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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 001-31254
 THE BISYS GROUP, INC.
  DELAWARE
(State or other jurisdiction of
incorporation or organization)
    
    13-3532663
(I.R.S. Employer Identification No.)
 105 Eisenhower Parkway, Roseland, New Jersey
07068
 973-461-2500
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ
  þ o o
 o þ
 Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date:
 As of June 30, 2006, there were 120,417,396 shares of common stock, par value $0.02 per share, of
the issuer outstanding.




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##### 



THE BISYS GROUP, INC.
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Statements of Income for the three and six months ended December 31, 2005 and 2004
    
    
    3Condensed Consolidated Balance Sheets as of December 31, 2005 and June 30, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the three and six months ended December 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    37PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 6. Exhibits
    
    
    42SIGNATURES
    
    
    43EXHIBIT INDEX
    
    
    44EX-31.1EX-31.2EX-32
  Explanatory Note
    2




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PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 
 THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    
    
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedRevenues
    
    $
    207,275
    
    
    $
    215,474
    
    
    $
    412,949
    
    
    $
    422,874Operating costs and expenses:Service and operating
    
    
    130,990
    
    
    
    142,731
    
    
    
    263,927
    
    
    
    281,123Selling, general and
administrative
    
    
    38,054
    
    
    
    33,814
    
    
    
    75,688
    
    
    
    65,534Depreciation and amortization
    
    
    11,952
    
    
    
    10,960
    
    
    
    23,933
    
    
    
    21,945Restructuring and impairment
charges
    
    
    
    
    
    
    2,128
    
    
    
    
    
    
    
    2,235Litigation costs and regulatory
settlements
    
    
    3,036
    
    
    
    866
    
    
    
    7,478
    
    
    
    1,247Total operating costs and expenses
    
    
    184,032
    
    
    
    190,499
    
    
    
    371,026
    
    
    
    372,084Operating earnings
    
    
    23,243
    
    
    
    24,975
    
    
    
    41,923
    
    
    
    50,790Interest income
    
    
    1,287
    
    
    
    621
    
    
    
    2,785
    
    
    
    1,101Interest expense
    
    
    (4,463
    )
    
    
    (4,554
    )
    
    
    (10,317
    )
    
    
    (9,290
    )Investment gains (losses) and other
    
    
    149
    
    
    
    5,948
    
    
    
    187
    
    
    
    10,244Income from continuing operations
before income taxes
    
    
    20,216
    
    
    
    26,990
    
    
    
    34,578
    
    
    
    52,845Income taxes
    
    
    8,791
    
    
    
    9,102
    
    
    
    13,535
    
    
    
    18,492Income from continuing operations
    
    
    11,425
    
    
    
    17,888
    
    
    
    21,043
    
    
    
    34,353Income from discontinued
operations, net of tax
    
    
    10,832
    
    
    
    7,220
    
    
    
    14,644
    
    
    
    13,774Net income
    
    $
    22,257
    
    
    $
    25,108
    
    
    $
    35,687
    
    
    $
    48,127Basic earnings per share:Continuing operations
    
    $
    0.10
    
    
    $
    0.15
    
    
    $
    0.18
    
    
    $
    0.29Discontinued operations
    
    
    0.09
    
    
    
    0.06
    
    
    
    0.12
    
    
    
    0.11Total basic earnings per share
    
    $
    0.19
    
    
    $
    0.21
    
    
    $
    0.30
    
    
    $
    0.40Diluted earnings per share:Continuing operations
    
    $
    0.10
    
    
    $
    0.15
    
    
    $
    0.18
    
    
    $
    0.29Discontinued operations
    
    
    0.09
    
    
    
    0.06
    
    
    
    0.12
    
    
    
    0.11Total diluted earnings per share
    
    $
    0.19
    
    
    $
    0.21
    
    
    $
    0.30
    
    
    $
    0.40
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THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
 December 31,
    
    
    June 30,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    85,426
    
    
    $
    172,335Restricted cash
    
    
    45,236
    
    
    
    42,314Accounts receivable, net
    
    
    75,563
    
    
    
    74,105Insurance premiums and commissions receivable
    
    
    125,364
    
    
    
    88,548Deferred tax asset
    
    
    19,094
    
    
    
    35,838Other current assets
    
    
    17,956
    
    
    
    15,931Current assets of discontinued operations
    
    
    37,399
    
    
    
    32,653Total current assets
    
    
    406,038
    
    
    
    461,724Property and equipment, net
    
    
    42,819
    
    
    
    43,064Goodwill
    
    
    717,221
    
    
    
    717,469Intangible assets, net
    
    
    152,165
    
    
    
    165,729Other assets
    
    
    17,434
    
    
    
    18,278Noncurrent assets of discontinued operations
    
    
    150,364
    
    
    
    134,196Total assets
    
    $
    1,486,041
    
    
    $
    1,540,460LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    301,688
    
    
    $
    395,443Accounts payable
    
    
    10,565
    
    
    
    18,381Insurance premiums and commissions payable
    
    
    147,492
    
    
    
    113,395Other current liabilities
    
    
    149,604
    
    
    
    168,136Current liabilities of discontinued operations
    
    
    43,291
    
    
    
    53,727Total current liabilities
    
    
    652,640
    
    
    
    749,082Long-term debt
    
    
    3,750
    
    
    
    4,357Deferred tax liability
    
    
    33,808
    
    
    
    41,695Deferred revenues
    
    
    7,635
    
    
    
    8,053Other liabilities
    
    
    7,222
    
    
    
    6,620Noncurrent liabilities of discontinued operations
    
    
    41,327
    
    
    
    40,643Total liabilities
    
    
    746,382
    
    
    
    850,450Stockholders equity:Common stock, $0.02 par value, 320,000,000 shares
authorized, 121,952,714 and 121,232,132 shares
issued
    
    
    2,439
    
    
    
    2,425Additional paid-in capital
    
    
    392,577
    
    
    
    395,900Retained earnings
    
    
    369,111
    
    
    
    335,345Notes receivable from stockholders
    
    
    
    
    
    
    (3,718
    )Employee benefit trust, 461,078 and 409,180 shares
    
    
    (7,258
    )
    
    
    (6,458
    )Deferred compensation
    
    
    7,299
    
    
    
    6,598Unearned compensation  restricted stock
    
    
    
    
    
    
    (7,798
    )Accumulated other comprehensive income
    
    
    221
    
    
    
    136Treasury stock at cost, 1,667,416 and 2,196,760 shares
    
    
    (24,730
    )
    
    
    (32,420
    )Total stockholders equity
    
    
    739,659
    
    
    
    690,010Total liabilities and stockholders equity
    
    $
    1,486,041
    
    
    $
    1,540,460
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THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedDecember 31,20042005
    
    
    As RestatedCASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    35,687
    
    
    $
    48,127Adjustment for income from discontinued operations, net of tax
    
    
    (14,644
    )
    
    
    (13,774
    )Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    23,933
    
    
    
    21,945Deferred income tax provision
    
    
    66
    
    
    
    9,358Share-based compensation
    
    
    3,948
    
    
    
    1,727Investment gains and other
    
    
    (187
    )
    
    
    (10,244
    )Change in assets and liabilities, net of effects from
acquisitions and divestitures
    
    
    (37,227
    )
    
    
    12,926Net cash provided by operating activities from discontinued
operations
    
    
    25,751
    
    
    
    23,435Net cash provided by operating activities
    
    
    37,327
    
    
    
    93,500CASH FLOWS FROM INVESTING ACTIVITIESPayments related to businesses previously acquired
    
    
    (300
    )
    
    
    (319
    )Capital expenditures for property and equipment
    
    
    (6,226
    )
    
    
    (4,669
    )Capitalized software costs
    
    
    (3,769
    )
    
    
    (3,791
    )Proceeds from sale of investments
    
    
    63
    
    
    
    14,794Other
    
    
    (294
    )
    
    
    655Net cash used in investing activities from discontinued operations
    
    
    (23,095
    )
    
    
    (17,899
    )Net cash used in investing activities
    
    
    (33,621
    )
    
    
    (11,229
    )CASH FLOWS FROM FINANCING ACTIVITIESShort-term borrowings, net
    
    
    (93,750
    )
    
    
    (66,000
    )Payment of long-term debt
    
    
    (861
    )
    
    
    (929
    )Exercise of stock options
    
    
    5,822
    
    
    
    3,543Repurchases of common stock
    
    
    (898
    )
    
    
    (15,816
    )Repayment of notes receivable from stockholders
    
    
    3,718
    
    
    
    4,398Changes in bank overdrafts
    
    
    (1,990
    )
    
    
    12,986Net cash used in financing activities from discontinued operations
    
    
    (2,668
    )
    
    
    (2,733
    )Net cash used in financing activities
    
    
    (90,627
    )
    
    
    (64,551
    )Change in cash and cash equivalents
    
    
    (86,921
    )
    
    
    17,720Cash and cash equivalents at beginning of period (includes cash
of discontinued operations of $618 in 2005 and $1,794 in 2004)
    
    
    172,953
    
    
    
    144,120Cash and cash equivalents at end of period (includes cash of
discontinued operations of $606 in 2005 and $4,597 in 2004)
    
    $
    86,032
    
    
    $
    161,840
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THE BISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, amounts in thousands, except per share data)
(Unaudited)
  1.
    
    Basis of Presentation and Summary of Significant Accounting PoliciesThe CompanyThe BISYS Group, Inc. and subsidiaries (the Company) provides outsourcing solutions to the
financial services sector. The Investment Services segment provides administration and
distribution services for mutual funds, hedge funds, private equity funds, retirement plans,
and other investment products. The Insurance Services segment provides independent wholesale
distribution of life insurance and commercial property/casualty insurance, long-term care,
disability, and annuity products.Discontinued OperationsOn September 15, 2005, the Company entered into an agreement to sell its Information
Services segment, which includes Banking Solutions and Document Solutions divisions, to Open
Solutions Inc. for approximately $470 million in cash, subject to final working capital and
other adjustments. The transaction closed on March 3, 2006, and the Company recognized a
gain of approximately $200 million. On March 31, 2005, the Company announced it had approved
a formal plan of disposition for its Education Services business. On April 21, 2005, the
Company completed the sale of its Education Services business to Kaplan Professional, a
division of Kaplan, Inc. (Kaplan). Kaplan acquired all of the outstanding shares of BISYS
Education Services Inc., a subsidiary of The BISYS Group, Inc., for approximately $51
million in cash, payable at closing. The company did not realize a material gain or loss as
a result of this transaction.In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (FAS 144), the financial results of the Companys Information Services segment and
Education Services business are reported as discontinued operations for all periods
presented. Accordingly, the notes to the consolidated financial statements reflect
historical amounts exclusive of discontinued operations.Basis of PresentationThe condensed consolidated financial statements include the accounts of The BISYS Group,
Inc. and its subsidiaries and have been prepared consistent with the accounting policies
reflected in the 2005 Annual Report on Form 10-K filed with the Securities and Exchange
Commission and should be read in conjunction therewith. The condensed consolidated financial
statements include all adjustments (consisting of normal recurring adjustments) which are,
in the opinion of management, necessary to fairly state this information.Fiscal YearThe Companys fiscal year is from July 1 to June 30. Unless otherwise stated, references to
the years 2006 and 2005 relate to the fiscal years ended June 30, 2006 and 2005,
respectively. References to future years also relate to the fiscal year ended June 30.ReclassificationCertain amounts reported in 2005 have been reclassified to conform to the 2006 presentation.
Capitalized software costs, previously included in property and equipment, have been
reclassified to intangible assets. Additionally, depreciation and amortization expense,
previously included with selling, general and administrative expenses, has been combined
with amortization of intangibles and presented as a separate caption on the accompanying
condensed consolidated statements of income for all periods presented.Restricted CashUnremitted insurance premiums are held in a fiduciary capacity and approximated $45.2
million and $42.3 million at December 31, 2005 and June 30, 2005, respectively. The period
for which the Company holds such funds is dependent upon the date the agent or broker remits
the payment of the premium to the Company and the date the Company is required to forward
such payment to the insurer.
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Insurance Premiums and Commissions Receivable and PayableThe Company has separately reflected receivables and payables arising from its
insurance-related businesses on the accompanying condensed consolidated balance sheets. The
captions insurance premiums and commissions receivable and insurance premiums and
commissions payable include insurance premiums and commissions in the Companys commercial
insurance services division and net commissions receivable in the Companys life insurance
brokerage division. In its capacity as a commercial property and casualty wholesale
distributor, the Company collects premiums from other agents and brokers and, after
deducting its commissions, remits the premiums to the respective insurers.Derivative Financial InstrumentsThe Company conducts a portion of its business internationally exposing earnings, cash flows
and financial position to foreign currency risks. The majority of these risks are associated
with transactions denominated in currencies other than the Companys functional currency.
The Companys policy on foreign currency risk is to minimize these risks, supplemented with
foreign currency forward contracts.InvestmentsManagement determines the appropriate classification of investments in equity securities at
the time of purchase. Marketable equity securities available for sale are carried at market
value based upon quoted market prices. Unrealized gains or losses on available for sale
securities are accumulated as an adjustment to stockholders equity, net of related deferred
income taxes. Realized gains or losses are computed based on specific identification of the
securities sold. During the six months ended December 31, 2005, proceeds from securities
sold and the realized gains were not significant. Net realized gains from securities sold
during the three and six months ended December 31, 2004 were $5.9 million and $10.2 million,
respectively.LeasesThe Company leases facilities and equipment used in its operations, some of which are
required to be capitalized in accordance with SFAS No. 13, Accounting for Leases (FAS
13). FAS 13 requires the capitalization of leases meeting certain criteria, with the
related asset being recorded in property, plant and equipment subject to amortization and an
offsetting amount recorded as a liability.Rental payments, including rent escalations, rent holidays, rent concessions and leasehold
improvement incentives in connection with operating leases of real property, are amortized
on a straight-line basis over the lease term.Income TaxesThe asset and liability method is used in accounting for income taxes whereby deferred tax
assets and liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates and laws. A
valuation allowance is provided when the Company determines that it is more likely than not
that a portion of the deferred tax asset balances will not be realized.The provision for income taxes of $8.8 million and $9.1 million for the three months ended
December 31, 2005 and 2004, respectively, represent an effective tax rate of 43.5% in 2005
and 33.7% in 2004. The effective tax rate for the three months ended December 31, 2005 was
impacted by the U.S. tax on the repatriation of earnings under the American Jobs Creation
Act of 2004 (the AJCA). Refer to Note 14  Repatriation of Foreign Earnings. For the
three months ended December 31, 2004, the effective tax rate was lower primarily due to a
more favorable mix of foreign vs. domestic income and the absence of permanent differences
related to FAS 123R, Share-Based Payment.The provision for income taxes of $13.5 million and $18.5 million for the six months ended
December 31, 2005 and 2004, respectively, represent an effective tax rate of 39.1% in 2005
and 35.0% in 2004. The effective tax rate for the six months ended December 31, 2005 was
impacted by the U.S. tax on the repatriation of earnings under the AJCA and permanent
differences associated with certain error corrections in the Life Insurance business. Refer
to the Subsequent Adjustment section in Note 13  Prior Period Restatement. For the six
months ended December 31, 2004, the effective tax rate was lower primarily due to a more
favorable mix of foreign vs. domestic income and the absence of permanent differences
related to FAS 123R, Share-Based Payment.
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New Accounting PronouncementsIn March 2005, the Financial Accounting Standards Board (FASB) issued Interpretation No.
47, Accounting for Conditional Asset Retirement Obligations  an interpretation of FASB
Statement No. 143 (FIN 47). FIN 47 requires an entity to recognize a liability for the
fair value of a conditional asset retirement obligation if the fair value can be reasonably
estimated. FIN 47 states that a conditional asset retirement obligation is a legal
obligation to perform an asset retirement activity in which the timing or method of
settlement are conditional upon a future event that may or may not be within control of the
entity. FIN 47 is effective no later than the end of fiscal years ending after December 15,
2005. Retrospective application for the interim financial information is permitted but not
required. Early adoption of FIN 47 is encouraged. The Company does not expect the adoption
to have a material impact on its financial position or results of operations.In May 2005, the FASB issued SFAS No. 154, Accounting for Changes and Error Corrections 
A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (FAS 154). FAS 154 requires
retrospective application to prior period financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. This statement is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005 (the Companys
fiscal 2007).In June 2005, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue
05-6, Determining the Amortization Period for Leasehold Improvements. EITF 05-6 states
that the amortization period that is to be used for a leasehold improvement that is
purchased after the inception of a lease should be the lesser of the useful life of the
acquired leasehold improvement or a period that reflects renewals that are reasonably
assured upon the purchase of the leasehold improvement. EITF 05-6 is effective for periods
beginning after June 29, 2005. The Company currently follows the guidance set forth in EITF
05-6; therefore, the adoption of EITF 05-6 will not have an impact on its financial position
or results of operations.In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
Instruments  an amendment to FASB Statements No. 133 and 144 (FAS 155). FAS 155
simplifies the accounting for certain hybrid financial instruments containing embedded
derivatives. FAS 155 allows fair value measurement for any hybrid financial instrument that
contains an embedded derivative that otherwise would require bifurcation under FAS 133. In
addition, it amends FAS 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. The Company will adopt the provisions of
FAS 155 beginning in fiscal 2007. The implementation of FAS 155 is not expected to have a
material impact on the Companys consolidated financial statements.In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
  an amendment of FASB Statement No. 140 (FAS 156). This Statement amends FASB Statement
No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, with respect to the accounting for separately recognized servicing assets and
servicing liabilities. This Statement clarifies when servicing rights should be separately
accounted for, requires companies to account for separately recognized servicing rights
initially at fair value, and gives companies the option of subsequently accounting for those
servicing rights at either fair value or under the amortization method. FAS 156 is effective
for fiscal years beginning after September 15, 2006. The implementation of FAS 156 is not
expected to have a material impact on the Companys consolidated financial statements.In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 prescribes a
recognition threshold and measurement attribute for how a company should recognize, measure,
present, and disclose in its financial statements uncertain tax positions that the company
has taken or expects to take on a tax return. FIN 48 will require that the financial
statements reflect expected future tax consequences of such positions presuming the taxing
authorities full knowledge of the position and all relevant facts, but without considering
time values. FIN 48 is effective for annual periods beginning after December 15, 2006 (the
Companys fiscal 2008). The Company has not completed its evaluation of the impact of
adopting FIN 48.2.
    
    Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make certain estimates and assumptions that affect the
reported amounts of assets and
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liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. The
most significant estimates are related to goodwill, acquired intangible assets, income
taxes, legal and regulatory contingencies, and revenue recognition.The Company bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates.3.
    
    Comprehensive IncomeThe components of comprehensive income are as follows:
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    
    
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedNet income
    
    $
    22,257
    
    
    $
    25,108
    
    
    $
    35,687
    
    
    $
    48,127Unrealized gain on investments, net of
tax
    
    
    15
    
    
    
    2
    
    
    
    31
    
    
    
    29Reclassification adjustment for gains
included in net income, net of tax
    
    
    
    
    
    
    (2,742
    )
    
    
    
    
    
    
    (5,817
    )Unrealized gain on foreign currency
exchange contracts
    
    
    61
    
    
    
    
    
    
    
    125
    
    
    
    Foreign currency translation adjustment
    
    
    3
    
    
    
    123
    
    
    
    (71
    )
    
    
    (102
    )Total comprehensive income
    
    $
    22,336
    
    
    $
    22,491
    
    
    $
    35,772
    
    
    $
    42,237
 4.
    
    Per Share DataAmounts utilized in per share computations for the three and six months ended December 31,
2005 and 2004 are as follows:
 Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2004
    
    
    
    
    
    20042005
    
    As Restated
    
    2005
    
    As RestatedWeighted average
common shares
outstanding
    
    
    118,880
    
    
    
    119,698
    
    
    
    118,705
    
    
    
    119,797Assumed conversion
of common shares
issuable under
stock-based
compensation plans
    
    
    358
    
    
    
    871
    
    
    
    914
    
    
    
    911Weighted average
common and common
equivalent shares
outstanding
    
    
    119,238
    
    
    
    120,569
    
    
    
    119,619
    
    
    
    120,708
 The effect of the assumed conversion of the convertible subordinated notes into common stock
would be antidilutive and therefore is excluded from the computation of diluted earnings per
share.
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Certain stock options were not included in the computation of diluted EPS because the
options exercise prices were greater than the average market price of common shares during
the period:
 Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2004
    
    
    
    20042005
    
    As Restated
    
    2005
    
    As RestatedNumber of options excluded
    
    10,200
    
    8,620
    
    8,976
    
    9,257Option price per share
    
    $13.30 to $35.30
    
    $15.24 to $35.30
    
    $14.18 to $35.30
    
    $14.71 to $35.30Average market price of
common shares for the
period
    
    $13.23
    
    $15.24
    
    $14.14
    
    $14.58
 5.
    
    Share-Based CompensationIn December 2004, the FASB issued SFAS 123R, Share-Based Payment that requires companies
to expense the value of employee stock purchase plans, stock option grants and similar
awards at the beginning of their next fiscal year that begins after June 15, 2005 and
requires the use of either the modified prospective or the modified retrospective
application method. The Company adopted FAS 123R on July 1, 2005 under the modified
prospective method; as such, prior periods do not include share-based compensation expense
related to FAS 123R. The modified prospective method requires the application of FAS 123R to
new awards and to awards modified, repurchased or cancelled after the effective date.
Additionally, compensation cost for the portion of outstanding awards for which service has
not been rendered (such as unvested options) that are outstanding as of the date of adoption
are recognized as the remaining services are rendered. The Company recognizes the fair value
of stock-based compensation awards in service and operating expense or selling, general and
administrative expense based upon the department classification of each employee in the
condensed consolidated statements of income on a straight-line basis over the vesting
period.The Companys stock-based compensation primarily consists of the following:Stock Options:The Company generally grants stock options to employees and directors at
exercise prices equal to fair market value of the Companys stock at the dates of grant.
Stock options are typically granted in the first fiscal quarter, generally vest 20% one year
from date of grant and 20% each year thereafter and expire 10 years from the date of the
award. The Company recognizes compensation expense for the fair value of the stock options
on a straight-line basis over the vesting period of each stock option award.Restricted Stock:The Company awards shares of stock to employees that are restricted.
Except for limited exceptions for some non-U.S. employees, the holder of restricted stock
has voting rights and is entitled to receive all distributions including any dividends paid
with respect to the stock during the period of restriction. The Company recognizes stock
compensation expense relating to the issuance of restricted stock based on market price on
the date of award over the period during which the restrictions expire, which is generally
four years from the date of grant, on a straight-line basis.Employee Stock Purchase Plan:The Company offers an employee stock purchase plan that grants
eligible employees the right to purchase a limited number of shares of common stock each
calendar year through payroll deductions at 85% of the lower of either (1) the closing price
of the Companys common stock on the first business day of the plan year (grant date) or (2)
the closing price of the Companys common stock on the last business day of the plan year
(exercise date). Compensation expense is based upon the 15% discount and the fair value of
the look-back feature under the employee stock purchase plan and is recognized ratably over
the plan year, adjusted for withdrawals.During the three and six months ended December 31, 2005, the Company recognized $2.0 million
and $3.9 million of stock-based compensation expense (net of $0.2 million and $0.4 million
of stock-based compensation expense related to discontinued operations, respectively) and
$0.6 million and $1.0 million in related tax benefits, respectively. As of December 31,
2005, the total remaining unrecognized compensation cost related to non-vested stock options
and restricted stock awards, net of forfeitures, was approximately $24.5 million and is
expected to be recognized over an estimated weighted amortization period of 4.1 years.
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The adoption of FAS 123R reduced the Companys results of operations due to the recognition
of share-based compensation expense for stock option and employee stock purchase plan awards
as follows:
 Three Months Ended
    
    Six Months EndedDecember 31, 2005
    
    December 31, 2005Income from continuing
operations before income taxes
    
    $
    (623
    )
    
    $
    (1,572
    )Net income
    
    
    (560
    )
    
    
    (1,427
    )Basic earnings per share:Continuing operations
    
    $
    (0.01
    )
    
    $
    (0.01
    )Net income
    
    
    
    
    
    
    (0.01
    )Diluted earnings per share:Continuing operations
    
    $
    (0.01
    )
    
    $
    (0.01
    )Net income
    
    
    
    
    
    
    (0.01
    )Cash flow from financing activity
    
    $
    233
    
    
    $
    531Cash flow from operations
    
    
    (233
    )
    
    
    (531
    )
 Prior to July 1, 2005, the Company accounted for its stock options, restricted stock and
employee stock purchase plan in accordance with the intrinsic value provisions of APB
Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Under the applicable
provisions of APB 25, compensation expense was recorded for restricted stock awards, and no
expense was recorded for the Companys other stock-based plans.The following table presents the effect on net income and earnings per share had the Company
recognized compensation expense consistent with the fair value provisions of FAS 123,
Accounting for Stock-Based Compensation, prior to the adoption of FAS 123R:
 Three Months Ended
    
    
    Six Months EndedDecember 31, 2004
    
    
    December 31, 2004As Restated
    
    
    As RestatedNet income, as reported
    
    $
    25,108
    
    
    $
    48,127Add: Reported stock
compensation expense, net of
related tax effects
    
    
    706
    
    
    
    1,166Less: Fair value stock
compensation expense, net of
related tax effects
    
    
    (4,813
    )
    
    
    (9,151
    )Pro forma net income
    
    $
    21,001
    
    
    $
    40,142Earnings per share:Basic, as reported
    
    
    0.21
    
    
    
    0.40Basic, pro forma
    
    
    0.18
    
    
    
    0.34Diluted, as reported
    
    
    0.21
    
    
    
    0.40Diluted, pro forma
    
    
    0.17
    
    
    
    0.33
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The fair values of stock options granted during the six months ended December 31, 2005
and 2004 were estimated on the date of grant using the Black-Scholes pricing model with the
following assumptions:
 Six Months EndedDecember 31,20042005
    
    As RestatedExpected life (in years)
    
    
    4.08
    
    
    
    5.0Average risk-free interest rate
    
    
    4.11
    %
    
    
    3.57
    %Expected volatility
    
    
    39.6
    %
    
    
    40.0
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
 In 2006 the Company determined the expected life of the stock options using historical data. The
risk-free interest rate is based on the U.S. treasury spot rates in effect at the time of
the grant. Expected volatility was determined using a weighted average of implied market
volatility combined with historical volatility. The Company determined that a blend of
historical volatility and implied volatility better reflects future market conditions and
better indicates expected volatility than purely historical volatility.The weighted-average estimated fair value of stock options granted during the six months
ended December 31, 2005 and 2004 was $5.69 and $6.08 per share, respectively.The table below presents information related to stock option activity for the three and six
months ended December 31, 2005 and 2004:
 Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2004
    
    
    
    
    
    20042005
    
    As Restated
    
    2005
    
    As RestatedTotal intrinsic
value of stock
options exercised
    
    $
    786
    
    
    $
    687
    
    
    $
    1,724
    
    
    $
    1,463Total fair value of
stock options
vested
    
    
    540
    
    
    
    802
    
    
    
    1,127
    
    
    
    1,496Cash received from
stock option
exercises
    
    
    2,831
    
    
    
    3,415
    
    
    
    5,822
    
    
    
    3,543Gross income tax
benefit from the
exercise of stock
options
    
    $
    233
    
    
    $
    268
    
    
    $
    531
    
    
    $
    570
 A summary of stock option activity for the six months ended December 31, 2005 is as follows:
 Weighted AverageRemainingWeighted Average
    
    
    Contractual Term
    
    
    Aggregate IntrinsicNumber of Shares
    
    
    Exercise Price
    
    
    (years)
    
    
    ValueOutstanding, June 30, 2005
    
    
    12,651
    
    
    $
    19.27Granted
    
    
    417
    
    
    
    14.90Exercised
    
    
    (523
    )
    
    
    10.90Forfeited or expired
    
    
    (730
    )
    
    
    19.91Outstanding, December 31,
2005
    
    
    11,815
    
    
    $
    19.45
    
    
    
    4.57
    
    
    $
    5,253Exercisable, December 31,
2005
    
    
    10,455
    
    
    $
    20.13
    
    
    
    4.13
    
    
    $
    4,810
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A summary of unvested stock activity for the six months ended December 31, 2005 is as
follows:
 Weighted Average FairNumber of Shares
    
    
    ValueUnvested at June 30, 2005
    
    
    1,486
    
    
    $
    5.92Granted
    
    
    417
    
    
    
    6.66Vested
    
    
    (318
    )
    
    
    5.91Forfeited or expired
    
    
    (225
    )
    
    
    5.79Unvested at December 31, 2005
    
    
    1,360
    
    
    $
    6.17
 A summary of restricted stock activity for the six months ended December 31, 2005 is as
follows:
 Weighted AverageWeighted Average
    
    
    Remaining Vesting
    
    
    Aggregate IntrinsicNumber of Shares
    
    
    Fair Value
    
    
    Term (years)
    
    
    ValueUnvested at June 30, 2005
    
    
    691
    
    
    $
    14.94
    
    
    
    2.75
    
    
    $
    10,319Granted
    
    
    785
    
    
    
    14.99
    
    
    
    3.66
    
    
    
    11,761Vested
    
    
    (177
    )
    
    
    15.07
    
    
    
    
    
    
    
    (2,666
    )Forfeited
    
    
    (80
    )
    
    
    14.65
    
    
    
    2.60
    
    
    
    (1,168
    )Unvested at December 31,
2005
    
    
    1,219
    
    
    $
    14.97
    
    
    
    3.74
    
    
    $
    18,246
 At December 31, 2005, options to purchase 9.8 million shares were available for grant under
the Companys Stock Option and Restricted Stock Plan. At December 31, 2005, there were 0.8
million shares available for grant under the employee stock purchase plan.The Company has a policy of utilizing shares held in treasury to satisfy stock option
exercises and does not expect to repurchase any additional shares in the open market during
fiscal 2006.
 6.
    
    Restructuring and Impairment ChargesThe Company did not incur any additional restructuring charges in the six months ended
December 31, 2005. Restructuring charges of $1.2 million during the six months ended
December 31, 2004 were related to the completion of the restructuring of the European mutual
fund services operations and were comprised of severance totaling $0.2 million and lease
termination costs of $1.2 million, offset by reversals and currency translation gains of
$0.2 million ($1.1 million of the total restructuring charges were recorded in the three
months ended December 31, 2004). The following summarizes activity with respect to the
Companys restructuring activities for the six months ended December 31, 2005:
 Restructuring accrual at June 30, 2005
    
    $
    1,240Cash payments and other
    
    
    293Remaining accrual at December 31, 2005:Employee severance
    
    
    Facility closure
    
    
    947Total
    
    $
    947
 The Company recorded asset impairment charges of $1.0 million during the three months ended
December 31, 2004 related to other than temporary declines in the value of memberships in
the New York and Boston stock exchanges.
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##### Table of Contents



7.
    
    Litigation and Regulatory InvestigationsLitigationFollowing the Companys May 17, 2004 announcement regarding the restatement of its financial
results for the years ended June 30, 2003, 2002 and 2001 and for the quarters ended December
31 and September 30, 2003 (the 2004 restatement), seven putative class action and two
derivative lawsuits were filed against the Company and certain of its current and former
officers in the United States District Court for the Southern District of New York. By order
of the Court, all but one of the putative class actions have been consolidated into a single
action, and on October 25, 2004, plaintiffs filed a consolidated amended complaint. The
complaint purports to be brought on behalf of all shareholders who purchased the Companys
securities between October 23, 2000 and May 17, 2004 and generally asserts that the Company,
certain of its officers and its independent registered public accounting firm allegedly
violated the federal securities laws in connection with the purported issuance of false and
misleading information concerning the Companys financial condition. The complaint seeks
damages in an unspecified amount as well as unspecified equitable/injunctive relief. On
December 23, 2004, the Company, the individual defendants and the Companys independent
registered public accounting firm filed separate motions to dismiss the complaint. On
October 28, 2005, the Court dismissed certain claims under the Securities Exchange Act of
1934 as to six of the individual defendants, narrowed certain additional claims against the
Company and the individual defendants, and dismissed all claims as to the Companys
independent registered public accounting firm. The Court denied the motions to dismiss in
all other respects. The Court granted leave for plaintiffs to file on or before November 14,
2005, an amended complaint addressing the scienter of the individual defendants and the
independent registered public accounting firm.The remaining putative class action purports to be brought on behalf of all persons who
acquired BISYS securities from the Company as part of private equity transactions during the
period October 23, 2000 to May 17, 2004. The complaint generally asserts that the Company
and certain of its officers allegedly violated the federal securities laws in connection
with the purported issuance of false and misleading information concerning the Companys
financial condition, and seeks damages in an unspecified amount. On November 29, 2004,
plaintiffs filed an amended complaint. By order of the Court, the amended complaint was
consolidated into the above complaint.The Company intends to defend itself vigorously against these claims but is unable to
determine the ultimate outcome.The derivative complaints purport to be brought on behalf of the Company and generally
assert that certain officers and directors are liable for alleged breaches of fiduciary
duties, abuse of control, gross mismanagement, waste, and unjust enrichment that purportedly
occurred between October 23, 2000 and the present. The derivative complaints seek
disgorgement, constructive trust, and damages in an unspecified amount. The Court has
ordered that the derivative actions be consolidated into a single action. On November 24,
2004, plaintiffs filed a consolidated amended complaint. On January 24, 2005, the Company
and the individual defendants filed separate motions to dismiss the complaint. On October
31, 2005, the Court granted defendants motions, dismissing on the merits plaintiffs claim
under Section 304 of the Sarbanes-Oxley Act of 2002 on the grounds that it does not create a
private right of action upon which plaintiffs may sue. Having so ruled, the Court also
dismissed plaintiffs state law claims on the ground that it lacked subject matter
jurisdiction over them. Plaintiffs have appealed.Our Life Insurance division is involved in litigation with a West Coast-based distributor of
life insurance products, with which we had a former business relationship. The lawsuit,
which is captioned Potomac Group West, Inc., et al, v. The BISYS Group, Inc., et al, was
filed in September 2002 in the Circuit Court for Montgomery County, Maryland. The original
complaint asserted breach of contract and a number of tort claims against BISYS, several
subsidiaries, and several employees. The Court subsequently dismissed all claims against
BISYS, its subsidiaries, and its employees, leaving only a breach of contract claim
against one BISYS subsidiary. Plaintiffs continue to assert that they have not been paid all
monies due for covered insurance policies. We intend to continue to vigorously defend the
claims asserted and have asserted a number of counterclaims. We believe that we have
adequate defenses against claims arising in such litigation and that the outcome of this
matter will not have a material adverse effect upon our financial position, results of
operations or cash flows.Regulatory InvestigationsThe Company notified the SEC in May 2004 that it would restate certain prior period
financial statements, and subsequently, the SEC advised the Company that it was conducting
an investigation into the facts and
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##### Table of Contents



circumstances related to this restatement. On May 17, 2004, the Company announced that it
would restate its financial results for the fiscal years ended June 30, 2003, 2002, and 2001
and for the quarters ended December 31 and September 30, 2003 (the 2004 restatement) in
order to record adjustments for correction of errors resulting from various accounting
matters in the Life Insurance Services division. An amended Annual Report on Form 10-K for
the fiscal year ended June 30, 2003 was filed with the SEC on August 10, 2004 along with
amended Quarterly Reports on Form 10-Q for the quarters ended December 31 and September 30,
2003 to reflect the restated financial results. In July 2005, the Company determined that an
additional restatement of previously issued financial statements was necessary (refer to
Note 13  Prior Period Restatement), and the SECs investigation has been expanded to
include the 2005 restatement. The investigation is ongoing. The Company understands that
representatives of the United States Attorneys Office for the Southern District of New York
have attended interviews that have taken place. The Company has cooperated and intends to
continue to cooperate with the SECs investigation, which has resulted and will likely
continue to result in significant expenses. The Company cannot predict when the SEC will
conclude its investigation or the outcome or impact thereof.
 As previously announced, the Company is also the subject of an SEC investigation related to
marketing and distribution arrangements in its mutual funds services business. The practices
at issue relate to the structure and accounting for arrangements pursuant to which BISYS
Fund Services (BFS), a subsidiary of the Company, agreed with the advisers of certain U.S.
mutual funds to use a portion of the administration fees paid to BFS by the mutual fund to
pay for, among other things, expenses relating to the marketing and distribution of the fund shares, to make payments to certain advisers and to pay for certain other expenses. The
Company has identified 27 fund support arrangements to the SEC, all of which were entered
into prior to December 2003 and have been terminated.BFS has submitted an offer of settlement to the SEC, which has the support of the SEC Staff.
If accepted by the Commission, the proposed settlement would resolve the issues with respect
to all fund support arrangements that the Company has disclosed to the Staff. The offer of
settlement provides for the simultaneous initiation and settlement of an administrative
proceeding through the entry of an administrative order. The order would set forth the SECs
findings that BFS aided and abetted violations of Sections 206(1) and 206(2) of the
Investment Advisers Act, Sections 12(b) and 34(b) of the Investment Company Act and SEC Rule
12(b)-1(d). These rules and regulations prohibit investment advisers from employing any
device, scheme or artifice to defraud and from engaging in any course of business that would
operate as a fraud, prohibit untrue statements or omissions of material facts in certain
documents filed with the SEC, and regulate the circumstances under which open-end mutual
funds may participate in the distribution of the securities that they issue. Without
admitting or denying the SECs findings, BFS would consent to cease and desist from aiding
and abetting or causing any violations of the referenced provisions of the federal
securities laws and related SEC rules. The order would also require disgorgement and payment
of prejudgment interest and a penalty, as well as certain undertakings by BFS. The Staff has
not yet presented the offer of settlement to the Commission for approval and no assurance
can be given that such approval will be granted. The Company is continuing to cooperate with
the SEC in this matter.The Company has recorded an estimated liability of $21.1 million as of December 31, 2005
(originally established during the quarter ended March 31, 2005), representing expected
amounts to be paid as part of a settlement. The $21.1 million expected settlement amount is
comprised of an estimated $9.7 million disgorgement, an estimated fine of $10 million and
prejudgment interest of $1.4 million.The Company recorded the following expenses related to estimated settlement costs and legal
fees in connection with the aforementioned litigation and investigatory matters for the
three and six months ended December 31, 2005 and 2004:
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    
    
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedLitigation costs
    
    $
    2,997
    
    
    $
    866
    
    
    $
    7,275
    
    
    $
    1,247Regulatory settlement
    
    
    39
    
    
    
    
    
    
    
    203
    
    
    
    $
    3,036
    
    
    $
    866
    
    
    $
    7,478
    
    
    $
    1,247
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##### Table of Contents



In February 2006, we reached an agreement regarding coverage with our insurance
carriers that resulted in an insurance recoverable of approximately $9 million for certain
legal expenses incurred by the Company through August 2005 in connection with the
aforementioned litigation and investigatory matters. Amounts recoverable under the agreement
will be recognized as a reduction to legal expenses in the quarter ended March 31, 2006.Legal fees and related costs for litigation arising in the ordinary course of business, and
exclusive of the specific aforementioned litigation and investigatory matters, are included
in the caption, Selling, general and administrative in the accompanying consolidated
statements of income.8.
    
    Goodwill and Intangible AssetsGoodwillThe changes in carrying amount of goodwill by business segment for the six months ended
December 31, 2005 were as follows:
 Investment
    
    
    InsuranceServices
    
    
    Services
    
    
    TotalBalance, June 30, 2005
    
    $
    362,063
    
    
    $
    355,406
    
    
    $
    717,469Additions
    
    
    
    
    
    
    
    
    
    
    Dispositions
    
    
    
    
    
    
    
    
    
    
    Adjustments to previous
acquisitions
    
    
    
    
    
    
    (248
    )
    
    
    (248
    )Balance, December 31, 2005
    
    $
    362,063
    
    
    $
    355,158
    
    
    $
    717,221
 Intangible AssetsAt December 31, 2005, intangible assets were comprised of the following:
 Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net Book ValueCapitalized software
    
    $
    59,328
    
    
    $
    (33,400
    )
    
    $
    25,928Customer related
    
    
    185,028
    
    
    
    (67,240
    )
    
    
    117,788Noncompete agreements
    
    
    20,799
    
    
    
    (13,955
    )
    
    
    6,844Other
    
    
    5,195
    
    
    
    (3,590
    )
    
    
    1,605Total
    
    $
    270,350
    
    
    $
    (118,185
    )
    
    $
    152,165
 At June 30, 2005, intangible assets were comprised of the following:
 Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net Book ValueCapitalized software
    
    $
    55,565
    
    
    $
    (28,697
    )
    
    $
    26,868Customer related
    
    
    185,028
    
    
    
    (56,563
    )
    
    
    128,465Noncompete agreements
    
    
    20,799
    
    
    
    (12,296
    )
    
    
    8,503Other
    
    
    5,195
    
    
    
    (3,302
    )
    
    
    1,893Total
    
    $
    266,587
    
    
    $
    (100,858
    )
    
    $
    165,729
 All of the Companys intangible assets are subject to amortization. Amortization expense for
intangible assets was $8.6 million and $17.3 million for the three and six months ended
December 31, 2005 and $31.9 million for the year ended June 30, 2005. Estimated annual
amortization expense is $34.6 million in 2006, $31.2 million in 2007, $27.7 million in 2008,
$23.6 million in 2009, and $19.6 million in 2010.9.
    
    BorrowingsIn March 2004, the Company entered into a four-year senior unsecured credit facility with a
syndicate of lenders (the 2004 facility). The 2004 facility initially contained a $300
million revolving line of credit facility and a $100 million term loan that was created to
support working capital requirements, repurchases of the Companys common stock, and the
funding of acquisitions. In September 2005, the revolving facility was
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##### Table of Contents



reduced to $150 million and a portion of the $100 million term loan was prepaid pursuant to
an agreement with the lenders. The balance of the term loan was repaid in full in December
2005.
 Outstanding borrowings under the 2004 facility bore interest at prime or, at the Companys
option, LIBOR plus a margin. The credit agreement required the Company to pay an annual
facility fee of 0.30% on the total revolving credit commitment. The facility was guaranteed
by certain subsidiaries of The BISYS Group, Inc. The Company could borrow under the
revolving credit facility through March 2008 up to $300 million, reduced by any outstanding
letters of credit ($4.5 million at December 31, 2005). The $100 million term loan had
quarterly principal payments commencing on June 30, 2005 with a final maturity of March 31,
2008. Interest was payable quarterly for prime rate borrowings or at maturity for LIBOR
borrowings, which range from 30 to 180 days.The credit agreement required the Company to maintain certain
financial covenants and limited
the Companys ability to incur future indebtedness and to pay dividends. As of December 31,
2005, no amounts were permitted for the payment of cash dividends. In May 2005, a default
occurred under the 2004 facility due to the Companys failure to timely file its Quarterly
Report on Form 10-Q for the quarter ended March 31, 2005 and its failure to deliver the
related compliance certificate for such fiscal quarter. On June 14, 2005, the Company
obtained a consent and waiver from the lenders under the 2004 facility, which extended the
cure period arising from these defaults to August 1, 2005. As a condition of the waiver,
additional borrowings under the revolving line of credit were not permitted until the
default was cured. After obtaining additional consents and waivers from the lenders
subsequent to June 30, 2005, the 2004 facility was eventually terminated by the Company in
January 2006 and replaced with a new interim credit facility (see Establishment of New
Credit Facility below).In March 2001, the Company issued $300 million of convertible subordinated notes (the
Notes) due March 15, 2006. The Notes bore interest at 4% and required semi- annual
interest payments. The Notes were convertible at any time at the option of the holder into
shares of the Companys common stock at a conversion price of $33.39 per share, subject to
adjustment under certain conditions. In March 2006, the Company used the net proceeds from
the sale of the Information Services segment for the repayment of the Notes (see Note 12 
Discontinued Operations).Debt outstanding at December 31, 2005 and June 30, 2005 is as follows:
 December 31,
    
    
    June 30,2005
    
    
    2005Senior credit facility, term loan, at
a rate of 4.375%
    
    $
    
    
    
    $
    93,750Convertible subordinated 4% notes
    
    
    300,000
    
    
    
    300,000Capital lease obligations
    
    
    5,438
    
    
    
    6,050305,438
    
    
    
    399,800Less amounts due within one year
    
    
    301,688
    
    
    
    395,443Long-term debt
    
    $
    3,750
    
    
    $
    4,357
 Establishment of New Credit FacilityIn January 2006, the Company entered into a Credit Agreement with a syndicate of lenders,
providing for (i) an interim revolving credit facility in an aggregate amount of up to $100
million (the Revolver) and (ii) an interim term loan in an aggregate amount of up to $300
million (the Term Loan; together with the Revolver, the Interim Facility). The maturity
date of the Interim Facility is January 2, 2007. The proceeds of the Revolver may be used
for working capital and other corporate purposes. The Term Loan commitment was subsequently
cancelled since the proceeds were no longer required to repay the $300 million of Notes.The Interim Facility bears interest at (i) a base rate equal to the higher of the banks
prime lending rate or the applicable federal funds rate plus 0.5%, or (ii) at an applicable
margin above the Eurodollar rate. The amount of the applicable margin is 1.25%, and the
commitment fee on the unborrowed funds available under the Revolver is 0.25%.
 17




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##### Table of Contents



The loans under the Interim Facility are guaranteed by certain of the Companys significant
subsidiaries. As of the date of this filing there were no balances outstanding on the
Revolver and the Term Loan commitment has been terminated. The Credit Agreement contains
various representations, warranties and covenants generally consistent with the 2004 credit
facility. Financial covenants require the Company to meet certain financial tests on an
on-going basis, including minimum net worth, minimum fixed charge coverage ratio, and total
leverage ratio, based upon its consolidated financial results. On July 21, 2006 the Company
received a waiver from its lender under the Interim Facility, which waived the Companys
default resulting from its failure to deliver financial statements for the quarters ended
December 31, 2005 and March 31, 2006 in a timely manner and failure to deliver the related
compliance certificates for such periods. The Company has delivered the required financial
statements and compliance certificate for the quarter ended December 31, 2005 to its lender
and is now required to deliver its financial statements and compliance certificate for the
quarter ended March 31, 2006 on or before September 5, 2006.In connection with the execution of the Interim Facility, on January 4, 2006, the Company
terminated its 2004 credit facility. Pursuant to the 2004 credit facility, the March 31,
2008 maturity date had been set to accelerate to January 31, 2006 in the event that the
convertible notes were not repaid by such date. The term loan portion of the 2004 credit
facility was repaid in full in December 2005, and no borrowings were outstanding under such
facility at the time of termination. The Company did not incur any prepayment penalties in
connection with the termination of the facility.10.
    
    Derivative Financial InstrumentsThe Company has entered into foreign currency forward contracts to manage risks associated
with fluctuations in foreign currency exchange rates related to specifically identified
operating expenses. At December 31, 2005, the outstanding contracts total $1.8 million in
notional value and require the Company to purchase currencies at specified rates over the
next five months. The instruments are accounted for as foreign currency cash flow hedges of
specifically identified euro-denominated operating expenses. Changes in the fair value of
these instruments are carried in other comprehensive income and are reclassified to service
and operating expenses when the underlying hedged operating expenses are recognized.11.
    
    Segment InformationThe Company provides business outsourcing solutions to financial institutions and other
financial organizations. The Companys continuing operations have been classified into two
business segments: Investment Services and Insurance Services.The Companys reportable segments are separately managed strategic business units that offer
different products and services, and are based on the Companys method of internal
reporting. The businesses that comprise the Investment Services segment are Fund Services,
Retirement Services and Alternative Investment Services. The Investment Services segment
provides business process outsourcing services, including administration and distribution,
to domestic and offshore mutual fund complexes, hedge funds and private equity funds and
retirement plan services to small to mid-size 401(k) plans. The Insurance Services segment,
comprised of the Life Insurance Services and Commercial Insurance Services businesses,
provides distribution solutions for commercial property and casualty, annuities, life,
long-term care, and disability and special risk insurance products.Summarized financial information by business segment and for corporate operations for the
three and six months ended December 31, 2005 and 2004 is presented below. Measures used to
assess segment performance include revenues and operating earnings, exclusive of
restructuring and impairment charges and litigation costs and regulatory settlements. Segment operating earnings exclude restructuring and impairment charges
and litigation costs and regulatory settlements for specific matters described in Note 7 since
they are not allocated to the segments for internal evaluation purposes. While these items
are identifiable to the business segments, they are not included in the measurement of
segment operating earnings provided to the chief operating decision maker for purposes of
assessing segment performance and decision making with respect to resource allocation. Legal
expenses for other litigation matters arising in the normal course of business are included
with operating earnings of the reportable segments and corporate.
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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    
    
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedRevenues:Investment Services
    
    $
    142,804
    
    
    $
    151,340
    
    
    $
    292,081
    
    
    $
    301,900Insurance Services
    
    
    64,471
    
    
    
    64,134
    
    
    
    120,868
    
    
    
    120,974Total consolidated revenues
    
    $
    207,275
    
    
    $
    215,474
    
    
    $
    412,949
    
    
    $
    422,874Operating earnings for
reportable segments:Investment Services
    
    $
    14,687
    
    
    $
    18,544
    
    
    $
    34,134
    
    
    $
    38,640Insurance Services
    
    
    19,909
    
    
    
    17,004
    
    
    
    32,753
    
    
    
    30,146Total
    
    $
    34,596
    
    
    $
    35,548
    
    
    $
    66,887
    
    
    $
    68,786Less:Corporate expenses
    
    
    8,317
    
    
    
    7,579
    
    
    
    17,486
    
    
    
    14,514Restructuring and impairment
charges (reversals):Investment Services
    
    $
    
    
    
    $
    2,128
    
    
    $
    
    
    
    
    2,240Insurance Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Total restructuring and
impairment charges
    
    $
    
    
    
    $
    2,128
    
    
    $
    
    
    
    $
    2,235Litigation costs and
regulatory settlements
(reversals):Investment Services
    
    $
    39
    
    
    $
    
    
    
    $
    203
    
    
    $
    Insurance Services
    
    
    401
    
    
    
    (478
    )
    
    
    1,131
    
    
    
    (97
    )Corporate
    
    
    2,596
    
    
    
    1,344
    
    
    
    6,144
    
    
    
    1,344Total litigation costs and
regulatory settlements
    
    $
    3,036
    
    
    $
    866
    
    
    $
    7,478
    
    
    $
    1,247Total consolidated
operating earnings
    
    $
    23,243
    
    
    $
    24,975
    
    
    $
    41,923
    
    
    $
    50,790
 12.
    
    Discontinued OperationsOn September 15, 2005, the Company entered into an agreement to sell its Information
Services segment, which includes Banking Solutions and Document Solutions divisions, to Open
Solutions Inc. (OSI) for approximately $470 million in cash, subject to final working
capital and other adjustments. The transaction closed on March 3, 2006, and the Company
recognized a gain of approximately $200 million. On April 21, 2005, the Company completed
the sale of its Education Services business to Kaplan Professional, a division of Kaplan,
Inc. (Kaplan). Kaplan acquired all of the outstanding shares of BISYS Education Services
Inc., a subsidiary of The BISYS Group, Inc., for approximately $51 million in cash, payable
at closing. The Company did not realize a material gain or loss as a result of this
transaction.The assets and liabilities, results of operations and cash flows of the Information Services
segment and the Education Services business have been accounted for as discontinued
operations for all periods presented in the accompanying condensed consolidated financial
statements.
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##### Table of Contents



Financial information for discontinued operations is summarized below:
 Three months ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    
    
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedRevenues
    
    $
    52,319
    
    
    $
    64,797
    
    
    $
    103,155
    
    
    $
    127,004Income before income taxes
    
    
    18,197
    
    
    
    11,994
    
    
    
    28,454
    
    
    
    22,858Applicable income taxes
    
    
    7,365
    
    
    
    4,774
    
    
    
    13,810
    
    
    
    9,084Income from discontinued
operations, net of tax
    
    $
    10,832
    
    
    $
    7,220
    
    
    $
    14,644
    
    
    $
    13,774
 Major classes of assets and liabilities of the Information Services segment accounted for as
discontinued operations in the accompanying condensed consolidated balance sheet at December
31, 2005 and June 30, 2005 were as follows:
 December 31,
    
    
    June 30,2005
    
    
    2005Accounts receivable
    
    $
    29,469
    
    
    $
    28,573Other current assets
    
    
    7,930
    
    
    
    4,080Total current assets
    
    
    37,399
    
    
    
    32,653Property and equipment
    
    
    16,436
    
    
    
    12,929Goodwill
    
    
    34,946
    
    
    
    34,946Intangible assets
    
    
    94,555
    
    
    
    81,334Other assets
    
    
    4,427
    
    
    
    4,987Total assets of discontinued operations
    
    $
    187,763
    
    
    $
    166,849Current maturities of long-term debt
    
    $
    5,282
    
    
    $
    4,461Other current liabilities
    
    
    38,009
    
    
    
    49,266Total current liabilities
    
    
    43,291
    
    
    
    53,727Long-term debt
    
    
    6,206
    
    
    
    5,992Deferred revenue
    
    
    35,121
    
    
    
    34,651Total liabilities of discontinued operations
    
    $
    84,618
    
    
    $
    94,370
 13.
    
    Prior Period RestatementPrior to the issuance of the March 31, 2005 interim financial statements, the Company
determined that it was necessary to restate previously issued financial statements to record
adjustments for correction of errors resulting from various accounting matters described
below. The restatement arose from an internal investigation initiated by the Audit Committee
of the Companys Board of Directors in April 2005 to gain a full understanding of the facts
and circumstances surrounding certain arrangements between the Company and advisers of
certain U.S. mutual funds. As the investigation evolved, the Audit Committee, with the
assistance of independent counsel and forensic accountants, broadened the focus of its
review to include accounting transactions across all lines of business as well as the facts
giving rise to the restatement described herein and the Companys accounting policies and
procedures related thereto. The investigation included an extensive review of the Companys
accounting policies, accounting records, supporting documentation and e-mail communications,
as well as interviews with numerous current and former employees. As a result of this
investigation, various matters were identified that required the restatement of prior period
financial statements. Certain of the restatement adjustments related to entries which the
Company believed were prepared in accordance with Generally Accepted Accounting Principles
(GAAP), but which were subsequently determined to be errors. In addition, as a result of the
investigation and the restatement of the Companys consolidated financial statements,
control deficiencies in the Companys internal control over financial reporting were
identified. The investigation indicated that certain individuals who were part of the
Companys former management failed to set an effective tone to communicate appropriate
ethical standards and financial reporting integrity, which contributed to ineffective
controls that failed to detect certain accounting errors and failed to prevent the improper
override of controls in certain other instances, which allowed inappropriate accounting
under their supervision. While the investigation concluded that current management has
established
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##### Table of Contents



an effective culture and tone necessary to support its control environment, this deficiency
was a significant contributing factor to the restatement.The Company has restated its financial results for the fiscal years ended June 30, 2004 and
2003 and the first two quarters in fiscal 2005. The adjustments generally fall into the
following six categories: adjustments in connection with (1) revenue recognition issues,
including recognition of revenue and deferred revenue from newly acquired customer
contracts, service bureau hosting arrangements, software sales and the presentation of gross
versus net revenue recognition for certain fund services activities; (2) accounting for
business combinations and divestitures, including capitalization of certain acquisition
costs, charges to merger and divestiture related accruals, recognition of certain merger
related cash flows as revenue, recognition of divestiture related gains and operating
expenses, and amortization costs for acquired intangible assets; (3) accounting for vendor
rebates and other non-routine transactions, including expenses incurred in connection with
legal and contractual settlements and with certain fund services marketing arrangements; (4)
accounting for leases, including the recognition of escalating lease payments, the
recognition of lease incentives, and the capitalization of equipment lease obligations; (5)
accounting for insurance commissions payable; and (6) other miscellaneous errors.
Additionally, adjustments were also recorded for the tax effects of the restatement
adjustments and miscellaneous tax related errors. The net impact of the restatement on net
income for each of the relevant periods is set forth below:
 Six monthsendedDecember 31,
    
    
    Years Ended June 30,2004
    
    
    2004
    
    
    2003
    
    
    Pre-2003
    
    
    TotalNet income, as previously reported
    
    $
    43,606
    
    
    $
    63,580
    
    
    $
    98,243Pretax restatement adjustments:Revenue recognition issues
    
    
    2,435
    
    
    
    7,753
    
    
    
    (18,918
    )
    
    $
    (46,430
    )
    
    $
    (55,160
    )Business combinations and divestitures
    
    
    (836
    )
    
    
    (5,765
    )
    
    
    (6,636
    )
    
    
    (22,562
    )
    
    
    (35,799
    )Vendor rebates and other non-routine
transactions
    
    
    3,035
    
    
    
    4,728
    
    
    
    (4,299
    )
    
    
    (8,842
    )
    
    
    (5,378
    )Leases
    
    
    (408
    )
    
    
    (1,872
    )
    
    
    (1,019
    )
    
    
    (4,977
    )
    
    
    (8,276
    )Insurance commissions payable
    
    
    1,957
    
    
    
    (2,541
    )
    
    
    (489
    )
    
    
    (455
    )
    
    
    (1,528
    )Other miscellaneous
    
    
    847
    
    
    
    3,453
    
    
    
    (1,285
    )
    
    
    (5,593
    )
    
    
    (2,578
    )Total pretax restatement adjustments
    
    
    7,030
    
    
    
    5,756
    
    
    
    (32,646
    )
    
    
    (88,859
    )
    
    
    (108,719
    )Tax effect of restatement adjustments
    
    
    2,509
    
    
    
    2,361
    
    
    
    (11,687
    )
    
    
    (31,822
    )
    
    
    (38,639
    )Restatement adjustments for tax matters
    
    
    
    
    
    
    (3,156
    )
    
    
    
    
    
    
    
    
    
    
    (3,156
    )Effect of net restatement adjustments
    
    
    4,521
    
    
    
    6,551
    
    
    
    (20,959
    )
    
    $
    (57,037
    )
    
    $
    (66,924
    )Net income, as restated
    
    $
    48,127
    
    
    $
    70,131
    
    
    $
    77,284
 Based upon its investigation and analysis, the Company identified accounting adjustments
resulting in a reduction of approximately $66.9 million in stockholders equity at December
31, 2004, representing, at the time, the date of our last previously reported financial
statement. A more detailed description of these adjustments is set forth in Note 3 to our
consolidated financial statements included in the Companys 2005 Annual Report on Form
10-K.The net impact of the restatement on net income was an increase of $3.2 million for the
three months ended December 31, 2004 and an increase of $4.5 million for the six months
ended December 31, 2004.
 21




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##### Table of Contents



The following table sets forth the effects of the restatement adjustments as discussed above
on the Condensed Consolidated Statement of Income for the three months ended December 31,
2004.
 Three Months EndedDecember 31, 2004As Restated withAs Previously
    
    
    
    
    
    
    DiscontinuedReported
    
    
    As Restated
    
    
    Operations*Revenues
    
    $
    276,338
    
    
    $
    280,271
    
    
    $
    215,474Operating costs and expenses:Service and operating
    
    
    177,793
    
    
    
    173,370
    
    
    
    142,731Selling, general and administrative
    
    
    46,483
    
    
    
    45,368
    
    
    
    33,814Depreciation and amortization
    
    
    15,964
    
    
    
    21,480
    
    
    
    10,960Restructuring and impairment charges
    
    
    2,828
    
    
    
    2,115
    
    
    
    2,128Litigation and regulatory settlements
    
    
    (478
    )
    
    
    866
    
    
    
    866Total operating costs and expenses
    
    
    242,590
    
    
    
    243,199
    
    
    
    190,499Operating earnings
    
    
    33,748
    
    
    
    37,072
    
    
    
    24,975Interest income
    
    
    626
    
    
    
    626
    
    
    
    621Interest expense
    
    
    (4,526
    )
    
    
    (4,662
    )
    
    
    (4,554
    )Investment gains and other
    
    
    4,331
    
    
    
    5,948
    
    
    
    5,948Income from continuing operations before
income taxes
    
    
    34,179
    
    
    
    38,984
    
    
    
    26,990Income taxes
    
    
    12,304
    
    
    
    13,876
    
    
    
    9,102Income from continuing operations
    
    
    21,875
    
    
    
    25,108
    
    
    
    17,888Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    7,220Net income
    
    $
    21,875
    
    
    $
    25,108
    
    
    $
    25,108Basic earnings per share:Continuing operations
    
    $
    0.18
    
    
    $
    0.21
    
    
    $
    0.15Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.06Total basic earnings per share
    
    $
    0.18
    
    
    $
    0.21
    
    
    $
    0.21Diluted earnings per share:Continuing operations
    
    $
    0.18
    
    
    $
    0.21
    
    
    $
    0.15Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.06Total diluted earnings per share
    
    $
    0.18
    
    
    $
    0.21
    
    
    $
    0.21
 
 *
    
    Refer to Note 12 for a full description of Discontinued Operations 22




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##### Table of Contents



The following table sets forth the effects of the restatement adjustments as discussed
above on the Condensed Consolidated Statement of Income for the six months ended December
31, 2004.
 Six Months EndedDecember 31, 2004As Restated withAs Previously
    
    
    
    
    
    
    DiscontinuedReported
    
    
    As Restated
    
    
    Operations*Revenues
    
    $
    544,467
    
    
    $
    549,878
    
    
    $
    422,874Operating costs and expenses:Service and operating
    
    
    352,132
    
    
    
    341,730
    
    
    
    281,123Selling, general and administrative
    
    
    89,097
    
    
    
    88,499
    
    
    
    65,534Depreciation and amortization
    
    
    31,980
    
    
    
    42,339
    
    
    
    21,945Restructuring and impairment charges
    
    
    2,935
    
    
    
    2,209
    
    
    
    2,235Litigation and regulatory settlements
    
    
    (97
    )
    
    
    1,247
    
    
    
    1,247Total operating costs and expenses
    
    
    476,047
    
    
    
    476,024
    
    
    
    372,084Operating earnings
    
    
    68,420
    
    
    
    73,854
    
    
    
    50,790Interest income
    
    
    1,106
    
    
    
    1,106
    
    
    
    1,101Interest expense
    
    
    (9,377
    )
    
    
    (9,501
    )
    
    
    (9,290
    )Investment gains and other
    
    
    8,524
    
    
    
    10,244
    
    
    
    10,244Income from continuing operations before
income taxes
    
    
    68,673
    
    
    
    75,703
    
    
    
    52,845Income taxes
    
    
    25,067
    
    
    
    27,576
    
    
    
    18,492Income from continuing operations
    
    
    43,606
    
    
    
    48,127
    
    
    
    34,353Income from discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    13,774Net income
    
    $
    43,606
    
    
    $
    48,127
    
    
    $
    48,127Basic earnings per share:Continuing operations
    
    $
    0.36
    
    
    $
    0.40
    
    
    $
    0.29Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.11Total basic earnings per share
    
    $
    0.36
    
    
    $
    0.40
    
    
    $
    0.40Diluted earnings per share:Continuing operations
    
    $
    0.36
    
    
    $
    0.40
    
    
    $
    0.29Discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.11Total diluted earnings per share
    
    $
    0.36
    
    
    $
    0.40
    
    
    $
    0.40
 
 *
    
    Refer to Note 12 for a full description of Discontinued Operations Subsequent Adjustment
 As discussed in its Form 8-K filed on June 13, 2006, the Company, in connection with its
review of its restated financial statements with the Securities and Exchange Commission,
discovered additional accounting errors in its restated financial statements previously
filed in its annual report on Form 10-K for the fiscal year ended June 30, 2005. The errors
were associated with the Companys accounting for certain acquisitions in its Life Insurance
business during 2001 through 2003. The Company assessed the materiality of these errors in
relation to the prior annual periods and the cumulative impact of the errors to the quarter
ended September 30, 2005, the six months ended December 31, 2005, and to its expected full
year results for 2006 and concluded that the errors were not material to the results of
operations or financial condition of the Company in any period. The Company recorded the
cumulative impact of the correction of these errors as an adjustment in the quarter ended
September 30, 2005. The adjustment reduced operating earnings by $1.1 million and reduced
net income (and goodwill) after tax by $0.2 million.
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##### Table of Contents



14. Repatriation of Foreign Earnings
 The Company evaluated the provisions of the American Jobs Creation Act of 2004 (the AJCA),
which includes a temporary incentive for U.S. multinationals to repatriate foreign earnings
at a substantially reduced effective tax rate. The Company completed its evaluation and
repatriated $22.7 million in November 2005 and $11.0 million in June 2006 from certain of
its foreign subsidiaries under the AJCA. The Company recorded tax charges of $1.3 million in
November 2005 and $0.6 million in June 2006 for this repatriation.
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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Business Overview
 We provide outsourcing solutions that enable investment firms, insurance companies, and
banks to more efficiently serve their customers, grow their businesses, and respond to
evolving regulatory requirements. We currently support over 1,000 clients in the financial
services industry through two business segments: Investment Services and Insurance Services.Our segments are separately managed strategic business units that offer different products
and services. The Investment Services segment provides outsourcing services, including
administration and distribution, to domestic and offshore mutual fund complexes, hedge funds
and private equity funds and retirement plan services to small to mid-size retirement plans.
The Insurance Services segment provides distribution solutions for commercial property and
casualty, annuities, life, long-term care, disability and special risk insurance products.Our objectives are to increase our client base and to expand the services we offer to our
clients. We seek to be the premier, full-service outsourcing business partner focused on
enhancing our clients growth, profits and performance. We seek to build value for our
shareholders by increasing both revenues and earnings per share, through a combination of
organic growth from existing clients, cross sales to existing clients, sales to new clients
and strategic acquisitions.
 Results of Operations
 On September 15, 2005, the Company entered into an agreement to sell its Information
Services segment, which includes the Banking Solutions and Document Solutions divisions, to
Open Solutions Inc. for approximately $470 million in cash, subject to final working capital
and other adjustments. The transaction closed on March 3, 2006, and the Company recognized a
gain of approximately $200 million. On April 21, 2005, we completed the sale of our
Education Services business to Kaplan Professional, a division of Kaplan, Inc. (Kaplan).
Kaplan acquired all of the outstanding shares of BISYS Education Services Inc., a subsidiary
of The BISYS Group, Inc., for approximately $51 million in cash, payable at closing. The
company did not realize a material gain or loss as a result of this transaction. In
accordance with FAS No. 144 (FAS 144), Accounting for the Impairment or Disposal of
Long-Lived Assets, the financial results of our Information Services segment and Education
Services business are reported as discontinued operations for all periods presented.
Accordingly, historical amounts are reflected exclusive of discontinued operations.
 25




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##### Table of Contents



The following table presents the percentage of revenues represented by each item in our
condensed consolidated statements of income for the periods indicated:
 Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2004
    
    
    
    
    
    20042005
    
    As Restated
    
    2005
    
    As RestatedRevenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Operating costs and expenses:Service and operating
    
    
    63.2
    
    
    
    66.2
    
    
    
    63.9
    
    
    
    66.5Selling, general and administrative
    
    
    18.3
    
    
    
    15.7
    
    
    
    18.3
    
    
    
    15.5Depreciation and amortization
    
    
    5.8
    
    
    
    5.1
    
    
    
    5.8
    
    
    
    5.2Restructuring and impairment charges
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    0.5Litigation costs and regulatory settlements
    
    
    1.5
    
    
    
    0.4
    
    
    
    1.8
    
    
    
    0.3Total operating costs and expenses
    
    
    88.8
    
    
    
    88.4
    
    
    
    89.8
    
    
    
    88.0Operating earnings
    
    
    11.2
    
    
    
    11.6
    
    
    
    10.2
    
    
    
    12.0Interest income
    
    
    0.6
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    0.3Interest expense
    
    
    (2.2
    )
    
    
    (2.1
    )
    
    
    (2.5
    )
    
    
    (2.2
    )Investment gains and other
    
    
    0.1
    
    
    
    2.7
    
    
    
    0.1
    
    
    
    2.4Income from continuing operations before
income taxes
    
    
    9.7
    
    
    
    12.5
    
    
    
    8.4
    
    
    
    12.5Income taxes
    
    
    4.2
    
    
    
    4.2
    
    
    
    3.3
    
    
    
    4.4Income from continuing operations
    
    
    5.5
    
    
    
    8.3
    
    
    
    5.1
    
    
    
    8.1Income from discontinued operations, net of tax
    
    
    5.2
    
    
    
    3.3
    
    
    
    3.5
    
    
    
    3.3Net income
    
    
    10.7
    %
    
    
    11.6
    %
    
    
    8.6
    %
    
    
    11.4
    %
 Comparison of the Three Months Ended December 31, 2005 with the Three Months Ended December 31,
2004
 Continuing Operations
 Revenues decreased 3.8% from $215.5 million for the three months ended December 31, 2004 to
$207.3 million for the three months ended December 31, 2005. Revenues were impacted by the
loss of two significant Fund Services clients in our Investment Services segment. As a
result, internal revenue growth (excluding business acquisitions and divestitures)
approximated (6.2)% for the three months ended December 31, 2005 versus the same period in
the prior year. Revenue growth from business acquisitions, net of the impact of business
dispositions, approximated $4.7 million for the three months ended December 31, 2005,
somewhat offsetting the overall decline in revenues.Service and operating expenses decreased 8.2% from $142.7 million for the three months ended
December 31, 2004 to $131.0 million for the three months ended December 31, 2005 and
decreased as a percentage of revenues from 66.2% to 63.2%. The dollar decrease was primarily
the result of the loss of two large Fund Services clients and the exit of certain marketing
and distribution arrangements, coupled with lower costs resulting from the sale of a
broker-dealer subsidiary and the restructuring of our European mutual fund services
operations, both of which were completed in the prior fiscal year. Lower costs were somewhat
offset due to the inclusion of RK Consulting, a business we did not own in the year ago
quarter, and higher headcount-related costs in our Alternative
Investment Services business as we continue to
invest in these high growth businesses.Selling, general and administrative expenses increased 12.5% from $33.8 million for the
three months ended December 31, 2004 to $38.1 million for the three months ended December
31, 2005 and increased as a percentage of revenues from 15.7% to 18.3%. The dollar increase
was primarily due to additional costs incurred in connection with the ongoing regulatory
investigations, the inclusion of RK Consulting, a business we did not own in the year ago
quarter, and higher headcount-related costs in our Alternative
Investment Services business.
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Discontinued Operations
  Comparison of the Six Months Ended December 31, 2005 with the Six Months Ended December 31, 2004
 Continuing Operations
    27




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Discontinued Operations
  Restructuring and Impairment Charges
  Restructuring accrual at June 30, 2005
    
    $
    1,240Cash payments and other
    
    
    293Remaining accrual at December 31, 2005:Employee severance
    
    
    Facility closure
    
    
    947Total
    
    $
    947
  Litigation and Regulatory Settlements
  28




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Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    
    
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedLitigation matters
    
    $
    2,997
    
    
    $
    866
    
    
    $
    7,275
    
    
    $
    1,247Regulatory settlements
    
    
    39
    
    
    
    
    
    
    
    203
    
    
    
    $
    3,036
    
    
    $
    866
    
    
    $
    7,478
    
    
    $
    1,247
   Segment Information
  29




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2004
    
    
    
    
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedRevenues:Investment Services
    
    $
    142,804
    
    
    $
    151,340
    
    
    $
    292,081
    
    
    $
    301,900Insurance Services
    
    
    64,471
    
    
    
    64,134
    
    
    
    120,868
    
    
    
    120,974Total consolidated revenues
    
    $
    207,275
    
    
    $
    215,474
    
    
    $
    412,949
    
    
    $
    422,874Operating earnings for
reportable segments:Investment Services
    
    $
    14,687
    
    
    $
    18,544
    
    
    $
    34,134
    
    
    $
    38,640Insurance Services
    
    
    19,909
    
    
    
    17,004
    
    
    
    32,753
    
    
    
    30,146Total
    
    $
    34,596
    
    
    $
    35,548
    
    
    $
    66,887
    
    
    $
    68,786Less:Corporate expenses
    
    
    8,317
    
    
    
    7,579
    
    
    
    17,486
    
    
    
    14,514Restructuring and impairment
charges (reversals):Investment Services
    
    $
    
    
    
    $
    2,128
    
    
    $
    
    
    
    
    2,240Insurance Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Total restructuring and
impairment charges
    
    $
    
    
    
    $
    2,128
    
    
    $
    
    
    
    $
    2,235Litigation costs and
regulatory settlements
(reversals):Investment Services
    
    $
    39
    
    
    $
    
    
    
    $
    203
    
    
    $
    Insurance Services
    
    
    401
    
    
    
    (478
    )
    
    
    1,131
    
    
    
    (97
    )Corporate
    
    
    2,596
    
    
    
    1,344
    
    
    
    6,144
    
    
    
    1,344Total litigation costs and
regulatory settlements
    
    $
    3,036
    
    
    $
    866
    
    
    $
    7,478
    
    
    $
    1,247Total consolidated
operating earnings
    
    $
    23,243
    
    
    $
    24,975
    
    
    $
    41,923
    
    
    $
    50,790Operating margins:Investment Services
    
    
    10.3
    %
    
    
    12.3
    %
    
    
    11.7
    %
    
    
    12.8
    %Insurance Services
    
    
    30.9
    %
    
    
    26.5
    %
    
    
    27.1
    %
    
    
    24.9
    %
   30




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Financial Condition
   Liquidity and Capital Resources
    31




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32




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Six Months Ended
    
    Year EndedDecember 31, 2005
    
    June 30, 2005Shares
    
    Cost
    
    Shares
    
    CostShare repurchase programs:$100 million, authorized
November 2003
    
    
    59
    
    
    $
    898
    
    
    
    3,149
    
    
    $
    45,755
 Critical Accounting Policies
  New Accounting Pronouncements
    33




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Off-Balance Sheet Arrangements
  Forward-Looking Statements
   34




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35




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    36




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ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Control Over Financial Reporting
  Managements Remediation Efforts
  1.
    
    Control environment.We have taken, and continue to take, significant actions
to improve our control environment. The Company hired a new Chief Financial Officer in
August 2005 to oversee the transition of financial responsibilities, address staffing
matters and implement improved controls and procedures. Our Chief Executive Officer and
Chief Financial Officer, together with other senior executives, are committed to
maintaining a strong control environment, high ethical standards and financial
reporting integrity. Following are the actions we are taking to improve our control
environment and eliminate the material weakness:
 
    
    Established direct reporting line from the business unit accountants to the
Corporate Controller in an effort to ensure the independence of accounting
decisions.
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
    
    Continue to develop or revise our written accounting policies and procedures to
establish a comprehensive up-to-date accounting manual, including revenue and
expense recognition guidelines and processes.
    
    Established enhanced quarterly accounting reviews and formal training programs
for financial staff in an effort to ensure all relevant personnel are familiar with
our accounting policies, control processes and have the necessary competency,
training and supervision for their assigned level of responsibility and the nature
and complexity of our business.
    
    Continue to evaluate key financial positions and add senior management personnel
focused on financial accounting, financial reporting and financial controls. We
will also continue to evaluate and take appropriate actions with respect to certain
employees in management, internal audit and financial reporting functions, which
may include further training, supervision and/or reassignment.
    
    Continue to enhance our whistleblower procedures and tone at the top to
increase the likelihood that concerns related to financial reporting or the control
environment will be timely reported and properly evaluated.
    
    Implemented a quarterly and annual sub-certification process requiring written
confirmations from business and finance managers as to the operating effectiveness
of our disclosure controls and procedures and internal control over financial
reporting.
 2.
    
    Controls over revenue recognition. Following are the actions we are taking or
plan on taking, to improve our controls over revenue recognition and eliminate the
material weakness:
 
    
    Implemented a comprehensive periodic review by corporate finance of divisional
income statements and balance sheets to identify and assess significant revenue and
deferred revenue transactions.
    
    Develop procedures to ensure qualified, senior level personnel within the
finance organization are responsible for the review and approval of all revenue
transactions with a significant financial impact.
    
    Continue to enhance documentation and review of all new business acquisition and
system conversion related activities and other transactions with a material
financial impact on revenues to ensure proper treatment and disclosure.
    
    Continue to enhance month-end closing procedures to ensure that timely,
effective and consistent reconciliations are performed on all revenue accounts by
qualified personnel within the finance organization.
    
    Continue to add and retain technical accounting personnel and enhance
supervision with regard to, among other things, timely account analysis and review
and approval of significant revenue transactions.
 3.
    
    Controls over accounting for business combinations and divestitures. To improve
our accounting over business combinations and divestitures and eliminate the material
weakness we have implemented measures to ensure qualified, senior level personnel
within the finance organization are responsible for the review and approval of accruals
and estimates and accounting entries related to all acquisitions and divestitures.
 4.
    
    Controls over vendor rebates and legal and contractual settlements.Following
are the actions we are taking to improve our controls over non-routine transactions and
contractual obligations to eliminate the material weakness:
 
    
    Improved procedures for verifying and documenting non-standard transactions and
contracts, including a comprehensive review of divisional income statements and
balance sheets to identify and analyze complex and significant non-routine or
non-recurring transactions and contractual obligations.
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
    
    Developed procedures to ensure qualified, senior level personnel within the
finance organization are responsible for the review and approve all significant
complex, non-routine, and non-recurring transactions and contractual obligations.
    
    Continue to enhance procedures to review balance sheet account reconciliations
by qualified, senior level personnel within the finance organization, including
increasing the frequency and depth of such reviews and implement a risk based
approach focusing on complex accounts and accounts having a significant financial
impact.
    
    Continue to add and retain technical accounting personnel to enhance supervision
with regard to, among other things, account reconciliations and supporting
documentation for non-routine transactions and contractual obligations.
 5.
    
    Controls over leases.Following are the actions we are taking to improve our
controls over leases and eliminate the material weakness:
 
    
    Continue accounting reviews to ensure all relevant personnel involved in leasing
transactions understand and apply applicable accounting guidance in accordance with
generally accepted accounting principles.
 
    
    Implemented procedures ensuring qualified, senior level personnel within the
finance organization review all lease and sublease transactions, including
supporting documentation, and are responsible for the review and approval of all
related accounting considerations and schedules.
 6.
    
    Controls over insurance commissions payable. Following are the actions we are
taking or plan on taking, to improve our controls over insurance commission payables
and eliminate the material weakness:
 
    
    Continue to implement procedures ensuring qualified, senior level personnel
within the finance organization review the impact of insurance commissions
receivable and commissions payable transactions, including supporting
documentation, and are responsible for the review and approval of all related
accounting considerations and schedules.
    
    Continue to improve procedures for verifying and documenting insurance
commissions payable, including the review of account reconciliations, account
analyses and supporting documentation.
    
    Continue to develop processing systems to provide more automation, accuracy and
control in recording insurance commissions payable transactions.
  39




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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
 Legal Proceedings
      40




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Regulatory Investigations
     41




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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   (d) Approximate(c) Total Number of
    
    
    Dollar Value ofShares Purchased as
    
    
    Shares that May YetPart of Publicly
    
    
    Be Purchased Under(a) Total Number of
    
    
    (b) Average Price
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased
    
    
    Paid per Share
    
    
    Programs
    
    
    ProgramsOctober 2005
    
    
    3,085
    
    
    $
    14.10
    
    
    
    4,074,740
    
    
    
    39,812,929November 2005
    
    
    
    
    
    
    
    
    
    
    4,074,740
    
    
    
    39,812,929December 2005
    
    
    2,232
    
    
    
    13.56
    
    
    
    4,076,972
    
    
    
    39,782,673Total
    
    
    5,317
    
    
    
    
    
    
    
    
    
    
    
    39,782,673
  
 ITEM 6. EXHIBITS
 (a)
    
    Exhibits
    42




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SIGNATURES
  THE BISYS GROUP, INC.Date: August 4, 2006
    By:
    /s/ Bruce D. DalzielBruce D. DalzielExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer) 43




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THE BISYS GROUP, INC.
EXHIBIT INDEX
  (31.1
    )
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer(31.2
    )
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer(32
    )
    
    Section 1350 Certifications
 44