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EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
February 1999
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 in oral 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 from those projected
in forward-looking statements of the Company made by or on behalf of
the Company.
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.
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Contracts Subject to Audit. The Defense Contract Audit Agency ("DCAA"),
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. Therefore, a
DCAA audit 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 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 18% of our fiscal 1998 revenues from fixed-price contracts
and approximately 46% of our fiscal 1998 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.
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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. Because we cannot be certain that we will
successfully manage our relationships with government entities and
agencies, our business may be adversely affected.
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 is
dependent 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 four consulting
firms and are still in the process of integrating their operations. 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
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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 are terminable 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
Delivery of the services provided by MAXIMUS 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
Intensification of Competition. Competition to provide certain
program management and consulting services to state and local
government agencies has intensified. Our Government Operations Group
competes for program management contracts with the following:
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- - 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.
MAXIMUS's 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 MAXIMUS. 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 be not 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 MAXIMUS has entered into non-competition agreements
with some of its senior level employees, we cannot be certain that a
court would enforce these contracts. Competition by former employees
could adversely affect our business.
ADVERSE PUBLICITY
The nature of our contracts with state and local government
authorities frequently generates media attention. In particular, 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. MAXIMUS may
be subject to adverse media attention relating to the activities of
individuals who are not under its control. In addition, we cannot
assure that the media will accurately cover our activities or that
MAXIMUS 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.
LITIGATION
DMG Litigation. On May 12, 1998, we acquired DMG. DMG is
currently defending against a lawsuit arising out of consultation
services provided to underwriters of revenue bonds issued by
Superstition Mountains Community Facilities District No. 1 (the
"District") in 1994. The bonds were issued to finance construction of a
water waste treatment plant in Arizona. However, the District was
unable to service the bonds and eventually declared bankruptcy. The
District voluntarily came out of bankruptcy and is currently operating
under a forbearance agreement with the sole purchaser of the bonds,
Allstate Insurance Company ("Allstate"). A consolidated action arising
out of these events is pending in the U.S. District Court for the
District of Arizona against DMG and thirteen other named defendants.
The parties making claims against DMG in the lawsuit, Allstate and the
District, allege that DMG made false and misleading representations in
the reports DMG prepared included among the exhibits to the bond
offering memoranda. DMG's reports concerned the accuracy of certain
financial projections made by the District regarding its ability to
service the bonds. Allstate seeks as damages $32.1 million, the
principal amount of bonds it purchased together with accrued and unpaid
interest; the District seeks actual and special damages, prejudgment
interest and costs. MAXIMUS intends to defend against these claims
vigorously. However, given the preliminary stage of this litigation, we
cannot assure that we will be successful in defending this lawsuit.
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Suit by Former Officer. We are currently defending a lawsuit
brought by a former officer, director and shareholder of MAXIMUS
alleging that, at the time he resigned from the Company in 1996 and
became obligated to sell his MAXIMUS shares back to the Company, we
failed to disclose to him material information regarding the potential
value of his MAXIMUS shares. The former officer seeks damages in excess
of $10 million. We do not believe that this claim has merit and intend
to oppose it vigorously. However, given the early stage of this
litigation, we cannot assure that we will be successful in our defense.
Suit by Network Six. We are currently defending a lawsuit that
was commenced against MAXIMUS and other parties by Network Six, Inc.
("Network Six"). MAXIMUS had been engaged by the State of Hawaii to
monitor the implementation of a statewide automated child support
system being performed by Network Six. Network Six alleges that we
tortiously interfered with and abetted Hawaii in the alleged breach of
its contract with Hawaii. We believe that Network Six's claims are
without merit and intend to defend this action vigorously. We do not
believe that this action will have a material adverse effect on our
financial condition or results of operations. Because this action is in
the early stages of discovery, we cannot assure that we will be
successful in defending this lawsuit.
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 43.3% of MAXIMUS's common
stock. Certain executive officers, who hold approximately 35.9% 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 hold
approximately 33.6% of MAXIMUS's common stock. As a result, these
officers can exercise significant influence over the outcome of matters
requiring a shareholder vote, including the election of the board of
directors. This significant influence could delay or prevent a change
in control of MAXIMUS, which could adversely affect the market price of
our common stock.
POSSIBLE VOLATILITY OF STOCK PRICE
MAXIMUS issued common stock on June 13, 1997 at $16.00 per share
upon the closing of its initial public offering (the "IPO"). Between
June 13, 1997 and February 5, 1999, the closing sale price has ranged
from a high of
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$41.50 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:
- - 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 MAXIMUS 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. Directors of MAXIMUS 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.
RISKS ASSOCIATED WITH YEAR 2000 COMPLIANCE
Internal Year 2000 Compliance. MAXIMUS is auditing its internal
software and hardware and the systems of its acquired companies for
Year 2000 compliance and is implementing corrective actions, where
necessary, to address computer, telecommunication and other
infrastructure system problems associated with the Year 2000. The
MAXSTAR case management software used in all our major projects has
been upgraded to be Year 2000 compliant. All MAXSTAR-based applications
must also be reviewed and upgraded, where necessary, which is now
scheduled to be completed by July 31, 1999. Our telephone systems must
also be Year 2000 compliant, which is also scheduled for completion by
July 31, 1999. We will continue to implement whatever remedial actions
are necessary to make us Year 2000 compliant. We do not believe that
remedial measures taken to correct any Year 2000 problems will
materially impact our operations or financial results. However, if our
remediation plans do not succeed, then we may experience adverse
effects on our business. Furthermore, we cannot assure that the costs
of remediation will not exceed our current estimates, or that our
corrective actions will be completed before any Year 2000 problems
occur.
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Services Provided by MAXIMUS Affecting Clients' Year 2000
Compliance. MAXIMUS assists in assessing, evaluating, testing and
certifying government client systems affected by Year 2000 problems. In
addition, we provide quality assurance of Year 2000 compliance
conversions performed by third parties for our clients. Although
MAXIMUS has attempted to minimize its liability for potential clients'
system failures, we cannot assure that we will not become subject to
legal action if a client sustains Year 2000 problems. If such legal
action is brought and resolved against us, we could suffer adverse
effects on our business.
Reliance on Vendors' and Clients' Year 2000 Compliance. In order
to perform our government contracts, we rely to varying extents on
information processing performed by vendors, governmental agencies and
entities with which we contract. We have inquired about these parties'
potential Year 2000 problems where necessary. Based on responses to
these inquiries, our management believes that we would be able to
continue to perform contracts without experiencing material negative
financial impact. However, we cannot assure that Year 2000 related
failures in the information systems of vendors or clients will not
occur. Any system failures could interfere with our ability to properly
manage contracted projects and could adversely affect our business.
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 may encounter a number of additional risks. The risks to
our potential expected international revenues include:
- - Adverse currency exchange rate fluctuations
- - 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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