<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 month of June 17, 1998
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.)
<PAGE> 2
June 17, 1998
FOR IMMEDIATE RELEASE
Not for release or distribution in or into Canada, Australia or Japan
MICRO FOCUS AND INTERSOLV, IN $534 MILLION TRANSACTION,
FORM LEADER IN ENTERPRISE SOFTWARE SOLUTIONS
Complementary solutions and global distribution will create major software
company focused on enterprise application challenges facing
Information Technology
MOUNTAIN VIEW, Calif., ROCKVILLE, Md. -- June 17, 1998 -- Micro Focus Group Plc
("Micro Focus") (London Stock Exchange: MICF; NASDAQ: MIFGY), a global leader in
providing solutions for developing enterprise applications, and INTERSOLV, Inc.
("INTERSOLV") (NASDAQ: ISLI), a leading provider of applications enablement
technology and services, today announced a definitive agreement under which
Micro Focus will acquire INTERSOLV. The combination will create a major new
enterprise software solutions vendor that addresses the growing need of major
corporations to accelerate the development, delivery and integration of
applications in today's distributed computing environment. Under the terms of
the agreement, each common share of INTERSOLV will be exchanged for 0.55 Micro
Focus American Depositary Shares ("new Micro Focus ADSs"). The acquisition is
structured as a tax-free, all-stock transaction that values INTERSOLV at
approximately $534 million (GBP 323 million), based on the closing price per
Micro Focus ADS on NASDAQ of $39.75 (equivalent to 482p per Micro Focus Ordinary
Share) on June 16, 1998. It is anticipated that the acquisition will be
accounted for as a pooling of interests for U.S. accounting purposes. The
combined company will be a new industry power with combined revenues for the
trailing four quarters exceeding $375 million, an employee base of more than
1,900, sales and distribution capability in over 40 countries and a strong
balance sheet with over $125 million in cash. Corporations world-wide will be
able to turn to one strategic partner, dedicated to delivering enterprise
application solutions to accelerate their businesses.
"This acquisition will create a new powerhouse that delivers comprehensive
enterprise applications to its customers," said Martin Waters, President and CEO
of Micro Focus. "With the new millennium fast approaching and the drive toward
globalization of IT through the Internet, our customers want a strategic partner
that can help them to make effective use of new information technologies while
leveraging their existing investment. We believe that the combination of Micro
Focus and INTERSOLV will enable us to bring the technology and solutions needed
to meet this demand."
From desktop to data center, the combined company will provide the elements that
are essential to the successful development of the next generation of enterprise
applications. To meet the challenge of speeding information systems delivery,
these applications will be component-based, multi-platform, and implemented in
open languages such as Java and COBOL. This will avoid the pitfalls of
proprietary approaches and preserve the customer's ability to reuse existing
applications as well. The combination of Micro Focus and INTERSOLV is expected
to enable the company to:
-Build on the market leadership of the two companies in the key areas of
Application Development Environments, Automated Software Quality, Data
Connectivity Solutions, and Application Transformation Solutions;
<PAGE> 3
-Combine a unique mix of leading-edge Internet, client/server and legacy
technology expertise;
-Build critical mass in services capability; and
-Strengthen the sales organization and expand channel coverage.
"INTERSOLV's mission has long been to accelerate the delivery of information
systems," said Gary Greenfield, President and CEO of INTERSOLV. "Micro Focus
shares that mission. Together we intend to leverage our talent, resources and
solutions to accelerate our customers' success. With the combined distribution
power of our extensive channels around the world, we expect to be able to
attract and serve more customers than ever before." INTERSOLV and Micro Focus
have complementary marketing and distribution capabilities, which, when
combined, will include extensive field sales, telesales, and channel operations
worldwide. The combined company will have over 500 industry technology and
marketing partnerships.
This transaction, which is expected to close in approximately 90 days, has been
approved by the board of directors of both companies and is subject to the
approval of their shareholders, clearance by U.K. and U.S. regulatory
authorities, and other conditions as more fully set out in the agreement. Micro
Focus expects to issue approximately 14.4 million new Micro Focus ADSs,
representing approximately 72.0 million new Micro Focus Ordinary Shares, for
INTERSOLV's common stock and share equivalents outstanding which will represent
approximately 46 percent of Micro Focus' share capital on a fully diluted basis.
Under the terms of the agreement, J. Michael Gullard, Chairman of Micro Focus,
and Martin Waters, CEO of Micro Focus, will continue in those positions in the
combined company. The management team of the combined company will be created
from a combination of the executives from Micro Focus and INTERSOLV. "The
INTERSOLV management team brings a great deal of experience," commented Mr.
Waters. "Their addition to the Micro Focus team will significantly enhance our
ability to pursue our aggressive growth plans."
The combined company will be headquartered in Mountain View, California. Its
ordinary shares will be listed on the London Stock Exchange and its ADSs will be
listed on NASDAQ.
This announcement does not constitute an offer or invitation to purchase any
securities. The offering of new Micro Focus ADSs will be made only by means of a
Prospectus / Proxy Statement which is anticipated to be distributed to
INTERSOLV's shareholders by the end of August, 1998. The documents to be
reviewed by the U.S. Securities and Exchange Commission and the London Stock
Exchange, will include, among other things, pro forma combined financial
information.
ABOUT MICRO FOCUS
Micro Focus provides solutions for developing and managing enterprise
applications. The company's solutions focus on leveraging the value of the
mainframe application base and skills set into newer distributed computing
technologies such as the Internet. The company's products and services shorten
time-to-solution through an analysis and understanding of mainframe
applications. Micro Focus solutions include mainframe application development
and maintenance solutions, Year 2000 and Euro compliance solutions and
distributed computing solutions for UNIX, Microsoft Windows NT(R) and the World
Wide Web.
<PAGE> 4
Micro Focus is located at 701 East Middlefield Road, Mountain View, California
94043. In the U.K., the company is located at The Lawn, 22-30 Old Bath Road,
Newbury, Berkshire, RG14 1QN.
ABOUT INTERSOLV
INTERSOLV delivers solutions for the entire application enablement process,
empowering organizations to accelerate the delivery of information systems
across client/server, Internet or intranet environments. Customers worldwide
rely on INTERSOLV's automated software quality, data connectivity and enterprise
application renewal solutions to help gain a competitive advantage. INTERSOLV
focuses on assisting organizations to achieve the agility and flexibility to
respond quickly to rapid business and technological change. With revenues for
fiscal 1998 exceeding $195 million, INTERSOLV has more than 4.5 million customer
licenses at over 35,000 customer sites around the world.
INTERSOLV is located at 9420 Key West Avenue, Rockville, Maryland 20850.
ADDITIONAL INFORMATION
For additional information on Micro Focus and its products call (650) 938-3700
in the U.S. or 01635 32646 in the U.K.
For additional information about INTERSOLV and its products call (800) 547-4000.
Donaldson, Lufkin & Jenrette International and SBC Warburg Dillon Read, which
are regulated in the U.K. by the Securities and Futures Authority Limited, are
acting for Micro Focus and no one else in connection with the Merger and will
not be responsible to anyone other than Micro Focus for providing the
protections afforded to customers of Donaldson, Lufkin & Jenrette International
and SBC Warburg Dillon Read nor for providing advice in relation to the Merger.
This press release, including its Appendices, contains forward-looking
statements concerning future matters, such as the features and functions of, and
markets for, products offered by Micro Focus and INTERSOLV and Micro Focus'
business plans and strategies. These forward-looking statements also include
statements concerning the advantages of the proposed Merger; the products and
services to be offered by the combined company; the benefits of the Merger with
regard to marketing and distribution; and other statements regarding matters
that are not historical. Forward-looking statements are subject to risks and
uncertainties, and actual results might differ materially from the results
discussed in the forward-looking statements. For example, there can be no
assurance that any of the expected advantages of the Merger will be realized.
Factors that could cause or contribute to differences in results include: risks
associated with integration of the operations of Micro Focus and INTERSOLV; the
effect on the combined company of the failure to realize the anticipated
benefits of the Merger; general conditions in the businesses of the companies,
particularly Year 2000 business and the Euro business; competitive factors in
the industry; and the risk factors discussed in Micro Focus' Form 20-F for the
year ended January 31, 1998 and in INTERSOLV's Form 10-K for the year ended
April 30, 1997, each of which have been filed with the U.S. Securities and
Exchange Commission.
Micro Focus is a registered trademark of Micro Focus Limited, and INTERSOLV is a
registered trademark of INTERSOLV, Inc. All other trademarks are the property of
their respective owners.
<PAGE> 5
FOR FURTHER INFORMATION:
- ------------------------
MICRO FOCUS
Martin Waters President and Chief Executive (650) 404-7090
Officer
Rick Van Hoesen Chief Financial Officer (650) 404-7019
Buff Jones Senior Vice President, Business (650) 404-7016
Development
DONADLSON, LUFKIN & JENRETTE
Steve Brooks Managing Director (650) 234 2809
Alison Carnwath Managing Director (212) 892 7699
W. John Craven Senior Vice President 0171 655 7561
SBC WARBURG DILLON READ
John Woolland Executive Director 0171 568 2336
INTERSOLV
Gary Greenfield President and Chief Executive (301) 838-5223
Officer
Kenneth Sexton Chief Financial Officer (301) 838-5210
HAMBRECHT & QUIST
David Golden Managing Director (415) 439 3305
PRESS ENQUIRIES:
- ----------------
U.K.
Financial Dynamics
Giles Sanderson Partner 0171 831 3113
Edward Bridges Partner 0171 831 3113
U.S. - FINANCIAL
Abernathy MacGregor
Ann Hance Managing Director (212) 371-5999
Jason Thompson Vice President (212) 371-5999
U.S. - INDUSTRY
The Hoffman Agency
Lou Hoffman President (408) 975-3010
There will be a presentation for U.K. analysts covering the two companies at
8:30a.m. on June 18, 1998 at the offices of Financial Dynamics. A further
presentation for U.K. investors will be at 4:00p.m. on June 18, 1998 at the
offices of SBC Warburg Dillon Read.
<PAGE> 6
Appendix I
TERMS AND OTHER DETAILS OF THE MERGER
TERMS OF THE PROPOSED MERGER
A wholly owned U.S. subsidiary of Micro Focus will merge with and into INTERSOLV
with INTERSOLV being the surviving subsidiary of Micro Focus. It is intended
that the Merger will be a tax-free reorganization under Section 368(a)(2)(e) of
the U.S. Internal Revenue Code and accounted for under the pooling of interests
method of accounting under U.S. GAAP. Immediately following completion of the
Merger, the new Micro Focus ADSs, and the new Micro Focus Ordinary Shares they
represent, will be listed on NASDAQ and the London Stock Exchange, respectively.
On completion of the Merger, INTERSOLV Stockholders will receive new Micro Focus
ADSs on the following basis:
For each share of common stock 0.55 new Micro Focus ADSs, representing
in INTERSOLV: 2.75 new Micro Focus Ordinary Shares
No fractional new Micro Focus ADSs will be issued in connection with the Merger.
INTERSOLV Stockholders who would otherwise have been entitled to receive a
fraction of a new Micro Focus ADS in the Merger will receive, in lieu of such
fraction, cash, without interest, in an amount equal to the product of such
fraction of a new Micro Focus ADS multiplied by an average closing price of a
new Micro Focus ADS as reported on NASDAQ.
Rights of new Micro Focus Ordinary Shares and new Micro Focus ADSs
- ------------------------------------------------------------------
The new Micro Focus Ordinary Shares, represented by new Micro Focus ADSs, to be
issued as consideration to INTERSOLV Stockholders, will be issued free of all
taxes and will rank pari passu in all respects from the time of their issue with
the Micro Focus Ordinary Shares in issue at the time.
The new Micro Focus ADSs issued in connection with the Merger will be subject to
U.S. SEC Rule 145 and any applicable "continuity of interest" requirements for a
tax-free reorganization. Directors and certain Affiliates of INTERSOLV and Micro
Focus have agreed not to sell or transfer any Micro Focus or INTERSOLV
securities during the period commencing 30 days prior to the completion of the
Merger and ending upon the public release of financial statements covering 30
days of combined operations of Micro Focus and INTERSOLV.
<PAGE> 7
SETTLEMENT, LISTING AND DEALING
Application has been made to the London Stock Exchange for the new Micro Focus
Ordinary Shares to be admitted to the Official List. In addition, Micro Focus
will be seeking a listing for the new Micro Focus ADSs on NASDAQ.
Further details on settlement, listing and dealing will be included in the
documents to be sent to Micro Focus shareholders and INTERSOLV Stockholders by
the end of August 1998. The Merger is not expected to complete before September
1998.
INTERSOLV STOCK OPTION PLANS
Each issued and outstanding option and warrant to purchase shares of INTERSOLV
common stock will be assumed by Micro Focus and converted into an option or
warrant to acquire a number of new Micro Focus ADSs equal to the number of
shares of INTERSOLV common stock issuable pursuant to such option or warrant
multiplied by 0.55, rounded down to the nearest whole ADS. The exercise price of
each such assumed and converted option or warrant shall be divided by 0.55,
being the ratio at which each share of INTERSOLV common stock will be exchanged
for new Micro Focus ADSs in connection with the Merger. Upon the effectiveness
of the Merger, some of the options accelerate, vesting as provided in the
applicable plan documents and stock option agreements. The term and other terms
and conditions of INTERSOLV options and warrants shall otherwise remain
unchanged.
<PAGE> 8
Appendix II
CONDITIONS TO THE MERGER AND OTHER TERMS OF THE MERGER AGREEMENT
The obligations of Micro Focus and INTERSOLV under the Merger Agreement to
effect the Merger, are subject to the satisfaction or waiver by one or both of
the parties of certain conditions, including:
1. The requisite approval of the Merger by the shareholders of Micro Focus and
INTERSOLV.
2. The effectiveness under U.S. Securities Laws of the U.S. registration
documents covering the registration of the new Micro Focus ADSs to be issued
in connection with the Merger.
3. The admission to the Official List of the London Stock Exchange of the new
Micro Focus Ordinary Shares to be issued in connection with the Merger, the
authorisation for the listing on the NASDAQ National Market of the new Micro
Focus ADSs to be issued in connection with the Merger, and the continued
effectiveness of such listings.
4. The consent of H.M. Treasury in connection with the Merger, or the
confirmation by H.M. Treasury that no such consent is required.
5. The absence of any order or injunction of a court or other governmental
entity making the Merger illegal or restricting the conduct of the business
of INTERSOLV and its subsidiaries.
6. The receipt by Micro Focus of opinions from counsel to INTERSOLV, and the
receipt by INTERSOLV of opinions from counsel to Micro Focus.
7. The receipt by Micro Focus and INTERSOLV of letters from their respective
auditors confirming that the Merger will qualify for pooling of interests
accounting treatment under U.S. GAAP.
8. The receipt of all material consents and approvals, the making of all
material filings or declarations, and the expiration of all waiting periods
required by any governmental entity necessary for the effectiveness of the
Merger and the related transactions.
9. All representations, warranties, covenants and agreements of Micro Focus and
INTERSOLV in the Merger Agreement, respectively being true and correct at
the effective time of the Merger, and all conditions, consents and
deliveries required of Micro Focus and INTERSOLV, respectively having been
satisfied or waived.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated prior to the effectiveness of the Merger:
1. By the mutual agreement of Micro Focus and INTERSOLV.
2. By either Micro Focus or INTERSOLV, if the Merger shall not have become
effective on or prior to a certain date (provided such failure is not the
result of the willful breach of the Merger Agreement by the party seeking to
terminate).
<PAGE> 9
3. By either Micro Focus or INTERSOLV, if a final permanent injunction or other
court order would make the Merger illegal or otherwise restrain or prohibit
the closing of the Merger.
4. By either Micro Focus or INTERSOLV, subject to certain limitations, if the
other party is in breach of any representation, warranty, covenant or
agreement in the Merger Agreement, or if any representation of the other
party shall have become untrue.
5. By either Micro Focus or INTERSOLV, if the other party's board of directors
shall have changed its recommendation of the Merger Agreement or the Merger
or resolved to do so.
6. By either Micro Focus or INTERSOLV, if the required approval of either
party's shareholders is not obtained.
7. By either Micro Focus or INTERSOLV, if INTERSOLV's board of directors upon
the occurrence of a "Trigger Event" or an "Acquisition Proposal" shall have
in connection therewith and, after receiving written advice of its legal
counsel and financial advisers, changed its approval and recommendation of
the Merger Agreement and the Merger, determined in good faith that to cause
INTERSOLV to proceed with the Merger Agreement or the Merger would not be
consistent with the fiduciary duty of the board of directors to INTERSOLV's
stockholders.
a) A "Trigger Event" shall occur, subject to certain exceptions, if any
person (i) acquires securities equal to 20% or more, or (ii) commences a
tender or exchange offer after which the offeror and its affiliates would
beneficially own securities equal to 20% or more, of the voting power of
INTERSOLV.
b) An "Acquisition Proposal" shall occur if INTERSOLV shall receive any
inquiry or proposal from any third-party, concerning the possible
disposition of all or any significant portion of INTERSOLV's or any of
its subsidiaries' business, assets or capital stock or any other
transaction that would involve a change in control of INTERSOLV.
EXPENSES AND TERMINATION FEES
Under the terms of the Merger Agreement, each party has agreed to pay to the
other a fee of $1 million to reimburse the other's expenses if the Merger
Agreement is terminated as a result of a change in the recommendation of the
board of the first party or as a result of its shareholders not approving the
Merger as provided in items 5 or 6 above. However, if the INTERSOLV board
changes its recommendation following a Trigger Event or an Acquisition Proposal,
the fee is instead $15 million, rising to a maximum combined total of $20
million, if, during the 12 month period after termination of the Merger
Agreement under specified provisions thereof, INTERSOLV enters into a binding
agreement with respect to an Acquisition Proposal with any third party with
which INTERSOLV had any discussions concerning an Acquisition Proposal within
six months of the date of termination of the Merger Agreement.
<PAGE> 10
Appendix III
INFORMATION ON MICRO FOCUS
RECENT QUARTERLY RESULTS
On May 14, 1998, Micro Focus announced its consolidated results for the quarter
ended April 30, 1998. Net revenue for the quarter was $48.7 (GBP 29.4) million,
up 50% from the comparable period last year. Net income was $5.4 (GBP 3.4)
million for the quarter versus a $2.4 (GBP 1.4) million loss for the comparable
period last year.
Note that historical results do not guarantee future performance.
FINANCIAL INFORMATION ON MICRO FOCUS IN U.S. FORMAT
The following information has been extracted without material adjustment from
the published audited consolidated accounts of Micro Focus for the three years
ended January 31, 1998. The financial information does not constitute statutory
accounts within the meaning of Section 240 of the U.K. Companies Act (the
"Act"). Ernst and Young, Chartered Accountants and Registered Auditors, have
made reports under Section 235 of the Act on the accounts for Micro Focus for
each of the three years ended January 31, 1998. Each such report was unqualified
and did not contain a statement under Section 237(2) or Section 237(3) of the
Act. A copy of the accounts for each of the three years ended January 31, 1998
has been delivered to the Registrar of Companies in England and Wales in
accordance with section 242 of the Act. All footnotes have been omitted.
<PAGE> 11
CONSOLIDATED STATEMENTS OF INCOME (U.S. FORMAT)
($ in thousands except share and per share data)
<TABLE>
Year Ended Year Ended Year Ended
January 31, 1998 January 31, 1997 January 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUE
Product revenue $104,041 $71,115 $77,725
Service revenue 63,268 52,112 57,059
----------------------------------------------------
Total net revenue 167,309 123,227 134,784
COST OF REVENUE
Cost of product revenue 10,309 8,075 12,416
Cost of service revenue 26,593 19,586 20,642
----------------------------------------------------
Total cost of revenue 36,902 27,661 33,058
GROSS PROFIT 130,407 95,566 101,726
OPERATING EXPENSES
Research and development 35,040 38,556 38,573
Sales and marketing 62,214 53,519 57,494
General and administrative 15,559 11,814 11,102
Non recurring items - 8,670 9,469
----------------------------------------------------
Total operating expenses 112,813 112,559 116,638
INCOME (LOSS) FROM OPERATIONS 17,594 (16,993) (14,912)
Interest income 4,370 3,094 3,784
Interest expense (123) (73) (117)
INCOME (LOSS) BEFORE TAXES 21,841 (13,972) (11,245)
Income taxes (7,208) (718) 89
NET INCOME (LOSS) $14,633 ($14,690) ($11,156)
NET INCOME (LOSS) PER SHARE - diluted $0.18 ($0.19) ($0.14)
NET INCOME (LOSS) PER ADS - diluted $0.89 ($0.94)
($0.72)
Weighted average number of shares outstanding - 82,635 78,060 77,395
diluted (thousands)
Shares converted to ADS equivalent 16,473 15,612 15,479
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
CONSOLIDATED BALANCE SHEETS (U.S. FORMAT)
($ in thousands except share and per share data)
<TABLE>
As at As at As at
January 31, 1998 January 31, 1997 January 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $48,174 $73,119 $59,475
Short-term investments 36,316 2,577 4,382
Accounts receivable, net of allowances for
doubtful accounts of $2,499 ($1,731 in 1997 47,798 22,390 36,305
and $1,423 in 1996)
Inventories 519 774 2,573
Prepaid expenses and other assets 2,833 5,870 3,690
----------------------------------------------------
Total current assets 135,640 104,730 106,425
FIXED ASSETS:
Property, plant and equipment, net 39,083 33,796 38,692
Goodwill, net of accumulated amortisation of 5,346 0 0
$1,391 ($nil in 1997 and 1996)
Software product assets, net of accumulated 20,328 23,344 26,964
amortisation of $108,871 ($95,402 in 1997
and $79,968 in 1996)
----------------------------------------------------
TOTAL ASSETS $200,397 $161,870 $172,081
----------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loan $1,652 $1,500 $0
Accounts payable 6,957 5,732 8,324
Product and royalties payable 1,386 963 -
Accrued employee compensation and commissions 12,383 5,811 6,733
Accrued payroll taxes 1,142 838 -
Income taxes payable 10,459 4,142 2,914
Deferred revenue 32,848 31,155 32,655
Other current liabilities 9,557 10,215 8,909
----------------------------------------------------
Total current liabilities 76,384 60,356 59,545
Long term debt and other liabilities 20 24 100
Deferred income taxes 9,159 8,746 6,393
----------------------------------------------------
TOTAL LIABILITIES 85,563 69,126 66,038
COMMITMENTS
SHAREHOLDERS' EQUITY
Ordinary shares: 2 pence par value
112,500,000 shares, authorised, 79,417,000 $2,508 $2,452 $2,449
shares issued and outstanding (77,730,000 in
1997 and 77,610,000 in 1996)
Additional paid-in capital 33,362 27,468 27,257
Unrealised gain (loss) in available-for-sale 44 (90) 2
securities, net of tax
Treasury stock (7,769) (8,959) (8,959)
Retained earnings 89,019 74,386 89,076
Currency translation adjustment (2,330) (2,513) (3,782)
----------------------------------------------------
Total shareholders' equity 114,834 92,744 106,043
----------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $200,397 $161,870 $172,081
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOW (U.S. FORMAT)
($ in thousands)
<TABLE>
Year Ended Year Ended Year Ended
January 31, 1998 January 31, 1997 January 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $14,633 ($14,690) ($11,156)
Adjustments to reconcile net income (loss) to
cash provided by operations
Depreciation of fixed assets 7,706 9,410 10,290
Amortisation of software product assets 12,716 12,690 19,862
Amortisation of goodwill 1,391 0 0
Loss on sale of fixed assets 207 504 237
Deferred income taxes 0 1,846 (1,622)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (26,506) 13,691 4,339
Decrease in inventories 247 1,895 185
(Increase) decrease in prepaid expenses and 2,955 1,011 149
other assets
(Increase) decrease in accounts payable 1,607 (2,560) 1,002
(Increase) decrease in product royalties 1,034 (18) 312
payable
(Increase) decrease in accrued employee 6,581 (890) (908)
compensation
Increase (decrease) in accrued payroll taxes 381 158 (105)
Increase (decrease) in income taxes payable 6,219 (2,204) (4,786)
(Increase) decrease in deferred revenue 2,000 (1,481) (3,709)
Decrease (increase) in other current (49) 3,413 (1,117)
liabilities
--------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 31,122 22,775 12,973
--------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment, (13,782) (4,235) (14,065)
net of capital lease obligations incurred
Software product assets (9,321) (8,261) (15,989)
Own shares 1,190 0 (7,954)
Acquisition of subsidiary, net of cash (3,437) 0 0
balances acquired
Settlement of deferred purchase consideration 0 0 (6,252)
Disposals of property, plant and equipment 570 916 478
Short-term investments (33,639) 1,654 1,056
--------------------------------------------------
NET CASH (USED) BY INVESTING ACTIVITIES (58,419) (9,926) (42,726)
--------------------------------------------------
FINANCING ACTIVITIES
Issuance of ordinary shares, net of expenses 2,439 215 446
Borrowings 152 1,500 0
Repayment of capital leases (73) (233) (467)
--------------------------------------------------
NET CASH (USED) BY FINANCING ACTIVITIES 2,518 1,482 (21)
--------------------------------------------------
Effect of exchange rate changes on cash (166) (687) (117)
Decrease (increase) in cash (24,945) 13,644 (29,891)
Cash at beginning of year 73,119 59,475 89,366
CASH AT END OF YEAR $48,174 $73,119 $59,475
- -------------------------------------------------------------------------------------------------------
</TABLE>
Translation of Foreign Currencies
- ---------------------------------
Assets and liabilities denominated in currencies other than U.S. dollars are
translated at exchange rates in effect at the balance sheet date. The closing
U.S. dollar to G.B. pound rate at January 31, 1998, 1997 and 1996 respectively
were $1 = G.B.P 0.610, $1 = G.B.P 0.625 and $1 = G.B.P 0.662, respectively.
Revenue, costs and expenses are translated using average rates. Monthly average
U.S. dollar to G.B. pound rates used during 1998 range between $1 = G.B.P 0.599
and $1 = G.B.P 0.625, and average $1 = G.B.P 0.611, $1 = G.B.P 0.633 and $1 =
G.B.P 0.634 in the fiscal years 1998, 1997 and 1996 respectively. Translation
adjustments resulting from the process of translating financial statements
denominated in currencies other than U.S dollars are dealt with separately in
shareholders' equity.
<PAGE> 14
FINANCIAL INFORMATION ON MICRO FOCUS IN U.K. FORMAT
The following information has been extracted without material adjustment from
the published audited consolidated accounts of Micro Focus for the three years
ended January 31, 1998. The financial information does not constitute statutory
accounts within the meaning of Section 240 of the U.K. Companies Act (the
"Act"). Ernst and Young, Chartered Accountants and Registered Auditors, have
made reports under Section 235 of the Act on the accounts for Micro Focus for
each of the three years ended January 31, 1998. Each such report was unqualified
and did not contain a statement under Section 237(2) or Section 237(3) of the
Act. A copy of the accounts for each of the three years ended January 31, 1998
has been delivered to the Registrar of Companies in England and Wales in
accordance with section 242 of the Act. All footnotes have been omitted.
<PAGE> 15
CONSOLIDATED PROFIT AND LOSS ACCOUNTS (U.K. FORMAT)
(GBP in thousands except share and per share data)
<TABLE>
Year Ended Year Ended Year Ended
January 31, 1998 January 31,1997 January 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Product revenue 60,480 42,020 43,991
Service revenue 36,535 31,069 33,267
----------------------------------------------------
Total revenue 97,015 73,089 77,258
COST OF REVENUE
Cost of product revenue 6,990 6,406 8,855
Cost of service revenue 15,845 11,892 12,343
----------------------------------------------------
Total cost of revenue 22,835 18,298 21,198
GROSS PROFIT 74,180 54,791 56,060
OPERATING EXPENSES
Research and development 19,679 24,299 26,851
Sales and marketing 35,289 30,146 32,857
General and administrative 6,476 7,854 4,986
----------------------------------------------------
Total operating expenses 61,444 62,299 64,694
----------------------------------------------------
OPERATING PROFIT (LOSS) 12,736 (7,508) (8,634)
Interest income 2,551 1,720 2,166
Interest expense (70) (21) (74)
PROFIT (LOSS) BEFORE TAXATION 15,217 (5,809) (6,542)
Taxation (4,791) (1,472) 72
RETAINED PROFIT (LOSS) FOR THE YEAR 10,426 (7,281) (6,470)
EARNINGS (LOSS) PER SHARE - basic 67.8p (48.0p) (43.6p)
EARNINGS (LOSS) PER SHARE - diluted 65.0p (48.0p) (43.6p)
After 5-for-1 stock split:
EARNINGS (LOSS) PER SHARE- basic 13.6p (9.6p) (8.7p)
EARNINGS (LOSS) PER SHARE - diluted 13.0p (9.6p) (8.7p)
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 16
CONSOLIDATED BALANCE SHEETS (UK FORMAT)
(GBP in thousands except share and per share data)
<TABLE>
As at As at As at
January 31, 1998 January 31, 1997 January 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FIXED ASSETS:
Intangible fixed assets 12,394 14,590 17,857
Tangible fixed assets 23,836 20,543 24,910
Investments 4,886 5,634 5,634
----------------------------------------------------
TOTAL FIXED ASSETS 41,116 40,767 48,401
----------------------------------------------------
CURRENT ASSETS:
Stocks 317 484 1,704
Debtors 30,873 14,228 22,751
Cash and bank deposits 51,518 44,725 38,972
----------------------------------------------------
Total current assets 82,708 59,437 63,427
----------------------------------------------------
Creditors: Amounts falling due within one year 26,483 16,180 16,461
Deferred revenue 20,030 16,646 19,660
NET CURRENT ASSETS 36,195 26,611 27,306
----------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 77,311 67,378 75,707
----------------------------------------------------
Creditors: Amounts falling due after more than 12 15 66
one year
Provision for liabilities and charges:
Deferred taxation 6,407 6,239 5,454
----------------------------------------------------
NET ASSETS 70,892 61,124 70,187
----------------------------------------------------
Called up share capital 1,588 1,517 1,514
Share premium account 30,196 18,071 17,936
Profit and loss account 39,108 41,536 50,737
----------------------------------------------------
TOTAL SHAREHOLDERS' FUNDS 70,892 61,124 70,187
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
CONSOLIDATED CASH FLOW STATEMENT (UK FORMAT)
(GBP in thousands)
<TABLE>
Year Ended Year Ended Year Ended
January 31, 1998 January 31, 1997 January 31, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES 17,767 12,135 9,725
Returns on investments and servicing of finance
Interest received 2,519 1,803 2,082
Interest paid (70) (21) (74)
--------------------------------------------------
Net cash inflow from returns on investment and 2,449 1,782 2,008
operating activities
Taxation
U.K corporation tax (paid) (599) (88) (1,562)
Overseas tax refunded (paid) (262) 70 (1,362)
--------------------------------------------------
Tax paid (861) (18) (2,924)
Capital expenditure and financial investment
Purchase of tangible fixed assets (8,263) (2,500) (8,643)
Purchase of software product assets - - (226)
Capitalised software product assets (5,688) (5,258) (9,882)
Purchase of own shares - - (5,002)
Disposal of own shares 748 - -
Disposal of tangible fixed assets 447 546 298
--------------------------------------------------
Net cash outflow from capital expenditure and (12,756) (7,212) (23,455)
financial investment
Acquisitions and disposals
Purchase of subsidiary undertaking (2,000) - (3,892)
Net cash acquired with subsidiary 961 - -
undertakings
Net cash outflow from acquisitions and disposals (1,039) - (3,892)
--------------------------------------------------
Cash inflow (outflow) before financing (6,546) 6,687 (18,538)
--------------------------------------------------
Financing
Issuance of ordinary shares, net of expenses 1,517 138 278
Capital element of finance lease obligations (65) (131) (295)
Bank loan 1,007 - -
--------------------------------------------------
NET CASH INFLOW (OUTFLOW) FROM FINANCING 2,459 7 (17)
--------------------------------------------------
INCREASE (DECREASE) IN CASH 8,019 6,694 (18,555)
- -------------------------------------------------------------------------------------------------------
</TABLE>
Translation of Foreign Currencies
- ---------------------------------
Assets and liabilities denominated in currencies other than G.B. pounds are
translated at exchange rates in effect at the balance sheet date. The closing
G.B. pound to U.S. dollar rates at January 31, 1998, 1997 and 1996 respectively
were GBP 1 = $1.64, GBP 1 = $1.60 and GBP 1 = $1.51, respectively. Revenue,
costs and expenses are translated using average rates. Monthly average G.B.
pound to U.S. dollar rates used during 1998 range between GBP 1 = $1.60 and GBP
1 = $1.67, and average GBP 1 = $1.64, GBP 1 = $1.58 and GBP 1 = $1.58 in 1998,
1997 and 1996 respectively. Translation adjustments resulting from the process
of translating financial statements denominated in currencies other than G.B.
pounds are dealt with through reserves. All other differences are charged
through the profit and loss account.
<PAGE> 18
Appendix IV
INFORMATION ON INTERSOLV
FINANCIAL INFORMATION ON INTERSOLV
The following information is summary only, and has been extracted without
material adjustment from the published audited consolidated accounts of
INTERSOLV for the two years ended April 30, 1997 and announcement made on June
1, 1998 of the results for the year ended April 30, 1998. All footnotes have
been omitted.
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands except share and per share data)
<TABLE>
Year Ended Year Ended Year Ended
April 30, 1998 April 30, 1997 April 30, 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
License Fees $94,122 $91,324 $89,147
Service Fees 102,358 69,089 56,166
Total Revenues 196,480 160,413 145,313
COST AND EXPENSES
Cost of products 5,193 12,429 15,649
Cost of services 56,409 35,077 26,091
Sales and marketing 72,457 73,123 64,026
Research and development 24,231 17,555 14,626
General and administrative 12,178 11,626 12,744
Non-recurring expense 17,468 28,933 13,600
-------------------------------------------------------------
TOTAL COSTS AND EXPENSES 187,936 178,743 146,736
-------------------------------------------------------------
OPERATING INCOME (LOSS) 8,544 (18,330) (1,423)
Other income (expense), net (312) (75) 1,040
INCOME (LOSS) BEFORE INCOME TAXES 8,232 (18,405) (383)
Provision for income taxes 2,717 2,761 3,328
-------------------------------------------------------------
NET INCOME (LOSS) $5,515 ($21,166) ($3,711)
Shares used in computing net income 22,433 20,119 19,348
(loss) per share - diluted
-------------------------------------------------------------
PRIMARY NET INCOME (LOSS) PER SHARE -
diluted $0.25 ($1.05) ($0.19)
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 19
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
As at As at As at
April 30, 1998 April 30, 1997 April 30, 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $34,082 $20,180 $28,215
Accounts receivable, net of
allowance for doubtful accounts 62,961 50,338 37,645
Prepaid expenses and other assets 7,663 6,156 7,237
------------------------------------------------------------
TOTAL CURRENT ASSETS 104,706 76,674 73,097
Software, net 4,184 4,278 22,670
Property and equipment, net 11,988 11,566 7,835
Notes receivable and other assets 11,987 3,499 7,315
------------------------------------------------------------
TOTAL ASSETS $132,865 $96,017 $110,917
LIABILITY AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued $43,464 $38,156 $30,791
expenses
Deferred revenue 26,269 20,471 18,799
------------------------------------------------------------
Total current liabilities 69,733 58,627 49,590
Long-term liabilities 5,855 6,554 7,817
------------------------------------------------------------
TOTAL LIABILITIES 75,588 65,181 57,407
Subordinated convertible notes 38 87 3,676
------------------------------------------------------------
STOCKHOLDER'S EQUITY 57,239 30,749 49,834
------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' $132,865 $96,017 $110,917
EQUITY
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOW
($ in thousands)
<TABLE>
Year Ended Year Ended
April 30, 1997 April 30, 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ($21,166) ($3,711)
Non-cash Items
Depreciation and amortisation 13,446 14,923
Deferred income taxes 158 2,735
Write down of software and intangible assets 22,535 2,386
Payment of restructuring/acquisition charges (3,247) (8,278)
Changes in assets and liabilities, net of effect
of acquisition
Accounts receivable (12,813) 924
Refundable Income Taxes - 580
Prepaid Expenses and other current assets 1,081 (2,380)
Accounts payable and accrued expenses 2,103 7,795
Deferred revenue 1,672 3,253
---------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,769 18,227
---------------------------------------------------------------
INVESTING ACTIVITIES
Additions to software (9,478) (12,951)
Additions to property and equipment (7,697) (5,721)
Sale/leaseback of equipment - 776
Other (209) 161
---------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (17,384) (17,735)
---------------------------------------------------------------
Financing activities:
Purchase of common stock for treasury (3,445) (264)
Purchase of common stock from TechGnosis - (4,800)
shareholders
Proceeds from sale of common stock, including 4,555 8,678
tax benefits
Payment of Q+E instalment liabilities - (1,107)
Net proceeds (repayment) of debt obligations 4,922 (1,062)
---------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,032 1,445
---------------------------------------------------------------
Effect of exchange rate changes on cash (452) (383)
---------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (8,035) 1,554
Cash and cash equivalents, beginning of year 28,215 26,661
---------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $20,180 $28,215
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
Appendix V
DEFINITIONS
<TABLE>
<S> <C>
"Affiliates" Officers, Directors and greater than 10%
shareholders
"Merger" the proposed U.S. statutory merger of
Micro Focus and INTERSOLV as described in this
announcement
"Merger Agreement" the definitive agreement and plan of
reorganization dated as of June 17, 1998
between Micro Focus, a wholly owned subsidiary
of Micro Focus and INTERSOLV which establishes
the terms of the Merger between INTERSOLV and
Micro Focus
"Micro Focus" or "the Company" Micro Focus Group Plc
"Micro Focus ADSs" American Depositary Shares each representing
5 Micro Focus Ordinary Shares
"Micro Focus Ordinary Shares" fully paid ordinary shares of 2p each in Micro
Focus
"new Micro Focus ADSs" American Depositary Shares each representing
5 new Micro Focus Ordinary Shares
"new Micro Focus Ordinary
Shares" the new Ordinary Shares of 2p each in Micro
Focus to be issued in connection with the
Merger
"INTERSOLV" INTERSOLV, Inc.
"INTERSOLV Stockholders" holders of common stock of $0.01 par value in
INTERSOLV
"U.S. GAAP" generally accepted accounting principles in
the United States
"U.S. SEC" the United States Securities & Exchange
Commission
</TABLE>
<PAGE> 22
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 19, 1998 By: /s/ Richard Van Hoesen
--------------------------------------
Richard Van Hoesen, Sr. Vice President
and Chief Financial Officer
