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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 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
    
    13-3532663(State or other jurisdiction of incorporation or organization)
    
    (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
July 31, 2006, there were 120,411,552 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 nine months ended March 31, 2006 and 2005
    
    
    3Condensed Consolidated Balance Sheets as of March 31, 2006 and June 30, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the three and nine months ended March 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 6. Exhibits
    
    
    39SIGNATURES
    
    
    40EXHIBIT INDEX
    
    
    41EX-31.1EX-31.2EX-32
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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
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    211,725
    
    
    $
    212,379
    
    
    $
    624,674
    
    
    $
    635,253Operating costs and expenses:Service and operating
(exclusive of depreciation and
amortization shown separately
below)
    
    
    136,859
    
    
    
    142,583
    
    
    
    400,786
    
    
    
    423,706Selling, general and administrative
(exclusive of depreciation and
amortization shown separately
below)
    
    
    39,369
    
    
    
    33,453
    
    
    
    115,057
    
    
    
    98,987Depreciation and amortization
    
    
    12,071
    
    
    
    11,698
    
    
    
    36,004
    
    
    
    33,643Restructuring and impairment charges
    
    
    1,252
    
    
    
    131
    
    
    
    1,252
    
    
    
    2,366Litigation costs and regulatory
settlements
    
    
    (8,065
    )
    
    
    19,394
    
    
    
    (587
    )
    
    
    20,641Total operating costs and expenses
    
    
    181,486
    
    
    
    207,259
    
    
    
    552,512
    
    
    
    579,343Operating earnings
    
    
    30,239
    
    
    
    5,120
    
    
    
    72,162
    
    
    
    55,910Interest income
    
    
    2,392
    
    
    
    595
    
    
    
    5,177
    
    
    
    1,696Interest expense
    
    
    (3,434
    )
    
    
    (4,769
    )
    
    
    (13,751
    )
    
    
    (14,059
    )Investment gains (losses) and other
    
    
    (106
    )
    
    
    (21
    )
    
    
    81
    
    
    
    10,223Income from continuing operations
before income taxes
    
    
    29,091
    
    
    
    925
    
    
    
    63,669
    
    
    
    53,770Income taxes
    
    
    9,053
    
    
    
    3,474
    
    
    
    22,588
    
    
    
    21,965Income (loss) from continuing
operations
    
    
    20,038
    
    
    
    (2,549
    )
    
    
    41,081
    
    
    
    31,805Income (loss) from discontinued
operations, net of tax
    
    
    216,159
    
    
    
    (63,842
    )
    
    
    230,803
    
    
    
    (50,069
    )Net income (loss)
    
    $
    236,197
    
    
    $
    (66,391
    )
    
    $
    271,884
    
    
    $
    (18,264
    )Basic earnings (loss) per share:Continuing operations
    
    $
    0.17
    
    
    $
    (0.02
    )
    
    $
    0.35
    
    
    $
    0.27Discontinued operations
    
    
    1.81
    
    
    
    (0.53
    )
    
    
    1.94
    
    
    
    (0.42
    )Total basic earnings (loss) per share
    
    $
    1.98
    
    
    $
    (0.56
    )
    
    $
    2.29
    
    
    $
    (0.15
    )Diluted earnings (loss) per share:Continuing operations
    
    $
    0.17
    
    
    $
    (0.02
    )
    
    $
    0.34
    
    
    $
    0.26Discontinued operations
    
    
    1.81
    
    
    
    (0.53
    )
    
    
    1.93
    
    
    
    (0.42
    )Total diluted earnings (loss) per share
    
    $
    1.97
    
    
    $
    (0.56
    )
    
    $
    2.27
    
    
    $
    (0.15
    )
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THE BISYS GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars in thousands, except per share data)
 (Unaudited)
 March 31,
    
    
    June 30,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    285,330
    
    
    $
    172,335Restricted cash
    
    
    42,617
    
    
    
    42,314Accounts receivable, net
    
    
    85,125
    
    
    
    74,105Insurance premiums and commissions receivable
    
    
    93,829
    
    
    
    88,548Deferred tax asset
    
    
    22,858
    
    
    
    35,838Other current assets
    
    
    20,332
    
    
    
    15,931Current assets of discontinued operations
    
    
    
    
    
    
    32,653Total current assets
    
    
    550,091
    
    
    
    461,724Property and equipment, net
    
    
    41,632
    
    
    
    43,064Goodwill
    
    
    716,999
    
    
    
    717,469Intangible assets, net
    
    
    146,139
    
    
    
    165,729Other assets
    
    
    17,143
    
    
    
    18,278Noncurrent assets of discontinued operations
    
    
    
    
    
    
    134,196Total assets
    
    $
    1,472,004
    
    
    $
    1,540,460LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    1,653
    
    
    $
    395,443Accounts payable
    
    
    9,865
    
    
    
    18,381Insurance premiums and commissions payable
    
    
    111,745
    
    
    
    113,395Current taxes payable
    
    
    169,120
    
    
    
    4,923Other current liabilities
    
    
    146,631
    
    
    
    163,213Current liabilities of discontinued operations
    
    
    
    
    
    
    53,727Total current liabilities
    
    
    439,014
    
    
    
    749,082Long-term debt
    
    
    3,348
    
    
    
    4,357Deferred tax liability
    
    
    35,075
    
    
    
    41,695Deferred revenues
    
    
    7,896
    
    
    
    8,053Other liabilities
    
    
    6,884
    
    
    
    6,620Noncurrent liabilities of discontinued operations
    
    
    
    
    
    
    40,643Total liabilities
    
    
    492,217
    
    
    
    850,450Stockholders equity:Common stock, $0.02 par value, 320,000,000 shares
authorized, 121,932,380 and 121,232,132 shares
issued
    
    
    2,439
    
    
    
    2,425Additional paid-in capital
    
    
    394,979
    
    
    
    395,900Retained earnings
    
    
    604,531
    
    
    
    335,345Notes receivable from stockholders
    
    
    
    
    
    
    (3,718
    )Employee benefit trust, 434,505 and 409,180 shares
    
    
    (6,819
    )
    
    
    (6,458
    )Deferred compensation
    
    
    6,852
    
    
    
    6,598Unearned compensation  restricted stock
    
    
    
    
    
    
    (7,798
    )Accumulated other comprehensive income
    
    
    112
    
    
    
    136Treasury stock at cost, 1,503,949 and 2,196,760 shares
    
    
    (22,307
    )
    
    
    (32,420
    )Total stockholders equity
    
    
    979,787
    
    
    
    690,010Total liabilities and stockholders equity
    
    $
    1,472,004
    
    
    $
    1,540,460
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THE BISYS GROUP, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months EndedMarch 31,2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    271,884
    
    
    $
    (18,264
    )Adjustment for income from discontinued operations, net of tax
    
    
    (230,803
    )
    
    
    50,069Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    36,004
    
    
    
    33,643Deferred income tax provision
    
    
    1,825
    
    
    
    10,183Share-based compensation
    
    
    5,751
    
    
    
    2,496Investment gains and other
    
    
    (81
    )
    
    
    (10,223
    )Change in assets and liabilities, net of effects from
acquisitions and divestitures
    
    
    (39,920
    )
    
    
    39,061Net cash provided by operating activities from discontinued
operations
    
    
    38,870
    
    
    
    32,682Net cash provided by operating activities
    
    
    83,530
    
    
    
    139,647CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of businesses, net of cash acquired
    
    
    (1,858
    )
    
    
    (82,638
    )Payments related to businesses previously acquired
    
    
    (300
    )
    
    
    (477
    )Proceeds from business divestitures
    
    
    471,295
    
    
    
    Capital expenditures for property and equipment
    
    
    (8,403
    )
    
    
    (6,225
    )Capitalized software costs
    
    
    (5,774
    )
    
    
    (5,047
    )Proceeds from sale of investments
    
    
    302
    
    
    
    14,794Acquired intangible assets
    
    
    (111
    )
    
    
    (750
    )Other
    
    
    (812
    )
    
    
    628Net cash used in investing activities from discontinued operations
    
    
    (36,010
    )
    
    
    (26,804
    )Net cash used in investing activities
    
    
    418,329
    
    
    
    (106,519
    )CASH FLOWS FROM FINANCING ACTIVITIESShort-term borrowings, net
    
    
    
    
    
    
    (56,000
    )Payment of long-term debt
    
    
    (395,055
    )
    
    
    (1,332
    )Exercise of stock options
    
    
    7,726
    
    
    
    5,859Issuance of common stock
    
    
    
    
    
    
    4,659Repurchases of common stock
    
    
    (1,161
    )
    
    
    (39,571
    )Repayment of notes receivable from stockholders
    
    
    3,718
    
    
    
    4,398Changes in bank overdrafts
    
    
    (1,232
    )
    
    
    (1,965
    )Net cash used in financing activities from discontinued operations
    
    
    (3,478
    )
    
    
    (4,193
    )Net cash used in financing activities
    
    
    (389,482
    )
    
    
    (88,145
    )Change in cash and cash equivalents
    
    
    112,377
    
    
    
    (55,017
    )Cash and cash equivalents at beginning of period (includes cash
of discontinued operations of $618 in 2006 and $1,794 in 2005)
    
    
    172,953
    
    
    
    144,120Cash and cash equivalents at end of period (includes cash of
discontinued operations of $0 in 2006 and $3,479 in 2005)
    
    $
    285,330
    
    
    $
    89,103
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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 included the Banking Solutions and Document Solutions divisions, to
Open Solutions Inc. for approximately $471 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 $204 million, net of tax. 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, unless otherwise noted.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.Restricted CashUnremitted insurance premiums are held in a fiduciary capacity and approximated $42.6
million and $42.3 million at March 31, 2006 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.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
Services 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
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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 nine months ended March 31, 2006, proceeds from securities sold
and the realized gains were not significant. Net realized gains from securities sold during
the nine months ended March 31, 2005 were $9.8 million.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 $9.1 million and $3.5 million for the three months ended
March 31, 2006 and 2005, respectively, represent an effective tax rate of 31.1% in 2006 and
375.6% in 2005. The effective tax rate for the three months ended March 31, 2006 was
impacted by the reversal of a loss contingency (relating to fiscal years 2001 through 2006)
recorded at the conclusion of an IRS audit of the Company for the fiscal years ended June
30, 2001, 2002 and 2003. The tax rate for the three months ended March 31, 2005 was
significantly impacted by the non-deductible SEC fine of $10.0 million recorded during the
quarter.The provision for income taxes of $22.6 million and $22.0 million for the nine months ended
March 31, 2006 and 2005, respectively, represent an effective tax rate of 35.5% in 2006 and
40.9% in 2005. The effective tax rate for the nine months ended March 31, 2006 was impacted
by the U.S. tax on the repatriation of earnings under the American Jobs Creation Act of
2004, the reversal of a loss contingency (relating to fiscal years 2001 through 2006)
recorded at the conclusion of an IRS audit of the Company for the fiscal years ended June
30, 2001, 2002 and 2003, and permanent differences associated with certain error corrections
recorded in the first quarter of 2006, related to the Life Insurance business. The effective
tax rate for the nine months ended March 31, 2005 was significantly impacted by the
non-deductible SEC fine of $10.0 million recorded in March 2005.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
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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 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 FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial
statements. This Interpretation prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. Specifically, FIN 48 requires the recognition in financial
statements of the impact of a tax position, if that position is more likely than not of
being sustained on audit, based on the technical merits of the position. Additionally, FIN
48 provides guidance on the derecognition of previously recognized deferred tax items,
classification, accounting for interest and penalties, and accounting in interim periods
related to uncertain tax positions, as well as, requires expanded disclosures. FIN 48 is
effective for fiscal years beginning after December 15, 2006 (the Companys Fiscal 2008),
with the cumulative effect of the change in accounting principle recorded as an adjustment
to opening retained earnings. The Company has not completed its evaluation 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 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.
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3.
    
    Comprehensive Income (Loss)The components of comprehensive income (loss) are as follows:
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    236,197
    
    
    $
    (66,391
    )
    
    $
    271,884
    
    
    $
    (18,264
    )Unrealized gain (loss) on investments,
net of tax
    
    
    (57
    )
    
    
    28
    
    
    
    (26
    )
    
    
    57Reclassification adjustment for gains
included in net income, net of tax
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (5,826
    )Unrealized gain on foreign currency
exchange contracts
    
    
    35
    
    
    
    1
    
    
    
    160
    
    
    
    1Foreign currency translation adjustment
    
    
    (85
    )
    
    
    (25
    )
    
    
    (156
    )
    
    
    (127
    )Total comprehensive income (loss)
    
    $
    236,090
    
    
    $
    (66,396
    )
    
    $
    271,862
    
    
    $
    (24,159
    )
 4.
    
    Per Share DataAmounts utilized in per share computations for the three and nine months ended March 31,
2006 and 2005 are as follows:
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Weighted average
common shares
outstanding
    
    
    119,118
    
    
    
    119,457
    
    
    
    118,837
    
    
    
    119,685Assumed conversion
of common shares
issuable under
stock-based
compensation plans
    
    
    537
    
    
    
    789
    
    
    
    907
    
    
    
    906Weighted average
common and common
equivalent shares
outstanding
    
    
    119,655
    
    
    
    120,246
    
    
    
    119,744
    
    
    
    120,591
 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.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
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Number of options excluded
    
    
    8,494
    
    
    
    8,916
    
    
    
    8,494
    
    
    
    8,916Option price per share
    
    $
    14.21 to $35.10
    
    
    $
    15.16 to $35.30
    
    
    $
    14.21 to $35.10
    
    
    $
    15.16 to $35.30Average market price of
common shares for the
period
    
    $
    14.16
    
    
    $
    15.09
    
    
    $
    14.14
    
    
    $
    14.74
 5.
    
    Share-Based CompensationIn December 2004, the FASB issued SFAS 123R, Share-Based Payment (FAS 123R) 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
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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 nine months ended March 31, 2006, the Company recognized $1.9 million
and $5.9 million of stock-based compensation expense (net of $(0.1) million and $0.3 million
of stock-based compensation expense related to discontinued operations, respectively) and
$0.5 million and $1.6 million in related tax benefits, respectively. As of March 31, 2006,
the total remaining unrecognized compensation cost related to non-vested stock options and
restricted stock awards, net of forfeitures, was approximately $23.1 million and is expected
to be recognized over an estimated weighted amortization period of 4.07 years.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
    
    Nine Months EndedMarch 31, 2006
    
    March 31, 2006Income from continuing
operations before income taxes
    
    $
    (659
    )
    
    $
    (2,231
    )Net income
    
    
    (596
    )
    
    
    (2,023
    )Basic earnings per share:Continuing operations
    
    $
    (0.01
    )
    
    $
    (0.02
    )Net income
    
    
    (0.01
    )
    
    
    (0.02
    )Diluted earnings per share:Continuing operations
    
    $
    (0.01
    )
    
    $
    (0.02
    )Net income
    
    
    
    
    
    
    (0.02
    )Cash flow from financing activity
    
    $
    227
    
    
    $
    758Cash flow from operations
    
    
    (227
    )
    
    
    (758
    )
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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 SFAS 123,
Accounting for Stock-Based Compensation, prior to the adoption of FAS 123R:
 Three Months Ended
    
    
    Nine Months EndedMarch 31, 2005
    
    
    March 31, 2005Net (loss), as reported
    
    $
    (66,391
    )
    
    $
    (18,264
    )Add: Reported stock compensation
expense, net of related tax
effects
    
    
    529
    
    
    
    1,695Less: Fair value stock
compensation expense, net of
related tax effects
    
    
    (3,774
    )
    
    
    (12,925
    )Pro forma net loss
    
    $
    (69,636
    )
    
    $
    (29,494
    )Loss per share:Basic, as reported
    
    $
    (0.56
    )
    
    $
    (0.15
    )Basic, pro forma
    
    
    (0.58
    )
    
    
    (0.25
    )Diluted, as reported
    
    $
    (0.55
    )
    
    $
    (0.15
    )Diluted, pro forma
    
    
    (0.58
    )
    
    
    (0.24
    )
 The fair values of stock options granted during the nine months ended March 31, 2006 and
2005 were estimated on the date of grant using the Black-Scholes pricing model with the
following assumptions:
 Nine Months EndedMarch 31,2006
    
    2005Expected 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 nine months
ended March 31, 2006 and 2005 was $5.69 and $6.08 per share, respectively.
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The table below presents information related to stock option activity for the three and nine
months ended March 31, 2006 and 2005:
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Total intrinsic
value of stock
options exercised
    
    $
    659
    
    
    $
    772
    
    
    $
    2,383
    
    
    $
    2,235Total fair value of
stock options
vested
    
    
    536
    
    
    
    796
    
    
    
    1,663
    
    
    
    2,292Cash received from
stock option
exercises
    
    
    1,904
    
    
    
    2,316
    
    
    
    7,726
    
    
    
    5,859Gross income tax
benefit from the
exercise of stock
options
    
    $
    227
    
    
    $
    301
    
    
    $
    758
    
    
    $
    871
 A summary of stock option activity for the nine months ended March 31, 2006 is as follows:
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicNumber of Shares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueOutstanding, June 30, 2005
    
    
    12,651
    
    
    $
    19.27Granted
    
    
    417
    
    
    
    14.90Exercised
    
    
    (722
    )
    
    
    10.87Forfeited or expired
    
    
    (1,287
    )
    
    
    20.44Outstanding, March 31, 2006
    
    
    11,059
    
    
    $
    19.52
    
    
    
    4.62
    
    
    $
    2,756Exercisable, March 31, 2006
    
    
    9,851
    
    
    $
    20.17
    
    
    
    4.16
    
    
    $
    2,647
 A summary of unvested stock option activity for the nine months ended March 31, 2006 is as follows:
 WeightedNumber of
    
    
    Average FairShares
    
    
    ValueUnvested at June 30, 2005
    
    
    1,486
    
    
    $
    5.92Granted
    
    
    417
    
    
    
    6.66Vested
    
    
    (367
    )
    
    
    5.86Forfeited or expired
    
    
    (327
    )
    
    
    5.93Unvested at March 31, 2006
    
    
    1,209
    
    
    $
    6.19
 A summary of restricted stock activity for the nine months ended March 31, 2006 is as
follows:
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average Fair
    
    
    Vesting Term
    
    
    IntrinsicShares
    
    
    Value
    
    
    (years)
    
    
    ValueUnvested at June 30, 2005
    
    
    691
    
    
    $
    14.94
    
    
    
    2.75
    
    
    $
    10,319Granted
    
    
    825
    
    
    
    14.95
    
    
    
    3.43
    
    
    
    12,325Vested
    
    
    (191
    )
    
    
    15.22
    
    
    
    
    
    
    
    (2,901
    )Forfeited
    
    
    (153
    )
    
    
    15.07
    
    
    
    2.88
    
    
    
    (2,303
    )Unvested at March 31, 2006
    
    
    1,172
    
    
    $
    14.88
    
    
    
    3.66
    
    
    $
    17,440
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At March 31, 2006, options to purchase 10.4 million shares were available for grant under
the Companys stock option and restricted stock plans. At March 31, 2006, 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 ChargesDuring the three months ended March 31, 2006, the Company recorded a pre-tax restructuring
charge of $1.2 million in connection with the completion of the relocation of its corporate
headquarters from New York to Roseland, New Jersey. The restructuring charge represents the
excess of the future minimum lease commitments of the former New York headquarters over the
expected sublease income, partially offset by a related deferred rent liability of
approximately $0.3 million. Restructuring charges of $1.3 million during the nine months
ended March 31, 2005 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 $0.1 million. The following summarizes activity with respect to the Companys
restructuring activities for the nine months ended March 31, 2006:
 Restructuring accrual at June 30, 2005
    
    $
    1,240Expense provision:Facility closure
    
    
    1,252Cash payments and other
    
    
    612Remaining accrual at March 31, 2006:Employee severance
    
    
    Facility closure
    
    
    1,880Total
    
    $
    1,880
 The Company recorded asset impairment charges of $1.0 million during the nine months ended
March 31, 2005 related to other than temporary declines in the value of memberships in the
New York and Boston stock exchanges.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
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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. By report and recommendation dated August 2, 2006, a United States Magistrate
Judge recommended to the district court the denial of class action certification of this
action. The plaintiff has filed objections seeking that the district judge not adopt the
recommendation.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 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, 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.
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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 $21.3 million as of March 31, 2006
(originally established during the quarter ended March 31, 2005 for $20.8 million),
representing expected amounts to be paid as part of a settlement. The $21.3 million expected
settlement amount is comprised of an estimated $9.7 million disgorgement, an estimated fine
of $10 million and prejudgment interest of $1.6 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 nine months ended March 31, 2006 and 2005:
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Litigation costs
(net of $9,000
insurance recovery
in 2006)
    
    $
    (8,263
    )
    
    $
    8,308
    
    
    $
    (988
    )
    
    $
    9,555Regulatory settlement
($20,785 net of
disgorgement
portion of $9,699
in 2005)
    
    
    198
    
    
    
    11,086
    
    
    
    401
    
    
    
    11,086$
    (8,065
    )
    
    $
    19,394
    
    
    $
    (587
    )
    
    $
    20,641
 In February 2006, we reached an agreement regarding coverage with our insurance carriers
that resulted in an insurance recovery of approximately $9.0 million for certain legal
expenses incurred by the Company in connection with the aforementioned litigation and
investigatory matters. Amounts recovered under the agreement have been 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.
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8.
    
    Goodwill and Intangible AssetsGoodwillThe changes in carrying amount of goodwill by business segment for the nine months ended
March 31, 2006 were as follows:
 Investment
    
    
    InsuranceServices
    
    
    Services
    
    
    TotalBalance, June 30, 2005
    
    $
    362,063
    
    
    $
    355,406
    
    
    $
    717,469Additions
    
    
    1,320
    
    
    
    
    
    
    
    1,320Dispositions
    
    
    
    
    
    
    
    
    
    
    Adjustments to previous
acquisitions
    
    
    (524
    )
    
    
    (1,266
    )
    
    
    (1,790
    )Balance, March 31, 2006
    
    $
    362,859
    
    
    $
    354,140
    
    
    $
    716,999
 The adjustments to previous acquisitions primarily relate to the reversal of tax
contingencies estimated at the time of acquisition.Intangible AssetsAt March 31, 2006, intangible assets were comprised of the following:
 Gross Carrying
    
    
    Accumulated
    
    
    Net BookAmount
    
    
    Amortization
    
    
    ValueCapitalized software
    
    $
    61,252
    
    
    $
    (35,753
    )
    
    $
    25,499Customer related
    
    
    185,705
    
    
    
    (72,592
    )
    
    
    113,113Noncompete agreements
    
    
    20,799
    
    
    
    (14,745
    )
    
    
    6,054Other
    
    
    5,195
    
    
    
    (3,722
    )
    
    
    1,473Total
    
    $
    272,951
    
    
    $
    (126,812
    )
    
    $
    146,139
 At June 30, 2005, intangible assets were comprised of the following:
 Gross Carrying
    
    
    Accumulated
    
    
    Net BookAmount
    
    
    Amortization
    
    
    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 $8.7 million and $26.1 million for the three and nine months ended
March 31, 2006 and $31.9 million for the year ended June 30, 2005. Estimated annual
amortization expense is $34.9 million in 2006, $31.7 million in 2007, $28.3 million in 2008,
$24.1 million in 2009, and $20.0 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 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.
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The Company could borrow under the revolving credit facility through March 2008 up to $300
million, reduced by any outstanding letters of credit. 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. 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 March 31, 2006 and June 30, 2005 is as follows:
 March 31, 2006
    
    
    June 30, 2005Senior credit facility, term loan, at a
rate of 4.375%
    
    $
    
    
    
    $
    93,750Convertible subordinated 4% notes
    
    
    
    
    
    
    300,000Capital lease obligations
    
    
    5,001
    
    
    
    6,0505,001
    
    
    
    399,800Less amounts due within one year
    
    
    1,653
    
    
    
    395,443Long-term debt
    
    $
    3,348
    
    
    $
    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%.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 delivered the required financial
statements and compliance certificate for the quarter ended December 31, 2005 to its lender
and is
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##### Table of Contents



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 facility. Pursuant to the 2004 facility, the March 31, 2008 maturity
date had been set to accelerate to January 31, 2006 in the event that the Notes were not
repaid by such date. The term loan portion of the 2004 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 March 31, 2006, the outstanding contracts total $0.7 million in
notional value and require the Company to purchase currencies at specified rates over the
next two 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 they 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 retirement 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, disability, and special risk insurance products.Summarized financial information by business segment and for corporate operations for the
three and nine months ended March 31, 2006 and 2005 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
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Investment Services
    
    $
    149,671
    
    
    $
    161,167
    
    
    $
    441,752
    
    
    $
    463,067Insurance Services
    
    
    62,054
    
    
    
    60,911
    
    
    
    182,922
    
    
    
    181,885Total
    
    
    211,725
    
    
    
    222,078
    
    
    
    624,674
    
    
    
    644,952Less: Disgorgement portion of
estimated regulatory
settlement reflected as a
reduction to revenue
    
    
    
    
    
    
    (9,699
    )
    
    
    
    
    
    
    (9,699
    )Total consolidated revenues
    
    $
    211,725
    
    
    $
    212,379
    
    
    $
    624,674
    
    
    $
    635,253Operating earnings for
reportable segments:Investment Services
    
    $
    17,204
    
    
    $
    22,630
    
    
    $
    51,339
    
    
    $
    61,270Insurance Services
    
    
    15,845
    
    
    
    17,704
    
    
    
    48,597
    
    
    
    47,850Total
    
    $
    33,049
    
    
    $
    40,334
    
    
    $
    99,936
    
    
    $
    109,120Less reconciling items:Corporate expenses
    
    
    9,623
    
    
    
    5,990
    
    
    
    27,109
    
    
    
    20,504Disgorgement portion of
estimated regulatory
settlement reflected as a
reduction to revenue
    
    
    
    
    
    
    9,699
    
    
    
    
    
    
    
    9,699Restructuring and impairment
charges (reversals):Investment Services
    
    $
    15
    
    
    $
    131
    
    
    $
    15
    
    
    $
    2,371Insurance Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    1,237
    
    
    
    
    
    
    
    1,237
    
    
    
    (5
    )Total restructuring and
impairment charges
    
    $
    1,252
    
    
    $
    131
    
    
    $
    1,252
    
    
    $
    2,366Litigation costs and
regulatory settlements
(recoveries):Investment Services
    
    $
    198
    
    
    $
    11,086
    
    
    $
    401
    
    
    $
    11,086Insurance Services
    
    
    165
    
    
    
    337
    
    
    
    1,296
    
    
    
    240Corporate
    
    
    (8,428
    )
    
    
    7,971
    
    
    
    (2,284
    )
    
    
    9,315Total litigation costs and
regulatory settlements
    
    $
    (8,065
    )
    
    $
    19,394
    
    
    $
    (587
    )
    
    $
    20,641Total consolidated
operating earnings
    
    $
    30,239
    
    
    $
    5,120
    
    
    $
    72,162
    
    
    $
    55,910
 12.
    
    Discontinued OperationsOn September 15, 2005, the Company entered into an agreement to sell its Information
Services segment, which included the Banking Solutions and Document Solutions divisions, to
Open Solutions Inc. (OSI) for approximately $471 million in cash, subject to final working
capital and other adjustments. The transaction closed on March 3, 2006, and the Company
recognized an after-tax gain of approximately $204 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.
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##### Table of Contents



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.Financial information for discontinued operations is summarized below:
 Three months ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    43,534
    
    
    $
    64,478
    
    
    $
    146,689
    
    
    $
    191,482Expenses
    
    
    27,251
    
    
    
    52,032
    
    
    
    101,952
    
    
    
    156,178Gain on disposition
    
    
    (355,313
    )
    
    
    
    
    
    
    (355,313
    )Impairment
    
    
    
    
    
    
    86,487
    
    
    
    
    
    
    
    86,487Income (loss) from
discontinued
operations, before
taxes
    
    
    371,596
    
    
    
    (74,041
    )
    
    
    400,050
    
    
    
    (51,183
    )Applicable income taxes
    
    
    155,437
    
    
    
    (10,199
    )
    
    
    169,247
    
    
    
    (1,114
    )Income (loss) from
discontinued
operations, net of tax
    
    $
    216,159
    
    
    $
    (63,842
    )
    
    $
    230,803
    
    
    $
    (50,069
    )
 Major classes of assets and liabilities of the Information Services segment accounted for as
discontinued operations in the accompanying condensed consolidated balance sheet at June 30,
2005 were as follows:
 June 30,2005Accounts receivable
    
    $
    28,573Other current assets
    
    
    4,080Total current assets
    
    
    32,653Property and equipment
    
    
    12,929Goodwill
    
    
    34,946Intangible assets
    
    
    81,334Other assets
    
    
    4,987Total assets of discontinued operations
    
    $
    166,849Current maturities of long-term debt
    
    $
    4,461Other current liabilities
    
    
    49,266Total current liabilities
    
    
    53,727Long-term debt
    
    
    5,992Deferred revenue
    
    
    34,651Total liabilities of discontinued operations
    
    $
    94,370
 The tax liability associated with the disposition of the Information Services segment
is approximately $152 million and is classified as a current liability as of the balance
sheet date.13.
    
    Repatriation of Foreign EarningsThe 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



14.
    
    Related Party TransactionDenis A. Bovin, a Director of the Company, is an officer and director of Bear Stearns & Co., Inc. (Bear Stearns),
a financial services firm that is the Companys primary investment banking advisor. The Company
engaged Bear Stearns as its financial advisor in connection with the
sale on March 3, 2006 of the Information
Services segment, an engagement under which the Company paid Bear Stearns approximately $4.8
million in fees. In addition, the Company has engaged Bear Stearns to advise it in connection with
its exploration of strategic alternatives as part of its continued efforts to maximize shareholder
value.On June 13, 2006, Doni L. Fordyce, who is related
to an officer and director of Bear Stearns, became a Director of the
Company.
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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.
 Recent Developments
 On August 10, 2006, our Board of Directors accepted the resignation of Russell P. Fradin, our
President, Director and Chief Executive Officer effective September 5, 2006. Robert J. Casale, the
Chairman of our Board of Directors, will serve as Interim President and Chief Executive Officer
while we seek a permanent successor. We also announced that we have recently initiated a process to
explore strategic alternatives as part of our continued efforts to maximize shareholder value. Our
Board of Directors has engaged Bear, Stearns & Co., Inc. to advise us in
connection with this process. Results of Operations
 On September 15, 2005, we entered into an agreement to sell our Information Services
segment, which included the Banking Solutions and Document Solutions divisions, to Open
Solutions Inc. for approximately $471 million in cash, subject to final working capital and
other adjustments. The transaction closed on March 3, 2006, and we recognized an after-tax
gain of approximately $204 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. We did
not realize a material gain or loss as a result of this transaction. In accordance with FAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), 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.
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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
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Operating costs and expenses:Service and operating
    
    
    64.6
    
    
    
    67.1
    
    
    
    64.1
    
    
    
    66.8Selling, general and administrative
    
    
    18.6
    
    
    
    15.8
    
    
    
    18.4
    
    
    
    15.6Depreciation and amortization
    
    
    5.7
    
    
    
    5.5
    
    
    
    5.8
    
    
    
    5.2Restructuring and impairment charges
    
    
    0.6
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.4Litigation costs and regulatory settlements
    
    
    (3.8
    )
    
    
    9.1
    
    
    
    (0.1
    )
    
    
    3.2Total operating costs and expenses
    
    
    85.7
    
    
    
    97.6
    
    
    
    88.4
    
    
    
    91.2Operating earnings
    
    
    14.3
    
    
    
    2.4
    
    
    
    11.6
    
    
    
    8.8Interest income
    
    
    1.1
    
    
    
    0.2
    
    
    
    0.8
    
    
    
    0.3Interest expense
    
    
    (1.6
    )
    
    
    (2.2
    )
    
    
    (2.2
    )
    
    
    (2.2
    )Investment gains and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.6Income from continuing operations before
income taxes
    
    
    13.8
    
    
    
    0.4
    
    
    
    10.2
    
    
    
    8.5Income taxes
    
    
    4.3
    
    
    
    1.6
    
    
    
    3.6
    
    
    
    3.5Income
(loss) from continuing operations
    
    
    9.5
    
    
    
    (1.2
    )
    
    
    6.6
    
    
    
    5.0Income
(loss) from discontinued operations, net of tax
    
    
    102.1
    
    
    
    (30.1
    )
    
    
    36.9
    
    
    
    (7.9
    )Net income (loss)
    
    
    111.6
    %
    
    
    (31.3
    )%
    
    
    43.5
    %
    
    
    (2.9
    )%
 Comparison of the Three Months Ended March 31, 2006 with the Three Months Ended March 31, 2005
 Continuing OperationsRevenues decreased 0.3% from $212.4 million for the three months ended March 31, 2005 to
$211.7 million for the three months ended March 31, 2006. Revenues were impacted by the loss
of two significant Fund Services clients and the sale of a broker-dealer subsidiary in our
Investment Services segment. Revenues for the three months ended March 31, 2005 were reduced
by $9.7 million pertaining to the disgorgement portion of an estimated regulatory
settlement. Internal revenue growth (excluding business acquisitions and divestitures)
approximated (2.3)% for the three months ended March 31, 2006 versus the same period in the
prior year (excluding the impact of the disgorgement portion of an estimated regulatory
settlement in the prior year).Service and operating expenses decreased 4.0% from $142.6 million for the three months ended
March 31, 2005 to $136.9 million for the three months ended March 31, 2006 and decreased as
a percentage of revenues from 67.1% to 64.6%. 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 higher headcount-related costs in our Alternative Investment Services
businesses and Insurance Services segment. The percentage decrease primarily resulted from
the impact of the $9.7 million reduction of revenues for the disgorgement portion of an
estimated regulatory settlement recorded in the prior year period.Selling, general and administrative expenses increased 17.7% from $33.5 million for the
three months ended March 31, 2005 to $39.4 million for the three months ended March 31, 2006
and increased as a percentage of revenues from 15.8% to 18.6%. The dollar and percentage
increase was primarily due to additional corporate costs incurred in connection with the
ongoing regulatory investigations, costs (including the write-down of certain assets)
associated with the relocation of our corporate headquarters, and higher headcount-related
costs in our Alternative Investment Services businesses. The percentage increase was offset
somewhat by the impact
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of the $9.7 million reduction of revenues for the disgorgement portion of an estimated
regulatory settlement recorded in the prior year period.The provision for income taxes of $9.1 million and $3.5 million for the three months ended
March 31, 2006 and 2005, respectively, represent an effective tax rate of 31.1% in 2006 and
375.6% in 2005. The effective tax rate for the three months ended March 31, 2006 was
impacted by the reversal of a loss contingency (relating to fiscal years 2001 through 2006)
recorded at the conclusion of an IRS audit of us for the fiscal years ended June 30, 2001,
2002 and 2003. The tax rate for the three months ended March 31, 2005 was significantly
impacted by the non-deductible SEC fine of $10.0 million recorded during the quarter.We 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. We completed our evaluation in November 2005 and
repatriated $22.7 million in November 2005 and $11.0 million in June 2006 from certain of
our foreign subsidiaries. We recorded a tax charge of $1.3 million in November 2005 and $0.6
million in June 2006 for this repatriation. At March 31, 2006, deferred income taxes of $2.8
million had not been provided on the undistributed earnings of foreign subsidiaries as such
earnings will continue to be reinvested for the foreseeable future (except as distributed
under the temporary provisions of the AJCA).Operating margins were 14.3% and 2.4% for the three months ended March 31, 2006 and 2005,
respectively. Operating earnings increased by $25.1 million to $30.2 million for the three
months ended March 31, 2006 compared to $5.1 million for the same period in the prior year.
Operating earnings and margins in the prior year period were impacted by an estimated
regulatory settlement of $20.8 million ($9.7 million representing a reduction of revenues 
See Note 7  Litigation and Regulatory Settlements) and related legal fees of $8.3 million
included as a component of Litigation and Regulatory Settlements. Operating earnings and
margins in the current period benefited from a $9.0 million insurance recovery (See Note 7 
Litigation and Regulatory Settlements) and lower legal fees associated with litigation and
regulatory matters, offset somewhat by expenses associated with the relocation of our
corporate headquarters, increased corporate costs attributable to the ongoing regulatory
investigations and higher headcount-related costs in our Alternative Investment Services
businesses and Insurance Services segment.Discontinued OperationsSee Note 12  Discontinued Operations.
 Comparison of the Nine Months Ended March 31, 2006 with the Nine Months Ended March 31, 2005
 Continuing OperationsRevenues decreased 1.7% from $635.3 million for the nine months ended March 31, 2005 to
$624.7 million for the nine months ended March 31, 2006. Revenues were impacted by the loss
of two significant Fund Services clients in our Investment Services segment. Revenues for
the nine months ended March 31, 2005 were reduced by $9.7 million pertaining to the
disgorgement portion of an estimated regulatory settlement. Revenue growth from
acquisitions, net of the impact of dispositions, approximated $4.2 million for the nine
months ended March 31, 2006. Internal revenue growth (excluding acquisitions and
divestitures) approximated (3.9)% for the nine months ended March 31, 2006 over the same
period in the prior year (excluding the impact of the disgorgement portion of an estimated
regulatory settlement in the prior year).Service and operating expenses decreased 5.4% from $423.7 million for the nine months ended
March 31, 2005 to $400.8 million for the nine months ended March 31, 2006 and decreased as a
percentage of revenues from 66.8% to 64.1%. 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 first half of
fiscal 2005, and higher headcount-related costs in our Alternative Investment Services
businesses as we continue to invest in these high growth businesses. The percentage decrease
was impacted by the $9.7 million reduction in revenues for the disgorgement portion of an
estimated regulatory settlement recorded in the prior year period.
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Selling, general and administrative expenses increased 16.2% from $99.0 million for the nine
months ended March 31, 2005 to $115.1 million for the nine months ended March 31, 2006 and
increased as a percentage of revenues from 15.6% to 18.4%. The dollar increase was primarily
due to additional corporate costs incurred in connection with the ongoing regulatory
investigations, costs (including the write-down of certain assets) associated with the
relocation of our corporate headquarters, the inclusion of RK Consulting, a business we did
not own in the first half of fiscal 2005, and higher headcount-related costs in our
Alternative Investment Services business.Investment gains (losses) were not significant during the nine months ended March 31, 2006.
During the nine months ended March 31, 2005, investment gains of $10.2 million were realized
from the sale of an investment we held in the common stock of another publicly traded
company.The provision for income taxes of $22.6 million and $22.0 million for the nine months ended
March 31, 2006 and 2005, respectively, represent an effective tax rate of 35.5% in 2006 and
40.9% in 2005. The effective tax rate for the nine months ended March 31, 2006 was impacted
by the U.S. tax on the repatriation of earnings under the American Jobs Creation Act of
2004, the reversal of a loss contingency (relating to fiscal years 2001 through 2006)
recorded at the conclusion of an IRS audit of us for the fiscal years ended June 30, 2001,
2002 and 2003, and permanent differences associated with certain error corrections in the
Life Insurance business. The effective tax rate for the nine months ended March 31, 2005 was
significantly impacted by the non-deductible SEC fine of $10.0 million recorded in March
2005.Operating margins were 11.6% and 8.8% for the nine months ended March 31, 2006 and 2005,
respectively. Operating earnings increased by $16.3 million to $72.2 million for the nine
months ended March 31, 2006 compared to $55.9 million for the same period in the prior year.
Operating earnings and margins in the prior year period were impacted by an estimated
regulatory settlement of $20.8 million ($9.7 million representing a reduction of revenues 
See Note 7  Litigation and Regulatory Settlements) and related legal fees of $9.6
million, included as a component of Litigation and Regulatory Settlements. Operating
earnings and margins in the nine months ended March 31, 2006 benefited from a $9.0 million
insurance recovery and lower legal fees associated with litigation and regulatory matters,
offset by higher corporate costs related to the ongoing regulatory
investigations, costs associated with the relocation of our corporate
headquarters, and significantly reduced revenues in our Fund Services
business, and
higher stock option expense resulting from our adoption of  FAS123R.Discontinued OperationsSee Note 12  Discontinued Operations.
 Restructuring and Impairment Charges
 During the three months ended March 31, 2006, we recorded a pre-tax restructuring charge of
$1.2 million in connection with the completion of the relocation of our corporate
headquarters from New York to Roseland, New Jersey. The restructuring charge represents the
excess of the future minimum lease commitments of the former New York headquarters over the
expected sublease income, partially offset by a related deferred rent liability of
approximately $0.3 million. Restructuring charges of $1.3 million during the nine months
ended March 31, 2005 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 $0.1 million. The following summarizes activity with respect to our restructuring
activities for the nine months ended March 31, 2006:
 Restructuring accrual at June 30, 2005
    
    $
    1,240Expense provision:Facility closure
    
    
    1,252Cash payments and other
    
    
    612Remaining accrual at March 31, 2006:Employee severance
    
    
    Facility closure
    
    
    1,880Total
    
    $
    1,880
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##### Table of Contents



We recorded asset impairment charges of $1.0 million during the nine months ended March 31,
2005 related to other than temporary declines in the value of memberships in the New York
and Boston stock exchanges.
 Litigation and Regulatory Settlements
 We are currently subject to legal proceedings and claims, including class action lawsuits
and a shareholder derivative lawsuit, and regulatory investigations. See Part II, Item 1,
Legal Proceedings, and Note 7  Litigation and Regulatory Investigations.We have recorded an estimated liability of $21.3 million as of March 31, 2006
(originally established during the quarter ended March 31, 2005 for $20.8 million),
representing expected amounts to be paid as part of a settlement. The $21.3 million expected
settlement amount is comprised of an estimated $9.7 million disgorgement, an estimated fine
of $10 million and prejudgment interest of $1.6 million.We expensed the following amounts related to estimated settlement costs and legal fees in
connection with the aforementioned litigation and investigatory matters for the three and
nine months ended March 31, 2006 and 2005:
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Litigation costs
(net of $9,000
insurance recovery
in 2006)
    
    $
    (8,263
    )
    
    $
    8,308
    
    
    $
    (988
    )
    
    $
    9,555Regulatory settlement
($20,785 net of
disgorgement
portion of $9,699
in 2005)
    
    
    198
    
    
    
    11,086
    
    
    
    401
    
    
    
    11,086$
    (8,065
    )
    
    $
    19,394
    
    
    $
    (587
    )
    
    $
    20,641
 In February 2006, we reached an agreement regarding coverage with our insurance carriers
that resulted in an insurance recovery of $9.0 million for certain legal expenses
incurred by us in connection with the aforementioned litigation and investigatory matters.
Amounts recovered under the agreement were 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.
 Segment Information
 The following table sets forth revenue and operating income by business segment and for
corporate operations for the three and nine months ended March 31, 2006 and 2005. 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 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.
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Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues:Investment Services
    
    $
    149,671
    
    
    $
    161,167
    
    
    $
    441,752
    
    
    $
    463,067Insurance Services
    
    
    62,054
    
    
    
    60,911
    
    
    
    182,922
    
    
    
    181,885Total
    
    
    211,725
    
    
    
    222,078
    
    
    
    624,674
    
    
    
    644,952Less: Disgorgement portion of
estimated regulatory
settlement reflected as a
reduction to revenue
    
    
    
    
    
    
    (9,699
    )
    
    
    
    
    
    
    (9,699
    )Total consolidated revenues
    
    $
    211,725
    
    
    $
    212,379
    
    
    $
    624,674
    
    
    $
    635,253Operating earnings for
reportable segments:Investment Services
    
    $
    17,204
    
    
    $
    22,630
    
    
    $
    51,339
    
    
    $
    61,270Insurance Services
    
    
    15,845
    
    
    
    17,704
    
    
    
    48,597
    
    
    
    47,850Total
    
    $
    33,049
    
    
    $
    40,334
    
    
    $
    99,936
    
    
    $
    109,120Less reconciling items:Corporate expenses
    
    
    9,623
    
    
    
    5,990
    
    
    
    27,109
    
    
    
    20,504Disgorgement portion of
estimated regulatory
settlement reflected as a
reduction to revenue
    
    
    
    
    
    
    9,699
    
    
    
    
    
    
    
    9,699Restructuring and impairment
charges (reversals):Investment Services
    
    $
    15
    
    
    $
    131
    
    
    $
    15
    
    
    $
    2,371Insurance Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    1,237
    
    
    
    
    
    
    
    1,237
    
    
    
    (5
    )Total restructuring and
impairment charges
    
    $
    1,252
    
    
    $
    131
    
    
    $
    1,252
    
    
    $
    2,366Litigation costs and
regulatory settlements
(recoveries):Investment Services
    
    $
    198
    
    
    $
    11,086
    
    
    $
    401
    
    
    $
    11,086Insurance Services
    
    
    165
    
    
    
    337
    
    
    
    1,296
    
    
    
    240Corporate
    
    
    (8,428
    )
    
    
    7,971
    
    
    
    (2,284
    )
    
    
    9,315Total litigation costs and
regulatory settlements
    
    $
    (8,065
    )
    
    $
    19,394
    
    
    $
    (587
    )
    
    $
    20,641Total consolidated
operating earnings
    
    $
    30,239
    
    
    $
    5,120
    
    
    $
    72,162
    
    
    $
    55,910Operating margins:Investment Services
    
    
    11.5
    %
    
    
    14.0
    %
    
    
    11.6
    %
    
    
    13.2
    %Insurance Services
    
    
    25.5
    %
    
    
    29.1
    %
    
    
    26.6
    %
    
    
    26.3
    %
 Internal revenue growth (excluding acquisitions and divestitures and excluding the impact of
the disgorgement portion of an estimated regulatory settlement in the prior year) for
Investment Services approximated (3.9)% and (5.7)% during the three and nine months ended
March 31, 2006, respectively. Internal revenue growth for Insurance Services approximated
1.9% and 0.6%, respectively for the three and nine months ended March 31, 2006,
respectively.Revenues in the Investment Services business segment decreased $11.5 million, or 7.1%, during
the three months ended March 31, 2006, over the same period in the prior year. For the nine
months ended March 31, 2006, revenue decreased $21.3 million to $441.8 million compared to
the same period in the prior year. Revenues for the three and nine months ended March 31,
2006 excluded the impact of the $9.7 million
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disgorgement portion of an estimated regulatory settlement. The decline in revenue in both
periods was primarily the result of the loss of two significant clients in the Fund Services
business as one client was acquired and subsequently migrated to the acquirers in-house
solution and the other client exited the mutual fund business. In addition, revenue in the
Fund Services business was negatively impacted by the sale of Boston Institutional Services,
Inc. (a broker-dealer subsidiary) in April 2005, the termination of marketing and
distribution arrangements, and a difficult selling environment for larger funds. The strong
revenue growth in the Alternative Investment Services businesses was not enough to offset
this decline. Revenues related to RK Consulting, acquired in January 2005, approximated $21.1
million for the first half of fiscal 2006.
 Operating income in the Investment Services business segment decreased $5.4 million, or
24.0%, and $9.9 million, or 16.2%, for the three and nine months ended March 31, 2006,
respectively, as compared to the respective year ago periods. Operating margin declined to
11.5% for the three months ended March 31, 2006 versus 14.0% in the year ago period. For the
nine months ended March 31, 2006, operating margin equaled 11.6%, compared to 13.2% in the
prior year. For both periods, the margin decline was primarily attributable to lower revenue
in the Fund Services business, which more than offset lower costs resulting from
restructuring activities and other cost reduction initiatives. For the full fiscal year
2006, margins in the Investment Services segment are expected to approximate 12%, and
internal revenue growth as a percentage is expected to range in the low negative single
digits.Revenues in the Insurance Services business segment increased $1.1 million, or 1.9%, during
the three months ended March 31, 2006, over the same period in the prior year. Operating
income in the Insurance Services business segment decreased $1.9 million, or 10.5%, during
the fiscal third quarter. Operating margins were 25.5% and 29.1% for the three months ended
March 31, 2006 and 2005, respectively. The margin and dollar decrease was primarily due to
increased headcount-related costs in both our Commercial Insurance Services and Life
Insurance Services businesses, which more than offset revenue growth in the quarter. For the
nine months ended March 31, 2006, revenues increased slightly to $182.9 million, or 0.6%,
compared to the same period in the prior year. Operating margins were 26.6% and 26.3% for
the nine months ended March 31, 2006 and 2005, respectively. Operating income was $48.6
million and $47.9 million for the nine months ended March 31, 2006 and 2005, respectively.
The slight margin and dollar increase resulted from strong revenue growth in our Commercial
Insurance Services business, offset by higher headcount-related costs and the impact of an
adjustment relating to certain error corrections in the Life Insurance Services business
recorded in the first quarter of 2006. For the full fiscal year 2006, internal revenue
growth is expected to range in the low single digits, and margins in the Insurance Services
business segment is expected to range in the mid-twenties as a percentage of revenues.Corporate operations represent charges for our human resources, legal, accounting and
finance functions, and various other unallocated overhead charges. Corporate expenses of
$27.1 million for the nine months ended March 31, 2006 increased from $20.5 million in the
same period last year primarily due to additional legal, accounting and other corporate
costs incurred in connection with the ongoing regulatory
investigations and costs associated with the relocation of our
corporate headquarters.
 Financial Condition
 At March 31, 2006 and June 30, 2005, we had cash and cash equivalents of $285.3 million and
$172.3 million, respectively. Cash and cash equivalents held outside the U.S. at March 31,
2006 and June 30, 2005 amounted to $28 million and $61 million, respectively. Cash and cash
equivalents were impacted by $471 million of proceeds from the disposition of the
Information Services segment, offset somewhat by the $300 million repayment of debt. The
tax liability associated with the disposition of the Information Services segment is
approximately $152 million and is classified as a current liability as of the balance sheet
date. Stockholders equity increased to $979.8 million at March 31, 2006 from $690.0
million at June 30, 2005, principally due to income associated with the disposition of the
Information Services segment. Stockholders equity also benefited from income from
continuing operations the utilization of treasury stock for stock option exercises, and the
repayment of notes from stockholders.Capital expenditures, including capitalized software costs, were $14.2 million for the nine
months ended March 31, 2006.
 Liquidity and Capital Resources
 We believe that our existing sources of liquidity together with cash expected to be
generated from operations will be sufficient to fund our anticipated capital expenditures,
working capital and other financing requirements
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for at least the next twelve months. On March 14, 2006, we used the net proceeds from the
sale of the Information Services segment for the repayment of the $300 million of
outstanding 4% convertible subordinated notes due March 2006 (see Note 9  Borrowings).
At March 31, 2006, we had working capital of $111.1 million primarily resulting from the
disposition of our Information Services Segment.
 At March 31, 2006, we had no outstanding borrowings against our $150 million revolving
credit facility. In December 2005, we repaid the remaining balance of $54 million under the
term loan portion of the credit facility. The facility was created to support our working
capital requirements, repurchase our common stock, and fund our acquisitions. At March 31,
2006, we had $4.5 million outstanding in letters of credit.The credit agreement required us to maintain certain financial covenants and limited our
ability to incur future indebtedness and to pay dividends. As of March 31, 2006, no amounts
were permitted for the payment of cash dividends. In May 2005, a default occurred under the
2004 facility resulting from our failure to timely file our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2005 and our failure to deliver the related compliance
certificate for such fiscal quarter. On June 14, 2005, we 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. After obtaining additional consents and waivers from the lenders
subsequent to June 30, 2005, the 2004 facility was eventually terminated by us in January
2006 and replaced with a new interim credit facility (see Note 9  Borrowings). As a
condition of the waivers, additional borrowings under the revolving line of credit were not
permitted until the default was cured.In January 2006, we 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. On
July 21, 2006 we received a waiver from our lender under the Interim Facility, which waived
our default resulting from our 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. We have delivered the required financial
statements and compliance certificate for the quarter ended December 31, 2005 to our lender
and are now required to deliver our financial statements and compliance certificate for the
quarter ended March 31, 2006 on or before September 5, 2006.We manage our debt structure and interest rate risk through the use of fixed- and
floating-rate debt. While changes in the interest rates could decrease our interest income
or increase our interest expense, we do not believe that we have a material exposure to
changes in interest rates based on the relative size of our interest bearing assets and
liabilities. We do not undertake any specific actions concerning exposure to interest rate
risk, and we are not party to any interest rate derivative transactions. We utilize foreign
currency forward contracts to manage our foreign exchange risk. These instruments are
designated as cash flow hedges and are recognized as earnings in the same period as the
items that they generally offset.Our strategy includes the acquisition of complementary businesses financed by a combination
of internally generated funds, borrowings from the revolving credit facility, long-term debt
and common stock. Our policy is to retain earnings to support future business opportunities,
rather than to pay dividends. We have historically used a significant portion of our cash
flow from operations to fund acquisitions and capital expenditures, with any remainder used
to reduce outstanding borrowings or repurchase our own common stock. We believe that our
cash flow from operations, together with available borrowings under the revolving credit
facility, will be adequate to meet our funding requirements. In the event that we make
significant future acquisitions, however, we may raise funds through additional borrowings
or the issuance of securities.Accounts receivable represented 50 and 49 days sales outstanding (DSO) at March 31, 2006 and
2005, respectively, based on quarterly revenues. The calculation of DSO for accounts
receivable excludes insurance premiums and commissions receivable arising from our
insurance-related businesses. DSO is less relevant for this type of receivable because it
includes premiums that are ultimately remitted to the insurer and not recognized as revenue.
Additionally, certain life insurance commissions due from insurance carriers have customary
payment terms of up to twelve months. We perform credit evaluations of our customers in
conjunction with our new business development processes. The customers are assessed for
credit worthiness based on their financial position, and payment terms are generally
negotiated at the time contracts are signed. We regularly evaluate our accounts receivable
position relative to our revenues and monitor our accounts receivable aging as part of
managing our receivable portfolio. Credit risk is generally mitigated by reasonably
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short payment terms, the nature of our customers (i.e., commercial banks, multi-line
financial institutions, mutual funds, and insurance carriers) and our large and diverse
customer base. We generally do not require collateral for accounts receivable and maintain
an allowance for doubtful accounts of $3.3 million at March 31, 2006.
 For the nine months ended March 31, 2006, operating activities provided cash of $83.5
million, $44.6 million provided by continuing operations and $38.9 million provided by
discontinued operations. Net income from continuing operations totaled $41.1 million, with
depreciation and amortization of $36.0 million, other non-cash charges of $5.7 million,
offset by changes in working capital items of $39.9 million. The change in working capital
of $39.9 million includes $23.9 million primarily related to an increase in the net amount
due to us from businesses currently classified as discontinued operations (in the same
period in the prior year, working capital provided cash of $39.1 million of which $33.8
million related to a net reduction of amounts due to us from businesses classified as
discontinued operations). Investing activities provided cash of $418.3 million, including
$471.3 million in proceeds from the sale of our Information Services segment, offset by
$14.2 million of capital expenditures and $36.0 million of net cash used in investing
activities from discontinued operations. Financing activities used cash of $389.5 million,
including the repayment of long-term debt of $301.3 million, net payments of short-term
borrowings of $93.8 million and repurchases of our stock of $1.2 million, offset by proceeds
from exercise of stock options of $7.7 million and repayment of notes receivable from
shareholders of $3.7 million.Repurchases of our common stock have occurred and are expected to continue to occur from
time to time in the open market to offset the possible dilutive effect of shares issued
under employee benefit plans, for possible use in future acquisitions, and for general and
other corporate purposes. The following table presents stock repurchase activity during the
three and nine months ended March 31, 2006 and the year ended June 30, 2005 under programs
authorized by the Board of Directors, disclosing total shares repurchased under each program
and the associated cost. Upon authorization of each new stock repurchase program, the former
program is superseded and replaced. The current repurchase program has no set expiration
date. In addition to shares purchased in the open market under the buy-back program, we also
purchase shares of common stock held by employees who wish to tender owned shares to satisfy
tax withholding on restricted stock vesting and Rabbi Trust distributions. In March 2005, we
suspended our open market stock repurchase program and do not currently expect to engage in
further stock repurchase activity under the program until the we become current in our
financial reporting obligations. All of the shares purchased in the quarter ended March 31,
2006 were surrendered to us by employees in order to satisfy tax withholding obligations.
 Nine Months Ended
    
    Year EndedMarch 31, 2006
    
    June 30, 2005Shares
    
    Cost
    
    Shares
    
    CostShare repurchase programs:$100 million, authorized
November 2003
    
    
    77
    
    
    $
    1,161
    
    
    
    3,149
    
    
    $
    45,755
 Critical Accounting Policies
 Our consolidated financial statements and accompanying notes have been prepared in
accordance with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires management to make estimates,
judgments and assumptions that affect reported amounts of assets, liabilities, revenues and
expenses. We continually evaluate the accounting policies and estimates used to prepare the
consolidated financial statements. The estimates are based on historical experience and
assumptions believed to be reasonable under current facts and circumstances. Actual amounts
and results could differ from these estimates made by management. Certain accounting
policies that require significant management estimates and are deemed critical to our
results of operations or financial position are discussed in our Annual Report to
Stockholders for the fiscal year ended June 30, 2005 in the Critical Accounting Policies
section of Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 New Accounting Pronouncements
 In March 2005, the 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
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Off-Balance Sheet Arrangements
  31




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Forward-Looking Statements
    32




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    33




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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.
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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
 Legal Proceedings
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Regulatory Investigations
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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
   (c) Total Number
    
    (d) Approximateof Shares
    
    Dollar Value ofPurchased as Part
    
    Shares that May(a) Total Number
    
    
    
    
    
    of Publicly
    
    Yet Be Purchasedof Shares
    
    (b) Average Price
    
    Announced Plans
    
    Under the Plans orPeriod
    
    Purchased
    
    Paid per Share
    
    or Programs
    
    ProgramsJanuary 2006
    
    
    2,490
    
    
    $
    14.50
    
    
    
    4,079,462
    
    
    
    39,746,572February 2006
    
    
    3,208
    
    
    
    14.39
    
    
    
    4,082,670
    
    
    
    39,700,409March 2006
    
    
    12,781
    
    
    
    14.13
    
    
    
    4,095,451
    
    
    
    39,519,839Total
    
    
    18,479
  
 ITEM 6. EXHIBITS
 (a) Exhibits
    39




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##### Table of Contents



SIGNATURES
  THE BISYS GROUP, INC.Date: August 30, 2006
    By:
    /s/ Bruce D. DalzielBruce D. DalzielExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer) 40




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##### Table of Contents



THE BISYS GROUP, INC.
 
 EXHIBIT INDEX
 Exhibit No.(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
 41