10-Q 1 e10-q.txt FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ...................................... FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 2000 Commission file number 0-6355 GROUP 1 SOFTWARE, INC. Incorporated in Delaware IRS EI No. 52-0852578 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 Shares Outstanding Effective Class August 7, 2000 Common Stock, $.50 par value 5,798,414 1 2 GROUP 1 SOFTWARE, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PAR VALUE) (UNAUDITED)
June 30, March 31, 2000 2000 ASSETS Current assets: Cash and cash equivalents $ 22,937 $ 20,735 Short-term investments 9,343 11,259 Trade and installment accounts receivable, less allowance of $3,276 and $3,317 16,730 21,561 Deferred income taxes 3,469 3,297 Prepaid expenses and other current assets 3,528 3,407 ---------------- ------------------ Total current assets 56,007 60,259 Installment accounts receivable, long-term 1,652 1,945 Property and equipment, net 4,633 4,290 Computer software, net 20,867 21,823 Other assets 4,548 4,750 ---------------- ------------------ Total assets $ 87,707 $ 93,067 ================ ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,025 $ 1,940 Current portion of capital lease obligation 112 109 Accrued expenses 6,385 6,627 Accrued compensation 5,383 7,617 Current deferred revenues 23,863 26,865 ---------------- ------------------ Total current liabilities 37,768 43,158 Capital lease obligation, net of current portion 59 88 Deferred revenues, long-term 917 1,169 Deferred income taxes 3,324 3,724 ---------------- ------------------ Total liabilities 42,068 48,139 ================ ================== Commitments and contingencies Stockholders' equity: 6% cumulative convertible preferred stock $0.25 par value; 200 shares authorized; 48 shares issued and outstanding (aggregate involuntary liquidation preference $950,000) 916 916 Common stock $0.50 par value; 14,000 shares authorized; 6,497 and 6,468 shares issued and outstanding 3,248 3,234 Additional paid in capital 27,611 27,431 Retained earnings 16,801 15,684 Accumulated comprehensive income (602) (2) Less treasury stock, 497 shares, at cost (2,335) (2,335) ---------------- ------------------ Total stockholders' equity 45,639 44,928 ---------------- ------------------ Total liabilities and stockholders' equity $ 87,707 $ 93,067 ================ ================== See notes to consolidated financial statements.
2 3 GROUP 1 SOFTWARE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (ADJUSTED TO REFLECT THE 3 FOR 2 STOCK SPLIT APPROVED BY THE BOARD OF DIRECTORS ON FEBRUARY 4, 2000) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
For the Three Month Period Ended June 30, 2000 1999 Revenues: Software license and related revenues $ 7,637 $ 6,885 Maintenance and services 12,425 9,872 -------- -------- Total revenue 20,062 16,757 -------- -------- Cost of revenue: Software license expense 3,060 3,199 Maintenance and service expense 4,212 3,709 -------- -------- Total cost of revenue 7,272 6,908 -------- -------- Gross profit 12,790 9,849 Operating expenses: Research and development 1,511 802 Sales and marketing 6,512 5,863 General and administrative 3,642 2,774 -------- -------- Total operating expenses 11,665 9,439 -------- -------- Income from operations 1,125 410 Non-operating income Interest income 528 192 Interest expense (6) (9) Other non-operating income 249 25 -------- -------- Total non-operating income 771 208 -------- -------- Income from operations before provision for income taxes 1,896 618 -------- -------- Provision for income taxes 765 239 -------- -------- Net income 1,131 379 Preferred stock dividend requirements (14) (14) -------- -------- Net income available to common stockholders $ 1,117 $ 365 ======== ======== Basic earnings per share $ 0.19 $ 0.07 ======== ======== Diluted earnings per share $ 0.16 $ 0.06 ======== ======== Basic weighted average shares outstanding 5,980 5,588 ======== ======== Diluted weighted average shares outstanding 6,898 5,670 ======== ======== See notes to consolidated financial statements
3 4 GROUP 1 SOFTWARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2000 1999 Cash flows from operating activities: Net income $ 1,131 $ 379 Adjustments to reconcile net income from Operations to net cash provided by operating activities: Amortization expense 2,763 2,696 Depreciation expense 448 388 Provision for doubtful accounts 75 150 Net loss on disposal of assets -- 9 Deferred income taxes (572) (358) Foreign currency transaction gain (267) -- Changes in assets and liabilities: Accounts receivable 4,930 4,493 Prepaid expenses and other current assets (130) 196 Other assets 45 42 Deferred revenues (3,180) 20 Accounts payable 105 (11) Accrued expenses and accrued compensation (2,396) (3,226) -------- -------- Net cash provided by operating activities 2,952 4,778 -------- -------- Cash flows from investing activities: Purchase and development of computer software (1,893) (3,070) Purchase of property and equipment (863) (522) Purchase of marketable securities (38,160) (27,339) Sale of marketable securities 40,076 20,775 -------- -------- Net cash used in investing activities (840) (10,156) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options 194 8 Repayment of principal on capital lease obligations (26) (24) -------- -------- Net cash provided by (used in) financing activities 168 (16) -------- -------- Net increase (decrease) in cash and cash equivalents 2,280 (5,394) Effect of exchange rate on cash and cash equivalents (78) (1) Cash and cash equivalents at beginning of period 20,735 13,378 -------- -------- Cash and cash equivalents at end of period $ 22,937 $ 7,983 -------- -------- Supplemental disclosure of non-cash financing activity: Warrants issued in exchange for services $ 208 --
See notes to consolidated financial statements. 4 5 GROUP 1 SOFTWARE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS) (UNAUDITED)
For the Three Month Period Ended June 30, 2000 1999 Net income $ 1,131 $ 379 Foreign currency translation adjustments (600) (37) ------- ------- Comprehensive income $ 531 $ 342 ======= =======
See notes to consolidated financial statements. 5 6 Group 1 Software, Inc. Notes to Consolidated Financial Statements (Unaudited) 1. The consolidated financial statements for the three months ended June 30, 2000 and 1999 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Limited footnote information is presented in accordance with quarterly reporting requirements. The results of operations for the three months ended June 30, 2000 are not necessarily indicative of the results for the year ending March 31, 2001. The information contained in the annual report on the Form 10-K for the year ended March 31, 2000, should be referred to in connection with the unaudited interim financial information. 2. Certain prior period amounts have been reclassified to conform to current period presentation. 3. On February 4, 2000, the Board of Directors approved a 3 for 2 common stock split for stockholders of record as of February 17, 2000. There was no change in the par value of the stock as a result of the split. The effect of the stock split has been retroactively reflected in the consolidated financial statements for all periods presented. 4. Research and development expense, before the capitalization of computer software development costs, amounted to approximately $3.3 million and $2.6 million for the three months ended June 30, 2000 and 1999, respectively. Capitalization of computer software development costs for both three month periods was $1.8 million. 5. Earnings per share Earnings per share (EPS) is computed in accordance with SFAS No. 128, "Earnings Per Share". Basic 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 potentially dilutive securities outstanding during the period. Potentially dilutive securities consist of convertible preferred stock (using the if converted method) and stock options and warrants (using the treasury stock method). Potentially dilutive securities are excluded from the computation if the effect is antidilutive. Reconciliation of basic EPS calculations to the shares used in the diluted EPS calculation (in thousands, adjusted to reflect the 3 for 2 stock split approved by the Board of Directors on February 4, 2000):
For the Three Month Period Ended June 30, 2000 1999 Weighted average common shares outstanding-basic 5,980 5,588 Effect of dilutive securities: Stock options and warrants 918 82 ------ ------ Weighted average shares outstanding-diluted 6,898 5,670 ====== ======
There were additional potentially dilutive convertible securities of 47,500 in the three months ended June 30, 2000, and 1999 respectively, which were not included in the earnings per share calculation due to their anti-dilutive effect. 6 7 6. Recent Accounting Pronouncements In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101,"Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the implementation date of SAB 101 for registrants with fiscal years that begin between December 16, 1999 and March 15, 2000. In June 2000 the SEC issued SAB 101B, further delaying the required implementation of SAB 101 by the Company until the fourth quarter of fiscal year 2001. The Company has not fully assessed the effect on our financial statements as a result of SAB 101. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, which delays the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which will be effective for our fiscal year 2002. This statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. We believe the adoption of SFAS Nos. 133 and 137 will not have a material effect on our financial statements. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of Accounting Principles Board Opinion No. 25" ("FIN 44"). FIN 44 will be effective on July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company believes the adoption of FIN 44 will not have a material effect on its financial statements. 7. Legal Contingencies 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. 8. Segment Information The following table presents certain financial information relating to each reportable segment:
Three Months Ended June 30, Segment Information (in thousands) 2000 1999 Revenue: Enterprise Solutions Software $ 13,253 $ 10,973 Electronic Document Composition Software 6,809 5,784 -------- -------- Total revenue $ 20,062 $ 16,757 ======== ======== Gross Profit: Enterprise Solutions Software $ 8,384 $ 6,791 Electronic Document Composition Software 4,406 3,618 Other -- (560) -------- -------- Total gross profit $ 12,790 $ 9,849 ======== ========
All of the Company's assets are retained and analyzed at the corporate level and are not allocated to the individual segments. Amortization of capitalized software associated with the Enterprise Solutions Software segment was $1.7 7 8 million and $1.5 million for the three months ended June 30, 2000 and 1999, respectively. Amortization of capitalized software associated with the Electronic Document Composition Software segment was $0.6 million for both the three months ended June 30, 2000 and 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS Any statements in this quarterly report on Form 10-Q 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 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 filings with the Securities and Exchange Commission. For the three months ended June 30, 2000 and 1999, the Company had revenues of $20.1 million and $16.8 million, respectively. Net income available to common stockholders for the three months ended June 30, 2000 was $1.1 million or $0.16 per share compared with net income available to common stockholders of $0.4 million or $0.06 per share in the same period in the prior year. The increase in profitability for the first fiscal quarter of 2001 is primarily due to higher revenue in both of the Company's operating segments along with higher interest and other non-operating income. All of Group 1's operations are based in the two business segments defined as Enterprise Solutions Software and Electronic Document Composition Software. Enterprise Solutions revenue accounted for 66% and 65% of Group 1's total revenue for the first fiscal quarter of 2001 and 2000, respectively. Electronic Document Composition revenue was 34% and 35% of total revenue for the first quarter of fiscal 2001 and fiscal 2000. International revenues accounted for 16% of Group 1's total revenue in the first quarter of fiscal 2001 and 15% in the first quarter of fiscal 2000. Software license and related revenues of $7.6 million for the first fiscal quarter of 2001 increased 10% from $6.9 million the same period the prior year. As a percent of total revenue, first quarter software license and related revenues were 38% in fiscal 2001 compared with 41% in fiscal 2000. For the quarter ended June 30, 2000, license fees from database marketing products decreased by $0.1 million compared to the same period in the prior year. The decrease for the quarter was primarily due to lower sales of the Model 1 product. The Company's mailing efficiency/data quality software license fees for the first quarter of fiscal 2001 increased 11.0% over the same period in the prior year. The increase is primarily due to higher sales of the Geotax product. License fees from Electronic Document Composition software increased 15% in the first quarter of fiscal 2001 over the same period the prior year. The increase in sales for the three month period ended June 30, 2000 was due to higher European sales. Maintenance and service revenue of $12.5 million for the first quarter of fiscal 2001 increased 26% over the prior year period. Maintenance and service revenue accounted for 62% of total revenue for the quarter ended June 30, 2000, compared with 59% in the same period in the prior year. Recognized maintenance fees included in 8 9 maintenance and service revenue, were $9.6 million for the quarter ended June 30, 2000, and $7.3 million for the same period the prior year, an increase of 32%. The increase in maintenance revenue is due to the recognition of higher maintenance deferrals based on higher aggregate sales from prior periods and from increased maintenance renewals based on an increased installed customer base. For the quarter ended June 30, 2000, Enterprise Solutions recognized maintenance increased 27% to $7.7 million over the same period the prior year. Electronic Document Composition recognized maintenance increased 59% to $1.9 million in the quarter ended June 30, 2000 compared to the comparable period in the prior year. Professional and educational service revenue from the Enterprise Solutions segment increased to $0.9 million in the quarter ended June 30, 2000, an increase of 89% over the same period in the prior fiscal year. Electronic Document Composition service revenue decreased 11% to $1.9 million in the first quarter of fiscal 2001 from the same period the prior fiscal year. The decrease in Electronic Document Composition service revenue is primarily due to the completion of a large services engagement in the first quarter of fiscal 2000 partially offset by higher European service revenue. Total cost of revenue for the first fiscal quarter of 2001 was $7.3 million versus $6.9 million in the same period of fiscal 2000. The separate components of cost of revenue are discussed below. Software license expense decreased for the three month period ended June 30, 2000 to $3.1 million from $3.2 million for the same period the prior year representing 41% and 46% of software license and related revenues, respectively. The decrease in expense as a percent of software license revenue was due to higher license fees in both operating segments. Maintenance and service expense increased to $4.2 million in the current quarter from $3.7 million in the comparable period in fiscal 2000, representing 34% and 38% of maintenance and service revenue, respectively. The decrease in expense as a percentage of revenue can be attributed to higher maintenance and service revenue spread across relatively flat maintenance and service costs partially offset by lower margins on professional services as discussed below. Included in maintenance and service expense discussed above are professional and educational service costs of $2.3 million which were 83% of professional service and education revenue for the first quarter compared with $2.0 million which represented 76% of professional service and educational revenue for the comparable period in the prior year. The increase in expense as a percent of revenue for the quarter can be attributed to lower revenue in Electronic Document Composition services as discussed above. Costs of maintenance were $1.9 million for the first fiscal quarter of 2001 representing 20% of maintenance revenue. Costs of maintenance for the same quarter in the prior year were $1.7 million, representing 23% of maintenance revenue. The lower cost as a percentage of revenue reflects economies of scale achieved with maintenance and support costs spread over a larger revenue base. Total operating costs of $11.7 million amounted to 58% of revenue for the quarter ended June 30, 2000 compared $9.4 million or 56% of revenue for the prior year period. The various components of operating costs are discussed below. Research and development expenses (after capitalization of certain software development costs) totaled $1.5 million for the first fiscal quarter of 2001 and $0.8 million for the same period of fiscal 2000, representing 8% and 5% of revenue, respectively. The increase in expense is due to increased spending on new product initiatives in both the Enterprise Solutions and Electronic Document Composition segments. 9 10 Sales and marketing expenses totaled $6.5 million or 32% of revenue in the first quarter of fiscal 2001 and $5.9 million or 35% in the prior year same period. The decrease in cost as a percent of revenue for the three month periods versus the prior year same period was primarily due to higher revenue partially offset by higher costs for sales and marketing of Enterprise Solutions and Electronic Document Composition products. Sales and marketing costs for the Enterprise Solutions products were 33% of Enterprise Solutions revenue in the first fiscal quarter of 2001 and 37% for the same period the prior year. Electronic Document Composition selling and marketing costs were 34% and 32% for the periods ending June 30, 2000 and 1999, respectively. General and administrative expenses were $3.6 million or 18% of total revenue compared with $2.8 million or 17% of revenue for the three months ended June 30, 2000 and 1999, respectively. The increase in general and administrative expenses is primarily related to increased compensation associated with increased head count along with increased shareholder relations costs. The Company expects these costs to remain relatively close to the current levels as a percent of revenue. Net non-operating income was $0.8 million for the quarter ended June 30, 2000 as compared with $0.2 million for the same period in the prior year. This increase represents higher interest income generated from higher cash and short-term investment balances in the current period compared to the same period of fiscal 2000 along with a $0.3 million currency gain. The Company's effective tax rates were 40% and 38% for the three month period ended June 30, 2000, and 1999, respectively. The current year's rate is the net effect of a 33% effective tax rate on foreign taxable income and a 47% rate on domestic taxable income. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital was $18.2 million at June 30, 2000, as compared with $17.1 million at March 31, 2000. The current ratio was 1.5 to 1 at June 30, 2000 and 1.4 to 1 at March 31, 2000. The Company provides for its cash requirements through cash funds generated from operations. Additionally, the Company maintains a $10 million line of credit arrangement with a commercial bank, expiring October 31, 2001. The line of credit bears interest at the bank's prime rate, or Libor plus 150 basis points at Group 1's option. The line of credit is not collateralized and requires Group 1 to maintain certain operating ratios. At June 30, 2000 and at March 31, 2000, there were no borrowings outstanding under the line of credit. For the three months ended June 30, 2000, net cash provided by operating activities was $2.9 million. This amount included net income of $1.1 million plus non-cash expenses of $2.4 million. Also included in cash provided by operating activities was a $4.9 million decrease in accounts receivable and a $3.2 million decrease in deferred revenues, and a $2.4 million decrease in accrued expenses offset by $0.1 million provided by other operating activities. The decrease in accounts receivable is due to increased cash collections. Investment in purchased and developed software of $1.9 million, and capital equipment of $0.9 million, in addition to the decrease of $2.0 million in short-term investments resulted in $0.8 million used in investing activities. For the three months ended June 30, 2000, $0.2 million was provided by financing activities. Group 1 continually evaluates the credit and market risks associated with outstanding receivables. In the course of this review, Group 1 considers many factors specific to the individual client as well as to the concentration of receivables within industry groups. Group 1's installment receivables are predominately with clients (service bureaus) who provide computer services to the direct marketing industry. Many of these clients have limited capital and insufficient assets to secure their liability with Group 1. The service bureaus are highly dependent on Group 1's software and services to offer their customers the economic benefit of postal discounts and mailing efficiency. To qualify for the U.S. Postal Service and Canada Post Corporation postal discounts, service bureaus require continuous regulatory product updates from the Company. The service bureau industry is also highly competitive and subject to 10 11 general economic cycles, as they impact advertising and direct marketing expenditures. The Company is aware of no current market risk associated with the installment receivables. Service bureaus represent approximately $2.5 million or 69% of the installment receivables at June 30, 2000. As of June 30, 2000, the Company's capital resource commitments consisted primarily of non-cancelable operating lease commitments for office space and equipment. The Company believes that its current minimum lease obligations and other short-term and long-term liquidity needs can be met from its existing cash and short-term investment balances and cash flows from operations. The Company believes that its long-term liquidity needs are minimal and no large capital expenditures are anticipated, except for the continuing investment in capitalized software development costs, which the Company believes can be funded from operations during the next twelve months. The Year 2000 Issue In 1997, the Company formed two special task forces: - The first task force was established to identify and evaluate our internal systems and applications that may be affected by the Year 2000 issue; modify or replace those systems and applications so they will work properly in the Year 2000, and communicate with our suppliers to make sure they are prepared for the Year 2000. - The second task force was established to evaluate the products sold by us, to ensure they will function as designed after the Year 2000. The Company identified and evaluated all of its systems and applications that might have been affected by the Year 2000 issue, and developed plans to ready these systems and applications for the century change. Modification and replacement projects were completed pursuant to their modification and replacement projects. All products sold by the Company, with one exception, were modified to ensure Year 2000 functionality. The costs of the readiness program for products and internal systems were primarily costs of existing internal resources largely absorbed within existing spending levels. These costs were incurred primarily in 1998 and earlier years and were not broken out from other operating costs. Recent Accounting Pronouncements In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101,"Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the implementation date of SAB 101 for registrants with fiscal years that begin between December 16, 1999 and March 15, 2000. In June 2000 the SEC issued SAB 101B, further delaying the required implementation of SAB 101 by the Company until the fourth quarter of fiscal year 2001. The Company has not fully assessed the effect on our financial statements as a result of SAB 101. In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, which delays the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which will be effective for our fiscal year 2002. This statement establishes accounting and reporting standards requiring that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. We believe the adoption of SFAS Nos. 133 and 137 will not have a material effect on our financial statements. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of Accounting Principles Board Opinion 11 12 No. 25" ("FIN 44"). FIN 44 will be effective on July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company believes the adoption of FIN 44 will not have a material effect on its financial statements. Legal Contingencies 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. Quantitative and Qualitative Disclosures about Market Risk The Company has a subsidiary in the United Kingdom with offices in Germany, Italy and Denmark. Additionally, the Company uses third party distributors to market and distribute its products in other international regions. Transactions conducted by the subsidiary are typically denominated in the local country currency, while transactions conducted by the distributors are typically denominated in pounds sterling. As a result, the Company is primarily exposed to foreign exchange rate fluctuations as the financial results of its subsidiary and third party distributors are translated into U.S. dollars in consolidation. As exchange rates vary, these results, when translated, may vary from expectations and impact overall expected profitability. However, through June 30, 2000, the Company's exposure was not material to the overall financial statements taken as a whole. The Company has not entered into any foreign currency hedging transactions with respect to its foreign currency market risk. The Company does not have any financial instruments subject to material market risk. Euro Currency The European Union's adoption of the Euro currency raises a variety of issues associated with the Company's European operations. Although the transition from national currencies to the Euro will be phased in over several years, the Euro became the single currency for most European countries on January 1, 1999. The Company is assessing Euro issues related to its treasury operations, product pricing, contracts and accounting systems. Although the evaluation of these issues is still in process, management currently believes that the Company's existing or planned hardware and software systems will accommodate the transition to the Euro and any required operating changes will not have a material effect on future results of operations or financial condition. 12 13 PART II OTHER INFORMATION Item 1. Legal Proceedings NONE Item 2. Changes in Securities NONE Item 3. Defaults Upon Senior Securities NONE Item 4. Submission of Matters to a Vote of Security Holders NONE Item 5. Other Information NONE Item 6. Exhibits and Reports on Form 8-K Exhibit 10.59 Sixth amendment to Employment Agreement by and between Robert S. Bowen and Group 1 Software, Inc. dated July 17, 2000 No filings on Form 8-K have been made during the quarter 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Group 1 Software, Inc. Date: August 14, 2000 /s/ Mark Funston Mark Funston Chief Financial Officer 14