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 Peopleฎ." 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.

Results of Operations

Consolidated



The following table sets forth, for the fiscal year ends indicated, selected
statements of operations data:



                                                                Year ended September 30,
                                                       2006                 2007               2008
                                                     (dollars in thousands, except per share data)
Revenue                                           $       583,571      $       626,231      $  745,133
Write-off of deferred contract costs              $        17,109      $             -      $        -
Gross profit                                      $        94,561      $       147,724      $  201,744
Selling, general and administrative expense       $       103,373      $       104,632      $  115,649
Selling, general and administrative expense as
a percentage of revenue                                      17.7 %               16.7 %          15.5 %
Legal and settlement expense                      $         9,394      $        44,438      $   38,358
Goodwill impairment                               $             -      $             -      $    7,600
Gain on sale of building                          $             -      $             -      $    3,938
Operating income (loss) from continuing
operations                                        $       (18,206 )    $          (895 )    $   44,075

Operating margin (loss) from continuing
operations percentage                                        (3.1 )%              (0.1 )%          5.9 %

Income (loss) from discontinued operations,
net of income taxes                               $         9,305      $        (1,083 )    $  (21,604 )

Net income (loss)                                 $         2,460      $        (8,255 )    $    6,677

Basic Earnings (loss) per share:
Income (loss) from continuing operations          $         (0.32 )    $         (0.33 )    $     1.48
Income (loss) from discontinued operations        $          0.43      $         (0.05 )    $    (1.13 )
Basic earnings (loss) per share                   $          0.11      $         (0.38 )    $     0.35

Diluted Earnings (loss) per share:
Income (loss) from continuing operations          $         (0.32 )    $         (0.33 )    $     1.47
Income (loss) from discontinued operations        $          0.43      $         (0.05 )    $    (1.12 )
Diluted earnings (loss) per share                 $          0.11      $         (0.38 )    $     0.35

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):

                                                         Year ended September 30,
                                                      2006         2007         2008
 District of Columbia Contract Investigation
 and Related Settlement                            $      500    $  31,980    $     (19 )
 Accenture Arbitration and Related Settlement               -       10,000       38,377
 Computer Equipment Leases Settlement                   8,169         (150 )          -
 Ontario Child Support Project Settlement                   -        2,608            -
 Other                                                    725            -            -
 Total                                             $    9,394    $  44,438    $  38,358

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 above changes are primarily attributable to changes in the after-tax impact of legal and settlement expense and Segment results as discussed in more detail below.

Consulting Segment



                                              Year ended September 30,
                                            2006        2007        2008
                                               (dollars in thousands)
            Revenue                       $ 112,199   $ 118,745   $ 115,907
            Gross profit                     41,140      44,838      38,436
            Operating income                  4,705       7,748       1,425
            Operating margin percentage         4.2 %       6.5 %       1.2 %

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.

Revenue increased 5.8% in fiscal 2007 compared to fiscal 2006. Operating income in fiscal 2007 was $7.7 million, compared to $4.7 million in fiscal 2006. The increase in operating income of $3.0 million is primarily attributable to growth and margin expansion in the ERP division offset by the shift away from contingent-based federal claiming work.

Operations Segment



                                            Year ended September 30,
                                         2006         2007        2008
                                             (dollars in thousands)
Revenue                                $ 471,372    $ 507,486   $ 629,226
Write-off of deferred contract costs      17,109            -           -
Gross profit                              53,421      102,886     163,308
Operating income (loss)                  (14,089 )     35,615      85,693

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.

Interest and Other Income, Net



                                    Year ended September 30,
                                   2006         2007      2008
                                     (dollars in thousands)
Interest and other income, net   $   6,859    $  5,804   $ 2,423
Percentage of revenue                  1.2 %       0.9 %     0.3 %

Interest and other income was $2.4 million in fiscal 2008, compared to $5.8 million in fiscal 2007. The decrease in interest and other income of $3.4 million is primarily attributable to a $4.0 million 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.

Interest and other income was $5.8 million in fiscal 2007, compared to $6.9 million in fiscal 2006. The decrease in interest and other income of $1.1 million is primarily attributable to non-cash foreign currency losses of $0.9 million ($0.2 million of non-cash foreign currency losses in fiscal 2007, compared to $0.7 million of non-cash foreign currency gains in fiscal 2006).

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 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. 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 Consolidated Statements of Operations (in thousands):

                                                         Year Ended September 30,
                                                       2006        2007        2008

 Revenue                                             $ 117,323   $ 112,415   $  85,532

 Income (loss) from operations before income taxes   $  15,380   $  (1,791 ) $ (26,379 )
 Provision (benefit) for income taxes                    6,075        (708 )   (10,410 )
 Income (loss) from discontinued operations          $   9,305   $  (1,083 ) $ (15,969 )

 Loss on disposal before income taxes                $       -   $       -   $  (9,314 )
 Benefit for income taxes                                    -           -      (3,679 )
 Loss on disposal                                    $       -   $       -   $  (5,635 )

 Income (loss) from discontinued operations          $   9,305   $  (1,083 ) $ (21,604 )

Quarterly Results

Set forth in "Note 17. Quarterly Information (unaudited)" to our consolidated financial statements (Item 8 of this Annual Report on Form 10-K) is selected income statement data for the eight quarters ended September 30, 2008. We derived this information from unaudited quarterly financial statements that include, in the opinion of our management, all adjustments necessary for a fair presentation of the information for such periods. You should read this information in conjunction with the audited consolidated financial statements and notes thereto. Results of operations for any fiscal quarter are not necessarily indicative of results for any future period.

Our revenue and operating results are subject to significant variation from quarter to quarter depending on a number of factors, including:

†          the progress of contracts;

†          the revenue earned on contracts;

†          the timing of revenue on license sales;

†          the timing of revenue on performance-based contracts;

†          the commencement and completion of contracts during any particular
quarter;

†          the schedule of government agencies for awarding contracts; and

†          the term of each contract that we have been awarded.

Because a significant portion of our expenses are relatively fixed, successful contract performance and variation in the volume of activity as well as in the number of contracts commenced or completed during any quarter may cause significant variations in operating results from quarter to quarter. Further, we have occasionally experienced a pattern in our results of operations pursuant to which we incur greater operating expenses during the start-up and early stages of significant contracts prior to receiving related revenue. Our quarterly results may fluctuate, causing a material adverse effect on our operating results and financial condition.

Obligations and Commitments



The following table summarizes our contractual obligations at September 30, 2008
that require the Company to make future cash payments (in thousands):



                                                 Payments due by period
                                        Less than                                 More than
Contractual Obligations      Total       1 year       1-3 years     3-5 years      5 years
Capital lease obligations   $    420   $       420   $         -   $         -   $         -
Operating leases              61,618        23,433        24,719        10,046         3,420
Total(1)                    $ 62,038   $    23,853   $    24,719   $    10,046   $     3,420

(2) Due to the uncertainty with respect to the timing of future cash flows associated with the Company's unrecognized income tax benefits at September 30, 2008, we are unable to reasonably estimate settlements with taxing authorities. The above Contractual Obligations table does not reflect unrecognized income tax benefits of approximately $2.0 million, of which approximately $0.1 million is related interest expense for fiscal 2008. See Note 12 of the Consolidated Financial Statements for a further discussion on income taxes.

Liquidity and Capital Resources

                                                               Year ended September 30,
                                                                2007             2008
                                                                (dollars in thousands)
Net cash provided by (used in):
Operating activities                                        $      51,190    $      56,573
Investing activities                                              (24,854 )        148,460
Financing activities                                                4,591         (154,877 )
Net increase (decrease) in cash and cash equivalents        $      30,927    $      50,156

Cash provided by operating activities in fiscal 2008 was $56.6 million, compared to $51.2 million in fiscal 2007. Cash provided by operating activities in fiscal 2008 consisted of net income of $6.7 million, cash provided by discontinued operations of $4.9 million, and non-cash items aggregating $18.2 million, plus cash provided by changes in assets and liabilities of $26.8 million. Non-cash items consisted of loss from discontinued operations of $21.6 million, depreciation and amortization of $12.6 million, goodwill impairment of $7.6 million, deferred interest income on note receivable of $0.1 million and non-cash equity based compensation of $9.1 million, offset by deferred income taxes of $28.9 million and gain on sale of building of $3.9 million. Cash provided by changes in assets and liabilities reflected increases in accounts receivable-billed of $16.0 million, accounts receivable-unbilled of $10.9 million, due from insurance carrier of $12.5 million, prepaid expenses of $1.2 million, other assets of $0.2 million, accounts payable of $3.0 million, accrued compensation and benefits of $2.1 million, deferred revenue of $1.0 million, income taxes payable of $11.2 million and other liabilities of $47.5 million, offset by decreases in deferred contract costs of $2.8 million.

Cash provided by operating activities in fiscal 2007 was $51.2 million, compared to $15.7 million in fiscal 2006. Cash provided by operating activities in fiscal 2007 consisted of net loss of $8.3 million, cash provided by discontinued operations of $24.5 million, and non-cash items aggregating $4.4 million, plus cash provided by changes in assets and liabilities of $30.6 million. Non-cash items consisted of loss from discontinued operations of $1.1 million, depreciation and amortization of $12.3 million and non-cash equity based compensation of $4.0 million, offset by deferred income taxes of $12.5 million and gain on sale of business of $0.5 million. Cash provided by changes in assets and liabilities reflected increases in accounts receivable-billed of $2.0 million, prepaid expenses of $0.2 million, accounts payable of $1.7 million, accrued compensation and benefits of $4.1 million, deferred revenue of $2.2 . . .