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EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
From time to time, the Company, through its management, may make
forward-looking public statements, such as statements concerning 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.
The Company wishes to caution readers not to place undue reliance on
these forward-looking statements which speak only as of the date on which they
are made. In addition, the Company wishes to advise readers that the factors
listed below, as well as other factors not currently identified by management,
could affect the Company's financial or other performance and could cause the
Company's 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.
The Company will not undertake and specifically declines any
obligation to publicly release any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events which may cause management to re-evaluate such forward-looking
statements.
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially form those projected in
forward-looking statements of the Company made by or on behalf of the Company.
RELIANCE ON GOVERNMENT CLIENTS
Substantially all of the Company's clients are federal, state or local
government authorities. Effective marketing of the Company's services to
government clients requires the ability to respond to government requests for
proposals ("RFPs"). To succeed in the RFP process, the Company must estimate
its cost structure for servicing the proposed contract, the time required to
establish operations and the likely terms of the proposals submitted by
competitors. The Company must assemble and submit a large volume of information
on a rigid timetable set forth in the RFP. The Company's ability to
successfully respond to the RFP process in the future will have an important
impact on the Company's business, financial condition and results of
operations. No assurance can be given that the Company will be awarded
contracts through the RFP process.
RISKS ASSOCIATED WITH GOVERNMENT CONTRACTING
Contracts awarded to the Company typically contain provisions that
permit the government client to terminate the contract on short notice, with or
without cause. The expiration of large contracts presents additional management
challenges. Many contracts contain base periods of one or more years as well as
one or more option periods that may cover more than half of the potential
contract duration. Government agencies generally have the right not to exercise
option periods and the failure to exercise such option periods could impact the
profitability of certain of the Company's contracts. While the Company has
experienced a limited number of early terminations since inception, the
unexpected termination of one or more of the Company's more significant
contracts could result in severe revenue shortfalls which, without
corresponding reductions in expenses, could adversely affect the business,
financial condition and results of operations of the Company. There can be no
assurance that such government authorities will not terminate any or all of the
Company's contracts to administer and manage health and human services
programs.
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In order to establish and maintain relationships with members of
government agencies, the Company occasionally engages marketing consultants,
including lobbyists. In the event of a significant political change, such
consultants may lose their ability to effectively assist the Company. In
addition, the implementation of term limits on certain elected officials will
require the Company to confront political change on a regular basis. If the
Company fails to manage its relationships effectively with political
consultants, its business, financial condition and results of operations could
be materially and adversely affected. No assurance can be given that the
Company will be successful in managing such relationships.
To avoid experiencing higher than anticipated demands for federal
funds, federal government officials on occasion advise state and local
authorities not to engage private consultants to advise on maximizing federal
revenues. There can be no assurance that state and local officials will not be
influenced by federal government officials and, therefore, not engage the
Company for such services. To the extent that state and local officials
determine not to seek the Company's services, the business, financial condition
and results of operations of the Company could be adversely affected.
Government contracts generally are subject to audits and
investigations by government agencies, including audits by the Defense Contract
Audit Agency ("DCAA"). These audits and investigations involve a review of the
government contractor's performance of its contracts as well as its pricing
practices, cost structure and compliance with applicable laws, regulations and
standards. A substantial portion of payments to the Company from U.S.
Government agencies is subject to adjustment upon audit by the DCAA. Audits
through 1993 have been completed with no material adjustments and the Company
believes that adjustments resulting from audits of subsequent years will not
have a material adverse effect on the Company's business, financial condition
and results of operations. If any costs are improperly allocated to a
contract, such costs are not reimbursable and, if already reimbursed, will be
required to be refunded to the government. Furthermore, if improper or illegal
activities are discovered in the course of any audits or investigations, the
contractor may be subject to various 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. If the Company becomes subject to penalties
or sanctions, such penalties or sanctions could have a material adverse effect
on the Company's business, financial condition and results of operations.
RISKS INVOLVED IN MANAGING GOVERNMENT PROJECTS
Upon the receipt of a contract for the management of a health and
human services program, the Company's Government Operations Group may incur
significant start-up expenses prior to the receipt of any payments under such
contract. Such expenses include the costs of leasing office space, purchasing
necessary office equipment and hiring sufficient personnel. As a result, for
large contracts, the Company may be required to make significant investments
prior to the receipt of related contract payments.
Approximately 45% of the Company's total revenues for the quarter
ended March 31, 1998 resulted from fixed price contracts pursuant to which the
Company received its fee for meeting specified objectives or upon the
achievement of specified units of work, such as the placement of welfare
recipients into jobs, the collection of child support payments or the
completion of managed care enrollment transfers. The Company's ability to earn
a profit on these contracts is dependent upon accurate estimates of the costs
involved as well as the probability of meeting the specified objectives or
realizing the expected units of work within a certain period of time. In
addition, the Company recognizes revenues on fixed price contracts based on
costs incurred. The Company periodically reviews such contracts and adjusts
revenues to reflect current expectations. Such adjustments will affect the
timing and amount of revenue recognized and could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company's failure to accurately estimate the factors on which
contract pricing is based could result in the Company reporting a decrease in
revenues or incurring losses on such contracts and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company's inability or failure to satisfy its contractual
obligations in a manner consistent with the terms of any contract could have a
material adverse effect on the Company's financial condition because the
Company is often required to indemnify clients for its failure to meet
performance standards. Certain of the Company's contracts have liquidated
damages provisions and financial penalties related to performance failures. In
addition, in order for the Company's Government Operations Group to bid for
certain contracts, the Company has been and will continue to be required to
secure its indemnification obligations by obtaining a performance bond from an
insurer, posting a cash
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performance bond or obtaining a letter of credit from a suitable financial
institution. In the event that a government entity makes a claim against such
performance bond or letter of credit, the premiums demanded by the insurers for
such bonds could increase, thereby limiting the Company's ability to bid for
contracts in the future. In addition, the Company's failure to meet a client's
expectations in the performance of its contractual obligations could have a
material adverse effect on the Company's reputation, thereby adversely
affecting its business, financial condition and results of operations.
When contracts between the Company's Government Operations Group and a
state or local government expire or otherwise terminate, unless the Company can
successfully enter into a new contract using the services of employees formerly
engaged in servicing the terminated contract or otherwise re-assign such
employees, the Company will need to terminate the employment of such employees.
The termination of large Government Operations Group contracts and the
subsequent re-assignment or termination of employees places significant demands
on the Company's management and its administrative resources. If the Company is
unable to manage these challenges, the Company's business could materially and
adversely be affected.
LEGISLATIVE CHANGE AND POLITICAL DEVELOPMENTS
The market for the Company's services is largely dependent on federal
and state legislative programs, any of which may be modified or terminated by
acts of the legislative or executive branches of federal and state government.
There can be no assurance that such legislative change will not occur or that
the Company will be able to anticipate and respond in a timely manner to any
such legislative change. The Company's failure to manage effectively its
business in light of anticipated or unanticipated legislative change could have
a material adverse effect on the Company's business, operating results and
financial condition.
The Welfare Reform Act is expected to be a catalyst for sweeping
changes in the administration and management of the welfare system in the
United States. As part of its growth strategy, the Company plans to
aggressively pursue the opportunities created by this legislation by seeking
new contracts to administer and manage welfare programs of state and local
government agencies. However, opponents of welfare reform continue to criticize
the advances made by the current administration and continued progress in the
welfare reform area is uncertain. The repeal of the Welfare Reform Act, in
whole or in part, could have a material adverse effect on the future business,
financial condition and results of operations of the Company. There can be no
assurance that additional reforms will be proposed or enacted, or that
previously enacted reforms will not be challenged, repealed or otherwise
invalidated.
The adverse impact that legislative changes can have on the Company
was recently evidenced by the termination of a significant contract with the
federal Social Security Administration. This contract related to the referral
and treatment monitoring of social security or supplemental income
beneficiaries with drug or alcohol-related disabilities (the "SSA Contract").
In the first two quarters of the fiscal year ended September 30, 1997, the
Company earned revenues of $31.6 million from the SSA Contract, representing
approximately 46% of the Company's total revenues for such fiscal quarters. In
October 1996, the President signed into law an amendment to the Social Security
Act of 1935, effective January 1, 1997, that eliminated social security and
supplemental income benefits based solely on drug and alcohol disabilities. As
a result of this amendment, the SSA Contract was terminated and no revenues
were earned thereunder after March 31, 1997.
In addition, under current law the privatization of certain functions
of government programs, such as determining eligibility for Food Stamps and
Medicaid, requires the consent and/or waiver of the executive branch acting
through the applicable administering government agency. In May 1997, in
response to a request by the State of Texas for a waiver to allow private
corporations to decide the eligibility of applicants for Food Stamps and
Medicaid benefits, the Department of Health and Human Services determined not
to grant a waiver to the existing requirement in these programs that only
public employees may make such decisions. The Company did not bid for any
contracts for these Texas projects, and the determination will not affect any
of the Company's existing contracts. However, there can be no assurance that
the Department of Health and Human Services or other health and human services
agencies will not in the future narrow or eliminate certain future markets for
health and human services contracts in which the Company intends to compete.
OPPOSITION FROM GOVERNMENT UNIONS
The Company's success depends in part on its ability to obtain
contracts to profitably administer and manage health and human services
programs that traditionally have been administered and managed by government
employees.
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Many of these government employees are members of labor unions which have
considerable financial resources and established lobbying networks that are
effective in applying political pressure to legislators and other government
officials who seek to contract with private companies to administer and manage
government programs. Successful efforts to oppose private management of
government programs by these unions may slow welfare reform and ultimately
result in fewer opportunities for the Company to provide services to government
agencies, thereby adversely affecting the business, financial condition and
results of operations of the Company. A recent example of the influence of
government unions is the role played by union lobbyists in promoting a May 1997
determination by the Department of Health and Human Services, in response to a
waiver request by the State of Texas, that only public employees may make
decisions on eligibility of applicants for Food Stamps and Medicaid benefits.
There can be no assurance that these unions will not succeed in whole or in
part in their efforts to oppose the outsourcing of government programs.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenues and operating results occur from
quarter to quarter as a result of a number of factors, including the progress
of contracts, 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 each contract that the Company has been awarded and general economic
conditions. Because a significant portion of the Company's expenses are
relatively fixed, successful contract performance and variation in the volume
of activity as well as in the number of contracts commenced or completed during
any quarter may cause significant variations in operating results from quarter
to quarter. Furthermore, the Company has on occasion experienced a pattern in
its results of operations in which it incurs greater operating expenses during
the start-up and early stages of significant contracts. In addition, the
Company's SSA Contract contributed $31.6 million, $56.5 million, $14.3 million
and $2.9 million to the Company's revenues in the fiscal years 1997, 1996, 1995
and 1994, respectively. While the Company was able to generate additional
revenues to replace the revenues received under the SSA Contract, no assurance
can be given that the Company will be able to generate additional revenues in
future periods in amounts sufficient to replace current contracts, if canceled.
RELIANCE ON KEY EXECUTIVES
The success of the Company is highly dependent upon the efforts,
abilities, business generation and project execution capabilities of certain of
its executive officers and senior managers. While the Company entered into
executive employment agreements with each of David V. Mastran, President and
Chief Executive officer of the Company, Raymond B. Ruddy, Chairman of the Board
of Directors and President of the Consulting Group, Russell A. Beliveau,
President of the Government Operations Group, Ilene R. Baylinson, President of
the Disability Services Division, Susan D. Pepin, President of the Systems
Planning and Integration Division and Lynn P. Davenport, President of the Human
Services Division, such agreements are terminable under certain conditions.
Other than these six agreements with executive officers, the Company does not
have employment agreements with any other senior employees. The loss of the
services of any of these key executives could have a material adverse effect
upon the Company's business, financial condition and results of operations,
including its ability to secure and complete engagements. The Company
maintains key-man life insurance policies on David V. Mastran and Raymond B.
Ruddy in the amounts of $6,100,000 and $3,950,000, respectively, with proceeds
payable to the Company. Because the previous levels of insurance were
established to fund stock redemption obligations of the Company that terminated
upon the closing of the initial public offering in June 1997, the Company
reduced the coverage levels from $10,700,000 and $7,250,000, respectively, in
the quarter ended March 31, 1997.
ATTRACTION AND RETENTION OF EMPLOYEES
The Company's business involves the delivery of professional services
and is labor-intensive. When the Company's Government Operations Group is
awarded a contract by a government agency, the Company is often under a tight
timetable to hire project leaders and case management personnel to meet the
needs of the new project. In addition, the resulting large increases in the
number of the Company's employees create demand for increased administrative
personnel at the Company's headquarters. The Company's success in both the
Government Operations Group and the Consulting Group depends in large part upon
its ability to 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 and information
technology professionals who have designed or implemented complex information
technology projects. Such innovative, experienced and technically proficient
individuals are in great demand and are
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likely to remain a limited resource for the foreseeable future. There can be
no assurance that the Company will be able to continue to attract and retain
desirable executive officers and senior managers in the future. The inability
to hire sufficient personnel on a timely basis or the loss of a significant
number of executive officers and senior manages could have a material adverse
effect on the Company's business, financial condition and results of
operations, including its ability to obtain and successfully complete service
contracts.
CHALLENGES RESULTING FROM GROWTH
The Company's continued growth has placed significant demands on the
Company's management as well as its administrative, operational and financial
resources. The Company's ability to manage its growth will require the Company
to continue to implement new and to improve existing operational, financial and
management information systems and to continue to expand, motivate and manage
its workforce. In addition, the Company's growth will depend in large part on
its ability to manage large-scale health and human services programs while
continuing to ensure quality service and reasonable profits. If the Company is
unable to manage effectively any of these factors, the quality of the Company's
services, its financial condition and results of operations could be materially
and adversely affected. No assurance can be given that the Company will
continue to experience growth or that the Company will be successful in
managing its growth, if any.
ADVERSE PUBLICITY
The Company has received and expects to continue to receive media
attention as a result of its contracts with state and local government
authorities. In particular, the management of health and human services
programs by the Company's Government Operations Group and the establishment of
revenue maximization programs by the Company's Consulting Group have been the
subject of highly controversial media coverage. Negative coverage of the types
of program management services provided by the Company could influence
government officials and slow the pace of welfare reform, thereby reducing the
Company's growth prospects. In addition to media attention arising out of the
types of services provided by the Company, the Company is also vulnerable to
media attention as a result of the activities of political consultants engaged
by the Company, even when such activities are unrelated to the Company. Such
an event occurred in connection with a marketing representative hired by the
Company to assist in responding to an RFP promulgated by the State of West
Virginia. After learning that the marketing representative was also a state
employee, the Company voluntarily withdrew from the bidding. Certain media
coverage relating to this incident was inaccurate and incorrectly suggested
wrongdoing by the Company. The Company has become aware that certain of its
competitors have sought to exploit such suggestions in connection with other
competitive-bidding situations. There can be no assurance that the Company will
not receive adverse media attention as the result of activities of individuals
not under the Company's control. In addition, there can be no assurance that
media attention focused on the Company will be accurate or that the Company
will be able to anticipate and respond in a timely manner to all media
contacts. Inaccurate or misleading media coverage or the Company's failures to
manage such coverage could have a material adverse effect on the Company's
reputation, thereby adversely affecting its business, financial condition and
results of operations.
RISKS RELATED TO POSSIBLE ACQUISITIONS
A part of the Company's growth strategy is, and recently has been, to
expand its operations through the acquisition of additional businesses. There
can be no assurance that the Company will be able to continue to identify,
acquire or profitably manage additional businesses or successfully integrate
acquired businesses into the Company without incurring substantial expenses,
delays or other operational or financial problems. Furthermore, acquisitions
may involve a number of special risks, including diversion of management's
attention, failure to retain key personnel, unanticipated events or
circumstances, legal liabilities and amortization of acquired intangible
assets, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Client
dissatisfaction or performance problems at a single acquired firm could have a
material adverse effect on the reputation of the Company as a whole. In
addition, there can be no assurance that acquired businesses will achieve
anticipated revenues and earnings. The failure of the Company to manage its
acquisition strategy successfully could have a material adverse effect on the
Company's business, financial condition and results of operations.
LITIGATION
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On March 12, 1997, Network Six, Inc. ("Network Six") served MAXIMUS
with a First Amended Third-Party Complaint filed in the State of Hawaii Circuit
Court of the First Circuit. In this complaint, Network Six named the Company
and other parties as third party defendants in an action by the State of Hawaii
against Network Six. In 1991, the Company's Consulting Group was engaged by the
State of Hawaii to provide assistance in planning for and monitoring the
development and implementation by Hawaii of a statewide automated child support
system. In 1993, Hawaii contracted with Network Six to provide systems
development and implementation services for this project. In 1996, the state
terminated the Network Six contract for cause and filed an action against
Network Six. Network Six counterclaimed against Hawaii that the state breached
its obligations under the contract with Network Six. In the Third Party
Complaint, Network Six alleges that the Company is liable to Network Six on
grounds that: (I) Network Six was an intended third party beneficiary under the
contract between the Company and Hawaii; (ii) the Company engaged in bad faith
conduct and tortiously interfered with the contract and relationship between
Network Six and Hawaii; (iii) the Company negligently breached duties to
Network Six; and (iv) the Company aided and abetted Hawaii in Hawaii's breach
of contract. Network Six's complaint seeks damages, including punitive damages,
from the third party defendants in an amount to be proven at trial. The Company
believes that Network Six was not an intended third party beneficiary under its
contract with Hawaii and that Network Six's claims are without factual or legal
merit. The Company does not believe this action will have a material adverse
effect on its business and intends to vigorously defend this action. However,
given the early stage of this litigation, no assurance may be given that the
Company will be successful in its defense. A decision by the court in Network
Six's favor or any other conclusion of this litigation in a manner adverse to
the Company could have a material adverse effect on the Company's business,
financial condition and results of operations.
On November 28, 1997, an individual who was a former officer, director
and shareholder of the Company, filed a complaint in the United States District
Court for the District of Massachusetts, alleging that at the time he resigned
from the Company in 1996, thereby triggering the repurchase of his shares, the
Company and certain of its officers and directors had failed to disclose
material information to him relating to the potential value of the shares. He
further alleges that the Company and its officers and directors violated
Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and
breached various fiduciary duties owed to him and claims damages in excess of
$10 million. The Company does not believe that this action will have a material
adverse effect on the Company's business, and it intends to vigorously defend
this action. However, given the early stage of this litigation, no assurance
may be given that the Company will be successful in its defense.
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