	%	36,333			11.9	%	119,618			10.3	%	105,641			11.4	%
Human Services		22,402			16.9	%	19,470			17.0	%	58,624			16.3	%	55,072			16.3	%
Other		8			NM		35			NM		108			NM		14			NM
Total		66,997			11.7	%	55,838			13.3	%	178,350			11.7	%	160,727			12.7	%
Operating income:
Health Services		60,006			13.7	%	43,199			14.2	%	162,277			14.0	%	135,265			14.6	%
Human Services		16,803			12.7	%	13,601			11.9	%	46,891			13.0	%	43,213			12.8	%
Amortization of intangible assets		(3,275		)	NM		(1,542		)	NM		(6,182		)	NM		(4,365		)	NM
Acquisition-related expenses (2)		(2,459		)	NM		—			NM		(4,573		)	NM		—			NM
Legal and settlement expenses (3)		—			NM		—			NM		—			NM		(600		)	NM
Other		(8		)	NM		(35		)	NM		(108		)	NM		(14		)	NM
Total		$	71,067		12.4	%	$	55,223		13.2	%	$	198,305		13.0	%	$	173,499		13.7	%

 

(1)                                 Percentage of respective segment revenue. Percentages not considered meaningful are marked “NM.”

(2)                                 Acquisition-related expenses are costs directly incurred from the purchases of Acentia and Remploy, including legal, accounting and valuation services and severance costs.

(3)                                 Legal and settlement expenses consist of costs related to significant legal settlements and non-routine legal matters, including future probable legal costs expected to be incurred in connection with those matters. Legal expenses incurred in the ordinary course of business are included in their respective operating segments.

 

9

Table of Contents

 

3. Earnings Per Share

 

The weighted average number of shares outstanding used to compute earnings per share was as follows:

 

		Three Months Ended June 30,				Nine Months Ended June 30,
(Amounts in thousands)		2015		2014		2015		2014
Basic weighted average shares outstanding		65,901		67,659		65,900		67,982
Effect of dilutive securities:
Employee stock options and unvested restricted stock units		1,197		1,372		1,103		1,387
Denominator for diluted earnings per share		67,098		69,031		67,003		69,369

 

No shares were excluded from the computation in calculating the earnings per share for the three or nine months ended June 30, 2015 or 2014.

 

4. Business combinations

 

Acentia

 

On April 1, 2015 (the “acquisition date”), we acquired 100% of the ownership interests of Acentia, LLC (“Acentia”) for an estimated cash consideration of $292.8 million. The final cash consideration will be subject to adjustment based upon calculation of the working capital on the acquisition date, as well as certain other adjustments.

 

Acentia provides system modernization, software development, program management and other information technology services and solutions to the United States Federal Government. We acquired Acentia, among other reasons, to expand our ability to provide complementary business services and offerings across government markets. The acquired assets and liabilities have been integrated into our Health Services Segment.

 

We are in the process of allocating the acquisition price to the fair value of the assets and liabilities of Acentia at the acquisition date. Initial estimates of this allocation are shown below but may be subject to change as we complete our assessment of the acquisition date balance sheet.

 

(Amounts in thousands)		Preliminary Purchase Price Accounting
Estimated purchase consideration, net of cash acquired		$	292,815
Billed and unbilled receivables		$	35,060
Other assets		5,151
Property and equipment		1,619
Intangible assets — customer relationships		69,900
Total identifiable assets acquired		111,730
Accounts payable and other liabilities		32,619
Deferred revenue		251
Total liabilities assumed		32,870
Net identifiable assets acquired		78,860
Goodwill		213,955
Net assets acquired		$	292,815

 

The excess of the acquisition date consideration over the estimated fair value of the net assets acquired was recorded as goodwill. We consider the goodwill to represent the value of the assembled workforce of Acentia, as well as the enhanced knowledge and capabilities resulting from this business combination. Approximately 70% of the goodwill balance is anticipated to be deductible for tax purposes.

 

The intangible assets acquired represent customer relationships. These will be amortized on a straight-line basis over 14 years.

 

10

Table of Contents

 

During the three and nine months ended June 30, 2015, Acentia contributed $52.9 million and $4.3 million of revenue and operating income, respectively.

 

The following table presents certain results for the three and nine months ended June 30, 2015 and 2014 as though the acquisition of Acentia had occurred on October 1, 2013. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of our results if the acquisition had taken place on that date. The pro forma results presented below include amortization charges for acquired intangible assets and adjustments to interest expense incurred and exclude related acquisition expenses.

 

		Unaudited pro forma results
		Three Months Ended June 30,						Nine Months Ended June 30,
(Amounts in thousands, except per share amounts)		2015			2014			2015			2014
Revenue		$	572,301		$	473,408		$	1,624,664		$	1,425,077
Net income		43,896			37,154			130,260			116,469
Basic earnings per share attributable to MAXIMUS		$	0.66		$	0.54		$	1.96		$	1.71
Diluted earnings per share attributable to MAXIMUS		$	0.64		$	0.53		$	1.92		$	1.68

 

Remploy

 

On April 7, 2015 (the “Remploy acquisition date”), we acquired 70% of the ownership interests of Remploy (2015) Limited, whose assets had previously operated under the “Remploy” tradename. The remaining 30% is held in a trust for the benefit of the employees. The acquisition consideration was $3.0 million (£2.0 million). The purchase agreement stipulated that the net assets of Remploy were zero on the Remploy acquisition date as calculated using United Kingdom accounting principles.

 

Remploy provides services to the United Kingdom government, particularly in supporting employment opportunities for the disabled. We acquired Remploy to complement our welfare-to-work services in the United Kingdom. The acquired assets and liabilities have been integrated into our Human Services Segment. We are still in the process of allocating values to Remploy’s acquired assets and liabilities.

 

5. Goodwill and Intangible Assets

 

The changes in goodwill for the nine months ended June 30, 2015 are as follows:

 

(Amounts in thousands)		Health Services			Human Services			Total
Balance as of September 30, 2014		$	124,920		$	45,706		$	170,626
Acquisition of Acentia		213,955			—			213,955
Foreign currency translation		(2,676		)	(2,010		)	(4,686		)
Balance as of June 30, 2015		$	336,199		$	43,696		$	379,895

 

The following table sets forth the components of intangible assets:

 

		As of June 30, 2015									As of September 30, 2014
(Amounts in thousands)		Cost			Accumulated Amortization			Intangible Assets, net			Cost			Accumulated Amortization			Intangible Assets, net
Customer contracts and relationships		$	115,975		$	12,524		$	103,451		$	42,403		$	7,821		$	34,582
Technology based intangible assets		8,936			7,398			1,538			9,295			6,910			2,385
Trademarks and trade names		4,318			2,686			1,632			4,374			2,102			2,272
Total		$	129,229		$	22,608		$	106,621		$	56,072		$	16,833		$	39,239

 

Our intangible assets at June 30, 2015 had a weighted average remaining life of 12.6 years, comprising 12.9 years for customer contracts and relationships, 2.8 years for technology-based intangible assets and 2.2 years for the trademarks and trade names. Amortization expense for the nine months ended June 30, 2015 and 2014 was $6.2 million and $4.4 million, respectively. Estimated future amortization expense is as follows (in thousands):

 

Three months ended September 30, 2015		$	3,213
Year ended September 30, 2016		12,852
Year ended September 30, 2017		11,235
Year ended September 30, 2018		8,880
Year ended September 30, 2019		7,989
Year ended September 30, 2020		6,884

 

11

Table of Contents

 

6. Credit facilities

 

On March 9, 2015, we entered into an amendment to our unsecured credit agreement (the “Credit Agreement”). The Credit Agreement, as amended, provides for a revolving line of credit up to $400 million that may be used for revolving loans, swingline loans (subject to a sublimit of $5 million), and to request letters of credit, subject to a sublimit of $30 million. The line of credit is available for general corporate purposes, including working capital, capital expenditures and acquisitions. The arrangement will terminate on March 9, 2020, at which time all outstanding borrowings must be repaid.

 

On April 1, 2015, we borrowed $225 million under the Credit Agreement in order to fund our acquisition of Acentia. Additional borrowings and repayments were subsequently made to fund working capital and capital expenditure requirements. The Credit Agreement permits us to make borrowings in currencies other than the United States Dollar. At June 30, 2015, we have U.S.  Dollar borrowings of $155.0 million and Canadian Dollar borrowings of $11.0 million (13.5 million Canadian Dollars). In addition to borrowings under the Credit Facility, we have an outstanding loan of $1.0 million (1.2 million Canadian Dollars) with the Atlantic Innovation Fund of Canada.

 

At June 30, 2015, we held four letters of credit under the Credit Agreement totaling $1.4 million. Each of these letters of credit may be called by vendors in the event that the Company defaults under the terms of a contract, the probability of which we believe is remote. In addition, two letters of credit totaling $3.0 million, secured with restricted cash balances, are held with another financial institution to cover similar obligations.

 

The Credit Agreement requires us to comply with certain financial covenants and other covenants including a maximum total leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all covenants as of June 30, 2015. Our obligations under the Credit Agreement are guaranteed by material domestic subsidiaries of the Company. The Credit Facility is currently unsecured. In the event that our total leverage ratio, as defined in the credit agreement, exceeds 2.5 to 1, the Credit Agreement will become secured by the assets of the parent company and certain of its subsidiaries. At June 30, 2015, our total leverage ratio was less than 1.0:1.0.

 

The Credit Agreement provides for an annual commitment fee payable on funds not borrowed or utilized for letters of credit. This charge is based upon our leverage and varies between 0.15% and 0.3%. Borrowings under the Credit Agreement bear interest at our choice at either (a) a Base Rate plus a margin that varies between 0.0% and 0.75% per year, (b) a Eurocurrency Rate plus an applicable margin that varies between 1.0% and 1.75% per year or (c) an Index Rate plus an applicable margin which varies between 1.0% and 1.75% per year. The Base Rate, Eurocurrency Rate and Index Rate are defined by the Credit Agreement.

 

In order to reduce our exposure to floating interest rates, we entered into a derivative arrangement to fix payments on part of our open loan balance. We will pay a fixed rate of interest to a financial institution and receive a balance equivalent to the floating rate payable. At June 30, 2015, payments on $66.7 million of our principal balance are fixed. The principal balance subject to this derivative arrangement will decline through September 30, 2016. At June 30, 2015, the fair value of this derivative instrument was a liability of less than $0.1 million. As this cash flow hedge is considered effective, the loss related to the decline in the fair value of this derivative instrument is reported in the Statement of Comprehensive Income.

 

During the three months ended June 30, 2015, we made interest payments of $0.5 million.

 

7. Supplemental disclosures

 

During the nine months ended June 30, 2015 and 2014, we made income tax payments of $47.8 million and $57.4 million, respectively.

 

At June 30, 2015, we held cash and cash equivalents of $81.9 million. Approximately 80% of these funds are denominated and held in jurisdictions outside the United States and we have no requirement or intent at this time to transfer the funds to the United States. Declines in the value of foreign currencies with respect to the United States Dollar, notably the Australian Dollar and British Pound, resulted in a decline in net assets of $12.7 million in the nine months ended June 30, 2015, including a $4.6 million decline in our cash and cash equivalents balance and a $4.7 million decline in our goodwill balance. These declines were recorded as losses in our statement of comprehensive income.

 

Our deferred compensation plan assets include $9.5 million invested in mutual funds which have quoted prices in active markets. These assets are recorded at fair value with changes in fair value being recorded in the statement of operations. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other amounts included within current assets and liabilities that meet the definition of a financial instrument are shown at values equivalent to fair value due to the short-term nature of these items. Our accounts receivable balance includes both amounts invoiced and those where amounts are ready to be invoiced and the funds are collectable within standard invoice terms.

 

12