EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
IN THIS EXHIBIT 99, "WE," "US," "OUR" AND "MAXIMUS" REFER TO MAXIMUS, INC.
AND ITS SUBSIDIARIES.
From time to time, we may make forward-looking public statements, such as
statements concerning our then expected future revenues or earnings or
concerning projected plans, performance, contract procurement as well as other
estimates relating to future operations. Forward-looking statements may be in
reports filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in press releases or informal statements made with the approval
of an authorized executive officer. The words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" within
the meaning of Section 21E of the Exchange Act and Section 27A of the Securities
Act of 1933, as amended, as enacted by the Private Securities Litigation Reform
Act of 1995.
We wish to caution you not to place undue reliance on these forward-looking
statements which speak only as of the date on which they are made. In addition,
we wish to advise you that the factors listed below, as well as other factors we
have not currently identified, could affect our financial or other performance
and could cause our actual results for future periods to differ materially from
any opinions or statements expressed with respect to future periods or events in
any current statement.
We will not undertake and specifically decline any obligation to publicly
release revisions to these forward-looking statements to reflect either
circumstances after the date of the statements or the occurrence of events which
may cause us to re-evaluate our forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act, we are hereby filing cautionary statements identifying
important factors that could cause our actual results to differ materially from
those projected in forward-looking statements made by us or on our behalf.
RELIANCE ON GOVERNMENT CLIENTS
Substantially all of our clients are state or local government authorities.
To market our services to government clients, we are largely required to respond
to government requests for proposals ("RFPs"). To do so effectively, we must
estimate accurately our cost structure for servicing a proposed contract, the
time required to establish operations and likely terms of the proposals
submitted by competitors. We must also assemble and submit a large volume of
information within a RFP's rigid timetable. Our ability to respond successfully
to RFPs will greatly impact our business, and we cannot guarantee that we will
be awarded contracts through the RFP process or that our proposals will result
in profitable contracts.
RISKS ASSOCIATED WITH GOVERNMENT CONTRACTING
EARLY TERMINATION OF CONTRACTS. Many of our government contracts contain
base periods of one or more years, as well as option periods covering more than
half of the contract's potential duration. Government agencies generally have
the right not to exercise these option periods. A decision not to exercise
option periods could impact the profitability of some of our contracts. Our
contracts typically also contain provisions permitting a government client to
terminate the contract on short notice, with or without cause. The unexpected
termination of one or more significant contracts could result in significant
revenue shortfalls. The natural expiration of especially large contracts can
also present management challenges. If revenue shortfalls occur and are not
offset by corresponding reductions in expenses, our business could be adversely
affected. We cannot be certain if, when or to what extent a client might
terminate any or all of its contracts with us.
CONTRACTS SUBJECT TO AUDIT. The Defense Contract Audit Agency and certain
other government agencies have the authority to audit and investigate any
government contracts. These agencies review a contractor's performance on its
contract, its pricing practices, its cost structure and its compliance with
applicable laws, regulations and standards. Any costs found to be improperly
allocated to a specific contract will not be reimbursed, while costs already
reimbursed must be refunded. For example, in a recent audit of one of our
contracts with the State of Wisconsin, the Wisconsin Legislative Audit Bureau
("LAB") identified $138,840 as unallowable costs and questioned an additional
$267,407 charged to that contract.
We have issued a check to the State of Wisconsin in the amount of $138,840 in
connection with the unallowable costs and are in the process of providing
supporting documentation to the LAB in connection with the remaining questioned
costs. Although this LAB audit has not had a material adverse effect on our
business or financial condition, a government audit that identifies significant
unallowable costs could result in a substantial adjustment to our revenue. No
material adjustments resulted from audits completed through 1993, and we believe
that adjustments resulting from subsequent audits, including the recent LAB
audit, will not adversely affect our business. If a government audit uncovers
improper or illegal activities, a contractor may be subject to civil and
criminal penalties and administrative sanctions, including termination of
contracts, forfeitures of profits, suspension of payments, fines and suspension
or disqualification from doing business with the government.
DISCOURAGEMENT OF REVENUE CONSULTING BY FEDERAL OFFICIALS. To avoid higher
than anticipated demands for federal funds, federal government officials
occasionally discourage state and local authorities from engaging private
consultants to advise them on maximizing federal revenues. We cannot be certain
that state and local officials will not be dissuaded from engaging us for
revenue maximization services.
RELATIONSHIPS WITH POLITICAL CONSULTANTS. We occasionally engage marketing
consultants, including lobbyists, to establish and maintain relationships with
elected officials and appointed members of government agencies. The
effectiveness of these consultants may be reduced or eliminated if a significant
political change occurs. Implementation of term limits for certain elected
officials, for instance, would require us to confront political change on a more
regular basis. Because we cannot be certain that we will successfully manage our
relationships with political consultants, our business may be adversely
affected.
RISKS INVOLVED IN MANAGING GOVERNMENT PROJECTS
RISK OF FIXED-PRICE AND PERFORMANCE-BASED CONTRACTS. We derived
approximately 37% of our fiscal 1999 revenues from fixed-price contracts and
approximately 19% of our fiscal 1999 revenues from performance-based contracts.
For fixed-price contracts, we receive our fee if we meet specified objectives or
achieve certain units of work. Those objectives might include placing a certain
number of welfare recipients into jobs, collecting target amounts of child
support payments, or completing a particular number of managed care enrollments.
For performance-based contracts, we receive our fee on a per-transaction basis.
Such contracts include, for example, child support enforcement contracts, in
which we often receive a fee based on the amount of child support collected. To
earn a profit on these contracts, we rely upon accurately estimating costs
involved and assessing the probability of meeting the specified objectives,
realizing the expected units of work or completing individual transactions,
within the contracted time period. We recognize revenues on these contracts on a
"costs incurred" method. Therefore, we review these contracts quarterly and
adjust revenues to reflect our current expectations. These adjustments affect
the timing and amount of revenue recognized and could adversely affect our
financial results. If we fail to estimate accurately the factors upon which we
base our contract pricing, then we may have to report a decrease in revenues or
incur losses on these contracts.
FAILURE TO MEET CONTRACT PERFORMANCE STANDARDS. Our inability to satisfy
adequately our contractual obligations could adversely affect our financial
condition. Our contracts often require us to indemnify clients for our failures
to meet certain performance standards. Some contracts contain liquidated damages
provisions and financial penalties related to performance failures. In addition,
in order for our Government Operations Group to bid on certain contracts, we are
required to secure our indemnification obligations by posting a cash performance
bond or obtaining a letter of credit. If a claim is made against a performance
bond or letter of credit, the issuer of the bond could demand higher premiums.
Increased bond premiums would adversely affect our earnings and could limit our
ability to bid for future contracts. In addition, a failure to meet our client's
expectations when performing on a contract could materially and adversely affect
our reputation, which, in turn, would impact our ability to compete for new
contracts.
TERMINATION OF LARGE CONTRACTS. Upon termination or expiration of a
contract between our Government Operations Group and a state or local
government, we have to evaluate whether, and in what capacity, we can continue
employing persons that formerly serviced the contract. Unless we enter into a
new contract using those same employees or otherwise re-assign them, their
employment must be terminated. The reassignment or termination of a large number
of employees makes significant demands on our management and administrative
resources. Added demands on our resources could adversely affect our business.
RELATIONSHIPS WITH GOVERNMENT ENTITIES. To facilitate our ability to
prepare bids in response to RFPs, we rely in part on establishing and
maintaining relationships with officials of various government entities and
agencies. These relationships enable us to provide informal input and advice to
the government entities and agencies prior to the development of an RFP. We
cannot be certain that we will be successful in managing our relationships with
government entities and agencies, and any failure to do so may adversely affect
our business.
SIGNIFICANT START UP COSTS. When we are awarded a contract to manage a
government program, our Government Operations Group can incur significant
start-up expenses before we receive any contract payments. These expenses
include leasing office space, purchasing office equipment and hiring personnel.
As a result, in certain large contracts where the government does not fund
program start-up costs, we are required to invest significant sums of money
prior to receiving related contract payments.
LEGISLATIVE CHANGE AND POLITICAL DEVELOPMENTS
DEPENDENCE ON LEGISLATIVE PROGRAMS. The market for our services depends
largely on federal and state legislative programs. These programs can be
modified or amended at any time by acts of federal and state governments. For
example, in 1996, Congress amended the Social Security Act to eliminate social
security and supplemental income benefit payments based solely on drug and
alcohol disabilities. That amendment resulted in the termination of our
substantial contract with the federal Social Security Administration, which
related to the referral and monitoring of the treatment of recipients of these
benefits. Future legislative changes that we do not anticipate or respond to
effectively could occur and adversely affect our business.
DEPENDENCE ON WELFARE REFORM ACT. We expect that the Welfare Reform Act and
other federal and state initiatives will continue to encourage long-term changes
in the nation's welfare system. Part of our growth strategy includes
aggressively pursuing these opportunities by seeking new contracts to administer
and new health and welfare programs to manage. However, there are many opponents
of welfare reform. As a result, future progress in the area of welfare reform is
uncertain. The repeal of the Welfare Reform Act, in whole or in part, could
adversely affect our business. Also, we cannot be certain that additional
reforms will be proposed or enacted, or that previously enacted reforms will not
be challenged, repealed or invalidated.
RESTRICTIONS ON PRIVATIZATION. Under current law, in order to privatize
certain functions of government programs, the federal government must grant a
consent and/or waiver to the petitioning state or local agency. For example, in
May 1997, the Department of Health and Human Services refused to grant a waiver
to the State of Texas permitting private corporations, rather than public
employees, to decide eligibility of applicants for Food Stamps and Medicaid
benefits. Although MAXIMUS did not bid on the Texas projects, we may face
similar obstacles in pursuing future health and human services contracts.
RISKS OF ACQUISITION STRATEGY; RISKS OF COMPLETED ACQUISITIONS
Our business strategy includes expanding our operations, breadth of service
offerings and geographic scope by acquiring or combining with related
businesses. To date, we have combined with twelve consulting firms and have
acquired substantially all of the assets of two firms and a division of another
firm. We are still in the process of integrating the operations of several of
these firms. We cannot be certain that we will be able to continue to identify,
acquire and manage additional businesses profitably or integrate them
successfully without incurring substantial expenses, delays or other problems.
Furthermore, business combinations may involve special risks, including:
- Diversion of management's attention
- Loss of key personnel
- Assumption of unanticipated legal liabilities
- Amortization of acquired intangible assets
- Dilution to our earnings per share
Also, client dissatisfaction or performance problems at an acquired firm
could materially and adversely affect our reputation as a whole. Furthermore, we
cannot be certain that acquired businesses will achieve anticipated revenues and
earnings.
CHALLENGES RESULTING FROM GROWTH
Sustaining growth has placed significant demands on management as well as
on our administrative, operational and financial resources. To manage our
growth, we must continue to improve our operational, financial and management
information systems and expand, motivate and manage our workforce. However, our
growth and management of large-scale health and human services programs must not
come at the expense of providing quality service and generating reasonable
profits. We cannot be certain that we will continue to experience growth or
successfully manage it.
OPPOSITION FROM GOVERNMENT UNIONS
Our success derives in part from our ability to win profitable contracts to
administer and manage health and human services programs traditionally
administered by government employees. Government employees, however, typically
belong to labor unions with considerable financial resources and lobbying
networks. Unions are likely to continue to apply political pressure on
legislators and other officials seeking to outsource government programs. For
example, union lobbying was instrumental in influencing the Department of Health
and Human Services to deny a petition to allow private corporations to make Food
Stamp and Medicaid eligibility determinations in Texas. Union opposition may
slow welfare reform and result in fewer opportunities for MAXIMUS to service
government agencies.
RELIANCE ON KEY EXECUTIVES
The abilities of our executive officers, including David V. Mastran and
Raymond B. Ruddy, and our senior managers to generate business and execute
projects successfully is important to our success. While we have employment
agreements with certain of our executive officers, these agreements can be
terminated under certain conditions. The loss of a key executive could impair
our ability to secure and manage engagements. To limit some of this risk, we
have obtained key-man life insurance policies on Dr. Mastran and Mr. Ruddy in
the amounts of $6,100,000 and $3,950,000, respectively.
ATTRACTION AND RETENTION OF EMPLOYEES
Our delivery of services is labor-intensive. When we are awarded a
government contract, we must quickly hire project leaders and case management
personnel. The additional staff also creates a concurrent demand for increased
administrative personnel. The success of our Government Operations Group and
Consulting Group requires that we attract, develop, motivate and retain:
- Experienced and innovative executive officers
- Senior managers who have successfully managed or designed health and
human services programs in the public sector
- Information technology professionals who have designed or implemented
complex information technology projects
Innovative, experienced and technically proficient individuals are in great
demand and are likely to remain a limited resource. We cannot be certain that we
can continue to attract and retain desirable executive officers and senior
managers. A failure to hire sufficient personnel on a timely basis could
adversely affect our business. The loss of significant numbers of executive
officers and senior managers could produce similar adverse consequences.
COMPETITORS; EFFECTS OF COMPETITION
COMPETITION FROM OTHER ORGANIZATIONS. Our Government Operations Group
competes for program management contracts with the following:
- Local non-profit organizations such as the United Way and Goodwill
Industries
- Government services divisions of large organizations such as Andersen
Consulting, Lockheed Martin Corporation and Electronic Data Systems, Inc.
- Specialized service providers such as America Works, Inc., Policy Studies
Incorporated, and Benova, Inc.
Our Consulting Group competes with:
- The consulting divisions of the "Big 5" accounting firms
- Electronic Data Systems, Inc.
Many of these companies are national and international in scope and have
greater resources than we have. Substantial resources could enable certain
competitors to initiate severe price cuts or take other measures in an effort to
gain market share. In addition, we may be unable to compete for a limited number
of large contracts because we may not be able to meet an RFP's requirement to
obtain and post large cash performance bonds. Also, in certain geographic areas,
we face competition from smaller consulting firms with established reputations
and political relationships. We cannot be certain that we will compete
successfully against our existing or any new competitors.
COMPETITION FROM FORMER EMPLOYEES. In addition to competition from existing
competitors, we may experience competition from former employees. Although we
have entered into non-competition agreements with some of our senior level
employees, we cannot be certain that a court would enforce these contracts.
Competition by former employees could adversely affect our business.
RISKS ASSOCIATED WITH PROCEEDINGS INVOLVING NEW YORK CONTRACTS
In January 2000, the New York City Human Resources Administration ("HRA")
submitted two contracts that it had awarded to MAXIMUS for the performance of
welfare-to-work services to the Comptroller of New York City to be registered.
Under New York law, the contracts must be registered in order for us to receive
payment. However, the Comptroller refused to register the contracts alleging
improprieties in the procurement process and in MAXIMUS's conduct. The Mayor of
the City of New York 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 contract
procurement process had been corrupted. This decision was appealed by the Mayor
and HRA to the New York Supreme Court Appellate Division - First Department. On
April 24, 2000, we filed a motion in the Appellate Division to intervene in the
lawsuit. We asked that the Court's decision be set aside on the grounds that it
contained findings of fact against MAXIMUS not supported by the record and that
the Court failed to afford us with our 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. We believe that the
Comptroller's claims are without merit and intend to continue defending against
his allegations vigorously. However, we cannot provide assurance that the
contracts will ultimately be registered by the Comptroller.
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 to us in early May 2000.
We believe that our actions were lawful and appropriate continue to cooperate
fully with the governmental investigations of the matter. Although there can be
no assurance of a favorable outcome, we do not believe that these investigations
will have a material adverse effect on our financial condition or results of
operations. However, if we are found to have engaged in illegal or improper
activities, we could be subject to civil and criminal penalties and
administrative sanctions, which could adversely affect our business.
LITIGATION
On November 28, 1997, an individual who was a former officer, director and
shareholder of MAXIMUS 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, we had failed
to disclose to him material information relating to the potential value of the
shares. He further alleges that we violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and breached various fiduciary duties owed to
him. The officer has also named certain of our officers and directors in this
lawsuit and brought the same claims against them. The officer claims damages in
excess of $10 million. This matter is currently scheduled for trial on September
11, 2000. We do not believe that this claim has merit and intend to oppose it
vigorously. We do not believe this action will have a material adverse effect on
our financial condition or results of operations. However, we cannot assure that
we will be successful in our defense.
ADVERSE PUBLICITY
The nature of our contracts with state and local government authorities
frequently generates media attention. For example, the circumstances surrounding
the refusal of the Comptroller of New York City to register two welfare-to-work
contracts awarded to us has recently received a good amount of media coverage in
the New York area. Additionally, our management of health and human services
programs and revenue maximization services have occasionally received negative
media coverage. This negative coverage could influence government officials and
slow the pace of welfare reform. The media also focuses its attention on the
activities of political consultants engaged by us, even when their activities
are unrelated to our business. We may be subject to adverse media attention
relating to the activities of individuals who are not under our control. In
addition, we cannot assure that the media will accurately cover our activities
or that we will be able to anticipate and respond in a timely manner to all
media contacts. Inaccurate or misleading media coverage or our failure to manage
adverse coverage could adversely affect our reputation.
VARIABILITY OF QUARTERLY OPERATING RESULTS
A number of factors cause our revenues and operating results to vary from
quarter to quarter. These factors include:
- The progress of contracts
- The levels of revenues earned on contracts (including any adjustments in
expectations on revenue recognition on fixed-price contracts)
- The commencement, completion or termination of contracts during any
particular quarter
- The schedules of government agencies for awarding contracts
- The term of awarded contracts
- The reactions of the market to announcements of potential acquisitions
- General economic conditions
Changes in the volume of activity and the number of contracts commenced or
completed during any quarter may cause significant variations in our operating
results because a relatively large amount of our expenses are fixed.
Furthermore, on occasion we incur greater operating expenses during the start-up
and early stages of significant contracts.
CONCENTRATION OF OWNERSHIP BY PRINCIPAL SHAREHOLDERS
Our executive officers own beneficially approximately 40% of our common
stock. Certain executive officers, who beneficially own approximately 34% of
the outstanding shares, have agreed to hold their shares until June 2001,
subject to certain exceptions. In addition, Mr. Ruddy has agreed to vote his
shares of common stock in a manner instructed by Dr. Mastran until September 30,
2001. Together, Dr. Mastran and Mr. Ruddy beneficially own approximately 32%
of our common stock. As a result, these officers can exercise significant
influence over the outcome of matters requiring a
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shareholder vote, including the election of the board of directors. This
significant influence could delay or prevent a change in control of the company,
which could adversely affect the market price of our common stock.
POSSIBLE VOLATILITY OF STOCK PRICE
MAXIMUS first publicly issued common stock on June 13, 1997 at $16.00 per
share in its initial public offering (the "IPO"). Between June 13, 1997 and June
30, 2000, the closing sale price has ranged from a high of $41.50 per share to a
low of $17.00 per share. Even though the market price of our stock has not been
highly volatile during this time, the market price of our common stock could
fluctuate substantially due to a variety of factors, including:
- Quarterly fluctuations in results of operations
- The failure to be awarded a significant contract on which we have
bid
- The termination by a government client of a material contract
- The announcement of new services by competitors
- Acquisitions and mergers
- Political and legislative developments adverse to the privatization
of government services
- Changes in earnings estimates by securities analysts
- Changes in accounting principles
- Sales of common stock by existing shareholders
- Negative publicity
- Loss of key personnel
Our ability to meet securities analysts' quarterly expectations may also
influence the market price of our common stock. In addition, overall volatility
has often significantly affected the market prices of securities for reasons
unrelated to a company's operating performance. In the past, securities class
action litigation has often been commenced against companies that have
experienced periods of volatility in the price of their stock. Securities
litigation initiated against us could cause us to incur substantial costs and
could lead to the diversion of management's attention and resources.
CERTAIN ANTI-TAKEOVER EFFECTS
Virginia law and our Articles of Incorporation and By-Laws include
provisions that may be deemed to have anti-takeover effects. These provisions
may delay, deter or prevent a takeover attempt that shareholders might consider
desirable. Our directors are divided into three classes and are elected to serve
staggered three-year terms. This structure could impede or discourage an attempt
to obtain control of the company. Shareholders of MAXIMUS do not possess the
power to take any action in writing without a meeting. In addition, Virginia law
imposes certain limitations and special voting requirements on affiliated
transactions. Furthermore, Virginia law denies voting rights to shares acquired
in control share acquisitions, unless granted by a shareholder vote.
UNCERTAINTIES RELATED TO INTERNATIONAL OPERATIONS
Most of our international operations are currently paid for by the World
Bank and the U.S. Agency for International Development in U.S. dollars. However,
as we expand our operations into developing countries we could encounter a
number of additional risks. The potential risks to our expected international
revenues include:
- Adverse currency exchange rate fluctuations
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- Inability to collect receivables
- Difficulty in enforcing contract terms through a foreign country's
legal system
Foreign countries could also impose tariffs, impose additional withholding
taxes or otherwise tax our foreign income.
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