UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

For the quarterly period ended December 31, 2001

OR

Commission file number 1–12997

MAXIMUS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý             No o 

MAXIMUS, Inc.

Quarterly Report on Form 10–Q

For the Quarter Ended December 31, 2001

INDEX

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

MAXIMUS, Inc.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

See notes to unaudited consolidated financial statements.

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MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

See notes to unaudited consolidated financial statements.

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MAXIMUS, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

See notes to unaudited consolidated financial statements.

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MAXIMUS, Inc.

Notes to Unaudited Consolidated Financial Statements

For the Three Month Periods Ended December 31, 2001 and 2000

(Dollars in thousands, except per share amounts)

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

1. Organization and Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normally recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the three-month period ended December 31, 2001 are not necessarily indicative of the results that may be expected for the full fiscal year. These financial statements should be read in conjunction with the audited financial statements as of September 30, 2001 and 2000 and for each of the three years in the period ended September 30, 2001, included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2001 (File No. 1–12997) filed with the Securities and Exchange Commission on December 21, 2001.

2. Revenue Recognition

During fiscal 2001, the Company changed its method of accounting for revenue recognition in accordance with SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. Effective October 1, 2000, the Company recorded the cumulative effect of the accounting change resulting in a charge to income of $3,856 (net of an income tax benefit of $2,735). As reported in the Company’s fiscal 2001 Annual Report on Form 10-K, the quarterly information originally reported in fiscal 2001 Quarterly Reports on Form 10-Q was restated for the change in accounting.

3. Goodwill and Intangible Assets

The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, (“FAS 142”), effective October 1, 2001. Under FAS 142, goodwill is no longer amortized but reviewed for impairment annually, or more frequently if certain indicators arise. The Company is required to complete the initial step of a transitional impairment test within six months of adopting FAS 142 and to complete the final step of the transitional impairment test by the end of the fiscal year. Any impairment loss resulting from the transitional impairment test will be recorded as a cumulative effect of a change in accounting principle. Subsequent impairment losses will be reflected in operating income in the income statement. Had the Company been accounting for its goodwill under FAS 142 for the three months ended December 31, 2000, the Company’s net income and earnings per share would have been as follows:

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Intangible assets are comprised of employee contracts and customer lists and are amortized using the straight-line method over a period of two and five years, respectively. The accumulated amortization related to intangible assets at September 30, 2001 was $2,256 and at December 31, 2001 was $2,519. The aggregate intangible amortization expense for the quarter ended December 31, 2001 was $263.  The estimated amortization expense for the years ending September 30, 2002, 2003, 2004 and 2005 is $642, $132, $70 and $15, respectively.

4. Business Combinations

On May 11, 2001, the Company acquired all of the outstanding membership interests of Opportunity America, LLC for $780. In conjunction with the purchase, the Company recorded goodwill of $593 and intangible assets of $115.

5. Commitments and Contingencies

The Company is involved in various legal proceedings in the ordinary course of its business. In the opinion of management, these proceedings involve amounts that would not have a material effect on the financial position or results of operations of the Company if such proceedings were disposed of unfavorably.

6. Earnings per share

The following table sets forth the components of basic and diluted earnings per share:

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7.  Segment Information

The Company has reorganized its business into four reportable operating segments in order to better focus and manage its healthcare outsourcing work, which had been part of the Government Operations Group. Accordingly, prior period amounts have been reclassified to reflect current period presentation of segment information.  In a Current Report on Form 8-K filed on February 4, 2002, the Consulting Group was identified as the “Consulting/Management & Information Services Group.”  Henceforth, it shall be referred to as the “Consulting Group” for ease of reference.

The following table provides certain financial information for each business segment:

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

Overview

We are a leading provider of program management, consulting services and systems solutions primarily to state and local government agencies throughout the United States. Since our inception, we have been at the forefront of innovation in meeting our mission of “Helping Government Serve the People^®.”  We use our expertise, experience and advanced information technology to make government operations more efficient and cost-effective while improving the quality of services provided to program beneficiaries. We have had contracts with government agencies in all 50 states, 49 of the 50 largest cities and 27 of the 30 largest counties. We have been profitable every year since we were founded.  For the fiscal year ended September 30, 2001, we had revenues of $487.3 million and income, before the cumulative effect of an accounting change, of $40.1 million. For the three months ended December 31, 2001, we had revenues of $129.6 million and net income of $11.2 million.

Prior to fiscal 2002, we conducted our operations through three groups: the Government Operations Group, the Systems Group and the Consulting Group.  In fiscal 2002, we reorganized our business into four reportable operating segments in order to better focus and manage our healthcare outsourcing work, which had been part of the Government Operations Group. The Health Management Services division and the Federal Services division, both formerly part of the Government Operations Group, now comprise the newly formed Health Management Services Group.  The Child Support division and the Workforce Services division, both formerly part of the Government Operations Group, now are located in the newly formed Human Services Group.  Accordingly, we have reflected the segment information for the periods reported in this Quarterly Report on Form 10-Q to be consistent with our current reporting of four operating segments.

Our revenues are generated from contracts with various payment arrangements, including:  (1) fixed-price; (2) costs incurred plus a negotiated fee (“cost-plus”); (3) performance-based criteria; and (4) time and materials reimbursement (used primarily by the Consulting Group).  For the fiscal year ended September 30, 2001, the most recent period for which this information is available, revenues from fixed-price contracts were approximately 36% of total revenues; revenues from cost-plus contracts were approximately 22% of total revenues; revenues from performance-based contracts were approximately 28% of total revenues; and revenues from time and materials reimbursement contracts were approximately 14% of total revenues.  Traditionally, a majority of our contracts with state and local government agencies have been fixed-price and performance-based and our contracts with the federal government have been cost-plus.  Fixed-price and performance-based contracts generally offer higher margins but typically involve more risk than cost-plus or time and materials reimbursement contracts because we are subject to the risk of potential cost overruns or inaccurate revenue estimates.

The Company recognizes revenue on its performance-based contracts as such revenue becomes fixed or determinable which generally occurs when amounts are billable to customers, rather than as costs are incurred.  For certain contracts, this may result in revenue being recognized in large, irregular increments. Additionally, costs related to certain contracts are incurred in periods prior to recognizing revenue. These factors may result in irregular revenues and profit margins in operating segments with performance-based contracts.

The Human Services Group and Health Management Services Group contracts generally 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.  As of September 30, 2001, our average Human Services Group and Health Management Services Group contract duration was approximately 2.5 years.  Our Consulting Group contracts had performance periods ranging from one month to approximately two years.  Our average Systems Group contract duration was 1.2 years.

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Our most significant expense is cost of revenues, which consists primarily of project-related employee salaries and benefits, subcontractors, computer equipment and travel expenses.  Our ability to accurately predict personnel requirements, salaries and other costs as well as to effectively manage a project or achieve certain levels of performance can have a significant impact on the service costs related to our fixed-price, performance-based and time and materials contracts.  Service cost variability has little impact on cost-plus arrangements because allowable costs are reimbursed by the client.

Selling, general and administrative expenses consist of management, marketing and administration costs (including salaries, benefits, travel, recruiting, continuing education and training), facilities costs, printing, reproduction, communications and equipment depreciation.

Business Combinations and Acquisitions

As part of our growth strategy, we intend to continue to selectively identify and pursue complementary businesses to expand our geographic reach and the breadth and depth of our services and to enhance our customer base.  On May 11, 2001, we acquired all of the outstanding membership interests of Opportunity America, LLC for $780. In conjunction with the purchase, we recorded goodwill and other intangible assets of $708.

Results of Operations

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

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Three Months Ended December 31, 2001 Compared to Three Months Ended December 31, 2000

Revenues.  Our total contract revenues increased 18.6% to $129.6 million for the three months ended December 31, 2001 from $109.2 million for the same period in 2000.  Revenues of our Consulting Group increased 1.1% to $33.4 million for the three months ended December 31, 2001 from $33.0 million for the same period in 2000.  Revenues of our Health Management Services Group increased 39.1% to $40.2 million for the three months ended December 31, 2001 from $28.9 million for the same period in 2000.  This increase was due to an increase in the number of contracts in the Group and an increase in revenues on a few existing contracts in the Group.  Revenues of our Human Services Group increased 22.1% to $37.2 million for the three months ended December 31, 2001 from $30.4 million for the same period in 2000.  This increase was due to an increase in the number of contracts in the Group and revenues totaling $0.7 million related to an acquisition.  Revenues of our Systems Group increased 11.5% to $18.8 million for the three months ended December 31, 2001 from $16.9 million for the same period in 2000 primarily due to an increase in the number of contracts in the Group.  For the three months ended December 31, 2001 compared to the three months ended December 31, 2000, our overall growth in revenue was 17.9%, excluding revenue related to an acquisition.

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Gross Profit.  Our total gross profit increased 27.5% to $40.8 million for the three months ended December 31, 2001 from $32.0 million for the same period in 2000.  Gross profit of our Consulting Group increased 23.5% to $15.5 million for the three months ended December 31, 2001 from $12.6 million for the same period in 2000.  As a percentage of Consulting Group revenues, that Group’s gross profit increased to 46.5% for the three months ended December 31, 2001 from 38.1% for the same period in 2000, primarily due to improved margins on performance-based contracts.  Gross profit of our Health Management Services Group increased 50.1% to $8.5 million for the three months ended December 31, 2001 from $5.6 million for the three months ended December 31, 2000.  As a percentage of Health Management Services Group revenues, that Group’s gross profit increased to 21.1% for the three months ended December 30, 2001 from 19.5% for the same period in 2000.  The increase was due to increased margins on a few contracts within the Group.  Gross profit of our Human Services Group increased 26.4% to $7.5 million for the three months ended December 31, 2001 from $6.0 million for the three months ended December 31, 2000.  As a percentage of Human Services Group revenues, Human Services Group gross profit increased to 20.3% for the three months ended December 30, 2001 from 19.6% for the same period in 2000.  The increase was due to increased margins on a few projects within the Group.  Gross profit of our Systems Group increased 18.4% to $9.2 million for the three months ended December 31, 2001 from $7.8 million for the same period in 2000.  As a percentage of Systems Group revenues, Systems Group gross profit increased to 49.0% for the three months ended December 31, 2001 from 46.2% for the same period in 2000, primarily due to improved performance in the Asset Solutions division.

Selling, General and Administrative Expenses. Our total selling, general and administrative (SG&A) expenses increased 14.1% to $22.5 million for the three months ended December 31, 2001 from $19.8 million for the same period in 2000.  The primary reasons for the increase in SG&A costs were the growth in the number of employees, the increase in expenses necessary to support higher revenues and the increase in marketing and proposal preparation expenditures incurred to pursue further growth.  As a percentage of our revenues, our SG&A expenses decreased to 17.4% for the three months ended December 30, 2001 from 18.1% for the same period in 2000.

Amortization of Goodwill and Other Acquisition-Related Intangibles.  In the quarter ended December 31, 2001, we incurred $0.3 million of amortization expense, as compared to $1.4 million for the same period in 2000.  The decrease was due to the non-amortization of goodwill under FAS 142 effective October 1, 2001.

Interest and Other Income.  The increase in interest and other income to $0.7 million for the three months ended December 31, 2001 as compared to $0.3 million for the same period in 2000 was due to an increase in the average balance of funds we invested.

Provision for Income Taxes.  Our provision for income tax for the three months ended December 31, 2001 was 40.0% of income before income taxes as compared to 41.5% for the three months ended December 31, 2000.  This decrease was due to differences in the amounts of certain expense items and some recently implemented tax reduction strategies.

Liquidity and Capital Resources

For the three months ended December 31, 2001, cash provided by our operations was $3.5 million as compared to $5.3 million of cash used in operations for the three months ended December 31, 2000. Cash provided by operating activities for the three months ended December 31, 2001 consisted primarily of net income of $11.2 million offset by an increase in unbilled accounts receivable of $4.8 million, a decrease in deferred revenues of $2.1 million, and a decrease in accrued compensation of $4.7 million, offset by other positive cash flow items.  During the three months ended December 31, 2000, cash used in operating activities consisted primarily of net income of $2.7 million plus non-cash adjustments of $6.1 million, offset by increases in billed accounts receivable of $10.9 million and unbilled accounts receivable of $3.7 million and a decrease

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 in accrued compensation and benefits of $4.2 million. Cash flow was affected in the first quarter of both fiscal years, because we accrue for incentive compensation throughout the fiscal year and make payments to employees in the first quarter.

For the three months ended December 31, 2001, cash used in investing activities was $26.7 million as compared to $2.7 million for the three months ended December 31, 2000.  Cash used in investing activities for the three months ended December 31, 2001 primarily consisted of purchases of marketable securities of $24.0 million, expenditures for capitalized software costs totaling $1.7 million and purchases of property and equipment of $1.1 million.  During the three months ended December 31, 2000, we used cash in investing activities primarily for expenditures related to capitalized software costs totaling $2.1 million and purchases of property and equipment of $1.8 million offset by a decrease in marketable securities of $1.2 million.

Cash provided by financing activities for the three months ended December 31, 2001 and 2000 was $3.9 and $0.5 million, respectively, which consisted primarily of sales of stock to employees through our Employee Stock Purchase Plan and Equity Incentive Plan.

Our management believes that we do not have significant off-balance sheet risk or exposures to liabilities that are not recorded or disclosed in our financial statements.  While we have significant operating lease commitments for office space, those commitments are generally tied to the period of performance under related contracts.  Additionally, although on certain contracts we are bound by performance bond commitments, we have not had any defaults resulting in draws on performance bonds.  Also, we do not speculate in derivative transactions.

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

Forward Looking Statements

From time to time, we may make forward-looking statements that are not historical facts, including statements about our confidence and strategies and our expectations about revenues, results of operations, profitability, future contracts, market opportunities, market demand or acceptance of our products and services. These statements involve risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward–looking statements.  Examples of these risks include: risks associated with government contracting; risks involved in managing government projects; opposition from government unions; challenges resulting from our growth; legislative changes and political developments; adverse publicity; and legal, economic, and other risks detailed in Exhibit 99 to this Quarterly Report on Form 10-Q for the fiscal period ended December 31, 2001.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.

We believe that our exposure to market risk related to the effect of changes in interest rates, foreign currency exchange rates, commodity prices and equity prices with regard to instruments entered into for trading or for other purposes is immaterial.

Part II.  Other Information.

Item 6.    Exhibits and Reports on Form 8-K.

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

(b)         Reports on Form 8-K.  The Company did not file any Current Reports on Form 8-K during the quarter ended December 31, 2001.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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EXHIBIT INDEX

Exhibit No.                             Description

99                                                                                                                  Important Factors Regarding Forward Looking Statements.  Filed herewith.

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