UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2004
Commission file number: 1-12997
MAXIMUS, INC.
(Exact name of registrant as specified in its charter)
|
VIRGINIA |
54-1000588 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
|
|
11419 Sunset Hills Road, Reston, Virginia |
20190 |
|
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (703) 251-8500
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
|
Name of each exchange on which registered |
|
Common Stock, no par value |
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES ý NO o
The aggregate market value of outstanding voting stock held by non-affiliates of the registrant as of March 31, 2004 was $575,796,340 based on the last reported sale price of the registrant’s Common Stock on The New York Stock Exchange as of the close of business on that day.
There were 21,303,521 shares of the registrant’s Common Stock outstanding as of December 1, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2005 Annual Meeting of Shareholders to be held on March 22, 2005, which definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the end of the registrant’s fiscal year, are incorporated by reference into Part III of this Form 10-K.
MAXIMUS, Inc.
Form 10-K
September 30, 2004
Table of Contents
ITEM 1. Business.
General
We are a leading provider of consulting, systems solutions and operations program management primarily to government. 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 operate primarily in the United States, and have had contracts with government agencies in all 50 states. For the fiscal year ended September 30, 2004, we had revenue of $603.8 million and net income of $38.8 million.
On August 17, 2004, we announced the retirement of our founder and Chief Executive Officer, David V. Mastran, effective September 30, 2004. With his retirement, the Company promoted Lynn P. Davenport, who was our Chief Operating Officer, to the position of Chief Executive Officer. Mr. Davenport enacted strategic changes to the organization effective September 30, 2004; we now conduct our operations through three business segments: (1) Consulting; (2) Systems; and (3) Operations.
Market Overview
Our primary customers are state and local government agencies, but a small portion of our business also comes from a variety of federal agencies and commercial customers. In fiscal 2004, approximately 83% of our total revenue was derived from state and local government agencies, 7% from federal government agencies, and 10% from other sources (such as foreign and commercial customers).
We believe we are well-positioned to benefit from the continuing demand for consulting, systems and operations program management solutions in an environment where governments are required to maintain or improve services to an increasing number of constituents. We believe that state and local governments will continue to review current program operations and seek cost savings through the use of outsourcing. Much of our program management and outsourcing work is related to federally-mandated and federally-funded programs. As a result, we expect the demand for our existing outsourcing programs to remain stable due to the fundamental need for governments to provide these services to their constituents. In addition, we expect state and local governments to continue to upgrade technology in order to increase cost efficiency and program productivity. To achieve these results, we believe that many government agencies will turn to outside experts, such as MAXIMUS, for help.
We deliver valued-added services to government agencies by providing consulting, systems and operations program management that help governments operate more efficiently and effectively. While demand for each of our services is largely contingent upon specific market factors related to individual vertical markets, we believe that several factors which impact government spending will drive increased demand for our services including:
• The need for states running federally-mandated and federally-funded programs to efficiently and cost-effectively meet minimum federal requirements in order to maintain federal funding levels.
1
• The requirement of state governments to implement federal initiatives such as the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which establishes prescription drug benefits as part of the Medicare program.
• The desire by governments to implement comprehensive solutions to drive efficiency and process improvements with the use of new technology offered by a single-source service provider that can offer long-term maintenance support.
• The need for governments to operate more programs with the same level of resources. Consequently, government clients possess the desire to outsource programs to companies that have greater flexibility in balancing resources (such as workforce) with demand.
• The impact of budgetary pressures on state and local governments, which increase their desire to seek and maximize additional federal funding to which they are entitled. As a result, governments seek to utilize outside companies such as MAXIMUS that possess the knowledge and resources to secure additional federal dollars on their behalf.
Our Business Segments
Consulting Segment:
Our Consulting Segment generated approximately 17% of our total revenue in fiscal 2004. Financial information with respect to this segment is provided in Notes 16 and 17 of our consolidated Financial Statements. The Consulting Segment provides specialized financial consulting services such as assisting state and local agencies in obtaining federal funding reimbursements for their programs. The Consulting Segment also offers educational services that assist schools in obtaining federal funding reimbursements, reducing costs, and implementing our proprietary student information software. Our Consulting Segment provides these services through the following divisions:
Revenue Services Division. Our Revenue Services Division assists with federal funding reimbursements and provides benefits program planning and implementation services for state and local government agencies. Our revenue maximization projects are generally carried out on a contingency-fee basis determined as a percentage of funds recovered from the federal government. We also assist several states in facilitating claims for additional services through the Temporary Assistance to Needy Families program.
Child Welfare Division. Our Child Welfare Division provides consulting services that help state, county and community-based child welfare agencies improve the outcomes for children and their families. These services include children’s safety, attainment of permanent families, physical health, mental health, education of children in the child welfare system, and improving the functioning of families so that parents can care for their own children. The division also works to ensure that agencies achieve incentives and avoid penalties by complying with federal regulations. The division builds the necessary child welfare infrastructure to ensure the effective execution of core functions such as eligibility determination, rate setting, contracting, licensing, case tracking and quality assurance. Services are typically on a payment-for-deliverable basis.
Cost Services Division. Our Cost Services Division assists local and state governments in their efforts to recover available funding from state and federal agencies, enhance revenue and operate efficiently. Service areas include local cost allocation services, user fee efforts, management studies, and engagements which mandate specific reporting requirements under California state law (specifically, California SB 90).
2
Unison-MAXIMUS. Unison-MAXIMUS leads our aviation planning and consulting services in the area of finance, business management, retail concession planning, and facility planning for airports throughout the country. The division’s primary mission is to help airports increase revenues, enhance passenger satisfaction, improve concessionaire performance and receive community recognition. Many of our consultants served in key administrative positions at airports or with major airlines or have worked as independent consultants for national aviation consulting firms throughout the United States. Our expertise and commitment to delivering superior service is respected in the aviation industry, and the division was recognized as the “Best Concessions Management Team” by Airport Revenue News in 2003.
Educational Services Division. Our Educational Services Division provides financial analysis and related services to help schools develop or improve programs for claiming Medicaid reimbursement for qualified special education students. This division also provides school districts with an electronic Individualized Educational Plans and special education case management software system to ensure compliance with federal and state laws, and to reduce the paperwork requirements of educators. We have provided school-related revenue maximization projects for more than 2,000 school districts nationwide. This division supports four educational suites of services including revenue enhancement, cost reduction, compliance and student performance services.
Educational Systems Division. Our Educational Systems Division provides consulting services, technical support, and software tools primarily to school districts, colleges and universities, and not-for profit organizations. The division licenses SchoolMAX®(our proprietary student information system) to K-12 school districts. SchoolMAX® captures, retrieves, and aggregates all relevant student, family, and school information. The division also licenses specialized systems to top research institutions across the country to assist them in managing their research grants efficiently and effectively.
Systems Segment:
Our Systems Segment generated approximately 23% of our total revenue in fiscal 2004. Financial information with respect to this segment is provided in Notes 16 and 17 of our consolidated Financial Statements. The Systems Segment designs and implements our proprietary software and third party software solutions to improve the efficiency and cost-effectiveness of program administration and offers systems products in the areas of justice and asset solutions. Our Systems Segment provides these products and services through the following divisions:
ERP Services Division. The Enterprise Resource Planning (ERP) Services Division works primarily with government and educational entities to implement PeopleSoft® applications and provide government specific information technology (IT) consulting services. The division delivers cost-efficient technology-based business solutions, including customer information systems/utility billing, financial, human resources management, payroll, procurement, and student administration systems. In addition to implementation, integration and training services, this division conducts return-on-investment assessments for major IT project endeavors. The ERP Services Division is a certified PeopleSoft® Consulting Alliance Partner and maintains a sizeable staff of PeopleSoft® Certified Consultants and technical staff.
Technology Support Division. Our Technology Support Division provides strategic management and information technology consulting services to state health and human services, budget and finance, and public employee retirement agencies. Our experienced team of project manager professionals and information technology professionals applies industry recognized standards and methodologies
3
throughout the system development life cycle. The division has assisted customers in planning, procuring, and implementing information systems in multiple projects across numerous states. The division’s services include business process transformation, change management and the appropriate application of information technology to improve service delivery. These services also include the application of standards-based project management, quality assurance and independent verification and validation services to assist our customers in successfully managing the development, implementation and deployment of automated systems.
Enterprise Services Division. The Enterprise Services Division leverages technology, software product solutions and systems integration to provide a variety of systems solutions to government customers. The division includes software development, data warehousing and an Application Service Provider (“ASP”) operations team. The Enterprise Services Division consolidates a number of technology practices into a single group including the MAXIMUS Security and ID Management (smart cards) initiative, electronic benefits transfer, electronic commerce, electronic payment systems and financial clearing house design, and the MAXChildcare™ software solution. The division also develops and implements integrated information technology system solutions for state criminal justice systems.
Asset Solutions Division. The Asset Solutions Division is a leading provider of software solutions that enable organizations to more effectively manage their infrastructure assets, including facilities and fleet and transit assets, as well as fuel management and distribution for fleet and transit organizations. The Asset Solutions Division serves over 600 customers, including government agencies, public utilities, mass transit, educational institutions and commercial enterprises. The division offers a broad range of fleet consulting services such as competitiveness assessments, business planning, and information technology. Its software and industry expertise helps organizations streamline operations, achieve cost savings and improve service levels. The division also assists entities with complying with the Government Accounting Standards Board reporting requirements for asset evaluation and management, and provides physical inventory control, regulatory compliance and reporting, and asset valuation services.
Justice Solutions Division. The Justice Solutions Division develops, implements and supports software programs designed to increase the efficiency of state and local court systems. Our products include case management, docketing, scheduling and report generating software used in all stages of the judicial process. The division implements and supports a jury management software program that creates jury lists, generates notices and monitors attendance and payments. Other service offerings include a records management software solution to automate recordkeeping functions for county recorders’ offices, and the JailView® software application which is designed to assist law enforcement officials in the management of jails and the tracking of inmate records. We work with law enforcement agencies, courts and corrections agencies to develop systems that integrate and facilitate access to criminal justice information and records.
4
Health Operations:
Our Health Operations group delivers administrative services for federal and state public health programs coupled with systems design, development, and implementation primarily for public health programs. Health Operations also offers medical management services such as health dispute resolution and physician profiling services. Our Health Operations group provides these services through the following divisions:
Health Services Divisions. The Health Services Divisions consist of regional divisions that provide a range of administrative support for publicly-funded health services and health insurance programs, with a particular emphasis on eligibility and enrollment for state Medicaid managed care and Children’s Health Insurance Programs.
Examples of services that we provide under these public health programs include:
• Beneficiary/recipient outreach, education, and enrollment counseling;
• Customized automated information systems;
• Design and development of program educational materials;
• Comprehensive customer service via on-site multilingual call centers;
• Program data collection and reporting;
• Program eligibility determination;
• Premium payment processing;
• Health plan encounter data analysis and reporting; and
• Customer satisfaction surveys and needs assessments.
Medical Management Division (formerly the Center for Health Dispute Resolution). The Medical Management Division provides health dispute resolution for federal, state and local government agencies. An important safeguard for members of managed care plans is the right to appeal health care decisions. The Medical Management Division operates an extensive system for the independent medical review of disputed health insurance claims using an experienced staff of legal and clinical professional. We serve as the national contractor for external appeals in the federal Medicare managed care program, the independent review contractor in more than 30 states, and the National Quality Monitoring Contractor for TRICARE, the Department of Defense managed healthcare program. We also operate a Center for Health Literacy and Communication Technologies that concentrates on producing reader-friendly and culturally appropriate information for low-literacy populations.
Human Services Operations:
Our Human Services Operations consist of three divisions, specializing primarily in the administration and management of government human services programs.
Workforce Services Division. The Workforce Services Division manages government workforce-centered service programs in the United States and Australia. We help disadvantaged individuals transition from government assistance programs to employment and independence by providing comprehensive services, including eligibility determination, case management, job readiness preparation and search, job development and employer outreach, job retention and career advancement, and selected educational and training services. Additionally, we offer advocacy services for youth and disabled persons in the United States and rehabilitation services in Australia, assistance to employers in accessing tax credit benefits, and research and survey solutions to government agencies through our Center for Public Studies and Surveys. In the United States, the division expanded its capabilities with a new product offering in election services.
5
Teamed with a leading voting systems vendor, Hart Intercivic, we offer a total solution to address governments’ need to modernize their voting systems under the Help America Vote Act of 2002. We provide the overall project management, training and outreach services required to successfully implement new voting technology.
Child Support Division. The Child Support Division provides outsourcing, consulting and system support services to state and local child support programs. These services include operating offices that provide full and specialized child support case-processing services, call center staffing, and program and systems consulting services. The division also has a collections unit that collects child support in hard-to-collect cases, as well as other government debts, including county and court tax and fine debts. The division provides technological services that improve automated systems, payment processing, interactive internet and automated customer service and imaging solutions. The Child Support Division has provided child support services and consultation in all 50 states over the past 29 years.
Corrections Division. The Corrections Division provides a variety of nonresidential correction services including offender assessment, case management, treatment groups, educational classes, drug and alcohol testing and the collection of fines, fees, and restitution from individuals who have been found guilty of misdemeanor offenses. Using proprietary software, the division manages offender case information, activities, and related financial information. The division has a 90% probation collection rate which exceeds probation collection rates of competitors and industry averages.
Competitive Advantages
We offer a private sector alternative for the administration and management of critical government programs as well as offering consulting and systems solutions. Our history and reputation give us a competitive advantage as governments seek out and value the level of experience and brand recognition that MAXIMUS brings to its customers. The following is a detailed discussion of the competitive advantages that allow us to capitalize on various market opportunities:
Single-market focus. We are one of the largest publicly-traded companies whose primary focus is offering a portfolio of consulting, systems and operations program management specifically to government customers. This single-market concentration allows us to fully dedicate time and resources in providing quality, customized solutions to government customers. Over the past 29 years, we have accumulated a detailed understanding of the regulation and operation of government programs which allows us to apply our methodologies, skills and solutions to new projects in a cost-effective and timely fashion. We believe our government program expertise differentiates us from other firms and non-profit organizations with limited resources and skill sets, as well as from large consulting firms that serve multiple industries but lack the focus necessary to efficiently manage the complexities of serving government agencies.
Wide range of services. Many customers require a broad array of service capabilities. Engagements often require creative or complex solutions that must be drawn from diverse areas of expertise within our organization. Our broad range of capabilities enables us to better pursue new business opportunities and positions us as a single-source provider of consulting, systems and operations program management to government agencies.
Proven track record. Since 1975, we have successfully and profitably assisted governments by offering efficient, cost-effective solutions. We have completed hundreds of large-scale consulting, technical systems engagements, and program management operations, for state and local government agencies serving millions of beneficiaries. The successful execution of these projects has enhanced our reputation with government agencies while improving the quality of services provided to program beneficiaries. Our track
6
record and reputation have contributed significantly to our ability to compete successfully, and win new contracts.
Expertise in competitive bidding. Government agencies typically award contracts to third-party providers through a comprehensive, complex and competitive bidding process. With over 29 years of experience responding to Requests For Proposals (RFPs) and executing orals and demonstrations, we have the necessary experience to navigate these government procurement processes. The complex nature of competitive bidding creates significant barriers to entry for potential new competitors unfamiliar with the nature of government procurement. Because we have the expertise and experience to assess and allocate the appropriate resources necessary for successful project completion in accordance with contractual terms, our proposals clearly demonstrate our ability to meet all customer requirements at a price that is both attractive to the customer and profitable to MAXIMUS. Coupled with reluctance on the part of government agencies to award contracts to unproven companies, we believe that our expertise in the competitive bidding process has contributed significantly to our success and will continue to be a key factor in our future success rates.
Software products and application framework owned and developed by MAXIMUS. We have our own suite of software products that enhance our consulting, systems and operations program management offerings. Further, our ability to bring the power of our entire community of experts to aid in the support and enhancement of our product offerings provides price and performance advantage over pure service providers dependent on third-party software.
In addition to our Justice, Transportation and Facility Asset Management and Education software product lines, we have developed an open architecture system utilizing a Java™ 2 Enterprise Edition (“J2EE™”) framework and components. (Java™ and J2EE™are trademarks of Sun Microsystems, Inc.) Current e-Government initiatives are mandating open architecture systems that will provide greater interoperability among agencies, systems and programs, as well as enhanced flexibility and scalability. Our J2EE™ framework gives us a competitive advantage by aligning our systems and services offerings with these critical government standards. The J2EE™framework also serves as a logical and cost-effective migration path for current customers who use our legacy MAXSTAR® Application Builder, an automated case management software product that interfaces with government databases, tracks program participant records and cases, and supports extraction and analysis of program data. We believe we enjoy a competitive advantage in re-bid situations, since we can implement a state-of-the-art open standards system at lower risk and cost to the customer.
Our MAXe3 system solution is an open architecture, web-based system for managing operations in enrollment and eligibility projects. MAXe3 uses an innovative task management design that is a departure from the current case management designs. The task management design is more efficient and better at tracking and accountability than the older generation systems. MAXe3, which resides on an Oracle platform, is easily scalable from the smallest to the largest operations. It is now positioned as an important and unique component for a number of upcoming large state procurements involving substantial re-engineering of the health and human services eligibility and enrollment operations.
Experienced Management Team. We have assembled an experienced team of industry executives, former government executives, state agency officials, information technology specialists and other professionals, many of whom have considerable experience in the public services industry. We have also developed strong relationships with experienced consultants who inform and advise us with respect to strategic marketing opportunities and legislative initiatives.
7
Competition
The market for providing our services to government agencies is competitive and subject to rapid change. Our principal methods of competition are quality of service and pricing, and we have identified certain positive factors relating to us in “Competitive Advantages” above. Our Consulting Segment typically competes against large consulting firms such as Accenture as well as smaller and niche players. Our Systems Segment competes with a large number of competitors including Unisys, SAP, Oracle, BearingPoint, Accenture, Deloitte, Northrup Grumman, and Electronic Data Systems. Our Operations Segment, which primarily serves health and human services departments and agencies, competes for program management contracts with the government services divisions of large organizations such as Affiliated Computer Services, Electronic Data Systems, and IBM, as well as more specialized private service providers and local non-profit organizations such as the United Way, Goodwill Industries and Catholic Charities.
Business Growth Strategy
Our goal is to enable future growth by remaining a leading provider of consulting, systems and operations program management to government agencies. The key components of our business growth strategy include the following:
• Aggressively pursue new business opportunities and expand our customer base. With 29 years of business expertise in the state and local government market, we continue to be a leader in developing innovative solutions to meet the evolving needs of government agencies. We believe our capabilities and brand recognition are our most critical assets, and we continue to identify, respond to and secure new business opportunities in an effort to grow our existing revenue base.
• Focus on core offerings, and develop complementary services for new and existing customers. We believe our fundamental services to state and local government are consulting, systems, and operations program management. While we intend to continue enhancing our range of core services in order to better respond to the evolving needs of our customers, we believe certain key offerings in consulting, systems and operations program management are critical to the future growth of the business. As a result, we have placed a considerable amount of emphasis on further developing these core practice areas by leveraging existing resources to better serve our customers.
• Mitigate losses in underperforming units. During 2004, we downsized and stabilized certain underperforming units which remain under management review. During fiscal 2004, we exited certain practice areas that we viewed as non-core or non-strategic to the overall growth of the business. We will continue to evaluate the businesses within the organization, and will act accordingly on other underperforming practice areas that we view as non-core or non-strategic to future growth.
• Grow long-term, recurring revenue streams. We seek to enter into long-term relationships with clients to meet their on-going and long-term business objectives. As a result, long-term contracts (three to five years with additional option years) are often the preferred method of delivery for customers and are mutually beneficial to them and the Company.
8
• Recruit and retain highly skilled professionals. We continually strive to recruit motivated individuals including top managers from larger organizations, former government officials, consultants experienced in our service areas and information technology professionals. We believe we can continue to attract and retain experienced personnel by capitalizing on our single market focus and our reputation as a premier government services consultant.
• Pursue strategic acquisitions. We will selectively identify and pursue strategic acquisition opportunities. Acquisitions can provide us with a rapid, cost-effective method to enhance our services, obtain additional skill sets, expand our customer base, cross-sell additional services, enhance our technical capabilities, and establish or expand our geographic presence.
See “Forward Looking Statements” in Item 7 below for information on risks and uncertainties that could affect our business growth strategy.
Marketing and Sales
We generate new business opportunities by establishing and maintaining relationships with key government officials, policy makers, and decision makers. We have assembled a team of business development professionals (known as Capital Cities – State Marketing Directors) who ensure that we understand the needs, requirements, and legislative initiatives and priorities of our current and prospective customers. In conjunction with our subject matter experts and marketing consultants, this nationally dispersed organization is responsible for creating and identifying new business opportunities and ensuring that we proactively introduce our solutions and services early in the procurement cycle. The Capital Cities – State Marketing Directors, subject matter experts and marketing consultants are responsible for ensuring that our products and services are properly introduced and that the benefits of our portfolio of offerings are appropriately quantified. We also subscribe to government procurement databases that track government bid activity, making every effort to ensure that we are on bidders’ lists as well as approved vendor lists for government procurement offices. We participate in professional associations of government administrators and industry seminars featuring presentations by our executives and employees. Senior executives develop leads through on-site presentations to decision-makers.
Because we obtain much of our work by responding to RFPs issued by government agencies, we have developed and implemented a sophisticated real-time RFP tracking and capture plan system which provides us critical information about the status of existing RFPs, actions to date and deliverables with respect to those RFPs.
For the year ended September 30, 2004, we derived approximately 14% of our consolidated revenue from contracts with the state of California, principally within our Operations segment.
Legislative Initiatives
There have been a number of legislative initiatives that have created new growth opportunities for MAXIMUS. Recent government actions have opened up new markets for MAXIMUS in the areas of election reform, homeland security and education reform. In addition to these new market areas, MAXIMUS continues to help governments meet their evolving requirements.
In addition, there are a number of legislative initiatives to reform and modify a wide range of entitlement programs such as Medicare, Medicaid, and Temporary Assistance for Needy Families (TANF). MAXIMUS is well-positioned to meet the consulting, systems and operations program management needs
9
of government that may result from legislative actions in these areas. MAXIMUS is actively monitoring these initiatives in order to respond to opportunities that may develop.
Some recent legislative initiatives that have created new growth opportunities for us include the following:
Help America Vote Act of 2002 (HAVA). Signed into law by President Bush on October 29, 2002, HAVA authorizes $3.9 billion for states to improve the operation of elections through the modernization of election voting technology and statewide voter registration systems, the improved training of election officials, and increased equal access for disabled voters. HAVA directs each state to develop an election reform plan. Federal funds for each state are allocated based on a certification of compliance with federal guidelines and a variety of demographic parameters. MAXIMUS is providing election reform technology and services to state and local governments in a number of states including California, Missouri, Montana, Ohio, and Texas.
Homeland Security Presidential Directive (HSPD-12). HSPD-12, dated August 27, 2004, titled “Policy for a Common Identification Standard for Federal Employees and Contractors”, directed the promulgation of a federal standard for secure and reliable forms of identification for federal employees and contractors. It further specified that such secure and reliable identification a) be issued based on sound criteria for verifying an individual employee’s identity; b) be strongly resistant to identity fraud, tampering, counterfeiting, and terrorist exploitation; c) be rapidly authenticated electronically; and d) be issued only by providers whose reliability has been established by an official accreditation process. Executive departments and agencies are required to use the standard for identifying federal employees and contractors requesting access to federally-controlled facilities and logical access to federally-controlled information systems. The standard is to be promulgated by early 2005, and all agencies are directed to come into compliance with HSPD-12 by the end of calendar year 2005.
Our Systems Segment has specific expertise in security card technology, and has been hired by a number of federal agencies to assist with the design, development and deployment of such systems. HSPD-12 will drive the rapid adoption of these systems, and we plan to pursue future work in providing assistance to agencies for the implementation of this initiative. In addition to the activity being driven by HSPD-12, there are a number of other homeland security initiatives being formulated at the federal, state and local levels that offer opportunities for MAXIMUS.
No Child Left Behind Act of 2001 (NCLB). NCLB was signed into law on January 8, 2002. The act requires states to provide public school choice and supplemental services for students in failing schools; integrate scientifically-based research into comprehensive reading instruction for young children; set and monitor adequate yearly progress based on baseline 2001-02 data; issue annual report cards on school performance and statewide test results by the 2002-03 school year; implement annual, standards-based assessments in reading and math for grades 3-8 by the 2005-06 school year; and assure that all classes are taught by a qualified teacher by the 2005-06 school year. We believe that our SchoolMAX® product, a student information system, is well-positioned to be an essential tool in helping the approximately 17,000 school districts in the country meet many of the requirements of NCLB.
Medicare Prescription Drug, Improvement, and Modernization Act of 2003. This new law is one of the broadest changes to the Medicare program since its creation over 40 years ago. For the first time, a prescription drug benefit will be part of the Medicare program. The centerpiece of the legislation is the establishment of a prescription drug benefit program for Americans on Medicare. The government is introducing this benefit in two phases. Phase 1 is the introduction of an interim discount drug card; Phase 2, which begins in January 2006, is a full-fledged prescription drug plan with numerous cost
10
reimbursement and coverage thresholds. The provisions in the bill provide MAXIMUS with opportunities in core competency areas such as eligibility determination, appeals and grievance adjudication, as well as outreach and enrollment functions.
MAXIMUS was selected by the Center for Medicare and Medicaid Services as the sole vendor to perform third party appeals for individuals who have applied to receive the Medicare discount drug card. The new law also replaces the Medicare+ Choice program that offered privately-managed insurance alternatives to seniors eligible for Medicare. The new program, named Medicare Advantage, increases beneficiaries’ choices of plans and services, and it is anticipated that there will be an increase in the number of managed care providers participating in the plan. The new program, with its additional insurer options, opens up opportunities for MAXIMUS to provide enrollment brokering, auditing, and consulting services.
Backlog
Backlog represents an estimate of the remaining future revenue from existing signed contracts and revenue from contracts that have been awarded but not yet signed. Our backlog estimate includes revenue expected under the current terms of executed contracts and revenue from contracts in which the scope and duration of the services required are not definite but estimable (such as performance-based contracts), but does not assume any contract renewals or extensions. Management estimates that approximately 80% of forecasted fiscal 2005 revenue is in the form of backlog at September 30, 2004, and will be realized as revenue in the following twelve months.
Changes in backlog result from additions to future revenue from the execution of new contracts or extension or renewal of existing contracts, reductions from fulfilling contracts, reductions from the early termination of contracts, and adjustments to estimates of previously-included contracts. Our contracts typically contain provisions permitting government customers to terminate the contract on short notice, with or without cause. We believe that period-to-period backlog comparisons are difficult and do not necessarily accurately reflect future revenue we may receive. The actual timing of revenue receipts, if any, on projects included in backlog could change for any of the aforementioned reasons. The dollar amount by segment of our backlog as of September 30, 2003 and 2004 was as follows:
|
|
|
As of September 30, |
|
||||
|
|
|
2003 |
|
2004 |
|
||
|
|
|
(In millions) |
|
||||
|
Consulting |
|
$ |
134.6 |
|
$ |
131.0 |
|
|
Systems |
|
141.3 |
|
143.8 |
|
||
|
Operations |
< | ||||||