SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
......................................
FORM 10Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 1995 Commission file number 0-15389
Group 1 Software, Inc.
Incorporated in Delaware IRS EI No. 52-1483562
4200 Parliament Place, Suite 600, Lanham, MD 20706-1844
Telephone Number: (301) 731-2300
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 11, 1995
Common Stock, $.01 par value 4,293,072
<PAGE>
<TABLE>
Group 1 Software, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
June 30, March 31,
1995 1995
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 240 $ 1,619
Marketable securities 3,443 3,780
Trade and installment accounts receivable,
less allowance of $1,715 and $1,633 16,289 18,426
Income taxes receivable 524 521
Deferred income taxes 2,135 2,060
Prepaid expense and other assets 2,369 2,387
------- -------
Total current assets 25,000 28,793
Installment accounts receivable, long-term 4,292 3,657
Property and equipment, net 2,672 2,595
Computer software, net of accumulated
amortization of $13,452 and $12,286 19,097 18,556
Other assets 1,536 1,580
------- -------
Total assets $ 52,597 $ 55,181
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,651 $ 2,442
Current portion of long-term debt 594 652
Accrued expenses 3,546 4,020
Accrued compensation 1,281 2,813
Current deferred revenues 9,812 10,900
Due to parent company 50 996
------- -------
Total current liabilities 16,934 21,823
Long-term debt, net of current portion 419 561
Deferred revenues 4,927 3,714
Deferred income taxes 2,726 2,459
Due to parent company 381 - - -
------- -------
Total liabilities 25,387 28,557
------- -------
Commitments
Stockholders' equity:
Common Stock, $0.01 par value, 10,000 shares
authorized 4,293 issued and outstanding 43 43
Preferred stock, $0.01 par value, 1,000 shares
authorized - none issued and outstanding - - - - - -
Capital contributed in excess of par value 5,184 5,184
Retained earnings 21,963 21,424
Unrealized gain(loss) on investments, net 5 (45)
Cumulative foreign currency translation 15 18
------- -------
Total stockholders' equity 27,210 26,624
------- -------
Total liabilities and stockholders' equity $ 52,597 $ 55,181
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Group 1 Software, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Unaudited
<CAPTION>
For the Three-Month
Period Ended June 30,
1995 1994
(FY96) (FY95)
<S> <C> <C>
Revenue:
Software licenses and related revenue $ 5,258 $ 3,630
Maintenance and other revenue 4,127 4,013
----- -----
Total revenue 9,385 7,643
----- -----
Costs and expenses:
Software license expense 1,970 1,201
Maintenance and service expense 1,743 1,510
Research, development and indirect support 529 439
Selling and marketing 3,028 2,679
General and administrative 1,094 859
Provision for doubtful accounts 236 250
----- -----
Total costs and expenses 8,600 6,938
----- -----
Operating earnings 785 705
Non-operating income(expense), net 80 (8)
----- -----
Earnings before provision for income taxes 865 697
Provision for income taxes 326 258
----- -----
Net earnings $ 539 $ 439
===== =====
Earnings per share of common stock $ 0.12 $ 0.10
===== =====
Weighted average number of common and common
equivalent shares outstanding 4,316 4,303
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Group 1 Software, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<CAPTION>
For the Three-Month
Period Ended June 30,
1995 1994
(FY96) (FY95)
<S> <C> <C>
Cash flows from operating activities:
Net Earnings $ 539 $ 439
Adjustments to reconcile net earnings to net
cash from operating activities:
Amortization expense 1,192 883
Depreciation expense 199 169
Provision for doubtful accounts 236 250
Deferred taxes 192 122
Loss on currency translation (3) - - -
Change in assets and liabilities:
Accounts receivable 1,266 464
Other current assets 15 (18)
Other assets 19 (8)
Accounts payable (791) (72)
Accrued expenses (2,006) (402)
Due to parent company (565) 59
Deferred revenues 125 (88)
------ ------
Net cash provided by operating activities 418 1,798
------ ------
Cash flows from investing activities:
Purchase and development of computer software (1,705) (1,401)
Purchase of property and equipment (279) (230)
Note receivable from parent - - - (143)
Purchase of short-term investments - - - (1,916)
Sale of short-term investments 387 - - -
------ ------
Net cash used in investing activities (1,597) (3,690)
------ ------
Cash flows from financing activities:
Proceeds from short-term borrowings 956 - - -
Reduction of short-term borrowings (956) - - -
Reduction of long-term debt and other obligations (200) (161)
------ ------
Net cash used in financing activities (200) (161)
------ ------
Net decrease in cash and cash equivalents (1,379) (2,053)
Cash and cash equivalents at beginning of period 1,619 5,674
------ ------
Cash and cash equivalents at end of period $ 240 $ 3,621
====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Group 1 Software, Inc.
Notes to Consolidated Financial Statements
1. The financial statements for the three months ended June 30, 1995 and
1994, 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, 1995, are not
necessarily indicative of the results for the year ending March 31, 1996. The
information contained in the audited financial statements and the notes
thereto for the year ended March 31, 1995, should be referred to in connection
with the unaudited interim financial information.
2. Research and development expense, before the capitalization of computer
software development costs, amounted to approximately $2,152,000 and
$1,737,000 for the three months ended June 30, 1995 and 1994, respectively.
3. Earnings per share of common stock in the accompanying financial
statements have been computed using the weighted average number of common and
common equivalent shares outstanding. Common equivalent shares result from
the dilutive effect of stock options calculated under the treasury stock
method.
4. Certain prior year amounts have been reclassified to conform with the
current year presentation.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
For the quarter ended June 30, 1995, the Company's revenue of $9,385,000
increased 23% from the $7,643,000 reported for the comparable period the prior
year. Net earnings for the quarter ended June 30, 1995 were $539,000 or $0.12
per share compared with $439,000 or $0.10 per share in fiscal 1994, an
increase of 23%.
Software license fees and related revenue of $5,258,000 for the first
quarter of fiscal 1996 represented an increase of 45% over the prior year.
Sales of DOC1, the statement preparation software, and NADIS, the data
integrity software, represented $920,000; there was no comparable revenue for
these systems in the prior year. License fees from all other products,
including Open Systems software, increased by $250,000 for the period.
Professional service and related revenues increased by $351,000 over the same
period in fiscal 1995. Licensing of PC software decreased $160,000 compared
with the prior year due to delays in new product releases. Maintenance and
other revenue of $4,127,000 increased by 3% over the prior year's June 30
quarter, primarily due to increased maintenance fees. The current period
total revenues include $1,053,000 or 11% from international markets, up from
1% in the comparable period of the prior year. A significant portion of the
increase in international revenues versus the prior year is due to revenues in
the current year resulting from the acquisition of Group 1 Software Europe,
Ltd. (previously Archetype Systems, Ltd.), a wholly-owned subsidiary as of
January 1, 1995, for which there is no prior year comparison.
During the quarter, total operating costs of $8,600,000 amounted to 92%
of revenue compared with $6,938,000 or 91% of revenue during the same period
the prior year. A significant portion of the increase in operating costs and
expenses versus the prior year is due to Group 1 Software Europe, Ltd.
Software license expense increased to $1,970,000 for the three months
ended June 30, 1995, from $1,201,000 in the comparable prior period in last
fiscal year, representing 37% and 33% of software license and related
revenues, respectively. Maintenance and service expense increased to
$1,743,000 in the current period from $1,510,000 in the comparable period in
1994, representing 42% and 38% of maintenance and other revenue, respectively.
The current year expense reflects increased staffing and support costs
related to the DOC1 and NADIS products for which there is no prior year
comparison. Additionally, amortization expense for the current quarter
increased $292,000, reflecting new and enhanced product releases for all
computer platforms as well as the amortization of acquired software.
Amortization increased as a percent of the total revenue to 12% for the three
month period compared with 11% in the same period the prior year. Group 1
expects the amortization of software to continue to increase as a percent of
revenue due to continuing capitalization of internal software development
expenditures and the costs related to existing software acquisition
agreements. During the quarter, other direct costs associated with new
customer orders and existing customer updates decreased to approximately 8% of
total revenue from 10% the prior year. Other direct costs as a percent of
revenue decreased versus the prior year due to the mix of products sold this
year which directly affects royalty and media expenses. The Company expects
the cost of maintenance and other services to increase as the Company's
customer base expands.
Research, development and indirect support expenses totaled $529,000 in
the first quarter of fiscal 1996 and $439,000 in the same quarter the prior
year, representing 6% of total revenue in both periods. This current quarter
expense as compared with the prior year's first quarter was due to support
requirements for the Company's expanded computer platforms and internal
network system.
Selling and marketing expense totaled $3,028,000 or 32% of revenue in the
first quarter of fiscal 1996, compared with $2,679,000 or 35% in the prior
year. The current year expense reflects higher sales compensation expenses
associated with the increased revenues.
General and administrative expense increased $235,000 to $1,094,000 for
the three months ended June 30, 1995, due principally to the addition of
administrative support costs associated with Group 1 Software Europe, Ltd.
The provision for doubtful accounts of $236,000 in the first quarter
represented a decrease of $14,000 for the same period in the prior year.
Net non-operating income for the Company totaled $80,000 in the first
quarter of fiscal 1996, as compared with the prior year net non-operating
expense of $8,000. Non-operating income of $80,000 for the three months ended
June 30, 1995, includes a gain on investments of $52,000, net interest income
of $30,000, offset by other expenses of $2,000. The prior year net non-
operating expense of $8,000 was comprised of interest income of $28,000, a
gain of $12,000 on foreign currency conversions and other income items of
$40,000, offset by a loss on investments of $88,000.
The Company's effective tax rate in the first quarter of fiscal 1996 was
38% versus 37% in the comparable period of the prior year.
Liquidity and Capital Resources
The Company's working capital was $8,066,000 at June 30, 1995, as
compared with $6,970,000 at March 31, 1995. The increase in working capital
is due primarily to reductions in accounts payable and accrued expenses as
compared with the March 31, 1995 balances. The current ratio was 1.5 to 1 at
June 30, 1995, compared with 1.3 to 1 at March 31, 1995.
The Company provides for its cash requirements through cash funds
generated from operations. Additionally, the Company maintains an
uncollateralized $5,000,000 line of credit arrangement with Signet Bank
(Maryland), a major Mid-Atlantic regional bank, with interest at the bank's
prime rate. At June 30, 1995 and March 31, 1995, there were no short-term
borrowings under this facility.
Net earnings of $539,000 plus non-cash expenses of $1,816,000 provided a
total of $2,355,000 cash from operating activities. Additionally, the
decrease in accounts receivable provided cash of $1,266,000. Cash was
decreased by a reduction in accounts payable and accrued expenses of
$2,797,000; all other working capital items decreased cash $406,000. Cash
flows from investing activities were primarily expenditures for investment in
purchased and developed software and capital equipment of $1,597,000. Cash
used in financing activities was to reduce long-term debt by $200,000.
The Company's practice of accepting license agreements under installment
payment arrangements substantially increases its working capital requirements.
Generally, these arrangements are for a period from three to five years after
a minimum down payment of 10% of the principal amount of the contract.
Interest typically ranges from 9.5% to 13.0%. Installment receivables
included in accounts receivable were $8,508,000 and $8,995,000 at
June 30,1995, and March 31, 1995, respectively. The installment receivable
balance, in addition to the Company's policy of offering competitive trade
terms of payment, makes it difficult to accurately portray a relationship
between the outstanding accounts receivable balance and the current period
revenues.
The Company continually evaluates the credit and market risks associated
with outstanding receivables. In the course of this review the Company
considers many factors specific to the individual client as well as the
concentration of receivables within industry groups. The Company's
installment receivables are predominately with clients (service bureaus) who
provide computer services to the direct marketing industry. Typically, these
clients have limited capital and insufficient assets to secure their liability
to the Company. The service bureaus are highly dependent on the Company's
software and services to offer their customers the economic benefits 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 by the Company. The service bureau industry is
also highly competitive and subject to 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. These
clients represent approximately $7,368,000, or 84% of the installment
receivables at June 30, 1995.
As of June 30, 1995, 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 debt services, minimum lease
obligations and other short-term liquidity needs can be met from cash flows
from operations. The Company believes that its long-term liquidity needs are
minimal and no large capital expenditures are anticipated except for
continuing investment in capitalized software development costs which the
Company believes can be funded from operations. Historically, the Company has
been able to negotiate capital leases for its acquisition of equipment.
<PAGE>
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 11
No filings on Form 8-K have been made during the quarter
<PAGE>
PART IV
Listing of Exhibits
*10.20 Fifth Amendment to Employment Agreement, dated as of April 1,
1995, by and between Group 1 Software, Inc. and Ronald F.
Friedman.
*10.21 Group 1 Software, Inc., Deferred Compensation Plan.
*10.22 Group 1 Software, Inc., Deferred Compensation Trust, dated as
of June 1, 1995
*11.0 Computation of earnings per share.
______________________________
*Filed herewith
<PAGE>
EXHIBIT 11
<TABLE>
GROUP 1 SOFTWARE, INC.
Computation of Earnings Per Share
(in thousands, except per share data)
Unaudited
<CAPTION>
For the Three-Month
Period ended June 30,
1995 1994
(FY96) (FY95)
<S> <C> <C> <C>
Net earnings $ 539 $ 439
Primary earnings (A) $ 539 439
====== ======
Fully diluted earnings (B) $ 539 $ 439
====== ======
Weighted average shares outstanding 4,293 4,293
Dilutive common stock equivalents for
primary earnings per share 23 10
------ ------
Weighted average shares and common
equivalent shares outstanding for
primary earnings per share (C) 4,316 4,303
====== ======
Additional equivalent shares
assuming full dilution 15 7
------ ------
Weighted average shares and common
equivalent shares for fully diluted
earnings per share (D) 4,331 4,310
====== ======
Earnings per share
Primary (A)/(C) $ 0.12 $ 0.10
====== ======
Fully Diluted (B)/(D) $ 0.12 $ 0.10
====== ======
</TABLE>
Not presented on the Consolidated Statements of Earnings because fully diluted
earnings per share had a differential less than 3% of primary earnings per
share.
<PAGE>
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, 1995
/S/ CHARLES A. CREW
Charles A. Crew
Vice President
Chief Financial Officer
<PAGE>
Index of Exhibits
10.20 Fifth Amendment to Employment Agreement, dated as of April 1,
1995, by and between Group 1 Software, Inc. and Ronald F.
Friedman.
10.21 Group 1 Software, Inc., Deferred Compensation Plan.
10.22 Group 1 Software, Inc., Deferred Compensation Trust, dated as
of June 1, 1995
11.0 Computation of earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 240
<SECURITIES> 3,443
<RECEIVABLES> 22,296
<ALLOWANCES> 1,715
<INVENTORY> 0
<CURRENT-ASSETS> 25,000
<PP&E> 5,907
<DEPRECIATION> 3,235
<TOTAL-ASSETS> 52,597
<CURRENT-LIABILITIES> 16,934
<BONDS> 0
<COMMON> 43
0
0
<OTHER-SE> 27,167
<TOTAL-LIABILITY-AND-EQUITY> 52,597
<SALES> 9,385
<TOTAL-REVENUES> 9,385
<CGS> 8,600
<TOTAL-COSTS> 8,600
<OTHER-EXPENSES> (80)
<LOSS-PROVISION> 236
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 865
<INCOME-TAX> 326
<INCOME-CONTINUING> 539
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 539
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
