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Article by DailyStocks_admin    (02-02-09 08:57 AM)

The Daily Magic Formula Stock for 01/31/2009 is MAXIMUS Inc. According to the Magic Formula Investing Web Site, the ebit yield is 16% and the EBIT ROIC is >100%.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

General



We provide consulting services and operations program management focused in the areas of health and human services primarily to government. Since our inception in 1975, 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 technological solutions 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, Canada, Australia, Israel, and the United Kingdom.



Over the last five years, our core health and human services business has experienced consistent demand levels despite budgetary and fiscal challenges that many states faced during 2003. Beginning in 2004, state financial conditions returned to healthier levels from increased tax receipts. This, coupled with legislation such as the Deficit Reduction Act of 2005, the extension of State Children’s Health Insurance Program (SCHIP) and Medicare Improvements for Patients and Providers Act (MIPPA) has kept demand levels steady.



In 2008, many states experienced budgetary and fiscal challenges; however, we have not experienced any material change in demand. We believe that the need for our services is reasonably insulated since we provide state and federal clients with administrative services for critical programs including Medicaid, Medicare and SCHIP. We believe we remain well positioned to benefit from increasing demand by government clients who are dealing with increasing caseloads in government-run health and human service programs as a result of the economic downturn. Nevertheless, protracted fiscal pressures could adversely impact our business.



Fiscal 2006 and 2007 results were impacted by a $49.4 million, and $25.2 million loss, respectively, on the Texas Integrated Eligibility project. Up until February 2007, we served as a subcontractor to Accenture providing services to the Texas Health and Human Services Commissions’ (TX HHSC). In February 2007, we terminated our subcontract with Accenture and in March 2007, the TX HHSC terminated its contract with Accenture and contracted directly with us to provide support services for its State Children’s Health Insurance Program (SCHIP) and to provide enrollment broker services for its Medicaid program. We continue to provide services under these programs, but on a profitable basis.



In December 2008, MAXIMUS, Accenture and HHSC settled all claims among the parties, both the claims in the arbitration proceeding and the contract wind down claims. In connection with that settlement, MAXIMUS agreed to pay a total of $40.0 million and to provide services to HHSC valued at an additional $10.0 million. The Company’s primary insurance carrier has agreed to pay $12.5 million of the amount due from MAXIMUS. Accordingly, the Company has recorded a pre-tax charge of $37.5 million in legal and settlement expense in the accompanying consolidated statements of operations in the fourth quarter of fiscal 2008. The corresponding accrued liability related to the settlement is included in other accrued liabilities as of September 30, 2008 in the accompanying consolidated balance sheets. The Company continues to pursue additional insurance recoveries from its excess insurance carriers; however, such recoveries are not assured.



In fiscal 2008, MAXIMUS divested five business units in order to focus on its core health and human services business portfolio to become the leading pure-play in the consulting and administration of government health and human services programs.



For the fiscal year ended September 30, 2008, we had revenue of $745.1 million and net income of $6.7 million. As a result of the five divestitures, financial results reflect the impact of a net loss from discontinued operations totaling $21.6 million which includes an after-tax loss on disposal of $5.6 million.



Market Overview



Our primary customers are state and local government agencies, but a portion of our business also comes from a variety of federal agencies and commercial customers. 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).

We believe we are well positioned to benefit from demand for consulting services and operations program management in an environment where governments are required to maintain or improve services to an increasing number of constituents in a difficult economic climate. We believe governments will continue to review current program operations and seek improved operating capability and cost savings through the use of partnering and managed services. For example, many states are in the process of considering changes to how they administer entitlement programs and are seeking new ways to find cost savings by implementing new systems and business process reengineering. Much of our work is related to federally mandated and federally funded programs such as Medicaid, SCHIP, and Temporary Assistance to Needy Families (TANF). As a result, we expect the underlying demand for our existing programs to remain stable due to the fundamental need and federal mandate for governments to provide these services to beneficiaries. In addition, we believe governments will continue to upgrade technology in order to increase cost efficiency and program productivity. To achieve these results, many government agencies are engaging outsourcing business services firms, such as MAXIMUS, for help.



We deliver valued-added services to government agencies by providing consulting services and operations program management that help governments operate more efficiently and effectively. Demand for each of our services is contingent upon specific factors related to our vertical markets and we believe that several factors which impact government spending will drive increased demand for our services, including:



•The requirement of state governments that are running federally-mandated and federally-funded programs to efficiently and cost-effectively meet minimum federal requirements in order to maintain federal funding levels. The expectation that state governments will experience rising demand for these federally funded programs as a result of the economic environment which is expected to drive increasing caseloads particularly in health care and employment programs.



•The requirement of state governments to implement federal initiatives such the Deficit Reduction Act of 2005 , which reauthorizes TANF and touches upon a number of key health and human service issues including Medicaid program reforms and requires states to engage more TANF cases in productive activities leading to self-sufficiency.



•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. With rising caseloads, we believe that clients may seek additional partnering or managed services options to manage increasing demand for government funded programs.



• The impact of continued budgetary pressures on governments, including the need for the vast majority of states to maintain balanced budgets. These budgetary requirements increase the desire by governments to seek and maximize 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 efficiently operate federally-funded programs and maintain minimum federal requirements in order to achieve the maximum federal funding as well as to secure additional federal dollars, in areas such as Medicaid, on their behalf.



Our Business Segments



The following discussion describes our business segments and each of our operating divisions within the business segments as they existed on September 30, 2008. From time to time, we implement certain organizational or management changes that realign our internal infrastructure and enable us to better manage our business.


Operations Segment:

Our Operations Segment generated approximately 84% of our total revenue in fiscal 2008. Financial information with respect to this segment is provided in Notes 16 and 17 of our consolidated financial statements (See Item 8 below). The Operations Segment provides a variety of program management and operations support services for state, Federal, and county funded public programs, and focuses on the delivery of administrative services for government health and human services programs including Medicare, Medicaid, SCHIP, TANF and related workforce services programs, and child support enforcement programs. Our Operations Segment provides these services through the following divisions:

Child Support Division. The Child Support Division provides managed services, consulting, and system support services to state and local child support programs. These services include full and specialized child support case-management services, call center operations, and program and systems consulting services. The division works with the child support agencies to optimize their ability to meet their program goals, including increasing the numbers of child support cases with orders for support, as well as collections on current support due and payment on arrearages.



Federal Operations. The Federal Operations group contracts with federal agencies, to support health, human services, and justice programs. Using an experienced staff of legal and clinical professionals, we conduct health care reconsiderations (appeals) of disputed health insurance coverage denials. We provide these services on behalf of the Centers for Medicare and Medicaid Services (CMS) (for Medicare Parts A, C, and D), for the U.S. Office of Personnel Management (OPM), and for more than 30 state health regulatory agencies. We are also designated by CMS as a QIO-like entity (Quality Improvement Organization) and provide health care quality assurance to a number of agencies. We serve as the National Quality Monitoring Contractor for the U.S. Department of Defense TRICARE program, and perform medical peer review for the Department of Veterans Affairs and the U.S. Coast Guard. Under contract with the Social Security Administration, we operate the Ticket to Work Program which provides Social Security disability beneficiaries with access to workforce services. We also provide the U.S. Department of Justice and the Drug Enforcement Administration with professional investigative and asset management services.



Health Services Division. The Health Services Division provides a range of administrative support for publicly funded health services and health insurance programs, with a particular emphasis on eligibility and enrollment for state programs such as Medicaid Managed Care and SCHIP. Under these public health programs we provide: beneficiary outreach and education, application assistance, eligibility support services, enrollment counseling, program data collection and reporting, and premium collection and processing. We deliver these services through customized automated information systems; design and development of print and web-based program educational materials; and full-service multi-contact customer service centers that include on-site multilingual assistance.



Workforce Services Division. The Workforce Services Division manages government workforce-centered service programs in the United States, Australia, United Kingdom, and Israel. 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 assistance to employers in accessing tax credit benefits and advocacy services for youth and disabled persons in the United States and rehabilitation services in Australia.



Consulting Segment:



Our Consulting Segment generated approximately 16% of our total revenue in fiscal 2008. Financial information with respect to this segment is provided in Notes 16 and 17 of our consolidated financial statements (See Item 8 below). The Consulting Segment provides management and financial consulting services for state and local clients, focusing on services that directly support health and welfare. The Segment serves to create business opportunities for our core Operations Segment while also providing the government market with a consulting option for improving program operations, performance and integrity. The Consulting Segment provides services through the following divisions:



Program Performance Division. Our Program Performance Division helps clients analyze and optimize their business operations. Our services and solutions focus on the health and human services marketplace and include the following:



•Health and Human Services Consulting – We offer consulting services to optimize eligibility and enrollment process and call center design. We design and implement outreach and education materials, client advocacy programs, human capital management strategies, and health and human services portals. We also provide program analytics and program quality assurance processes and practices.

• Financial Services Consulting – We provide consulting services that help state, county, and community-based child welfare agencies comply with federal regulations and improve the outcomes for children and their families. We assist local governments in their efforts to recover available funding from state and federal agencies. We provide cost allocation advisory services, user fee program design and implementation and school based cost accounting.

•Environmental “Go Green” Program Services – We offer implementation and associated process reengineering for recycling and other environment programs, allowing for the effective administration and management of associated operations and funding. The division is currently implementing the Division of Recycling Integrated Information System (DORIIS) for the California Department of Conservation.



Program and Systems Integrity Services Division. We help government organizations plan and monitor large-scale program and technology systems initiatives. Our services include the following:



•Technology Support Services – We assist government agencies in planning, securing funding, procuring, and implementing information systems. We also provide the application of standards-based project management, quality assurance, and independent verification and validation services for government programs such as Medicaid, Child Welfare, Child Support Enforcement, Unemployment Compensation, Eligibility/TANF, and WIC/EBT.

•Payment Error Rate Measurement Program Services (PERM) – We offer PERM program services by providing analysis of historical data pertaining to eligibility decisions for Medicaid and SCHIP.

•Third Party Liability Services – We provide services aimed at helping state health programs avoid and recapture erroneous government health program payments to providers.

•Fraud, Waste and Abuse Services – We assist states in meeting their financial objectives through reducing healthcare payments related to fraud, waste, and abuse as well as recovering overpayments made to service providers.



Educational Services Division. Our Educational Services Division provides a unique set of innovative management tools and professional consulting services for all levels of the educational system.



•K-12 Special Education – We offer TIENET ® , a proven solution to manage instruction, assessment, intervention and special education. Our special education case management application includes electronic Individualized Educational Program (IEP) software and special education case management software to ensure compliance with federal and state laws including the No Child Left Behind Act of 2001 (NCLB). We also offer AutismPro™, a web-based solution that uses technology and multimedia resources to drive positive outcomes for special needs students.

• Higher Education – We provide consulting services, technical support, and software tools to higher education institutions involved with federally funded research and other sponsored programs.



Enterprise Resource Planning Solutions Division . We work primarily with government and educational entities to implement Oracle’s PeopleSoft Enterprise suite of applications, which includes Financial Management, Human Resource Management, Supply Chain Management, Budgeting, and Enterprise Performance Management systems.



Competitive Advantages



We offer a private sector alternative for the administration and management of critical government-funded programs as well as offering consulting services. Our reputation and extensive experience over the last 30 years give us a competitive advantage as governments seek out and value the level of expertise 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 services 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. Our extensive experience and detailed understanding of the regulation and operation of government programs 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, as described in the “Our Business Segments” discussion above, enables us to better pursue new business opportunities and positions us as a single-source provider of consulting services 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 program management operations for government agencies serving millions of beneficiaries, many of which we continue to run today. 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 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 30 years of experience responding to Requests for Proposals (RFPs) and executing oral presentations, 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. We possess the expertise and experience to assess and allocate the appropriate resources necessary for successful project completion in accordance with contractual terms. Our proposals 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.



Intellectual property that supports the administration of government program. We have software products that enhance our operations program management offerings. Further, our ability to focus our subject matter experts to aid in the support and enhancement of our product offerings provides advantages over pure service providers dependent on third-party software.



MAXIMUS has recently completed a next generation upgrade to our MAXe (3) product architecture in support of the administration of Medicaid programs. The new release leverages the Spring 2 Application Framework as part of a Service Oriented Architecture. MAXe (3) now incorporates a powerful rules and workflow engine to enhance product configurability across state deployments. The architecture also enhances the user experience by taking advantage of a set of rich internet components based on Java Server Faces (JSR-127) and AJAX technologies to offer a web 2.0-style user interface. Based on the new architecture, MAXIMUS has recently deployed a new electronic benefits product and is currently working on new releases for its SCHIP and WorkQWEST products as well.



We also developed a Personal Health Portal for Medicaid Electronic Health Record Systems. The personal health portal is standards-based and complies with all national standards for electronic health records and personal health record security. The portal enabled the state Medicaid agencies to engage the Medicaid Recipients in medical quality improvement initiatives and cost containment programs. The user interface and screen navigation was designed by our Center for Health Literacy to be easily understood by Medicaid populations.

Competition



The market for providing our services to government agencies is competitive and subject to rapid change. Our Consulting Segment typically competes against large global consulting firms, as well as smaller niche players. 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, Inc., Electronic Data Systems Corporation, and International Business Machines Corporation, as well as more specialized private service providers and local non-profit organizations such as the United Way of America, Goodwill Industries, and Catholic Charities USA.

CEO BACKGROUND

Nominees for Class II Directors (for term expiring in 2011)
Name and Age
Business Experience and Other Directorships Director Since
Russell A. Beliveau
Age: 60 Russell A. Beliveau has served as a director since 1995. He served as our President of Investor Relations from October 2000 until his retirement in September 2002 and served as President of Business Development from September 1998 until October 2000. Prior to that, he served as President of the Government Operations Group from 1995 to 1998. Mr. Beliveau has worked in the health and human services industry since 1983. During that time, he held both government and private sector positions at the senior executive level. Mr. Beliveau's past positions include Vice President of Operations at Foundation Health Corporation of Sacramento, California from 1988 through 1994 and Deputy Associate Commissioner (Medicaid) for the Massachusetts Department of Public Welfare from 1983 until 1988. Mr. Beliveau received his Masters in Business Administration and Management Information Systems from Boston College in 1980 and his B.A. in Psychology from Bridgewater State College in 1974. 1995

John J. Haley
Age: 58

John J. Haley has served as one of our directors since June 2002. Since 1999 Mr. Haley has served as President and Chief Executive Officer of Watson Wyatt Worldwide, Inc., a human resources and employee benefits consulting firm. Mr. Haley joined Watson Wyatt in 1977. Mr. Haley is a director of Watson Wyatt Worldwide, Inc. and also serves on the Hudson Highland Group, Inc. Board. Mr. Haley is a Fellow of the Society of Actuaries and is a co-author of Fundamentals of Private Pensions (University of Pennsylvania Press). He has an A.B. in Mathematics from Rutgers College and studied under a Fellowship at the Graduate School of Mathematics at Yale University.

2002

Marilyn R. Seymann
Age: 65

Marilyn R. Seymann has served as one of our directors since April 2002. Since 2007 Dr. Seymann has served as Chairman and Chief Executive Officer of the International Institute of the Americas, a college focused on adult education. Before that she was Associate Dean of the College of Law at Arizona State University from 2005 to 2007 and President and Chief Executive Officer of M One, Inc., a corporate strategy and governance consulting firm for public and private companies, from 1991 to 2005. Prior to forming M One, she held senior management positions with Chase Bank, Arthur Andersen, and was the Associate Dean of the College of Business at Arizona State University. Dr. Seymann holds a B.A. from Brandeis University, an M.A. from Columbia University, and a Ph.D. from California Western University.

2002

MANAGEMENT DISCUSSION FROM LATEST 10K

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and the related Notes.



Forward-Looking Statements



Included in this Annual Report on Form 10-K are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our company, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements that are not historical facts. Words such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “potential,” “project,” “should,” and “will” and similar expressions are intended to identify forward-looking statements and convey uncertainty of future events or outcomes. These statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from such forward-looking statements due to a number of factors, including without limitation, the factors set forth in Exhibit 99.1 of this Annual Report on Form 10-K under the caption “Special Considerations and Risk Factors.” As a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. Additionally, we caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future events or otherwise.



Business Overview



We are a leading provider of consulting services and operations program management focused in the areas of health and human services 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 while improving the quality of services provided to program beneficiaries. We operate primarily in the United States, and we have had contracts with government agencies in all 50 states, Canada, Australia, Israel and the United Kingdom. For the fiscal year ended September 30, 2008, we had revenue of $745.1 million and net income of $6.7 million.



We report each of our two lines of business (i.e., Consulting and Operations) as separate external reporting segments. See Note 17 to our consolidated financial statements for our unaudited quarterly segment income statement data.

Revenue increased 19.0% in fiscal 2008 compared to fiscal 2007. The increase in revenue is attributable to organic growth driven by new work in the Operations Segment and the transformation of the Texas contract to a direct service agreement. Revenue increased 7.3% in fiscal 2007 compared to fiscal 2006. Excluding the impact of $29.8 million of voter hardware sales and the Corrections Services business which was divested at the beginning of fiscal 2007, revenue increased 13.1% primarily driven by organic growth in the health services divisions within the Operations Segment.



Operating income from continuing operations in fiscal 2008 was $44.1 million, compared to an operating loss of $0.9 million in fiscal 2007. The increase in operating income from continuing operations of $45.0 million is primarily attributable to (1) $50.1 million of improved performance in the Operations Segment, (2) a $6.1 million decrease in legal and settlement expense, (3) a $3.9 million gain on sale of building, offset by (4) a $7.6 million non-cash goodwill impairment charge related to the Company’s ERP division, and (5) a $6.3 million decrease in operating income in the Consulting Segment.



Operating loss from continuing operations in fiscal 2007 was $0.9 million, compared to an operating loss of $18.2 million in fiscal 2006. The decrease in operating loss from continuing operations of $17.3 million is primarily attributable to (1) $49.7 million of improved performance in the Operations Segment, (2) $3.0 million of improved performance in the Consulting Segment, offset by (3) a $35.0 million increase in legal and settlement expense driven by settlement of the District of Columbia contract investigation.

The improved performance in the Operations Segment of $49.7 million is primarily attributable to (1) a $24.2 million smaller loss on the terminated Texas subcontract with Accenture, (2) $28.2 million of improved performance in health and human services, including profitable operations in Texas as a result of a new contract where the Company is the prime contractor, offset by (3) a $4.2 million loss on the completed Ontario Child Support systems implementation project.



Selling, general and administrative expense (SG&A) consists of costs related to general management, marketing and administration. These costs include salaries, benefits, bid and proposal efforts, travel, recruiting, continuing education, employee training, non-chargeable labor costs, facilities costs, printing, reproduction, communications, equipment depreciation, intangible amortization, legal expenses incurred in the ordinary course of business, and non-cash equity based compensation. SG&A as a percentage of revenue for fiscal years 2006, 2007 and 2008 was 17.7%, 16.7%, and 15.5%, respectively.



Also included in SG&A were $6.6 million, $3.8 million and $9.5 million of non-cash, equity-based compensation related to stock options and RSUs for fiscal years 2006, 2007 and 2008. During the first quarter of fiscal 2008, the Company identified an error in prior periods in recorded stock-based compensation expense related to stock options and RSUs. The error was due, in part, to how the software used by the Company applied estimated forfeiture rates to fully vested stock options and RSUs. The impact was to underestimate stock compensation expense by $1.1 million in each of fiscal 2006 and 2007. The Company has corrected this error by recording additional stock compensation expense of $2.2 million in the first quarter of fiscal 2008.



Legal and settlement expense for fiscal years 2006, 2007 and 2008 was $9.4 million, $44.4 million, and $38.4 million, respectively. 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. The following table sets forth the matters that represent legal and settlement expense (dollars in thousands):

Provisions (benefit) for income taxes was (39.7)% and 39.2% of income (loss) from continuing operations in fiscal 2006 and 2008, respectively.



Provision for income taxes for fiscal 2007 was $12.1 million which consisted of:



• a $9.3 million tax benefit related to legal and settlement expenses of $44.4 million (portions of the settlement expense related to the District of Columbia matter are not tax deductible),



•a $0.7 million valuation allowance on certain deferred tax assets related to a foreign subsidiary’s net operating losses, and



•a $20.7 million tax provision at 42.0% on income from continuing operations of $49.3 million (income from continuing operations of $4.9 million plus legal and settlement expenses of $44.4 million).

Income from continuing operations, net of income taxes was $28.3 million, or $1.47 per diluted share, compared to a loss from continuing operations, net of income taxes of $7.2 million, or $0.33 per diluted share in fiscal 2007, and a loss from continuing operations, net of income taxes of $6.8 million, or $0.32 per diluted share in fiscal 2006.



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



Revenue decreased 2.4% in fiscal 2008 compared to fiscal 2007. Operating income in fiscal 2008 was $1.4 million, compared to $7.7 million in fiscal 2007. The decrease in operating income of $6.3 million is primarily attributable to (1) a $2.7 million provision related to a fixed price ERP contract, (2) a $2.3 million charge related to a legacy federal claiming project which may be recovered pending the outcome of the client’s recovery appeal and (3) the shift away from contingent-based federal claiming work and incurring additional project costs to develop new market areas, such as Medicaid fraud, waste and abuse.

Operating margin (loss) percentage





(3.0


)%


7.0


%


13.6


%




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



Revenue increased 24.0% in fiscal 2008 compared to fiscal 2007. The increase in revenue is primarily driven by new and expanding domestic and international work in our human and health services operations and the transformation of the Texas contract to a direct service agreement. Operating income in fiscal 2008 was $85.7 million, compared to $35.6 million in fiscal 2007. The increase in operating income of $50.1 million is driven by improvements related to the optimization of the business portfolio; new awards; and the resolution of certain legacy contracts, including transformation of the Texas contract to a direct service agreement.



Revenue increased 7.7% in fiscal 2007 compared to fiscal 2006. Excluding the impact of $29.8 million of voter hardware sales and the Corrections Services business which was divested at the beginning of fiscal 2007, revenue increased 14.9% primarily driven by organic growth in health services. Operating income in fiscal 2007 was $35.6 million, compared to an operating loss of $14.1 million in fiscal 2006. The increase in operating income of $49.7 million is primarily attributable to (1) a $24.2 million smaller loss on the terminated Texas subcontract with Accenture, (2) $28.2 million of improved performance in health and human services, including profitable operations in Texas as a result of a new contract where the Company is the prime contractor, offset by (3) a $4.2 million loss on the completed Ontario Child Support systems implementation project.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

On August 1, 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. The purchase price for the shares is £3.0 million (approximately $6.0 million U.S.). Per the terms of the share purchase agreement, additional consideration of approximately £0.5 million (approximately $1.0 million U.S.) may be paid based on the achievement of certain future performance objectives. WTCS is part of the Company’s Operations Segment.

The following discussion and analysis of financial condition and results of operations is provided to enhance the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and related Notes included both herein and in our Annual Report on Form 10-K for the year ended September 30, 2007, filed with the Securities and Exchange Commission on December 13, 2007.



Forward Looking Statements



From time to time, we may make forward-looking statements that are not historical facts, including statements about our confidence and strategies and our expectations about revenue, results of operations, profitability, current and future contracts, market opportunities, market demand or acceptance of our products and services. Any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be forward-looking statements. The words “could,” “estimate,” “future,” “intend,” “may,” “opportunity,” “potential,” “project,” “will,” “believes,” “anticipates,” “plans,” “expect” and similar expressions are intended to identify forward-looking statements. These statements may involve risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. These risks are detailed in Exhibit 99.1 to our Annual Report on Form 10-K for the year ended September 30, 2007 and incorporated herein by reference.



Business Overview



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 while improving the quality of services provided to program beneficiaries. We operate primarily in the United States, and we have had contracts with government agencies in all 50 states, Canada, Australia, Israel, and the United Kingdom. For the fiscal year ended September 30, 2007, we had revenue of $738.6 million and net loss of $8.3 million. For the nine months ended June 30, 2008, we had revenue of $607.3 million and net income of $31.6 million.

Revenue for the three months ended June 30, 2008 was $206.3 million, compared to $189.7 million for the same period in fiscal 2007. Revenue for the nine months ended June 30, 2008 was $607.3 million, compared to $516.9 million for the same period in fiscal 2007. The increase in revenue in both periods is attributable to organic growth driven by new work in the Operations Segment and the transformation of the Texas contract to a direct service agreement.



Income from operations for the three months ended June 30, 2008 was $14.7 million, compared to a loss from operation of $10.9 million for the same period in fiscal 2007. The increase in income from operations of $25.6 million is primarily driven by a $25.3 million reduction in legal and settlement expense.



Income from operations for the nine months ended June 30, 2008 was $45.9 million, compared to a loss from operations of $27.0 million for the same period in fiscal 2007. The increase in income from operations of $72.9 million is primarily driven by $50.6 million of improvements in the Operations Segment related to the optimization of the business portfolio; new awards; and the resolution of certain legacy contracts, including the transformation of the Texas contract to a direct service agreement, and a $33.5 million reduction in legal and settlement expense.



Selling, general and administrative expense (SG&A) consists of costs related to general management, marketing and administration. These costs include salaries, benefits, bid and proposal efforts, travel, recruiting, continuing education, employee training, non-chargeable labor costs, facilities costs, printing, reproduction, communications, equipment depreciation, intangible amortization, and legal expenses incurred in the ordinary course of business. SG&A as a percentage of revenue for the three months ended June 30, 2008 was 17.8%, compared to 18.0% for the same period in fiscal 2007, and was 17.8% for the nine months ended June 30, 2008, compared to 19.4% for the same period in fiscal 2007. The improvement in SG&A as a percentage of revenue in both periods is driven primarily by revenue growth and expansion of gross margin.



Also included in SG&A were $7.3 million and $2.2 million of non-cash, equity-based compensation related to stock options and RSUs for the nine months ended June 30, 2008 and 2007, respectively. During the three months ended December 31, 2007 the Company identified an error in prior periods in recorded stock-based compensation expense related to stock options and RSUs. The error was due, in part, to how the software used by the Company applied estimated forfeiture rates to fully vested stock options and RSUs. The impact was an underestimated stock compensation expense by $1.1 million in each of fiscal 2006 and 2007. The Company has corrected this error by recording additional stock compensation expense of $2.2 million for a total non-cash equity based expense in the first quarter of fiscal 2008.

Provision for income taxes for the three months ended June 30, 2007 was $5.1 million which consisted of:

• a $4.5 million tax benefit related to legal and settlement expenses of $33.0 million (portions of the settlement expense related to the District of Columbia matter are not tax deductible), and

• a $9.6 million tax provision at 41.0% on income from continuing operations before incomes taxes of $23.2 million (loss from continuing operations before income taxes of $9.8 million less legal and settlement expenses of $33.0 million).




Provision for income taxes for the three months ended June 30, 2008 was 35.4% of income from continuing operations before income taxes (38.6% excluding the impact of a provision-to-tax return true-up).



Provision for income taxes for the nine months ended June 30, 2007 was $0.1 million which consisted of:

• a $8.3 million tax benefit related to legal and settlement expenses of $42.1 million (portions of the settlement expense related to the District of Columbia matter are not tax deductible),

• a $0.7 million valuation allowance on certain deferred tax assets related to a foreign subsidiary’s net operating losses, and

• a $7.7 million tax provision at 42.0% on income from continuing operations before incomes taxes of $18.3 million (loss from continuing operations before income taxes of $23.8 million less legal and settlement expenses of $42.1 million).



Provision for income taxes for the nine months ended June 30, 2008 was 38.8% of income from continuing operations before income taxes.



Net income for the three months ended June 30, 2008 was $11.4 million, or $0.61 per diluted share, compared with a net loss of $14.4 million, or $0.65 per diluted share, for the same period in fiscal 2007. The increase in net income of $25.8 million is primarily attributable to the aforementioned reasons listed above that also increased the Company’s income from operations.



Net income for the nine months ended June 30, 2008 was $31.6 million, or $1.62 per diluted share, compared with a net loss of $22.4 million, or $1.03 per diluted share, for the same period in fiscal 2007. The increase in net income of $54.0 million is primarily attributable to the aforementioned reasons listed above that also increased the Company’s income from operations by $72.9 million, partially offset by increased income taxes of $18.5 million.

The Consulting Segment is comprised of financial services (which includes child welfare, cost services, school-based claiming, and federal healthcare reimbursement services), educational services, and technical services.



Revenue increased 2.7% for the three months ended June 30, 2008, compared to the same period in fiscal 2007. Operating margin percentage decreased to 2.4% for the three months ended June 30, 2008 from 8.3% in the same period in fiscal 2007. The decrease in operating margin percentage compared to the same period in fiscal 2007 is primarily attributable to the shift away from contingent-based federal claiming work and incurring additional project costs to develop new market areas, such as Medicaid fraud, waste and abuse.



Revenue decreased 7.3% for the nine months ended June 30, 2008, compared to the same period in fiscal 2007. Operating margin (loss) percentage decreased to( 0.2)% for the nine months ended June 30, 2008 from 7.1% in the same period in fiscal 2007. The decrease in revenue and operating margin percentage compared to the same period in fiscal 2007 is primarily attributable to the timing and billing of work and the financial services division due to (1) a $2.3 million charge related to a legacy federal claiming project which may be recovered pending the outcome of the client’s recovery appeal and (2) the shift away from contingent-based federal claiming work and incurring additional project costs to develop new market areas, such as Medicaid fraud, waste and abuse.

The Systems Segment develops and implements both third party and proprietary software in five divisions: justice solutions, asset solutions, educational systems, and enterprise resource planning (ERP) solutions.



Revenue decreased 5.0% for the three months ended June 30, 2008, compared to the same period in fiscal 2007. The decrease in revenue is primarily due to lower license revenue as compared to the same period in fiscal 2007. Loss from operations for the three months ended June 30, 2008 was $5.6 million, compared to loss from operations of $3.9 million for the same period in fiscal 2007. The increase in loss from operations of $1.7 million is primarily attributable to lower license revenue, software development expense, and contractual commitments in the educational systems and justice solutions divisions, partially offset by strong financial results in the asset solutions and ERP divisions.



Revenue decreased 6.9% for the nine months ended June 30, 2008, compared to the same period in fiscal 2007. Loss from operations for the nine months ended June 30, 2008 was $15.1 million, compared to loss from operations of $6.1 million for the same period in fiscal 2007. The increase in loss from operations of $9.0 million is primarily attributable to lower license revenue, software development expense, and contractual commitments in the educational systems and justice solutions divisions, partially offset by strong financial results in the asset solutions and ERP divisions.

The Operations Segment includes health services, human services, and federal outsourcing and operations work.



Revenue increased 12.6% for the three months ended June 30, 2008, compared to the same period in fiscal 2007. The increase in revenue is primarily driven by organic growth. Income from operations for the three months ended June 30, 2008 was $23.8 million, compared to income from operations of $24.6 million for the same period in fiscal 2007 which included a $3.2 million non-recurring benefit related to the collection of previously reserved accounts receivable on the now-terminated Texas subcontract with Accenture.



Revenue increased 27.8% for the nine months ended June 30, 2008, compared to the same period in fiscal 2007. The increase in revenue is primarily driven by organic growth and also included approximately $6.9 million of revenue principally related to hardware and software for a large health project. Income from operations for the nine months ended June 30, 2008 was $66.3 million, compared to a income from operations of $15.7 million for the same period in fiscal 2007. The increase in income from operations of $50.6 million is driven by improvements related to the optimization of the business portfolio; new awards; and the resolution of certain legacy contracts, including the transformation of the Texas contract to a direct service agreement.

Interest and other income for the three months ended June 30, 2008 was $0.5 million, compared to $1.1 million for the same period in fiscal 2007. The decrease in interest and other income of $0.6 million is primarily attributable to a $1.1 million reduction in interest income due to lower balances of cash, cash equivalents and marketable securities related to the $150.0 million Accelerated Share Repurchase that was completed on November 15, 2007, partially offset by $0.5 million of favorable unrealized, non-cash foreign currency gains and other items.



Interest and other income for the nine months ended June 30, 2008 was $2.1 million, compared to $3.2 million for the same period in fiscal 2007. The decrease in interest and other income of $1.1 million is primarily attributable to (1) a $2.4 million reduction in interest income due to lower balances of cash, cash equivalents and marketable securities related to the $150.0 million Accelerated Share Repurchase and (2) a weakening of the Canadian dollar which resulted in $1.0 million of unrealized, non-cash foreign currency losses on loans to our Canadian subsidiaries for the nine months ended June 30, 2007, compared to $0.1 million of unrealized, non-cash foreign currency gains for the nine months ended June 30, 2008.

On April 30, 2008, the Company sold its Security Solutions division for cash proceeds of $4.6 million, net of transaction cost of $0.4 million, and recognized a pre-tax gain on the sale of $2.9 million during the three months ended June 30, 2008. 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 is structured as a sale of stock to the current management team of the subsidiary. The sale price of $6.5 million consists 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 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. Unison MAXIMUS, Inc. was previously reported as part of the Company’s Consulting Segment.

Cash provided by operating activities for the nine months ended June 30, 2008 was $38.1 million, compared to $59.3 million for the same period in fiscal 2007. Cash provided by operating activities for the nine months ended June 30, 2008 consisted of net income of $31.6 million, cash provided by discontinued operations of $0.5 million, and non-cash items aggregating $21.1 million, less cash used by changes in assets and liabilities of $15.1 million. Non-cash items consisted of depreciation and amortization of $14.1 million, non-cash equity based compensation of $7.3 million, and deferred income taxes of $5.8 million, offset by gain on sale of building of $3.9 million and income from discontinued operations of $2.3 million. Cash used by changes in assets and liabilities reflected increases in accounts receivable-unbilled of $8.8 million, decreases in deferred revenue of $5.7 million and income taxes payable of $7.9 million, offset by decreases in deferred contacts costs of $2.7 million, accounts receivable – billed of $0.5 million, prepaid expenses of $0.2 million, other assets of $0.9 million, and increases in accounts payable of $0.9 million, accrued compensation of $1.1 million, and other liabilities of $1.0 million.



Cash provided by operating activities for the nine months ended June 30, 2007 was $59.3 million and consisted of net loss of $22.4 million, cash provided by discontinued operations of $4.3 million, and non-cash items aggregating $5.4 million, plus cash provided by changes in assets and liabilities of $72.0 million. Non-cash items consisted of depreciation and amortization of $15.5 million, non-cash equity based compensation of $2.2 million, offset by deferred income taxes of $10.3 million, gain on sale of business of $0.5 million and income from discontinued operations of $1.5 million. Cash provided by changes in assets and liabilities reflected decreases in accounts receivable-billed of $29.5 million, accounts receivable-unbilled of $5.5 million, income taxes receivable of $5.4 million, deferred contract costs of $2.8 million, other assets $3.4 million and prepaid expenses of $1.4 million, and an increase in other liabilities of $31.5 million, accrued compensation of $3.6 million, offset by decreases in accounts payable of $2.4 million and deferred revenue of $8.7 million.



Cash provided by investing activities for the nine months ended June 30, 2008 was $123.0 million, compared to $14.9 million of cash used in investing activities for the same period in fiscal 2007. Cash provided by investing activities for the nine months ended June 30, 2008 consisted of net maturities of marketable securities of $126.2 million, proceeds from sale of building of $5.9 million and proceeds from sales of discontinued operations of $4.6 million, offset by purchases of property and equipment of $8.4 million and expenditures for capitalized software costs of $5.5 million. Cash used in investing activities for the nine months ended June 30, 2007 consisted of purchases of marketable securities (net) of $6.4 million, purchases of property and equipment of $7.4 million, expenditures for capitalized software costs of $2.9 million, offset by proceeds from the sale of business of $1.9 million.



Cash used in financing activities for the nine months ended June 30, 2008 was $153.6 million, compared to $7.1 million of cash provided by financing activities for the same period in fiscal 2007. Cash used in financing activities for the nine months ended June 30, 2008 consisted of repurchase of shares under the Accelerated Share Repurchase program plus related fees of $150.4 million, dividends paid of $5.9 million and principal payments on capital leases of $1.2 million, offset by the exercise of employee stock options of $3.4 million and equity-based tax benefits of $0.6 million. Cash provided by financing activities for the nine months ended June 30, 2007 consisted of the exercise of employee stock options of $11.8 million and equity-based tax benefits of $3.1 million, offset by dividends paid of $6.5 million and principal payments on capital leases of $1.3 million.



On July 23, 2007, the Company announced that it had retained UBS Investment Bank as a financial advisor to assist the Board of Directors in exploring strategic alternatives to enhance shareholder value, including a possible sale of the Company. On November 14, 2007, the Company announced that its Board of Directors had completed its process to explore strategic alternatives and had authorized the repurchase of up to $150.0 million of the Company’s outstanding common stock under an Accelerated Share Repurchase (“ASR”) program. After a thorough review process, the Board of Directors concluded that launching a $150.0 million


CONF CALL

Lisa Miles

Good morning and thank you for joining us on today's conference call.

I would like to point out that we have posted a presentation to our website under the Investor Relations page to assist you in following along with today's call.

With me today is Rich Montoni, Chief Executive Officer, and David Walker, Chief Financial Officer. Following Rich's prepared comments, we'll open the call up for Q&A.

Before we begin, I'd like to remind everyone that a number of statements being made today will be forward-looking in nature. Please remember that such statements are only predictions and actual events or results may differ materially as a result of risks we face, including those discussed in Exhibit 99.1 of our SEC filings. We encourage you to review the summary of these risks in our most recent 10K filed with the SEC. The company does not assume any obligation to revise or update these forward-looking statements to reflect subsequent events or circumstances.

And with that, I'll turn the call over to Dave.

David N. Walker

Thank you, Lisa. Good morning and thanks for joining us.

This morning, MAXIMUS reported GAAP results that were in line with our guidance in September as well as consensus estimates. For the fourth quarter, MAXIMUS reported a GAAP loss of $0.09 per share and for the full fiscal year MAXIMUS reported GAAP earnings of $1.55 per diluted share.

The results for the quarter are highlighted by the divestiture of our Asset, Justice and Education Systems businesses. This divestiture further solidifies our presence as the leading government health and human service pure play.

You should direct your attention to the pro forma results from continuing operations. The key here is that pro forma diluted EPS from continuing operations was $0.71 for the fourth quarter and $2.83 for the full year. This is important as a benchmark going into fiscal 2009 and these results are well in line with our prior expectations that we shared with you.

The most significant item is the non-cash goodwill impairment charge to continuing operations of $7.6 million pre-tax or $0.25 per share in the fourth quarter. This charge is the end result of disposing of the Systems segment. Accounting rules require a portion of the former Systems segment excess goodwill to be included as continuing operations. It is simply income statement geography of what we previously estimated our loss on the disposal would be, but GAAP requires it to be reported within continuing operations.

For the fourth quarter, the loss from discontinued operations was $10.2 million or $0.54 per diluted share. This includes an after-tax loss on disposal of $7.4 million and an after-tax operating loss of $2.8 million.

Let's turn our attention to top line results from continuing operations and segment level data.

Revenue from continuing operations for the fourth quarter grew 9% to $189.1 million and for the full fiscal year grew 19% to $745.1 million compared to the same period a year ago. The growth was driven by new and expanding work in the Operations segment. With the divestitures now completed, the Operations segment comprises 84% of total company revenue. This provides additional visibility and predictability into the overall business, with Ops delivering a steady stream of long-term recurring revenue. The Operations segment had a great year, both operationally and financially.

Fourth quarter revenue for the Operations segment increased 14% to $163.5 million and for the full fiscal year revenue increased 24% to $629.2 million. As we've emphasized throughout the year, top line growth from the segment has been fueled by new and expanding work in our work force services and health operations. This includes both domestic and international businesses.

For the Operations segment, fourth quarter operating income totaled $22.2 million, with margins coming in at expected levels of 13.6%. During the fourth quarter, the Operations segment was active with proposals, which amounted to higher bidding costs of approximately $1 million or about $0.03 per share. For the full fiscal year, the Operations segment margins were 13.6% and in line with our overall expectations. Moving into 2009, we expect that operating margins will continue to trend in the higher end of our stated range of 10% to 15% for the Operations segment.

Moving on to the Consulting segment, this segment represented 16% of total company revenue. With the divestiture of the Systems business, we consolidated the ERP division into the Consulting segment. The Consulting segment had revenue of $25.5 million for the fourth quarter and $115.9 million for the full fiscal year. The segment posted an operating loss in the quarter of $2.1 million. The largest contributor was a year end adjustment in the quarter of approximately $2.7 million on a fixed-price contract. We do expect softness in the Consulting segment to continue into fiscal 2009 as we wind down nonperforming businesses and further streamline these operations.

Now let's talk about cost management and margins. With the divestiture of the Systems business, we would expect that SG&A as a percent of revenue will likely trend in the 15% to 17% range generally. The timing of proposals will cause the SG&A percentage to vary on a quarter to quarter basis. Total company operating margins were consistently above our 10% target margin for fiscal 2008.

We are very pleased to meet the commitments we've made to our shareholders in better positioning the business and creating long-term shareholder value. We continue to focus on proactively managing our risk during the contracting process to ensure these results are sustainable.

For the fourth quarter and full fiscal year 2008 we achieved operating margins of 10.5% and 11.6%, respectively. We believe this validates our long-term strategy of focusing on our core health and human services business.

We took decisive action during the quarter to realign and right size our support staff after divesting our non-core business base. As previously discussed, our results included severance costs of approximately $1 million or $0.03 per share, largely related to corporate staff reductions. Our cost structure is well positioned heading into 2009.

Going forward, cost management will continue to be an important tool and we must remain vigilant in ensuring that our costs remain aligned with the business. We will continue to seek ways to reduce costs, drive operational improvements and operate as effectively as possible.

Moving on to balance sheet and cash flow items, we ended the fourth quarter with cash totaling $120.6 million at September 30. MAXIMUS remains committed to an aggressive share repurchase program.

Since our earnings call last quarter, we have repurchased approximately 1 million shares of MAXIMUS common stock for approximately $34.1 million. During the month of September, we used $14.1 million to purchase approximately 386,000 shares of MAXIMUS common stock under our Board authorized program. Following the quarter close on September 30, we also completed a 10(b)(5)(1) buyback plan which allowed us to purchase an additional 648,000 shares for $20 million. At November 4, MAXIMUS still had approximately $62.1 million available under its Board authorized program.

Fourth quarter DSOs of 78 days reflected a large receivable which accounted for approximately 9 days that was paid the first week in October. While there will be fluctuations due to timing, overall we expect DSOs on an ongoing basis to be in the range of 65 to 80 days.

MAXIMUS generated cash from continuing operations totaling $9 million in the fourth quarter and $51.7 million for the full year. Free cash flow, which the company defines as cash from continuing operations less property and equipment and capital software, was $5.2 million for the fourth quarter and $36.3 million for fiscal year 2008.

For fiscal 2009, MAXIMUS expects to generate cash from continuing operations in the range of $60 million to $70 million and free cash flow from continuing operations ranging between $40 million to $60 million. This calculation excludes approximately $11 million we expect to disburse in fiscal 2009 relative to discontinued operations.

As we noted in this morning's press release, we expect fiscal 2009 revenue will be impacted by the volatile currency exchange trends we're seeing as a result of the strengthening dollar. In both Australia and Canada, the translation gains have dropped precipitously compared to the averages in fiscal 2008. Compared to last year's translation rates, we've witnessed an average decline for the months of October and November of 24% in Australia and 10% in Canada. As many of you have probably seen with many other companies you follow, this is not an economic issue. It's purely isolated to the strengthening dollar and the translation rates.

As a result, we've reset our guidance model to reflect more current translation rates and we're revising revenue guidance to a range of $750 million to $775 million for fiscal 2009. From a bottom line perspective, we are reiterating our diluted earnings per share guidance of $3.00 to $3.15 per diluted share for the full fiscal year. This guidance reflects the positive benefit from the approximately 1 million shares repurchased through November 3 that offset the decreased earnings caused by foreign exchange rates.

While we don't provide quarterly guidance, it's important to remind everyone that our fiscal fourth quarter is traditionally our strongest quarter due to seasonality in certain business lines. We do expect our first fiscal quarter to be sequentially lower due to seasonal trends.

Thank you for your time this morning. Now I'll turn the call over to Rich.

Richard A. Montoni

Good morning, everyone. We accomplished a great amount in fiscal 2008 that sets a strong foundation for an encouraging long-term future. I am very pleased with the progress we've made to position MAXIMUS as the leading pure play provider in the administration of government health and human services programs.

With the divestiture of three of our Systems businesses at the end of the fourth quarter, we enter fiscal 2009 as a leaner organization focused on our core health and human services Operations portfolio, complemented by our Consulting services. Going forward, a critical goal is delivering more predictable financial performance. With a narrowed focus on our operations, we hope to achieve more predictability and certainly more simplicity in our reported financial results.

As David discussed, we have lowered our revenue guidance for fiscal 2009 to reflect current exchange rates as a result of the strengthening dollar. As to our EPS guidance, the positive benefit of the share repurchase program has offset the currency declines. As a result, we are reiterating our bottom line guidance of $3.00 to $3.15 per diluted share. We still anticipate total operating margin north of 10%, with operating margin for our Operations segment in the 12% to 15% range. We will also continue with our aggressive share buyback program.

Despite the turmoil in the general economy and beyond the news concerning projected state budget deficits, today we are comfortable reiterating our fiscal 2009 bottom line guidance for the three main reasons as follows:

First, over 87% of projected revenues for fiscal 2009 is in the form of backlog. This is a testament to our strong base of recurring revenue from our long-term contracts

Second, our backlog remains strong at $1.4 billion and our pipeline of new opportunities is at a record level, totaling $1.8 billion, which bodes well for long-term demand.

Third, at this time we're not seeing a substantial slowdown in current demand for our services. While customers at the state level are certainly experiencing fiscal challenges, we've seen only isolated procurement delays and we have not experienced any material impact on our business at this time. In fact, in some cases the procurement delays have been a net positive for MAXIMUS, leading to extended contracts in additional option year periods.

While we are not immune to market slowdowns, our core services are less susceptible to wholesale reductions. This is because we provide administrative support to many federally mandated programs. Overall, demand for our services remains at a consistent level. We believe this trend will largely continue even in a softening economy.

So pulling it all together, we still see our outlook for 2009 as on target. We don't view the currency volatility as an operational issue. Fundamentally speaking, our business is in good shape and the market demand for services remains encouraging. We have more visibility and we have eliminated many overhangs which had resulted from a prior emphasis on growth at the expense of profitability.

At the onset of 2009 I spent time with our operational leadership outlining our objectives as a firm. Meeting our operational and financial objectives should pave the way for increasing and solidifying long-term shareholder value. We have undergone a cultural shift over the past two and a half years to where our formula for success is a combination of targeted growth, focused retention and execution excellence.

We are making infrastructure investments such as the installation of a new ERP system as we shift towards a more collaborative organization with integrated support functions dedicated to meet the needs of our operational teams. We will continue our emphasis on quality and risk management. Our existing initiatives to improve execution include our focus on project management training, contracts and project management, and above all, client and scope management. We will continue to manage by the numbers, strengthen our forecasting tools, and hold our folks accountable.

As David mentioned, we will remain diligent in reining in costs wherever possible. Following the divestitures, we took decisive, fast and substantive action to realign our corporate overhead with our revised scope of operations. As a result, we reduced our corporate staff by 15%.

Fourth quarter severance expense of $1 million is expected to translate into cost savings of approximately $3.5 million on an annualized basis. We will continue to evaluate our business portfolio and we will not hesitate to exit underperforming businesses, as we are presently doing in our RevMax business.

Ultimately, our Consulting business can provide critical services for core Operations clients to improve program operations and overall program performance. We envision the Consulting segment as creating and supporting a pipeline of relationships and opportunities for our core Operations business.

Our core Health and Human Services Operations business continues to deliver financial results that are in line with our expectations and we believe the long-term growth drivers remain encouraging.

I think it's also important to look at MAXIMUS and our core business within the context of the broader political landscape and the opportunities related to a new federal administration. As we noted in the past, Democrats tend to be strong supporters of the types of health and human services programs that we administer. We expect that Obama's administration will follow in this tradition. With a tough fiscal environment, there may be increased demand for partners like MAXIMUS.

We believe there are increasing opportunities with health and human services programs that not only address the pressing health needs of the low to moderate income population but are also linked to Obama's other policy priorities in the areas of early childhood development and sustainable employment.

I also think it's fair to say that we believe the landscape for SCHIP reauthorization in the spring o 2009 is vastly changed compared to last year. While the scope of SCHIP reauthorization is open at this point, we believe states could possibly seek to revive plans to expand programs that were shelved last year.

It's also possible that health care reform or expansions of current health programs could move more quickly under a new administration. Statistics from the Kaiser Family Health Foundation have shown that during the last economic downturn there were spikes in Medicaid caseloads. In fact, Medicaid enrollment increased nationally by 40% from 2000 to 2005, with an annual growth of nearly 10% in 2002.

The administration may take steps to broaden the group of eligibles under Medicaid with the use of Medicaid waivers. Certainly, the new administration has other viable options for dealing with the increasing caseloads, including modifications to the federal medical assistance percentages. These are the percentages used to determine the level of federal matching funds for qualified state health expenditures. So the federal government has the ability to increase the matching funds to cover programs designed to expand Medicaid coverage at the state level.

Any anticipated expansion to these government-run health programs or increases of federal matching funds needs to be tempered with fiscal realities. Overall, we are cautiously optimistic given the importance the Obama campaign placed on health care.

One thing is certain and that is that we expect that states will increasingly turn to managed care as the means to control the delivery of health care costs. As you know, MAXIMUS leads the country in providing Medicaid managed care enrollment broker services to nearly twothirds of the beneficiaries in states using contracted enrollment brokers.

We also expect that there will be a push in the areas of Medicaid and other government-run programs to reduce upfront administrative and enrollment costs by mainstreaming eligibility determination. MAXIMUS is also the leading provider in eligibility support services, which put us in an excellent position to meet any increase in demand in this area as well.

Let's turn our attention to our strong sales awards in fiscal 2008. All sales and pipeline information has been restated to exclude the divested divisions.

At September 30 we had new signed awards of $913 million compared to $519 million reported last year. New contracts pending or awarded but unsigned totaled $107 million. At November 7, 2008, our total pipeline of opportunities was at record levels, with a total pipeline of $1.8 billion compared to $1.3 billion last year. Our pipeline consists of three categories, which include $421 million in proposals pending, $341 million in proposals in preparation, and $1 billion in opportunities we are tracking and expect to come out in the next six months.

Moving on to re-bids and options and wrapping up fiscal 2008, we won or received extensions on 94% of the value of our re-bids. We also existed the year with 100% of option years won or extended. It's certainly been a very solid year for re-bids and options.

Looking into fiscal 2009, we have 14 re-bids worth $425 million. We have 17 option year periods with a total value of $197 million. Our formula for success is focused on client retention and creating lasting long-term client relationships.

I also want to point out that we've maintained a strong capital position that, in this market, serves us well. Clients are seeking partners with strong balance sheets and financial wherewithal during this economic environment. MAXIMUS certainly meets these criteria, with cash of $120.6 million at September 30 and no debt.

MAXIMUS continues to generate strong cash flows and we will continue to deploy capital to shareholders. We plan to continue to pay a quarterly cash dividend and we intend to remain active under our Board authorized share repurchase program.

And finally, it's important to remember that our government customers - whether federal, state, local or international - are facing significant challenges in a very difficult economic environment. At the same time, they have high aspirations to provide an even greater level of health and human services to an increasing number of beneficiaries. MAXIMUS is very well positioned to serve these emerging needs in these key areas. Our sole mission is helping government serve the people, and we will be an important partner to our government clients as they tackle the challenges within their critical health and human services programs.

Today, the challenges clients face and the opportunities for MAXIMUS have never been greater, and MAXIMUS is well positioned and prepared for these opportunities.

And with that, let's open it up for questions. Operator?

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