EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
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 or 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 in 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 we 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 the following 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:
IF WE FAIL TO SATISFY OUR CONTRACTUAL OBLIGATIONS, OUR ABILITY TO COMPETE FOR
FUTURE CONTRACTS AND OUR FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED.
Our failure to comply with contract requirements or to meet our
client's performance expectations when performing a contract could materially
and adversely affect our financial performance and our reputation, which, in
turn, would impact our ability to compete for new contracts. In addition, our
contracts often require us to indemnify clients for our failure to meet
performance standards. Some of our contracts contain liquidated damages
provisions and financial penalties related to performance failures. Although we
have liability insurance, the policy limits may not be adequate to provide
protection against all potential liabilities. Further, in order to bid on
certain contracts, we are required to post a cash performance bond or obtain a
letter of credit to secure our indemnification obligations. If a claim is made
against a performance bond or letter of credit, the issuer could demand higher
premiums. Increased premiums would adversely affect our earnings and could limit
our ability to bid for future contracts.
IF WE FAIL TO ESTIMATE ACCURATELY THE FACTORS UPON WHICH WE BASE OUR CONTRACT
PRICING, WE MAY HAVE TO REPORT A DECREASE IN REVENUES OR INCUR LOSSES ON THOSE
CONTRACTS.
We derived approximately 47% of our fiscal 2000 revenues from
fixed-price contracts and approximately 18% of our fiscal 2000 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, completing a particular
number of managed care enrollments, or
delivering a planning document under a consulting arrangement. For
performance-based contracts, we receive our fee on a per-transaction basis.
These 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 must accurately estimate costs involved and
assess 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, including a
portion of estimated profit, as costs are incurred. Under this method,
anticipated revenues for the full contract are recorded as the costs are
incurred, not when the bills are sent or when the payment is made. Therefore, if
a contract is cancelled or re-negotiated after work has been performed,
previously recognized revenue would be reversed and charged to earnings at that
time. The reversal of previously recognized revenue could adversely affect our
financial results. In addition, we review these contracts quarterly and adjust
revenues to reflect our current expectations as to the total anticipated costs
of each contract. These adjustments affect the timing and amount of revenue
recognized and could adversely affect our financial results.
IF WE ARE UNABLE TO MANAGE OUR GROWTH, OUR PROFITABILITY WILL BE ADVERSELY
AFFECTED.
Sustaining our growth has placed significant demands on our management
as well as on our administrative, operational and financial resources. For us to
continue to manage our growth, we must continue to improve our operational,
financial and management information systems and expand, motivate and manage our
workforce. If our growth comes at the expense of providing quality service and
generating reasonable profits, our ability to successfully bid for contracts and
our profitability will be adversely affected.
GOVERNMENT ENTITIES HAVE IN THE PAST AND MAY IN THE FUTURE TERMINATE THEIR
CONTRACTS WITH US EARLIER THAN WE EXPECT, WHICH MAY RESULT IN REVENUE
SHORTFALLS.
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 do not have to exercise these option
periods. The profitability of some of our contracts could be adversely impacted
if the option periods are not exercised. Our contracts also typically contain
provisions permitting a government client to terminate the contract on short
notice, with or without cause. The unexpected termination of significant
contracts could result in significant revenue shortfalls. If revenue shortfalls
occur and are not offset by corresponding reductions in expenses, our business
could be adversely affected. We cannot anticipate if, when or to what extent a
client might terminate its contracts with us.
GOVERNMENT UNIONS MAY OPPOSE OUTSOURCING OF GOVERNMENT PROGRAMS TO OUTSIDE
VENDORS SUCH AS US, WHICH COULD LIMIT OUR MARKET OPPORTUNITIES.
Our success depends in part on our ability to win profitable contracts
to administer and manage health and human services programs traditionally
administered by government employees. Many government employees, however, belong
to labor unions with considerable financial resources and lobbying networks.
Unions have in the past and 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
result in fewer opportunities for us to service government agencies.
WE MAY LOSE EXECUTIVE OFFICERS AND SENIOR MANAGERS ON WHOM WE RELY TO GENERATE
BUSINESS AND EXECUTE PROJECTS SUCCESSFULLY.
The abilities of our executive officers and our senior managers to
generate business and execute projects successfully is important to our success.
While we have employment agreements with some of our executive officers, these
agreements do not prevent them from terminating their employment with us. The
loss of an executive officer or senior manager could impair our ability to
secure and manage engagements.
GOVERNMENT AGENCIES MAY INVESTIGATE AND AUDIT OUR CONTRACTS AND, IF ANY
IMPROPRIETIES ARE FOUND, WE MAY BE REQUIRED TO REFUND REVENUES WE HAVE RECEIVED,
TO FOREGO ANTICIPATED REVENUES AND MAY BE SUBJECT TO PENALTIES AND SANCTIONS,
INCLUDING PROHIBITIONS ON OUR BIDDING FOR RFPS.
The government agencies we contract with have the authority to audit
and investigate our contracts with them. As part of that process, the government
agency reviews our performance on the contract, our pricing practices, our cost
structure and our compliance with applicable laws, regulations and standards. If
the agency determines that we have improperly allocated costs to a specific
contract, we will not be reimbursed for those costs and we will be required to
refund the amount of any such costs which have been reimbursed. If a government
audit uncovers improper or illegal activities by us or we otherwise determine
that these activities have occurred, we 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. Any adverse
determination could adversely impact our ability to bid for RFPs in one or more
jurisdictions.
WE MAY INCUR SIGNIFICANT COSTS BEFORE RECEIVING RELATED REVENUES WHICH COULD
RESULT IN CASH SHORTFALLS.
When we are awarded a contract to manage a government program, we may
incur significant expenses before we receive contract payments, if any. 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
before receiving related contract payments. In addition, payments due to us from
government agencies may be delayed due to billing cycles or as a result of
failures to approve governmental budgets in a timely manner. Moreover, any
resulting cash shortfall could be exacerbated if we fail to either invoice the
government agency or collect our fee in a timely manner.
INACCURATE, MISLEADING OR NEGATIVE MEDIA COVERAGE COULD ADVERSELY AFFECT OUR
REPUTATION AND OUR ABILITY TO BID FOR GOVERNMENT CONTRACTS.
The media frequently focuses its attention on our contracts with
government agencies. If the media coverage is negative, it could influence
government officials to slow the pace of outsourcing government services, which
could reduce the number of RFPs. The media also focuses its attention on the
activities of political consultants engaged by us, even when their activities
are unrelated to our business, and we may be tainted by adverse media coverage
about their activities. Moreover, inaccurate, misleading or negative media
coverage about us could harm our reputation and, accordingly, our ability to bid
for and win government contracts. For example, on June 13, 2001, it was reported
in the press that the Attorney General of the State of South Carolina intends to
investigate a contract between the state and MAXIMUS. To date, we have not been
contacted by the Attorney General's office.
WE OBTAIN MOST OF OUR BUSINESS THROUGH RESPONSES TO GOVERNMENT RFPS. WE MAY NOT
BE AWARDED CONTRACTS THROUGH THIS PROCESS IN THE FUTURE AND CONTRACTS WE ARE
AWARDED MAY NOT BE PROFITABLE.
Substantially all of our clients are state or local government
authorities. To market our services to government clients, we are often required
to respond to government 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 an RFP's
rigid timetable. Our ability to respond successfully to RFPs will greatly impact
our business. We may not be awarded contracts through the RFP process and our
proposals may not result in profitable contracts.
WE MAY BE UNABLE TO ATTRACT AND RETAIN SUFFICIENT QUALIFIED PERSONNEL NECESSARY
TO SUSTAIN OUR BUSINESS.
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,
Consulting Group and Systems Group requires that we attract, develop, motivate
and retain:
o experienced and innovative executive officers;
o senior managers who have successfully managed or designed
government services programs in the public sector; and
o 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 may be unable to
continue to attract and retain desirable executive officers and senior managers.
Our inability to hire sufficient personnel on a timely basis or the loss of
significant numbers of executive officers and senior managers could adversely
affect our business.
IF WE FAIL TO ESTABLISH AND MAINTAIN IMPORTANT RELATIONSHIPS WITH GOVERNMENT
ENTITIES AND AGENCIES, OUR ABILITY TO SUCCESSFULLY BID FOR RFPS MAY BE ADVERSELY
AFFECTED.
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 also 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. We may be
unable to successfully manage our relationships with government entities and
agencies and with elected officials and appointees and any failure to do so may
adversely affect our ability to bid successfully for RFPs.
THE FEDERAL GOVERNMENT MAY REFUSE TO GRANT CONSENTS AND/OR WAIVERS NECESSARY TO
PERMIT PRIVATE ENTITIES, SUCH AS US, TO PERFORM CERTAIN ELEMENTS OF GOVERNMENT
PROGRAMS.
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. If the federal government does not
grant a necessary consent or waiver, the state or local agency will be unable to
outsource that function to a private entity, such as us, which could eliminate
or reduce the value of the contract.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY FUTURE LEGISLATIVE CHANGES THAT WE
DO NOT ANTICIPATE OR TO WHICH WE DO NOT RESPOND EFFECTIVELY.
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 Social Security
Administration which related to the referral and monitoring of the treatment of
recipients of these benefits.
Moreover, part of our growth strategy includes aggressively pursuing
opportunities created by the Welfare Reform Act and other federal and state
initiatives which we believe will be implemented to encourage long-term changes
in the nation's welfare system by seeking new contracts to administer and new
health and welfare programs to manage. However, there are many opponents of
welfare reform and, 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. Further, if additional reforms are not proposed
or enacted, or if previously enacted reforms are challenged, repealed or
invalidated, our growth strategy could be adversely impacted.
IF WE DO NOT SUCCESSFULLY INTEGRATE THE BUSINESSES THAT WE ACQUIRE, OUR RESULTS
OF OPERATIONS COULD BE ADVERSELY AFFECTED.
We may be unable to manage businesses that we have acquired or that we
may acquire profitably or integrate them successfully without incurring
substantial expenses, delays or other problems that could negatively impact our
results of operations. To date, we have combined with thirteen 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.
Moreover, business combinations involve additional risks, including:
o diversion of management's attention;
o loss of key personnel;
o assumption of unanticipated legal or financial liabilities;
o becoming significantly leveraged as a result of incurring debt
to finance an acquisition;
o unanticipated operating, accounting or management difficulties
in connection with the acquired entities;
o amortization of acquired intangible assets, including goodwill;
and
o dilution to our earnings per share.
Also, client dissatisfaction or performance problems with an acquired
firm could materially and adversely affect our reputation as a whole. Further,
the acquired businesses may not achieve the revenues and earnings we
anticipated.
FEDERAL GOVERNMENT OFFICIALS MAY DISCOURAGE STATE AND LOCAL GOVERNMENTAL
ENTITIES FROM ENGAGING US, WHICH MAY RESULT IN A DECLINE IN REVENUES.
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 funding. If
state and local officials are dissuaded from engaging us for revenue
maximization services, we will not receive contracts for, or revenues from,
those services.
WE FACE COMPETITION FROM A VARIETY OF ORGANIZATIONS, MANY OF WHICH HAVE
SUBSTANTIALLY GREATER FINANCIAL RESOURCES THAN WE DO; WE MAY BE UNABLE TO
COMPETE SUCCESSFULLY WITH THESE ORGANIZATIONS.
Our Government Operations Group competes for program management
contracts with the following:
o government services divisions of large organizations such as
Lockheed Martin Corporation, Electronic Data Systems, Inc. and
Accenture;
o specialized service providers such as Benova, Inc., Policy
Studies Incorporated, Affiliated Computer Services, Inc. and
America Works, Inc.; and
o local non-profit organizations such as the United Way, Goodwill
Industries and Catholic Charities.
Our Consulting Group competes with:
o the consulting divisions of the "Big 5" accounting firms; and
o small, specialized consulting firms
Our Systems Group competes with a large number of competitors,
including Unisys, KPMG, Accenture, Litton PRC (a Northrop Grumman Company),
Peregrine Systems, Inc. and 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 the limited
number of large contracts because we may not be able to meet an RFP's
requirement to obtain and post a large cash performance bond. Also, in some
geographic areas, we face competition from smaller consulting firms with
established reputations and political relationships. We may be unable to compete
successfully against our existing or any new competitors.
WE MAY NOT RECEIVE SUFFICIENT PAYMENTS IN A QUARTER TO COVER ALL OF OUR COSTS IN
THAT QUARTER.
A number of factors cause our payments and operating results to vary
from quarter to quarter, including:
o the progression of contracts;
o the levels of revenues earned on fixed-price and performance-based
contracts (including any adjustments in expectations for revenue
recognition on fixed-price contracts);
o the commencement, completion or termination of contracts during
any particular quarter;
o the schedules of government agencies for awarding contracts;
o the term of awarded contracts; and
o potential acquisitions.
Changes in the volume of activity and the number of contracts
commenced, completed or terminated during any quarter may cause significant
variations in our cash flow from operations because a relatively large amount of
our expenses are fixed. Moreover, we incur significant operating expenses during
the start-up and early stages of large contracts and typically do not receive
corresponding payments in that same quarter.
WE ARE CURRENTLY SUBJECT TO INVESTIGATIONS BY THE DISTRICT ATTORNEY'S OFFICE OF
NEW YORK COUNTY AND THE UNITED STATES ATTORNEY'S OFFICE FOR THE SOUTHERN
DISTRICT OF NEW YORK REGARDING TWO CONTRACTS AWARDED TO US BY THE NEW YORK CITY
HUMAN RESOURCES ADMINISTRATION. IF DETERMINED ADVERSELY, WE COULD BE REQUIRED TO
PAY PENALTIES AND BE SUBJECT TO ADMINISTRATIVE SANCTIONS.
In January 2000, the New York City Human Resources Administration
submitted two contracts that it had awarded to us 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 our conduct. The New York
Supreme Court, Appellate Division--First Department ordered the Comptroller to
register the contracts in October 2000 after finding no wrongdoing in our
conduct. 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, initiated investigations into the facts
underlying this matter. Those offices reviewed some of our documents and
interviewed some of our employees during 2000 and 2001. We believe that our
actions were lawful and appropriate and, although there can be no assurance
of a favorable outcome, we do not believe that this matter will have a
material adverse effect on our financial condition or results of operations.
OUR STOCK PRICE IS VOLATILE.
We first publicly issued common stock on June 13, 1997 at $16.00 per
share in our initial public offering. Between June 13, 1997 and August 1, 2001,
the closing sale price has ranged from a high of $45.00 per share to a low of
$17.00 per share. The market price of our common stock could continue to
fluctuate substantially due to a variety of factors, including:
o quarterly fluctuations in results of operations;
o the failure to be awarded a significant contract on which we have
bid;
o the termination by a government client of a material contract;
o the announcement of new services by competitors;
o political and legislative developments adverse to the
privatization of government services;
o changes in or failure to meet earnings estimates by securities
analysts;
o sales of common stock by existing shareholders or the perception
that these sales may occur;
o adverse judgments or settlements obligating us to pay damages;
o negative publicity; and
o loss of key personnel.
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.
OUR ARTICLES OF INCORPORATION AND BYLAWS INCLUDE PROVISIONS THAT MAY HAVE
ANTI-TAKEOVER EFFECTS.
Our Articles of Incorporation and bylaws include provisions that may
delay, deter or prevent a takeover attempt that shareholders might consider
desirable. For example, our Articles of Incorporation provide that our directors
are to be divided into three classes and elected to serve staggered three-year
terms. This structure could impede or discourage an attempt to obtain control of
us by preventing stockholders from replacing the entire board in a single proxy
contest, making it more difficult for a third party to take control of us
without the consent of our board of directors. Our Articles of Incorporation
further provide that our shareholders may not take any action in writing without
a meeting. This prohibition could impede or discourage an attempt to obtain
control of us by requiring that any actions required to be taken by shareholders
be taken at properly called shareholder meetings.
OUR EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP OWN SUFFICIENT SHARES OF OUR
COMMON STOCK TO SIGNIFICANTLY AFFECT THE RESULTS OF ANY SHAREHOLDER VOTE.
Two of our executive officers and directors, Dr. David Mastran and Mr.
Raymond Ruddy, beneficially own approximately 16.7 % of our common stock. Mr.
Ruddy has agreed to vote his shares of common stock in a manner instructed by
Dr. Mastran until September 30, 2001. As a result, Dr. Mastran and Mr. Ruddy
have the ability to significantly influence the outcome of matters requiring a
shareholder vote, including the election of the board of directors, amendments
to our organizational documents, or approval of any merger, sale of assets or
other major corporate transaction. The interests of Dr. Mastran and Mr. Ruddy
may differ from yours and Dr. Mastran and Mr. Ruddy may be able to delay or
prevent us from entering into transactions that would result in a change in
control, including transactions in which our shareholders might otherwise
receive a premium over the then current market price for their shares.