SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-QQuarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the Quarter Ended June 30, 2003 | Commission file number 0-6355 |
Group 1 Software, Inc. |
| Incorporated in Delaware | IRS EI No. 52-0852578 |
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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 |_| |
| Class Common Stock, $.50 par value |
Shares Outstanding Effective August 7, 2003 14,984,301 |
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1 GROUP 1 SOFTWARE, INC.
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| June 30, 2003 |
March 31, 2003 |
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| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 49,420 | $ | 56,475 | ||||
| Short-term investments, available-for-sale | 8,422 | 7,712 | ||||||
| Trade and installment accounts receivable, less | ||||||||
| allowance of $1,484 and $1,755 | 13,929 | 18,834 | ||||||
| Note Receivable | 7,000 | — | ||||||
| Deferred income taxes | 1,715 | 2,130 | ||||||
| Prepaid expenses and other current assets | 3,603 | 4,067 | ||||||
| Total current assets | 84,089 | 89,218 | ||||||
| Installment accounts receivable, long-term | 30 | 39 | ||||||
| Property and equipment, net | 4,864 | 4,707 | ||||||
| Computer software, net | 23,600 | 23,490 | ||||||
| Goodwill | 12,722 | 12,716 | ||||||
| Other assets | 220 | 206 | ||||||
| Total assets | $ | 125,525 | $ | 130,376 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,345 | $ | 1,358 | ||||
| Current portion of note payable | 347 | 371 | ||||||
| Accrued expenses | 5,836 | 7,033 | ||||||
| Accrued compensation | 4,837 | 9,454 | ||||||
| Current deferred revenues | 28,203 | 31,241 | ||||||
| Total current liabilities | 40,568 | 49,457 | ||||||
| Note payable, net of current portion | 350 | 350 | ||||||
| Deferred revenues, long-term | 386 | 315 | ||||||
| Deferred income taxes | 4,402 | 4,694 | ||||||
| Total liabilities | 45,706 | 54,816 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| 6% cumulative convertible preferred stock $0.25 par value; | ||||||||
| 1,200 shares authorized; 48 shares issued | — | — | ||||||
| Common stock $0.50 par value; 50,000 shares authorized; | ||||||||
| 15,041 and 14,902 shares issued | 7,521 | 7,451 | ||||||
| Additional paid in capital | 36,333 | 34,951 | ||||||
| Retained earnings | 39,672 | 37,619 | ||||||
| Accumulated other comprehensive income | 938 | 184 | ||||||
| Treasury stock, 1,246 shares, at cost | (4,645 | ) | (4,645 | ) | ||||
| Total stockholders’ equity | 79,819 | 75,560 | ||||||
| Total liabilities and stockholders’ equity | $ | 125,525 | $ | 130,376 | ||||
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See notes to consolidated financial statements. 2 GROUP 1 SOFTWARE, INC.
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| For the Three Month Period Ended June 30, |
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|---|---|---|---|---|---|---|---|---|
| 2003 |
2002 |
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| Revenue: | ||||||||
| Software license and related revenue | $ | 10,468 | $ | 9,877 | ||||
| Maintenance and services | 13,788 | 13,502 | ||||||
| Total revenue | 23,379 | 24,256 | ||||||
| Cost of revenue: | ||||||||
| Software license expense | 3,799 | 4,071 | ||||||
| Maintenance and service expense | 4,450 | 4,274 | ||||||
| Total cost of revenue | 8,249 | 8,345 | ||||||
| Gross profit | 16,007 | 15,034 | ||||||
| Operating expenses: | ||||||||
| Research and development, net (see note 6) | 2,769 | 2,742 | ||||||
| Sales and marketing | 7,580 | 7,510 | ||||||
| General and administrative | 3,200 | 3,330 | ||||||
| Total operating expenses | 13,549 | 13,582 | ||||||
| Income from operations | 2,458 | 1,452 | ||||||
| Other income: | ||||||||
| Interest income | 243 | 281 | ||||||
| Interest expense | (12 | ) | (130 | ) | ||||
| Other income (expense) | 546 | (46 | ) | |||||
| Total other income | 777 | 105 | ||||||
| Income before provision for income taxes | 3,235 | 1,557 | ||||||
| Provision for income taxes | 1,182 | 584 | ||||||
| Net income | 2,053 | 973 | ||||||
| Preferred stock dividend requirements | — | (14 | ) | |||||
| Net income available to common stockholders | $ | 2,053 | $ | 959 | ||||
| Basic earnings per share | $ | 0.15 | $ | 0.08 | ||||
| Diluted earnings per share | $ | 0.13 | $ | 0.07 | ||||
| Basic weighted average shares outstanding | 13,724 | 12,616 | ||||||
| Diluted weighted average shares outstanding | 15,862 | 13,886 | ||||||
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See notes to consolidated financial statements. 3 GROUP 1 SOFTWARE, INC.
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| For the Three Month Period Ended June 30, |
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| 2003 |
2002 |
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| Cash flows from operating activities: | ||||||||
| Net income | $ | 2,053 | $ | 973 | ||||
| Adjustments to reconcile net income from | ||||||||
| operations to net cash provided by operating activities: | ||||||||
| Amortization expense | 2,748 | 2,356 | ||||||
| Depreciation expense | 414 | 594 | ||||||
| Provision for doubtful accounts | (310 | ) | 150 | |||||
| Deferred income taxes | 125 | 80 | ||||||
| Net gain on sale of intellectual property and other property | ||||||||
| and equipment | (345 | ) | — | |||||
| Tax benefit from exercises of stock options | 647 | 85 | ||||||
| Foreign currency transaction loss | 18 | 64 | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 5,352 | 4,478 | ||||||
| Prepaid expenses and other current assets | 486 | (177 | ) | |||||
| Other assets | (7 | ) | (6 | ) | ||||
| Deferred revenues | (3,092 | ) | (1,357 | ) | ||||
| Accounts payable | (33 | ) | 307 | |||||
| Accrued expenses and accrued compensation | (5,893 | ) | 972 | |||||
| Net cash provided by operating activities | 2,163 | 8,519 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases and development of computer software | (2,301 | ) | (1,842 | ) | ||||
| Purchases of property and equipment | (809 | ) | (359 | ) | ||||
| Purchases of marketable securities | (6,708 | ) | (4,915 | ) | ||||
| Sales of marketable securities | 5,998 | 6,489 | ||||||
| Proceeds from sale of intellectual property | 375 | — | ||||||
| Issuance of notes receivable | (7,000 | ) | — | |||||
| Net cash used in investing activities | (10,445 | ) | (627 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of stock options | 804 | 153 | ||||||
| Repayment of principal on long-term debt | (24 | ) | (3,102 | ) | ||||
| Net cash provided by (used in) financing activities | 780 | (2,949 | ) | |||||
| Net (decrease) increase in cash and cash equivalents | (7,502 | ) | 4,943 | |||||
| Effect of exchange rate on cash and cash equivalents | 447 | 642 | ||||||
| Cash and cash equivalents at beginning of period | 56,475 | 22,936 | ||||||
| Cash and cash equivalents at end of period | $ | 49,420 | 28,521 | |||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Mature shares tendered in payment for stock option exercises | $ | — | 26 | |||||
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See notes to consolidated financial statements. 4 GROUP 1 SOFTWARE, INC.
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| For the Three Month Period Ended June 30, |
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| 2003 |
2002 |
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| Net income | $ | 2,053 | $ | 973 | ||||
| Foreign currency translation adjustments | 754 | 1,107 | ||||||
| Comprehensive income | $ | 2,807 | $ | 2,080 | ||||
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See notes to consolidated financial statements. 5 Group 1 Software,
Inc. 1. The consolidated financial statements for the three months ended June 30, 2003 and 2002 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a recurring nature in the normal course of business. Limited footnote information is presented in accordance with quarterly reporting requirements. The results of operations for the three months ended June 30, 2003 are not necessarily indicative of the results for the year ending March 31, 2004. The information contained in the annual report on the Form 10-K for the year ended March 31, 2003, should be referred to in connection with the unaudited interim financial information. 2. On April 15, 2003, the Company entered into an agreement to acquire key assets of Sagent Technology, Inc. (“Sagent”) for up to $17 million, payable in cash and debt forgiveness. Group 1 has provided Sagent with $7 million in bridge financing, secured by all of Sagent’s assets. The purchase agreement has been approved by Group 1‘s and Sagent’s board of directors. The transaction is subject to approval by Sagent’s shareholders and certain other closing conditions. On July 31, 2003, Group 1 entered into an amendment to extend the maturity date under the $7 million existing secured loans to September 30, 2003 and to increase the borrowing limit of the loan from $7 million to $9 million. Sagent and Group 1 have also agreed to extend the outside date for closing under the asset purchase agreement until October 30, 2003. Otherwise, terms of the existing loan and the asset purchase agreement remain the same. 3. On December 10, 2002, under authorization of the Board of Directors the Company moved to redeem all of the outstanding 6% cumulative convertible preferred stock. On January 15, 2003, the holders of all 47,500 shares outstanding elected to exchange their preferred shares for 142,500 common shares in accordance with the conversion provision of the preferred stock. 4. On November 5, 2002, the Board of Directors declared a two-for-one common stock split for stockholders of record as of November 15, 2002. There was no change in the par value of the stock as a result of the split. The additional shares were issued on December 2, 2002. The effect of the stock split has been retroactively reflected in the consolidated financial statements for all periods presented. 5. Certain prior period amounts have been reclassified to conform to current period presentation. 6. Research and development costs, before the capitalization of computer software development costs, was $4,818,000 and $4,585,000 for the three months ended June 30, 2003 and 2002, respectively. Capitalization of computer software development costs for the three months ended June 30, 2003 and 2002 were $2,049,000 and $1,843,000, respectively. 7. Earnings per share Basic earnings per share (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 dilutive common stock equivalents outstanding during the period. Potentially dilutive common stock equivalents consist of convertible preferred stock (computed using the if converted method) and stock options and warrants (computed using the treasury stock method). Potentially dilutive common stock equivalents are excluded from the computation if the effect is anti-dilutive. Reconciliation of the shares used in the basic EPS calculations to the shares used in the diluted EPS calculation is as follows (in thousands): 6 |
| For the Three Month Period Ended June 30, |
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| 2003 |
2002 |
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| Weighted average common shares outstanding-basic | 13,724 | 12,616 | ||||||
| Effect of dilutive securities: | ||||||||
| Stock options and warrants | 2,138 | 1,270 | ||||||
| Weighted average shares outstanding-diluted | 15,862 | 13,886 | ||||||
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There were no additional potentially dilutive common stock options, warrants or convertible securities in the three months ended June 30, 2003. There were 1,500,000 additional potentially dilutive common stock options and warrants in the three months ended June 30, 2002. There were 142,500 additional potentially dilutive convertible securities in the three months ended June 30, 2002. The Company accounts for its stock based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” as interpreted by FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, and Interpretation of APB Opinion No. 25,” (FIN 44) and present the pro forma disclosures required by Statement of Financial Accounting Standard No. 123, “Accounting for Stock Based Compensation” (SFAS 123) as amended by Statement of Financial Accounting Standard No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure” (SFAS 148). The Company accounts for the activity under the Plans in accordance with APB 25. Accordingly, no compensation expense has been recognized for the Plans. If compensation expense had been determined based on the fair value of the options at the grant dates consistent with the method of accounting under SFAS No. 123, the Company’s net income and earnings per share would have decreased or increased to the pro forma amounts indicated below (in thousands, except per share amounts): |
| Three months ended June 30, 2003 |
Three months ended June 30, 2002 |
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| Net income available to common stockholders as | ||||||||
| reported | $2,053 | $ 959 | ||||||
| Add: stock-based employee compensation | ||||||||
| expense included in reported net income | — | — | ||||||
| Deduct: total stock-based empl | ||||||||