Back to GetFilings.com



 

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 December 31, 2004

 

Commission File Number: 1-12997

 

MAXIMUS, INC.

(Exact name of registrant as specified in its charter)

 

Virginia

 

54-1000588

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

11419 Sunset Hills Road
Reston, Virginia

 

20190

(Address of principal executive offices)

 

(Zip Code)

 

(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 ý  No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes ý  No ¨

 

As of January 31, 2005, there were 21,301,390 shares of the registrant’s common stock (no par value) outstanding.

 

 



 

MAXIMUS, Inc.

 

Quarterly Report on Form 10-Q

For the Quarter Ended December 31, 2004

 

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2004 and December 31, 2004 (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Statements of Income for the Three Months Ended December 31, 2003 and 2004 (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2003 and 2004 (unaudited)

 

 

 

 

 

 

 

Notes to Unaudited Condensed 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.

 

 

 

 

 

Item 4.

 

Controls and Procedures.

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings.

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds.

 

 

 

 

 

Item 6.

 

Exhibits.

 

 

 

 

 

Signatures

 

 

 

 

 

Exhibit Index

 

 

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

 



 

PART I.  FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements.

 

MAXIMUS, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

September 30,
2004

 

December 31,
2004

 

 

 

(Note 1)

 

(unaudited)

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

91,854

 

$

94,557

 

Marketable securities

 

47,400

 

47,750

 

Restricted cash

 

1,379

 

1,400

 

Accounts receivable – billed, net of reserves of $5,567 and $6,331

 

111,834

 

119,202

 

Accounts receivable – unbilled

 

42,280

 

41,936

 

Prepaid expenses and other current assets

 

9,673

 

7,021

 

Total current assets

 

304,420

 

311,866

 

Property and equipment, at cost

 

52,676

 

54,493

 

Less accumulated depreciation and amortization

 

(26,983

)

(28,722

)

Property and equipment, net

 

25,693

 

25,771

 

Capitalized software

 

30,918

 

33,806

 

Less accumulated amortization

 

(12,667

)

(13,906

)

Capitalized software, net

 

18,251

 

19,900

 

Deferred contract costs, net

 

15,475

 

14,867

 

Goodwill

 

84,886

 

85,143

 

Intangible assets, net

 

9,807

 

9,293

 

Other assets, net

 

6,215

 

5,780

 

Total assets

 

$

464,747

 

$

472,620

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

27,476

 

$

26,178

 

Accrued compensation and benefits

 

21,224

 

19,573

 

Deferred revenue

 

21,195

 

21,414

 

Income taxes payable

 

 

3,054

 

Deferred income taxes

 

1,930

 

1,517

 

Current portion of capital lease obligations

 

1,649

 

1,613

 

Other accrued liabilities

 

1,432

 

1,470

 

Total current liabilities

 

74,906

 

74,819

 

Capital lease obligations, less current portion

 

5,108

 

4,738

 

Deferred income taxes

 

10,766

 

11,675

 

Other liabilities

 

419

 

298

 

Total liabilities

 

91,199

 

91,530

 

Shareholders’ equity:

 

 

 

 

 

Common stock, no par value; 60,000,000 shares authorized; 21,319,847 and 21,266,550 shares issued and outstanding at September 30, 2004 and December 31, 2004, at stated amount, respectively

 

147,966

 

146,164

 

Accumulated other comprehensive loss

 

(345

)

(50

)

Retained earnings

 

225,927

 

234,976

 

Total shareholders’ equity

 

373,548

 

381,090

 

Total liabilities and shareholders’ equity

 

$

464,747

 

$

472,620

 

 

See notes to unaudited condensed consolidated financial statements.

 

1



 

MAXIMUS, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

 

 

 

Three Months
Ended December 31,

 

 

 

2003

 

2004

 

Revenue

 

$

138,894

 

$

152,495

 

Cost of revenue

 

96,311

 

108,090

 

Gross profit

 

42,583

 

44,405

 

Selling, general and administrative expenses

 

27,652

 

29,549

 

Income from operations

 

14,931

 

14,856

 

Interest and other income, net

 

192

 

100

 

Income before income taxes

 

15,123

 

14,956

 

Provision for income taxes

 

5,974

 

5,907

 

Net income

 

$

9,149

 

$

9,049

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.43

 

$

0.43

 

Diluted

 

$

0.42

 

$

0.42

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

21,378

 

21,307

 

Diluted

 

21,933

 

21,551

 

 

See notes to unaudited condensed consolidated financial statements.

 

2



 

MAXIMUS, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months
Ended December 31,

 

 

 

2003

 

2004

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

9,149

 

$

9,049

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation

 

1,787

 

1,739

 

Amortization

 

1,373

 

1,753

 

Deferred income taxes

 

3,802

 

496

 

Tax benefit due to option exercises and restricted stock units vesting

 

2,269

 

224

 

Non-cash equity based compensation

 

206

 

316

 

 

 

 

 

 

 

Change in assets and liabilities, net of effects from acquisitions:

 

 

 

 

 

Accounts receivable - billed

 

19,147

 

(7,368

)

Accounts receivable - unbilled

 

(8,224

)

344

 

Prepaid expenses and other current assets

 

401

 

2,208

 

Deferred contract costs

 

(4,942

)

608

 

Other assets

 

(184

)

495

 

Accounts payable

 

(1,246

)

(1,298

)

Accrued compensation and benefits

 

(3,656

)

(1,651

)

Deferred revenue

 

(820

)

218

 

Income taxes payable

 

(2,837

)

3,054

 

Other liabilities

 

(227

)

(102

)

 

 

 

 

 

 

Net cash provided by operating activities

 

15,998

 

10,085

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Acquisition of businesses, net of cash acquired

 

(601

)

(257

)

Purchases of property and equipment

 

(1,708

)

(1,817

)

Capitalized software costs

 

(1,019

)

(2,888

)

Other

 

177

 

328

 

 

 

 

 

 

 

Net cash used in investing activities

 

(3,151

)

(4,634

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Employee stock transactions

 

13,593

 

1,937

 

Repurchases of common stock

 

(335

)

(4,280

)

Payments on capital lease obligations

 

(46

)

(405

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

13,212

 

(2,748

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

26,059

 

2,703

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

117,372

 

91,854

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

143,431

 

$

94,557

 

 

See notes to unaudited condensed consolidated financial statements.

 

3



 

MAXIMUS, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

For the Three Months Ended December 31, 2004 and 2003

 

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

 

1. Organization and Basis of Presentation

 

General

 

The accompanying unaudited condensed 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 footnotes required by generally accepted accounting principles 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 months ended December 31, 2004 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet at September 30, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

 

These financial statements should be read in conjunction with the audited financial statements at September 30, 2004 and 2003 and for each of the three years in the period ended September 30, 2004, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2004 (File No. 1-12997) filed with the Securities and Exchange Commission on December 10, 2004.

 

Stock-Based Compensation

 

The Company currently accounts for stock options using the intrinsic value method in accordance with Accounting Principle Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, as interpreted by Financial Accounting Standards Board (FASB) Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation. Accordingly, no compensation cost has been recognized for the granting of stock options to our employees and directors as all stock options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. If stock options granted had been accounted for based on their fair value as determined under FASB Statement No. 123, Accounting for Stock-Based Compensation, the net income and net income per share, as adjusted, would have been as follows:

 

4



 

 

 

Three Months
Ended December 31,

 

(in thousands, except per share data)

 

2003

 

2004

 

 

 

 

 

 

 

Net income, as reported

 

$

9,149

 

$

9,049

 

Add: Stock-based compensation expense included in reported net income, net of taxes

 

124

 

191

 

Deduct: Stock-based compensation expense determined under fair value based method for all awards, net of taxes

 

(1,335

)

(1,035

)

Net income, as adjusted

 

$

7,938

 

$

8,205

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic – as reported

 

$

0.43

 

$

0.43

 

Basic – as adjusted

 

$

0.37

 

$

0.39

 

 

 

 

 

 

 

Diluted – as reported

 

$

0.42

 

$

0.42

 

Diluted – as adjusted

 

$

0.36

 

$

0.38

 

 

2. Comprehensive Income

 

Comprehensive income includes net income, plus changes in the net unrealized gain (loss) on investments, net of taxes, and changes in cumulative foreign currency translation adjustments. Such adjustments were not material for the periods presented. Accordingly, comprehensive income closely approximates actual net income.

 

3. Deferred Contract Costs

 

Deferred contract costs consist of recoverable direct set-up costs relating to long-term service contracts in progress. These costs include system development and facility build-out costs totaling $18.5 million at September 30, 2004 and December 31, 2004, of which $7.6 million consist of leased equipment. Deferred contract costs are expensed ratably as services are provided under the contracts. Amortization of deferred contract costs was $0.9 million for the three months ended December 31, 2004.

 

4. Goodwill and Intangible Assets

 

The changes in the carrying amount of goodwill, by each of the Company’s business segments, for the three months ended December 31, 2004 are as follows (in thousands):

 

 

 

Consulting

 

Systems

 

Operations

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance as of September 30, 2004

 

$

6,811

 

$

44,559

 

$

33,516

 

$

84,886

 

Goodwill activity during period

 

 

257

 

 

257

 

Balance as of December 31, 2004

 

$

6,811

 

$

44,816

 

$

33,516

 

$

85,143

 

 

The following table sets forth the components of intangible assets (in thousands):

 

5



 

 

 

As of September 30, 2004

 

As of December 31, 2004

 

 

 

Cost

 

Accumulated
Amortization

 

Intangible
Assets, net

 

Cost

 

Accumulated
Amortization

 

Intangible
Assets, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-competition agreements

 

$

3,475

 

$

2,994

 

$

481

 

$

3,475

 

$

3,031

 

$

444

 

Technology-based intangibles

 

4,870

 

756

 

4,114

 

4,870

 

978

 

3,892

 

Customer contracts and relationships

 

7,475

 

2,263

 

5,212

 

7,475

 

2,518

 

4,957

 

Total

 

$

15,820

 

$

6,013

 

$

9,807

 

$

15,820

 

$

6,527

 

$

9,293

 

 

Intangible assets from acquisitions are amortized over five to ten years. The weighted-average amortization period for intangible assets is approximately seven years. Intangible amortization expense was $0.3 million and $0.5 million for the three months ended December 31, 2003 and 2004, respectively. The estimated amortization expense for the years ending September 30, 2005, 2006, 2007, 2008 and 2009 is $2.1 million, $2.0 million, $2.0 million, $1.6 million and $1.1 million, respectively.

 

5. Commitments and Contingencies

 

Litigation

 

In the third quarter of fiscal 2004, the Company learned that two former employees who were principals in a small business MAXIMUS acquired in 2000 had signed fraudulent guarantees on behalf of MAXIMUS for computer equipment leases. Some of that equipment appears to have been used in businesses unrelated to MAXIMUS. The Company did not have knowledge of the leases or guarantees. Solarcom LLC, the leasing company, demanded $31.0 million from MAXIMUS under the guarantees, which amount represents the remaining payments under the leases. Solarcom subsequently filed suit against MAXIMUS on August 17, 2004 in state court in Gwinnett County, Georgia. On August 6, 2004, De Lage Landen Financial Services, Inc. sued MAXIMUS and Solarcom in the federal District Court for the Eastern District of Pennsylvania seeking damages of at least $10.0 million. On August 24, 2004, Fleet Business Credit sued MAXIMUS and Solarcom in the federal District Court for the Northern District of Georgia seeking damages of approximately $8.0 million. Solarcom had sold and assigned certain of the lease payments to De Lage Landen and Fleet Business Credit. The Solarcom and Fleet Business Credit Services actions were consolidated in the federal District Court for the Northern District of Georgia on September 29, 2004. The Company believes the amounts claimed by De Lage Landen and Fleet Business Credit are part of the $31.0 million demanded by Solarcom. Because the guarantees were fraudulently signed, and because the leasing company did not perform appropriate due diligence, the Company believes that it is not liable under the guarantees and will vigorously contest any claim for payment. The Company has also reported the matter to law enforcement authorities, and has filed claims against the former employees. Those claims have been referred to arbitration for resolution. Although there can be no assurance of a favorable outcome, the Company does not believe that these actions will have a material adverse effect on its financial condition or results of operations, and the Company has not accrued for any loss related to this action.

 

In October 2004, MAXIMUS received a subpoena from the U.S. Attorney’s Office for the District of Columbia. The subpoena requested records pertaining to the Company’s work for the District of Columbia, primarily in the area of assisting in the submission and payment of federal Medicaid reimbursement claims prepared on behalf of the District of Columbia. Although the matter is in its early stages, the U.S. Attorney’s Office appears to be investigating issues pertaining to compliance with federal health care laws. MAXIMUS does not believe it has violated those laws and is cooperating fully with the U.S. Attorney’s Office. 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 its financial condition or results of operations, and the Company has not accrued for any loss related to this matter.

 

6



 

The Company is involved in various other legal proceedings, including contract claims, in the ordinary course of its business. Management does not expect the ultimate outcome of these legal proceedings to have in the aggregate a material adverse effect on the Company’s financial condition or its results of operations.

 

Credit Facilities

 

In June 2003, in connection with a long-term contract, the Company issued a standby letter of credit in an initial amount of up to $20.0 million, which amount shall be reduced to $10.0 million on April 1, 2005. The letter of credit, which expires on March 31, 2009, may be called by the customer in the event the Company defaults under the terms of the contract. The letter of credit contains financial covenants that establish minimum levels of tangible net worth and earnings before interest, tax, depreciation and amortization (EBITDA) and require the maintenance of certain cash balances. The Company was in compliance with all covenants at December 31, 2004.

 

Lease Obligations

 

On July 15, 2003, the Company entered into a capital lease financing arrangement with a financial institution, whereby the Company may acquire assets pursuant to an equipment lease agreement. Rental payments for assets leased are payable over a 60-month period at an interest rate of 4.05% commencing in January 2004. On March 29, 2004, the Company entered into a supplemental capital lease financing arrangement with the same financial institution whereby the Company may acquire additional assets pursuant to an equipment lease agreement. Rental payments for assets leased under the supplemental arrangement are payable over a 57-month period at an interest rate of 3.61% commencing in April 2004. Capital lease obligations of approximately $6.6 million and $6.2 million were outstanding related to these lease arrangements for new equipment at September 30, 2004 and December 31, 2004, respectively.

 

6. Earnings Per Share

 

The following table sets forth the components of basic and diluted earnings per share (in thousands):

 

 

 

Three Months
Ended December 31,

 

 

 

2003

 

2004

 

Numerator:

 

 

 

 

 

Net income

 

$

9,149

 

$

9,049

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Basic weighted average shares outstanding

 

21,378 

 

21,307 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

Employee stock options and unvested restricted stock awards

 

555

 

244

 

Denominator for diluted earnings per share

 

21,933

 

21,551

 

 

7. Stock Repurchase Program

 

Under resolutions adopted in May 2000, July 2002, and March 2003, the Board of Directors has authorized the repurchase, at management’s discretion, of up to an aggregate of $90.0 million of the Company’s common stock. In addition, in June 2002, the Board of Directors authorized the use of option exercise proceeds for the repurchase of the Company’s common stock. During the three months ended December 31, 2004, the Company repurchased approximately 146,000 shares. At December 31, 2004, $29.5 million remained authorized for future stock repurchases under the program.

 

7



 

8. Stock Option Plans

 

In May 2002, the Company issued 170,000 Restricted Stock Units (RSUs) to certain executive officers and employees under its 1997 Equity Incentive Plan (“Plan”). The grant-date fair value of each RSU was $30.14. In March 2004, the Company issued 96,800 RSUs to certain executive officers and employees under the Plan with a grant-date fair value of $34.90 for each RSU. In November 2004, the Company issued 35,000 RSUs to certain employees under the Plan with a grant-date fair value of $28.50 for each RSU. These RSUs vest ratably over six years with full vesting upon the sixth anniversary of the date of grant, provided, however, that the vesting will accelerate if the Company meets certain earnings targets determined by the Board of Directors as set forth in the RSUs. The fair value of the RSUs at the grant date is amortized to expense over the vesting period. Compensation expense recognized related to these RSUs was approximately $0.2 million and $0.3 million for the three months ended December 31, 2003 and 2004, respectively.

 

For the three months ended December 31, 2004, approximately 72,000 stock options were exercised under the Company’s stock option plan.

 

9. Segment Information

 

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

 

 

 

Three Months
Ended December 31,

 

 

 

2003

 

2004

 

Revenue:

 

 

 

 

 

Consulting

 

$

26,672

 

$

24,396

 

Systems

 

33,293

 

34,801

 

Operations

 

78,929

 

93,298

 

Total

 

$

138,894

 

$

152,495

 

 

 

 

 

 

 

Income from Operations:

 

 

 

 

 

Consulting

 

$

3,682

 

$

904

 

Systems

 

3,431

 

5,048

 

Operations

 

7,656

 

8,300

 

Consolidating adjustments

 

162

 

604

 

Total

 

$

14,931

 

$

14,856

 

 

10. Recent Accounting Pronouncements

 

On December 16, 2004, the FASB issued Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosures are no longer an alternative.

 

Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on July 1, 2005. Statement 123(R) permits public companies to adopt its requirements using one of two methods:

 

8



 

1.     A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date; and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

 

2.     A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented; or (b) prior interim periods of the year of adoption.

 

The Company is currently evaluating which of the two methods it will use to adopt the requirements of Statement 123(R).

 

As permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB Opinion No. 25’s intrinsic value method and, as such, recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have an impact on our result of operations, although it will have no impact on our overall financial position. The impact of adoption of Statement 123(R) will depend on levels of share-based payments granted in the future; however, the Company expects the impact of adoption to be approximately $0.05 per diluted share for the quarter ended September 30, 2005. Had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share under “Stock-Based Compensation” in Note 1 to our condensed consolidated financial statements.

 

Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $2.3 million and $0.2 million for the three months ended December 31, 2003 and 2004, respectively.

 

11. Subsequent Event

 

On January 27, 2005, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 for each share of the Company’s common stock outstanding. The dividend is payable on February 28, 2005 to shareholders of record on February 15, 2005. Based on the current number of shares outstanding, the payment will be approximately $2.1 million.

 

9



 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis is provided to enhance the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and related Notes included both herein and in our Annual Report on Form 10-K for the year ended September 30, 2004 filed with the Securities and Exchange Commission on December 10, 2004.

 

Business Overview

 

We are a leading provider of consulting, systems solutions and operations program management primarily to government. 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 while improving the quality of services provided to program beneficiaries. We operate primarily in the United States, and we have had contracts with government agencies in all 50 states. We have been profitable every year since we were founded in 1975. For the fiscal year ended September 30, 2004, we had revenue of $603.8 million and net income of $38.8 million. For the three months ended December 31, 2004, we had revenue of $152.5 million and net income of $9.0 million.

 

To reflect how we operate and manage our business, we report each of our three lines of businesses (i.e., Consulting, Systems, and Operations) as separate external reporting segments. The segment financial information provided below is reflective of this composition of our reportable segments.

 

Results of Operations

 

Consolidated

 

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

 

 

 

Three months ended
December 31,

 

(dollars in thousands, except per share data)

 

2003

 

2004

 

 

 

 

 

 

 

Revenue

 

$

138,894

 

$

152,495

 

Gross profit

 

$

42,583

 

$

44,405

 

Operating income

 

$

14,931

 

$

14,856

 

 

 

 

 

 

 

Operating margin percentage

 

10.7

%

9.7

%

 

 

 

 

 

 

Selling, general and administrative expense

 

$

27,652

 

$

29,549

 

Selling, general and administrative expense as a percentage of revenue

 

19.9

%

19.4

%

 

 

 

 

 

 

Net income

 

$

9,149

 

$

9,049

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.43

 

$

0.43

 

Diluted

 

$

0.42

 

$

0.42

 

 

10



 

Our consolidated revenue increased 9.8% for the three months ended December 31, 2004 compared to the same period in fiscal 2004. Excluding revenue related to acquisitions, we had an overall increase in revenue of 8.9% for the three months ended December 31, 2004 compared to the same period in fiscal 2004. Our operating margin decreased to 9.7% for the three months ended December 31, 2004, a decrease of 1.0%, compared to 10.7% for the same period in fiscal 2004. As discussed in more detail below, the changes in revenue are attributed primarily to results from our Operations Segment and the changes in operating income are attributed primarily to the results from our Consulting and Systems Segments.

 

Selling, general and administrative expense (SG&A) consists of management, marketing and administration costs (including salaries, benefits, bid and proposal efforts, travel, recruiting, continuing education, employee training and non-chargeable labor costs), facilities costs, printing, reproduction, communications, equipment depreciation, intangible amortization and non-cash equity based compensation. SG&A increased for the three months ended December 31, 2004 compared to the same period in fiscal 2004 due to the increase in expenses necessary to support the higher revenue and to strengthen the infrastructure to market our products and grow our business, including our proposal facilities and systems, and new finance, operational, and compliance personnel. Our SG&A as a percentage of revenue decreased to 19.4% for the three months ended December 31, 2004 compared to 19.9% for the three months ended December 31, 2003. While SG&A as a percentage of revenue declined slightly, management remains focused on SG&A cost containment.

 

Also included in SG&A is approximately $0.2 million and $0.3 million of non-cash equity-based compensation expense for the three months ended December 31, 2003 and 2004, respectively, related to the issuance of restricted stock units in May 2002, March 2004 and November 2004. In future periods, the quarterly amortization expense related to these restricted stock units is estimated to be approximately $0.3 million, which amount may increase if certain earnings targets are achieved.

 

Our provision for income taxes for each of the three months ended December 31, 2003 and 2004 was 39.5% of income before income taxes.

 

Net income for the three months ended December 31, 2004 was $9.0 million, or $0.42 per diluted share, compared with net income of $9.1 million, or $0.42 per diluted share, for the same period in fiscal 2004.

 

Consulting Segment

 

 

 

Three months ended
December 31,

 

 

 

2003

 

2004

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Revenue

 

$

26,672

 

$

24,396

 

Gross profit

 

$

11,574

 

$

9,433

 

Operating income

 

$

3,682

 

$

904

 

 

 

 

 

 

 

Operating margin percentage

 

13.8

%

3.7

%

 

The Consulting Segment is primarily comprised of financial services such as revenue maximization, cost services and child welfare, and educational services such as educational and school-based claiming. Revenue from our Consulting Segment decreased 8.5% for the three months ended December 31, 2004 compared to the same period in fiscal 2004. This decrease was primarily attributable to revenue reductions in our Child Welfare and Revenue Services divisions, which includes contingency-based contracts where revenue and profit contributions can fluctuate, as well as the downsizing of our activity-based costing practice. Operating margin declined to 3.7% for the three months ended December 31, 2004 from 13.8% for the same period in fiscal 2004. This net decrease was primarily attributable to losses generated by our Revenue Services

 

11



 

division offset by continued profitability improvements in our Educational Systems division.

 

Systems Segment

 

 

 

Three months ended
December 31,

 

 

 

2003

 

2004

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Revenue

 

$

33,293

 

$

34,801

 

Gross profit

 

$

13,786

 

$

14,929

 

Operating income

 

$

3,431

 

$

5,048

 

 

 

 

 

 

 

Operating margin percentage

 

10.3

%

14.5

%

 

The Systems Segment develops and implements both third party and proprietary software such as justice, asset, and enterprise resource planning (ERP) solutions. Revenue from our Systems Segment increased 4.5% for the three months ended December 31, 2004 compared to the same period in fiscal 2004. This increase was primarily attributable to increased license sales in our System products divisions. Operating margin increased to 14.5% for the three months ended December 31, 2004 from 10.3% for the same period in fiscal 2004. This increase was primarily due to higher profit contributions from license sales in our Asset Solutions and Justice Solutions divisions.

 

Operations Segment

 

 

 

Three months ended
December 31,

 

 

 

2003

 

2004

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Revenue

 

$

78,929

 

$

93,298

 

Gross profit

 

$

17,223

 

$

20,043

 

Operating income

 

$

7,656

 

$

8,300

 

 

 

 

 

 

 

Operating margin percentage

 

9.7

%

8.9

%

 

The Operations Segment includes our health and human services program operations. Revenue from our Operations Segment increased 18.2% for the three months ended December 31, 2004 compared to the same period in fiscal 2004. This increase was primarily attributable to the growth in our Health Services practice, principally driven by our California Healthy Families contract which began operations on January 1, 2004. Operating margin decreased to 8.9% for the three months ended December 31, 2004 from 9.7% for the same period in fiscal 2004. This decrease was primarily attributable to declined profitability in our Child Support division, which experienced reduction in revenue and profit as a result of fewer contracts in the first quarter of fiscal 2005.

 

12



 

Other Income

 

 

 

Three months ended
December 31,

 

 

 

2003

 

2004

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Interest and other income, net

 

$

192

 

$

100

 

 

 

 

 

 

 

Percentage of revenue

 

0.1

%

0.1

%

 

The overall decrease in interest and other income for the three months ended December 31, 2004 compared to the same period in fiscal 2004 was due primarily to the recognition of losses from certain marketable securities.

 

Liquidity and Capital Resources

 

 

 

Three months ended
December 31,

 

 

 

2003

 

2004

 

 

 

(dollars in thousands)

 

 

 

 

 

 

 

Net cash provided by (used in):

 

 

 

 

 

Operating activities

 

$

15,998

 

$

10,085

 

Investing activities

 

(3,151

)

(4,634

)

Financing activities

 

13,212

 

(2,748

)

Net increase in cash and cash equivalents

 

$

26,059

 

$

2,703

 

 

For the three months ended December 31, 2004, cash provided by our operations was $10.1 million as compared to $16.0 million for the same period in fiscal 2004. Cash provided by operating activities for the three months ended December 31, 2004 consisted of net income of $9.0 million and non-cash items aggregating $4.5 million, less cash used for working capital of $3.5 million. Non-cash items consisted of $3.5 million of depreciation and amortization, $0.2 million from the income tax benefit of option exercises, $0.5 million from deferred income tax benefits, and $0.3 million from non-cash equity based compensation. The net cash used for working capital changes reflected increases in accounts receivable-billed, net, of $7.4 million, decreases in accounts payable of $1.3 million, accrued compensation of $1.6 million and other liabilities of $0.1 million, offset by decreases in prepaid expenses of $2.2 million, deferred contract costs of $0.6 million and an increase in income taxes payable of $3.1 million. Other working capital changes providing cash were the increase in deferred revenue of $0.2 million, and a decrease in other assets of $0.5 million and accounts receivable-unbilled of $0.3 million.

 

For the three months ended December 31, 2003, cash provided by operating activities consisted of net income of $9.1 million plus non-cash items of $9.4 million offset by net use of cash related to working capital changes of $2.5 million. Non-cash items included $3.1 million of depreciation and amortization, $2.3 million from the income tax benefit of option exercises, $0.2 million from non-cash equity based compensation and $3.8 million from deferred income tax benefits. The net cash related to working capital changes reflected a decrease in accounts receivable-billed of $19.1 million offset by increases in accounts receivable-unbilled of $8.2 million and deferred contract costs of $4.9 million as well as decreases in accrued compensation and benefits payable of $3.7 million, accounts payable of $1.2 million, income taxes payable of $2.8 million and other net working capital uses of $0.8 million. The decrease in accounts receivable-billed was reflective of good collection efforts during the three months ended December 31, 2003 and the increase in accounts receivable-unbilled was primarily due to certain milestone based Systems contracts.

 

13



 

For the three months ended December 31, 2004, cash used in investing activities was $4.6 million as compared to $3.2 million for the same period in fiscal 2004. Cash used in investing activities for the three months ended December 31, 2004 consisted of $0.3 million for business acquisitions, $2.9 million in expenditures for capitalized software costs, $1.8 million in purchases of property and equipment, offset by a $0.4 million decrease in other items, principally reduction of a note receivable. For the three months ended December 31, 2003, we used cash in investing activities primarily for business acquisitions of $0.6 million, expenditures related to capitalized software costs totaling $1.0 million and purchases of property and equipment of $1.7 million, offset by $0.2 million in other items.

 

For the three months ended December 31, 2004, cash used in financing activities was $2.7 million as compared to cash provided by financing activities of $13.2 million for the same period in fiscal 2004. Cash used in financing activities for the three months ended December 31, 2004 consisted of approximately $4.3 million of common stock repurchases and $0.4 million of principal payments on capital leases offset by $1.9 million of sales of stock to employees through our Employee Stock Purchase Plan and Equity Incentive Plan. Cash provided by financing activities for the three months ended December 31, 2003 primarily consisted of $0.3 million of common stock repurchases offset by $13.6 million of sales of stock to employees through our Employee Stock Purchase Plan and Equity Incentive Plan.

 

Under resolutions adopted in May 2000, July 2002, and March 2003, the Board of Directors has authorized the repurchase, at management’s discretion, of up to an aggregate of $90.0 million of our common stock. In addition, in June 2002, the Board of Directors authorized the use of option exercise proceeds for the repurchase of our common stock. During the three months ended December 31, 2003 and 2004, we repurchased approximately 10,000 and 146,000 shares, respectively. At December 31, 2004, approximately $29.5 million remained available for future stock repurchases under the program.

 

Our working capital at December 31, 2004 was approximately $237.0 million. At December 31, 2004, we had cash, cash equivalents, and marketable securities of $142.3 million and no debt, except for lease obligations. Management believes this liquidity and financial position will allow us to continue our stock repurchase program, depending on the price of the Company’s common stock, and to pursue selective acquisitions. Restricted cash represents amounts collected on behalf of certain customers and its use is restricted to the purposes specified under our contracts with these customers.

 

Under the provisions of a long-term contract, we incurred certain reimbursable transition period costs. During this transition period, these expenditures resulted in the use of our cash and in our entering into lease financing arrangements for a portion of the costs. Reimbursement of these costs will occur over the 60 months of the contract operating period, which commenced in January 2004. As of December 31, 2004, approximately $14.9 million in net costs had been incurred and reported as deferred contract costs on our December 31, 2004 consolidated balance sheet. Also under the provisions of this contract, we issued a standby letter of credit in an initial amount of up to $20.0 million, which amount shall be reduced to $10.0 million on April 1, 2005. The letter of credit, which expires on March 31, 2009, may be called by a customer in the event we default under the terms of the contract. The letter of credit contains financial covenants that establish minimum levels of tangible net worth and earnings before interest, tax, depreciation and amortization (EBITDA) and require the maintenance of certain cash balances. We were in compliance with all covenants at December 31, 2004.

 

In July 2003, we entered into a capital lease financing arrangement with a financial institution whereby we may acquire assets pursuant to an equipment lease agreement. Rental payments for assets leased are payable over a 60-month period at an interest rate of 4.05% commencing in January 2004. In March 2004, we entered into a supplemental capital lease financing arrangement with the same financial institution whereby we may acquire additional assets pursuant to an equipment lease agreement. Rental payments for assets leased under the supplemental arrangement are payable over a 57-month period at an interest rate of 3.61% commencing in April

 

14



 

2004. At December 31, 2004, capital lease obligations of approximately $6.2 million were outstanding related to these lease arrangements for new equipment.

 

At December 31, 2004, we classified accounts receivable of approximately $4.5 million, net of a $0.7 million discount, as long-term receivables and reported them within the other assets category on our December 31, 2004 consolidated balance sheet. These receivables have extended payment terms and collection is expected to exceed one-year.

 

On January 27, 2005, the Company’s Board of Directors declared a quarterly cash dividend of $0.10 for each share of the Company’s common stock outstanding. The dividend is payable on February 28, 2005 to shareholders of record on February 15, 2005. Based on the current number of shares outstanding, the payment will be approximately $2.1 million.

 

We believe that we will have sufficient resources to meet our currently anticipated capital expenditure and working capital requirements for at least the next twelve months.

 

Critical Accounting Policies and Estimates

 

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. 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.

 

We believe that we do not have significant off-balance sheet risk or exposure 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 and standby letters of credit, we have not had any defaults resulting in draws on performance bonds or letters of credit. Also, we do not speculate in derivative transactions.

 

We believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements:

 

Revenue Recognition. In fiscal 2004, approximately 83% of our total revenue was derived from state and local government agencies; 7% from federal government agencies; and 10% from other sources, such as foreign and commercial customers. Revenue is generated from contracts with various pricing arrangements, including: (1) fixed-price; (2) performance-based criteria; (3) costs incurred plus a negotiated fee (“cost-plus”); and (4) time and materials. Also, some contracts contain “not-to-exceed” provisions. For fiscal 2004, revenue from fixed-price contracts was approximately 37% of total revenue; revenue from performance-based contracts was approximately 33% of total revenue; revenue from cost-plus contracts was approximately 18% of total revenue; and revenue from time and materials contracts was approximately 12% of total revenue. A majority of the contracts with state and local government agencies have been fixed-price and performance-based, and our contracts with the federal government generally 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.

 

15



 

We recognize revenue on fixed-priced contracts when earned, as services are provided. For certain fixed price contracts, primarily systems design, development and implementation, we recognize revenue based on costs incurred using estimates of total expected contract revenue and costs to be incurred. The cumulative impact of any revisions in estimated revenue and costs is recognized in the period in which the facts that give rise to the revision become known. For other fixed-price contracts, revenue is recognized on a straight-line basis unless evidence suggests that revenue is earned or obligations are fulfilled in a different pattern. With fixed-price contracts, we are subject to the risk of potential cost overruns. Provisions for estimated losses on incomplete contracts are provided in full in the period in which such losses become known. We recognize revenue on performance-based contracts as such revenue becomes fixed or determinable, which generally occurs when amounts are billable to customers. For certain contracts, this may result in revenue being recognized in irregular increments. Additionally, costs related to contracts may be incurred in periods prior to recognizing revenue. These costs are generally expensed. However, certain direct set up costs may be deferred until services are provided and revenue begins to be recognized, when such costs are recoverable from a contractual arrangement. Set up costs are costs related to activities that enable us to provide contractual services to a client. These factors may result in irregular revenue and profit margins.

 

Revenue on cost-plus contracts is recognized based on costs incurred plus an estimate of the negotiated fee earned. Revenue on time and materials contracts is recognized based on hours worked and expenses incurred.

 

Our most significant expense is cost of revenue, which consists primarily of project-related costs such as employee salaries and benefits, subcontractors, computer equipment and travel expenses. Our management uses its judgment and experience to estimate cost of revenue expected on projects. Our management’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 gross margins related to our fixed-price, performance-based and time and materials contracts. If actual costs are higher than our management’s estimates, profitability may be adversely affected. Service cost variability has little impact on cost-plus arrangements because allowable costs are reimbursed by the customer.

 

We also license software under license agreements. License fee revenue is recognized when a non-cancelable license agreement is in force, the product has been delivered, the license fee is fixed or determinable, and collection is probable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer. In addition, when software license contracts contain post-contract customer support as part of a multiple element arrangement, revenue is recognized based upon the vendor-specific objective evidence of the fair value of each element. Maintenance and post-contract customer support revenue are recognized ratably over the term of the related agreements, which in most cases is one year. Revenue from software-related consulting services under time and material contracts and for training is recognized as services are performed. Revenue from other software-related contract services requiring significant modification or customization of software is recognized under the percentage-of-completion method.

 

Beginning July 1, 2003, EITF 00-21, Revenue Arrangements with Multiple Deliverables, requires contracts with multiple deliverables to be divided into separate units of accounting if certain criteria are met. While EITF 00-21 has not had a material impact on our financial statements, we apply the guidance therein and recognize revenue on multiple deliverables as separate units of accounting if the criteria are met.

 

Impairment of Goodwill. We adhere to the Financial Accounting Standards Board’s Statements of Financial Accounting Standards No. 141, Business Combinations (“FAS 141”), and No. 142, Goodwill and Other Intangible Assets (“FAS 142”). Under these rules, goodwill is not amortized but is subject to annual impairment tests in accordance with FAS 141 and FAS 142. Goodwill is tested on an annual basis, or more frequently as impairment indicators arise. Annual impairment tests involve the use of estimates related to the

 

16



 

fair market values of our reporting units with which goodwill is associated. Losses, if any, resulting from annual impairment tests will be reflected in operating income in our income statement.

 

Capitalized Software Development Costs. Capitalized software development costs are capitalized in accordance with FAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed. We capitalize both purchased software that is ready for resale and costs incurred internally for software development projects from the time technological feasibility is established. Capitalized software development costs are reported at the lower of unamortized cost or estimated net realizable value. Upon the general release of the software to customers, capitalized software development costs for the products are amortized based on the straight-line method of amortization over the remaining estimated economic life of the product, which ranges from three to five years. The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized development costs require considerable judgment by management including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Any changes to these estimates could impact the amount of amortization expense and the amount recognized as capitalized software development costs in the consolidated balance sheet.

 

Deferred Contract Costs. Deferred contract costs consist of recoverable direct set-up costs relating to long-term service contracts. These costs include system development and facility build-out costs that are expensed ratably as services are provided under the contracts.

 

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 revenue, results of operations, profitability, current and future contracts, market opportunities, market demand or acceptance of our products and services. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be forward-looking statements. The words “could,” “estimate,” “future,” “intend,” “may,” “opportunity,” “potential,” “project,” “will,” “believes,” “anticipates,” “plans,” “expect” and similar expressions are intended to identify forward-looking statements. 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 customers; risks associated with government contracting; risks involved in managing government projects; legislative changes and political developments; opposition from government unions; challenges resulting from growth; and adverse publicity. These and additional risks are detailed in Exhibit 99.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

 

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 and equity prices with regard to instruments entered into for trading or for other purposes is not significant.

 

Item 4.    Controls and Procedures.

 

(a)  Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this

 

17



 

evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

 

(b)  Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

18



 

PART II.  OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

In the third quarter of fiscal 2004, the Company learned that two former employees who were principals in a small business MAXIMUS acquired in 2000 had signed fraudulent guarantees on behalf of MAXIMUS for computer equipment leases. Some of that equipment appears to have been used in businesses unrelated to MAXIMUS. The Company did not have knowledge of the leases or guarantees. Solarcom LLC, the leasing company, demanded $31.0 million from MAXIMUS under the guarantees, which amount represents the remaining payments under the leases. Solarcom subsequently filed suit against MAXIMUS on August 17, 2004 in state court in Gwinnett County, Georgia. On August 6, 2004, De Lage Landen Financial Services, Inc. sued MAXIMUS and Solarcom in the federal District Court for the Eastern District of Pennsylvania seeking damages of at least $10.0 million. On August 24, 2004, Fleet Business Credit sued MAXIMUS and Solarcom in the federal District Court for the Northern District of Georgia seeking damages of approximately $8.0 million. Solarcom had sold and assigned certain of the lease payments to De Lage Landen and Fleet Business Credit. The Solarcom and Fleet Business Credit Services actions were consolidated in the federal District Court for the Northern District of Georgia on September 29, 2004. The Company believes the amounts claimed by De Lage Landen and Fleet Business Credit are part of the $31.0 million demanded by Solarcom. Because the guarantees were fraudulently signed, and because the leasing company did not perform appropriate due diligence, the Company believes that it is not liable under the guarantees and will vigorously contest any claim for payment. The Company has also reported the matter to law enforcement authorities, and has filed claims against the former employees. Those claims have been referred to arbitration for resolution. Although there can be no assurance of a favorable outcome, the Company does not believe that these actions will have a material adverse effect on its financial condition or results of operations, and the Company has not accrued for any loss related to this action.

 

In October 2004, MAXIMUS received a subpoena from the U.S. Attorney’s Office for the District of Columbia. The subpoena requested records pertaining to the Company’s work for the District of Columbia, primarily in the area of assisting in the submission and payment of federal Medicaid reimbursement claims prepared on behalf of the District of Columbia. Although the matter is in its early stages, the U.S. Attorney’s Office appears to be investigating issues pertaining to compliance with federal health care laws. MAXIMUS does not believe it has violated those laws and is cooperating fully with the U.S. Attorney’s Office. 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 its financial condition or results of operations, and the Company has not accrued for any loss related to this matter.

 

We are involved in various other legal proceedings, including contract claims, in the ordinary course of its business. We do not expect the ultimate outcome of any of these legal proceedings to have in the aggregate a material adverse effect on our financial condition or our results of operations.

 

19



 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

(c) The following table sets forth the information required regarding repurchases of common stock that we made during the three months ended December 31, 2004:

 

Period

 

Total
Number of
Shares
Purchased

 

Average
Price Paid
per Share

 

Total Number of
Shares Purchased as
Part of Publicly
Announced Plans (1)

 

Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plan
(in thousands)

 

Oct. 1, 2004 – Oct. 31, 2004

 

 

 

 

$

32,878

 

 

 

 

 

 

 

 

 

 

 

Nov. 1, 2004 – Nov. 30, 2004

 

76,900

 

$

27.24

 

76,900

 

$

31,091

 

 

 

 

 

 

 

 

 

 

 

Dec. 1, 2004 – Dec. 31, 2004

 

69,004

 

$

31.57

 

69,004

 

$

29,538

 

 

 

 

 

 

 

 

 

 

 

Total

 

145,904

 

$

29.29

 

145,904

 

 

 

 


(1)     Under resolutions adopted and publicly announced on May 12, 2000, July 10, 2002, and April 2, 2003, our Board of Directors has authorized the repurchase, at management’s discretion, of up to an aggregate of $90.0 million of common stock under our 1997 Equity Incentive Plan. In addition, in June 2002, the Board of Directors authorized the use of option exercise proceeds for the repurchase of our common stock.

 

Item 6. Exhibits.

 

The Exhibits filed as part of this Quarterly Report on Form 10-Q are listed on the Exhibit Index immediately preceding the Exhibits. The Exhibit Index is incorporated herein by reference.

 

20



 

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:

February 8, 2005

 

By:

/s/ Richard A. Montoni

 

 

 

 

 

 

 

Richard A. Montoni

 

 

 

 

 

 

 

Chief Financial Officer

 

 

 

 

 

 

 

(On behalf of the registrant and as Principal
Financial and Accounting Officer)

 

 

 

 

21



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

31.1

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1

 

Section 906 Principal Executive Officer Certification.

 

 

 

32.2

 

Section 906 Principal Financial Officer Certification.

 

 

 

99.1

 

Important Factors Regarding Forward Looking Statements.

 

22