UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2009

Commission File Number: 1-12997

MAXIMUS, INC.

(Exact name of registrant as specified in its charter)

Virginia		54-1000588
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

11419 Sunset Hills Road
Reston, Virginia		20190
(Address of principal executive offices)		(Zip Code)

(703) 251-8500

(Registrant’s telephone number, including area code)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o (Do not check if smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 30, 2009, there were 17,496,595 shares of the registrant’s common stock (no par value) outstanding.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

MAXIMUS, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	September 30, 2008			March 31, 2009
	(Note 1)			(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	119,605		$	85,090
Restricted cash	2,736			2,449
Accounts receivable — billed, net of reserves of $5,512 and $4,232	128,819			96,350
Accounts receivable — unbilled	30,695			35,388
Current portion of note receivable	746			786
Income taxes receivable	—			17,097
Deferred income taxes	21,901			8,735
Due from insurance carrier	12,500			—
Prepaid expenses and other current assets	7,892			17,655
Current assets of discontinued operations	193			192
Total current assets	325,087			263,742

Property and equipment, at cost	81,232			83,577
Less accumulated depreciation and amortization	(47,238		)	(50,028		)
Property and equipment, net	33,994			33,549
Capitalized software	19,979			23,262
Less accumulated amortization	(5,854		)	(6,581		)
Capitalized software, net	14,125			16,681
Deferred contract costs, net	5,324			7,604
Goodwill	60,659			58,763
Intangible assets, net	3,699			2,458
Note receivable, less current portion	1,337			721
Deferred income taxes	10,933			1,440
Other assets, net	3,788			3,065
Total assets	$	458,946		$	388,023

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	48,950		$	53,218
Accrued compensation and benefits	26,684			24,932
Current portion of deferred revenue	19,676			19,351
Current portion of income taxes payable	12,662			—
Current portion of capital lease obligations	417			—
Other accrued liabilities	53,891			15,029
Current liabilities of discontinued operations	11,028			4,406
Total current liabilities	173,308			116,936
Deferred revenue, less current portion	8,315			7,884
Income taxes payable, less current portion	1,617			1,573
Total liabilities	183,240			126,393

Shareholders’ equity:
Common stock, no par value; 60,000,000 shares authorized; 18,302,368 and 17,423,577 shares issued and outstanding at September 30, 2008 and March 31, 2009, at stated amount, respectively	328,323			332,462
Treasury stock, at cost; 8,635,130 and 9,562,820 shares at September 30, 2008 and March 31, 2009, respectively	(289,103		)	(319,149		)
Accumulated other comprehensive income	5,536			(1,771		)
Retained earnings	230,950			250,088
Total shareholders’ equity	275,706			261,630
Total liabilities and shareholders’ equity	$	458,946		$	388,023

See notes to unaudited condensed consolidated financial statements.

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MAXIMUS, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2009			2008			2009
Revenue	$	189,611		$	184,201		$	366,700		$	364,293
Cost of revenue	137,748			137,090			268,553			270,035
Gross profit	51,863			47,111			98,147			94,258
Selling, general and administrative expenses	28,762			27,996			55,800			55,334
Legal and settlement expense	931			368			931			368
Operating income from continuing operations	22,170			18,747			41,416			38,556
Interest and other income, net	107			35			1,608			129
Income from continuing operations before income taxes	22,277			18,782			43,024			38,685
Provision for income taxes	8,788			7,419			17,267			15,281
Income from continuing operations	13,489			11,363			25,757			23,404

Discontinued operations, net of income taxes:
Loss from discontinued operations	(3,862		)	(336		)	(5,525		)	(409		)
Loss on disposal	—			—			—			(5		)
Loss from discontinued operations	(3,862		)	(336		)	(5,525		)	(414		)

Net income	$	9,627		$	11,027		$	20,232		$	22,990

Basic earnings (loss) per share:
Income from continuing operations	$	0.73		$	0.65		$	1.32		$	1.33
Loss from discontinued operations	(0.21		)	(0.02		)	(0.28		)	(0.03		)
Basic earnings per share	$	0.52		$	0.63		$	1.04		$	1.30

Diluted earnings (loss) per share:
Income from continuing operations	$	0.72		$	0.64		$	1.30		$	1.31
Loss from discontinued operations	(0.21		)	(0.02		)	(0.28		)	(0.02		)
Diluted earnings per share	$	0.51		$	0.62		$	1.02		$	1.29

Dividends paid per share	$	0.10		$	0.12		$	0.20		$	0.22

Weighted average shares outstanding:
Basic	18,537			17,435			19,527			17,621
Diluted	18,763			17,751			19,803			17,832

See notes to unaudited condensed consolidated financial statements.

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MAXIMUS, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Six Months Ended March 31,
	2008			2009
Cash flows from operating activities:
Net income	$	20,232		$	22,990
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations	5,525			414
Depreciation	5,151			4,203
Amortization	1,410			1,525
Deferred income taxes	7,522			22,659
Gain on sale of fixed assets	—			(51		)
Deferred interest income on note receivable	—			210
Non-cash equity based compensation	5,458			3,950

Change in assets and liabilities:
Accounts receivable — billed	7,079			31,321
Accounts receivable — unbilled	(13,247		)	(5,464		)
Prepaid expenses and other current assets	(462		)	(10,006		)
Deferred contract costs	1,843			(2,486		)
Due from insurance carrier	—			12,500
Other assets	282			(766		)
Accounts payable	686			5,320
Accrued compensation and benefits	(479		)	(1,498		)
Deferred revenue	(5,035		)	965
Income taxes	(11,107		)	(29,494		)
Other liabilities	(32		)	(37,573		)
Cash provided by (used in) operating activities — continuing operations	24,826			18,719
Cash provided by (used in) operating activities — discontinued operations	467			(7,035		)
Cash provided by (used in) operating activities	25,293			11,684

Cash flows from investing activities:
Proceeds from sale of fixed assets	—			54
Decrease in note receivable	—			366
Purchases of property and equipment	(3,534		)	(4,904		)
Capitalized software costs	(2,038		)	(4,686		)
Decrease in marketable securities	126,210			—
Cash provided by (used in) investing activities — continuing operations	120,638			(9,170		)
Cash provided by (used in) investing activities — discontinued operations	(1,566		)	—
Cash provided by (used in) investing activities	119,072			(9,170		)

Cash flows from financing activities:
Employee stock transactions	3,274			(97		)
Repurchases of common stock	(150,388		)	(30,046		)
Payments on capital lease obligations	(805		)	(417		)
Tax benefit due to option exercises and restricted stock units vesting	576			287
Cash dividends paid	(4,074		)	(3,854		)
Cash used in financing activities — continuing operations	(151,417		)	(34,127		)
Cash used in financing activities — discontinued operations	—			—
Cash used in financing activities	(151,417		)	(34,127		)

Effect of exchange rate changes on cash and cash equivalents	—			(2,902		)

Net decrease in cash and cash equivalents	(7,052		)	(34,515		)

Cash and cash equivalents, beginning of period	70,472			119,605

Cash and cash equivalents, end of period	$	63,420		$	85,090

See notes to unaudited condensed consolidated financial statements.

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The Company files income tax returns in the United States Federal jurisdiction and in various state and foreign jurisdictions. The Company is no longer subject to US Federal income tax examinations for years before 2005 and is no longer subject to state and local, or foreign income tax examinations by tax authorities for years before 2004.

Legal and Settlement Expense

Legal and settlement expense consists of costs, net of reimbursed insurance claims, related to significant legal settlements and non-routine legal matters, including future probable legal costs estimated to be incurred in connection with those matters. Legal expenses incurred in the ordinary course of business are included in selling, general and administrative expense.

Stock-Based Compensation

The Company’s Board of Directors established stock plans during 1997 pursuant to which the Company may grant non-qualified stock options to officers, employees and directors of the Company. Such plans also provide for stock awards of the Company’s common stock. At March 31, 2009, the Board of Directors had reserved 8.0 million shares of common stock for issuance under the Company’s stock plans. At March 31, 2009, approximately 1.4 million shares remained available for grants under the Company’s stock plans.

Stock options are granted at exercise prices equal to the fair market value of the Company’s common stock at the date of grant. Stock options generally vest ratably over a period of four years and, beginning in fiscal 2005, expire six years after date of grant. Options issued prior to fiscal 2005 expire ten years after date of grant. For the three and six months ended March 31, 2009, compensation expense recognized related to stock options was $0.4 million and $0.7 million, respectively, compared to $0.6 million and $1.6 million, respectively, for the same periods in fiscal 2008.

The Company also issues Restricted Stock Units (“RSUs”) to certain executive officers and employees under its 1997 Equity Incentive Plan (“Plan”). Generally, these RSUs vest ratably over six years with full vesting upon the sixth anniversary of the date of grant, provided, however, that the vesting will accelerate if the Company meets certain earnings targets determined by the Board of Directors. The fair value of the RSUs, based on the Company’s stock price at the grant date, is expensed over the vesting period. For the three and six months ended March 31, 2009, compensation expense recognized related to RSUs was $1.7 million and $3.2 million, respectively, compared to $1.6 million and $4.2 million, respectively, for the same periods in fiscal 2008.

2. Comprehensive Income

Comprehensive income includes net income, plus changes in cumulative foreign currency translation adjustments. The components of comprehensive income for the three and six months ended March 31, 2008 and 2009 are as follows:

	Three months Ended March 31,					Six months Ended March 31,
(in thousands)	2008		2009			2008		2009
Net income	$	9,627	$	11,027		$	20,232	$	22,990
Foreign currency translation adjustments	486		(632		)	359		(7,307		)
Comprehensive income	$	10,113	$	10,395		$	20,591	$	15,683

3. Deferred Contract Costs

Deferred contract costs consist of contractually recoverable direct set-up costs relating to long-term service contracts in progress. These costs include direct and incremental costs incurred prior to the commencement of the Company providing contracted services to our customers. These costs totaled $30.9 million and $34.4 million at September 30, 2008 and March 31, 2009, respectively, of which $7.6 million consisted of leased equipment. Deferred contract costs are expensed ratably as services are provided under the contracts. At September 30, 2008 and March 31, 2009, accumulated amortization of deferred contract costs was $25.6 million and $26.8 million, of which $7.2 million and $7.6 million is the accumulated amortization of capital lease assets included in deferred costs, respectively.

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4. Goodwill and Intangible Assets

The changes in goodwill for the six months ended March 31, 2009 are as follows (in thousands):

	Consulting		Operations			Total
Balance as of September 30, 2008	$	19,846	$	40,813		$	60,659
Goodwill activity related to acquisition	—		724			724
Foreign currency translation	—		(2,620		)	(2,620		)
Balance as of March 31, 2009	$	19,846	$	38,917		$	58,763

During the fourth quarter of fiscal 2008, the Company acquired 100% of the shares of Westcountry Training and Consultancy Service (“WTCS”) Limited, a privately-owned employment and training company in the United Kingdom that specializes in helping people who are disadvantaged in the labor market gain employment. Per the terms of the share purchase agreement, additional consideration of approximately £0.5 million (approximately $0.7 million U.S.) was accrued in the first quarter of fiscal 2009 based on the achievement of certain performance objectives. WTCS is part of the Company’s Operations Segment.

The following table sets forth the components of intangible assets (in thousands):

	As of September 30, 2008						As of March 31, 2009
	Cost		Accumulated Amortization		Intangible Assets, net		Cost		Accumulated Amortization		Intangible Assets, net

Non-competition agreements	$	1,882	$	1,844	$	38	$	1,894	$	1,892	$	2
Technology-based intangibles	3,370		2,909		461		3,370		3,310		60
Customer contracts and relationships	7,077		3,877		3,200		5,998		3,602		2,396
Total	$	12,329	$	8,630	$	3,699	$	11,262	$	8,804	$	2,458

Intangible assets from acquisitions are amortized over a period of five to ten years. The weighted-average amortization periods for non-competition agreements, technology-based intangibles, and customer contracts and relationships are approximately five years, five years, and ten years, respectively. The weighted-average amortization period for total intangible assets is approximately six years. For the three and six months ended March 31, 2009, intangible amortization expense was $0.3 million and $0.7 million, respectively, compared to $0.4 million and $0.8 million for the same periods in fiscal 2008. The estimated amortization expense for the years ending September 30, 2009, 2010, 2011, 2012, and 2013 is $1.2 million, $0.9 million, $0.8 million, $0.1 million and none, respectively.

5. Commitments and Contingencies

Litigation

The Company is involved in various legal proceedings, including contract and employment claims, in the ordinary course of its business. The matters reported on below involve significant pending or potential claims against us.

(a) In December 2008, MAXIMUS, Accenture LLP and the Texas Health and Human Services Commission (“HHSC”) entered into an agreement settling all claims among the parties arising from a prime contract between Accenture and HHSC for integrated eligibility services and a subcontract between MAXIMUS and Accenture in support of the prime contract. In connection with that settlement, MAXIMUS paid a total of $40.0 million and agreed to provide services to HHSC valued at an additional $10.0 million. The Company’s primary insurance carrier paid $12.5 million of the amount due from MAXIMUS. Accordingly, the Company recorded a pre-tax charge of $37.5 million in legal and settlement expense in the consolidated statements of operations in the fourth quarter of fiscal 2008. The Company continues to pursue additional insurance recoveries from its excess insurance carriers; however, such recoveries are not assured.

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Although the State did not specify damages in its complaint, it demanded payment of alleged damages of approximately $6.2 million in a letter sent to the Company in September 2007. The Company denies that it has breached its contract with the State. The Company cannot predict the outcome of the legal proceedings or any settlement negotiations or the impact they may have on the Company’s operating results or financial condition.

(c) In March 2009, a state Medicaid agency asserted a claim against MAXIMUS in the amount of $2.3 million in connection with a contract MAXIMUS had through February 1, 2009 to provide Medicaid administrative claiming services to school districts in the state. MAXIMUS entered into separate agreements with the school districts under which MAXIMUS helped the districts prepare and submit claims to the state Medicaid agency which, in turn, submitted claims for reimbursement to the Federal government. MAXIMUS is currently in discussions with the state about the claim, and no legal action has been initiated. The state has asserted that its agreement with MAXIMUS requires the Company to reimburse the state for the amounts owed to the Federal government. However, the Company’s agreements with the school districts require them to reimburse MAXIMUS for such payments and therefore MAXIMUS believes the school districts are responsible for any amounts disallowed by the state Medicaid agency or the Federal government. Accordingly, the Company believes its exposure in this matter is limited to its fees associated with this work and that the school districts will be responsible for the remainder. For the quarter ended March 31, 2009, MAXIMUS has recorded a $0.7 million reduction of revenue reflecting the fees it earned under the contract in the accompanying condensed consolidated statements of operations. MAXIMUS has exited the Federal healthcare claiming business and no longer provides the services at issue in this matter.

Credit Facilities and Performance Bonds

The Company’s Revolving Credit Agreement provides for a senior secured revolving credit facility, with SunTrust Bank as administrative agent, issuing bank and swingline lender, and a syndicate of other lenders (the “Credit Facility”). The Credit Facility provides for a $35.0 million revolving line of credit commitment, which may be used (i) for revolving loans, (ii) for swingline loans, subject to a sublimit of $5.0 million, and (iii) to request the issuance of letters of credit on the Company’s behalf, subject to a sublimit of $25.0 million. The Company may request an increase in the commitment under the Credit Facility, such that the aggregate commitments under the Credit Facility shall at no time exceed $75.0 million. The credit available under the Credit Facility may be used, among other purposes, to refinance the Company’s current indebtedness, to repurchase shares of the Company’s capital stock and to finance the ongoing working capital, capital expenditure, and general corporate needs of the Company. The Credit Facility matures on January 25, 2013, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must have been terminated or cash collateralized. At March 31, 2009, letters of credit totaling $10.4 million were outstanding under the Credit Facility.

Subject to applicable conditions, the Company may elect interest rates on its revolving borrowings calculated by reference to (i) the prime lending rate as announced by SunTrust Bank (or, if higher, the federal funds effective rate plus 0.50% or the one-month adjusted LIBO rate) (a “Base Rate Borrowing”), or (ii) the reserve adjusted rate per annum equal to the offered rate for deposits in U.S. dollars for a one (1), two (2), three (3) or six (6) month period in the London Inter-Bank Market (a “LIBOR Borrowing”), and, in each case, plus an applicable margin that is determined by reference to the Company’s then-current leverage ratio. For swingline borrowings, the Company will pay interest at the rate of interest for a one (1) month LIBOR Borrowing, plus the applicable margin, or at a rate to be separately agreed upon by the Company and the administrative agent.

The Credit Facility contains customary financial and other covenants that require the maintenance of certain ratios including a maximum leverage ratio and a minimum fixed charge coverage ratio. The Company was in compliance with all covenants in the Credit Facility as of March 31, 2009. The Company’s obligations under the Credit Facility are guaranteed by certain of the Company’s direct and indirect subsidiaries (collectively, the “Guarantors”) and are secured by substantially all of MAXIMUS’ and the Guarantors’ present and future tangible and intangible assets, including the capital stock of subsidiaries and other investment property.

At September 30, 2008 and March 31, 2009, the Company had performance bond commitments totaling $83.4 million and $88.9 million, respectively.

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6. Earnings (Loss) Per Share

The following table sets forth the components of basic and diluted earnings (loss) per share (in thousands):

	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2009			2008			2009
Numerator:
Income from continuing operations	$	13,489		$	11,363		$	25,757		$	23,404
Loss from discontinued operations	(3,862		)	(336		)	(5,525		)	(414		)
Net income (loss)	$	9,627		$	11,027		$	20,232		$	22,990

Denominator:
Basic weighted average shares outstanding	18,537			17,435			19,527			17,621

Effect of dilutive securities:
Employee stock options and unvested restricted stock units	226			316			276			211
Denominator for diluted earnings (loss) per share	18,763			17,751			19,803			17,832

7. Stock Repurchase Programs

Under a resolution adopted in July 2008, the Board of Directors has authorized the repurchase, at management’s discretion, of up to an aggregate of $75.0 million of the Company’s common stock. The resolution also authorized the use of option exercise proceeds for the repurchase of the Company’s common stock. During the six months ended March 31, 2009, the Company repurchased 927,690 common shares at a cost of $30.0 million. During the six months ended March 31, 2008, the Company repurchased 3,758,457 common shares at a cost of $150.4 million under an Accelerated Share Repurchase program. At March 31, 2009, $53.4 million remained available for future stock repurchases under the July 2008 resolution.

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8. Segment Information

The following table provides certain financial information for each of the Company’s business segments (in thousands):

	Three Months Ended March 31,										Six Months Ended March 31,
	2008			% (1)		2009			% (1)		2008			% (1)		2009			% (1)

Revenue:
Operations	$	160,982		100	%	$	155,626		100	%	$	307,789		100	%	$	311,964		100	%
Consulting	28,629			100	%	28,575			100	%	58,911			100	%	52,329			100	%
Total	189,611			100	%	184,201			100	%	366,700			100	%	364,293			100	%

Gross Profit:
Operations	42,166			26.2	%	40,233			25.9	%	77,723			25.3	%	81,702			26.2	%
Consulting	9,697			33.9	%	6,878			24.1	%	20,424			34.7	%	12,556			24.0	%
Total	51,863			27.4	%	47,111			25.6	%	98,147			26.8	%	94,258			25.9	%

Selling, general, and administrative expense:
Operations	19,318			12.0	%	20,323			13.1	%	37,049			12.0	%	40,446			13.0	%
Consulting	9,201			32.1	%	7,353			25.7	%	18,149			30.8	%	14,493			27.7	%
Corporate/Other	243			NM	(2)	320			NM	(2)	602			NM	(2)	395			NM	(2)
Total	28,762			15.2	%	27,996			15.2	%	55,800			15.2	%	55,334			15.2	%

Operating income (loss) from continuing operations:
Operations	22,848			14.2	%	19,910			12.8	%	40,674			13.2	%	41,256			13.2	%
Consulting	496			1.7	%	(475		)	(1.7	)%	2,275			3.9	%	(1,937		)	(3.7	)%
Consolidating adjustments	(243		)	NM	(2)	(320		)	NM	(2)	(602		)	NM	(2)	(395		)	NM	(2)
Legal and settlement expense	(931		)	NM	(2)	(368		)	NM	(2)	(931		)	NM	(2)	(368		)	NM	(2)
Total	$	22,170		11.7	%	$	18,747		10.2	%	$	41,416		11.3	%	$	38,556		10.6	%

	(1)	% of respective segment revenue

	(2)	Not meaningful

9. Recent Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141 (revised) (“SFAS 141(R)”), “Business Combinations,” which is effective for business combinations entered into in fiscal years beginning on or after December 15, 2008, which is the Company’s 2010 fiscal year. Early adoption of the standard is prohibited. Under SFAS 141(R), more transactions will be recorded as business combinations, as it changes the definitions of a business, which would no longer be required to be self-sustaining or revenue generating, and a business combination, which would include combinations that occur by contract alone or due to changes in substantive participation rights, such as a lapse in minority veto rights. Certain acquired contingencies will be recorded initially at fair value on the acquisition date. After the acquisition, if new information is available, contingent liabilities will be measured at the higher of the likely amount to be paid and the acquisition-date fair value. Contingent assets will be measured subsequently at the lower of the current estimated future amount to be realized and the acquisition-date fair value. Transaction and restructuring costs generally will be expensed as incurred. In partial acquisitions, companies generally will record 100 percent of the assets and liabilities at fair value, including goodwill. This will likely result in higher related depreciation and amortization charges in subsequent periods than under the current standard. SFAS 141(R) will only impact us if we acquire businesses subsequent to the effective date of the standard.

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10. Discontinued Operations

On April 30, 2008, the Company sold its Security Solutions division for cash proceeds of $4.6 million, net of transaction costs of $0.4 million, and recognized a pre-tax gain on the sale of $2.9 million. The financial position, results of operations, and cash flows of this business are reported as discontinued operations and all prior periods have been reclassified to conform to the current period’s presentation. The Security Solutions division was previously reported as part of the Company’s Systems Segment.

On May 2, 2008, the Company sold its Unison MAXIMUS, Inc. subsidiary for proceeds of $6.5 million. The sale transaction was structured as a sale of stock to the then current management team of the subsidiary. The sale price of $6.5 million consisted of $0.1 million in cash and $6.4 million in the form of a promissory note secured by (1) a security interest in all of the assets of the former subsidiary; (2) a pledge of shares by the buyer; and (3) a personal guaranty by members of the then current management team who are shareholders of the buyer. In accordance with Topic 5-U of SEC Staff Accounting Bulletin No. 81, “Gain Recognition on the Sale of a Business or Operating Assets to a Highly Leveraged Entity,” the Company has deferred recognition of a pre-tax gain on the sale of $3.9 million, and interest income on the promissory note, until realization is more fully assured. The deferred gain of $3.9 million is reflected as a deduction from the note receivable on the consolidated balance sheet as of September 30, 2008 and March 31, 2009. The financial position, results of operations, and cash flows of this business are reported as discontinued operations and all prior periods have been reclassified to conform to the current period’s presentation. Unison MAXIMUS, Inc. was previously reported as part of the Company’s Consulting Segment.

On September 30, 2008, the Company sold its Justice Solutions, Education Systems, and Asset Solutions divisions, which were previously reported as part of its Systems Segment. Total consideration for the transaction was $40.0 million, including a $35.0 million cash payment received at closing and a $5.0 million holdback for one year from closing, subject to a purchase price adjustment and any claims based on representations and warranties. The Company deferred recognition of the holdback and, net of transaction costs of $2.0 million, recognized a pre-tax loss on the sale of $12.2 million. Beginning in the fourth quarter of fiscal 2008, the Company classified the results of operations of these divisions as discontinued operations and incorporated the Enterprise Resource Planning (ERP) Solutions division into the Consulting Segment. The financial position, results of operations, and cash flows of these businesses are reported as discontinued operations and all prior periods have been reclassified to conform to the current period’s presentation.

The following table summarizes the operating results of the discontinued operations included in the Condensed Consolidated Statements of Operations (in thousands):

	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2009			2008			2009

Revenue	$	20,973		$	—		$	45,834		$	—

Loss from discontinued operations	$	(6,384	)	(556		)	(9,116		)	(677		)
Provision (benefit) for income taxes	(2,522		)	(220		)	(3,591		)	(268		)
Loss from discontinued operations	$	(3,862	)	$	(336	)	$	(5,525	)	$	(409	)

Loss from discontinued operations	—			—			—			(9		)
Provision (benefit) for income taxes	—			—			—			(4		)
Loss on disposal	—			—			—			(5		)

Loss from discontinued operations	$	(3,862	)	$	(336	)	$	(5,525	)	$	(414	)

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The following table summarizes the carrying values of the assets and liabilities of discontinued operations included in the Condensed Consolidated Balance Sheets (in thousands):

	As of September 30, 2008		As of March 31, 2009

Accounts receivable – billed	$	192	$	192
Prepaid expenses and other current assets	1		—
Current assets of discontinued operations	$	193	$	192

Accounts payable	$	10,303	$	4,397
Accrued compensation and benefits	725		9
Current liabilities of discontinued operations	$	11,028	$	4,406

11. Fair Value Measurements

Effective October 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), for financial assets and liabilities. This standard defines fair value, establishes a market-based framework or hierarchy for measuring fair value and expands disclosures about fair value measurements. We have deferred the adoption of SFAS No. 157 with respect to non-financial assets and liabilities in accordance with the provisions of FASB Staff Position FAS 157-2 (“FSP FAS 157-2”), “Effective Date of FASB Statement No. 157” which provides a one-year deferral of the effective date of SFAS No. 157. Items in this classification include goodwill and intangible assets with indefinite lives. We are currently evaluating the impact, if any, that FSP FAS 157-2 will have on our results of operations and financial condition.

SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Level 1:		Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:		Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3:		Unobservable inputs that reflect the reporting entity’s own assumptions.

Active markets are those in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Inactive markets are those in which there are few transactions for the asset, prices are not current, or price quotations vary substantially either over time or among market makers, or in which little information is released publicly. With regard to the Company’s financial assets subject to fair value measurements, the Company believes that all of the assets it holds are actively traded because there is sufficient frequency and volume to obtain information on an ongoing basis.

The Company’s financial assets subject to fair value measurements and the necessary disclosures are as follows (in thousands):

	Fair Value as of March 31,		Fair Value Measurements as of March 31, 2009 Using Fair Value Hierarchy
Description	2009		Level 1		Level 2		Level 3
Cash and cash equivalents	$	85,090	$	85,090	$	—	$	—

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Results of Operations

Consolidated

The following table sets forth, for the periods indicated, selected statements of operations data:

	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands, except per share data)	2008			2009			2008			2009
Revenue	$	189,611		$	184,201		$	366,700		$	364,293
Gross profit	$	51,863		$	47,111		$	98,147		$	94,258
Selling, general and administrative expenses	$	28,762		$	27,996		$	55,800		$	55,334
Selling, general and administrative expense as a percentage of revenue	15.2		%	15.2		%	15.2		%	15.2		%

Operating income from continuing operations	$	22,170		$	18,747		$	41,416		$	38,556
Operating margin from continuing operations percentage	11.7		%	10.2		%	11.3		%	10.6		%

Income from continuing operations, net of income taxes	$	13,489		$	11,363		$	25,757		$	23,404
Loss from discontinued operations, net of income taxes	$	(3,862	)	$	(336	)	$	(5,525	)	$	(414	)
Net income (loss)	$	9,627		$	11,027		$	20,232		$	22,990

Basic earnings (loss) per share:
Income from continuing operations	$	0.73		$	0.65		$	1.32		$	1.33
Loss from discontinued operations	(0.21		)	(0.02		)	(0.28		)	(0.03		)
Basic earnings per share	$	0.52		$	0.63		$	1.04		$	1.30

Diluted earnings (loss) per share:
Income from continuing operations	$	0.72		$	0.64		$	1.30		$	1.31
Loss from discontinued operations	(0.21		)	(0.02		)	(0.28		)	(0.02		)
Diluted earnings per share	$	0.51		$	0.62		$	1.02		$	1.29

We present constant currency revenue information to provide a framework for assessing how our business performed excluding the effect of foreign currency rate fluctuations. To present this information, current quarter and year-to-date revenue from foreign operations is converted into United States dollars using average exchange rates from the same periods in fiscal 2008. All our foreign operations are in the Operations Segment.

Revenue decreased 2.9%, or increased 0.9% on a constant currency basis, for the three months ended March 31, 2009, compared to the same period in fiscal 2008. Strong revenue growth in our domestic health services division and federal operations offset the adverse impact of a strong United States dollar on foreign sourced revenue.

Revenue decreased 0.7%, or increased 2.9% on a constant currency basis, for the six months ended March 31, 2009, compared to the same period in fiscal 2008. Strong revenue growth in our domestic health services division and federal operations partially offset the adverse impact of a strong United States dollar on foreign sourced revenue.

Operating income from continuing operations for the three months ended March 31, 2009 was $18.7 million, compared to operating income of $22.2 million for the same period in fiscal 2008. The decrease in operating income of $3.5 million is primarily driven by a $2.9 million and $1.0 million decrease in operating income in the Operations and Consulting Segments, respectively.

Operating income from continuing operations for the six months ended March 31, 2009 was $38.6 million, compared to operating income of $41.4 million for the same period in fiscal 2008. The decrease in operating income of $2.8 million is primarily driven by a $4.2 million decrease in operating income in the Consulting Segment offset by a $0.6 million increase in operating income in the Operations Segment.

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Net income for the three months ended March 31, 2009 was $11.0 million, or $0.62 per diluted share, compared with $9.6 million, or $0.51 per diluted share, for the same period in fiscal 2008. The increase in net income of $1.4 million is primarily attributable to a smaller loss from discontinued operations, net of income taxes of $3.5 million offset by a decrease in income from continuing operations, net of income taxes of $2.1 million.

Net income for the six months ended March 31, 2009 was $23.0 million, or $1.29 per diluted share, compared with $20.2 million, or $1.02 per diluted share, for the same period in fiscal 2008. The increase in net income of $2.8 million is primarily attributable to a smaller loss from discontinued operations, net of income taxes of $5.1 million offset by a decrease in income from continuing operations, net of income taxes of $2.3 million.

Operations Segment

	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands)	2008			2009			2008			2009

Revenue	$	160,982		$	155,626		$	307,789		$	311,964
Gross profit	42,166			40,233			77,723			81,702
Operating income	22,848			19,910			40,674			41,256

Operating margin percentage	14.2		%	12.8		%	13.2		%	13.2		%

The Operations Segment includes health services, workforce services, child support, and federal managed services and operations work.

Revenue decreased 3.3%, or increased 1.0% on a constant currency basis, for the three months ended March 31, 2009, compared to the same period in fiscal 2008. Revenue in the second quarter of fiscal 2008 included $6.9 million of infrequently occurring revenue related to hardware and software for a large health project. Normalized for infrequently occurring revenue and constant currency, revenue increased 5.6% compared to the same period in fiscal 2008 driven by strong growth in health services and federal operations. Operating income for the three months ended March 31, 2009 was $19.9 million, compared to operating income of $22.8 million for the same period in fiscal 2008. The decrease in operating income of $2.9 million is primarily driven by the adverse impact of a strong United States dollar and the start of a large contract that was successfully rebid last year, partially offset by strong revenue growth and margin improvement in health services and federal operations.

Revenue increased 1.4%, or 5.6% on a constant currency basis, for the six months ended March 31, 2009, compared to the same period in fiscal 2008. Revenue in the first half of fiscal 2008 included $6.9 million of infrequently occurring revenue related to hardware and software for a large health project. Normalized for infrequently occurring revenue and constant currency, revenue increased 8.1% compared to the same period in fiscal 2008 driven by strong growth in health services and federal operations. Operating income for the six months ended March 31, 2009 was $41.3 million, compared to operating income of $40.7 million for the same period in fiscal 2008. The increase in operating income of $0.6 million is primarily driven by strong revenue growth and margin improvement in health services and federal operations, partially offset by the impact of a strong United States dollar.

Consulting Segment

	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands)	2008			2009			2008			2009

Revenue	$	28,629		$	28,575		$	58,911		$	52,329
Gross profit	9,697			6,878			20,424			12,556
Operating income	496			(475		)	2,275			(1,937		)

Operating margin percentage	1.7		%	(1.7		)%	3.9		%	(3.7		)%

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The Consulting Segment includes program performance services, program and systems integrity services, educational services, and enterprise resource planning (ERP) solutions.

Revenue was $28.6 million for the three months ended March 31, 2009 and 2008. Revenue in the second quarter of fiscal 2009 included $4.8 million of pass-through revenue related to hardware and third party costs for the five-year, $54.9 million New York City Department of Education special education case management contract. Revenue in the second quarter of fiscal 2008 was adversely impacted by a $2.3 million charge related to a legacy federal claiming project. Normalized for $4.8 million of pass-through revenue in fiscal 2009 and the project charge in fiscal 2008, revenue declined 23.1% compared to the same period in fiscal 2008. Revenue growth in educational services was offset by revenue declines related to our exit from federal healthcare claiming work and the wind down of several ERP projects. Operating loss for the three months ended March 31, 2009 was $0.5 million, compared to operating income of $0.5 million for the same period in fiscal 2008. The decrease in operating income of $1.0 million is primarily attributable to (1) a $1.6 million provision related to a fixed price ERP contract and (2) the exit from federal healthcare claiming work, partially offset by (3) a $2.3 million charge related to a legacy federal claiming project in fiscal 2008.

Revenue was $52.3 million for the six months ended March 31, 2009, compared to $58.9 million in the same period in fiscal 2008. Revenue in the first half of fiscal 2009 included $4.8 million of pass-through revenue related to hardware and third party costs for the five-year, $54.9 million New York City Department of Education special education case management contract. Revenue in the first half of fiscal 2008 was adversely impacted by a $2.3 million charge related to a legacy federal claiming project. Normalized for $4.8 million of pass-through revenue in fiscal 2009 and the project charge in fiscal 2008, revenue declined 22.4% compared to the same period in fiscal 2008. Revenue growth in educational services was more than offset by revenue declines related to the exit from federal healthcare claiming work and the wind down of several ERP projects. Operating loss for the six months ended March 31, 2009 was $1.9 million, compared to operating income of $2.3 million for the same period in fiscal 2008. The decrease in operating income of $4.2 million is primarily attributable to (1) a $4.1 million provision related to a fixed price ERP contract and (2) our exit from federal healthcare claiming work, partially offset by (3) a $2.3 million charge related to a legacy federal claiming project in fiscal 2008.

Interest and Other Income, Net

	Three Months Ended March 31,				Six Months Ended March 31,
(dollars in thousands)	2008		2009		2008		2009

Interest and other income, net	$	107	$	35	$	1,608	$	129

Interest and other income was approximately $0.1 million for the three months ended March 31, 2009 and 2008. Interest and other income was $0.1 million, compared to $1.6 million for the same period in fiscal 2008. The decrease in interest and other income of $1.5 million is attributable to a reduction in interest income related to the $150.0 million Accelerated Share Repurchase that was completed during the first quarter of fiscal 2008, which reduced cash balances.

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Discontinued Operations

The following table summarizes the operating results of the discontinued operations included in the Condensed Consolidated Statements of Operations (in thousands):

	Three Months Ended March 31,						Six Months Ended March 31,
	2008			2009			2008			2009

Revenue	$	20,973		$	—		$	45,834		$	—

Loss from discontinued operations	$	(6,384	)	(556		)	(9,116		)	(677		)
Provision (benefit) for income taxes	(2,522		)	(220		)	(3,591		)	(268		)
Loss from discontinued operations	$	(3,862	)	$	(336	)	$	(5,525	)	$	(409	)

Loss from discontinued operations	—			—			—			(9		)
Provision (benefit) for income taxes	—			—			—			(4		)
Loss on disposal	—			—			—			(5		)

Loss from discontinued operations	$	(3,862	)	$	(336	)	$	(5,525	)	$	(414	)

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Liquidity and Capital Resources

Current Economic Environment

With the United States in a very significant recession, the current economic environment facing state and local governments is quite challenging. Not only are they experiencing declining tax revenues, but they are also facing increasing demand for critical services from the most vulnerable members of society. At the same time, states are generally required to balance their budgets each year. Certain states may delay payments to vendors as a result of budgetary constraints. In prior periods, the Company has faced short-term payment delays from state customers, all of which were ultimately recovered. The Company believes its liquidity and capital positions are adequate to weather short-term payment delays. In the event of more protracted delays, the Company may be required to seek additional capital sources, amend payment terms or take other actions. Extended payment delays could adversely affect the Company’s cash flows, operations and profitability.

The Federal government has passed economic stimulus legislation to address some of the pressures facing state and local governments. The Company believes that demand for its services in its core areas of health, education and human services will remain strong and that the economic stimulus package could ultimately increase demand for such services. However, any increases in demand resulting from the economic stimulus legislation will depend largely upon the timing, amount and nature of the stimulus targeted at the states as well as the timing and nature of the states’ actions in response to such funding.

Cash Flows

	Six Months Ended March 31,
(dollars in thousands)	2008			2009

Net cash provided by (used in):
Operating activities – continuing operations	$	24,826		$	18,719
Operating activities – discontinued operations	467			(7,035		)
Investing activities – continuing operations	120,638			(9,170		)
Investing activities – discontinued operations	(1,566		)	—
Financing activities – continuing operations	(151,417		)	(34,127		)
Effect of exchange rate changes on cash and cash equivalents	—			(2,902		)
Net decrease in cash and cash equivalents	$	(7,052	)	$	(34,515	)

Cash provided by operating activities from continuing operations for the six months ended March 31, 2009 was $18.7 million, compared to cash provided by operating activities from continuing operations of $24.8 million for the same period in fiscal 2008. The decrease in cash provided by operating activities from continuing operations of $6.1 million is primarily attributable to a $27.5 million cash payment, net of insurance recoveries of $12.5 million, to settle the Company’s arbitration matter offset by favorable working capital changes.

Cash used in operating activities from discontinued operations for the six months ended March 31, 2009 was $7.0 million, compared to cash provided by operating activities from discontinued operations of $0.5 million for the same period in fiscal 2008. The decrease in cash provided by operating activities from discontinued operations of $7.5 million is attributable to the wind-down of the disposed operations.

Cash used in investing activities from continuing operations for the six months ended March 31, 2009 was $9.2 million, compared to cash provided by investing activities from continuing operations of $120.6 million for the same period in fiscal 2008. The decrease in cash provided by investing activities from continuing operations of $129.8 million is primarily attributable to the sale of $126.2 million of marketable securities in the first half of fiscal 2008 to partially finance the Company’s $150.4 million Accelerated Share Repurchase program.

Cash used in financing activities from continuing operations for the six months ended March 31, 2009 was $34.1 million, compared to $151.4 million for the same period in fiscal 2008. The decrease in cash used in financing activities from continuing operations of $117.3 million is primarily attributable to a $120.4 million decrease in repurchases of common stock. Repurchases of common stock were $30.0 million and $150.4 million in the first half of fiscal 2009 and 2008, respectively.

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The adverse effect of exchange rate changes on cash and cash equivalents of $2.9 million in the first quarter of fiscal 2009 is due to the impact of the strengthening United States dollar on cash and cash equivalents held in our foreign operations.

Other Matters

Our working capital at March 31, 2009 was $146.8 million. At March 31, 2009, we had cash and cash equivalents of $85.1 million and no debt. Management believes this liquidity and financial position, along with the revolving credit facility discussed below, provides sufficient liquidity to continue any contemplated stock repurchase program (depending on the price of the Company’s common stock), to pursue selective acquisitions, and to consider the continuation of dividends on a quarterly basis. Restricted cash at March 31, 2009 was $2.4 million. Restricted cash represents amounts collected on behalf of certain customers where its use is restricted to the purposes specified under our contracts with these customers, and amounts on deposit with foreign banks as compensating balances for certain bank guarantees.

Under the provisions of certain long-term contracts, we may incur certain reimbursable transition period costs. During the transition period, these expenditures resulted in the use of our cash. Reimbursement of these costs may occur in the set-up phase or over the contract operating period. Related revenue may also be deferred during the set-up phase. As of March 31, 2009, $7.6 million in net costs had been incurred and reported as deferred contract costs on our consolidated balance sheet.

At September 30, 2008 and March 31, 2009, the Company had performance bond commitments totaling $83.4 million and $88.9 million, respectively.

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On April 3, 2009, the Company’s Board of Directors declared a quarterly cash dividend of $0.12 for each share of the Company’s common stock outstanding. The dividend is payable on May 29, 2009, to shareholders of record on May 15, 2009.

We believe that we will have sufficient resources to meet our currently anticipated capital expenditures and working capital requirements for at least the next twelve months.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenue and expenses. On an ongoing basis, we evaluate our estimates including those related to revenue recognition and cost estimation on certain contracts, the realizability of goodwill, and amounts related to income taxes, certain accrued liabilities and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.

We believe that we do not have significant off-balance-sheet risk or exposure 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 and standby letters of credit, we have not had any defaults resulting in draws on performance bonds. Also, we do not speculate in derivative transactions.

We believe the following critical accounting policies affect the significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition. In fiscal 2008, approximately 74% of our total revenue was derived from state and local government agencies; 7% from federal government agencies; 16% from foreign customers; and 3% from other sources, such as commercial customers. Revenue is generated from contracts with various pricing arrangements, including: (1) fixed-price; (2) performance-based criteria; (3) costs incurred plus a negotiated fee (“cost-plus”); and (4) time and materials. Also, some contracts contain “not-to-exceed” provisions. Of the contracts with “not-to-exceed” provisions, to the extent we estimate we will exceed the contractual limits; we treat these contracts as fixed price. For fiscal 2008, revenue from fixed-price contracts was approximately 33% of total revenue; revenue from performance-based contracts was approximately 36% of total revenue; revenue from cost-plus contracts was approximately 28% of total revenue; and revenue from time and materials contracts was approximately 3% of total revenue. A majority of the contracts with state and local government agencies have been fixed-price and performance-based, and our contracts with the federal government generally 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.

We recognize revenue on general service arrangements as work is performed and amounts are earned in accordance with the Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104, “Revenue Recognition” (“SAB 104”). We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured.

We recognize revenue on fixed-priced contracts when earned, as services are provided. For certain fixed-price contracts, primarily systems design, development and implementation, we recognize revenue based on costs incurred using estimates of total expected contract revenue and costs to be incurred in accordance with the provisions of AICPA Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts (“SOP 81-1”). The cumulative impact of any revisions in estimated revenue and costs is recognized in the period in which the facts that give rise to the revision become known. For other fixed-price contracts, revenue is recognized on a straight-line basis unless evidence suggests that revenue is earned or obligations are fulfilled in a different pattern. With fixed-price contracts, we are subject to the risk of potential cost overruns.

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For fixed-price contracts accounted for under SOP 81-1, provisions for estimated losses on incomplete contracts are provided in full in the period in which such losses become known. Costs related to contracts may be incurred in periods prior to recognizing revenue. These costs are generally expensed. However, certain direct and incremental set-up costs may be deferred until services are provided and revenue begins to be recognized, when such costs are recoverable from a contractual arrangement. Set-up costs are costs related to activities that enable us to provide contractual services to a client. The timing of expense recognition may result in irregular profit margins.

We recognize revenue on performance-based contracts as such revenue becomes fixed or determinable, which generally occurs when amounts are billable to customers. For certain contracts, this may result in revenue being recognized in irregular increments.

Revenue on cost-plus contracts is recognized based on costs incurred plus an estimate of the negotiated fee earned. Revenue on time and materials contracts is recognized based on hours worked and expenses incurred.

Our most significant expense is cost of revenue, which consists primarily of project-related costs such as employee salaries and benefits, subcontractors, computer equipment and travel expenses. Our management uses its judgment and experience to estimate cost of revenue expected on projects. Our management’s 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 gross margins related to our fixed-price, performance-based and time and materials contracts. If actual costs are higher than our management’s estimates, profitability may be adversely affected. Service cost variability has little impact on cost-plus arrangements because allowable costs are reimbursed by the customer.

We also license software under license agreements. Software revenue is recognized in accordance with AICPA Statement of Position 97-2, Software Revenue Recognition (“SOP 97-2”), as amended by Statement of Position 98-9, Modification of SOP 97-2, With Respect to Certain Transactions (“SOP 98-9”). Software license revenue is recognized when a customer enters into a non-cancelable license agreement, the software product has been delivered, there are no uncertainties surrounding product acceptance, there are no significant future performance obligations, the license fees are fixed or determinable and collection of the license fee is considered probable. Amounts received in advance of meeting these criteria are deferred and classified as deferred revenue in the accompanying consolidated balance sheets. As required by SOP 98-9, the Company determines the value of the software component of its multiple-element arrangements using the residual method as vendor specific objective evidence (“VSOE”) of fair value exists for the undelivered elements such as the support and maintenance agreements and related implementation and training services, but not for all delivered elements such as the software itself. The residual method requires revenue to be allocated to the undelivered elements based on the fair value of such elements, as indicated by VSOE. VSOE is based on the price charged when the element is sold separately. Maintenance and post-contract customer support revenue are recognized ratably over the term of the related agreements, which in most cases is one year. Revenue from software-related consulting services under time and material contracts and for training is recognized as services are performed. Revenue from other software-related contract services requiring significant modification or customization of software is recognized under the percentage-of-completion method.

Emerging Issues Task Force Issue No. 00-21 (“EITF 00-21”), Revenue Arrangements with Multiple Deliverables, requires contracts with multiple deliverables to be divided into separate units of accounting if certain criteria are met. We apply the guidance therein and recognize revenue on multiple deliverables as separate units of accounting if the criteria are met.

Impairment of Goodwill. We adhere to the Financial Accounting Standards Board’s Statements of Financial Accounting Standards No. 141, Business Combinations (“FAS 141”), and No. 142, Goodwill and Other Intangible Assets (“FAS 142”). Under these rules, goodwill is not amortized but is subject to annual impairment tests in accordance with FAS 141 and FAS 142. Goodwill is tested on an annual basis, or more frequently as impairment indicators arise. Annual impairment tests involve the use of estimates related to the fair market values of our reporting units with which goodwill is associated. Losses, if any, resulting from annual impairment tests will be reflected in operating income in our income statement.

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Capitalized Software Development Costs. The Company capitalizes software development costs in accordance with AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use (“SOP 98-1”) which are reported in continuing operations. Direct costs of time and material incurred for the development of application software for internal use are capitalized and amortized using the straight-line method over the estimated useful life of the software, ranging from three to seven years. We review capitalized software development costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Our review is based on our projection of the undiscounted future operating cash flows of the related customer projects. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amount, we recognize a non-cash impairment charge to reduce the carrying amount to equal projected future discounted cash flows.

Software development costs are also capitalized in accordance with FAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed and are reported in discontinued operations. We capitalize both purchased software that is ready for resale and costs incurred internally for software development projects from the time technological feasibility is established. Capitalized software development costs are reported at the lower of unamortized cost or estimated net realizable value. Upon the general release of the software to customers, capitalized software development costs for the products are amortized over the greater of the ratio of gross revenues to expected total revenues of the product or on the straight-line method of amortization over the estimated economic life of the product, which ranges from three to five years. The establishment of technological feasibility and the ongoing assessment for recoverability of capitalized development costs require considerable judgment by management including, but not limited to, technological feasibility, anticipated future gross revenues, estimated economic life, and changes in software and hardware technologies. Any changes to these estimates could impact the amount of amortization expense and the amount recognized as capitalized software development costs in the consolidated balance sheet.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to cover the risk of collecting less than full payment on our receivables. On a regular basis we re-evaluate our client receivables, especially receivables that are past due, and reassess our allowance for doubtful accounts based on specific client collection issues. If our clients were to express dissatisfaction with the services we have provided, additional allowances may be required.

Deferred Contract Costs. Deferred contract costs consist of contractually recoverable direct set-up costs relating to long-term service contracts in progress. These costs include direct and incremental costs incurred prior to the commencement of us providing service to enable us to provide the contracted services to our customer. Such costs are expensed over the period services are provided under the long-term service contract. We review deferred contract costs for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Our review is based on our projection of the undiscounted future operating cash flows of the related customer project. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amount, we recognize a non-cash impairment charge to reduce the carrying amount to equal projected future discounted cash flows.

Contingencies. From time to time, we are involved in legal proceedings, including contract and employment claims, in the ordinary course of business. We assess the likelihood of any adverse judgments or outcomes to these contingencies as well as potential ranges of probable losses and establish reserves accordingly. The amount of reserves required may change in future periods due to new developments in each matter or changes in approach to a matter such as a change in settlement strategy.

Legal and Settlement Expense. Legal and settlement expense consists of costs, net of reimbursed insurance claims, related to significant legal settlements and non-routine legal matters, including future probable legal costs estimated to be incurred in connection with those matters. Legal expenses incurred in the ordinary course of business are included in selling, general and administrative expense.

Stock-Based Compensation. Effective October 1, 2005, the Company adopted the provisions of SFAS No. 123(R), Share-Based Payment, using the modified-prospective-transition method.

Income taxes. To record income tax expense, we are required to estimate our income taxes in each of the jurisdictions in which we operate. In addition, income tax expense at interim reporting dates requires us to estimate our expected effective tax rate for the entire year. This process involves estimating our actual current tax liability together with assessing temporary differences that result in deferred tax assets and liabilities and expected future tax rates. Circumstances that could cause our estimates of income tax expense to change include: the impact of information that subsequently becomes available as we prepare our tax returns; revision to tax positions taken as a result of further analysis and consultation; changes in the geographic mix of our business; the actual level of pre-tax income; changes in tax rules, regulations and rates; and changes mandated as a result of audits by taxing authorities.

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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 other market risks with regard to instruments entered into for trading or for other purposes is immaterial.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

(b) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

(b) In November 2007, MAXIMUS was sued by the State of Connecticut in the Superior Court in the Judicial District of Hartford. MAXIMUS had entered into a contract in 2003 with the Connecticut Department of Information Technology to update the State’s criminal justice information system. The State claims that MAXIMUS breached its contract and also alleges negligence and breach of the implied warranty of fitness for a particular purpose. MAXIMUS has sued its primary subcontractor on the effort (ATS Corporation) which abandoned the project before completing its obligations. Although the State did not specify damages in its complaint, it demanded payment of alleged damages of approximately $6.2 million in a letter sent to the Company in September 2007. The Company denies that it has breached its contract with the State. The Company cannot predict the outcome of the legal proceedings or any settlement negotiations or the impact they may have on the Company’s operating results or financial condition.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c) The following table sets forth the information required regarding repurchases of common stock that we made during the three months ended March 31, 2009:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan (in thousands)
Jan. 1, 2009 — Jan. 31, 2009	187,200	$	36.41	187,200	$	52,722

Feb. 1, 2009 — Feb. 28, 2009	—	—		—	$	53,265

Mar. 1, 2009 — Mar. 31, 2009	—	—		—	$	53,401

Total	187,200	$	36.41	187,200

(1) Under a resolution adopted on July 22, 2008, which rescinds and supersedes all previous resolutions, the Board of Directors has authorized the repurchase, at management’s discretion, of up to an aggregate of $75.0 million of the Company’s common stock. The resolution also authorized the use of option exercise proceeds for the repurchase of the Company’s common stock.

Item 4. Submission of Matters to a Vote of Security Holders.

At our Annual Meeting of Shareholders held on March 18, 2009, our shareholders voted as follows:

(a) To elect Richard A. Montoni, Raymond B. Ruddy, and Wellington E. Webb as Class III Directors of the Company for a three-year term.

Nominee	Total Votes For	Total Votes Withheld
Richard A. Montoni	15,893,630	1,101,822
Raymond B. Ruddy	15,482,237	1,513,215
Wellington E. Webb	16,040,733	954,719

Russell A. Beliveau, John J. Haley, Paul R. Lederer, Peter B. Pond, Marilyn R. Seymann, and James R. Thompson continued their terms in office after the meeting.

(b) To ratify the appointment of Ernst & Young LLP as our independent public accountants for our 2009 fiscal year.

Total Votes For		16,670,872
Total Votes Against		324,141
Abstentions		439

Item 6. Exhibits.

The Exhibits filed as part of this Quarterly Report on Form 10-Q are listed on the Exhibit Index immediately following the Signatures. The Exhibit Index is incorporated herein by reference.

	MAXIMUS, INC.

Date: May 6, 2009	By:	/s/ David N. Walker
		David N. Walker
		Chief Financial Officer
		(On behalf of the registrant and as Principal Financial and Accounting Officer)

Exhibit No.		Description

31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Section 906 Principal Executive Officer Certification.

32.2		Section 906 Principal Financial Officer Certification.

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements.	3

	Condensed Consolidated Balance Sheets as of September 30, 2008 and March 31, 2009 (unaudited).	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2008 and 2009 (unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2008 and 2009 (unaudited)	5

	Notes to Unaudited Condensed Consolidated Financial Statements.	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	29

Item 4.	Controls and Procedures.	29

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings.	29

Item 1A.	Risk Factors.	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	31

Item 4.	Submission of Matters to a Vote of Security Holders	31

Item 6.	Exhibits.	31

Signature.		32

Exhibit Index.		33