<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, 2000
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
----- -----
(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.)
As of February 29, 2000, the number of MERANT's ordinary shares outstanding was
149,290,816.
<PAGE> 2
TABLE OF CONTENTS*
-----------------
PART I - FINANCIAL INFORMATION Page
Item 1 Financial statements 1
Item 2 Management's discussion and analysis of financial 7
condition and results of operations
Item 3 Quantitative and qualitative disclosures about market risk 18
PART II - OTHER INFORMATION
Item 1 Legal proceedings 19
Item 2 Changes in securities and use of proceeds 19
Item 3 Defaults upon senior securities 19
Item 4 Submission of matters to a vote of security holders 19
Item 5 Other information 19
Item 6 Exhibits 19
Signatures 20
*The item numbers in this Report of Foreign Issuer on Form 6-K correspond to
those of Form 10-Q.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income
(in thousands, except per share and per ADS data)
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Three months Three months Nine months Nine months
ended ended ended ended
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Net revenue
License fees $44,224 $48,587 $133,292 $142,191
Maintenance subscriptions 28,450 25,363 80,469 75,074
Training and consulting 15,916 21,767 54,591 60,886
- --------------------------------------------------------------------------------------------------------------------
Total net revenue 88,590 95,717 268,352 278,151
- --------------------------------------------------------------------------------------------------------------------
Cost of revenue
Cost of license fees 2,212 4,269 7,040 9,973
Cost of maintenance subscriptions 5,371 5,904 17,075 18,534
Cost of service revenue 14,165 17,725 43,812 51,558
- --------------------------------------------------------------------------------------------------------------------
Total cost of revenue 21,748 27,898 67,927 80,065
- --------------------------------------------------------------------------------------------------------------------
Gross profit 66,842 67,819 200,425 198,086
- --------------------------------------------------------------------------------------------------------------------
Operating expenses
Research and development 14,283 15,147 44,192 45,876
Sales and marketing 41,609 36,281 121,707 110,079
General and administrative 7,483 9,463 22,102 23,939
One time charges - - - 49,662
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 63,375 60,891 188,001 229,556
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before goodwill amortization 3,467 6,928 12,424 (31,470)
Goodwill amortization 2,377 824 5,101 2,332
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 1,090 6,104 7,323 (33,802)
Interest income, net 1,365 1,908 3,156 4,938
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 2,455 8,012 10,479 (28,864)
Income taxes (883) (2,800) (3,772) (998)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $1,572 $5,212 $6,707 ($29,862)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) per share: basic $0.01 $0.04 $0.05 ($0.21)
Net income (loss) per ADS: basic $0.05 $0.18 $0.23 ($1.04)
- --------------------------------------------------------------------------------------------------------------------
Shares used in computing basic net income 146,466 143,669 144,826 143,310
(loss) per share
Shares used in computing basic net income 29,293 28,734 28,965 28,662
(loss) per ADS
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) per share: diluted $0.01 $0.04 $0.05 ($0.21)
Net income (loss) per ADS: diluted $0.05 $0.18 $0.22 ($1.04)
- --------------------------------------------------------------------------------------------------------------------
Shares used in computing diluted net income 156,888 143,726 152,016 143,310
(loss) per share
Shares used in computing diluted net income 31,378 28,745 30,403 28,662
(loss) per ADS
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Each American Depositary Share, or ADS, represents five ordinary shares.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE> 4
Condensed Consolidated Balance Sheets
(in thousands)
- --------------------------------------------------------------------------------
January 31, April 30,
2000 1999
(unaudited) (audited)
- --------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $84,933 $86,580
Short-term investments 17,976 34,804
Accounts receivable, net 93,466 111,317
Prepaid expenses and other assets 11,022 13,485
- --------------------------------------------------------------------------------
Total current assets 207,397 246,186
- --------------------------------------------------------------------------------
Fixed assets:
Property, plant and equipment, net 50,012 46,090
Goodwill, net 44,135 10,239
Software product assets, net 13,587 17,007
Other assets 2,529 3,560
- --------------------------------------------------------------------------------
Total assets $317,660 $323,082
- --------------------------------------------------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Borrowings $1,412 $2,716
Accounts payable 9,188 12,150
Accrued employee compensation 15,218 24,352
Income taxes payable 9,745 18,325
Deferred revenue 61,955 69,155
Other current liabilities 30,508 29,869
- --------------------------------------------------------------------------------
Total current liabilities 128,026 156,567
Deferred income taxes 16,498 14,304
- --------------------------------------------------------------------------------
Total liabilities $144,524 170,871
- --------------------------------------------------------------------------------
Shareholders' equity:
Ordinary shares 4,846 4,691
Additional paid-in capital and other reserves 168,254 154,868
Treasury stock (7,179) (7,552)
Retained earnings 15,557 8,850
Accumulated other comprehensive loss (8,342) (8,646)
- --------------------------------------------------------------------------------
Total shareholders' equity $173,136 152,211
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity $317,660 $323,082
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 5
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
- --------------------------------------------------------------------------------
Nine months Nine months
ended ended
January 31, January 31,
2000 1999
- --------------------------------------------------------------------------------
Operating activities
Net income (loss) $6,707 ($29,862)
Adjustments to reconcile net income
(loss) to cash provided by operations:
Depreciation of fixed assets 8,324 8,336
Amortization of software product assets 15,454 12,158
and other intangibles
Loss on disposals of fixed assets - 5,391
Deferred income taxes 2,321 656
Changes in operating assets and liabilities (7,384) 11,005
Other items 807
- --------------------------------------------------------------------------------
Net cash provided by operating activities 26,229 7,684
- --------------------------------------------------------------------------------
Investing activities
Purchases of property, plant & equipment (12,247) (5,824)
Software product assets and other intangibles (6,933) (6,037)
Acquisition of subsidiaries, net of cash (38,459) (7,082)
balances acquired
Sale of short-term securities 16,828 4,141
Other items 827 (13)
- --------------------------------------------------------------------------------
Net cash used by investing activities (39,984) (14,815)
- --------------------------------------------------------------------------------
Financing activities
Issuance of ordinary shares, net of expenses 13,541 4,844
Own shares 373 335
Repayment of borrowings (1,196) (2,480)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 12,718 2,699
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash (610) 561
- --------------------------------------------------------------------------------
(Decrease) in cash (1,647) (3,871)
Cash at beginning of period 86,580 86,459
- --------------------------------------------------------------------------------
Cash at end of period 84,933 $82,588
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 6
Notes to Consolidated Financial Statements
(unaudited)
1. Basis of Presentation
MERANT plc is a United Kingdom corporation and is registered in England and
Wales. This submission on Form 6-K is furnished on a voluntary basis, because
MERANT is not required to report quarterly financial information to the SEC as a
foreign private issuer.
These condensed consolidated financial statements are stated in U.S.
dollars and are prepared under U.S. generally accepted accounting principles
(GAAP) for interim financial information. They have been prepared in accordance
with SEC instructions and should be read in conjunction with:
* the audited consolidated financial statements and notes for the year
ended April 30, 1999, included in the Annual Report on Form 20-F
submitted to the SEC on November 1, 1999, and
* the condensed consolidated financial statements and notes for the
quarters ended July 31, 1999 and October 31, 1999, included in the
quarterly reports on Form 6-K submitted to the SEC on December 16 and
17, 1999, respectively.
The financial information at January 31, 2000 and for the three-month and
nine-month periods ended January 31, 2000 and 1999 is unaudited, but includes
all normal, recurring adjustments which are, in management's opinion, necessary
for a fair presentation of our results for the interim periods presented. The
year-end balance sheet at April 30, 1999 has been derived from the audited
balance sheet as of April 30, 1999, but does not include all disclosures
required by U.S. GAAP. Other information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted, as permitted by SEC regulations. MERANT believes that the
disclosures are adequate to ensure that the information presented is not
misleading.
Results for the three-month and nine-month periods ended January 31, 2000
are not necessarily indicative of results that may be expected for the fiscal
year ended April 30, 2000 or any future interim or full-year period.
The financial information contained in this quarterly report does not
constitute statutory accounts as defined in section 240 of the U.K. Companies
Act 1985. The figures for the year ended April 30, 1999 are based on the audited
financial statements which have been filed with the U.K. Registrar of Companies.
The auditors' reports on both the U.S. and U.K. financial statements for that
year were unqualified.
Effective the first quarter of fiscal 2000, we made two presentational
changes to our Income Statement. Revenue is analyzed between license fees,
maintenance subscriptions, and training and consulting. These new descriptions
have replaced the previous descriptions of product revenue, maintenance revenue
and service revenue, respectively, and do not represent any changes to the
actual numbers presented. Also, the presentation of operating costs was amended
to separately identify amortization of goodwill, which previously had been
included in general and administrative costs. Prior year data has been restated
to conform to the revised presentation. None of these presentational changes
affects net income (loss).
2. Business combinations
During the quarter, MERANT completed the acquisition of EnterpriseLink
Technology Corporation, a privately-held supplier of enterprise extension
software based in Campbell, California. The total cash consideration payable for
this transaction is up to approximately $22 million. MERANT also assumed
EnterpriseLink stock options outstanding as of the closing which converted into
stock options to acquire up to approximately 516,500 MERANT ordinary shares.
4
<PAGE> 7
MERANT also acquired Trillium Software Corporation, a privately-held
supplier of change management software based in Eden Prairie, Minnesota, and
Northern Software Partners AS, MERANT's distributor for the Nordic region, based
in Oslo, Norway. The cash consideration payable in connection with these two
acquisitions is not material to the MERANT group taken as a whole.
These three transactions will be accounted for using the purchase method of
accounting.
3. Earnings per share
The following table discloses the numerators and denominators used in the
computation of net income (loss) per ordinary share and net income (loss) per
ADS equivalent. Each ADS represents five ordinary shares.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands) Three months Three months Nine months Nine months
ended ended ended ended
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
Numerator for basic and diluted net income (loss) per share:
Net income (loss) $1,572 $5,212 $6,707 ($29,862)
Denominator for basic net income (loss) per share:
Weighted average shares outstanding 146,466 143,669 144,826 143,310
Dilutive share options 10,422 57 7,190 -
Denominator for diluted net income (loss) per share: 156,888 143,726 152,016 143,310
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per ADS:
Numerator for basic and diluted net income (loss) per ADS:
Net income (loss) $1,572 $5,212 $6,707 ($29,862)
Denominator for basic net income (loss) per ADS:
Weighted average ADS equivalents outstanding 29,293 28,734 28,965 28,662
Dilutive share options 2,085 11 1,438 -
Denominator for diluted net income (loss) per ADS: 31,378 28,745 30,403 28,662
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. Comprehensive Income (loss)
MERANT's total comprehensive income (loss) was as follows:
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
(in thousands) Three months Three months Nine months Nine months
ended ended ended ended
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net income (loss) $1,572 $5,212 $6,707 ($29,862)
Currency translation adjustment (3,882) 852 75 4,738
Unrealised loss on available-for-sale - - 229 -
securities, net of tax
- ----------------------------------------------------------------------------------------------------------
Comprehensive income (loss) ($2,310) $6,064 $7,011 ($25,124)
</TABLE>
5. Segments
MERANT operates in four solution areas. There have been no differences
since MERANT's last annual report in the basis of measuring solution area profit
or loss, nor have there been any material changes in the amount of assets for
any solution area. Revenue and operating income (loss) for each solution area is
as shown below.
5
<PAGE> 8
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Three months Three months Nine months Nine months
ended ended ended ended
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Net revenue
Application Creation and Transformation $40,156 $47,048 $119,068 $138,343
Application Development Management 30,611 28,609 90,041 80,913
Enterprise Data Connectivity 10,371 9,960 32,098 31,390
Enterprise Consulting Solutions 7,452 9,768 27,145 25,693
Discontinued - 332 - 1,812
- --------------------------------------------------------------------------------------------------------------------
$88,590 $95,717 $268,352 $278,151
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
Application Creation and Transformation $10,440 $10,510 $26,667 $30,991
Application Development Management 6,996 7,077 21,810 13,332
Enterprise Data Connectivity 2,007 1,802 6,120 5,400
Enterprise Consulting Solutions (904) 3,227 1,326 2,176
Discontinued - 332 898
- --------------------------------------------------------------------------------------------------------------------
$18,539 $22,948 $55,923 $52,797
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table reconciles the combined income from operations of the
reported solution areas to income (loss) before income taxes:
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Three months Three months Nine months Nine months
ended ended ended ended
January 31, January 31, January 31, January 31,
2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------------------
Solution area income from operations $18,539 $22,948 $55,923 $52,797
Corporate non-allocated costs (17,449) (16,844) (48,600) (36,937)
Non-recurring charges - - - (49,662)
Interest income, net 1,365 1,908 3,156 4,938
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $2,455 $8,012 $10,479 ($28,864)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
6. Contingent liability
In December 1998 and January 1999, seven class action securities complaints
were filed in the U.S. District Court for the Southern District of New York
against MERANT 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 ADSs of MERANT 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 MERANT's business condition and prospects.
In June 1999, MERANT filed a motion to transfer the matter to the Northern
District of California, and the Court granted MERANT's motion in November 1999.
The action was transferred in December 1999 to the Northern District of
California. MERANT intends to move to dismiss the action at the appropriate time
and to defend all of its litigation vigorously. However, due to the inherent
uncertainties of litigation, MERANT cannot accurately predict the ultimate
outcome of the litigation. Any unfavorable outcome of litigation could have an
adverse impact on MERANT's business, financial condition and results of
operations.
6
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with:
* the condensed consolidated financial statements and notes included in
this Part I;
* the audited consolidated financial statements in U.S. format for the
fiscal year ended April 30, 1999, included in the Annual Report on
Form 20-F submitted to the SEC on November 1, 1999; and
* the condensed consolidated financial statements and notes for the
quarters ended July 31, 1999 and October 31, 1999 included in the
quarterly report on Form 6-K submitted to the SEC on December 16 and
17, 1999, respectively.
RESULTS OF OPERATIONS
Revenue - Third fiscal quarter
Total net revenue for the third quarter of fiscal 2000 was $88.6 million, a
decrease of 7% relative to the third quarter of fiscal 1999. The decline in net
revenue was the result of lower demand for our Year 2000 products and services.
Excluding revenue from Year 2000 products and services, total net revenue
increased by 4% over the comparable prior year period. Revenues from Year 2000
products and services represented 5% of total revenue for the third quarter of
fiscal 2000, down from 16% in the comparable prior year quarter.
Revenue by solution area: Our Application Development Management (ADM) and
Enterprise Data Connectivity (EDC) solution areas reported growth for the third
quarter of fiscal 2000 relative to the same quarter of fiscal 1999. Our
Application Creation and Transformation (ACT) and Enterprise Consulting
Solutions (ECS) solution areas declined, reflecting the decrease in demand for
Year 2000 products and services.
Revenue by geography: North American revenue for the third quarter of
fiscal 2000 decreased by 5% relative to that of the prior fiscal year.
International revenue for the current quarter decreased by 11% relative to the
comparable prior year period. This decline in both geographies is mainly
attributable to decreases in revenue for our ACT and ECS solution areas caused
by lower demand for Year 2000 products and services.
Revenue by product type: License fee revenue for the third quarter of
fiscal 2000 decreased by 9% relative to the comparable prior year period.
Excluding the decline in Year 2000 product and service revenue, license fee
revenue increased 1% over last year's third quarter. Maintenance subscriptions
for the third quarter of fiscal 2000 increased 12% relative to the comparable
prior year period. Training and consulting revenue declined by 27% from the
third quarter of fiscal 1999, primarily as a result of a decrease in revenue
generated for Year 2000 services.
Revenue - First nine months
Total net revenue for the first nine months of fiscal 2000 was $268.4
million, a decrease of 4% compared to the first nine months of fiscal 1999.
Excluding net revenue from Year 2000 products and services, total net revenue
for the first nine months of fiscal 2000 increased 6% compared to the first nine
months of fiscal 1999. Year 2000 products and services represented 8% of total
net revenue, down from 16% for the first nine months of the prior fiscal year.
7
<PAGE> 10
Revenue by solution area: Our ADM, EDC and ECS solution areas each reported
revenue increases in the first nine months of fiscal 2000. Our ACT solution area
recorded a decline of 14%, which was principally attributable to the decline in
revenue generated by our Year 2000 products and services.
Revenue by geography: North American net revenue for the first nine months
of fiscal 2000 was 6% lower than the comparable prior year period and accounted
for 58% of MERANT's total net revenue, compared to 59% of total net revenue in
the first nine months of the prior fiscal year. The decline in North America
revenue is mainly attributable to lower revenues from our Year 2000 product
offerings. International revenue was substantially unchanged from the prior year
period.
Revenue by product type: License fee revenue was 6% lower than in the first
nine months of fiscal 1999. Maintenance subscriptions increased 7%, and training
and consulting revenue was 10% lower. The decrease in license fee and consulting
revenue is the result of decreased demand for Year 2000 products and services.
There can be no assurance that the market for MERANT's products and
services will continue to grow as it has in the past, or that MERANT will be
able to increase or maintain its share of that market in the future or achieve
its own historical rates of revenue growth.
Gross Profit
For the third quarter of fiscal 2000, gross profit increased to 75% of
total net revenue, compared to 71% reported in the comparable quarter of fiscal
1999. Through the first nine months of fiscal 2000, MERANT's gross profit margin
was 75% compared with 71% for the first nine months of fiscal 1999. Margins
improved as a result of improved consulting margins combined with other savings
realized from our merger consolidation program.
Our 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 decline if we expand our consulting organization and
are unable to deploy the increased capacity to revenue generating projects. As a
result of the above factors, gross margin may be difficult to predict, and may
fluctuate from current levels in future periods.
Operating Expenses
Research and development expenses for the third quarter of fiscal 2000 were
6% lower than those reported in the third quarter of fiscal 1999 and represented
16% of total net revenue compared to 17% in the prior year's third quarter. For
the first nine months of fiscal 2000, research and development expenses were 4%
lower than those recorded in the first nine months of fiscal 1999. The decrease
in expenditure relative to the comparable prior year period was due to savings
made from the INTERSOLV merger and negligible growth in compensation expenses
and overhead. We believe that ongoing development of new products and features
is required to maintain and enhance our competitive position. Accordingly, while
we intend to continue to control expenses where possible, we anticipate that
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 quarter ended January 31, 2000 were
15% higher than the third quarter of fiscal 1999. For the first nine months of
the current year, sales and marketing expenses were 11% higher than the
comparable prior year period, and represented 45% of total net revenue, compared
to 40% one year ago. The increase in sales and marketing expenses reflected
sales force expansion, higher commissions, and higher advertising and marketing
expenses, and increases in sales and marketing expenses were primarily focused
on MERANT's e-business solutions. We believe that continued investment in sales,
marketing, customer support and promotional activities is essential to
maintaining our competitive position. In addition, we are expanding our sales
8
<PAGE> 11
and support staffs. Accordingly, we anticipate that sales and marketing expenses
will be higher in future periods, although higher sales and marketing expenses
may not be directly related to the level of revenue realized in future quarters.
General and administrative expenses for the quarter ended January 31, 2000
were 21% lower than the third quarter of fiscal 1999. For the first nine months
of the current fiscal year, general and administrative expenses were 8% lower
than the comparable prior year period, and represented 8% of total net revenue,
compared to 9% for the comparable prior year period. This decline reflects cost
savings which we have realized as a result of our merger consolidation program.
There can be no assurance that general and administrative costs will continue to
decline in future quarters.
Charges for the amortization of goodwill for the quarter ended January 31,
2000 were $2.4 million compared to $0.8 million in the third quarter of 1999, an
increase of 188%. For the first nine months of the current fiscal year, goodwill
amortization charges were $5.1 million compared to $2.3 million, an increase of
118%, and represented 2% of total net revenue, compared to 1% for the comparable
prior year period. The current charge for amortization includes appropriate
provisions against the goodwill that arose on the acquisitions made during the
current fiscal quarter. Amortization charges are expected to rise in the fourth
quarter as a result of those acquisitions.
Income
Pre-tax income in the third quarter of fiscal 2000 was $2.5 million,
compared to $8.0 million in the third quarter of fiscal 1999. Income in the
third quarter of fiscal 2000 was adversely impacted by the delay in closing
anticipated sales transactions by the end of the quarter. MERANT's tax rate for
the first nine months of fiscal 2000 was 36%. In the first nine months of the
prior fiscal year, the tax rate was -3%, a rate significantly distorted by the
inclusion of the non-recurring merger costs booked in the second quarter.
Excluding those non-recurring charges, the tax rate in the comparable prior year
period was 35%. The income tax expense is based on our estimate of the effective
tax rate for the full fiscal year.
Net income in the third quarter of fiscal 2000 (excluding goodwill
amortization and one-time charges) was $3.9 million, compared to $6.0 million in
the third quarter of the prior year. For the first nine months of fiscal 2000,
net income (excluding goodwill amortization and one time charges) was $11.8
million, compared to $15.9 million in the first nine months of fiscal 1999.
Net income (including goodwill amortization and one-time charges) was $1.6
million in the third quarter of fiscal 2000, compared to $5.2 million in the
third quarter of the prior year. Diluted earnings per ordinary share were $0.01
for the third quarter of fiscal 2000, compared to $0.04 in the comparable prior
year quarter, and diluted earnings per ADS were $0.05 compared to $0.18 in the
prior year quarter. For the first nine months of fiscal 2000, net income was
$6.7 million, compared to a net loss of $29.9 million in the first nine months
of fiscal 1999. Diluted earnings per ordinary share were $0.04, compared to a
loss of $0.21 in the first nine months of fiscal 1999, and diluted earnings per
ADS were $0.22 compared with a loss per ADS of $1.04, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 2000, cash, cash equivalents and short-term investments
totaled $102.9 million, compared to $121.4 million at April 30, 1999, a decrease
of $18.5 million. This compares to an increase of $0.3 million in the first nine
months of the prior fiscal year.
In the current nine-month period, cash of $26.2 million was generated from
operating activities. Approximately $38.5 million of cash was used for the
acquisitions of The Marathon Group, EnterpriseLink, Trillium and NSP in the
first nine months of the current fiscal year. Investment in property, plant and
equipment totaled $12.2 million in the first nine months of fiscal 2000,
compared to $5.8 million in the first nine months of fiscal 1999. We also
invested $6.9 million in capitalized software in the first nine months of fiscal
2000, compared to $6.0 million in the first nine months of fiscal 1999.
Financing activities in the first nine months of fiscal 2000 produced cash
of $12.7 million, compared to $2.7 million in the first nine months of the prior
fiscal year. Funds received from the exercise of employee share options
contributed $13.5 million in the first nine months of the current fiscal year.
9
<PAGE> 12
MERANT has a line of credit under which unsecured financing of up to $8.0
million is available until January 2001. At January 31, 2000, borrowings
totaling $1.4 million were outstanding against this line of credit, compared to
$1.5 million at the beginning of the third fiscal quarter.
MERANT 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.
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. For example, when
the computer system refers to dates after December 31, 1999, computer 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. MERANT has instituted various projects to become Year 2000
ready. "Year 2000 ready" as used in this report means that the performance or
functionality of our internal systems will not be significantly affected by the
dates prior to, during and after the Year 2000.
State of Readiness
MERANT 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.
We established a Year 2000 Project Team to implement a comprehensive Year
2000 readiness plan addressing the Year 2000 readiness of our internal systems.
This plan consisted of four phases (inventory, analysis, remediation and
validation), and covered:
* IT systems (desktop, laptop, servers, routers, hubs, switches, 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)
* our vendors and suppliers
As of September 30, 1999, we completed the four phases of the plan in all
material respects with respect to our material internal systems, although we
will need to continue to address internal Year 2000 readiness issues on an
ongoing basis with respect to newly-acquired systems and suppliers,
regularly-scheduled system updates and upgrades, and internal operations. As
part of the inventory phase, we sought confirmation from our material suppliers
on the current Year 2000 readiness of their systems and/or their intended time
schedule for achieving Year 2000 readiness. We also completed contingency and
disaster recovery plans and prepared a detailed action plan for our crossover
into the new millennium.
Each of MERANT's product business units completed a Year 2000 assessment of
its currently offered software products. In preparing for the Year 2000 date
change, MERANT has adopted the Year 2000 compliance standard published by the
British Standards Institute - BSI DISC PD2000-1 "A Definition of Year 2000
Conformity Requirements." As a result of this assessment, virtually all of the
current versions of our offered products are Year 2000 compliant. Because Year
2000 compliance is generally integrated into our normal product development
activities, we have not incurred and do not expect to incur any significant
incremental expenses in addressing this issue in our product lines. We believe
that a small number of customers who receive product support from us are
10
<PAGE> 13
operating product versions that may not be Year 2000 compliant or products that
we have replaced or intend to replace with comparable Year 2000 compliant
products. We believe that the vast majority of customers are migrating and will
continue to migrate to compliant versions and products through new releases,
which we have strongly encouraged. Former customers may be operating
non-compliant versions of products in respect of which our agreed-upon product
support and warranty periods have expired. We have not undertaken, and do 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.
MERANT 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 those products, and we are not aware that any have taken place to
date. We believe that our licenses and other agreements contain customary and
appropriate limitations on our obligations with respect to any Year 2000
failures that may be caused by our current or former products. However, there
can be no assurance that our expectations and beliefs as to these matters will
prove to be accurate. Moreover, our products are used in IT systems containing
third-party hardware and software, some of which may not be Year 2000 compliant.
Many of our 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 we have 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 us 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 our
business, financial condition and results of operations.
A small number of the products we sell are licensed from third parties.
Although the current versions of these products have generally been warranted to
us as being Year 2000 compliant, they have generally not been subjected to the
same extensive testing as those products which we have developed or acquired. To
date MERANT has not experienced any material Year 2000 failures caused by these
third party products.
MERANT has designated its website as our "Year 2000 Internet Website" under
the terms of the Year 2000 Information and Readiness Disclosure Act (S.2392).
The information provided on past and present pages on this website regarding the
Year 2000 compliance of our products has been designated as "Year 2000 Readiness
Disclosures." The pages on this website have been and will continue to be our
primary means for communicating to customers regarding the Year 2000 compliance
of our products.
Demand for Year 2000 Remediation Products and Services
We anticipate that demand in the Year 2000 product and service market will
continue to decline, perhaps rapidly, shortly following the Year 2000. The
demand for our Year 2000 products and services has declined in each of the last
six quarters, and for our first, second and third quarters of this fiscal year,
Year 2000 product and services represented only 10%, 8% and 5% of total net
revenue, respectively.
Costs and Risks Associated with Year 2000 Issues; Contingency Plans
MERANT has not incurred, and does not expect to incur, material operating
expenses or be required to invest heavily in internal system improvements as a
result of Year 2000 readiness issues. In addition, we have not incurred and do
not currently expect to incur any significant incremental expenses in addressing
this issue in our product and services. We do not expect total expenditures
related to the Year 2000 readiness of our internal systems, excluding personnel
costs of existing staff, to be material. However, there can be no assurance that
we will not experience significant additional expenses for unforeseen Year 2000
issues, including those out of our reasonable control.
Although we believe that our Year 2000 readiness efforts have been designed
to appropriately identify and address those Year 2000 issues that are within our
control, there can be no assurance that our efforts have been fully effective or
that Year 2000 issues will not have a material adverse effect on our business,
11
<PAGE> 14
financial condition or results of operations. The novelty and complexity of the
issues presented and our dependence on the preparedness of third parties are
among the factors that could cause our efforts to be less than fully effective.
Moreover, Year 2000 issues present many risks that are simply beyond our
control, such as the potential effects of Year 2000 issues on the economy in
general and on our business partners and customers in particular. We intend to
continue to evaluate both existing and newly identified Year 2000 risks and to
develop and implement such further responsive measures as we deem appropriate.
EURO CONSIDERATIONS
Effective January 1, 1999, eleven of the fifteen member countries of the
European Union adopted the euro as their legal currency. On that 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,
MERANT's internal systems have the ability to price and invoice customers in the
euro. We are also engaging in foreign exchange and hedging activities in the
euro. We will continue to modify the internal systems that will be affected by
this conversion during fiscal 2000, and do not expect the costs of further
system modifications to be material. There can be no assurance, however, that we
will be able to complete such modifications to comply with euro requirements,
which could have a material adverse effect on our business, financial condition
and results of operations. We will continue to evaluate the impact of the euro's
introduction on our foreign exchange and hedging activities, functional currency
designations and pricing strategies in the new economic environment. In
addition, we face risks to the extent that banks, vendors and suppliers upon
whom we rely are unable to make appropriate modifications to support our
operations with respect to euro transactions. While we will continue to evaluate
the impact of the euro, management does not believe its introduction will have a
material adverse effect upon our business, financial condition or results of
operations.
FACTORS THAT MAY INFLUENCE FUTURE OPERATING RESULTS
MERANT operates in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. This section of the discussion
highlights some of these risks and their possible impact on future results of
operations.
The factors discussed below as well as statements made elsewhere in this
quarterly report contain forward-looking statements that are based on the
beliefs of MERANT's management, as well as assumptions made by, and information
currently available to it. Our actual results, performance or achievements in
fiscal 2000 and beyond could differ materially from those expressed in, or
implied by, these forward-looking statements. Factors that could cause or
contribute to material differences include, but are not limited to, those
discussed in this section and elsewhere in this quarterly report. MERANT
undertakes no obligation to release publicly any updates or revisions to any
forward-looking statements contained in this quarterly report that may reflect
events or circumstances occurring after the date of this quarterly report. For
more information on forward-looking statements, see "Forward-Looking Statements"
below in this Part I, Item 2.
MERANT's operating results may fluctuate, and any fluctuations could adversely
affect the price of MERANT securities
Our future operating results are subject to quarterly and annual
fluctuations. If we fail to meet the expectations of securities analysts and
investors as a result of any future fluctuations in our quarterly operating
results, the market price of MERANT securities would likely decrease. We expect
that our results may fluctuate in the future due to a variety of factors,
including:
* demand for our products,
* the size and timing of customer orders and the lengthy sales cycle,
* product life cycles,
* our ability to introduce and market new and enhanced versions of our
products on a timely basis,
* the introduction and acceptance of new products and product
enhancements by us or by our competitors,
* customer order deferrals in anticipation of new or enhanced products
or technologies,
12
<PAGE> 15
* the timing of product introductions or enhancements by us or by our
competitors,
* technological changes in the software industry,
* changes in the mix of distribution channels through which our products
are offered,
* purchasing patterns of distributors and retailers, including customer
budgeting cycles,
* the quality of products sold,
* changes to our product and service offerings as a result of
acquisitions of companies or technologies,
* price and other competitive conditions in the industry,
* changes in our level of operating expenses,
* changes in our 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.
MERANT's insignificant backlog and long sales cycle combined with costs that are
fixed, make it difficult for us to predict future revenue and compensate for a
revenue shortfall
Historically, we have operated with little product backlog, because we
generally ship our products when we receive an order. As a result, our product
revenue in any quarter will depend on the volume and timing of orders received
in that quarter, and our ability to fill those orders. In addition, the purchase
process of our customers typically ranges from a few weeks to several months or
longer from initial inquiry to order, which makes it difficult to predict the
timing of sales and license fees. Because our staffing and operating expenses
are based on anticipated revenue levels, and because a high percentage of our
costs is fixed in the short term and does not vary with revenue, small
variations between anticipated orders and actual orders, as well as
non-recurring or large orders, have in the past and may in the future cause
disproportionate variations in our operating results from quarter to quarter. As
a result, and due to the typical size of customers' orders, our quarterly
operating results and cash flow would suffer from a lost or delayed sale.
Moreover, if significant sales occur earlier than expected, operating results
for later quarters may suffer.
Seasonality can cause MERANT's operating results to fluctuate
Our 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, we have historically experienced lower revenue for the
first quarter of a fiscal year than in the fourth quarter of the prior fiscal
year. We typically recognize a high proportion of 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 our expenses do not vary with revenue.
MERANT's revenue could decline if there is a decline in the demand for or use of
the COBOL language or mainframe computers
A substantial portion of our revenue is derived from products and related
services for mainframe application development in the COBOL language and for
COBOL compilers running on workstations and personal computers. We expect that a
substantial portion of our revenue will be derived from these products and
services in the future. As a result, our future operating results depend upon
continued demand for, and market acceptance and use of, the COBOL language. Any
decline in that market as a result of competition, technological change or other
factors could cause our revenues to decline.
13
<PAGE> 16
If MERANT fails to address Year 2000 issues adequately, it may lose revenue or
incur significant additional costs
Our products are used in IT systems containing third-party hardware and
software, some of which may not be Year 2000 compliant. Many of our 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.
Customers or former customers may bring claims or lawsuits against us seeking
compensation for losses allegedly associated with Year 2000-related failures.
Although we believe that our Year 2000 readiness efforts have been designed
to appropriately identify and address those Year 2000 issues that are within our
control, our efforts may not be fully effective. The novelty and complexity of
the issues presented and our dependence on the preparedness of third parties are
among the factors that could cause our efforts to be less than fully effective.
Moreover, Year 2000 issues present many risks that are beyond our control, such
as the potential effects on the economy in general and on our business partners
and customers in particular. In addition, we may experience significant
additional expenses for unforeseen Year 2000 issues, including those out of our
reasonable control.
If our new products or product enhancements fail to achieve customer acceptance,
or if we fail to manage product transitions, our business reputation and
financial performance would suffer
MERANT is in a market that is subject to rapid technological change. We
must continually adapt to that change by improving our products and introducing
new products, technologies and services. Our growth and financial performance
will depend in part on our ability to develop and introduce enhancements of
existing products and new products that accommodate the latest technological
advances and standards, customer requirements and market conditions on a timely
and cost-effective basis. This depends in part on our ability to attract and
retain qualified employees. In the past, we have experienced delays and
increased expenses in developing new products. We may not be successful in
marketing, on a timely basis or at all, competitive products, product
enhancements and new products that respond to technological change, changes in
customer requirements and emerging industry standards. Product defects can be
expensive to fix and can cause MERANT to lose customers Software products as
complex as those we offer may contain undetected errors or failures when first
introduced or as new versions are released. Despite our testing, as well as
testing and use by current and potential customers, errors might be found in new
products after commencement of commercial shipments. The occurrence of errors
could result in loss of or delay in market acceptance of our products.
Protection of our intellectual property is limited, which may affect MERANT's
competitive position
Our success depends upon our proprietary software technology. Despite the
precautions we take to protect our proprietary rights, it may be possible for a
third party to copy or otherwise obtain and use our products or technology
without authorization, or to develop similar technology independently. Policing
unauthorized use of our products is difficult, and while we are unable to
determine the extent to which software piracy of our products exists, software
piracy can be expected to be a persistent problem. In addition, effective
protection of intellectual property rights may be unavailable or limited in some
foreign countries. Patents have been granted on fundamental technologies in
software, and patents may issue that relate to fundamental technologies
incorporated into our products.
Our products may infringe the intellectual property rights of third parties,
which may result in lawsuits and prevent MERANT from selling our products
There are currently no material notices or pending claims that our
products, trademarks or other proprietary rights infringe the proprietary rights
of third parties. However, third parties could assert infringement claims
against us in the future. If it is necessary or desirable, we may seek licenses
under disputed third party intellectual property rights. However, these licenses
may not be available on reasonable commercial terms, if at all. The failure to
obtain a license from a third party for technology that we use could cause us to
incur substantial liabilities and to suspend the production and sale of certain
14
<PAGE> 17
products. With regard to those technologies that we license from third parties,
we must rely upon those third parties for information on the ownership of the
licensed technologies. As a result, our exposure to infringement claims may
increase. We generally obtain representations as to the ownership of licensed
technology and indemnification to cover any breach of these representations.
However, representations may not be accurate and indemnification may not provide
adequate compensation or protection for breach of the representations.
In addition, we may initiate claims or litigation against third parties for
infringement of our proprietary rights or to establish their validity.
Litigation to determine the validity of any claims could result in significant
expense and divert the efforts of our technical and management personnel from
operating activities, whether or not the litigation is determined in our favor.
In the event of an adverse ruling in any litigation, we may be required to pay
substantial damages, to discontinue the use and sale of infringing products, to
expend significant resources to develop non-infringing technology or to obtain
licenses to the infringed technology. Our failure to develop or license a
substitute technology could prevent us from selling our products. As the number
of software products in the industry increases and the functionality of these
products further overlaps, we believe that software developers may become
increasingly subject to infringement claims. Any claims against us, with or
without merit, as well as claims we initiate against third parties, can be time
consuming and expensive to defend or prosecute and to resolve.
Competition can lead to pricing pressures and loss of market share
Rapid technological change and aggressive competition characterize the
markets in which we compete. We expect competition to increase in the future
from existing competitors and from other companies that may enter our existing
or future markets with similar or substitute solutions that may be less costly
or provide better performance or functionality than our products. Some of our
current and prospective competitors have greater financial, marketing or
technical resources 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 we can. Other companies may 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 with technological,
marketing or other competitive advantages may emerge and rapidly acquire market
share. Furthermore, we may not be able to compete effectively in the future in
the professional services market. If price competition increases significantly,
competitive pressures could cause us to reduce the prices of our products and
services, which would result in reduced profit margins and could harm our
ability to provide adequate service to our customers. International sales
account for a significant portion of our total revenue, which exposes MERANT to
the business and economic risks of global operations
In fiscal years 1999, 1998 and 1997, sales to customers outside of the
United States represented approximately 40%, 35% and 37% of our revenue,
respectively. We intend to continue to expand our operations outside of the
United States and enter additional international markets, and commit significant
time and resources to developing international sales and support channels. The
risks inherent in conducting international business generally include:
* exposure to exchange rate fluctuations
* 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
* the burdens of complying with a wide variety of foreign laws
* general economic conditions
* other factors discussed in this section.
15
<PAGE> 18
If we lose key personnel or are unable to hire additional qualified personnel as
necessary, we may not be able to manage our business successfully or sell our
products
Several of our senior management personnel are relatively new to MERANT and
our 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 we may not be able to attract and retain a sufficient
number of qualified personnel to conduct our business in the future. Our success
depends to a significant degree upon the continued contributions of our key
management, marketing, product development, professional services and
operational personnel, including key personnel of acquired companies. We do not
have employment agreements with most of our key personnel to ensure their
continued employment, and we do not maintain key person life insurance on any of
these persons.
If MERANT were unable to manage growth effectively, our operations would be
disrupted
MERANT has recently experienced a period of rapid growth, which has placed
a significant strain on our financial, management, operational and other
resources. If this rapid growth is maintained, these strains will continue. Our
management, personnel, systems, procedures and controls may not be adequate to
support existing and future operations.
Market volatility may cause the price of our securities to decline
The market price of MERANT's securities has experienced significant price
volatility, and volatility may occur in the future. Factors that may have a
significant impact on the market price of our securities include:
* actual or anticipated fluctuations in our operating results,
* changes in financial estimates by securities analysts,
* announcements of technological innovations,
* new products or new contracts by us or by our 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,
and
* general market conditions.
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 cause the market price of our securities to
be volatile.
If we engage in future business combinations, we may fail to integrate acquired
businesses effectively, which could disrupt our ongoing business and generate
negative publicity
We have completed a number of business combinations in recent years, most
recently the merger with INTERSOLV in September 1998, and the acquisitions of
Essential Software, Inc. in August 1999, EnterpriseLink Technology Corporation
in November 1999, Trillium Software Corporation in December 1999 and Northern
Software Partners AS in January 2000. We may complete additional acquisitions in
the future. The process of integrating an acquired company's business into our
operations may result in unforeseen operating difficulties and expenditures. It
may also absorb significant management attention that would otherwise be
available for the ongoing development and operation of our business. Moreover,
the anticipated benefits of an acquisition might not be realized. Future
acquisitions could result in potentially dilutive issuances of equity
securities, the incurring of debt and contingent liabilities, and amortization
provisions related to goodwill and other intangible assets. In addition,
acquisitions involve numerous risks, including:
* difficulties in the assimilation of the operations, technologies and
products of the acquired companies,
* difficulties in managing diverse geographic sales and research and
development operations,
16
<PAGE> 19
* the diversion of management attention from other business concerns,
* risks of entering markets in which we have no or limited direct prior
experience, and
* the potential loss of key employees of MERANT or the acquired company.
The rights of MERANT's shareholders may differ from the shareholder rights of a
U.S. corporation
The right of shareholders and, therefore, certain of the rights of holders
of ADRs, are governed by English law, including the Companies Act 1985, and by
MERANT's Memorandum and Articles of Association. These rights differ in many
respects from the rights of shareholders in typical U.S. corporations.
U.S. judgments may not be enforceable against MERANT
MERANT is a public limited company organized under the laws of England and
Wales. Judgments of U.S. courts, including judgments against MERANT, 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 can cause our operating results to fluctuate
The majority of our revenue arises in U.S. dollars, while our costs are
incurred approximately equally in U.S. dollars and other currencies,
predominantly G.B. pounds. Consequently, fluctuations in exchange rates,
particularly between the U.S. dollar and the G.B. pound, may have a significant
impact on our operating results, notably when expressed in G.B. pounds. During
the current fiscal quarter, fluctuations between the U.S. dollar and the G.B.
pound were not significant, and net exchange rate gains or losses on operational
transactions were not material.
Forward-Looking Statements
This quarterly report contains forward-looking statements that are based on
the beliefs of MERANT's management, as well as assumptions made by and
information currently available to it. Forward-looking statements are subject to
the safe harbor created by the Private Securities Litigation Reform Act of 1995,
which provides that MERANT can be exempt from liability for making
forward-looking statements if cautionary language is included with the
statements. When used in this report, words such as anticipate, believe,
estimate, expect, intend and similar expressions, are intended to identify
forward-looking statements. Some statements of historical fact are also forward
looking to the extent they underlie statements regarding future events, plans,
objectives or expectations. In addition, statements concerning future matters
and other statements that are not historical are forward-looking statements.
These include:
* the features, benefits and advantages of our products and services
* the development of new products, enhancements or technologies
* business and sales strategies
* developments in our target markets
* matters relating to distribution channels, proprietary rights,
acquisitions, facilities needs, competition, litigation and our Year
2000 readiness
* future gross margins and operating expense levels
* capital needs
These statements reflect the current views of MERANT or its management with
respect to future events and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, our actual results, performance
or achievements in fiscal 2000 and beyond could differ materially from those
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to material differences include, but are not limited
to, those discussed above in this Part I, Item 2 under the heading "Factors That
May Influence Future Operating Results", as well as those discussed elsewhere in
17
<PAGE> 20
this quarterly report. You should not regard the inclusion of forward-looking
information as a representation by us or any other person that the future
events, plans, objectives or expectations contemplated by us will be achieved.
MERANT undertakes no obligation to release publicly any updates or revisions to
any forward-looking statements contained in this quarterly report that may
reflect events or circumstances occurring after the date of this quarterly
report.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MERANT is exposed to financial market risks, including interest rates and
foreign currency exchange rates. We do not use derivative financial instruments
for speculative purposes.
The primary objective of our investment policy is to preserve principal
while maximizing yield without significantly increasing risk. At January 31,
2000, the fair value of our financial instruments with exposure to interest rate
risk was $18.0 million. A hypothetical 50 basis point increase in interest rates
would result in an approximate $90,000 decrease in the fair value of our
securities. This sensitivity analysis is performed on our financial positions at
January 31, 2000 and actual results may differ materially from this analysis.
MERANT is exposed to the effects of foreign currency exchange rate
fluctuations, particularly, but not exclusively, between the U.S. dollar and
G.B. pound. We have established a hedging program utilizing foreign currency
forward contracts to hedge the value of assets and liabilities recorded in
foreign currencies against fluctuations in exchange rates. The foreign exchange
forward contracts used are non-leveraged, over-the-counter instruments that
involve little complexity, and which substantially have maturities of sixty days
or less. No foreign exchange forward contracts were outstanding at January 31,
2000.
18
<PAGE> 21
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In December 1998 and January 1999, seven class action securities complaints
were filed in the U.S. District Court for the Southern District of New York
against MERANT 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 ADSs of MERANT 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 MERANT's business condition and prospects.
In June 1999, MERANT filed a motion to transfer the matter to the Northern
District of California, and the Court granted MERANT's motion in November 1999.
The action was transferred in December 1999 to the Northern District of
California. MERANT intends to move to dismiss the action at the appropriate time
and to defend all of its litigation vigorously. However, due to the inherent
uncertainties of litigation, MERANT cannot accurately predict the ultimate
outcome of the litigation. Any unfavorable outcome of litigation could have an
adverse impact on MERANT'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
None.
Item 5 - Other Information
Effective December 8, 1999, Don C. Watters was appointed as a director
of MERANT plc.
Item 6 - Exhibits
No exhibits are submitted with this quarterly report.
19
<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.
MERANT plc
(Registrant)
Date: March 10, 2000 By: /s/ Kenneth A. Sexton
--------------------------------------
Kenneth A. Sexton
Senior Vice President and
Chief Financial Officer
20
