<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12997
MAXIMUS, INC.
(Exact name of registrant as specified in its charter)
----------------------
<TABLE>
<S> <C>
VIRGINIA 54-1000588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1356 BEVERLY ROAD
MCLEAN, VIRGINIA 22101
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (703) 734-4200
----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes : No 9
<TABLE>
<S> <C>
CLASS Outstanding at August 10, 2000
----- ------------------------------
Common Shares, No Par Value 21,120,260
</TABLE>
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<PAGE>
MAXIMUS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited) and
September 30, 1999
Consolidated Statements of Income for the three months and nine months
ended June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows for the nine months ended June
30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
MAXIMUS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 2000
------------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $61,647 $ 37,770
Marketable securities............................................ 37,235 10,864
Accounts receivable, net......................................... 75,865 96,078
Costs and estimated earnings in excess of billings............... 16,150 23,755
Prepaid expenses and other current assets........................ 2,711 3,452
Deferred income taxes............................................ 2,997 2,531
------- -------
Total current assets...................................................... 196,605 174,450
Property and equipment at cost:
Land............................................................. 2,643 2,586
Building and leasehold improvements.............................. 8,174 8,807
Office furniture and equipment................................... 10,429 13,135
------- -------
21,246 24,528
Less: Accumulated depreciation and amortization................. (6,524) (8,198)
------- -------
Total property and equipment, net......................................... 14,722 16,330
Software development costs................................................ - 5,903
Deferred income taxes..................................................... 363 -
Intangible assets......................................................... 8,254 54,294
Other assets.............................................................. 3,092 2,834
------- -------
Total assets.............................................................. $223,036 $253,811
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 10,265 $ 9,420
Accrued compensation and benefits................................ 16,119 17,499
Billings in excess of costs and estimated earnings............... 16,942 19,745
Income taxes payable............................................. 2,266 -
Notes payable.................................................... - 2,013
Other current liabilities........................................ 541 474
------- -------
Total current liabilities................................................. 46,133 49,151
Other liabilities......................................................... 1,424 2,541
------- -------
Total liabilities......................................................... 47,557 51,692
Shareholders' equity:
Common stock, no par value; 60,000,000 shares authorized;
20,986,322 and 21,086,747 shares issued and outstanding at
September 30, 1999 and June 30, 2000, at stated amount........... 130,518 132,378
Accumulated other comprehensive loss............................. (280) (324)
Retained earnings................................................ 45,241 70,065
------- -------
Total shareholders' equity................................................ 175,479 202,119
------- -------
Total liabilities and shareholders' equity................................ $223,036 $253,811
========== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues................................................ $84,168 $105,577 $232,804 $288,761
Cost of revenues........................................ 58,467 71,832 163,594 198,166
------- -------- -------- --------
Gross profit............................................ 25,701 33,745 69,210 90,595
Selling, general and administrative expenses............ 13,844 18,036 37,889 48,743
Deferred compensation, merger and ESOP expenses......... 152 210 270 210
Amortization of goodwill and other acquisition related
Intangibles............................................. 88 1,079 88 1,724
------- -------- -------- --------
Income from operations.................................. 11,617 14,420 30,963 39,918
Interest and other income............................... 965 366 2,240 2,515
------- -------- -------- --------
Income before income taxes.............................. 12,582 14,786 33,203 42,433
Provision for income taxes.............................. 5,131 6,188 13,484 17,609
------- -------- -------- --------
Net income.............................................. $ 7,451 $ 8,598 $19,719 $24,824
======= ======= ======== =======
Earnings per share:
Basic.............................................. $ 0.36 $ 0.41 $ 0.97 $ 1.18
====== ====== ====== ======
Diluted............................................ $ 0.35 $ 0.40 $ 0.95 $ 1.16
====== ====== ====== ======
Shares used in computing earnings per share:
Basic.............................................. 20,957 21,079 20,386 21,039
====== ====== ====== ======
Diluted............................................ 21,257 21,322 20,731 21,373
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MAXIMUS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30,
--------------------
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................. $ 19,719 $ 24,824
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.................................... 1,850 3,871
Change in assets and liabilities:
Accounts receivable, net......................................... (722) (11,840)
Costs and estimated earnings in excess of billings............... (3,393) (5,873)
Prepaid expenses and other current assets........................ (2,029) 769
Other assets..................................................... 918 144
Accounts payable................................................. (3,011) (1,583)
Accrued compensation and benefits................................ (2,119) (515)
Billings in excess of costs and estimated earnings............... 3,459 933
Income taxes payable............................................. (3) (3,278)
Other liabilities................................................ 996 (907)
------- ------
Net cash provided by operating activities.......................................... 15,665 6,545
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of real estate................................................. (8,000) -
Acquisition of businesses, net of cash acquired......................... (9,645) (51,237)
Capitalization of software development costs............................ - (1,425)
Purchase of property and equipment...................................... (1,921) (2,344)
(Purchase) sale of marketable securities................................ (48,722) 26,331
------- ------
Net cash used in investing activities.............................................. (68,288) (28,675)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from secondary offering, net of expenses....................... 61,024 -
S Corporation distributions ............................................ (756) -
Issuance of common stock ............................................... 694 1,860
Net (payments on) proceeds from borrowings.............................. (773) (3,606)
------- ------
Net cash provided by (used in) financing activities................................ 60,189 (1,746)
------- ------
Net increase (decrease) in cash and cash equivalents............................... 7,566 (23,876)
Cash flow adjustment for change in accounting period of CSI........................ 31 -
Cash and cash equivalents, beginning of period..................................... 19,403 61,646
------- ------
Cash and cash equivalents, end of period........................................... $ 27,000 $ 37,770
======== =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MAXIMUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normally recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations for the three-month and nine-month periods ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
full fiscal year. These financial statements should be read in conjunction with
the audited financial statements as of September 30, 1999 and 1998 and for each
of the three years in the period ended September 30, 1999 included in the
Company's Annual Report on Form 10-K, as filed with the Securities and Exchange
Commission.
2. SECONDARY PUBLIC OFFERING
The Company completed a secondary public offering (the "secondary
offering") of common stock during December 1998. Of the 4,200,000 shares of
common stock sold in the secondary offering, 2,000,000 shares were sold by
MAXIMUS, Inc. generating $61,024 in proceeds to the Company, net of offering
expenses, and 2,200,000 shares were sold by selling shareholders.
3. BUSINESS COMBINATIONS AND ACQUISITIONS
On February 26, 1999, the Company issued 700,210 shares of its common
stock in exchange for all of the outstanding common stock of Control Software,
Inc. ("CSI"). This combination was accounted for as a pooling of interests.
On March 31, 1999, the Company acquired all of the outstanding shares
of capital stock of Norman Roberts & Associates, Inc. for $1,930. In conjunction
with the purchase, the Company recorded intangible assets of $1,880.
On June 1, 1999, the Company acquired all of the outstanding shares of
capital stock of Unison Consulting Group, Inc. for $7,589. In conjunction with
the purchase, the Company recorded intangible assets of $6,328.
On September 30, 1999, the Company acquired all of the outstanding
shares of capital stock of Network Design Group, Inc. d/b/a The Center for
Health Dispute Resolution ("CHDR") for $2,070. In conjunction with the purchase,
the Company recorded intangible assets of $827. The purchase is subject to an
upward adjustment of $1,200 if CHDR secures the renewal of a certain contract.
On October 20, 1999, the Company acquired all of the outstanding shares
of capital stock of Public Systems, Inc. for $5,000. In conjunction with the
purchase, the Company recorded intangible assets of $4,735.
On March 20, 2000, the Company acquired all of the outstanding shares
of capital stock of Crawford Consulting, Inc. for $17,500. In conjunction with
the purchase, the Company recorded intangible assets of $13,056.
On March 31, 2000, the Company acquired substantially all of the assets
of the government services division of 3-G International, Inc. for $7,000, plus
an earn-out amount of up to $3,000 to be paid by the Company
<PAGE>
upon the achievement of certain objectives. In conjunction with the purchase,
the Company recorded intangible assets of $6,708.
On April 12, 2000, CSI-MAXIMUS, Inc., a wholly-owned subsidiary of the
Company, acquired substantially all of the assets of Assetworks, Inc. for
$8,613. In conjunction with the purchase, the Company recorded intangible assets
of $8,661.
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 $4,130.
On April 29, 2000, the Company acquired substantially all of the assets
Technology Management Resources, Inc. for $9,674. In conjunction with the
purchase, the Company recorded intangible assets of $10,036.
SFAS 133 requires disclosure of proforma results of operations
information treating the results for the Company as if the companies acquired
by the purchase method were acquired at the beginning of the periods being
reported. The proforma results of operations are:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30,
--------------------
1999 2000
---- ----
<S> <C> <C>
Revenue......................................................... $ 273,921 $ 310,510
Net Income...................................................... 16,440 22,550
Earnings per share (diluted).................................... $ 0.79 $ 1.06
</TABLE>
All of the companies involved in the mergers described above are involved
primarily in consulting services for state and local governments.
4. COMMITMENTS AND CONTINGENCIES
On November 28, 1997, an individual who was a former officer, director
and shareholder of the Company filed a complaint in the United States District
Court for the District of Massachusetts alleging that, at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose to him
material information relating to the potential value of the shares. He further
alleges that the Company and its officers and directors violated Sections 10(b)
and 20(a) of the Securities and Exchange Act of 1934 and breached various
fiduciary duties owed to him and claims damages in excess of $10 million. This
matter is currently scheduled for trial on September 11, 2000. The Company
believes these claims are without merit and intends to defend the matter
vigorously. Although there can be no assurance of a favorable outcome, the
Company does not believe that this action will have a material adverse effect on
the Company's financial condition or results of operations and has not accrued
for any loss related to this action.
On May 12, 1998, the Company acquired David M. Griffith & Associates,
Ltd. ("DMG"), which was subsequently merged into DMG-MAXIMUS, Inc.
("DMG-MAXIMUS"), a wholly-owned subsidiary of MAXIMUS. A consolidated legal
action was brought against DMG-MAXIMUS and thirteen other named defendants in
the U.S. District Court for the District of Arizona by Superstition Mountains
Community Facilities District No. 1 (the "District") and Allstate Insurance
Company ("Allstate"), alleging that DMG made false and misleading
representations in the reports DMG prepared as a consultant to underwriters of
revenue bonds issued by the District and purchased by Allstate. On May 12, 2000,
DMG-MAXIMUS agreed to a confidential settlement agreement with the District and
Allstate. The settlement amount is not material and will not have an adverse
effect on the Company's financial condition or results of operations.
In January 2000, the New York City Human Resources Administration
("HRA") submitted two contracts that it had awarded to the Company for
welfare-to-work services to the Comptroller of New York City (the
<PAGE>
"Comptroller") to be registered. Under New York law, the contracts must be
registered in order for the Company to receive payment. However, the Comptroller
refused to register the contracts, alleging improprieties in the procurement
process and in the Company's conduct. The Mayor of the City of New York (the
"Mayor") and HRA disagreed with the Comptroller's assertions and, in March 2000,
sued the Comptroller in the Supreme Court of the State of New York - New York
County (the "Court"), seeking to require the Comptroller to register the
contracts. On April 13, 2000, the Court issued a decision and judgment holding
that the Comptroller has a mandatory duty to register the contracts. However, as
a matter of judicial discretion, the Court refused to require registration,
finding that the Comptroller had established that the procurement process had
been corrupted. This decision was appealed by the Mayor and HRA to the New York
Supreme Court Appellate Division - First Department (the "Appellate Division").
On April 24, 2000, the Company filed a motion in the Appellate Division to
intervene in the lawsuit. The Company asked that the Court's decision be set
aside on the grounds that it contained findings of fact against the Company not
supported by the record and that the Court failed to afford the Company with its
constitutional rights to notice of a hearing and an opportunity to be heard. The
Appellate Division heard the appeal on June 13, 2000, but has not yet issued a
decision. This matter is also the subject of investigations being conducted by
certain governmental agencies. The District Attorney's Office of New York County
and the United States Attorney's Office for the Southern District of New York,
in response to requests made by the Comptroller, are investigating the facts
underlying this matter. Both offices issued subpoenas for documents to the
Company in early May 2000. The Company believes the Comptroller's claims are
without merit and intends to continue defending against his allegations
vigorously. MAXIMUS believes that its actions were lawful and appropriate and
continues to cooperate fully with the governmental reviews of the matter.
Although there can be no assurance of a favorable outcome, the Company does not
believe that this matter will have a material adverse effect on the Company's
financial condition or results of operations.
The Company also is involved in various other legal proceedings in the
ordinary course of business. In the opinion of management, these proceedings
involve amounts that would not have a material effect on the financial position
or results of operations of the Company if such proceedings were resolved in an
unfavorable manner to the Company.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------- ---------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income................................... $ 7,451 $ 8,598 $19,719 $24,824
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding.... 20,957 21,079 20,386 21,039
Stock options................................ 300 243 345 334
------- ------- ------- -------
Denominator for dilutive earnings per share.. 21,257 21,322 20,731 21,373
======= ======= ======= =======
Earnings per share:
Basic........................................ $ 0.36 $ 0.41 $ 0.97 $ 1.18
======= ======= ======= =======
Diluted...................................... $ 0.35 $ 0.40 $ 0.95 $ 1.16
======= ======= ======= =======
</TABLE>
<PAGE>
6. SEGMENT INFORMATION
The following table provides certain financial information for each
business segment:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ ------------------
Revenues: 1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Government Operations....................... $ 47,427 $ 55,629 $128,788 $160,839
Consulting.................................. 36,741 49,948 104,016 127,922
-------- -------- -------- --------
Total......................................... $ 84,168 $105,577 $232,804 $288,761
========= ========== ========= ========
Income From Operations:
Government Operations....................... $ 4,772 $ 6,516 $ 11,767 $ 18,085
Consulting.................................. 6,845 7,904 19,196 21,833
-------- -------- -------- --------
Total......................................... $ 11,617 $ 14,420 $ 30,963 $ 39,918
======== ======== ======== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company provides program management and consulting services primarily
to government agencies in the United States. Founded in 1975, the Company has
been profitable every year since inception. The Company conducts its operations
through two groups, the Government Operations Group and the Consulting Group.
The Government Operations Group administers and manages government health and
human services programs, including welfare-to-work and job readiness, child
support enforcement, managed care enrollment and disability services. The
Consulting Group provides consulting services to state, county and local
legislatures and government agencies, including health and human services, law
enforcement, parks and recreation, taxation, housing, motor vehicles, labor and
education.
As an important part of the Company's growth strategy, it has completed
combinations with the following firms: Spectrum Consulting Group, Inc. and
Spectrum Consulting Services, Inc. (collectively, "Spectrum") in March 1998,
David M. Griffith & Associates, Ltd. ("DMG") in May 1998, Carrera Consulting
Group ("Carrera") and Phoenix Planning & Evaluation, Ltd. ("Phoenix") in August
1998, Control Software, Inc. ("CSI") in February 1999, Norman Roberts &
Associates, Inc. ("Roberts") in March 1999, Unison Consulting Group, Inc.
("Unison") in June 1999, Network Design Group, Inc. dba The Center for Health
Dispute Resolution ("CHDR") in September 1999, Public Systems, Inc. ("PSI") in
October 1999, Crawford Consulting, Inc. ("Crawford") in March 2000, and
Valuation Resource Management, Inc. ("VRM") in April 2000. Additionally, the
Company acquired substantially all of the assets of the government services
division of 3-G International, Inc. ("3GI") in March 2000, and of AssetWorks,
Inc. ("AssetWorks") and Technology Management Resources, Inc. ("TMR") in April
2000. Spectrum, DMG, Carrera, Phoenix and CSI were each accounted for as a
pooling of interests combination. Roberts, Unison, CHDR, PSI, Crawford, 3GI,
AssetWorks, VRM and TMR were each accounted for as a purchase. See "Business
Combinations and Acquisitions" below. Prior year amounts have been restated to
reflect the combinations with DMG and CSI. The Spectrum, Carrera and Phoenix
combinations
<PAGE>
were accounted for as immaterial poolings of interests and, accordingly, the
Company's previously issued financial statements were not restated to reflect
these combinations.
The Company's revenues are generated from contracts with various payment
arrangements, including: (i) costs incurred plus a fixed fee ("cost-plus"); (ii)
fixed-price; (iii) performance-based criteria; and (iv) time and materials
reimbursement (utilized primarily by the Consulting Group). For the fiscal year
ended September 30, 1999, revenues from these contract types were approximately
25%, 37%, 19% and 19%, respectively, of total revenues. Traditionally, federal
government contracts have been cost-plus and a majority of the contracts with
state and local government agencies have been fixed-price and performance-based.
Fixed price and performance-based contracts generally offer higher margins but
typically involve more risk than cost-plus or time and materials reimbursement
contracts because the Company is subject to the risk of potential cost overruns
or inaccurate revenue estimates.
The Government Operations Group's contracts generally contain base periods
of one or more years as well as one or more option periods that may cover more
than half of the potential contract duration. As of September 30, 1999, the
Company's average Government Operations contract duration was 2 3/4 years. The
Company's Consulting Group contracts have performance periods of one month to in
excess of two years.
The Company's most significant expense is cost of revenues, which consists
primarily of project related employee salaries and benefits, subcontractors,
computer equipment and travel expenses. The Company's ability to accurately
predict personnel requirements, salaries and other costs as well as to
effectively manage a project or achieve certain levels of performance can have a
significant impact on the service costs related to the Company's fixed price and
performance-based contracts. Service cost variability has little impact on
cost-plus arrangements because allowable costs are reimbursed by the client. The
profitability of the Consulting Group's contracts is largely dependent upon the
utilization rates of its consultants and the success of its performance-based
contracts.
Selling, general and administrative expenses consist of management,
marketing and administration costs including salaries, benefits, travel,
recruiting, continuing education and training, facilities costs, printing,
reproduction, communications and equipment depreciation.
BUSINESS COMBINATIONS AND ACQUISITIONS
As part of its growth strategy, the Company expects to continue to
pursue complementary business combinations to expand its geographic reach,
expand the breadth and depth of its services and enhance the Company's
consultant customer base. The Company combined with four consulting firms during
fiscal 1999, one of which was accounted for as a pooling of interests, and three
firms during the first three quarters of fiscal 2000, each accounted for as a
purchase. Additionally, the Company acquired substantially all of the assets of
two firms and a division of another during the first three quarters of fiscal
2000.
On February 26, 1999, the Company acquired all of the outstanding
shares of capital stock of CSI in exchange for 700,210 shares of common stock.
CSI, based in Wayne, Pennsylvania, provides fleet management software and
related services to public sector entities. At the time of the combination, CSI
had 46 employees.
On March 31, 1999, the Company acquired all of the outstanding shares
of capital stock of Roberts for $1,930,000. Roberts, based in Los Angeles,
California, provides executive search services for the public sector. In
connection with the purchase, the Company recorded intangible assets of
$1,880,000. At the time of the combination, Roberts had 18 employees.
On June 1, 1999, the Company acquired all of the outstanding shares of
capital stock of Unison for $7,589,000. Unison, based in Chicago, Illinois,
provides financial consulting for major government owned airports. In connection
with the purchase, the Company recorded intangible assets of $6,328,000. At the
time of the combination, Unison had 39 employees.
On September 30, 1999, the Company acquired all of the outstanding
shares of capital stock of CHDR
<PAGE>
for $2,070,000. CHDR, based in Rochester, New York, is the sole national
provider of external reviews for Medicare beneficiaries enrolled in HMOs. In
connection with the purchase, the Company recorded intangible assets of
$827,000. The purchase is subject to an upward adjustment of $1,200,000 if CHDR
secures the renewal of a certain contract. At the time of the combination, CHDR
had 35 employees.
On October 20, 1999, the Company acquired all of the outstanding shares
of capital stock of PSI for $5,000,000. PSI, based in Wilmington, Delaware,
provides client-server and internet-enabled case management systems to
government customers. In connection with the purchase, the Company recorded
intangible assets of $4,735,000. At the time of the combination, PSI had 26
employees.
On March 20, 2000, the Company acquired all of the outstanding shares
of capital stock of Crawford for $17,500,000. Crawford, based in Canton, Ohio,
provides web-enabled information systems and consulting services for state and
local government courts and justice agencies. In connection with the purchase,
the Company recorded intangible assets of $13,056,000. At the time of the
combination, Crawford had 101 employees.
On March 31, 2000, the Company acquired substantially all of the assets
of the government services division of 3GI for $7,000,000, plus an earn-out
amount of up to $3,000,000 to be paid by the Company upon the achievement of
certain objectives. The division of 3GI acquired by MAXIMUS is based in
Springfield, Virginia and provides integration services of smart card systems
for the public and commercial sectors. In connection with the purchase, the
Company recorded intangible assets of $6,708,000. At the time of the
acquisition, the Government Services division of 3GI had 90 employees.
On April 12, 2000, CSI-MAXIMUS, Inc., a wholly-owned subsidiary of the
Company ("CSI-MAXIMUS") acquired substantially all of the assets of AssetWorks
for $8,613,000. AssetWorks, based in San Antonio, Texas, provides infrastructure
management systems for federal, state and local government, universities and
K-12 educational systems. In connection with the purchase, the Company recorded
intangible assets of $8,661,000. At the time of the acquisition, AssetWorks had
50 employees.
On April 14, 2000, the Company acquired all of the outstanding shares
of capital stock of VRM for $4,500,000. VRM, based in Irving, Texas, provides
asset inventorying and valuation services to governments. In connection with the
purchase, the Company recorded intangible assets of $4,130,000. At the time of
the combination, VRM had 80 employees.
On April 29, 2000, the Company acquired substantially all of the assets
of TMR from SCB Computer Technologies, Inc. for $9,674,000. TMR, based in Omaha,
Nebraska, provides operations, consulting services and web-based technology for
child support collections programs for state and local governments. In
connection with the purchase, the Company recorded intangible assets of
$10,036,000. At the time of the acquisition, TMR had 125 employees.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- ------------------
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Government Operations Group............... 56.3% 52.7% 55.3% 55.7%
Consulting Group.......................... 43.7 47.3 44.7 44.3
----- ----- ----- -----
Total revenues.............................. 100.0 100.0 100.0 100.0
Gross Profit:
Government Operations Group............... 20.0 22.9 19.3 22.5
Consulting Group.......................... 44.1 42.1 42.6 42.5
Total gross profit as a percent of revenue 30.5 32.0 29.7 31.4
Selling, general and administrative expenses 16.4 17.1 16.3 16.9
Deferred compensation, merger and ESOP
Expenses................................... 0.2 0.2 0.1 0.1
Amortization of goodwill and other
Acquisition related intangibles........... 0.1 1.0 0.0 0.6
----- ----- ----- -----
Income from operations...................... 13.8 13.7 13.3 13.8
Interest and other income................... 1.1 0.3 1.0 0.9
----- ----- ----- -----
Income before income taxes.................. 14.9 14.0 14.3 14.7
Provision for income taxes.................. 6.1 5.9 5.8 6.1
----- ----- ----- -----
Net income.................................. 8.8 8.1 8.5 8.6
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES. Total revenues increased 25.4% to $105.6 million for the
three months ended June 30, 2000 from $84.2 million for the same period in 1999.
Government Operations Group revenues increased 17.3% to $55.6 million for the
three months ended June 30, 2000 from $47.4 million for the same period in 1999.
This increase was primarily due to an increase in the number of contracts in
three of the four divisions in the Government Operations Group, and the
contribution of $4.0 million of revenue the 2000 quarter from CHDR and TMR,
which were both acquired after the quarter ended June 30, 1999. Consulting
Group revenues increased 35.9% to $49.9 million for the three months ended June
30, 2000 from $36.7 million for the same period in 1999. Approximately $8.8
million of the $13.2 million increase in the Consulting Group revenues were
revenues from PSI, Crawford, 3GI and AssetWorks, which companies were acquired
after the quarter ended June 30, 1999. The remainder of the increased
revenues was the result of an increase in the number of contracts in the
Consulting Group.
GROSS PROFIT. Total gross profit increased 31.3% to $33.7 million for
the three months ended June 30, 2000 from $25.7 million for the same period in
1999. Government Operations Group gross profit increased 34.1% to $12.7 million
for the three months ended June 30, 2000 from $9.5 million for the three months
ended June 30, 1999. As a percentage of Government Operations Group revenues,
Government Operations Group gross profit increased to 22.9% for the three months
ended June 30, 2000 from 20.0% for the same period in 1999. The increase was
primarily due to improved margins on certain projects in two of the four
divisions of the Government Operations Group. The Consulting Group gross
profit increased 29.6% to $21.0 million for the three months ended
June 30, 2000 from $16.2 million for the same period in 1999 due to
the increased revenues offset
<PAGE>
by a decreased gross profit percentage. As a percentage of Consulting Group
revenues, Consulting Group gross profit decreased to 42.1% for the three
months ended June 30, 2000 from 44.1% for the same period in 1999,
primarily due to reduced margins on a few projects in four divisions within the
Group.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total selling, general
and administrative ("SG&A") expenses increased 30.3% to $18.0 million for the
three months ended June 30, 2000 from $13.8 million for the same period in 1999.
The increase in SG&A expenses was due to the increased size of the Company in
terms of revenue, generated from both internal growth and from acquisitions
which is reflected in the increase in the number of employees to 4,100 at June
30, 2000 from 3,155 at June 30, 1999. As a percentage of revenues, SG&A expenses
increased to 17.1% for the three months ended June 30, 2000 from 16.4% for the
same period in 1999, primarily due to an increase in the number of personnel and
capability of the Government & Investor Relations unit and the Information
Services unit.
AMORTIZATION OF GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES. In
the quarter ended June 30, 2000, the Company incurred $1.1 million of
amortization expense related to the $56.4 million of goodwill and other
acquisition-related intangible assets it recorded in connection with the
acquisitions of Roberts, Unison, CHDR, PSI, Crawford, 3GI, AssetWorks, VRM and
TMR.
INTEREST AND OTHER INCOME. The decrease in interest and other income to
$0.4 million for the three months ended June 30, 2000 as compared to $1.0
million for the same period in 1999 was due to a decrease in the average balance
of invested funds due to the use of cash for business acquisitions discussed
above (see "Business Combinations and Acquisitions.")
PROVISION FOR INCOME TAXES. The provision for income tax for the three
months ended June 30, 2000 was 41.9% of income before income taxes as compared
to 40.8% for the three months ended June 30, 1999. The increase in percentages
was due to an increase in the amounts of certain expense items, primarily
amortization of intangible assets, some of which are not deductible for tax
purposes.
NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30,
1999
REVENUES. Total revenues increased 24.0% to $288.8 million for the nine
months ended June 30, 2000 from $232.8 million for the same period in 1999.
Government Operations Group revenues increased 24.9% to $160.8 million for the
nine months ended June 30, 2000 from $128.8 million for the same period in 1999.
This increase was primarily due to an increase in the number of contracts in all
four divisions in the Government Operations Group and the contribution of $5.2
million of revenue during the nine months ended June 30, 2000 from CHDR and TMR,
which were both acquired subsequent to June 30, 1999. Consulting Group revenues
increased 23.0% to $127.9 million for the nine months ended June 30, 2000 from
$104.0 million for the same period in 1999. Approximately $18.1 million of the
$23.9 million increase in the Consulting Group revenues were revenues from
Unison, PSI, Crawford, 3GI and VRM, which companies were acquired after
the start of the nine month period ended June 30, 1999. The remainder of the
increased revenues was the result of an increase in the number of contracts in
the Consulting Group.
GROSS PROFIT. Total gross profit increased 30.9% to $90.6 million for
the nine months ended June 30, 2000 from $69.2 million for the same period in
1999. Government Operations Group gross profit increased 45.5% to $36.2 million
for the nine months ended June 30, 2000 from $24.9 million for the nine months
ended June 30, 1999. As a percentage of Government Operations Group revenues,
Government Operations Group gross profit increased to 22.5% for the nine months
ended June 30, 2000 from 19.3% for the same period in 1999. The increase was due
to improved margins in three of the four divisions of the Government Operations
Group. That increase was offset by the incurrence of costs related to two
contracts with the City of New York for which no revenue was recognized due to
disputes regarding the registration of the contracts. See "Legal Proceedings."
The Consulting Group gross profit increased 22.7% to $54.3 million for the nine
months ended June 30, 2000 from $44.3 million for the same period in 1999
closely paralleling the increase in Consulting Group Revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Total SG&A expenses
increased 28.6% to $40.7 million
<PAGE>
for the nine months ended June 30, 2000 from $37.9 million for the same period
in 1999. The increase in SG&A expenses was due to the increased size of the
Company in terms of revenue, generated from both internal growth and from
acquisitions, and in the increase in the number of employees to 4,100 at June
30, 2000 from 3,155 at June 30, 1999. As a percentage of revenues, SG&A expenses
increased to 16.9% for the nine months ended June 30, 2000 from 16.3% for the
same period in 1999, primarily due to the increase in the number of personnel
and capability of the Government & Investor Relations unit and the Information
Services unit, offset by the receipt of $819,000 from the settlement of a legal
action in the second quarter of fiscal year 2000.
AMORTIZATION OF GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLES. In
the nine months ended June 30, 2000, the Company incurred $1.7 million of
amortization expense related to the $56.4 million of goodwill and other
acquisition-related intangible assets it recorded in connection with the
acquisitions of Roberts, Unison, CHDR, PSI, Crawford, 3GI, AssetWorks, VRM and
TMR.
INTEREST AND OTHER INCOME. The increase in interest and other income to
$2.5 million for the nine months ended June 30, 2000 as compared to $2.2 million
for the same period in 1999 was due to an increase in the average interest rates
earned on invested funds and to an increase in the amount of average invested
funds.
PROVISION FOR INCOME TAXES. The provision for income tax for the nine
months ended June 30, 2000 was 41.5% of income before income taxes as compared
to 40.6% for the nine months ended June 30, 1999. The difference in percentages
was due to an increase in the amounts of certain expense items, primarily
amortization of intangible assets, some of which are not deductible for tax
purposes.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended June 30, 2000, cash provided by operations
was $6.5 million as compared to cash provided by operations of $15.7 million for
the nine months ended June 30, 1999. The primary reason for the decrease in cash
provided by operations was the increase in accounts receivable of $11.8
million during the nine months ended June 30, 2000 compared to a much smaller
increase in accounts receivable of $0.7 million during the nine months
ended June 30, 1999. Accounts receivable at June 30, 2000 total $96.1 million
compared to $74.0 million at June 30, 1999, an increase of 29.8% which
reflects the revenue growth from the June, 1999 quarter to the June, 2000
quarter of 25.4%. Measured in days of sales outstanding ("DSOs"), the
amounts of accounts receivable represent 83 and 80 days of sales at
June 30, 2000 and June 30, 1999, respectively. The other major factor
affecting cash flow from operations during the nine months ended
June 30, 2000 is the increase in costs and estimated earnings in excess of
billings (unbilled accounts receivable) of $5.9 million. Measured in DSOs, these
assets have increased to $23.8 million and 20 DSOs at June 30, 2000 from $14.0
million and 15 DSOs at June 30, 1999. The increase in the amount of accounts
receivable, billed and unbilled, of 8 DSOs is primarily due to the increase in
the mix of Consulting Group revenues from 43.7% of the total revenues for the
three months ended June 30, 1999 to 47.3% for the three months ended June 30,
2000. The Consulting Group accounts receivable, both billed and unbilled, have
historically averaged significantly higher levels than the Government Operations
Group, and recent Consulting Group acquisitions carried similarly high levels of
accounts receivables.
For the nine months ended June 30, 2000, cash used in investing
activities was $28.7 million as compared to $68.3 million for the nine months
ended June 30, 1999. During the nine months ended June 30, 2000, the Company
used $51.2 million in cash for the acquisition of businesses, $2.4 million in
cash for the purchase of property and equipment, and $1.4 million in cash for
capitalized software development costs, and generated cash from sales of
marketable securities totaling $26.3 million. Cash used in investing activities
for the nine months ended June 30, 1999 primarily consisted of the purchase of
marketable securities totaling $48.7 million with the proceeds from the
secondary offering which occurred in December 1998, the purchase of property and
equipment totaling $9.9 million and the acquisition of businesses totaling $9.6
million.
Cash used in financing activities during the nine months ended June 30,
2000 was $1.7 million, which consisted of payments on borrowings of $3.6 million
offset by sales of stock totaling $1.9 million to employees through the
Company's employee stock purchase plan and equity incentive plan. During the
nine months ended June 30, 1999, cash provided by financing activities consisted
primarily of the proceeds of $61.0 million from the
<PAGE>
secondary offering.
Management believes that the Company will have sufficient resources to
meet its cash needs over the next 12 months, which may include start-up costs
associated with new contract awards, obtaining additional office space,
establishing new offices, investment in upgraded systems infrastructure or
acquisitions of other businesses and technologies. Cash requirements beyond the
next 12 months will depend on the Company's profitability, its ability to manage
working capital requirements, its rate of growth, the amounts spent on business
acquisitions, if any, and the leasing of new office space, if any.
FORWARD LOOKING STATEMENTS
Statements that are not historical facts, including statements about
the Company's confidence and strategies and the Company's expectations regarding
its ability to obtain future contracts, expand its market opportunities or
attract highly-skilled employees are forward looking statements that involve
risks and uncertainties. These risks and uncertainties include legislative
changes and political developments adverse to the privatization of the provision
of government services; risks related to completed or future acquisitions;
opposition from government employee unions; reliance on key executives; impact
of competition from similar companies; and legal, economic and other risks
detailed in Exhibit 99 to this Quarterly Report on Form 10-Q for the period
ended June 30, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market risk related to the
effect of changes in interest rates, foreign currency exchange rates, commodity
prices and equity prices on instruments entered into for trading and other
purposes is immaterial.
PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The Exhibits filed as part of this Form 10-Q are listed on the
Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by the
Company during the fiscal quarter ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXIMUS, INC.
Date: August 14, 2000 By:/s/ F. ARTHUR NERRET
---------------------------------
F. Arthur Nerret
Vice President, Finance, Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
Amended and Restated Articles of Incorporation, as amended. Filed herewith.
Executive Employment, Non-compete and Confidentiality Agreement by and between
the Company and James M. Paulits. Filed herewith.
27 Financial Data Schedules (EDGAR only)
99 Important Factors Regarding Forward Looking Statements. Filed herewith.
</TABLE>
<PAGE>
MAXIMUS, INC.
ARTICLES OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
Pursuant to Section 13.1-710 of the Stock Corporation Act under Chapter
9 of the Code of Virginia, as amended, the undersigned certifies as follows:
1. The name of the Corporation is MAXIMUS, Inc.
2. The first sentence of Article SECOND of the Amended and Restated
Articles of Incorporation of the corporation is hereby deleted
and replaced with the following sentence:
"The Corporation is authorized to issue 60,000,000 Shares of
Common Stock."
3. This amendment was adopted by the Board of Directors of the
Corporation at a meeting held on November 16, 1999 and submitted for approval by
the Shareholders of the Corporation at the 2000 Annual Meeting of Shareholders
held on February 23, 2000 in accordance with Chapter 9 of the Code of the
Commonwealth of Virginia (the "Meeting"). At the Meeting, holders of 19,406,116
shares of the Common Stock of the Corporation were present in person or
represented by proxy, which such holders represented a majority in interest of
all of the 21,008,709 shares of the Corporation's Common Stock issued and
outstanding on the record date of the Meeting and thereby constituted a quorum
for consideration of the adoption of this amendment. The Shareholders of the
Corporation approved this amendment by a vote of 18,914,305 shares voting "for,"
467,399 shares voting "against" and 24,412 shares voting to abstain. No shares
of any other class of stock were outstanding and entitled to vote.
MAXIMUS, Inc.
By: /s/ F. ARTHUR NERRET
------------------------
Name: F. Arthur Nerret
Title: Vice President, Finance
