<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-15 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended April 30, 1997
Micro Focus Group Public Limited Company
(Translation of Registrant's Name Into English)
The Lawn, Old Bath Road, Newbury, England RG14 1QN
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F __X__ Form 40-F _____
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes ___X___ No _____
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2 (b): 82-795.)
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MICRO FOCUS GROUP PLC
INDEX TO QUARTERLY REPORT
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Statements of Income for the three months 1
ended April 30, 1997 and April 30, 1996
Consolidated Balance Sheets as of April 30, 1997 2
and January 31, 1997
Consolidated Statements of Cash Flows for the three 3
months ended April 30,1997 and April 30, 1996
Notes to Consolidated Financial Statements 4
Item 2 - Management's Discussion and Analysis of 5
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures 11
About Market Risks
Part II - OTHER INFORMATION
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities 11
Item 3 - Defaults Upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits 12
SIGNATURE(S) 13
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PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Statements of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
April 30, 1997 April 30, 1996
(Unaudited) (Unaudited)
<S> <C> <C>
- --------------------------------------------------------------------------------
Net revenue
Product revenue $16,350 $12,891
Service revenue 13,764 11,278
- --------------------------------------------------------------------------------
Total net revenue 30,114 24,169
- --------------------------------------------------------------------------------
Cost of revenue
Cost of product revenue 2,404 2,125
Cost of service revenue 4,953 4,693
- --------------------------------------------------------------------------------
Total cost of revenue 7,357 6,818
- --------------------------------------------------------------------------------
Gross margin 22,757 17,351
- --------------------------------------------------------------------------------
Operating expenses
Research and development 7,699 9,131
Sales and marketing 10,726 11,760
General and administrative 1,858 2,206
Restructuring charges - 8,000
- --------------------------------------------------------------------------------
Total opertaing expenses 20,283 31,097
- --------------------------------------------------------------------------------
Income (loss) from operations 2,474 (13,746)
Interest income 942 664
Interest expense (3) (13)
- --------------------------------------------------------------------------------
Income (loss) before income taxes 3,413 (13,095)
Income taxes (1,126) (115)
- --------------------------------------------------------------------------------
Net income (loss) $2,287 $(13,210)
- --------------------------------------------------------------------------------
Net income (loss) per share $.15 $(.87)
- --------------------------------------------------------------------------------
Weighted average number of shares outstanding 15,763 15,145
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
1
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Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
April 30, 1997 January 31, 1997
(Unaudited)
<S> <C> <C>
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $36,567 $71,560
Short-term investments 37,050 -
Accounts receivable, net 21,250 20,275
Inventories 669 774
Prepaid expenses and other assets 3,447 2,490
- --------------------------------------------------------------------------------
Total current assets 98,983 95,099
- --------------------------------------------------------------------------------
Fixed assets:
Property, plant and equipment, net 32,480 32,868
Goodwill, net 6,629 -
Software product assets, net 22,609 23,344
- --------------------------------------------------------------------------------
Total assets $160,701 $151,311
- --------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Bank loans $1,763 $ -
Accounts payable 5,244 4,886
Accrued employee compensation 6,041 5,811
Income taxes payable 5,377 4,142
Deferred revenue 28,430 26,635
Other current liabilities 9,054 11,047
- --------------------------------------------------------------------------------
Total current liabilities 55,909 52,521
- --------------------------------------------------------------------------------
Long-term debt and other liabilities 23 24
Deferred income taxes 10,109 9,983
Shareholders' equity:
Ordinary shares: 10 pence (GB) par 2,418 2,389
value, 22,500,000 shares
authorized, 15,342,000 outstanding (15,168,000
at January 31, 1997)
Additional paid-in capital 31,034 27,468
Unrealized loss on available-for-sale
securities, net of tax (87) -
Treasury stock (8,959) (8,959)
Currency translation adjustment (2,309) (2,391)
Retained earnings 72,563 70,276
- --------------------------------------------------------------------------------
Total shareholders' equity 94,660 88,783
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $160,701 $151,311
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
2
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Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
April 30, 1997 April 30, 1996
(Unaudited) (Unaudited)
<S> <C> <C>
- --------------------------------------------------------------------------------
Operating activities
Net income (loss) $2,287 $(16,145)
Adjustments to reconcile net profit
to cash provided by operations
Depreciation of fixed assets 1,790 2,186
Amortization of software product assets 3,121 2,858
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (1,718) 9,736
Decrease in inventories 104 326
(Increase) decrease in prepaid expenses
and other assets (1,061) 471
Increase (decrease) in accounts payable 678 (3,583)
Increase in product royalties payable 453 70
Increase (decrease) in accrued employee
compensation 315 (1,580)
Increase in accrued payroll taxes 204 199
Increase in income taxes payable 1,242 3,377
Increase (decrease) in deferred revenue 1,920 (1,906)
(Decrease) increase in other current liabilities (2,711) 6,396
- --------------------------------------------------------------------------------
Net cash provided by operating activities 6,624 2,405
- --------------------------------------------------------------------------------
Investing activities
Purchases of property, plant and equipment (1,203) (1,690)
Software product assets (2,168) (2,494)
Acquisition of subsidiary, net of cash acquired (3,208) -
Purchases of available-for-sale securities (37,050) -
Disposals of property, plant and equipment 40 -
- --------------------------------------------------------------------------------
Net cash (used) by investing activities (43,589) (4,184)
- --------------------------------------------------------------------------------
Financing activities
Bank borrowings 1,763 -
Issuance of ordinary shares 281 29
Repayment of capital leases (10) (74)
- --------------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,034 (45)
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash (62) (76)
- --------------------------------------------------------------------------------
Decrease in cash (34,993) (1,900)
Cash at beginning of period 71,560 58,845
- --------------------------------------------------------------------------------
Cash at end of period $36,567 $56,945
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
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Notes to Consolidated Financial Statements (Unaudited)
Basis of Presentation
Micro Focus Group Plc (the "Company") is incorporated in England and Wales.
Where applicable, the term "Company" also includes the direct and indirect
subsidiaries of Micro Focus Group Plc. The consolidated financial statements
shown herein are stated in U.S. dollars and are prepared under U.S. generally
accepted accounting principles for interim financial information. This 6-K
filing is furnished on a voluntary basis as the Company is not required to
report quarterly financial information by the U.S. Securities and Exchange
Commission (the "SEC").
The financial information at April 30, 1997 and for the three months ended April
30, 1997 and 1996 is unaudited but includes all adjustments which the Company
considers necessary for a fair presentation of its financial position at such
date and the operating results and cash flows for such periods. The year-end
balance sheet at January 31 1997 was derived from audited financial statements,
but does not include all disclosures required by U.S. generally accepted
accounting principles. Results for the three-month period ended April 30, 1997
are not necessarily indicative of results that may be expected for the fiscal
year ending January 31, 1998 or any future interim or full-year period. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with U.S. generally accepted accounting principles have
been condensed or omitted pursuant to SEC Regulations. Management believes that
the disclosures are adequate to make the information presented herein not
misleading. These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended January 31, 1997 included in the Company's Annual Report on
Form 20-F which was filed with the SEC on May 2, 1997.
The financial information contained in this quarterly report does not constitute
statutory accounts as defined in section 240 of the U.K. Companies Act 1985. The
figures for the year ended January 31, 1997 are based on the audited financial
statements which have been filed with the UK Registrar of Companies; the
auditors' reports on both the U.K. and U.S. financial statements for the year
ended January 31, 1997 were unqualified.
Cash and Cash Equivalents - Short-Term Investments
Cash and cash equivalents include cash placed on short-term deposit and
short-term money market instruments with original maturities of less than three
months.
The Company invests its excess cash in accordance with an investment policy
approved by the Board of Directors and implemented as of the beginning of the
current fiscal year. This policy authorizes investment in U.S. government
securities, municipal bonds, certificates of deposit with highly-rated financial
institutions and other specified money market instruments of similar liquidity
and credit quality. In accordance with Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," management of the Company determines the appropriate classification
of debt securities at the time of purchase and re-evaluates such designation at
each balance sheet date. Debt securities that the Company has the intent and the
ability to hold until maturity are classified as held-to-maturity, and all other
debt securities are classified as available-for-sale.
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The Company has determined that all of its investment securities are to be
classified as available-for-sale. Such securities are stated at amounts which
approximate fair value, based on quoted market prices, with the unrealized gains
and losses reported as a separate component of shareholders' equity.
Available-for-sale securities with original maturities of less than three months
are classified as cash equivalents.
Earnings Per Share
On March 3, 1997, the Financial Accounting Standards Board issued Statement No.
128 ("FAS 128"), "Earnings Per Share," which is required to be adopted in
financial statements issued for periods ending on or after December 15, 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. Implementation of FAS 128 will not have a
material impact on primary or diluted earnings per share for the first quarter
of 1997 or the first quarter of 1996.
Acquisition
The Company acquired Millennium UK Limited ("Millennium"), a Year 2000
consulting firm, on April 30, 1997 for consideration of $6,400,000 paid in a
combination of $3,200,000 in cash and the issuance of 149,142 ordinary shares.
The transaction has been accounted for as a purchase with the Company recording
$6,629,000 of goodwill as of April 30, 1997, which the Company intends to
amortize over five years. The following are Millennium's recent operating
results (in thousands):
Three Months Ended
April 30, 1997 April 30, 1996
-------------- --------------
Revenues $954 $289
Income (loss) from operations (9) (32)
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto included in this
Part I, and with the Company's audited financial statements in U.S. format for
the fiscal year ended January 31, 1997 as reported in the Company's Annual
Report on Form 20-F filed with the SEC on May 2, 1997.
Results of Operations
Net revenue for the first quarter of 1997 was 25% above the corresponding
quarter of 1996. Product revenue grew 27%, reflecting higher sales of the
Company's Year 2000 products, UNIX tools, mainframe emulators, COBOL
Workbench(R), and other product lines. Service revenue increased 22% from the
prior year's first quarter primarily as a result of increased software
maintenance revenue. Sales to U.S. customers grew 28% over the prior year period
reflecting the above factors and changes in the Company's product bundling and
sales discount structure. Sales to customers outside the United States increased
19%
5
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over the comparable prior year period largely due to sales increases in India,
Germany and Japan. Net revenue for the first quarter was 9% below the net
revenue reported in the prior quarter ended January 31, 1997. Typically, the
Company's fourth fiscal quarter has been seasonally its strongest and the first
quarter its lowest. In the first quarter of 1997, sales of all products were
lower than in the prior quarter, except for higher license revenue from the
Company's Year 2000 products and OEM channels. There can be no assurance that
the market for the Company's products will grow in future periods at its
historical rate of growth, that certain segments of such will not decline, or
that the Company will be able to increase or maintain its market share in the
future or achieve its historical growth rates.
Gross margins were 76%, 72% and 79% of net revenue in the first quarter of 1997,
the first quarter of 1996 and the fourth quarter of 1996, respectively. The
gross margin percentage for the quarter was higher than for the first quarter of
1996 because of reduced product discounting in the United States, proportionally
more product sales which carry higher margins, and savings attributable to the
replacement of printed software documentation with electronic versions. Gross
margin as a percent of net revenue in the first quarter of 1997 was below the
fourth quarter of 1996 because of a decline in the share of net revenue
represented by product licensing revenue which carries higher gross margins and
expansion of the Company's consulting staff at a higher rate than the associated
revenue increase. The Company's gross margin can be affected by a number of
factors, including changes in product or distribution channel mix, the mix of
product and service revenue, and competitive pressures on pricing. Gross margin
is also dependent on discounts selectively provided to customers in competitive
sales situations. As a result of the above factors, gross margin fluctuations
are difficult to predict, and gross margins may decline from current levels in
future periods.
Research and development (R&D) expenses for the first quarter of 1997 were 16%
below the first quarter of 1996 and represented 26% of net revenue as compared
to 38% for the comparable prior year period. The decline in R&D expenses
resulted from the cancellation and phasing out of development projects not
deemed critical to the Company's future success and resulting staff and facility
reductions. R&D expenses for the first quarter of 1997 were 10% below the fourth
quarter of 1996 when they represented 24% of net revenue, a result of lower
bonus provisions and lower amortization of software product assets net of
amounts capitalized. The Company believes that ongoing development of new
products and features is required to maintain and enhance its competitive
position. Accordingly, while the Company will continue to control expenses where
possible, the Company anticipates that aggregate R&D expenses will increase over
time, and may not be directly related to the level of revenue realized in future
quarters.
Sales and marketing expenses for the first quarter of 1997 were 9% below the
first quarter of 1996 and 16% below the fourth quarter of 1996. Sales and
marketing expenses were 35%, 49% and 37% of net revenue in the first quarter of
1997, the first quarter of 1996 and the fourth quarter of 1996, respectively.
The decline in sales and marketing expenses from the first quarter of 1996
reflected lower promotional activities. The decline in sales and marketing
expenses from the fourth quarter of 1996 reflected lower promotional
expenditures and lower sales commissions. The Company believes that continued
investments in sales and marketing and customer support, particularly in
promotional activities, are essential to maintaining its competitive position.
In addition, the Company is expanding its sales and consulting staffs.
Accordingly, the Company anticipates that sales and marketing expenses will be
higher in future periods.
6
<PAGE> 9
General and administrative (G&A) expenses for the first quarter of 1997 were 16%
below the first quarter of 1996 and 30% below the fourth quarter of 1996. The
decline in G&A expenses from the prior year's first quarter reflected reduced
salaries, travel and entertainment, and consulting services. The decline in G&A
expenses from the fourth quarter of 1996 reflected lower bonus provisions. G&A
expenses were 6%, 9% and 8% of net revenue in the first quarter of 1997, the
first quarter of 1996 and the fourth quarter of 1996, respectively. The Company
is investing to strengthen its infrastructure, in particular its information
systems, and anticipates that G&A expenses will increase in future quarters.
Interest income for the first quarter of 1997 was 42% above the first quarter of
1996, and 29% higher than the fourth quarter of 1996. The increase in interest
income reflected higher average cash balances and higher investment yields
resulting from investing funds in money market instruments in place of bank
certificates of deposit.
The Company's effective tax rate was 33% for the first quarter of 1997 as
compared to 25% on the loss recorded for the year ended January 31, 1997. In
fiscal 1996, the tax rate was affected by the distribution of taxable profits
and losses among the tax jurisdictions in which the Company operates and by
restructuring charges which were not tax-deductible.
Liquidity and Capital Resources
During the first quarter of 1997, the Company generated $6,624,000 in cash from
operating activities, primarily from income before depreciation and amortization
and increases in income taxes payable and deferred revenue, offset in part by
higher accounts receivable and payments of restructuring charges provided for in
1996. The Company generated $2,405,000 in cash from operations in the first
quarter of 1996, primarily as a result of a $9,736,000 reduction in accounts
receivable and increases in income taxes payable and other current liabilities,
offset by the Company's loss before depreciation and amortization.
At April 30, 1997, the Company had $73,617,000 in cash, cash equivalents and
short-term investments. This amount increased $2,057,000 during the first
quarter of 1997, reflecting cash provided by operating activities and bank
borrowings made to hedge foreign currency exposures, offset in part by purchases
of property and equipment and software product assets.
The Company has a GBP 5,000,000 ($8,100,000 at April 30, 1997) unsecured bank
line of credit in the form of a revolving multi-currency LIBOR loan facility.
Such facility expires in December 1997. The interest rate on outstanding
borrowings under such facility is equal to 1% above the prevailing LIBOR rate
for the currency in which the borrowings are made. The loan agreement for such
facility requires the Company to maintain a certain minimum level of net
tangible assets. Borrowings outstanding under the credit line as of April 30,
1997 were the equivalent of $1,763,000, and were incurring interest at a rate of
5.375% per annum.
The Company currently expects to spend approximately $10,000,000 for capital
equipment and leasehold improvements during fiscal 1997, in particular for
upgrades and expansions to its information systems and in connection with the
planned relocation of certain of its U.S. facilities. The Company may finance a
portion of these expenditures through leasing arrangements.
The Company believes that existing balances of cash, cash equivalents and
short-term investments in combination with its available bank line of credit and
leasing facilities will be sufficient to meet its cash requirements through
1997.
7
<PAGE> 10
Factors That May Influence Future Operating Results
Micro Focus operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. This section of the
discussion highlights some of these risks and the possible impact of these
factors on future results from operations.
The factors set forth below as well as statements made elsewhere in this
quarterly report contain certain forward looking statements that are based on
the beliefs of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. The Company's
actual results, performance or achievements in the remainder of fiscal 1997 and
beyond could differ materially from those expressed in, or implied by, any such
forward-looking statements. Factors that could cause or contribute to such
material differences include, but are not limited to, those discussed in this
section below, as well as those discussed elsewhere in this Form 6-K. The
Company undertakes no obligation to release publicly any updates or revisions to
any such forward-looking statements that may reflect events or circumstances
occurring after the date of this Form 6-K. For more information regarding
forward-looking statements, see "Special Note on Forward-Looking Statements"
below in this Part I, Item 2.
The Company's future operating results are subject to quarterly and annual
fluctuations due to a variety of factors, including demand for the Company's
products, the size and timing of customer orders, product life cycles, the
ability of the Company to develop, introduce and market new and enhanced
versions of the Company's products on a timely basis, the introduction and
acceptance of new products and product enhancements by the Company or its
competitors, customer order deferrals in anticipation of enhancements or new
products, changes in the mix of distribution channels through which the
Company's products are offered, purchasing patterns of distributors and
retailers, quality control of products sold, price and other competitive
conditions in the industry, changes in the Company's level of operating
expenses, changes in the Company's sales incentive plans, budgeting cycles of
its customers, the cancellation of licenses during the warranty period,
non-renewal of maintenance agreements, economic conditions generally or in
various geographic areas, and other factors discussed in this section.
A high percentage of the Company's operating expenses are fixed over the short
term and if anticipated revenue does not occur or is delayed, the operating
results for that quarter will be immediately and adversely affected. In
addition, a substantial portion of the Company's revenue for most quarters is
booked and shipped in the last month of the quarter such that the magnitude of
the quarterly fluctuations may not become evident until late in or even at the
end of the particular quarter. Furthermore, although historically the Company's
business has not been subject to seasonal variations, the Company's customers
tend to make product purchase decisions in the fourth quarter of their fiscal
year as a result of purchase cycles related to expiration of budgetary
authorizations. As a result, the Company experiences lower revenue for the first
quarter of a fiscal year than in the fourth quarter of the prior fiscal year.
The Company's revenue is also affected by seasonal fluctuations resulting from
lower sales that typically occur during the summer months in Europe and other
parts of the world. Due to all of the foregoing factors, it is possible that in
some future quarters the Company's operating results will be below the
expectations of stock market analysts and investors and that the Company's share
price would likely be materially adversely affected.
8
<PAGE> 11
The Company is in a market that is subject to rapid technological change. The
Company must continually adapt to that change by improving its products and
introducing new products and technologies. The growth and financial performance
of the Company will depend upon its ability, on a timely and cost-effective
basis, to develop and introduce enhancements of existing products and new
products that accommodate the latest technological advances and standards,
customer requirements and market conditions. The Company's ability to develop
and market enhancements of existing products and new products depends upon its
ability to attract and retain qualified employees. In the past, the Company has
experienced delays and increased expenses in developing new products. Any
failure by the Company to anticipate or respond adequately to changes in
technology and market conditions, to complete product development and introduce
new products on a timely basis or to attract and retain qualified employees
could materially adversely affect the Company's business, results of operations
and financial condition.
Substantially all of the Company's revenue is currently, and is expected to
continue in the future to be, derived from products and services related to
applications development in the COBOL language. As a result, the Company's
future operating results depend upon market acceptance of the COBOL language.
Any decline in the demand for or market acceptance of the COBOL language or
mainframe computers for which COBOL is a dominant language, as a result of
competition, technological change or other factors, would have a material
adverse effect on the Company's business, financial condition and results of
operations.
The markets in which the Company competes are characterised by rapid
technological change and aggressive competition. The Company believes that the
principal competitive factors in the Company's markets are product performance
and reliability, functionality, product quality, application portability,
product enhancement, price, training, support and the quality of service
offerings. The Company expects competition to increase in the future from
existing competitors and from other companies that may enter the Company's
existing or future markets with similar or substitute solutions, including
database vendors of tools and other programming languages that may be less
costly or provide better performance or functionality than the Company's
products. Some of the Company's current and prospective competitors in its
product and services markets have greater financial, marketing or technical
resources than the Company and may be able to adapt more quickly to new or
emerging technologies, or devote greater resources to the promotion and sale of
their products than can the Company. There can be no assurance that other
companies will not develop competitive products in the future. In addition, the
software industry is characterised generally by low barriers to entry, as a
result of which new competitors possessing technological, marketing or other
competitive advantages may emerge and rapidly acquire market share. Furthermore,
there can be no assurance that the Company will be able to compete effectively
in the future in the professional services market and, particularly, in the Year
2000 professional services market.
The market price of the Company's securities has experienced significant price
volatility and such volatility may occur in the future. Factors such as actual
or anticipated fluctuations in the Company's operating results, announcements of
technological innovations, new products or new contracts by the Company or its
competitors, conditions and trends in the software and other technology
industries, adoption of new accounting standards affecting the software
industry, general market conditions and other factors may have a significant
impact on the market price of the Company's securities. Furthermore, the stock
market has experienced extreme volatility that has particularly affected the
market prices of equity securities of many high technology companies. These
market fluctuations, as well as general economic, political and market
conditions, may adversely affect the market price of the Company's securities.
9
<PAGE> 12
Micro Focus is subject to the general economic climate in the various areas of
the world in which it does business. The risks inherent in conducting
international business generally include exposure to exchange rate fluctuations
(see "Exchange Rate Fluctuations", below), longer payment cycles, greater
difficulties in accounts receivable collection and enforcing agreements, tariffs
and other restrictions on foreign trade, U.S. export requirements, economic and
political instability, withholding and other tax consequences, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that the factors described above will
not have an adverse effect on the Company's future international revenue and
expenses.
The Company markets certain of its products and services to customers for
managing the development and maintenance of mission-critical computer software
systems. In addition, an increasing portion of the Company's business is devoted
to addressing the Year 2000 problem which affects the performance and
reliability of many mission-critical systems. The Company's agreements with its
customers typically contain provisions designed to limit the Company's exposure
to potential product and service liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's customer
agreements may not be effective as a result of existing or future federal,
state, local or foreign laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any material product or service
liability claims to date, the sale and support of its products and services may
entail the risk of such claims, particularly in the Year 2000 market. A
successful product or service liability claim brought against the Company could
have a material adverse effect upon the Company's business, operating results
and financial condition. Furthermore, the Company anticipates that demand in the
Year 2000 market will decline, perhaps rapidly, following the turn of the
century and the demand for the Company's Year 2000 solutions, products and
services may also decline as a result of new technologies, competition or other
factors. If this decline in demand were to occur, the Company's license revenue
and professional service fees could be materially and adversely affected.
Exchange Rate Fluctuations
The Company prepares separate consolidated financial statements expressed in
U.S. dollars and G.B. pounds. Revenue, costs and expenses arising in currencies
other than the reporting currency are translated using average exchange rates.
Assets and liabilities denominated in currencies other than the reporting
currency are translated at exchange rates in effect at the balance sheet date.
The majority of the Company's net revenue arises in U.S. dollars, whereas its
costs are incurred approximately equally in U.S. dollars and other currencies,
predominately G.B. pounds. Consequently, fluctuations in exchange rates,
particularly between the U.S. dollar and the G.B. pound, may have a significant
impact on the Company's operating results, notably when expressed in G.B.
pounds. In the first quarter of 1997, fluctuations between the U.S. dollar and
the G.B. pound were not significant, and net exchange rate gains or losses on
operational transactions were immaterial.
10
<PAGE> 13
Special Note on Forward-Looking Statements
The Company is subject to various U.S. securities laws and regulations relating
to the disclosure of information. In particular, the Private Securities
Litigation Reform Act of 1995, which became effective in the United States as of
January 1, 1996 (the "Securities Litigation Reform Act"), applies to the Company
and its disclosure of information and provides that the Company can be exempt
from liability for making forward-looking statements if certain cautionary
language is included along with such statements. This quarterly report contains
certain "forward-looking statements" (as such term is defined in the rules
promulgated pursuant to the U.S. Securities Act of 1933, as amended) that are
based on the beliefs of the Company's management, as well as assumptions made by
and information currently available to the Company's management. Such
forward-looking statements are subject to the safe harbor created by the
Securities Litigation Reform Act. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and similar expressions, as they
relate to the Company or its management, are intended to identify such
forward-looking statements. Such statements reflect the current views of the
Company or its management with respect to future events and are subject to
certain risks, uncertainties and assumptions. Should one or more of these risks
or uncertainties materialise, or should underlying assumptions prove incorrect,
the Company's actual results, performance or achievements in fiscal 1997 and
beyond could differ materially from those expressed in, or implied by, any such
forward-looking statements. Factors that could cause or contribute to such
material differences include, but are not limited to, those discussed above in
Part I hereof under the heading "Factors That May Influence Future Operating
Results", as well as those discussed elsewhere in this quarterly report. The
inclusion of such forward-looking information should not be regarded as a
representation by the Company or any other person that the future events, plans
or expectations contemplated by the Company will be achieved. The Company
undertakes no obligation to release publicly any updates or revisions to any
such forward-looking statements that may reflect events or circumstances
occurring after the date of this quarterly report.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None.
Item 2 - Changes In Securities
None.
Item 3 - Defaults Upon Major Securities
None.
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Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other Information
On April 30, 1997, the Company acquired all the share capital of Millennium UK
Limited ("Millennium") for total consideration of approximately $6,400,000,
which consisted of a payment of $3,200,000 in cash and the issuance of 149,142
ordinary shares of the Company with a value of approximately $3,200,000 on the
date the acquisition was completed. Based in Bournemouth, England, Millennium
provides specialized Year 2000 consulting services. Millennium has performed
work for many blue chip UK companies on Year 2000 projects and has expertise in
the estimating, planning and management of Year 2000 compliance projects for
large scale systems. In addition, Millennium provides services in the areas of
project management and planning, business process prioritization, resources
strategies, risk assessment, impact analysis, forward failure analysis, vendor
management, automation strategies, training, implementation support and
management, and testing procedures and standards. See also Part I, Item 1 herein
under the heading "Acquisition."
Item 6 - Exhibits
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Micro Focus Group Public Limited Company
(Registrant)
Date: June 13, 1997 By: /s/Anthony R. Muller
----------------------------------
Anthony R. Muller
Senior Vice President and Chief Financial Officer
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