<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended January 31, 1999
MERANT plc
(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 _____
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(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 _____
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(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2 (b): 82-795.)
The number of the Company's ordinary shares outstanding as of July 31, 1999 was
144,074,608.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income
(in thousands of U.S. dollars, except share, ADS, per share and per ADS data)
(unaudited)
<TABLE>
Three months ended Nine months ended
January 31, January 31, January 31, January 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net revenue
Product revenue $48,587 $56,441 $142,191 $149,833
Maintenance revenue 25,363 22,692 75,074 63,811
Service revenue 21,767 21,756 60,886 58,394
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Total net revenue 95,717 100,889 278,151 272,038
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Cost of revenue
Cost of product revenue 4,269 4,519 9,973 10,294
Cost of maintenance revenue 5,904 5,212 18,534 15,459
Cost of service revenue 17,725 16,977 51,558 46,900
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Total cost of revenue 27,898 26,708 80,065 72,653
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Gross profit 67,819 74,181 198,086 199,385
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Operating expenses
Research and development 15,147 14,972 45,876 45,628
Sales and marketing 36,281 35,073 110,079 101,764
General and administrative 10,287 9,177 26,271 22,412
One time charges - - 49,662 176
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Total operating expenses 61,715 59,222 231,888 169,980
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Income (loss) from operations 6,104 14,959 (33,802) 29,405
Interest income, net 1,908 1,066 4,938 2,897
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Income (loss) before income taxes 8,012 16,025 (28,864) 32,302
Income taxes (2,800) (5,266) (998) (10,681)
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Net income (loss) 5,212 10,759 (29,862) 21,621
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Currency translation 852 (1,721) 4,738 (1,019)
adjustment
Comprehensive income (loss) $6,064 $9,038 ($25,124) $20,602
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Net income (loss) per share: basic $0.04 $0.08 $(0.21) $0.16
Net income (loss) per ADS: basic $0.18 $0.39 $(1.04) $0.79
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Shares used in computing basic net income
(loss) per share (thousands) 143,669 137,823 143,310 137,035
Shares used in computing basic net income
(loss) per ADS (thousands) 28,734 27,565 28,662 27,407
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Net income (loss) per share: diluted $0.04 $0.07 $(0.21) $0.15
Net income (loss) per ADS: diluted $0.18 $0.37 $(1.04) $0.75
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Shares used in computing diluted net income
(loss) per share (thousands) 143,726 145,618 143,310 149,149
Shares used in computing diluted net income
(loss) per ADS (thousands) 28,745 28,124 28,662 28,830
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Note: Share and per share data for all periods presented above reflect the
5-for-1 stock split of the Company's ordinary shares, which was effective as of
the close of business on March 13, 1998. Each American Depositary Share ("ADS")
represents five ordinary shares.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE> 3
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
January 31, April 30,
1999 1998
(Unaudited) (Unaudited)
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalentS $82,588 $82,256
Short-term investments 36,376 36,316
Accounts receivable, net 112,220 110,571
Inventories 1,975 1,038
Prepaid expenses and other assets 11,425 22,483
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Total current assets 244,584 252,664
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Fixed assets:
Property, plant and equipment, net 47,354 51,071
Goodwill, net 8,723 5,346
Software product assets, net 17,242 25,738
Other assets 7,670 9,124
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Total assets $325,573 $333,593
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Liabilities and shareholders' equity
Current liabilities:
Bank loans $4,546 $5,126
Accounts payable 11,539 15,781
Accrued employee compensation 22,262 30,675
Income taxes payable 12,067 13,116
Deferred revenue 67,601 59,117
Other current liabilities 35,593 22,112
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Total current liabilities 153,608 145,927
Long-term debt and other liabilities 4 650
Deferred income taxes 15,002 14,423
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Total liabilities 168,614 161,000
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Shareholders' equity:
Ordinary shares 4,799 4,640
Additional paid-in capital and other reserves 154,726 151,802
Unrealized gain on available-for-sale securities,
net of tax 85 44
Treasury stock (7,435) (7,769)
Retained earnings 7,519 32,045
Currency translation adjustment (2,731) (8,169)
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Total shareholders' equity 156,959 172,593
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Total liabilities and shareholders' equity $325,573 $333,593
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE> 4
Condensed Consolidated Statements of Cash Flow
(in thousands)
(unaudited)
<TABLE>
Nine months ended
January 31, January 31,
1999 1998
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<S> <C> <C>
Operating activities
Net (loss) income $(29,862) $21,621
Adjustments to reconcile net (loss) income to cash (used) by operations
Depreciation of fixed assets 8,336 9,564
Amortization of software product assets 9,525 10,651
Amortization of goodwill 2,633 1,459
Loss (gain) on disposals of fixed assets 5,391 (749)
Deferred income taxes 656 4,426
Changes in operating assets and liabilities:
(Increase) in accounts receivable (11,453) (30,808)
(Increase) in inventories (530) (236)
Decrease (increase) in prepaid expenses and other assets 6,940 (2,931)
(Decrease) in accounts payable (6,733) (2,115)
Increase in product royalties payable 135 581
(Decrease) increase in accrued employee compensation (3,674) 5,339
Increase in accrued payroll taxes 404 177
(Decrease) increase in income taxes payable (3,542) 4,340
Increase (decrease) in deferred revenue 11,672 (2,238)
Increase (decrease) in other current liabilities 17,786 (360)
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Net cash provided by operating activities 7,684 18,721
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Investing activities
Property, plant & equipment, net of capital lease obligations
incurred (5,824) (15,609)
Software product assets (6,037) (7,636)
Acquisition of subsidiaries, net of cash balances acquired (7,082) (229)
Available-for-sale securities 4,141 2,990
Own shares 335 1,190
Disposals of property, plant and equipment (13) 4
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Net cash (used) by investing activities (14,480) (19,290)
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Financing activities
Issuance of ordinary shares, net of expenses 4,824 8,393
Borrowings (2,459) 4,442
Repayment of capital leases (21) (63)
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Net cash provided by financing activities 2,344 12,772
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Effect of exchange rate changes on cash 581 (791)
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(Decrease) increase in cash (3,871) 11,412
Cash at beginning of period 86,459 60,638
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Cash at end of period $82,588 $71,760
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE> 5
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
MERANT plc (the "Company") is incorporated in England and Wales. Where
applicable, the term "Company" also includes the direct and indirect
subsidiaries of MERANT plc. The condensed 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
submission on Form 6-K is furnished on a voluntary basis, as the Company is not
required to report quarterly financial information to the U.S. Securities and
Exchange Commission (the "SEC").
Effective November 30, 1998, the Company elected to change its fiscal year end
and accounting reference date to April 30 from January 31. Consequently, the
results shown in this report are for the first nine months of the fiscal year
beginning May 1, 1998 and ending April 30, 1999.
Effective February 16, 1999, the Company changed its corporate name from "Micro
Focus Group Public Limited Company" to "MERANT plc".
The financial information at January 31, 1999 and for the three and nine month
periods ended January 31, 1999 and 1998 is unaudited, but includes all
adjustments the Company considers necessary for a fair presentation of its
financial position at such dates and the operating results and cash flows for
such periods. The year-end balance sheet at April 30, 1998 was derived from the
audited balance sheet of the Company as of January 31, 1998 and INTERSOLV, Inc.
("INTERSOLV") as of April 30, 1998, but does not include all disclosures
required by U.S. generally accepted accounting principles. Results for the three
and nine month periods ended January 31, 1999 are not necessarily indicative of
results that may be expected for the fiscal year ending April 30, 1999 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, 1998 included in the Company's Annual Report on Form 20-F which was filed
with the SEC on May 29, 1998, and the condensed consolidated financial
statements and notes thereto for the quarter ended April 30, 1998 included in
the Company's Transition Report on Form 20-F which was filed with the SEC on
February 26, 1999. In addition, these condensed consolidated financial
statements should be read in conjunction with the condensed consolidated
financial statements and notes thereto for the quarters ended July 31, 1998 and
October 31, 1998 included in the Company's Quarterly Reports on Form 6-K
submitted to the SEC on September 22, 1998 and January 12, 1999 and with the
audited consolidated financial statements of INTERSOLV, Inc. in U.S. format for
the fiscal year ended April 30, 1998 included in INTERSOLV's Annual Report on
Form 10-K filed with the SEC on July 9, 1998, as amended by Form 10-K/A filed
with the SEC on August 21, 1998 and the condensed consolidated financial
statements and notes thereto for the quarter ended July 31, 1998 included in
INTERSOLV's Quarterly Report on Form 10-Q filed with the SEC on September 10,
1998.
The financial information contained in this quarterly report does not constitute
statutory accounts as defined in section 240 of the UK Companies Act 1985. The
audited financial statements for the fiscal year ended January 31, 1998 have
been filed with the UK Registrar of Companies, and the auditors' reports on both
the U.S. and UK financial statements for the year ended January 31, 1998 were
unqualified.
<PAGE> 6
2. Earnings Per Share
The Company's ordinary shares have been listed on the London Stock Exchange
since 1983, and are currently listed under the symbol MRN. Since 1992, the
Company's ordinary shares also have been listed on the Nasdaq Stock Market in
the U.S. in the form of American Depositary Shares ("ADSs"), as evidenced by
American Depositary Receipts. The Company's current Nasdaq symbol is MRNT.
Effective as of the close of business on March 13, 1998, the Company undertook a
subdivision (or stock split) of its ordinary shares on a 5-for-1 basis. The
conversion ratio of the Company's ADSs has been adjusted such that each ADS
represents 5 ordinary shares. All share and per-share references included in
this report have been restated to reflect the impact of the above-mentioned
stock split.
3. Acquisitions
On May 15, 1998, the Company acquired all the share capital of its Italian
distributor, Micro Focus Italia, s.r.l., for total cash consideration of $4.3
million. On August 13, 1998, the Company acquired all the share capital of its
Australian distributor, Advanced Software Engineering Pty Ltd., for total cash
consideration of $2.4 million. These transactions are intended to be accounted
for as purchases under U.S. GAAP.
On September 24, 1998, the Company completed the acquisition of INTERSOLV, Inc.
("INTERSOLV"). The acquisition is intended to be accounted for as a pooling of
interests under U.S. GAAP. Under the terms of the agreement, each common share
of INTERSOLV was exchanged for 0.55 MERANT ADSs. In addition, each outstanding
option or right to purchase or acquire shares of INTERSOLV stock was assumed by
the Company and became an option or right to purchase or acquire MERANT ADSs,
with appropriate adjustments to the price and number of shares based on the
exchange ratio of 0.55 ADSs per INTERSOLV share. The merger was structured as a
tax-free reorganization under U.S. tax law. The Company issued approximately
12.6 million new MERANT ADSs (representing approximately 63.1 million new MERANT
ordinary shares) in exchange for INTERSOLV's common stock and share equivalents
outstanding, which at the time of the completion of the merger represented
approximately 46% of MERANT's share capital on a fully-diluted basis. Prior to
the merger, INTERSOLV was a public company listed on the Nasdaq National Market.
INTERSOLV was based in Rockville, Maryland and was a provider of software
solutions that facilitate the development, delivery and deployment of business
information systems. INTERSOLV's products and services were focused primarily in
the areas of automated software quality, data connectivity and enterprise
application renewal.
<PAGE> 7
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
condensed consolidated financial statements and notes thereto included in this
Part I, and with the audited consolidated financial statements and notes thereto
for the year ended January 31, 1998 included in the Company's Annual Report on
Form 20-F which was filed with the SEC on May 29, 1998, and the condensed
consolidated financial statements and notes thereto for the quarter ended April
30, 1998 included in the Company's Transition Report on Form 20-F which was
filed with the SEC on February 26, 1999. In addition, these condensed
consolidated financial statements should be read in conjunction with the
condensed consolidated financial statements and notes there to for the quarters
ended July 31, 1998 and October 31, 1998 included in the Company's Quarterly
Reports on Form 6-K submitted to the SEC on September 22, 1998 and January 12,
1999 and with the audited consolidated financial statements of INTERSOLV, Inc.
in U.S. format for the fiscal year ended April 30, 1998 included in INTERSOLV's
Annual Report on Form 10-K filed with the SEC on July 9, 1998, as amended by
Form 10-K/A filed with the SEC on August 21, 1998 and the condensed consolidated
financial statements and notes thereto for the quarter ended July 31, 1998
included in INTERSOLV's Quarterly Report on Form 10-Q filed with the SEC on
September 10, 1998.
RESULTS OF OPERATIONS
Net revenue for the third quarter of fiscal 1999 was $95.7 million compared with
$100.9 million for the quarter ended January 31, 1998. Excluding the effect of
one-time charges associated with the acquisition of INTERSOLV, net income for
the quarter ended January 31, 1999 was $5.2 million compared with $10.8 million
in the comparable prior year period, diluted earnings per ordinary share were
$0.04 compared with $0.07 and earnings per ADS were $0.18 compared with $0.37.
Including the effect of the one-time charges ($49.7 million pretax; $43.4
million after tax; $0.30 per share; and $1.51 per ADS), the Company's net loss
for the quarter was $42.3 million, net loss per ordinary share was $0.29 and net
loss per ADS was $1.47.
Net revenue for the first three quarters of fiscal 1999 increased 2% to $278.2
million from $272.0 million for the comparable nine-month period ended January
31, 1998. Excluding one-time charges, net income for the half year was $13.6
million compared with $21.6 million for the comparable period of fiscal 1998,
and diluted earnings per ADS were $0.47 compared with $0.75 in the comparable
prior year period. Excluding one-time charges, diluted earnings per ordinary
share for the half year were $0.09 per share compared with $0.16 for the
comparable prior year period.
Revenue
Net revenue for the third quarter of fiscal 1999 was 5% lower than the
corresponding quarter of the prior fiscal year, but 10% higher than the second
quarter of fiscal 1999. North American revenues were 22% below those reported in
the comparable prior year period, while international revenue was up 30%. The
weakness in North American revenues was caused by a decrease in the Company's
Year 2000 business, the continuing effects of the Company's sales force
reorganization and integration issues related to the INTERSOLV acquisition. The
Company's North American Year 2000 business continued to be affected by
increased competition, declining market prices and declining demand for
inventory and remediation product and services offerings. Product licensing
revenue for the quarter was down 14% over the comparable prior year period, but
increased 13% from the previous quarter ended October 31, 1998. Service revenue,
which was comprised of Year 2000 and other product support services, was flat
with the comparable prior year period and 14% higher than the preceding quarter
ending October 31, 1998. Maintenance revenue was up 12% from the comparable
prior year period and up 1% from the preceding quarter.
<PAGE> 8
For the first nine months of fiscal 1999, net revenue increased 2% over the
comparable prior year period. North American revenue was 9% lower than the
comparable prior year period and accounted for 59% of the Company's total
revenue. International revenue grew by 26% during the first half of the year and
contributed 41% of the Company's total revenue. Product revenue for the first
three quarters of fiscal 1999 was 5% lower than the first three quarters of
fiscal 1998, with service revenue up 4% and maintenance revenue up 18%.
There can be no assurance that the market for the Company's products and
services will grow in future periods at their historical rates of growth, that
certain segments of the Company's business will not decline, or that the Company
will be able to increase or maintain its market share in the future or achieve
its historical revenue growth rates.
Gross Profit
For the third quarter of fiscal 1999, gross profit as a percentage of net
revenue was 71%, which was three percentage points lower than the gross profit
percentage reported in the comparable prior year quarter, but one percentage
point above the 70% margin recorded in the second quarter of 1999. Through the
first nine months of the fiscal year, the Company's gross profit margin was 71%
compared with 73% for the first nine months of fiscal 1998. When compared with
the comparable prior year periods, the decrease in the Company's gross profit
margin for the quarter and year to date primarily reflected lower utilization
rates for consulting staff caused in part by a decrease in demand for Year 2000
services.
The Company's gross profit 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 also is
dependent on discounts selectively provided to customers in competitive sales
situations. In addition, gross margin may also be adversely affected by
expansion of the Company's consulting organization and the inability to deploy
its capacity to revenue generating projects. As a result of the above factors,
gross margin percentages may be difficult to predict, and gross margins may
fluctuate from current levels in future periods.
Operating Expenses
Research and development (R&D) expenses for the third quarter of fiscal 1999 of
$15.2 million were 1% higher than those reported in the comparable quarter of
fiscal 1998 and represented 16% of net revenue as compared to 15% for the prior
year period. R&D expenses for the quarter were 1% lower than those reported in
the second quarter of the current fiscal year for which such expenses
represented 17% of net revenue. For the first three quarters of the year, R&D
expenses totaled $45.9 million, which was essentially flat with R&D expenses
recorded during the same period of the prior fiscal year. The unchanged level of
expenses from the comparable prior year period was due to lower software product
amortization expense and negligible growth in compensation expenses and
overhead. Year to date, expenses were 16% of net revenue compared with 17% in
the comparable prior year period.
<PAGE> 9
The Company believes that ongoing development of new products and features is
required to maintain and enhance its competitive position. Accordingly, while
the Company intends to continue to control expenses where possible, the Company
anticipates that aggregate research and development 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 third quarter of fiscal 1999 were 3% higher
than the third quarter of fiscal 1998 and 4% lower than the second quarter of
fiscal 1999. Such expenses represented 38%, 35% and 43% of net revenue for the
third quarter of fiscal 1999, the third quarter of fiscal 1998 and the second
quarter of fiscal 1999, respectively.
Through the first nine months of the fiscal year, sales and marketing expenses
totaled $110.1 million and represented 40% of net revenue. This total was 8%
higher than the comparable prior year period, which represented 37% of net
revenue. The increase in sales and marketing expenses reflected sales force
expansion, higher commissions, and higher advertising and marketing expenses.
The Company believes that continued investment in sales, marketing, customer
support and promotional activities is essential to maintaining its competitive
position. In addition, the Company is expanding its sales and support staffs.
Accordingly, the Company anticipates that sales and marketing expenses will be
higher in future periods.
General and administrative (G&A) expenses for the third quarter of fiscal 1999
were 12% above the third quarter of the prior fiscal year and 26% higher than
the second quarter of the current fiscal year. G&A expenses represented 11%, 9%
and 9% of net revenue in the third quarter of fiscal 1999, third quarter of
fiscal 1998 and second quarter of fiscal 1999, respectively. The increase in G&A
expenses for the third quarter of 1999 over the comparable prior year period
reflected the combination of certain administrative functions pending completion
of the post-merger integration of these functions and certain investments in the
Company's infrastructure. Through the first nine months of the fiscal year G&A
expenses totaled $26.3 million and represented 9% of net revenue. In the
comparable prior year period, G&A expenses totaled $22.4 million and represented
8% of net revenue. The Company is investing to strengthen its infrastructure and
anticipates that aggregate G&A expenses will increase in future quarters.
Interest income for the third quarter of 1999 totaled $1.9 million and was 79%
higher than the comparable prior year period and 18% higher than the second
quarter of the current fiscal year. Through the first three quarters of the
current year, interest income totaled $4.9 million, up 70% from the comparable
prior year period. The year-over-year increase in interest income reflected
higher average cash balances and higher average interest rates.
<PAGE> 10
During the second quarter of the current fiscal year, the Company reported $49.7
million in non-recurring charges that were directly or indirectly a result of
the Company's acquisition of INTERSOLV. Aggregate direct transaction costs
totaling $24.5 million were incurred for investment banker fees, severance, the
cost of listing new shares on the London Stock Exchange and other professional
fees. Costs associated with future integration efforts totaled $25.2 million and
were primarily comprised of the write-off of redundant or impaired assets,
elimination of currency translation adjustments and severance costs. Below is a
summary of the Company's operating results for the first nine months of the
fiscal year excluding these non-recurring charges.
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Excluding one-time charges: Nine months ended January 31:
1999 1998
Income before income taxes ($000) $20,798 $32,302
Net income ($000) 13,564 21,621
Net income per ADS: diluted $ 0.47 $ 0.75
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LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1999, cash, cash equivalents and short-term investments totaled
$119.0 million compared with $118.6 million at April 30, 1998. This nominal
increase in cash reflected net cash flow from operations in excess of the
approximately $7.1 million expended to date for the acquisition and integration
of INTERSOLV. Of the $49.7 million of non-recurring charges recorded in the
second quarter related to the INTERSOLV acquisition, the Company expects to
expend approximately $12 million in cash during the next nine months.
The Company consumed $7.6 million in operating cash flow during the third
quarter as deal and acquisition related expenditures of INTERSOLV, along with an
$18.1 million increase in accounts receivable, exceeded cash contributed from
net income before non-cash charges for depreciation and amortization. Year to
date, the Company generated $7.7 million in cash from operating activities
reflecting income before one-time charges, depreciation, and amortization, and
an $11.7 million increase in deferred revenue. These favorable factors were
offset, in part, by the deal and integration related expenditures for the
acquisition and an $11.5 million increase in accounts receivable.
During the first nine months of fiscal 1999, the Company spent $5.8 million for
capital and leasehold improvements largely on the upgrade and expansion of its
information systems. This spending level is below the $15.6 million spent during
the first nine months of the prior fiscal year. For the current year, the
Company expects to fund additional capital and leasehold improvements from
existing cash balances or leasing arrangements as deemed appropriate.
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 operating cash requirements.
<PAGE> 11
YEAR 2000 CONSIDERATIONS
The Year 2000 problem is the result of the widespread practice since the early
days of computing of using only two digits to refer to a year (such as "98" for
"1998") instead of four digits in computer systems. When the Year 2000 arrives
or the computer system refers to dates after December 31, 1999, such systems
will interpret the two digits "00" as "1900" as opposed to "2000". Failure to
address this problem could cause results ranging from system failures to
erroneous calculations in date-dependent operations for dates falling after
December 31, 1999. The Company has instituted various projects to become Year
2000 ready. "Year 2000 ready" as used in this report means that the performance
or functionality of the Company's internal systems will not be significantly
affected by the dates prior to, during and after the Year 2000.
State of Readiness
The Company has developed and implemented an enterprise-wide plan to analyze and
address potential Year 2000 issues affecting its internal systems, its
interaction with third party vendors and suppliers, and its products and
services.
The Company has established a Year 2000 Project Team to implement a
comprehensive four-phase Year 2000 readiness plan addressing the Year 2000
readiness of the Company's internal systems. The Year 2000 readiness plan is
comprised of four phases (inventory, analysis, remediation and validation
phases). The inventory, analysis and remediation stages of the Year 2000
readiness plan have been substantially completed in all material respects with
respect to the Company's material internal systems, and the Company expects to
substantially complete the validation phase of the plan in all material respects
by August 31, 1999. The Year 2000 readiness plan covers IT systems (desktop,
laptop, servers, routers, hubs, switches, and remote access systems, operating
systems, software and critical business systems), non-IT embedded systems
(telephone, voice messaging, teleconferencing, data services and equipment, fax,
copiers and similar equipment.), facilities (elevators, security systems, card
access systems and similar systems), and the Company's vendors and suppliers. As
part of the inventory phase, the Company sought confirmation from its material
suppliers on the current Year 2000 readiness of their systems and/or their
intended time schedule for achieving Year 2000 readiness. During the remainder
of calendar 1999, the
Company will also be completing, reviewing and updating its contingency and
disaster recovery plans and preparing a detailed action plan for the crossover
of the Company into the next millenium.
<PAGE> 12
With respect to its software products, each of the Company's product business
units has completed a Year 2000 assessment of its currently offered products. In
preparing for the Year 2000 date change, the Company has adopted the Year 2000
compliance standard published by the British Standards Institute (BSI) - BSI
DISC PD2000-1 "A Definition of Year 2000 Conformity Requirements." As a result
of this assessment, the Company believes that the vast majority of its currently
offered products are Year 2000 compliant, and expects virtually all of its
remaining currently offered products to become compliant during calendar 1999
through new releases. In any event, the Company expects that all the then
current versions of its offered products will be Year 2000 compliant before the
end of calendar 1999. Because Year 2000 compliance is generally integrated into
its normal product development activities, the Company has not incurred and does
not expect to incur any significant incremental expenses in addressing this
issue in its product lines. The Company believes that a small number of
customers who receive product support from the Company are operating product
versions that may not be Year 2000 compliant or products that the Company has
replaced or intends to replace with comparable Year 2000 compliant products. The
Company believes that the vast majority of such customers are migrating and will
continue to migrate to compliant versions and products through new releases,
which the Company is strongly encouraging. In addition, certain former customers
may be operating non-compliant versions of products in respect of which the
Company's agreed-upon product support and warranty periods have expired. The
Company has not undertaken, and does not plan to undertake in the future, an
assessment of whether these former customers are taking appropriate steps to
address any related Year 2000 issues.
The Company does not expect customers who license or migrate to Year 2000
compliant versions of its products to experience any material Year 2000 failures
caused by such products. In addition, the Company believes that its licenses and
other agreements contain customary and appropriate limitations on the Company's
obligations with respect to any Year 2000 failures that may be caused by its
current or former products. However, there can be no assurance that the
Company's expectations and beliefs as to these matters will prove to be
accurate. Moreover, the Company's products are used in IT systems containing
third-party hardware and software, some of which may not be Year 2000 compliant.
Many of the Company's customers use legacy computer systems that are expected to
be particularly susceptible to Year 2000 compliance issues. Various commentators
have predicted that a significant amount of litigation may arise out of Year
2000 compliance issues. While the Company has not been subject to any Year 2000
product claims or lawsuits to date, there can be no assurance that customers or
former customers will not bring claims or lawsuits against the Company seeking
compensation for losses associated with Year 2000-related failures. A material
adverse outcome in a Year 2000 claim or lawsuit could have a material adverse
effect on the Company's business, financial condition and results of operations.
A small number of the products the Company sells are licensed from third
parties. Although the current versions of these products have generally been
warranted to the Company as being Year 2000 compliant, these products have
generally not been subjected to the same extensive Company testing as those
products developed or acquired by the Company. The Company is therefore working
with these third party suppliers to obtain assurance of Year 2000 compliance.
The Company has designated its website as the Company's "Year 2000 Internet
Website" under the terms of the Year 2000 Information and Readiness Disclosure
Act (the "Act") (S.2392). The information provided on past and present pages on
this website regarding the Year 2000 compliance of Company products has been
designated as "Year 2000 Readiness Disclosures." The pages on this website have
been and will continue to be the Company's primary means for communicating to
customers regarding the Year 2000 compliance of its products.
<PAGE> 13
Demand for Year 2000 Remediation Products and Services
The Company anticipates that demand in the Year 2000 product and service market
will decline, perhaps rapidly, in anticipation of or following the Year 2000,
and the demand for the Company's Year 2000 compliance products and services may
also decline significantly as a result of new technologies, competition or other
factors. In the quarter ended October 31, 1998, the Company's Year 2000 business
was affected by customers moving to the later stages of their remediation
processes, for which the Company did not have the appropriate products generally
available until November 1998. If these factors were to continue, the Company's
license revenue and professional service fees could be materially and adversely
affected.
Costs and Risks Associated with Year 2000 Issues; Contingency Plans
The Company currently does not anticipate that it will incur material operating
expenses or be required to invest heavily in internal system improvements as a
result of Year 2000 readiness issues. In addition, the Company has not incurred
and does not currently expect to incur any significant incremental expenses in
addressing this issue in its product and services. Total expenditures, excluding
personnel costs of existing staff, related to the Year 2000 readiness of the
Company's internal systems is not expected to be material. However, there can be
no assurance that the Company will not experience significant additional
expenses for unforeseen Year 2000 issues, including those out of the reasonable
control of the Company.
Although the Company believes that its Year 2000 readiness efforts are designed
to appropriately identify and address those Year 2000 issues that are within the
Company's control, there can be no assurance that the Company's efforts will be
fully effective or that Year 2000 issues will not have a material adverse effect
on the Company's business, financial condition or results of operations. The
novelty and complexity of the issues presented and the Company's dependence on
the preparedness of third parties are among the factors that could cause the
Company's efforts to be less than fully effective. Moreover, Year 2000 issues
present many risks that are simply beyond the Company's control, such as the
potential effects of Year 2000 issues on the economy in general and on the
Company's business partners and customers in particular. The Company intends to
continue to evaluate both existing and newly identified Year 2000 risks and to
develop and implement such further responsive measures as it deems appropriate.
The Company is developing a contingency plan and a disaster recovery plan, as
well an action plan for the crossover of the Company into the next millenium.
Such plans seek to minimize the impact of the Year 2000 problem on the Company's
business, financial condition and results of operations. During the remainder of
calendar 1999, the Company will be reviewing and updating such plans.
<PAGE> 14
EURO CONSIDERATIONS
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union adopted the euro as their legal currency. Beginning such date,
the participating countries established fixed euro conversion rates between
their existing sovereign currencies and the euro. The euro now trades on
currency exchanges and is available for non-cash transactions. As of May 1,
1999, the Company's internal systems have the ability to price and invoice
customers in the euro. The Company is also engaging in foreign exchange and
hedging activities in the euro. The Company will continue to modify the internal
systems that will be affected by this conversion during the current fiscal year
and fiscal 2000, and does not expect the costs of further system modifications
to be material. There can be assurance, however, that the Company will be able
to complete such modifications to comply with euro requirements, which could
have a material adverse effect on Company's business, financial conditions and
results of operations. The Company will continue to evaluate the impact of the
introduction of the euro on its foreign exchange and hedging activities,
functional currency designations and pricing strategies in the new economic
environment. In addition, the Company faces risks to the extent that banks and
vendors upon whom the Company relies and their suppliers are unable to make
appropriate modifications to support the Company's operations with respect to
euro transactions. While the Company will continue to evaluate the impact of the
euro, management does not believe its introduction will have a material adverse
effect upon the Company's business, financial condition or results of
operations.
Factors That May Influence Future Operating Results
The Company 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 of 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 1999 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.
Year 2000 Spending Policies. Many of the Company's customers and potential
customers could potentially implement policies that prohibit or strongly
discourage making changes or additions to their internal computer systems until
after January 1, 2000. If companies implement such a policy, we could experience
lower reveues if potential customers who might otherwise purchase our products
or services delay purchases until after January 1, 2000 in an effort to
stabilize their internal comoputer systems in order to cope with the Year 2000
problem or because their information technology budgets have been diverted to
address Year 2000 issues. If the Company's existing or potential customers delay
purchasing our products and services in preparation for Year 2000 problem, the
Company's business could be seriously harmed.
Integration of INTERSOLV; Synergies. In September 1998, the Company acquired all
the share capital of INTERSOLV. The Company acquired INTERSOLV with the
expectation that the acquisition will result in long-term strategic benefits.
Realization of these anticipated benefits depends in part on whether the
operations and administration of the companies are fully integrated in an
efficient and effective manner. There can be no assurance that this will occur.
The combined company's integration efforts have yet to be fully completed and
are still ongoing. The successful integration of MERANT and INTERSOLV will
require, among other things, integration of the product offerings of the
companies, sales and marketing and research and development efforts, the
cooperation and coordination of the business managers of the two companies, and
the integration of globally dispersed operations. It is possible that this
integration will not be accomplished smoothly or successfully, and that efforts
to achieve integration may require more time, expense and management attention
than anticipated. The diversion of management's attention from day-to-day
operations and any difficulties encountered in the integration process could
have a material adverse effect on the Company's business, financial condition
and results of operations. If the integration of the Company's and INTERSOLV's
operations is not successful, if the combined companies do not achieve the
operational efficiencies and other business synergies that are anticipated or if
those synergies are not achieved as quickly as may be expected by financial
analysts or at the level expected by financial analysts, or if the effect of the
merger on earnings per share is not in line with the expectation of financial
analysts, the market price of the MERANT Ordinary Shares or the MERANT ADSs
could be significantly and adversely affected.
<PAGE> 15
Fluctuations in Operating Results; Absence of Significant Backlog. 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 and the lengthy sales cycle, product life cycles, the
ability of the Company to 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 new or enhanced products or technologies, the
timing of product introductions or enhancements by the Company or its
competitors, technological changes in the software industry, changes in the mix
of distribution channels through which the Company's products are offered,
purchasing patterns of distributors and retailers, including customer budgeting
cycles, the quality 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, the cancellation of licenses during the
warranty period, non-renewal of maintenance agreements, the effects of extended
payment terms (particularly for international customers), economic conditions
generally or in various geographic areas, and other factors discussed in this
section.
A relatively high percentage of the Company's operating expenses is fixed over
the short term and if anticipated revenue for a fiscal quarter does not occur or
is delayed, the operating results for that quarter would be immediately and
adversely affected. The Company historically has operated with little product
backlog, because its products are generally shipped as orders are received. As a
result, revenue of the Company in any quarter will depend on the volume and
timing of, and the ability to fill, orders received in that quarter. 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.
Seasonality of Operating Results. The Company's revenue also is affected by
seasonal fluctuations resulting from lower sales that typically occur during the
summer months in Europe and other parts of the world. In addition, the Company
has historically experienced lower revenue for the first quarter of a fiscal
year than in the fourth quarter of the prior fiscal year. The Company typically
has recognized a high proportion of its quarterly revenue during the last month
of a fiscal quarter and significant fluctuations in new order revenue can occur
due to the timing of customer orders. Quarterly results therefore can vary to
the extent that sales for a quarter are delayed, particularly since a relatively
high proportion of the Company's expenses do not vary with revenue. 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.
Product Concentration. A large portion of the Company's total net revenue is
derived from products and related services for mainframe application development
in the COBOL language and COBOL compilers running on workstations and personal
computers. The Company expects that a substantial portion of its total net
revenue will be derived from such products and services in the future. As a
result, the Company's future operating results depend upon continued market
acceptance and use of the COBOL language. Any decline in the demand for or
market acceptance or use of the COBOL language or mainframes as a result of
competition, technological change or other factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
<PAGE> 16
Year 2000 and Euro Business and Compliance Issues. Information concerning the
Company's state of Year 2000 readiness, the demand for its Year 2000 remediation
products and services, the costs associated with its Year 2000 issues and its
contingency plans, and the Company's state of euro readiness are incorporated
herein by reference to the information included above in Item 2 to this Form 6-K
under the captions entitled "Year 2000 Considerations" and "Euro
Considerations".
Rapid Technological Change; Dependence on New Products. 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, technologies and services. The growth and financial performance of the
Company will depend in part on 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 in part on
its ability to attract and retain qualified employees. In the past, the Company
has experienced delays and increased expenses in developing certain 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 and with an adequate level of
performance and functionality, or to attract and retain qualified employees
could materially adversely affect the Company's business, financial condition
and results of operations.
Competition. The markets in which the Company competes are characterized by
rapid technological change and aggressive competition. 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 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 service 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 characterized 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.
<PAGE> 17
Susceptibility to General Economic Conditions. The Company's revenue and results
of operations are subject to fluctuations in the general economic conditions 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 the section entitled "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. In addition, the laws of certain
foreign countries in which the Company's products may be marketed may not
protect the Company's intellectual property rights to the same extent, as do the
laws of the United States and Europe. There can be no assurance that the factors
described above will not have an adverse effect on the Company's future
international revenue.
Dependence on Key Personnel. Several of the senior management personnel of the
Company are relatively new to the Company, including the Company's Chief
Executive Officer and Chief Financial Officer, and the Company's success will
depend in part on the successful assimilation and performance of these
individuals. Competition for qualified personnel in the software industry is
intense, and there can be no assurance that the Company will be able to attract
and retain a sufficient number of qualified personnel to conduct its business in
the future. The Company's success depends to a significant degree upon the
continued contributions of its key management, marketing, product development,
professional services and operational personnel, including key personnel of
acquired companies. The Company will not have employment agreements with most of
its key personnel, nor does it maintain key person life insurance on any of
these persons.
Management of Growth. Both the Company and INTERSOLV have recently experienced a
period of rapid growth in net revenue. This growth has placed a significant
strain on the financial, management, operational and other resources of the
combined companies, and if it continues is expected to continue to place a
significant strain on the Company's financial, management, operational and other
resources. There can be no assurance that the Company's management personnel,
systems, procedures and controls will be adequate to support the Company's
existing and future operations.
Volatility of Stock Price. The market price of the Company's securities has
experienced significant price volatility, particularly since the announcement of
the Company's proposed acquisition of INTERSOLV in June 1998, and such
volatility may occur in the future. Factors such as actual or anticipated
fluctuations in the Company's operating results, changes in financial estimates
by securities analysts, announcements of technological innovations, new products
or new contracts by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, 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.
<PAGE> 18
Recent and Future Acquisitions. The challenges of integrating the organizations
and operations of the Company and INTERSOLV have been compounded by ongoing
efforts associated with the integration of recent acquisitions by both
companies, including the acquisitions by the Company of Millennium UK Limited in
April 1997, XDB Systems, Inc. in January 1998, Micro Focus Italia S.r.L. in May
1998 and Advanced Software Engineering Pty. Ltd. in August 1998 and the
acquisition by INTERSOLV of SQL Software, Ltd. in March 1998. The Company has
also announced its intention to acquire Essential Software, Inc. (dba The
Marathon Group) in August 1999. The Company is still in the process of
integrating the operations acquired in these transactions with its own. There
can be no assurance that the anticipated benefits of recently concluded business
combinations will be realized. In addition, these acquisitions have required
significant additional management resources and attention. The Company expects
to continue growing its business through acquisitions. If the Company is
unsuccessful in integrating and managing the recently acquired businesses or
other businesses it may acquire in the future, the Company's business, financial
condition and results of operations could be adversely affected in future
periods.
Enforceability of U.S. Judgments. The Company is a public limited company
organized under the laws of England and Wales. Judgments of U.S. courts,
including judgments against the Company, predicated on the civil liability
provisions of the federal securities laws of the United States, may not be
enforceable in English courts.
Exchange Rate Fluctuations
Revenue, costs and expenses arising in currencies other than U.S. dollars are
translated using average exchange rates for the applicable period. 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, while its costs are
incurred approximately equally in U.S. dollars and other currencies,
predominantly GB pounds. Consequently, fluctuations in exchange rates,
particularly between the U.S. dollar and the GB pound, may have a significant
impact on the Company's operating results, notably when expressed in GB pounds.
During the third quarter of fiscal 1999, fluctuations between the U.S. dollar
and the GB pound were not significant, and net exchange rate gains or losses on
operational transactions were immaterial.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE> 19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In December 1998 and January 1999, seven class action securities complaints were
filed in the United States District Court for the Southern District of New York
against the Company and certain of its officers and directors. The Court ordered
the seven cases consolidated, appointed lead plaintiffs and lead counsel, and
ordered the filing of a consolidated complaint, which was filed on June 9, 1999.
The lead plaintiffs seek to have the matter certified as a class action of
purchasers of the American Depository Shares of the Company during the period
from June 17, 1998 to November 12, 1998, including the former shareholders of
INTERSOLV who acquired ADSs in connection with the merger involving the two
companies. The consolidated complaint alleges various violations of the federal
securities laws and seeks unspecified compensatory damages for alleged failure
to disclose material nonpublic information concerning the Company's business
condition and prospects.
The Company has filed a motion to transfer the matter to the Northern District
of California. The Company intends to defend all of its litigation vigorously.
However, due to the inherent uncertainties of litigation, the Company cannot
accurately predict the ultimate outcome of the litigation. Any unfavorable
outcome of litigation could have an adverse impact on the Company's business,
financial condition and results of operations.
Item 2 - Changes In Securities and Use of Proceeds
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
An Extraordinary General Meeting of the Company was held on February 4, 1999
(the "Meeting"). At the Meeting, the following resolution was approved, in
accordance with the Company's Articles of Association, by a show of hands of
those shareholders (or persons holding proxies) voting in person at the Meeting:
Special Resolution
THAT the name of the Company be changed to MERANT plc, and that the
Company's Memorandum and Articles of Association be amended to reflect
such change in the Company's name.
At the Meeting, in accordance with the Company's Articles of Association and UK
practice, there was not a tabulation of the exact number of votes cast (in
person or by proxy) for, against or withheld with respect to any resolution, or
the number of abstentions and brokers non-votes as to each such resolution. As a
foreign private issuer, the Company is not subject to the proxy solicitation
rules specified in Regulation 14A under the Securities Exchange Act of 1934, as
amended.
<PAGE> 20
Item 5 - Other Information
Effective December 1, 1998, Martin Waters resigned as the President and Chief
Executive Officer of the Company, and Gary Greenfield became the President and
Chief Executive Officer of the Company.
Effective December 11, 1998, Kenneth Sexton became Chief Financial Officer of
the Company, and the former Chief Financial Officer, Richard Van Hoesen, became
the general manager of the Company's Application Creation and Transformation
business unit.
Effective November 30, 1998, the Company changed its fiscal year end from
January 31 to April 30. A transition report on Form 20-F covering the interim
transition period from February 1, 1998 to April 30, 1998 was filed with the SEC
on February 26, 1999.
Effective February 16, 1999, the Company changed its corporate name from "Micro
Focus Group Public Limited Company" to "MERANT plc".
J. Sidney Webb, a non-executive director of the Company, died on March 24, 1999.
Item 6 - Exhibits
No exhibits are submitted herewith.
<PAGE> 21
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.
MERANT plc
(Registrant)
Date: August 24, 1999 By: /s/ Kenneth A. Sexton
---------------------------------------
Kenneth Sexton
Chief Financial Officer
