UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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For the fiscal year ended March 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
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For the transition period from to |
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Commission file number 0-6355 |
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Group 1 Software, Inc. |
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(Exact name of registrant as specified in its charter) |
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DELAWARE |
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52-0852578 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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4200 Parliament Place, Suite 600, Lanham, MD |
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20706-1860 |
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(Address of principal executive offices) |
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(ZIP Code) |
Registrant’s telephone number, including area code: (301) 918-0400
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Securities registered pursuant to Section 12(b) of the Act: |
NONE |
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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.
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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. x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
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State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $511,640,840
The number of shares of the Registrant’s Common Stock outstanding on June 1, 2004 was 15,233,686
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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, direct marketing applications, data integration and business geographics. Group 1 has offices throughout the United States and in Canada, the United Kingdom, France, Germany, Italy, Japan, South Korea, Singapore, China and Malaysia and is also represented globally by distribution partners. Group 1 provides software solutions that enable approximately more than 3,000 organizations worldwide to maximize the value of their customer and other data.
On April 12, 2004, Group 1 entered into an Agreement and Plan of Merger with Pitney Bowes Inc. (“Pitney Bowes”) and Germanium Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of Pitney Bowes. Pursuant to the terms of the merger agreement, Merger Sub will merge with and into Group 1, and all of the outstanding shares of Group 1 common stock will be converted into the right to receive $23.00 in cash, without interest. As a result, Group 1 will become a direct, wholly-owned subsidiary of Pitney Bowes.
The merger is expected to be completed in the third calendar quarter of 2004. The closing is subject to regulatory approval (on May 5, 2004, Group 1 received notice from the Federal Trade Commission of early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and on May 13, 2004, the German Federal Cartel issued a letter concluding that the planned acquisition is not prohibited under Germany’s Act Against Restraints of Competition), Group 1 stockholder approval and customary closing conditions. In connection with the proposed merger, Group 1 filed a proxy statement with the Securities and Exchange Commission on May 6, 2004. Investors and security holders of Group 1 are urged to read the proxy statement and other relevant materials when they become available because they will contain important information about Group 1, Pitney Bowes and the proposed merger.
Investors and security holders may obtain without charge copies of the proxy statement and other relevant materials (when they become available), and any other documents filed by Group 1 or Pitney Bowes with the Securities and Exchange Commission at the SEC’s website at http://www.sec.gov. A free copy of the proxy statement and other relevant materials (when they become available), and any other documents filed by Group 1 with the SEC, may also be obtained from Group 1. In addition, investors and security holders may access copies of the documents filed with the SEC by Group 1 on Group 1’s website at www.g1.com.
Many Group 1 products are used to help companies realize the benefits from or increase the return from their enterprise applications, including customer relationship management (CRM), enterprise resource planning (ERP) and business intelligence systems.
The Company’s data quality solutions help organizations ensure a proper foundation of information for CRM and other enterprise applications. These solutions enable businesses to facilitate the integrity of customer and prospect data and enhance that information with valuable geographic, demographic and business-oriented intelligence. This is accomplished through parsing, standardizing, validating, matching, consolidating, and enhancing corporate information.
The Company’s direct marketing applications help businesses facilitate the accurate, on-time delivery of mailings, thereby increasing response rates and customer satisfaction. These solutions also help organizations to reduce mailing costs by standardizing addresses, validating postal codes, updating customer addresses and maximizing postal discounts.
Group 1’s DOC1 customer communications management solutions enable businesses to control every aspect of the document lifecycle, from content design, generation and presentment to archival, retrieval and payment. DOC1 is composed of plug-and-play modules that solve an immediate business problem today with a seamless migration path to other applications.
The Company’s Sagent Data Flow data integration technology enables business users to extend the accessibility and usefulness of corporate data through the ability to perform traditional extract, transform and load (ETL) and enterprise information integration (EII). The software accesses multiple data sources and immediately transforms that data into useful information and distributes it to the people or applications that need it.
Group 1’s Centrus suite of business geographics technology enables organizations to perform address-level geographic analysis and enhancement. By enriching corporate data with valuable geographic, demographic and lifestyle information, and identifying and merging duplicate records, this technology enhances enterprise data quality and operational efficiency.
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The Company provides software solutions to leading organizations in the financial services, banking, GIS/mapping, retail, telecommunications, utilities, insurance, publishing, hospitality, high technology and other industries.
Group 1 markets all of its products in North America and a number 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. The Company is also a leading vendor of data integration technology in Japan.
Group 1 markets its data quality, business geographics 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. Data integration solutions are marketed directly to clients in the Americas and throughout Europe and Asia. The Company also uses distributors to supplement direct sales efforts.
The Company believes that continued growth within its core market segments can expand the market potential for its existing and future products. Contributing to the Company’s growth are the global adoption of customer-facing technologies and the increasing demand for end-to-end control over the customer communications management process. Additionally, the Company’s growth is being fueled by the operational requirements for enterprise-wide data quality and the increasing need to access and integrate growing volumes of data from across the enterprise.
Markets Served
Group 1 markets its products within a broad span of industries to meet the needs of organizations in the areas of data quality, direct marketing, customer communications management, data integration and business geographics. Group 1 addresses the data quality, direct marketing, data integration and business geographics 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
The Company’s data quality solutions help organizations ensure a proper foundation of information for CRM and other enterprise applications. These solutions enable businesses to facilitate the integrity of customer and prospect data and enhance that information with valuable geographic, demographic and business-oriented intelligence. This is accomplished through parsing, standardizing, validating, matching, consolidating, and enhancing corporate information. As a result, organizations can increase operational efficiency, make more informed business decisions, and maximize customer lifetime value. Available as software applications or accessed via the internet, these solutions encompass many of the Company’s direct marketing applications and can be utilized in both real-time and batch modes.
DataSight, the Company’s flagship data quality solution, provides enterprise-wide correction, validation, and enhancement of customer, prospect and supplier data. With DataSight, organizations can consolidate disparate data to achieve a comprehensive, accurate single customer view. DataSight enables companies to increase operational efficiency, make more informed business decisions and maximize customer lifetime value and return on investment from customer-facing systems. Designed to provide the enterprise or department with a single packaged solution, DataSight avoids the integration costs associated with having to combine multiple products from different vendors. DataSight is also offered in real-time (DataSight RT) for businesses that need to rely on the accuracy of data as it enters the enterprise from a variety of real-time sources, including Web servers, call centers and order entry systems.
Group 1’s Data Quality Connector for Siebel can be easily integrated into Siebel Systems’ leading CRM solution to provide accurate, consolidated account, prospect and contact data in both batch and interactive modes. This Siebel-validated solution can verify and correct address data for the United States and various levels of address data of over 220 other countries and dependencies worldwide. By consolidating customer records within Siebel, businesses can obtain a single, integrated view of their customers and the products and services they are utilizing across the enterprise. This solution helps users more efficiently utilize customer information, thereby improving target marketing effectiveness, enhancing customer relationships and strengthening the bottom line.
Group 1’s newest data quality solution, the Universal Coder, is the first technology built on LESLIE, the Company’s services oriented architecture. The Universal Coder lets users validate, correct and standardize various levels of address information for over 220 countries and dependencies worldwide. The core functions are available as local or hosted services using the same API. The solution supports Java, COM, C, and C++ interfaces and is available for companies that choose to integrate Group 1’s address verification technologies into Web-based, Client/Server applications or Web Services environments. The Universal Coder is the only address data quality product on the market that can process global address data in a single pass. Mixed data from any number of countries can be submitted and processed simultaneously.
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The Company’s HotData product suite, accessed over the internet, is a one-stop-shop for an organization’s data quality and augmentation needs, letting users verify, standardize and append customer, prospect and business data. HotData offers premium data quality and enrichment for real-time environments including Web sites and call centers as well as databases and CRM applications. This technology incorporates global address verification, geographic intelligence, area code updating, tax jurisdiction assignment and phone append and reverse phone append.
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. These technologies clean, code and standardize address data, validate postal codes, presort mailings, identify and eliminate duplicate records, and update addresses of individuals who have recently moved. By using these solutions, businesses can also take advantage of substantial discounts offered by the United States Postal Service (USPS) and Canada Post Corporation (CPC) requiring compliance with standards governing mail preparation and sortation. Furthermore, Group 1 offers the industry’s most comprehensive international direct marketing solutions - validating, correcting and/or formatting various levels of 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, and MOVEfast, 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 facilitate direct marketing effectiveness and data quality, CODE-1 Plus and Canadian CODE-1 Plus validate, correct, and standardize each address element. MailStream Plus and SortStream Canada give mailers the most powerful software solutions available to presort mail for the highest postal discounts offered by the USPS and CPC, respectively, for nearly every class of mail.
Our newest direct marketing solution, MOVEfast, enables organizations to utilize the most up-to-date address information by accessing the NCOALink technology from the USPS. MOVEfast verifies a given address and checks to see if it is in the NCOALink database. Using MOVEfast, organizations can facilitate communications reaching the intended recipients by updating addresses for the 45 million individuals, families and businesses in the United States that move each year.
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 Canadian products. Canadian clients can also 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, correct and/or format various levels of address data for over 220 countries and dependencies worldwide. For over 50 of these countries, CODE-1 Plus International can validate and correct addresses to the street level. Additionally, Group 1 is partnered with the Universal Postal Union (UPU), a specialized agency of the United Nations, to incorporate the UPU’s Universal POST*CODE® DataBase. The UPU 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. With CODE-1 Plus International providing highly accurate address information in both batch and interactive modes, multinational direct marketing is much easier to implement.
Group 1’s data management applications, Merge/Purge Plus, Business Merge/Purge Plus, EZ Case Plus, Generalized Selection Plus, and List Conversion Plus, provide substantial cost savings by enhancing the effectiveness of direct marketing initiatives. These technologies validate, parse, case, match and de-duplicate customer and prospect information for more efficient list processing and improved list hygiene. Using these products, businesses can focus marketing efforts on specific target groups based on geographic and demographic and other criteria and then can analyze response rates from specific segments of the target market.
Customer Communications Management
Group 1’s Customer Communications Management solutions manage every aspect of a company’s critical business documents, from data acquisition and content creation through multi-channel delivery, archiving and web-based customer care. Through its core DOC1 solution, Group 1 offers organizations complete control over the document lifecycle.
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The Company believes that there is substantial demand for a single-source, modular solution combining customer data with advanced document design, personalization, generation, multichannel delivery, archiving, retrieval, and payment technology. Using Group 1 to design, generate and deliver millions of customer communications each month are over 600 businesses worldwide. This technology is utilized by telecommunications companies, insurance companies, brokerages, credit card processors, public utilities, health care providers, banks and others.
DOC1 is the industry’s leading enterprise-wide document generation suite and the leading 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. During the fiscal year, Group 1 released DOC1 Series 5, the Company’s next-generation customer communications management system. In development for over two years, DOC1 Series 5 represents a complete overhaul and modernization of the industry’s leading customer communications management solution.
DOC1 Data Flow, DOC1 Designer, DOC1 Generate and DOC1 Print are the composition modules of the DOC1 solution. DOC1 Data Flow enables businesses to extract, transform and load large volumes of data into DOC1 from organizations’ enterprise systems. DOC1 Designer lets desktop and remote users author and design business documents. DOC1 Generate assembles customer-focused communications for multi-channel delivery. It runs on a variety of operating systems and composes in batch mode for high-volume output (AFP, Metacode, PostScript, PCL, VPS, VDX, VIPP) as well as in real-time for on-demand applications (HTML, PDF and XML). DOC1 Print delivers dynamic documents in a variety of presentation and print formats with support for the industry’s leading print formats.
DOC1 Interactive helps business users author professional, personalized customer correspondence with streamlined efficiency. 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 provides high-speed search, retrieval and delivery of both Web and printed documents.
This technology enables real-time indexing, compression, storage and retrieval of high-resolution business documents. DOC1 Archive stores documents in their native print format, then renders them in real-time in the customer’s preferred format. The high rates of compression achieved with DOC1 Archive allow storage of multiple years of a customer’s typical statements without large hardware investments.
DOC1 Marketer facilitates intelligent marketing by combining data mining and powerful one-to-one messaging to enhance customer retention and improve response from marketing campaigns. This technology offers advanced, easy-to-use predictive modeling that gives marketers valuable insight into customer behavior and preferences to help pinpoint best targets for marketing campaigns.
DOC1 Present provides immediate, secure online access to multiple years of bills, statements, correspondence and other communications. With DOC1 Present, organizations can implement Web-presentment applications in just days and add e-payment using DOC1 Pay, which adds reliable and flexible electronic payment capabilities.
DOC1 Service reduces call-handling time and callbacks by providing high-speed search, retrieval and online presentment of documents. Customer service representatives can instantly find exact replicas of printed documents as well as information presented via the Web.
DOC1 Query is a powerful data-mining tool that enables users to query and extract data from dynamic print stream output for further analysis. Using DOC1 Query, real-time financial, sales, back office and marketing intelligence is accessible, helping improve business decisions.
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 mail-ready sequence that qualifies for significant USPS presorting discounts.
Data Integration
The Company’s Sagent Data Flow data integration technology was added as a part of the Company’s transaction with Sagent Technology on October 1, 2003. This technology enables business users to extend the accessibility and usefulness of corporate data through the ability to perform traditional ETL and EII. The software accesses multiple data sources and immediately transforms that data into useful information and distributes it to the people or applications that need it.
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Sagent Data Flow technology uses transformation objects to implement data integration, data analysis and information delivery services. Data Flow fundamentally changes the way that data is accessed and integrated, enabling users to easily extend the accessibility and usefulness of corporate data, including a wide array of applications, databases and data files. DataFlow supports joining information from multiple data sources, transposing data between columns, manipulating time series, processing string and text data, and performing data lookups.
Using a visual diagramming workbench, business analysts and IT professionals design data flow plans that can be used to create data warehouses, perform business analyses and deploy content to users and applications over the Web. Data Flow supports both business and technical users. For business users, its interface allows individuals to become familiar and productive with the technology quickly. Data Flow offers a wealth of individual modules that can be used separately or in conjunction with one another to create the end-to-end functionality that meets users’ business requirements.
Data Flow’s modular architecture enables users to add features as their business needs evolve. Additional modules include data movement and loading, data visualization and distribution, advanced analytics, data cleansing, data enhancement, source connectors, workflow automation and interfaces for third-party applications.
Business Geographics
Group 1’s Centrus suite of business geographics technology enables organizations to perform address-level geographic analysis and enhancement. By enriching corporate data with valuable geographic, demographic and lifestyle information, this technology enhances enterprise data quality and operational efficiency.
With the exception of GeoTAX, the Centrus technologies were added to Group 1’s product lineup as a part of the Company’s transaction with Sagent Technology on October 1, 2003.
Group 1’s AddressBroker is the client/server solution for the entire business geographics suite, offering a range of geographic analysis and enrichment functions. The technology performs geographic coding, address standardization, geographic analysis and demographic enrichment in interactive applications such as call centers and Web-based applications.
GeoStan is an application program interface that corrects, standardizes and geocodes address information. GeoStan provides the most comprehensive set of address-level geocodes by combining USPS postal data with the customer’s choice of spatial data files from the leading providers.
Centrus Desktop is a Windows-based application that provides a wealth of geographic enrichment and analysis technologies. The Centrus Desktop solution for business geographics, provides address hygiene for the United States and Canada, address-level geocoding, and a variety of sophisticated geographic analyses
Spatial+ enables users to perform powerful, accurate and comprehensive spatial analysis. Spatial+ performs a variety of geospatial analyses that helps organizations locate a specific set of points within a boundary (point in polygon), determine distance between two points, estimate distance between two locations, or provide a set of points within a given mileage of one location.
The Company’s GeoTAX solution is a comprehensive solution 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 provide businesses with accurate address information for tax jurisdiction assignment, GeoTAX provides access to the most current taxation boundary information. To meet this most important requirement, GeoTAX features a database that tracks and updates taxation boundary files nationwide on a monthly basis.
GeoCoder for ESRI ArcGIS provides integrated address validation and geocoding for users of ArcGIS, which is a complete, single, integrated system for geographic data creation, management, integration and analysis.
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Products, Services and Support
Products
As of March 31, 2004, Group 1 offered over 60 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 solution that can be tailored to a client’s requirements.
Most of the Company’s products are offered in a platform independent format, enabling operation on all major mainframe, Unix and Microsoft 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 includes data profiling, 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, can be provided at the client’s location. Education classes are offered at Group 1 training facilities throughout the U.S., Asia and Europe.
Maintenance and 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, regular electronic communications, 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 product and related data file downloads via the corporate Web site, e-mail support, integration support, and premium support plans.
Group 1 customers are afforded educational opportunities through our Annual Users Conference and over 10 Local User Groups. In addition, two National User Groups advise Group 1 on a variety of issues. The seventeen-member National User Group for the Enterprise Solutions Division includes a cross-section of customers representing various platforms, products, and industries. The DOC1 Division has its own Users Group that meets twice a year.
With its product licenses, Group 1 offers 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, 2004, 2003 and 2002, maintenance and support fees represented approximately 44%, 44%, and 49%, respectively, of Group 1’s revenue.
Customers
Group 1’s customer base includes approximately 3,000 clients who have licensed one or more of its products.
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Group 1 provides software solutions to corporate leaders in a variety of industry segments, as indicated by the following brief list of customers: |
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Financial Services |
Insurance |
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American Express |
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Avemco |
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Citicorp |
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GEICO |
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Experian |
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London Life |
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Staalbankiers |
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Safeco |
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Principal Financial Group |
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Endsleigh |
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Retailers |
GIS/Mapping |
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U.S. Postal Service |
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Claritas |
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Wal-Mart |
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MapQuest |
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L.L. Bean |
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Rand McNally |
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Neiman Marcus |
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Telecommunications |
Government |
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AT&T |
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FEMA |
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Comcel |
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Internal Revenue Service |
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ICG |
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Global Student Loan Corporation |
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ConnectOne |
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United States Senate |
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Qwest |
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Saudi Telecom |
Health Care |
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Verizon |
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Delta Dental |
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BlueCross BlueShield of Florida |
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Centers for Disease Control |
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Utilities |
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First Health |
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Emerson Process Management |
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Memorial Sloan Kettering Cancer Center |
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Keyspan |
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Pacific Gas and Electric |
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Interelectra |
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Scottish Power |
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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, except for certain products that incorporate third-party databases and 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). These products 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. Services accessed via the internet are offered under annual, renewable service agreements.
Sales and Marketing
Group 1 markets all of its software products in North America, Europe and Asia through a direct sales and sales support organization of over 100 Associates located in the Americas, Europe and Asia. To serve existing clients and to attract new customers, Group 1 has thirteen regional sales and support offices in North America. Two of these are in the Washington, DC area and others are in the New York City, Chicago, Los Angeles, Atlanta, Dallas, Minneapolis, Miami, San Francisco, Boulder, Austin, and Toronto, Canada areas. Group 1 addresses the Latin American market from an office in Miami. Group 1’s European headquarters is located in the London metropolitan area, with regional offices in France, Italy, Germany, Denmark and the Netherlands. Group 1 also has regional offices in Japan, Singapore, South Korea, Malaysia and China.
The Group 1 sales organization is supported by a comprehensive marketing program. Marketing activities include 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 outreach.
Group 1’s domestic distributors and partners include Amdocs, BEA, Bearing Point, Cap Gemini Ernst and Young, Claritas, Convergys, CSC, CSG, Daleen, EDS, ESRI, Fincentric, GDT, GrayHair Software, Headstrong, Hyperion, IBM, Indus, Kodak, Medinitiatives, Microsoft, NAVTEQ, Oce, PeopleSoft, Pitney Bowes, Portal, ProQuest, Risk Management Solutions (RMS), SAIC, Siebel Systems, Software Spectrum, SPL Worldgroup, Systems Research and Development (SRD), TeleAtlas, USHA, Xerox, and others. Group 1 has entered into software distribution and support agreements for the DOC1 product suite with partner distribution companies throughout Europe. International distributors of Group 1’s products include Accenture, Business Document, Connekteam, Convergys, DDP, Digital Planet, Document Dialog, Fujitsu-BSC, Hitachi Software, HP, IBM, IMDEA, Intellia, Intersoft, Kawatetsu Systems, M2SC, MSI Business Solutions, NEC, OBIMD, Pitney Bowes, Pragmasoft, Rasterpunkt GmbH, SIGIL, Unisys, Unitel, and Xerox. Group 1 has entered into agreements to distribute products from a number of leading software and hardware vendors. Group 1 distributes products manufactured by Business Document, iWay, Optika, Sigaba and Unica and licenses data maintained by CPC, GDT, NAVTEQ, TeleAtlas, Telematch, UPU, the USPS and others.
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Product Development
The software and service industry is characterized by rapid changes 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 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 and technology 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 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 to exist. During the year, the Company introduced its LESLIE services-oriented architecture. LESLIE enables organizations to integrate Group 1’s data quality services effectively across the enterprise. By utilizing this unified product architecture, Group 1’s data quality solutions can be more easily integrated, configured and maintained, including their use in a Web Services architecture. Group 1’s Universal Coder was the first offering built upon LESLIE architecture. The Universal Coder is the only address data quality product on the market that can process global address data in a single pass: mixed data from any number of countries can be submitted and processed simultaneously. The Universal Coder supports Java, COM, C, and C++ interfaces and can be easily integrated into a .NET environment.
During fiscal 2004, Group 1 released product updates for its regulatory products that enabled the Company’s customers in the U.S. and Canada to meet the new requirements of the USPS and CPC and continue to benefit from substantial postal discounts. The Company also introduced MOVEfast, which enables organizations to utilize the most up-to-date address information by accessing the USPS NCOALink technology. Group 1 Software has been certified by the USPS as an NCOALink Interface Developer and NCOALink Interface Distributor, enabling Group 1 to market MOVEfast to both end-user organizations and service providers. Group 1 also added support for SUSE Linux during the fiscal year.
In the months following the Sagent asset acquisition, the Company released new versions of the Sagent data integration technology and the Centrus business geographics suite. The latest release of Sagent Data Flow incorporates a number of augmentations that increase end-user productivity by simplifying plan design while increasing flexibility and power. The Company also launched development programs to enable Data Flow to be used on additional Unix platforms (IBM AIX and HP UX) and to build out its core functionality to meet expanded and future market demands. Furthermore, the Company released significant enhancements to all of the products in its Centrus business geographics suite. The core Centrus technology now returns a richer array of data that enables users to harness the power of third-party data even further. Additionally, all Centrus products now run on Red Hat Linux.
In the DOC1 Division, the Company introduced DOC1 Series 5, the Company’s next-generation customer communications management system. In development for two years, DOC1 Series 5 represents a complete overhaul and modernization of the industry’s leading customer communications management solution. DOC1 Series 5 can help businesses redefine how they communicate with their customers today, while providing a technology platform that can be leveraged continuously for future growth. The release of DOC1 Series 5 also marked the introduction of the newest DOC1 modules, DOC1 Query and DOC 1 Data Flow. DOC1 Query is a powerful data-mining tool that enables users to query and extract data from dynamic print stream output for further analysis. DOC1 Data Flow enables businesses to extract, transform and load large volumes of data into DOC1 from organizations’ enterprise systems.
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 individual, and various combinations of Group 1 products. Group 1’s existing and potential competitors
9
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 markets. 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 Company has principal, distinguishing competitive factors in the selection of its software products. These include 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 experience and 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 facilitate enterprise data quality, enhance the value of corporate data and provide end-to-end management of the customer communications process. 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.
Intangible Asset Protection
Group 1 regards its software, in source and object code, related manuals and documentation as proprietary. The Company 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 patent. Changes in the technology industry and changes in postal regulations that affect several core products occur frequently and rapidly. The Company believes that copyright, patent, and trade secret protection are less significant than factors such as the knowledge and experience of its personnel and their ability to develop, enhance, market and acquire new products.
Group 1 is the holder of 11 patents issued by the United States Patent and Trademark Office (“PTO”), 7 patent applications pending before the PTO and 1 patent application pending before the Australian patent granting authorities. Group 1 has U.S. federal registrations on over 25 trademarks, including CODE-1 Plus, 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, 2004, the Company employed 599 persons on a full-time basis, of whom 459 were based in the United States and 140 were based internationally. Of the total, 174 were engaged in sales and marketing, 247 in product development and support, 72 in professional services, 32 in information technology and 74 in finance and administration. 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, Atlanta, New York City, Minneapolis, Miami, Toronto, and the Herndon, Virginia metropolitan areas. Outside North America, the Company leases a offices in the London, Milan, Frankfurt, Paris, Beijing, Tokyo, Seoul and Singapore metropolitan areas.
Item 3. Legal Proceedings
On April 12, 2004, Group 1 entered into an Agreement and Plan of Merger with Pitney Bowes Inc. (“Pitney Bowes”) and Germanium Acquisition Corporation (“Merger Sub”), a wholly-owned subsidiary of Pitney Bowes (see Note 17). On May 19, 2004, a purported stockholder class action lawsuit was filed in Circuit Court for Prince George’s County, Maryland, against Group 1, each of our directors and Pitney Bowes Inc. The lawsuit, Freeport Partners, LLC v. James V. Manning, et al., including Group 1 Software (Case No. CAL0410794) alleges that the defendants breached, or aided the other defendants’ breaches of, their fiduciary duties owed to the public stockholders of Group 1 in connection with the proposed merger, and that the defendants failed to adequately disclose all material terms of the proposed merger, including financial benefits to be received by our directors and officers in connection with the proposed merger. Specifically, the lawsuit alleges that the defendants breached their fiduciary duty by, among other things, failing to initiate an auction
10
process for the sale of Group 1 and failing to properly value Group 1 as an independent entity, and that the defendants failed to disclose, among other things, the precise amount each of our directors and officers will receive as a result of the acceleration of their unvested options. The complaint seeks certification of a class, a declaration that the defendants have breached their fiduciary duties and aided and abetted such breaches in entering into the merger agreement, a requirement that defendants make corrective disclosures, compensatory damages, interest, attorneys’ and experts’ fees and other costs, and to enjoin or rescind the proposed merger. The time for the defendants to respond to the complaint has not yet expired and, to date, no motions have been filed by any of the parties to the lawsuit.
The Company is not a party to any other 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.
11
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 and reflects the 2 for 1 stock split effected by the Company in November 2002. These prices, as reported by NASDAQ, do not include retail markup, markdown or commissions and may not necessarily represent actual transactions.
Quarterly Closing Common Stock Prices
|
Fiscal 2004 |
|
High |
|
Low |
|
|
Fiscal 2003 |
|
High |
|
Low |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter ended June 30, 2003 |
|
$ |
23.19 |
|
$ |
14.92 |
|
|
First quarter ended June 30, 2002 |
|
$ |
7.50 |
|
$ |
6.63 |
|
|
Second quarter ended September 30, 2003 |
|
$ |
19.49 |
|
$ |
16.42 |
|
|
Second quarter ended September 30, 2002 |
|
$ |
7.25 |
|
$ |
6.50 |
|
|
Third quarter ended December 31, 2003 |
|
$ |
20.54 |
|
$ |
16.72 |
|
|
Third quarter ended December 31, 2002 |
|
$ |
15.00 |
|
$ |
7.00 |
|
|
Fourth quarter ended March 31, 2004 |
|
$ |
18.25 |
|
$ |
12.73 |
|
|
Fourth quarter ended March 31, 2003 |
|
$ |
18.24 |
|
$ |
12.06 |
|
No cash dividends have been paid on the Company’s common stock. The Company paid dividends on the 6% Cumulative Convertible Preferred Stock through January 14, 2003, when each preferred share outstanding was exchanged for three common shares (see Note 8 in the notes to the consolidated financial statements included in Item 8). 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 1, 2004, there were approximately 3,600 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.
12
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. The options vest over a five year period, 20% each year on the anniversary of the grant date.
|
As of March 31, 2004 |
|
(a) |
|
(b) |
|
(c) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan category |
|
Number of securities to be |
|
Weighted-average exercise |
|
Number of securities remaining |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders: |
|
|
|
|
|
|
|
|
|
|
|
Plan of 1998 for officers and employees |
|
|
622,530 |
|
$ |
7.44 |
|
|
13,327 |
|
|
Plan of 1995 for officers and employees |
|
|
2,438,808 |
|
$ |
7.94 |
|
|
839,648 |
|
|
Plan of 1986 for officers and employees |
|
|
4,200 |
|
$ |
3.34 |
|
|
|
|
|
Plan of 1995 for non-employee directors |
|
|
501,000 |
|
$ |
5.30 |
|
|
360,000 |
|
|
Pre-merger plan for non-employee directors |
|
|
55,920 |
|
$ |
2.61 |
|
|
|
|
|
Plan of 1992 for non-employee directors |
|
|
195,000 |
|
$ |
4.72 |
|
|
|
|
|
Equity compensation plans not approved by security holders1 |
|
|
130,000 |
|
$ |
6.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,947,458 |
|
$ |
7.24 |
|
|
1,212,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 As of March 31, 2004, equity compensation plans not approved by security holders consisted of outstanding warrants to purchase 130,000 shares of Common Stock. The following summarizes information about the outstanding warrants.
During fiscal 2001, the Company issued warrants to purchase 90,000 shares of Common Stock in exchange for advisory and acquisition related investment banking services. These warrants vest over three years and expire on June 26, 2005. As of March 31, 2004, 46,000 of these warrants were outstanding.
During fiscal 2002, the Company issued warrants to purchase 6,000 shares of Common stock in exchange for consulting services. These warrants vest over three years and expire on June 25, 2005. As of March 31, 2004, 4,000 of these warrants were outstanding.
From October 15, 1997 to March 31, 2004, the Company issued warrants to purchase 80,000 shares of Common Stock as compensation for Board of Director services. As of March 31, 2004, 80,000 of these warrants were outstanding. These warrants vest over five years and have a fifteen-year period. All warrants described above were issued at the current market price on the date of issue.
13
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data should be read in connection with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data.
|
(In thousands except per share amounts) |
|
Year Ended March 31, |
|
|||||||||||||
|
|
|
|
|
|||||||||||||
|
|
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Earnings Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
118,741 |
|
$ |
104,252 |
|
$ |
89,428 |
|
$ |
94,235 |
|
$ |
82,529 |
|
|
Income before provision for income taxes |
|
$ |
15,054 |
|
$ |
13,362 |
|
$ |
7,278 |
|
$ |
14,982 |
|
$ |
10,931 |
|
|
Net income available to common stockholders |
|
$ |
9,526 |
|
$ |
|||||||||||