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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

x    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended December 31, 2003.

o    Transition report pursuant to Section 13 or 15(d) of the Exchange act for the transition period from ____________ to ____________

Commission File Number: 0-6355

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

Delaware

 

52-0852578

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

4200 Parliament Place, Suite 600, Lanham, MD

 

20706-1860

(Address of principal executive offices)

 

(Zip Code)

(301) 918-0400
(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. xYes   o No

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Shares Outstanding Effective
February 6, 2003
15,176,765

Class
Common Stock, $.50 par value

GROUP 1 SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
In thousands, except par value)

December 31,
2003
 March 31,
2003
(Unaudited)
 ASSETS            
 Current assets:  
    Cash and cash equivalents   $ 50,685   $ 56,475  
    Short-term investments, available-for-sale    7,801    7,712  
    Trade and installment accounts receivable, less   
      allowance of $2,561 and $ 1,755    22,963    18,834  
    Deferred income taxes    1,886    2,130  
    Prepaid expenses and other current assets    4,335    4,067  
 Total current assets    87,670    89,218  
 Installment accounts receivable, long-term    11    39  
 Property and equipment, net    5,723    4,707  
 Computer software, net    25,458    23,490  
 Goodwill    24,287    12,716  
 Other assets    6,025    206  
    Total assets   $ 149,174   $ 130,376  
 LIABILITIES AND STOCKHOLDERS’ EQUITY  
 Current liabilities:              
    Accounts payable   $ 1,926   $ 1,358  
    Current portion of note payable and capital lease obligations              
     457    371  
    Accrued expenses    10,720    7,033  
    Accrued compensation    8,093    9,454  
    Current deferred revenues    35,938    31,241  
 Total current liabilities    57,134    49,457  
 Note payable and capital lease obligations, net of current portion    443    350  
 Deferred revenues, long-term    1,863    315  
 Deferred income taxes    4,104    4,694  
   Total liabilities    63,544    54,816  
 Commitments and contingencies              
 Stockholders’ equity:  
 6% cumulative convertible preferred stock $0.25 par           
    value; 1,200 shares authorized; none issued    — — —    — — —  
 Common stock $0.50 par value; 200,000 and 50,000 shares authorized; 15,156 and 14,902              
     shares issued    7,578    7,451  
 Additional paid in capital    37,309    34,951  
 Retained earnings    43,200    37,619  
 Accumulated other comprehensive income    2,636    184  
 Treasury stock, 1,271 and 1,246 shares, at cost    (5,093 )  (4,645 )
 Total stockholders’ equity    85,630    75,560  
 Total liabilities and stockholders’ equity   $ 149,174   $ 130,376  
See notes to consolidated financial statements              

2

GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

For the Three Month Period
Ended December 31,
 For the Nine Month Period
Ended December 31,
2003
 2002
 2003
 2002
Revenue:                    
   Software license and related revenue   $ 14,198   $ 12,525   $ 35,507   $ 33,731  
   Maintenance and services    17,124    14,165    45,304    41,358  
     Total revenue    31,322    26,690    80,811    75,089  
Cost of revenue:                          
   Software license expense    4,038    3,379    11,024    11,213  
   Maintenance and service expense    4,821    4,302    13,332    12,681  
     Total cost of revenue    8,859    7,681    24,356    23,894  
Gross profit    22,463    19,009    56,455    51,195  
Operating expenses:  
   Research and development, net (see note 5)    5,228    3,032    10,952    8,586  
   Sales and marketing    11,107    8,464    27,037    23,712  
   General and administrative    4,579    3,999    11,104    10,868  
     Total operating expenses    20,914    15,495    49,093    43,166  
     1,549    3,514    7,362    8,029  
Income from operations  
   
Other income:  
   Interest income    187    276    1,008    879  
   Interest expense    (6 )  (97 )  (31 )  (289 )
   Other income (expense)    (141 )  (31 )  352    (222 )
     Total other income    40    148    1,329    368  
     Income before provision for income taxes    1,589    3,662    8,691    8,397  
Provision for income taxes    613    1,321    3,110    3,112  
Net income;    976    2,341    5,581    5,285  
Preferred stock dividend requirements    — — —    (14 )  — — —    (42 )
Net income available to common stockholders   $ 976   $ 2,327   $ 5,581   $ 5,243  
Basic earnings per share   $ 0.07   $ 0.18   $ 0.40   $ 0.41  
Diluted earnings per share   $ 0.06   $ 0.16   $ 0.35   $ 0.37  
Basic weighted average shares outstanding    13,865    13,182    13,800    12,858  
Diluted weighted average shares outstanding    15,766    14,959    15,821    14,376  
See notes to consolidated financial statements.                          

3

GROUP 1 SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands)
(Unaudited)

For the Nine Month Period
Ended December 31,
2003
 2002
Cash flows from operating activities:            
        Net income   $ 5,581   $ 5,285  
     Adjustments to reconcile net income from              
        operations to net cash provided by operating activities:  
           Amortization expense    7,364    7,013  
           Depreciation expense    1,394    1,637  
           Provision for doubtful accounts    (359 )  575  
           Deferred income taxes    (342 )  (73 )
           Net gain on sale of intellectual property and other property and equipment   (346 )   — — —  
           
           Tax benefit from exercises of stock options    908    1,138  
           Foreign currency transaction loss    151    228  
          Compensation expense for warrants issued    10    — — —  
      Changes in assets and liabilities:  
           Accounts receivable    1,924    (2,481 )
           Prepaid expenses and other current assets    458    (958 )
           Other assets    (495 )  (26 )
           Deferred revenues    (2,760 )  1,423  
           Accounts payable    662    (330 )
           Accrued expenses and accrued compensation    (3,452 )  3,910  
        Net cash provided by operating activities    10,698    17,341  
Cash flows from investing activities:  
           Purchases and development of computer software    (5,515 )  (5,868 )
           Purchases of property and equipment    (2,186 )  (1,187 )
           Payment for acquisition, net of cash acquired    (11,472 )  — — —  
           Purchases of marketable securities    (31,963 )  (15,279 )
           Sales of marketable securities    31,873    26,798  
           Proceeds from sale of intellectual property    375