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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to ___________
 Commission file number: 001-31254
 THE BISYS GROUP, INC.
  DELAWARE
(State or other jurisdiction of incorporation or organization)
    
    13-3532663
(I.R.S. Employer Identification No.)
 105 Eisenhower Parkway, Roseland, New
Jersey 07068
 973-461-2500
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such report(s), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check One):
 Large accelerated filer þ Accelerated filer o Non-accelerated filer o
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No 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 April 30, 2007, there were 121,257,396 shares of common stock, par value $0.02 per share, of
the issuer outstanding.




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##### 



THE BISYS GROUP, INC.
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited)Condensed Consolidated Statements of Income for the three and nine months ended March 31, 2007 and 2006
    
    
     3Condensed Consolidated Balance Sheets as of March 31, 2007 and June 30, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2007 and 2006
    
    
    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 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 6. Exhibits
    
    
    40SIGNATURES
    
    
    41EXHIBIT INDEX
    
    
    42EX-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 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    231,560
    
    
    $
    211,725
    
    
    $
    664,367
    
    
    $
    624,674Operating costs and expenses:Service and operating
(exclusive of depreciation and
amortization shown separately below)
    
    
    153,967
    
    
    
    136,859
    
    
    
    442,343
    
    
    
    400,786Selling, general and administrative
(exclusive of depreciation and
amortization shown separately below)
    
    
    40,977
    
    
    
    39,369
    
    
    
    121,231
    
    
    
    115,057Depreciation and amortization
    
    
    12,859
    
    
    
    12,071
    
    
    
    37,853
    
    
    
    36,004Restructuring and impairment charges
    
    
    
    
    
    
    1,252
    
    
    
    
    
    
    
    1,252Litigation and regulatory settlements
    
    
    502
    
    
    
    (8,065
    )
    
    
    1,529
    
    
    
    (587
    )Total operating costs and expenses
    
    
    208,305
    
    
    
    181,486
    
    
    
    602,956
    
    
    
    552,512Operating earnings
    
    
    23,255
    
    
    
    30,239
    
    
    
    61,411
    
    
    
    72,162Interest income
    
    
    1,614
    
    
    
    2,392
    
    
    
    5,193
    
    
    
    5,177Interest expense
    
    
    (944
    )
    
    
    (3,434
    )
    
    
    (2,199
    )
    
    
    (13,751
    )Investment gains and other
    
    
    (12
    )
    
    
    (106
    )
    
    
    370
    
    
    
    81Income from continuing operations before
income taxes
    
    
    23,913
    
    
    
    29,091
    
    
    
    64,775
    
    
    
    63,669Income taxes
    
    
    7,104
    
    
    
    9,053
    
    
    
    19,484
    
    
    
    22,588Income from continuing operations
    
    
    16,809
    
    
    
    20,038
    
    
    
    45,291
    
    
    
    41,081Income (loss) from discontinued
operations, net of tax
    
    
    (68
    )
    
    
    216,159
    
    
    
    (276
    )
    
    
    230,803Net income
    
    $
    16,741
    
    
    $
    236,197
    
    
    $
    45,015
    
    
    $
    271,884Basic earnings per share:Continuing operations
    
    $
    0.14
    
    
    $
    0.17
    
    
    $
    0.38
    
    
    $
    0.35Discontinued operations
    
    
    
    
    
    
    1.81
    
    
    
    
    
    
    
    1.94Total basic earnings per share
    
    $
    0.14
    
    
    $
    1.98
    
    
    $
    0.38
    
    
    $
    2.29Diluted earnings per share:Continuing operations
    
    $
    0.14
    
    
    $
    0.17
    
    
    $
    0.38
    
    
    $
    0.34Discontinued operations
    
    
    
    
    
    
    1.81
    
    
    
    
    
    
    
    1.93Total diluted earnings per share
    
    $
    0.14
    
    
    $
    1.97
    
    
    $
    0.38
    
    
    $
    2.27
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THE BISYS GROUP, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
 March 31,
    
    
    June 30,2007
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    86,962
    
    
    $
    159,610Restricted cash
    
    
    42,166
    
    
    
    40,151Accounts receivable, net
    
    
    107,029
    
    
    
    90,550Insurance premiums and commissions receivable
    
    
    81,600
    
    
    
    119,461Deferred tax asset
    
    
    25,645
    
    
    
    56,981Other current assets
    
    
    21,788
    
    
    
    16,889Total current assets
    
    
    365,190
    
    
    
    483,642Property and equipment, net
    
    
    39,513
    
    
    
    42,100Goodwill
    
    
    729,870
    
    
    
    716,810Intangible assets, net
    
    
    125,833
    
    
    
    139,177Other assets
    
    
    21,506
    
    
    
    17,014Total assets
    
    $
    1,281,912
    
    
    $
    1,398,743LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    6,738
    
    
    $
    1,656Accounts payable
    
    
    13,511
    
    
    
    10,735Insurance premiums and commissions payable
    
    
    93,590
    
    
    
    132,637Other current liabilities
    
    
    121,503
    
    
    
    144,200Litigation and regulatory settlements
    
    
    775
    
    
    
    115,361Total current liabilities
    
    
    236,117
    
    
    
    404,589Long-term debt
    
    
    1,783
    
    
    
    2,890Deferred tax liability
    
    
    33,513
    
    
    
    36,256Deferred revenues
    
    
    5,243
    
    
    
    6,622Other liabilities
    
    
    7,002
    
    
    
    6,772Total liabilities
    
    
    283,658
    
    
    
    457,129Stockholders equity:Common stock, $0.02 par value, 320,000,000 shares authorized, 122,222,767
and 121,914,030 shares issued
    
    
    2,445
    
    
    
    2,438Additional paid-in capital
    
    
    402,834
    
    
    
    396,484Retained earnings
    
    
    606,264
    
    
    
    564,809Employee benefit trust, 379,717 and 434,505 shares
    
    
    (5,734
    )
    
    
    (6,819
    )Deferred compensation
    
    
    5,730
    
    
    
    6,848Accumulated other comprehensive income
    
    
    277
    
    
    
    141Treasury stock at cost, 932,869 and 1,502,478 shares
    
    
    (13,562
    )
    
    
    (22,287
    )Total stockholders equity
    
    
    998,254
    
    
    
    941,614Total liabilities and stockholders equity
    
    $
    1,281,912
    
    
    $
    1,398,743
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THE BISYS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months EndedMarch 31,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    45,015
    
    
    $
    271,884Adjustment for income from discontinued operations, net of tax
    
    
    276
    
    
    
    (230,803
    )Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    37,853
    
    
    
    36,004Deferred income tax provision
    
    
    28,800
    
    
    
    1,825Share-based compensation
    
    
    6,957
    
    
    
    5,751Investment gains and other
    
    
    (370
    )
    
    
    (81
    )Change in assets and liabilities, net of effects from acquisitions
and divestitures
    
    
    (33,150
    )
    
    
    (41,018
    )Payment related to legal settlements
    
    
    (113,003
    )
    
    
    Tax payment on sale of discontinued operations business
    
    
    (13,000
    )
    
    
    Net cash provided by operating activities from discontinued operations
    
    
    1,041
    
    
    
    38,434Net cash provided by (used in) operating activities
    
    
    (39,581
    )
    
    
    81,996CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of businesses, net of cash acquired
    
    
    (21,756
    )
    
    
    (1,858
    )Payments related to businesses previously acquired
    
    
    
    
    
    
    (300
    )Proceeds from business divestitures
    
    
    
    
    
    
    471,295Capital expenditures for property and equipment
    
    
    (7,113
    )
    
    
    (8,403
    )Capitalized software costs
    
    
    (6,819
    )
    
    
    (5,774
    )Proceeds from sale of investments
    
    
    132
    
    
    
    302Purchase of investments
    
    
    (4,000
    )
    
    
    Acquired intangible assets
    
    
    (82
    )
    
    
    (111
    )Other
    
    
    
    
    
    
    80Net cash used in investing activities from discontinued operations
    
    
    (1,041
    )
    
    
    (36,010
    )Net cash used in investing activities
    
    
    (40,679
    )
    
    
    419,221CASH FLOWS FROM FINANCING ACTIVITIESProceeds from short-term borrowings
    
    
    20,000
    
    
    
    Payments on short-term borrowings
    
    
    (15,000
    )
    
    
    Payment of long-term debt
    
    
    (1,350
    )
    
    
    (395,055
    )Exercise of stock options
    
    
    1,821
    
    
    
    7,726Issuance of common stock
    
    
    4,260
    
    
    
    Repurchases of common stock
    
    
    (1,355
    )
    
    
    (1,161
    )Repayment of notes receivable from stockholders
    
    
    
    
    
    
    3,718Changes in bank overdrafts
    
    
    178
    
    
    
    (1,232
    )Excess tax benefits from share-based payment arrangements
    
    
    83
    
    
    
    206Other
    
    
    (1,025
    )
    
    
    Net cash used in financing activities from discontinued operations
    
    
    
    
    
    
    (3,042
    )Net cash provided by (used in) financing activities
    
    
    7,612
    
    
    
    (388,840
    )Change in cash and cash equivalents
    
    
    (72,648
    )
    
    
    112,377Cash and cash equivalents at beginning of period (includes cash of
discontinued
operations of $0 in 2007 and $618 in 2006)
    
    
    159,610
    
    
    
    172,953Cash and cash equivalents at end of period (includes cash of
discontinued
operations of $0 in 2007 and $0 in 2006)
    
    $
    86,962
    
    
    $
    285,330
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THE BISYS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unless otherwise noted, tabular dollars and share information in thousands, except per share
data) (Unaudited)
 1.
    
    Basis of Presentation and Summary of Significant Accounting Policies
 The Company
 The 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 Operations
 On 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 $471.3 million in cash. The transaction closed on March 3, 2006,
and the Company recognized a gain of $203.7 million, net of tax.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
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 Presentation
 The accompanying unaudited condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United States of America
and with the instructions to Form 10-Q and Article 10 of Regulation S-X and do not contain
all of the information and footnotes required by accounting principles generally accepted
in the United States of America for complete annual statements. The accompanying financial
information includes all adjustments (consisting of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of the results for the
interim period. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto included in
the Companys Annual Report on Form 10-K for the fiscal year ended June 30, 2006 (Fiscal
2006 Form 10-K). The results of operations for the three and nine months ended March 31,
2007 may not be indicative of the results expected for the fiscal year ending June 30,
2007.
 Fiscal Year
 The Companys fiscal year is from July 1 to June 30. Unless otherwise stated, references to
the years 2007 and 2006 relate to the fiscal years ended June 30, 2007 and 2006,
respectively. References to future years also relate to the fiscal year ended June 30.
 Restricted Cash
 Unremitted insurance premiums are held in a fiduciary capacity and approximated $42.2
million and $40.2 million at March 31, 2007 and June 30, 2006, 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 Payable
 The 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
business. In its capacity as a commercial property and casualty wholesale broker and
managing general agent, the Company collects premiums from other agents and brokers and,
after deducting its commissions, remits the premiums to the respective insurers. In the
Companys Life Insurance Services business, commissions receivable from carriers are
reflected net of amounts owed to agents and brokers as a component of insurance premiums
and commission receivable. In
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its capacity as a distributor of life insurance products, the Company
typically receives commissions from the respective insurance carriers and remits the appropriate
commission to agents and brokers after deducting its commission. Life insurance premiums are
usually paid directly to the carrier by the insured.
 Investments
 Management 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 three and nine months ended March 31,
2007 and 2006, proceeds from securities sold and the realized gains were not significant.
 Leases
 The 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 Taxes
 The 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 $7.1 million and $9.1 million for the three months ended
March 31, 2007 and 2006, respectively, represent an effective tax rate of 29.7% in 2007 and
31.1% in 2006. The effective tax rate for the three months ended March 31, 2007 was
impacted by an adjustment to reflect a retroactive change in the tax law. For the three
months ended March 31, 2006, the effective tax rate 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 2001, 2002 and 2003.The provision for income taxes of $19.5 million and $22.6 million for the nine months ended
March 31, 2007 and 2006, respectively, represent an effective tax rate of 30.1% in 2007 and
35.5% in 2006. The effective tax rate for the nine months ended March 31, 2007 was impacted
by the reversal in the first quarter of Fiscal 2007 of a loss contingency for state taxes
for which the statute of limitations had expired and by an adjustment
to reflect a retroactive change in the tax law. For the nine months ended March 31, 2006, the effective tax rate was impacted by
the U.S. tax on the repatriation of earnings under the American Job 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 2001, 2002 and
2003, and permanent differences associated with certain error corrections recorded in the
first quarter of 2006 related to the Life Insurance Services business.
 New Accounting Pronouncements
 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
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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.In September 2006, the FASB issued SFAS No. 157, Fair Value Measures (FAS 157). FAS 157
defines fair value and establishes a framework for measuring fair value in accordance with
generally accepted accounting principles. This Statement also applies to other accounting
pronouncements that require or permit a fair value measure. As defined by this Statement,
the fair value of an Asset or Liability would be based on an exit price basis rather than
an entry price basis. Additionally, the fair value should be market-based and not an
entity-based measurement. FAS 157 is effective for fiscal years beginning after November
15, 2007 (the Companys Fiscal 2009). The Company has not completed its evaluation of
adopting FAS 157 but does not expect the implementation of FAS 157 to have a material
impact on its consolidated financial statements.In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements (SAB 108), which provides
interpretive guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality assessment. SAB 108
is effective for the first fiscal year ending after November 15, 2006. The Company plans to
apply the provisions of SAB 108 in its Annual Report on Form 10-K for the year ending June
30, 2007. The Company does not expect the application of this interpretation to have an
impact on its financial position or results of operations.In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (FAS 159). FAS 159 enables companies to report selected
financial assets and liabilities at their fair value. This statement also requires
companies to provide additional information to help investors and other users of financial
statements understand the effects of a companys election to use fair value on its
earnings. FAS 159 requires companies to display the fair value of assets and liabilities on
the face of the balance sheet when a company elects to use fair value. FAS 159 is effective
for fiscal years beginning after November 15, 2007 (the Companys Fiscal 2009). The Company
has not completed its evaluation of adopting FAS 159.
 2.
    
    Use of Estimates
 The 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.
 3.
    
    Comprehensive Income
 The components of comprehensive income are as follows:
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income
    
    $
    16,741
    
    
    $
    236,197
    
    
    $
    45,015
    
    
    $
    271,884Unrealized loss on investments, net of tax
    
    
    (6
    )
    
    
    (57
    )
    
    
    
    
    
    
    (26
    )Unrealized gain (loss) on foreign
currency exchange contracts
    
    
    
    
    
    
    35
    
    
    
    (23
    )
    
    
    160Foreign currency translation adjustment
    
    
    86
    
    
    
    (85
    )
    
    
    159
    
    
    
    (156
    )Total comprehensive income
    
    $
    16,821
    
    
    $
    236,090
    
    
    $
    45,151
    
    
    $
    271,862
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4.
    
    Per Share Data
 Amounts utilized in per share computations for the three and nine months ended March 31,
2007 and 2006 are as follows:
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Weighted average common
shares outstanding
    
    
    120,013
    
    
    
    119,118
    
    
    
    119,769
    
    
    
    118,837Assumed conversion of common
shares issuable under stock-based compensation plans
    
    
    268
    
    
    
    537
    
    
    
    391
    
    
    
    907Weighted average common and
common equivalent shares
outstanding
    
    
    120,281
    
    
    
    119,655
    
    
    
    120,160
    
    
    
    119,744
 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 31,2007
    
    2006
    
    2007
    
    2006Number of options excluded
    
    6,143
    
    8,494
    
    6,149
    
    8,494Option price per share
    
    $12.53 to $35.10
    
    $14.21 to $35.10
    
    $12.00 to $35.10
    
    $14.21 to $35.10Average market price of common
shares for the period
    
    $12.50
    
    $14.16
    
    $11.93
    
    $14.14
 5.
    
    Share-Based Compensation
 The Company accounts for stock-based compensation in accordance with SFAS 123R,
Share-Based Payment (FAS 123R), which requires companies to expense the fair value of
stock-based compensation awards on the date of grant. 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
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 has historically offered an employee stock
purchase plan that grants eligible employees the right to purchase a limited number of
 shares of common stock each calendar year
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##### Table of Contents



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. The Company does not currently intend to offer an employee stock purchase plan for
calendar year 2007.During the three months ended March 31, 2007, the Company recognized approximately $2.2 million of
stock-based compensation expense ($0.9 million relating to stock options, $1.3 million relating to
restricted stock and no expense relating to the employee stock purchase plan). During the nine
months ended March 31, 2007, the Company recognized approximately $7.0 million of stock-based
compensation expense ($2.4 million relating to stock options, $3.9 million relating to restricted
stock and $0.7 relating to the employee stock purchase plan). During the three and nine months
ended March 31, 2007, the Company recognized $0.6 million and $1.7 million, respectively, in
related tax benefits. As of March 31, 2007, the total remaining unrecognized compensation cost
related to non-vested stock options and restricted stock awards, net of forfeitures, was
approximately $18.9 million and is expected to be recognized over an estimated weighted
amortization period of 4.06 years. During the three months ended March 31, 2007, the Company
modified 416,476 stock options by extending the life of the options. The financial impact of the
modification was $0.4 million. During the nine months ended March 31, 2007, the Company modified
832,940 stock options by extending the life of the options. The financial impact of the
modifications was $0.7 million and is included in the stock-based compensation expenses detailed
above.
 The fair values of stock options granted during the nine months ended March 31, 2007 and 2006
were estimated on the date of grant using the Black-Scholes pricing model with the following
assumptions:
 Nine Months EndedMarch 31,2007
    
    2006Expected life (in years)
    
    
    5.23
    
    
    
    4.08Average risk-free interest rate
    
    
    4.83
    %
    
    
    4.11
    %Expected volatility
    
    
    40.4
    %
    
    
    39.6
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
 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 expected 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, 2007 and 2006 was $5.19 and $5.69 per share, respectively.The table below presents information related to stock option activity for the three and nine
months ended March 31, 2007 and 2006:
 Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Total intrinsic value of stock options
exercised
    
    $
    183
    
    
    $
    659
    
    
    $
    353
    
    
    $
    2,383Total fair value of stock options
vested
    
    
    527
    
    
    
    536
    
    
    
    1,636
    
    
    
    1,663Cash received from stock option
exercises
    
    $
    1,228
    
    
    $
    1,904
    
    
    $
    1,821
    
    
    $
    7,726
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A summary of stock option activity for the nine months ended March 31, 2007 is as follows:
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    Term (years)
    
    
    ValueOutstanding, June 30, 2006
    
    
    10,262
    
    
    $
    19.45Granted
    
    
    525
    
    
    
    11.38Exercised
    
    
    (185
    )
    
    
    9.87Forfeited or expired
    
    
    (3,735
    )
    
    
    18.92Outstanding, March 31, 2007
    
    
    6,867
    
    
    $
    19.38
    
    
    
    4.44
    
    
    $
    614Exercisable, March 31, 2007
    
    
    5,864
    
    
    $
    20.45
    
    
    
    3.78
    
    
    $
    608
 A summary of unvested stock option activity for the nine months ended March 31, 2007 is as follows:
 WeightedNumber of
    
    
    Average FairShares
    
    
    ValueUnvested at June 30, 2006
    
    
    1,176
    
    
    $
    6.08Granted
    
    
    525
    
    
    
    4.55Vested
    
    
    (383
    )
    
    
    5.31Forfeited or expired
    
    
    (315
    )
    
    
    6.41Unvested at March 31, 2007
    
    
    1,003
    
    
    $
    5.47
 A summary of restricted stock activity for the nine months ended March 31, 2007 is as follows:
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Average Fair
    
    
    Vesting Term
    
    
    FairShares
    
    
    Value
    
    
    (years)
    
    
    ValueUnvested at June 30, 2006
    
    
    1,145
    
    
    $
    14.83
    
    
    
    3.57
    
    
    $
    16,988Granted
    
    
    551
    
    
    
    10.76
    
    
    
    3.46
    
    
    
    5,929Vested
    
    
    (333
    )
    
    
    14.99
    
    
    
    
    
    
    
    (5,002
    )Forfeited
    
    
    (242
    )
    
    
    14.33
    
    
    
    2.55
    
    
    
    (3,473
    )Unvested at March 31, 2007
    
    
    1,121
    
    
    $
    12.89
    
    
    
    2.75
    
    
    $
    14,442
 At March 31, 2007, options to purchase 10.4 million shares were available for grant under the
Companys stock option and restricted stock plans.The Company has a policy of utilizing shares held in treasury to satisfy stock option exercises and
share issuances in connection with its employee stock purchase plan; however, the Company does not
expect to repurchase any additional shares in the open market during the pendency of its proposed
merger with Citibank N.A.In February 2007, the Company issued 156,510 shares in connection with the 2006 employee stock
purchase plan. In August 2006, the Company issued 315,214 shares in connection with the 2005
employee stock purchase plan.
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##### Table of Contents



6.
    
    Restructuring
  Restructuring accrual at June 30, 2006
    
    $
    1,729Expense provision:Facility closure
    
    
    Cash payments and other
    
    
    600Remaining accrual at March 31, 2007:Facility closure
    
    
    1,129Total
    
    $
    1,129
 7.
    
    Litigation and Regulatory Investigations
 Litigation
    12




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Regulatory Investigations
  13




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March 31,
    
    
    June 30,2007
    
    
    2006Regulatory settlement  Fund Services
    
    $
    
    
    
    $
    21,403Class action suit settlement
    
    
    
    
    
    
    66,500SEC settlement  financial restatements
    
    
    
    
    
    
    25,100Derivative settlement
    
    
    775
    
    
    
    Other  Potomac Group West
    
    
    
    
    
    
    2,358$
    775
    
    
    $
    115,361
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Litigation
    
    $
    2,860
    
    
    $
    737
    
    
    $
    12,260
    
    
    $
    8,012Regulatory settlement
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    401Derivative settlement
    
    
    
    
    
    
    
    
    
    
    775
    
    
    
    Insurance recoveries
    
    
    
    
    
    
    (9,000
    )
    
    
    (9,148
    )
    
    
    (9,000
    )Other  Potomac Group West
    
    
    (2,358
    )
    
    
    
    
    
    
    (2,358
    )
    
    
    $
    502
    
    
    $
    (8,065
    )
    
    $
    1,529
    
    
    $
    (587
    )
   8.
    
    Goodwill and Intangible Assets
 Goodwill
  Investment
    
    
    InsuranceServices
    
    
    Services
    
    
    TotalBalance, June 30, 2006
    
    $
    362,858
    
    
    $
    353,952
    
    
    $
    716,810Additions
    
    
    
    
    
    
    13,106
    
    
    
    13,106Adjustments to previous acquisitions
    
    
    
    
    
    
    (46
    )
    
    
    (46
    )Balance, March 31, 2007
    
    $
    362,858
    
    
    $
    367,012
    
    
    $
    729,870
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##### Table of Contents



Intangible Assets
  Gross Carrying
    
    
    Accumulated
    
    
    Net BookAmount
    
    
    Amortization
    
    
    ValueCapitalized software
    
    $
    65,523
    
    
    $
    (41,332
    )
    
    $
    24,191Customer related
    
    
    189,083
    
    
    
    (92,724
    )
    
    
    96,359Noncompete agreements
    
    
    15,147
    
    
    
    (10,811
    )
    
    
    4,336Other
    
    
    3,695
    
    
    
    (2,748
    )
    
    
    947Total
    
    $
    273,448
    
    
    $
    (147,615
    )
    
    $
    125,833
  Gross Carrying
    
    
    Accumulated
    
    
    Net BookAmount
    
    
    Amortization
    
    
    ValueCapitalized software
    
    $
    59,983
    
    
    $
    (35,181
    )
    
    $
    24,802Customer related
    
    
    185,580
    
    
    
    (77,832
    )
    
    
    107,748Noncompete agreements
    
    
    16,299
    
    
    
    (11,014
    )
    
    
    5,285Other
    
    
    3,695
    
    
    
    (2,353
    )
    
    
    1,342Total
    
    $
    265,557
    
    
    $
    (126,380
    )
    
    $
    139,177
  Fiscal Year
    
    Amount2007
    
    $
    9,3382008
    
    
    32,6462009
    
    
    28,2292010
    
    
    18,6622011
    
    
    13,593Thereafter
    
    
    23,365
 9.
    
    BorrowingsIn January 2006, the Company terminated the previous credit facility that was entered
into in March 2004 and entered into a new 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 was 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 not required to repay the Companys $300 million of
convertible subordinated notes, which were repaid in March 2006 using proceeds from the
sale of the Information Services segment (see Note 12  Discontinued Operations).In August 2006, the Company amended the Credit Agreement to, among other things, extend the
maturity date of the Interim Facility from January 2, 2007 to June 30, 2007. On November
15, 2006, the Company entered into a second amendment to the Credit Agreement to, among
other things, extend the time to deliver its Form 10-Q for the first and second quarters of
Fiscal 2007 until March 1, 2007 and May 1, 2007, respectively, without resulting in a
default. The amendment also gives the Company the option to extend the maturity date under
the Credit Agreement from June 30, 2007 to December 31, 2007 and includes an uncommitted
accordion feature that allows the Company to request a term loan of up to $50 million under
the Interim Facility. The Lender, or participating lenders if the Interim Facility is
syndicated, has no obligation to make such term loan.
 16




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##### Table of Contents



March 31, 2007
    
    
    June 30, 2006Interim facility, at a rate of 6.14%
    
    $
    5,000
    
    
    $
    Capital lease obligations
    
    
    3,521
    
    
    
    4,5468,521
    
    
    
    4,546Less amounts due within one year
    
    
    6,738
    
    
    
    1,656Long-term debt
    
    $
    1,783
    
    
    $
    2,890
 10.
    
    Business 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, Alternative
Investment Services and Retirement 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.
 17




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Investment Services
    
    $
    166,461
    
    
    $
    149,671
    
    
    $
    474,210
    
    
    $
    441,752Insurance Services
    
    
    65,099
    
    
    
    62,054
    
    
    
    190,157
    
    
    
    182,922Total consolidated revenues
    
    $
    231,560
    
    
    $
    211,725
    
    
    $
    664,367
    
    
    
    624,674Operating earnings for reportable
segments:Investment Services
    
    $
    20,330
    
    
    $
    17,204
    
    
    $
    53,361
    
    
    $
    51,339Insurance Services
    
    
    14,136
    
    
    
    15,845
    
    
    
    41,265
    
    
    
    48,597Total
    
    $
    34,466
    
    
    $
    33,049
    
    
    $
    94,626
    
    
    $
    99,936Less reconciling items:Corporate expenses
    
    $
    10,709
    
    
    $
    9,623
    
    
    $
    31,686
    
    
    $
    27,109Restructuring and impairment
charges:Investment Services
    
    $
    
    
    
    $
    15
    
    
    $
    
    
    
    $
    15Insurance Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    1,237
    
    
    
    
    
    
    
    1,237Total restructuring and impairment
charges
    
    $
    
    
    
    $
    1,252
    
    
    $
    
    
    
    $
    1,252Litigation and regulatory settlements
(net of recoveries):Investment Services
    
    $
    
    
    
    $
    198
    
    
    $
    199
    
    
    $
    401Insurance Services
    
    
    
    
    
    
    165
    
    
    
    463
    
    
    
    1,296Corporate
    
    
    502
    
    
    
    (8,428
    )
    
    
    867
    
    
    
    (2,284
    )Total litigation and regulatory
settlements
    
    $
    502
    
    
    $
    (8,065
    )
    
    $
    1,529
    
    
    $
    (587
    )Total consolidated operating
earnings
    
    $
    23,255
    
    
    $
    30,239
    
    
    $
    61,411
    
    
    $
    72,162
 March 31,
    
    June 30,2007
    
    2006Assets:Investment Services
    
    
    
    
    
    
    
    
    
    $
    643,511
    
    
    $
    631,696Insurance Services
    
    
    
    
    
    
    
    
    
    
    576,979
    
    
    
    601,036Corporate
    
    
    
    
    
    
    
    
    
    
    61,422
    
    
    
    166,011Total
    
    
    
    
    
    
    
    
    
    $
    1,281,912
    
    
    $
    1,398,743
 18




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##### Table of Contents



11.
    
    AcquisitionsAssets acquired and liabilities assumed in business combinations were recorded on the
Companys condensed consolidated balance sheets based on their estimated fair values as of
the respective acquisition dates. The results of operations of business acquired by the
Company have been included in the Companys condensed statements of income as of their
respective acquisition date through the end of the interim period. The excess of the
purchase price over the estimated fair values of the assets acquired (both tangible and
intangible) and liabilities assumed was allocated to goodwill. In certain circumstances,
the allocations of the excess purchase price are based upon preliminary estimates and
assumptions. Accordingly, the allocations are subject to adjustments based on final
information, including appraisals and other analyses.The Company acquired Ramkade Insurance Services, Inc. (d/b/a TIME Financial Services), a
life insurance services business, on July 13, 2006 for cash consideration of approximately
$9.0 million, excluding potential additional earn-out consideration. The acquisition
resulted in approximately $5.1 million of goodwill. Intangible assets acquired, which
totaled approximately $1.6 million, consist primarily of broker contract rights, commission
renewals and non-compete agreements that are being amortized over a weighted average life
of 6.87 years. Proforma information has not been presented due to the lack of materiality.
The total amount of goodwill assigned is not deductible for tax purposes.The Company acquired substantially all the assets of D&O Concepts, Inc., David A. Ratner
Associates, Inc. and David A. Ratner Associates of New Jersey, Inc., a commercial insurance
services business, on September 1, 2006 for cash consideration of approximately $4.4
million, excluding potential additional earn-out consideration. The acquisitions resulted
in approximately $2.2 million of goodwill. Intangible assets acquired, which totaled
approximately $2.2 million consists primarily of customer relationships and non-compete
agreements that are being amortized over a weighted average life of 6.94 years. Proforma
information has not been presented due to the lack of materiality. The total amount of
goodwill assigned is expected to be deductible for tax purposes.The Company acquired substantially all the assets of the environmental solutions business
of James C. Hermann & Associates Ltd., a commercial insurance services business, on
September 7, 2006 for cash consideration of approximately $2.3 million, excluding potential
additional earn-out consideration. The acquisition resulted in approximately $1.8 million
of goodwill. Intangible assets acquired, which totaled approximately $0.5 million consists
primarily of customer relationships and non-compete agreements that are being amortized
over a weighted average life of 6.73 years. Proforma information has not been presented due
to the lack of materiality. The total amount of goodwill assigned is expected to be
deductible for tax purposes.The Company acquired Truckwriters, Inc., a commercial insurance services business, on
February 1, 2007 for cash consideration of approximately $11.0 million. The acquisition
resulted in approximately $4.0 million of goodwill. Intangible assets acquired, which
totaled approximately $3.0 million and consisted of customer relationships, are being
amortized over 7.0 years. Proforma information has not been
presented due to the lack of materiality. The total amount of goodwill assigned is not
deductible for tax purposes.
 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 $471.3 million in cash. The transaction closed on March 3,
2006, and the Company recognized an after-tax gain of $203.7 million.
 19




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Three months ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    
    
    
    $
    43,534
    
    
    $
    
    
    
    $
    146,689Expenses
    
    
    (65
    )
    
    
    (27,251
    )
    
    
    379
    
    
    
    (101,952
    )Gain on disposition
    
    
    
    
    
    
    355,313
    
    
    
    
    
    
    
    355,313Income (loss) from discontinued
operations, before taxes
    
    
    (65
    )
    
    
    371,596
    
    
    
    379
    
    
    
    400,050Applicable income taxes
    
    
    3
    
    
    
    155,437
    
    
    
    655
    
    
    
    169,247Income (loss) from discontinued
operations, net of tax
    
    $
    (68
    )
    
    $
    216,159
    
    
    $
    (276
    )
    
    $
    230,803
  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 repatriated $33.7 million in Fiscal 2006
($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.
 14.
    
    Other CommitmentsOn September 12, 2006, in connection with the Companys initiative to explore strategic
alternatives, it entered into retention bonus agreements with certain key employees, including
certain executive officers of the Company. Under these agreements, the Company offered two separate
bonus opportunities of equal amounts to selected employees. The first bonus payment became payable
March 8, 2007, provided that the employee remained with the Company. The second bonus payment will
be payable September 8, 2007, if the employee remains with the Company and there has been a change
in control of the Company. If any employee voluntarily terminates employment or is terminated for
cause before a payment is made, the employee would not receive that payment. The Company
recognized the first bonus as compensation expense ratably over the service period, which ended on
March 8, 2007. The second bonus will be recognized ratably over the remaining applicable service
period upon the consummation of a change of control of the Company as specified in the agreement.
For the three and nine months ended March 31, 2007, the Company recognized compensation expense
associated with these agreements of $1.7 million and $6.4 million, respectively. As of March 31,
2007, the Company has paid $6.4 million associated with these retention bonuses. Aggregate future
payments in connection with the second bonus payment and other retention bonuses may range up to
$6.0 million. As of March 31, 2007, an accrual for the second bonus payments has not been
established as there has been no change in control of the Company.
 15.
    
    Subsequent EventsOn May 2, 2007, the Company announced that it had entered into a definitive agreement under which
Citibank N.A. (Citi) would acquire all of its outstanding shares in a transaction valued at
approximately $1.45 billion. BISYS shareholders would receive $12.00 cash in cash per share,
consisting of $11.85 per share to be paid by Citi at the closing of the acquisition and a special
dividend of $0.15 per share in cash payable by BISYS, and conditioned upon the closing of the
acquisition. The transaction is expected to close in the second half of calendar year 2007 and is
subject to BISYS shareholder approval; the expiration or termination of the applicable waiting
periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; no material
adverse effect on the Company having occurred; and other customary conditions. The completion of
the merger is also subject to no more than 35% of the outstanding Company common stock exercising
 20




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Business Overview
    Recent Developments
    22




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##### Table of Contents



Results of Operations
   Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Revenues
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Operating costs and expenses:Service and operating
    
    
    66.5
    
    
    
    64.6
    
    
    
    66.7
    
    
    
    64.1Selling, general and administrative
    
    
    17.7
    
    
    
    18.6
    
    
    
    18.2
    
    
    
    18.4Depreciation and amortization
    
    
    5.6
    
    
    
    5.7
    
    
    
    5.7
    
    
    
    5.8Restructuring and impairment charges
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    0.2Litigation and regulatory settlements
    
    
    0.2
    
    
    
    (3.8
    )
    
    
    0.2
    
    
    
    (0.1
    )Total operating costs and expenses
    
    
    90.0
    
    
    
    85.7
    
    
    
    90.8
    
    
    
    88.4Operating earnings
    
    
    10.0
    
    
    
    14.3
    
    
    
    9.2
    
    
    
    11.6Interest income
    
    
    0.7
    
    
    
    1.1
    
    
    
    0.8
    
    
    
    0.8Interest expense
    
    
    (0.4
    )
    
    
    (1.6
    )
    
    
    (0.3
    )
    
    
    (2.2
    )Investment gains and other
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    Income from continuing operations before income
taxes
    
    
    10.3
    
    
    
    13.8
    
    
    
    9.8
    
    
    
    10.2Income taxes
    
    
    3.1
    
    
    
    4.3
    
    
    
    2.9
    
    
    
    3.6Income from continuing operations
    
    
    7.2
    
    
    
    9.5
    
    
    
    6.9
    
    
    
    6.6Income from discontinued operations, net of tax
    
    
    
    
    
    
    102.1
    
    
    
    
    
    
    
    36.9Net income
    
    
    7.2
    %
    
    
    111.6
    %
    
    
    6.9
    %
    
    
    43.5
    %
 Third Quarter 2007 vs. Third Quarter 2006
 Continuing Operations
   23




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Discontinued Operations
  First Nine Months 2007 vs. First Nine Months 2006
 Continuing Operations
    24




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##### Table of Contents



Discontinued Operations
  Restructuring and Impairment Charges
  Restructuring accrual at June 30, 2006
    
    $
    1,729Expense provision:Facility closure
    
    
    Cash payments and other
    
    
    600Remaining accrual at March 31, 2007:Facility closure
    
    
    1,129Total
    
    $
    1,129
 Litigation and Regulatory Settlements
  25




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##### Table of Contents



March 31,
    
    
    June 30,2007
    
    
    2006Regulatory settlement  Fund Services
    
    $
    
    
    
    $
    21,403Class action suit settlement
    
    
    
    
    
    
    66,500SEC settlement  financial restatements
    
    
    
    
    
    
    25,100Derivative settlement
    
    
    775
    
    
    
    Other  Potomac Group West
    
    
    
    
    
    
    2,358$
    775
    
    
    $
    115,361
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Litigation
    
    $
    2,860
    
    
    $
    737
    
    
    $
    12,260
    
    
    $
    8,012Regulatory settlement
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    401Derivative settlement
    
    
    
    
    
    
    
    
    
    
    775
    
    
    
    Insurance recoveries
    
    
    
    
    
    
    (9,000
    )
    
    
    (9,148
    )
    
    
    (9,000
    )Other  Potomac Group West
    
    
    (2,358
    )
    
    
    
    
    
    
    (2,358
    )
    
    
    $
    502
    
    
    $
    (8,065
    )
    
    $
    1,529
    
    
    $
    (587
    )
    26




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##### Table of Contents



Segment Information
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:Investment Services
    
    $
    166,461
    
    
    $
    149,671
    
    
    $
    474,210
    
    
    $
    441,752Insurance Services
    
    
    65,099
    
    
    
    62,054
    
    
    
    190,157
    
    
    
    182,922Total consolidated revenues
    
    $
    231,560
    
    
    $
    211,725
    
    
    $
    664,367
    
    
    
    624,674Operating earnings for reportable
segments:Investment Services
    
    $
    20,330
    
    
    $
    17,204
    
    
    $
    53,361
    
    
    $
    51,339Insurance Services
    
    
    14,136
    
    
    
    15,845
    
    
    
    41,265
    
    
    
    48,597Total
    
    $
    34,466
    
    
    $
    33,049
    
    
    $
    94,626
    
    
    $
    99,936Less reconciling items:Corporate expenses
    
    $
    10,709
    
    
    $
    9,623
    
    
    $
    31,686
    
    
    $
    27,109Restructuring and impairment
charges:Investment Services
    
    $
    
    
    
    $
    15
    
    
    $
    
    
    
    $
    15Insurance Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    
    
    
    
    
    1,237
    
    
    
    
    
    
    
    1,237Total restructuring and impairment
charges
    
    $
    
    
    
    $
    1,252
    
    
    $
    
    
    
    $
    1,252Litigation and regulatory settlements
(net of recoveries):Investment Services
    
    $
    
    
    
    $
    198
    
    
    $
    199
    
    
    $
    401Insurance Services
    
    
    
    
    
    
    165
    
    
    
    463
    
    
    
    1,296Corporate
    
    
    502
    
    
    
    (8,428
    )
    
    
    867
    
    
    
    (2,284
    )Total litigation and regulatory
settlements
    
    $
    502
    
    
    $
    (8,065
    )
    
    $
    1,529
    
    
    $
    (587
    )Total consolidated operating
earnings
    
    $
    23,255
    
    
    $
    30,239
    
    
    $
    61,411
    
    
    $
    72,162Operating margins:Investment Services
    
    
    12.2
    %
    
    
    11.5
    %
    
    
    11.3
    %
    
    
    11.6
    %Insurance Services
    
    
    21.7
    %
    
    
    25.5
    %
    
    
    21.7
    %
    
    
    26.6
    %
 27




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Investment Services
 Revenues
  Operating Earnings
  Insurance Services
 Revenues
  Operating Earnings
  28




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##### Table of Contents



Corporate Expenses
  Financial Condition
   Liquidity and Capital Resources
   29




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30




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Nine Months Ended
    
    Year EndedMarch 31, 2007
    
    June 30, 2006Shares
    
    Cost
    
    Shares
    
    CostShare repurchase programs:$100 million, authorized November 2003
    
    
    123
    
    
    $
    1,355
    
    
    
    76
    
    
    $
    1,140
 Critical Accounting Policies
  New Accounting Pronouncements
    31




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Off-Balance Sheet Arrangements
  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 are developing further plans to take,
significant actions to improve our control environment and eliminate the material
weakness. The Company hired a new CFO in August 2005 to oversee the transition of
financial responsibilities, address staffing matters and implement improved controls
and procedures. Our CEO and CFO, together with other senior executives, are committed
to maintaining a strong control environment, high ethical standards and financial
reporting integrity. Several of these steps have been taken as of the date of this
filing but have not been in place for a sufficient period of time for management to
conclude that the material weakness has been remediated:
 
    
    Evaluated key financial positions and added senior management personnel focused on
financial accounting, financial reporting and financial controls, resulting in the
replacement of eight out of the ten most senior finance positions in the Company
including CFO, Controller, Vice President of Internal Audit, and Assistant
Controller. We continue to evaluate and take appropriate actions with
 34




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respect to certain employees in management, internal audit and financial reporting functions,
which may include further training, supervision and/or reassignment.
 
    
    Created a direct reporting line from the business unit accountants to the Corporate
Controller in an effort to ensure the independence of accounting decisions.
    
    Created new controller positions for each of our businesses.
    
    Continue to develop and revise our written accounting policies and procedures to
establish a comprehensive up-to-date accounting manual, including revenue and
expense recognition guidelines and processes.
    
    Establish 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.
    
    Required all finance staff to complete ethics training.
    
    Engaged third party education material vendor to provide course material for
continuing education for all finance personnel.
    
    Continue to enhance our tone at the top and whistleblower procedures, including
the engagement of a third party vendor to provide an independent whistleblower
hotline service, to increase the likelihood that concerns related to financial
reporting or the control environment will be timely reported and properly
evaluated.
    
    Maintain and enhance 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. The following are the actions we have
taken or plan on taking, to improve our controls over revenue recognition and
eliminate the material weakness:
 
    
    Implemented procedures to ensure new customer contracts are identified and
evaluated by the appropriate level of personnel within each operating division to
ensure proper recording of revenue and deferred revenue, with particular attention
given to contracts with up front payments terms, including conversion fees.
    
    Developed procedures to ensure the accounting for significant and unusual contracts
are reviewed by qualified, senior level personnel within the corporate finance
department.
    
    Continue to enhance contractual documentation requirements for all new and existing
business relationships to ensure proper accounting treatment and disclosure.
    
    Implement procedures to enhance month-end closing procedures to ensure that timely,
effective and consistent reconciliations are performed and reviewed by qualified
personnel within the finance organization, with particular emphasis on revenue
recorded for services yet to be billed.
    
    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.
    
    Continue to develop processing systems to provide more automation, accuracy and
control in invoicing and recording revenue transactions.
  3.
    
    Controls over insurance commissions payable. The 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 develop processing systems to provide more automation, accuracy and
control in recording insurance commissions payable transactions.
    
    Continue to improve procedures for verifying and documenting insurance commissions
payable, including the review of account reconciliations, account analyses and
supporting documentation.
    
    Continue to implement procedures ensuring qualified, senior level personnel within
the finance organization review the impact of insurance commissions receivable and
commissions payable
 35




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transactions, including supporting documentation, and are responsible for the
review and approval of all related accounting considerations and schedules.
  4.
    
    Controls over segregation of duties at certain international locations.The
following are the actions we are taking, or plan on taking, to improve our controls
over certain international locations in our Hedge Fund Services business and eliminate
the material weakness:
 
    
    Continue to add technical accounting personnel and enhance supervision with regard
to, among other things, timely review and approval of all related accounting
considerations and schedules.
    
    Perform a comprehensive review of financial accounting processes and internal
controls to facilitate the development of more effective internal controls over
financial reporting, with particular emphasis on segregation of duties.
    
    Enhance our analytical and review procedures with respect to our international
locations, including but not limited to the utilization of outside professionals to
supplement our staff.
   36




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PART II
 
 ITEM 1. LEGAL PROCEEDINGS
 Legal Proceedings
     37




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##### Table of Contents



Regulatory Investigations
   38




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##### Table of Contents



ITEM 1A. RISK FACTORS
  Failure to complete the proposed merger could negatively affect us.
  
    
    the current market price of our common stock may reflect a market assumption that the
merger will occur, and a failure to complete the merger could result in a decline in the
market price of our common stock;
    
    the occurrence of any event, change or other circumstances that could
give rise to a termination of the merger agreement;
    
    under certain circumstances, we may have to pay a termination fee to
Citi of $36,000,000, plus up to $3,000,000 in expenses;
    
    the inability to complete the merger due to the failure to obtain
stockholder approval or the failure to satisfy other conditions to consummation of the
merger;
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##### Table of Contents




    
    the inability to complete the merger due to the failure to obtain
regulatory approval with respect to the merger or Citis subsequent sale of certain assets
of the Company to a third party;
    
    the failure of the merger to close for any other reason;
    
    our remedies against Citi with respect to certain breaches of the
merger agreement may not be adequate to cover our damages;
    
    the proposed transactions may disrupt current business plans and
operations and there may be potential difficulties in attracting and retaining employees as
a result of the merger;
    
    due to restrictions imposed in the merger agreement, we may be unable
to respond effectively to competitive pressures, industry developments and future
opportunities;
    
    the effect of the announcement of the merger and on our business
relationships, operating results and business generally; and
    
    the costs, fees, expenses and charges we have, and may, incur related
to the merger, whether or not the merger is completed.
 
 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 2007
    
    
    1,118
    
    
    $
    12.35
    
    
    
    4,197,880
    
    
    $
    38,431,500February 2007
    
    
    18,744
    
    
    $
    12.87
    
    
    
    4,216,624
    
    
    
    38,190,352March 2007
    
    
    357
    
    
    $
    13.14
    
    
    
    4,216,981
    
    
    
    38,185,661Total
    
    
    20,219
  
 ITEM 6. EXHIBITS
 (a)
    
    Exhibits
    40




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SIGNATURES
  THE BISYS GROUP, INC.Date: May 10, 2007
    By:
    /s/ Bruce D. DalzielBruce D. DalzielExecutive Vice President and Chief Financial Officer
(Duly Authorized Officer) 41




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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
 42