SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K

For the fiscal year ended March 31, 2002

OR

Commission file number 0-6355

Group 1 Software, Inc.
(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (301) 918-0400

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock $0.50 par value

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 reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [X]       NO [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( )

The aggregate market value of the voting stock held by non-affiliates of the Registrant on June 18, 2002 was $85,386,788

The number of shares of the Registrant’s Common Stock outstanding on June 18, 2002 was 6,946,001

DOCUMENTS INCORPORATED BY REFERENCE:

Definitive proxy statement to be filed with the Securities and Exchange Commission relating to Company’s 2002 Annual Meeting of Shareholders (Part III of Form 10-K).

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Part I

Item 1. Business

The Company

Group 1 Software, Inc., including its wholly owned subsidiaries (“Group 1” or the “Company”), is a leading provider of software solutions for data quality, customer communications management and direct marketing applications. Group 1 has offices throughout the United States and in Canada, the United Kingdom, continental Europe, and Latin America. The Company is also represented in Asia and Australia. Group 1 provides customer relationship management (CRM)-enabling software solutions that enable more than 2,000 businesses to market smarter by helping them find, reach, and keep their customers. Group 1’s products are used to help companies realize the benefits from or increase the return from their CRM and other relationship-management investments.

The Company’s data quality solutions are the cornerstone of successful CRM initiatives. These solutions enable businesses to ensure the integrity of customer and prospect data through validation, standardization, parsing, matching, consolidation and enhancement.

The Company’s direct marketing applications help businesses dramatically reduce mailing costs and ensure accurate, on-time delivery of mailings, goods and services, thereby increasing response rates and customer satisfaction. These solutions enable businesses to reduce costs by standardizing addresses, identifying duplicate customers, validating postal codes and maximizing postal discounts.

Group 1’s customer communications management solutions provide integrated, end-to-end document generation technology for delivery via multiple channels, including print, e-mail and Web. These solutions give businesses complete control of the document lifecycle and enable them to design, generate, deliver, and archive targeted communications, the sought-after end results of CRM programs.

The Company provides software solutions to leading organizations in the financial services, banking, retail, e-business, telecommunications, hospitality, publishing, utilities, high technology and insurance industries.

Group 1 markets all of its products in North America and certain of its products throughout the world. Group 1 is a leading worldwide vendor of customer communications management software and a leading vendor in North America of data quality and direct marketing software products.

Group 1 markets its data quality and direct marketing applications through a direct sales force in the United States and Canada. Customer communications management solutions are marketed directly to clients in the Americas and throughout Europe. The Company also uses distributors to supplement direct sales efforts.

The Company believes that the growing global adoption of CRM technologies, the increasing demand for personalized customer communications and the operational requirement for enterprise-wide data quality solutions can expand the market potential for Group 1’s existing and future products.

Markets Served

Group 1 markets its products within a broad span of industries to meet the needs of organizations in the areas of customer communications management, data quality and direct marketing. Group 1 addresses the direct marketing and data quality markets through its Enterprise Solutions Division, a single operating segment. Group 1 addresses the customer communications management market through a separate operating segment, its DOC1 Division.

Data Quality

Group 1’s data quality solutions are the cornerstone of successful CRM initiatives. These applications enable businesses to ensure the integrity of customer and prospect data and enhance that information with valuable geographic and demographic intelligence. These solutions consolidate disparate data to help develop an accurate single customer view, enabling businesses to increase operational efficiency, make more informed business decisions, and maximize customer lifetime value. Available as software applications or via hosted services, these solutions encompass many of the Company’s direct marketing applications and can be utilized in both real-time and batch modes.

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In March 2002, Group 1 launched DataSight, its flagship data quality solution. DataSight provides enterprise-wide correction, validation, and enhancement of customer, prospect and supplier data. The solution’s sophisticated technology can be applied to name and address as well as non-name and address data. Its functionality includes data validation, standardization, parsing, householding, and user-defined consolidation of duplicate customer records. This technology, available in both real-time and batch modes, offers businesses an integrated, enterprise-wide view of all customer-focused data. The product features a unique set of intuitive user interfaces, designed for both technical experts and business users, to manage all data quality processes.

The Group 1 Data Quality Connector for Siebel can be easily integrated into Siebel Systems’ leading CRM solution to provide accurate, consolidated customer and prospect data in both batch and interactive modes. The Data Quality Connector identifies and merges duplicate records and validates, corrects and formats address data for over 220 countries and dependencies worldwide. This solution helps give users a single, integrated view of their customers and the products and services they are utilizing across the enterprise, thereby improving target marketing effectiveness, enhancing customer relationships through improved service and strengthening the bottom line.

Group 1’s GeoTAX system provides businesses with the most accurate tax jurisdiction assignment solution available. GeoTAX is a comprehensive suite of tools that standardizes addresses and appends accurate state, county, municipal place, and special tax jurisdiction information to customer address records. With tax jurisdictions constantly changing and new tax jurisdiction assignment requirements mandated by federal and state laws, the potential liability resulting from inaccurate tax assignment poses a significant problem. To ensure businesses utilize accurate address information for tax jurisdiction assignment, GeoTAX provides exclusive access to the most current taxation boundary files through a database that tracks and updates on a monthly basis taxation boundary files nationwide.

Group 1’s HotData is a one-stop-shop for an organization’s online data quality and augmentation needs, offering real-time hosted services for Web sites, call centers, customer databases and highly distributed applications. HotData provides the flexibility to verify, standardize and append customer, prospect and business data for real-time environments as well as databases and CRM applications. The hosted service incorporates global address verification, the ability to update the addresses of customers who have recently moved, Dun & Bradstreet business information, geographic intelligence, area code updating and tax jurisdiction assignment.

Geographic Coding Plus helps companies turn simple customer address data into practical and powerful information. By adding highly accurate census geography data, demographic data and lifestyle data to customer addresses, Geographic Coding Plus offers businesses a gateway to increased customer and prospect understanding.

The DM1 solution enables companies to build one-to-one relationships by identifying and better understanding customers and prospects, permitting the generation of more efficient targeted offers and responses. Also available as a hosted solution, DM1 offers essential data hygiene and enhancement capabilities through Group 1’s leading data quality solutions and adds best-of-class technologies for querying, OLAP (on-line analytical processing), data visualization, modeling and reporting, mapping and campaign management.

Direct Marketing

Group 1’s direct marketing applications increase target marketing effectiveness and customer satisfaction by facilitating on-time, accurate delivery of mailings, goods and services. This is accomplished by cleaning, coding and standardizing address data, validating postal codes, presorting mailings and identifying and eliminating duplicate records. By using these solutions, businesses can take advantage of substantial discounts by complying with the United States Postal Service (USPS) and Canada Post Corporation (CPC) standards governing mail preparation and sortation. Group 1 also offers the industry’s most comprehensive international direct marketing solutions — validating, correcting and/or formatting address data for over 220 countries and dependencies worldwide.

Group 1’s direct marketing applications include CODE-1 Plus, CODE-1 Plus International, Canadian CODE-1 Plus, MailStream Plus, SortStream Canada, MOVEforward, and MOVEforward Canada along with many additional products that provide significant operational benefits. Group 1’s CODE-1 Plus and MailStream Plus products are, respectively, Coding Accuracy Support System (CASS)-certified and Presort Accuracy Validation and Evaluation (PAVE)-certified by the USPS. Group 1’s Canadian CODE-1 Plus and SortStream Canada are recognized under the CPC’s Software Evaluation Recognition Program (SERP) for address validation and postal presortation. To ensure accuracy and data quality, CODE-1 Plus and Canadian CODE-1 Plus validate, correct, and format each address element. MailStream Plus gives mailers the most powerful software solution available to presort mail for the highest postal discounts offered by the USPS for nearly every class of mail. MOVEforward and MOVEforward Canada access business and residential address changes, ensuring that communications reach the intended recipients.

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US mailers currently can save nearly 25% of the cost of first-class postage and up to 31% of the cost of standard mail by using MailStream Plus and CODE-1 Plus. Significant savings can also be achieved with other classes of mail. Similar benefits are provided to Canadian mailers using Group 1’s products accepted under the CPC’s SERP program. Canadian clients can avoid the $0.05 per piece surcharge by demonstrating an address accuracy level of at least 95%.

CODE-1 Plus International uses postal address files obtained directly from postal administrations worldwide to validate and correct addresses for over 120 countries. For an additional 100 countries and dependencies, CODE-1 Plus International can format address data. Additionally, Group 1 is the only North American vendor partnered with the Universal Postal Union (UPU), a specialized agency of the United Nations, to incorporate the UPU’s Universal POST*CODE® DataBase. The database contains locality and street-level data for all United Nations countries. Many U.S. businesses have been reluctant to conduct international direct marketing campaigns due to the historically poor quality of international address data and the complexity of dealing with such data. Available for batch or real-time address validation, CODE-1 Plus International makes multinational direct marketing much easier to implement.

Group 1’s data management applications, Merge/Purge Plus, Business Merge/Purge, Generalized Selection, and List Conversion Plus, provide substantial cost savings by enhancing the effectiveness of direct marketing initiatives. This is accomplished by validating, parsing, matching and de-duplicating customer and prospect information for more efficient list processing. These applications enable businesses to focus marketing efforts on specific groups based on geographic and demographic criteria and analyze response rates from specific segments of their target market.

Customer Communications Management

Group 1’s Customer Communications Management solutions give businesses complete control of the document lifecycle, from content design, generation, and presentment to archive, retrieval and payment. Through its core DOC1 suite, Group 1 offers an integrated customer communications management solution for e-mail, print and Web delivery of targeted correspondence. Personalized, high impact communications with customers and prospects are the sought-after end results of all CRM initiatives.

The Company believes that there is substantial demand for a single-source solution combining customer data with advanced document design, generation and mutichannel delivery. Using Group 1 to develop and deliver millions of customer communications each month are over 500 businesses worldwide, including telecommunications companies, insurance companies, brokerages, credit card processors, public utilities, health care providers and banks.

DOC1 is the industry’s leading enterprise-wide document generation suite and the only single-source solution for generation of print and Web-based documents. Using DOC1, companies can market more intelligently and communicate more effectively with customers and prospects.

DOC1 Designer enables users to create and maintain dynamic business communications. With an intuitive Windows-based user interface, documents can be formatted in multiple languages with full color, dynamic graphics, and variable data. DOC1 Generate uses the rules and content from DOC1 Designer to compose documents for batch or real-time outputs. DOC1 Print offers the industry’s most comprehensive output solution, producing AFP, Metacode, PostScript, PCL, as well as PDF, HTML and XML for e-billing.

DOC1 Present provides businesses with a variety of ways to electronically deliver business documents to their customers. Delivery methods include Web, standard e-mail and secure e-mail. Organizations can utilize DOC1 Present for electronic statement presentment or develop internal applications using its robust development tools. DOC1 Pay, offered in conjunction with DOC1 Present, adds electronic payment functionality. This enables online electronic payment of delivered e-bills.

DOC1 Interactive enables business users to create personalized, professional correspondence such as contracts, letters and policies quickly and easily. Front-office employees can author one-to-one business correspondence through a managed Microsoft Word environment for delivery via print, e-mail, or Web browser.

DOC1 Archive offers real-time storage, compression and high-speed retrieval of business documents and enables users to archive and view millions of documents and maintain years of historical billing and statement data online. DOC1 Archive employs next-generation compression and indexing techniques and utilizes industry-standard hardware, thereby minimizing the investment traditionally required in storage of archived documents.

DOC1 Marketer combines campaign management, data mining, and powerful one-to-one messaging. DOC1 Marketer provides browser-based access to enriched customer data with advanced, easy-to-use predictive modeling via Group 1’s award-winning Model 1 solution.

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DOC1 supports all major printing architectures and can operate in centralized, distributed or desktop environments. When integrated with Group 1’s MailStream Plus and CODE-1 Plus, DOC1 produces documents in a sequence that qualifies for significant United States Postal Service (USPS) presorting discounts.

Products, Services and Support

Products

As of March 31, 2002, Group 1 offered over 50 software products that run on more than 20 different operating systems and hardware platforms. Group 1’s products each can operate on a stand-alone basis or in conjunction with other Group 1 products to create an integrated system that can be tailored to a client’s requirements.

The DOC1 production engine can run under MVS, Windows NT, Windows 2000, UNIX (Sun Solaris, HP/UX, IBM AIX, and TRU64), Open VMS, OS/400 or PC DOS. DOC1 is printer-independent and produces AFP, Metacode, HP/PCL, PostScript, HTML, XML, PDF and line data output.

Most products of the Enterprise Solutions Division are offered in an open systems format enabling operation on all major platforms. This approach provides consistent performance across the enterprise, regardless of computer platform and allows users to migrate from one platform to another without lost productivity or added training.

Professional Services

Group 1’s broad range of professional services include data analysis, data migration, integration with other systems, document analysis, consultation and design, installation and training, and file conversion. These services are designed to assist clients in obtaining maximum utilization from their Group 1 products and in improving other operational areas. Professional services, including operations support, business analysis, programming services, technical education and training, and operational reviews, are provided at the client’s location and at Group 1 training facilities throughout the U.S. and in Canada and the United Kingdom.

Support

Effective support of our customers and products has been a substantial factor in Group 1’s success to date and will continue to be in the foreseeable future. Customer support is primarily provided by telephone for assistance in product installation and problem resolution. Automated call tracking, client-specific call routing, electronic newscast, e-mail messages and on-line discussion bulletin board services via the technical support Web site are also provided for customers utilizing Group 1’s maintenance and enhancement program. On-site visits by qualified company personnel are also available, if necessary. Other offerings include e-mail support, integration support, and premium support plans.

Group 1 customers are afforded educational opportunities through our Annual User’s Conference and the over 20 local User Groups. In addition, two National User Groups advise Group 1 on a variety of issues. The thirty-member National User Group for the Enterprise Solutions Division includes a cross-section of customers representing various platforms, products, and industries. The Customer Communications Management Division also has an active User’s Group that meets twice a year.

For DM1 customers, Group 1 maintains systems in our Las Vegas, Nevada facility duplicating each customer’s environment. Group 1 Software Europe also has modem links with many of its customers to provide high levels of mission-critical support.

Group 1 offers with its product licenses an annual service agreement that provides telephone support and continuing updates and enhancements, if and when available, to its products and documentation. The education department offers educational and training seminars specific to Group 1 products.

In the fiscal years ended March 31, 2002, 2001 and 2000, maintenance and enhancement fees represented approximately 49%, 42%, and 40%, respectively, of Group 1’s revenue.

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Customers

Group 1’s customer base includes more than 2,000 clients who have licensed one or more of its products. Group 1 provides software solutions to corporate leaders in a variety of industry segments, as indicated by the following brief list of customers:

Insurance and Financial Services

Retailers

Telecommunications

Utilities

Direct Marketers

Government and Non-profit

E-Business

No customer accounts for more than 10% of the Company’s revenue.

Licensing

Most Group 1 products are licensed on a perpetual “right to use” basis pursuant to non-exclusive license agreements. Those products that incorporate third-party databases are licensed on an annual basis. Group 1 does not sell or transfer title to its software products to clients. A client is generally entitled to use a product only for internal purposes on a single computer at a single location. Group 1 offers its customers a wide variety of license agreements, from single user to enterprise-wide. Certain postal products are required under USPS and CPC regulations (CASS and SERP, respectively) to have defined expiration dates (quarterly or monthly) and must be under subscription or re-licensing arrangements with Group 1 to continue to qualify for postal discounts.

Group 1 generally warrants that its products will perform substantially in accordance with their standard documentation for the defined warranty period. The software is generally licensed in conjunction with a first year maintenance agreement to provide service and support for twelve months from the date of the license agreement. The hosted on-line services are offered under annual, renewable service agreements.

Sales and Marketing

Group 1 markets all of its software products in North America and Europe through a direct sales and sales support organization of over 100 Associates located in the Americas and Europe. To serve existing clients and to attract new customers, Group 1 has two sales and support offices in the Washington, DC area and nine other regional offices in the New York City, Chicago, Los Angeles, Las Vegas, Atlanta, Dallas, Minneapolis, Miami and Toronto, Canada areas. Group 1’s European headquarters is located in the London metropolitan area.

The Group 1 sales organization is supported by a comprehensive marketing program administered from Group 1’s Lanham, Maryland headquarters. Marketing is conducted through direct mail, print advertising, an active Web site, trade show exhibitions, speaking engagements, product training seminars, telemarketing and a broad variety of public relations activities including media relations and industry analyst briefings.

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Group 1’s domestic distributors and partners include PeopleSoft, Siebel Systems, Pitney Bowes, SPL Worldgroup, Ernst and Young, IBM, Xerox, Portal, CSC, Daleen, USHA, CommercialWare, CSG, SCT, Convergys, Systems Research and Development (SRD) ProQuest and others. Through its Group 1 Software Europe subsidiary, Group 1 has entered into software distribution and support agreements for the DOC 1 product suite with partner distribution companies throughout Europe. International distributors of Group 1’s products include Pitney Bowes, Xerox, IBM, SAP, OBIMD, Business Document, Accenture and L&K. Group 1 has entered into agreements with a number of leading software and hardware vendors. Group 1 distributes products manufactured by Informatica, iWay, Dun & Bradstreet, Claritas, GDT, UNICA Technologies, Business Document, Sigaba and others.

Product Development

The software and service industry is characterized by rapid change in hardware and software technology and in user needs, requiring a continual expenditure for product development. Businesses are also placing emphasis on products and services that can be deployed across the enterprise and in real-time. Technology trends such as the increasing adoption of XML and the promise of Web services require constant evaluation. These operational requirements and technology trends in conjunction with input received from existing customers will continue to guide Group 1’s product direction for the foreseeable future.

Group 1 must be able to provide new products and to modify and enhance existing products on a continuing basis to meet the requirements of its customers and of regulatory agencies, particularly the USPS and CPC. Group 1 may also have to adapt its products to accommodate future changes in hardware and operating systems. To date, Group 1 has been able to adapt its products to such changes and believes that it will be able to do so in the future. Most of the Company’s products are developed internally. The Company also purchases technology, licenses intellectual property rights and oversees third party development of certain products.

Quality assurance testing of Group 1’s new or enhanced products is conducted by teams of experienced individuals from all segments of Group 1’s organization under the direction of testing specialists. Whether the product or technology is developed internally or acquired from another company, Group 1 considers it important to control the marketing, distribution, enhancement and future direction of each of its products and technologies.

Significant investment was made during the year in new software development, which in the Enterprise Solutions division focused on improving the core data quality technology to take advantage of the opportunities that Group 1 believes exist. The Company released DataSight, its flagship data quality solution during the year. It also developed its Data Quality Connector for Siebel to provide robust data quality technology to users of the leading CRM solution. The Company’s HotData hosted services offering was also launched, wedding the technology acquired from HotData with Group 1’s DataQuality.net transactional Web service. Furthermore, the Company introduced MOVEforward Canada, which tracks business and residential address changes and updated its entire suite of data management applications.

Substantial investments were also made in all DOC1 products, most notably the launch of an integrated DOC1 suite offering complete control over the document lifecycle. With the acquisition of Vision-R Technologies, DOC1 Archive was introduced, adding archive and retrieval functionality to the DOC1 suite. DOC1 Present and DOC1 Pay were also introduced, incorporating the technology from the acquisition of TriSense Software and adding electronic delivery and payment to the DOC1 suite.

During fiscal 2002, Group 1 released product updates for all its regulatory products that enabled the Company’s direct marketing customers in the U.S. and Canada to meet the requirements of the USPS and CPC and continue to benefit from substantial postal discounts.

Competition

The software and service industry is highly competitive, and little published data is available regarding Group 1’s relative position in the markets in which it operates. Although no major competitor currently competes against Group 1 across its entire product line, competitive products are available from a number of different vendors offering features similar to those of Group 1’s products. Group 1’s existing and potential competitors include companies having greater financial, marketing and technical resources than Group 1. There can be no assurance that one or more of these competitors will not develop products that are equal or superior to the products Group 1 expects to market. In addition, many potential clients for Group 1’s products have in-house capabilities to develop computer software programs that can provide some or all of the functionality of Group 1’s products.

Group 1 believes that the principal, distinguishing competitive factors in the selection of its software products are price/performance characteristics, marketing and sales expertise, ease of use, product features and functions, reliability and quality of technical support, ease of integration of the product line and the Company’s financial strength. Group 1 believes that it competes favorably with regard to these factors. A major competitive asset is that Group 1 offers a comprehensive array of complementary products that work together to facilitate more effective and efficient target marketing and customer relationship management. Group 1’s primary strengths are the technical capabilities of its personnel and products, marketing and sales expertise, service and support, and industry product leadership.

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Intangible Asset Protection

Group 1 regards its software, in source and object code, related manuals and documentation as proprietary. Group 1 relies upon a combination of contract, trade secret, patents and copyright laws to protect its products. The license agreements under which clients use Group 1’s products often restrict the client’s use to its own operations and always prohibit unauthorized disclosure to third persons. Notwithstanding these, it may be possible for other persons to obtain copies of Group 1’s products. Furthermore, with the increasing number of patents issued for computer programming, notwithstanding Group 1’s efforts to assure to the contrary, Group 1 may in the future find that it has inadvertently infringed on a newly issued patent. Group 1 believes that because of the rapid pace of technological change in the technology industry and changes in postal regulations that affect several core products, copyright, patent, and trade secret protection are less significant than factors such as the knowledge and experience of Group 1’s management and other personnel and their ability to develop, enhance, market and acquire new products.

Group 1 has U.S. federal registrations on over 30 trademarks, including CODE-1 Plus, DM1, DOC1, GROUP 1 SOFTWARE, GEOTAX, HotData and Model1. The Company also has registrations in Australia, Canada, Chile the European Union, Japan and South Korea for selected trademarks. In addition, Group 1 maintains over 35 U.S. common law trademarks.

Employees

As of March 31, 2002, the Company employed 457 persons on a full-time basis, of whom 365 were based in the United States and 92 were based internationally. Of the total, 122 were engaged in sales and marketing, 197 in product development and support, 52 in professional services and 86 in finance, administration and corporate operations. None of the Company’s Associates is represented by a labor union. The Company has not experienced any work stoppages and believes its employee relations to be good.

Item 2. Properties

The Company’s executive and administrative offices are located in Lanham, Maryland, a Washington, DC suburb, where the Company leases 68,598 square feet under a lease that expires in 2015. These facilities also include Group 1’s headquarters and principal operations base. Group 1 has options to lease additional space at specified periods during the term and to extend its lease. In North America, Group 1 leases additional offices in the Chicago, Dallas, Austin, Los Angeles, Las Vegas, Atlanta, New York City, Minneapolis, Miami, Toronto, and the Herndon, Virginia metropolitan areas. Outside North America, the Company leases an office in the London metropolitan area.

Item 3. Legal Proceedings

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.

Item 4. Submission of Matters to a Vote of Security Holders

None

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PART II

Item 5. Market for Registrant’s Common Stock and Related Stockholder Matters

The trading of the common stock of the Company is reported on the NASDAQ National Market System under the symbol GSOF. The table below sets forth the highest and lowest closing prices between dealers for the quarters indicated. These prices, as reported by NASDAQ, do not include retail markup, markdown or commissions and may not necessarily represent actual transactions.

Closing Common Stock Prices

No cash dividends have been paid on the Company’s common stock. The Company pays dividends on the 6% Cumulative Convertible Preferred Stock. The Board of Directors intends to retain, for the foreseeable future, the Company’s earnings for use in the development of the business.

At June 15, 2002, there were approximately 2,195 holders of record of the Company’s common stock, including persons who wish to be identified as having an interest in shares held or recorded in “street name” with broker-dealers.

The Company has three stock option programs currently in effect, and three predecessor plans for which option grants are still outstanding. Options granted under all plans were granted at 100% of the fair market value of the common stock at the date of grant.

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Item 6. Selected Financial Data
(In thousands except per share amounts)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Forward-looking Statements

     Any statements in this Annual Report on Form 10-K 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 may include words such as “believes”, “is developing”, “will continue to be in the future”, “anticipates” and “expects”. Actual results may differ materially from the expectations expressed or implied in the forward-looking statements. 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 other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update any forward-looking statement.

Fiscal 2002 as Compared with Fiscal 2001

     For the year ended March 31, 2002, Group 1’s revenue was $89.4 million compared with $94.2 million for the prior year. Group 1 had net income available to common stockholders for the year of $4.4 million compared with $8.8 million for fiscal 2001. The decrease in profitability is attributed to decreased revenues and operating income in both the Enterprise Solutions and DOC1 segments. These decreases are due primarily to unfavorable economic and market conditions and acquired businesses in fiscal 2002 and are discussed in further detail below.

     All of Group 1’s operations are in the two business segments defined as the Enterprise Solutions Division and DOC1 Division. Enterprise Solutions revenue accounted for 67% and 63% of Group 1’s total revenue in fiscal 2002 and fiscal 2001, respectively. DOC1 revenue was 33% and 37% of total revenue for fiscal 2002 and fiscal 2001. International revenues accounted for 15% and 16% of Group 1’s total revenue in fiscal 2002 and fiscal 2001, respectively.

     Software license fees and related revenue of $33.0 million decreased 18% from the prior year. As a percentage of total revenue, software license and related revenue was 37% and 43% for fiscal years 2002 and 2001, respectively. The decrease was due to lower license fee revenue in both business segments further described below.

     The Enterprise Solutions segment’s data quality/direct marketing software license fees decreased 9% for fiscal year 2002 compared with fiscal year 2001. Included in data quality/direct marketing license fees were a decrease in GeoTax and Code 1 Plus licenses offset partially by an increase in Canadian Data Quality and Mailing Efficiency products.

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     License fees from the Enterprise Solutions segment’s Database Marketing systems decreased $0.4 million for fiscal year 2002. The decrease resulted from lower sales of the Model 1 and DM1 products.

     Licensing of DOC1 software decreased by 28% in fiscal 2002 over the prior fiscal year. The decrease is due to lower license fees sold both domestically and internationally.

     Maintenance and services revenue of $56.4 million for the year increased 4% over the prior year. Maintenance and service revenue accounted for 63% and 57% of total revenue in fiscal 2002 and fiscal 2001, respectively. Recognized maintenance fees were $43.6 million in fiscal 2002 and $39.0 million in fiscal 2001, an increase of 12%. Professional service and educational training revenues were $12.8 million in fiscal 2002 and $15.2 million in fiscal 2001, a decrease of 15%.

     Enterprise Solutions recognized maintenance increased 9% over the prior year to $33.7 million. DOC1 recognized maintenance increased 23% to $9.9 million in fiscal 2002. The increase in maintenance revenue is due to the recognition of a higher level of maintenance deferrals based on higher aggregate sales from prior periods and increased maintenance renewals based on an increase in the installed customer base in both business segments. The Company expects moderate growth in recognized maintenance in the upcoming year in both of its business segments.

     Professional services revenue from the Enterprise Solutions segment decreased to $4.1 million in fiscal 2002 from $4.6 million in fiscal 2001, a decrease of 9%. DOC1 services revenue decreased 18% in fiscal 2002 to $8.7 million. These decreases are associated with the decreased license revenue in both segments, which were affected by unfavorable economic and market conditions. As the Company foresees a growing need for integrating complex solutions, it anticipates increased revenue from these services.

     Total costs of revenue for fiscal 2002 were $32.9 million versus $31.3 million for fiscal 2001, representing 37% and 33% of total revenue, respectively. Costs of revenue include software license expense and maintenance and service expense. Software license expense consists of the amortization of software development costs, royalty payments to third party vendors, and the costs of documentation and quality assurance. Maintenance and service expense consist primarily of consulting, education and support personnel salaries and related costs as well as the costs to distribute the product, including the costs of the media on which it is delivered and shipping and handling costs.

     Software license expense increased to $12.0 million in fiscal 2002 representing 37% of software license and related revenue compared with $11.3 million in fiscal 2001 representing 28% of software license and related revenue. The increase as a percent of revenue is primarily due to lower license fees in fiscal 2002 along with higher royalty expense associated with the sale of third party products.

     Maintenance and service expense increased to $20.8 million in fiscal 2002 from $20.1 million in fiscal 2001, 37% of maintenance and service revenue in both years. The expense as a percent of revenue is expected to decrease as services revenue increases and higher utilization of services personnel is achieved.

     Included in maintenance and service expense are professional service and educational training costs of $12.5 million which were 98% of professional services revenue during 2002 and $12.6 million and 83% of professional services revenue for the prior year. The increase in expense as a percentage of services revenue is due to increased staffing and contracting costs. Services expense as a percent of revenue is expected to decrease as services revenue increases and higher utilization of service personnel is achieved.

     Costs of maintenance were $8.3 million for fiscal 2002 representing 19% of maintenance revenue compared with costs of $7.5 million and 19% of maintenance revenue in fiscal 2001. The Company anticipates that these costs will remain relatively close to their current levels.

     Total operating costs of $50.4 million were 56% of revenue in fiscal 2002 compared with $50.8 million or 54% of revenue during fiscal 2001. The various components of operating costs are discussed below.

     Software development costs incurred subsequent to establishment of the software’s technological feasibility are capitalized. Capitalization ceases when the software is available for general release to customers. All costs not meeting the requirements for capitalization are expensed in the period incurred. Software development costs include direct labor cost and overhead. Capitalized software development costs are amortized by the greater of (a) the ratio that current gross revenues for the product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. At the balance sheet date, the Company evaluates the net realizable value of the capitalized costs and adjusts the current period amortization for any impairment of the capitalized asset value. Amortization of capitalized software is included in the cost of license fees.

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     Costs for research and development, before capitalization, incurred in fiscal 2002 and 2001, were $17.4 million, $13.3 million, respectively. Research and development expenses (after capitalization of certain software development costs) totaled $10.3 million in fiscal 2002 and $6.5 million in 2001, representing 12% and 7% of total revenue, respectively. The increase in costs is due to the three acquisitions made by the Company during the year along with new product initiatives in both of the Company’s operating segments.

     Sales and marketing expenses totaled $28.9 million or 32% of revenue in fiscal 2002 and $30.8 million or 33% of revenue in fisc