<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
......................................
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 2000 Commission file number 0-6355
GROUP 1 SOFTWARE, INC.
Incorporated in Delaware IRS EI No. 52-0852578
4200 Parliament Place, Suite 600, Lanham, MD 20706-1860
Telephone Number: (301) 918-0400
Indicate by check mark whether the registrant (1) has filed 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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Shares Outstanding Effective
Class August 7, 2000
Common Stock, $.50 par value 5,798,414
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GROUP 1 SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,937 $ 20,735
Short-term investments 9,343 11,259
Trade and installment accounts receivable, less
allowance of $3,276 and $3,317 16,730 21,561
Deferred income taxes 3,469 3,297
Prepaid expenses and other current assets 3,528 3,407
---------------- ------------------
Total current assets 56,007 60,259
Installment accounts receivable, long-term 1,652 1,945
Property and equipment, net 4,633 4,290
Computer software, net 20,867 21,823
Other assets 4,548 4,750
---------------- ------------------
Total assets $ 87,707 $ 93,067
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,025 $ 1,940
Current portion of capital lease obligation 112 109
Accrued expenses 6,385 6,627
Accrued compensation 5,383 7,617
Current deferred revenues 23,863 26,865
---------------- ------------------
Total current liabilities 37,768 43,158
Capital lease obligation, net of current portion 59 88
Deferred revenues, long-term 917 1,169
Deferred income taxes 3,324 3,724
---------------- ------------------
Total liabilities 42,068 48,139
================ ==================
Commitments and contingencies
Stockholders' equity:
6% cumulative convertible preferred stock $0.25 par value;
200 shares authorized; 48 shares issued and outstanding
(aggregate involuntary liquidation preference $950,000) 916 916
Common stock $0.50 par value; 14,000 shares authorized; 6,497
and 6,468 shares issued and outstanding 3,248 3,234
Additional paid in capital 27,611 27,431
Retained earnings 16,801 15,684
Accumulated comprehensive income (602) (2)
Less treasury stock, 497 shares, at cost (2,335) (2,335)
---------------- ------------------
Total stockholders' equity 45,639 44,928
---------------- ------------------
Total liabilities and stockholders' equity $ 87,707 $ 93,067
================ ==================
See notes to consolidated financial statements.
</TABLE>
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GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(ADJUSTED TO REFLECT THE 3 FOR 2 STOCK SPLIT APPROVED BY THE BOARD OF DIRECTORS
ON FEBRUARY 4, 2000)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Month Period
Ended June 30,
2000 1999
<S> <C> <C>
Revenues:
Software license and related revenues $ 7,637 $ 6,885
Maintenance and services 12,425 9,872
-------- --------
Total revenue 20,062 16,757
-------- --------
Cost of revenue:
Software license expense 3,060 3,199
Maintenance and service expense 4,212 3,709
-------- --------
Total cost of revenue 7,272 6,908
-------- --------
Gross profit 12,790 9,849
Operating expenses:
Research and development 1,511 802
Sales and marketing 6,512 5,863
General and administrative 3,642 2,774
-------- --------
Total operating expenses 11,665 9,439
-------- --------
Income from operations 1,125 410
Non-operating income
Interest income 528 192
Interest expense (6) (9)
Other non-operating income 249 25
-------- --------
Total non-operating income 771 208
-------- --------
Income from operations before provision
for income taxes 1,896 618
-------- --------
Provision for income taxes 765 239
-------- --------
Net income 1,131 379
Preferred stock dividend requirements (14) (14)
-------- --------
Net income available to common stockholders $ 1,117 $ 365
======== ========
Basic earnings per share $ 0.19 $ 0.07
======== ========
Diluted earnings per share $ 0.16 $ 0.06
======== ========
Basic weighted average shares outstanding 5,980 5,588
======== ========
Diluted weighted average shares outstanding 6,898 5,670
======== ========
See notes to consolidated financial statements
</TABLE>
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GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD
ENDED JUNE 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,131 $ 379
Adjustments to reconcile net income from
Operations to net cash provided by operating activities:
Amortization expense 2,763 2,696
Depreciation expense 448 388
Provision for doubtful accounts 75 150
Net loss on disposal of assets -- 9
Deferred income taxes (572) (358)
Foreign currency transaction gain (267) --
Changes in assets and liabilities:
Accounts receivable 4,930 4,493
Prepaid expenses and other current assets (130) 196
Other assets 45 42
Deferred revenues (3,180) 20
Accounts payable 105 (11)
Accrued expenses and accrued compensation (2,396) (3,226)
-------- --------
Net cash provided by operating activities 2,952 4,778
-------- --------
Cash flows from investing activities:
Purchase and development of computer software (1,893) (3,070)
Purchase of property and equipment (863) (522)
Purchase of marketable securities (38,160) (27,339)
Sale of marketable securities 40,076 20,775
-------- --------
Net cash used in investing activities (840) (10,156)
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options 194 8
Repayment of principal on capital lease obligations (26) (24)
-------- --------
Net cash provided by (used in) financing activities 168 (16)
-------- --------
Net increase (decrease) in cash and cash equivalents 2,280 (5,394)
Effect of exchange rate on cash and cash equivalents (78) (1)
Cash and cash equivalents at beginning of period 20,735 13,378
-------- --------
Cash and cash equivalents at end of period $ 22,937 $ 7,983
-------- --------
Supplemental disclosure of non-cash financing activity:
Warrants issued in exchange for services $ 208 --
</TABLE>
See notes to consolidated financial statements.
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GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Month Period
Ended June 30,
2000 1999
<S> <C> <C>
Net income $ 1,131 $ 379
Foreign currency translation adjustments (600) (37)
------- -------
Comprehensive income $ 531 $ 342
======= =======
</TABLE>
See notes to consolidated financial statements.
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Group 1 Software, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements for the three months ended June 30,
2000 and 1999 are unaudited. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Limited
footnote information is presented in accordance with quarterly reporting
requirements. The results of operations for the three months ended June 30, 2000
are not necessarily indicative of the results for the year ending March 31,
2001. The information contained in the annual report on the Form 10-K for the
year ended March 31, 2000, should be referred to in connection with the
unaudited interim financial information.
2. Certain prior period amounts have been reclassified to conform to current
period presentation.
3. On February 4, 2000, the Board of Directors approved a 3 for 2 common stock
split for stockholders of record as of February 17, 2000. There was no change in
the par value of the stock as a result of the split. The effect of the stock
split has been retroactively reflected in the consolidated financial statements
for all periods presented.
4. Research and development expense, before the capitalization of computer
software development costs, amounted to approximately $3.3 million and $2.6
million for the three months ended June 30, 2000 and 1999, respectively.
Capitalization of computer software development costs for both three month
periods was $1.8 million.
5. Earnings per share
Earnings per share (EPS) is computed in accordance with SFAS No. 128, "Earnings
Per Share". Basic EPS is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted EPS is computed using the weighted average number of shares
of common stock and potentially dilutive securities outstanding during the
period. Potentially dilutive securities consist of convertible preferred stock
(using the if converted method) and stock options and warrants (using the
treasury stock method). Potentially dilutive securities are excluded from the
computation if the effect is antidilutive.
Reconciliation of basic EPS calculations to the shares used in the diluted EPS
calculation (in thousands, adjusted to reflect the 3 for 2 stock split approved
by the Board of Directors on February 4, 2000):
<TABLE>
<CAPTION>
For the Three Month Period
Ended June 30,
2000 1999
<S> <C> <C>
Weighted average common shares
outstanding-basic 5,980 5,588
Effect of dilutive securities:
Stock options and warrants 918 82
------ ------
Weighted average shares outstanding-diluted 6,898 5,670
====== ======
</TABLE>
There were additional potentially dilutive convertible securities of 47,500 in
the three months ended June 30, 2000, and 1999 respectively, which were not
included in the earnings per share calculation due to their anti-dilutive
effect.
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<PAGE> 7
6. Recent Accounting Pronouncements
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No.
101,"Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. In June 2000 the SEC issued SAB
101B, further delaying the required implementation of SAB 101 by the Company
until the fourth quarter of fiscal year 2001. The Company has not fully assessed
the effect on our financial statements as a result of SAB 101.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for our fiscal year
2002. This statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. We believe the adoption of SFAS Nos. 133 and
137 will not have a material effect on our financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of Accounting Principles Board Opinion No. 25"
("FIN 44"). FIN 44 will be effective on July 1, 2000, but certain conclusions in
FIN 44 cover specific events that occurred after either December 15, 1998 or
January 12, 2000. The Company believes the adoption of FIN 44 will not have a
material effect on its financial statements.
7. Legal Contingencies
The Company is not a party to any legal proceedings which in its belief, after
review by legal counsel, could have a material adverse effect on the
consolidated financial position, cash flows or results of operations of the
Company.
8. Segment Information
The following table presents certain financial information relating to each
reportable segment:
<TABLE>
<CAPTION>
Three Months Ended June 30,
Segment Information (in thousands) 2000 1999
<S> <C> <C>
Revenue:
Enterprise Solutions Software $ 13,253 $ 10,973
Electronic Document Composition Software 6,809 5,784
-------- --------
Total revenue $ 20,062 $ 16,757
======== ========
Gross Profit:
Enterprise Solutions Software $ 8,384 $ 6,791
Electronic Document Composition Software 4,406 3,618
Other -- (560)
-------- --------
Total gross profit $ 12,790 $ 9,849
======== ========
</TABLE>
All of the Company's assets are retained and analyzed at the corporate level and
are not allocated to the individual segments. Amortization of capitalized
software associated with the Enterprise Solutions Software segment was $1.7
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million and $1.5 million for the three months ended June 30, 2000 and 1999,
respectively. Amortization of capitalized software associated with the
Electronic Document Composition Software segment was $0.6 million for both the
three months ended June 30, 2000 and 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Any statements in this quarterly report on Form 10-Q concerning the Company's
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; together with other statements that
are not historical facts, are "forward-looking statements" as that term is
defined under the Federal Securities laws. Forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from those stated in such statements. Such risks,
uncertainties and factors include, but are not limited to, changes in currency
exchange rates, changes and delays in new product introduction, customer
acceptance of new products, changes in government regulations, changes in
pricing or other actions by competitors and general economic conditions, as well
as other risks detailed in the Company's filings with the Securities and
Exchange Commission.
For the three months ended June 30, 2000 and 1999, the Company had revenues of
$20.1 million and $16.8 million, respectively. Net income available to common
stockholders for the three months ended June 30, 2000 was $1.1 million or $0.16
per share compared with net income available to common stockholders of $0.4
million or $0.06 per share in the same period in the prior year. The increase in
profitability for the first fiscal quarter of 2001 is primarily due to higher
revenue in both of the Company's operating segments along with higher interest
and other non-operating income.
All of Group 1's operations are based in the two business segments defined as
Enterprise Solutions Software and Electronic Document Composition Software.
Enterprise Solutions revenue accounted for 66% and 65% of Group 1's total
revenue for the first fiscal quarter of 2001 and 2000, respectively. Electronic
Document Composition revenue was 34% and 35% of total revenue for the first
quarter of fiscal 2001 and fiscal 2000. International revenues accounted for 16%
of Group 1's total revenue in the first quarter of fiscal 2001 and 15% in the
first quarter of fiscal 2000.
Software license and related revenues of $7.6 million for the first fiscal
quarter of 2001 increased 10% from $6.9 million the same period the prior year.
As a percent of total revenue, first quarter software license and related
revenues were 38% in fiscal 2001 compared with 41% in fiscal 2000.
For the quarter ended June 30, 2000, license fees from database marketing
products decreased by $0.1 million compared to the same period in the prior
year. The decrease for the quarter was primarily due to lower sales of the Model
1 product.
The Company's mailing efficiency/data quality software license fees for the
first quarter of fiscal 2001 increased 11.0% over the same period in the prior
year. The increase is primarily due to higher sales of the Geotax product.
License fees from Electronic Document Composition software increased 15% in the
first quarter of fiscal 2001 over the same period the prior year. The increase
in sales for the three month period ended June 30, 2000 was due to higher
European sales.
Maintenance and service revenue of $12.5 million for the first quarter of fiscal
2001 increased 26% over the prior year period. Maintenance and service revenue
accounted for 62% of total revenue for the quarter ended June 30, 2000, compared
with 59% in the same period in the prior year. Recognized maintenance fees
included in
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<PAGE> 9
maintenance and service revenue, were $9.6 million for the quarter ended June
30, 2000, and $7.3 million for the same period the prior year, an increase of
32%. The increase in maintenance revenue is due to the recognition of higher
maintenance deferrals based on higher aggregate sales from prior periods and
from increased maintenance renewals based on an increased installed customer
base.
For the quarter ended June 30, 2000, Enterprise Solutions recognized maintenance
increased 27% to $7.7 million over the same period the prior year. Electronic
Document Composition recognized maintenance increased 59% to $1.9 million in the
quarter ended June 30, 2000 compared to the comparable period in the prior year.
Professional and educational service revenue from the Enterprise Solutions
segment increased to $0.9 million in the quarter ended June 30, 2000, an
increase of 89% over the same period in the prior fiscal year. Electronic
Document Composition service revenue decreased 11% to $1.9 million in the first
quarter of fiscal 2001 from the same period the prior fiscal year. The decrease
in Electronic Document Composition service revenue is primarily due to the
completion of a large services engagement in the first quarter of fiscal 2000
partially offset by higher European service revenue.
Total cost of revenue for the first fiscal quarter of 2001 was $7.3 million
versus $6.9 million in the same period of fiscal 2000. The separate components
of cost of revenue are discussed below.
Software license expense decreased for the three month period ended June 30,
2000 to $3.1 million from $3.2 million for the same period the prior year
representing 41% and 46% of software license and related revenues, respectively.
The decrease in expense as a percent of software license revenue was due to
higher license fees in both operating segments.
Maintenance and service expense increased to $4.2 million in the current quarter
from $3.7 million in the comparable period in fiscal 2000, representing 34% and
38% of maintenance and service revenue, respectively. The decrease in expense as
a percentage of revenue can be attributed to higher maintenance and service
revenue spread across relatively flat maintenance and service costs partially
offset by lower margins on professional services as discussed below.
Included in maintenance and service expense discussed above are professional and
educational service costs of $2.3 million which were 83% of professional service
and education revenue for the first quarter compared with $2.0 million which
represented 76% of professional service and educational revenue for the
comparable period in the prior year. The increase in expense as a percent of
revenue for the quarter can be attributed to lower revenue in Electronic
Document Composition services as discussed above.
Costs of maintenance were $1.9 million for the first fiscal quarter of 2001
representing 20% of maintenance revenue. Costs of maintenance for the same
quarter in the prior year were $1.7 million, representing 23% of maintenance
revenue. The lower cost as a percentage of revenue reflects economies of scale
achieved with maintenance and support costs spread over a larger revenue base.
Total operating costs of $11.7 million amounted to 58% of revenue for the
quarter ended June 30, 2000 compared $9.4 million or 56% of revenue for the
prior year period. The various components of operating costs are discussed
below.
Research and development expenses (after capitalization of certain software
development costs) totaled $1.5 million for the first fiscal quarter of 2001 and
$0.8 million for the same period of fiscal 2000, representing 8% and 5% of
revenue, respectively. The increase in expense is due to increased spending on
new product initiatives in both the Enterprise Solutions and Electronic Document
Composition segments.
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Sales and marketing expenses totaled $6.5 million or 32% of revenue in the first
quarter of fiscal 2001 and $5.9 million or 35% in the prior year same period.
The decrease in cost as a percent of revenue for the three month periods versus
the prior year same period was primarily due to higher revenue partially offset
by higher costs for sales and marketing of Enterprise Solutions and Electronic
Document Composition products. Sales and marketing costs for the Enterprise
Solutions products were 33% of Enterprise Solutions revenue in the first fiscal
quarter of 2001 and 37% for the same period the prior year. Electronic Document
Composition selling and marketing costs were 34% and 32% for the periods ending
June 30, 2000 and 1999, respectively.
General and administrative expenses were $3.6 million or 18% of total revenue
compared with $2.8 million or 17% of revenue for the three months ended June 30,
2000 and 1999, respectively. The increase in general and administrative expenses
is primarily related to increased compensation associated with increased head
count along with increased shareholder relations costs. The Company expects
these costs to remain relatively close to the current levels as a percent of
revenue.
Net non-operating income was $0.8 million for the quarter ended June 30, 2000 as
compared with $0.2 million for the same period in the prior year. This increase
represents higher interest income generated from higher cash and short-term
investment balances in the current period compared to the same period of fiscal
2000 along with a $0.3 million currency gain.
The Company's effective tax rates were 40% and 38% for the three month period
ended June 30, 2000, and 1999, respectively. The current year's rate is the net
effect of a 33% effective tax rate on foreign taxable income and a 47% rate on
domestic taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $18.2 million at June 30, 2000, as compared
with $17.1 million at March 31, 2000. The current ratio was 1.5 to 1 at June 30,
2000 and 1.4 to 1 at March 31, 2000.
The Company provides for its cash requirements through cash funds generated from
operations. Additionally, the Company maintains a $10 million line of credit
arrangement with a commercial bank, expiring October 31, 2001. The line of
credit bears interest at the bank's prime rate, or Libor plus 150 basis points
at Group 1's option. The line of credit is not collateralized and requires Group
1 to maintain certain operating ratios. At June 30, 2000 and at March 31, 2000,
there were no borrowings outstanding under the line of credit.
For the three months ended June 30, 2000, net cash provided by operating
activities was $2.9 million. This amount included net income of $1.1 million
plus non-cash expenses of $2.4 million. Also included in cash provided by
operating activities was a $4.9 million decrease in accounts receivable and a
$3.2 million decrease in deferred revenues, and a $2.4 million decrease in
accrued expenses offset by $0.1 million provided by other operating activities.
The decrease in accounts receivable is due to increased cash collections.
Investment in purchased and developed software of $1.9 million, and capital
equipment of $0.9 million, in addition to the decrease of $2.0 million in
short-term investments resulted in $0.8 million used in investing activities.
For the three months ended June 30, 2000, $0.2 million was provided by financing
activities.
Group 1 continually evaluates the credit and market risks associated with
outstanding receivables. In the course of this review, Group 1 considers many
factors specific to the individual client as well as to the concentration of
receivables within industry groups. Group 1's installment receivables are
predominately with clients (service bureaus) who provide computer services to
the direct marketing industry. Many of these clients have limited capital and
insufficient assets to secure their liability with Group 1. The service bureaus
are highly dependent on Group 1's software and services to offer their customers
the economic benefit of postal discounts and mailing efficiency. To qualify for
the U.S. Postal Service and Canada Post Corporation postal discounts, service
bureaus require continuous regulatory product updates from the Company. The
service bureau industry is also highly competitive and subject to
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general economic cycles, as they impact advertising and direct marketing
expenditures. The Company is aware of no current market risk associated with the
installment receivables. Service bureaus represent approximately $2.5 million or
69% of the installment receivables at June 30, 2000.
As of June 30, 2000, the Company's capital resource commitments consisted
primarily of non-cancelable operating lease commitments for office space and
equipment. The Company believes that its current minimum lease obligations and
other short-term and long-term liquidity needs can be met from its existing cash
and short-term investment balances and cash flows from operations. The Company
believes that its long-term liquidity needs are minimal and no large capital
expenditures are anticipated, except for the continuing investment in
capitalized software development costs, which the Company believes can be funded
from operations during the next twelve months.
The Year 2000 Issue
In 1997, the Company formed two special task forces:
- The first task force was established to identify and evaluate our internal
systems and applications that may be affected by the Year 2000 issue;
modify or replace those systems and applications so they will work properly
in the Year 2000, and communicate with our suppliers to make sure they are
prepared for the Year 2000.
- The second task force was established to evaluate the products sold by us,
to ensure they will function as designed after the Year 2000.
The Company identified and evaluated all of its systems and applications that
might have been affected by the Year 2000 issue, and developed plans to ready
these systems and applications for the century change. Modification and
replacement projects were completed pursuant to their modification and
replacement projects. All products sold by the Company, with one exception, were
modified to ensure Year 2000 functionality. The costs of the readiness program
for products and internal systems were primarily costs of existing internal
resources largely absorbed within existing spending levels. These costs were
incurred primarily in 1998 and earlier years and were not broken out from other
operating costs.
Recent Accounting Pronouncements
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No.
101,"Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000. In June 2000 the SEC issued SAB
101B, further delaying the required implementation of SAB 101 by the Company
until the fourth quarter of fiscal year 2001. The Company has not fully assessed
the effect on our financial statements as a result of SAB 101.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
which delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for our fiscal year
2002. This statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative instruments
embedded in other contracts, be recorded in the balance sheet as either an asset
or liability measured at its fair value. The statement also requires that
changes in the derivative's fair value be recognized in earnings unless specific
hedge accounting criteria are met. We believe the adoption of SFAS Nos. 133 and
137 will not have a material effect on our financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of Accounting Principles Board Opinion
11
<PAGE> 12
No. 25" ("FIN 44"). FIN 44 will be effective on July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either December
15, 1998 or January 12, 2000. The Company believes the adoption of FIN 44 will
not have a material effect on its financial statements.
Legal Contingencies
The Company is not a party to any legal proceedings which in its belief, after
review by legal counsel, could have a material adverse effect on the
consolidated financial position, cash flows or results of operations of the
Company.
Quantitative and Qualitative Disclosures about Market Risk
The Company has a subsidiary in the United Kingdom with offices in Germany,
Italy and Denmark. Additionally, the Company uses third party distributors to
market and distribute its products in other international regions. Transactions
conducted by the subsidiary are typically denominated in the local country
currency, while transactions conducted by the distributors are typically
denominated in pounds sterling. As a result, the Company is primarily exposed to
foreign exchange rate fluctuations as the financial results of its subsidiary
and third party distributors are translated into U.S. dollars in consolidation.
As exchange rates vary, these results, when translated, may vary from
expectations and impact overall expected profitability. However, through June
30, 2000, the Company's exposure was not material to the overall financial
statements taken as a whole. The Company has not entered into any foreign
currency hedging transactions with respect to its foreign currency market risk.
The Company does not have any financial instruments subject to material market
risk.
Euro Currency
The European Union's adoption of the Euro currency raises a variety of
issues associated with the Company's European operations. Although the
transition from national currencies to the Euro will be phased in over several
years, the Euro became the single currency for most European countries on
January 1, 1999. The Company is assessing Euro issues related to its treasury
operations, product pricing, contracts and accounting systems. Although the
evaluation of these issues is still in process, management currently believes
that the Company's existing or planned hardware and software systems will
accommodate the transition to the Euro and any required operating changes will
not have a material effect on future results of operations or financial
condition.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.59 Sixth amendment to Employment Agreement by and between
Robert S. Bowen and Group 1 Software, Inc. dated July 17, 2000
No filings on Form 8-K have been made during the quarter
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Group 1 Software, Inc.
Date: August 14, 2000
/s/ Mark Funston
Mark Funston
Chief Financial Officer
14
