-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GDeVF8eRM3l8YX88qbWOAkQTpJCmLOXkqnSzKsSEWJle7ip3+vD+nfGVevefrA5w GTQ9e59NR31BcL5LnpBmcA== 0000758004-94-000004.txt : 19940315 0000758004-94-000004.hdr.sgml : 19940315 ACCESSION NUMBER: 0000758004-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940129 FILED AS OF DATE: 19940314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVELL INC CENTRAL INDEX KEY: 0000758004 STANDARD INDUSTRIAL CLASSIFICATION: 7373 IRS NUMBER: 870393339 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 34 SEC FILE NUMBER: 000-13351 FILM NUMBER: 94515933 BUSINESS ADDRESS: STREET 1: 122 EAST 1700 SOUTH CITY: PROVO STATE: UT ZIP: 84606 BUSINESS PHONE: 8014297000 MAIL ADDRESS: STREET 1: 122 E. 1700 S. CITY: PROVO STATE: UT ZIP: 84606 10-Q 1 1Q 10Q FILING SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Quarter Ended January 29, 1994 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number: 0-13351 NOVELL, INC. (Exact name of registrant as specified in its charter) Delaware 87-0393339 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 122 East 1700 South Provo, Utah 84606 (Address of principal executive offices and zip code) (801) 429-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ As of February 26, 1994 there were 309,668,991 shares of the registrant's common stock outstanding.
Part I. Financial Information, Item 1. Financial Statements NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS Dollars in thousands,except per share data Jan. 29, 1994 Oct. 30, 1993 ASSETS Current assets Cash and cash equivalents $ 430,556 $ 328,469 Short-term investments 335,028 335,601 Receivables, less allowances ($50,410 - January; $44,266 - October) 301,947 331,662 Other 67,048 56,474 Total current assets 1,134,579 1,052,206 Property, plant and equipment, net 216,121 216,849 Other assets 88,255 74,800 Total assets $1,438,955 $1,343,855 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable 31,088 38,794 Accrued salaries and wages 40,781 53,756 Accrued marketing liabilities 28,784 29,892 Other accrued liabilities 41,609 41,566 Income taxes payable 58,877 50,588 Deferred revenue 16,685 15,839 Total current liabilities 217,824 230,435 Deferred income taxes 23,992 -- Minority interests 11,629 10,205 Put warrants -- 106,716 Shareholders' equity Common stock, par value $.10 a share Authorized - 400,000,000 shares Issued - 309,021,297 shares-January 308,050,977 shares-October 30,902 30,805 Additional paid-in capital 525,430 411,064 Retained earnings 635,052 562,238 Unearned stock compensation (7,800) (9,814) Cumulative translation adjustment 1,926 2,206 Total shareholders' equity 1,185,510 996,499 Total liabilities and shareholders' equity $1,438,955 $1,343,855 See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME Fiscal Quarter Ended Amounts in thousands, Jan. 29, Jan. 30, except per share data 1994 1993 Net sales $311,384 $260,174 Cost of sales 64,140 50,451 Gross profit 247,244 209,723 Operating expenses Sales and marketing 69,219 53,585 Product development 56,530 34,245 General and administrative 22,814 21,047 148,563 108,877 Income from operations 98,681 100,846 Other income (expense) Investment income 10,949 6,902 Other, net (136) (351) 10,813 6,551 Income before taxes 109,494 107,397 Income taxes 36,680 36,515 Net income $ 72,814 $70,882 Net income per share $ 0.23 $0.23 Weighted average shares outstanding 313,937 310,858 See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS Fiscal Quarter Ended Jan. 29, Jan. 30, Amounts in thousands 1994 1993 Cash flows from operating activities Net income $72,814 $70,882 Adjustments to reconcile net income to net cash provided (used) by operating activities Depreciation and amortization 12,793 8,934 Stock plans income tax benefits 7,012 26,979 Minority interest in earnings 651 467 Decrease in receivables 29,715 2,605 Decrease (increase) in other current assets (10,574) 2,552 (Decrease) in accounts payable (7,706) (10,521) (Decrease) in accrued salaries and wages (12,975) (8,556) (Decrease) increase in accrued marketing liabilities (1,108) 10,067 Increase (decrease) in other accrued liabilities 43 (1,886) Increase in income taxes payable 8,289 6,029 Increase in deferred revenue 846 638 99,800 108,190 Cash flows from financing activities Issuance of common stock, net 4,281 12,260 Settlement of put warrants (2,278) - Proceeds from minority interests investment 773 392 2,776 12,652 Cash flows from investing activities Expenditures for property, plant and equipment (11,319) (13,247) Decrease (increase) in short-term investments 573 (75,478) Other 10,257 (1,931) (489) (90,656) Summary Increase in cash and cash equivalents 102,087 30,186 Cash and cash equivalents - beginning of period 328,469 259,933 Cash and cash equivalents - end of period $430,556 $290,119 See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS A. Quarterly Financial Statements The accompanying consolidated unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q but do not include all of the information and footnotes required by generally accepted accounting principles and should therefore, be read in conjunction with the Company's fiscal 1993 Annual Report to Shareholders. These statements do include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year. B. Mergers, Acquisitions, and Strategic Investments In April 1991, the Company purchased a minority equity position in UNIX System Laboratories, Inc., (USL) a subsidiary of AT&T that develops and licenses the UNIX operating system and other standards-based software to vendors worldwide. This cash investment of $15.0 million was accounted for using the cost method. Later, in December 1991, the Company announced the formation of Univel, a 55% owned joint venture with USL, formed to accelerate the expanded use of the UNIX operating system in the personal computer and network computing marketplace. Novell and USL contributed cash and technology rights to Univel. In June 1993, the Company acquired the remaining unowned portion of USL by issuing approximately 11.1 million shares of Novell common stock valued at $321.8 million in exchange for all of the outstanding stock of USL not previously owned by Novell and assumed additional liabilities of $9.4 million. The transaction was accounted for as a purchase and, on this basis a one-time write-off of $268.7 million for purchased research and development was incurred. Univel has been included in the consolidated financial statements of Novell since December 1991 by virtue of Novell's 55% ownership interest. That ownership interest is now 100% since the June 1993 acquisition of USL, whereby both USL and Univel are now included in the consolidated financial statements of Novell. In June 1993, the Company purchased all of the outstanding stock not previously owned by Novell of Serius Corporation (Serius), a developer of object-based application tools, for $17.0 million cash and assumed liabilities of $5.0 million, whereby Serius became a wholly owned subsidiary of Novell. Novell's previous ownership was a $1.1 million cash investment. The transaction was accounted for as a purchase and on this basis, resulted in a one-time write-off of $22.1 million in the third quarter of fiscal 1993. In June 1993, the Company acquired all of the outstanding stock of Software Transformation, Inc. (STI), a developer of software development tools, by issuing approximately 800,000 shares of Novell Common stock in exchange for all of the outstanding stock of STI. The transaction was accounted for as a pooling of interests, however, prior periods were not restated due to immateriality. In July 1993, the Company acquired all of the outstanding stock of Fluent, Inc. (Fluent), a developer of multimedia software for personal computers, for $18.5 million cash and assumed liabilities of $3.0 million, whereby Fluent became a wholly owned subsidiary of Novell. The transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $20.7 million in the third quarter of fiscal 1993. C. Income Taxes The Company's estimated effective tax rate for the first quarter of fiscal 1994 was 33.5%. The estimated tax rate for fiscal 1994 is equal to the fiscal 1993 rate, excluding the one-time charge related to purchased research and development in the third quarter of fiscal 1993, which was not deductible for income tax purposes. The Company paid cash amounts for income taxes of $14.5 million and $5.6 million, in the first quarter of fiscal 1994 and 1993, respectively. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The Company adopted the provisions of SFAS No. 109 effective October 31, 1993 for fiscal year 1994. As permitted under the new rules, prior years financial statements have not been restated. SFAS No. 109, requires the use of the liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of SFAS No. 109, income tax expense was determined using the deferred method (APB 11). Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. Adoption of SFAS No. 109 had no material impact on the financial statements of the Company. At the beginning of fiscal 1994, deferred tax asset and liabilities under SFAS No. 109 were comprised of the following (in thousands): Deferred tax assets: Receivable valuation accounts $14,767 Inventory reserves 4,101 Advertising accruals 2,557 Compensation and benefits accruals 4,160 Loss carryforwards 17,831 Other, net 3,797 Total deferred tax assets 47,213 Valuation allowance (9,017) Deferred tax assets $38,196 Deferred tax liabilities: Difference in book and tax bases of intangible assets $25,157 Total deferred tax liabilities $25,157 Net deferred tax assets $13,039 D. Commitments and Contingencies The Company currently has a $10.0 million unsecured revolving bank line of credit, with interest at the prime rate. The line can be used for either letter of credit or working capital purposes. The line is subject to the terms of a loan agreement containing financial covenants and restrictions, none of which are expected to significantly affect the Company's operations. At January 29, 1994, there were no borrowings, letter of credit acceptances, or commitments under such line. The Company has an additional $10.0 million credit facility with another bank which is not subject to a loan agreement. At January 29, 1994, standby letters of credit of $275,000 were outstanding under this agreement. On November 10, 1993, a suit was filed against Novell and certain of its officers and directors alleging violation of federal securities laws. The lawsuit was brought as a purported class action on behalf of purchasers of Novell common stock from June 23, 1993 through July 26, 1993. Although the case is in its earliest stages, Novell does not believe that the resolution of this legal matter will have a material adverse effect on its financial position or results of operations. In December of 1991, Roger Billings and his International Academy of Science, (the Academy) filed suit against Novell alleging that the Company infringes on a patent allegedly owned by the Academy. The case is still in its pretrial phase. The Company believes that the ultimate resolution of this legal proceeding will not have a material adverse effect on its financial position or results of operations. The Company is a party to a number of additional legal proceedings arising in the ordinary course of its business. The Company believes the ultimate resolution of these claims will not have a material adverse effect on its financial position or results of operations. E. Put Warrants During fiscal 1993, the Company sold put warrants on 5.0 million shares of its stock, callable on specific dates in the first quarter of fiscal 1994, giving third parties the right to sell shares of Novell common stock to the Company at contractually specified prices. The put warrant balance on the balance sheet at October 30, 1993 is the amount the Company would have been obligated to pay if all the put warrants were exercised at the strike price without a cash-out settlement. During the first quarter of fiscal 1994, the Company settled all of its put warrant obligations for cash of $2.3 million and therefore reversed the put warrant obligation back to paid-in capital. F. Export Sales The Company markets internationally through distributors who sell to dealers and end users. For the fiscal quarters ended January 29, 1994 and January 30, 1993, export sales to foreign customers were approximately $146.6 million and $130.4 million, respectively. In the first quarters of fiscal 1994 and fiscal 1993, 62% and 67%, respectively, of export sales were to European countries. Except for Germany, which accounted for 18% of revenue in the first quarter of fiscal 1993, no one foreign country accounted for 10% or more of total sales in either period. Except for one multi-national distributor, which accounted for 10% of revenue in the first quarter of 1994 and 12% of revenue in the first quarter of fiscal 1993, no customer accounted for more than 10% of revenue in any period. G. Net Income Per Share Net income per share is computed using the weighted average number of common shares outstanding during the periods, including common stock equivalents (unless antidilutive). Common stock equivalents consist of outstanding stock options. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction Novell's business strategy is to be a leading supplier of software products for the network computing industry. Over the past several years, in addition to its internal growth, the Company has issued common stock or paid cash to acquire technology companies, invested cash in other technology companies, and formed strategic alliances with still other technology companies. Novell undertook all of these transactions to promote the growth of the network computing industry, and in many cases to also broaden the Company's business as a system software supplier. In April 1991, the Company invested $15.0 million in UNIX System Laboratories, Inc. (USL), a subsidiary of AT&T that develops and licenses the UNIX operating system and other standards-based software to customers worldwide. In December 1991, the Company announced the formation of Univel, a joint venture with USL, formed to accelerate the expanded use of the UNIX operating system in the personal computer and network computing marketplace. Novell and USL contributed cash and technology rights to Univel. Then in June 1993, the Company acquired the remaining portion of USL by issuing approximately 11.1 million shares of Novell common stock valued at $321.8 million in exchange for all of the outstanding stock of USL not previously owned by Novell and assumed additional liabilities of $9.4 million. The transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $268.7 million for purchased research and development in the third quarter of fiscal 1993. In June 1993, the Company purchased all of the outstanding stock not previously owned by Novell of Serius Corporation (Serius), a developer of object-based application tools, for $17.0 million cash and assumed liabilities of $5.0 million, whereby Serius became a wholly owned subsidiary of Novell. Novell previously had invested cash of $1.1 million in Serius. This transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $22.1 million for purchased research and development in the third quarter of fiscal 1993. In June 1993, the Company acquired all of the outstanding stock of Software Transformation, Inc. (STI), a developer of software development tools, by issuing approximately 800,000 shares of Novell common stock in exchange for all of the outstanding stock of STI. The transaction was accounted for as a pooling of interests, however, prior periods were not restated due to immateriality. In July 1993, the Company acquired all of the outstanding stock of Fluent, Inc. (Fluent), a developer of multimedia software for personal computers, for $18.5 million cash and assumed liabilities of $3.0 whereby Fluent became a wholly owned subsidiary of Novell. The transaction was accounted for as a purchase and, on this basis resulted in a one-time write- off of $20.7 million for purchased research and development in the third quarter of fiscal 1993. The Company will continue to look for similar acquisitions, investments, or strategic alliances which it believes complement its overall business strategy. Results of Operations Net Sales Q1 Q1 1994 Change 1993 Net sales (millions) $311.4 20% $260.2 The growth in net sales in the first quarter fiscal 1994 compared to the first quarter of fiscal 1993 is the result of volume increases in the Company's NetWare 4, NetWare 3, NetWare J, software royalties, training, and connectivity products, offset by volume decreases in NetWare 2, NetWare SFT III, network management products, hardware royalties and UnixWare. The shift to high-end networking products has occurred as customers shift to network-based computing solutions that rely on NetWare network services. In addition, approximately 8% of the growth in the first quarter of fiscal 1994 compared to the first quarter of fiscal 1993 is attributable to the acquisition of USL in mid-June 1993 as its revenue was not included in the first quarter of fiscal 1993. Net sales were also favorably affected by growth in both domestic and international sales in the first quarter of fiscal 1994 compared to the first quarter of fiscal 1993. Domestic sales grew more rapidly than international sales in the first quarter of fiscal 1994 compared to the first quarter of 1993 due to the strength of the U.S. economy. Export sales were approximately 47% of net sales in the first quarter of fiscal 1994 compared to 50% the first quarter of 1993, however, they still grew at a rate of 12%. The rate of export sales growth began to slow down in late fiscal 1992, primarily due to an economic slowdown in Europe. However, despite this slowdown in Europe, the Company expects that total export sales will continue to grow during the remainder of fiscal 1994 because of growth in non-European markets. Gross Profit Q1 Q1 1994 Change 1993 Gross profit (millions) $247.2 18% $209.7 Percentage of net sales 79.4% 80.6% The gross margin percentage decreased in the first quarter of fiscal 1994 compared to the first quarter of fiscal 1993. The slight decrease between years is attributable to higher costs related to product transitions and to the amortization of purchased software acquired in the USL acquisition. Future fluctuations in the gross profit margin will be primarily attributable to price changes, changes in sales mix by product or distribution channel, and special product promotions. The Company expects the gross profit margin in fiscal 1994 to be down slightly compared to the gross profit margin in fiscal 1993 due to the continued amortization of the purchased software described above. Operating Expenses Q1 Q1 1994 Change 1993 Sales and marketing (millions) $69.2 29% $53.6 Percentage of net sales 22.2% 20.6% Product development (millions) $56.5 65% $34.2 Percentage of net sales 18.2% 13.1% General and administrative (millions) $22.8 8% $21.1 Percentage of net sales 7.3% 8.1% Total operating expenses (millions) $148.6 36% $108.9 Percentage of net sales 47.7% 41.8% Sales and marketing expenses increased slightly as a percentage of net sales in the first quarter of fiscal 1994 compared to the first quarter of fiscal 1993. The increase is attributable to relatively higher international selling expenses and higher marketing expenses. Sales and marketing expenses may increase due to product promotions. Product development expenses increased as a percentage of net sales in the first quarter of fiscal 1994 compared to the first quarter of fiscal 1993 as a result of the acquisitions in fiscal 1993 and from planned headcount increases in an effort to increase the Company's investment in new products. The acquisitions have relatively higher product development expenses as a percentage of net sales. General and administrative expenses remained flat as a percentage of net sales in the first quarter of fiscal 1993 compared to the first quarter of fiscal 1993. Even though these expenses were flat between years, the first quarter of fiscal 1994 had relatively higher legal fees and lower bad debt expense compared to the first quarter of fiscal 1993. These changes tended to offset each other. Overall, operating expenses have grown more rapidly than revenues in the first quarter of fiscal 1994 compared to the first quarter of fiscal 1993 due to the acquisitions in fiscal 1993. Headcount growth has remained consistent with revenue growth as the Company took steps to make the organization more efficient subsequent to the acquisitions. Q1 Q1 1994 Change 1993 Employees 4,372 18% 3,709 Annualized revenue per employee (000's) $283 - $283 Other Income (Expense) Q1 Q1 1994 Change 1993 Other income (expense), net (millions) $10.8 64% $6.6 Percentage of net sales 3.5% 2.5% The primary component of other income (expense) is investment income, which was $10.9 million in the first quarter of fiscal 1994 compared to $6.9 million in the first quarter of fiscal 1993. The increases are the result of a larger investment portfolio and capital gains related to the sale of some of the Company's holdings in Gupta Technologies, Inc. In order to achieve potentially higher returns, a limited portion of the Company's investment portfolio is invested in mutual funds which incur some market risk. The Company believes that the market risk has been limited by diversification and by use of a funds management timing service which switches funds out of mutual funds and into money market funds when preset signals occur. Income Taxes Q1 Q1 1994 Change 1993 Income taxes (millions) $36.7 1% $36.5 Percentage of net sales 11.8% 14.0% Effective tax rate 33.5 34.0% The Company's estimated effective tax rate for fiscal 1994 remained at 33.5% which is equal to the fiscal 1993 rate, excluding the effect of the one- time write-off of purchased research and development in fiscal 1993, which was not tax deductible. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, in the first quarter of fiscal 1994. Adoption of SFAS No. 109 had no material effect on the financial statements of the Company. Liquidity and Capital Resources Cash and short-term investments increased to $765.6 million at January 29, 1994 from $664.1 million at October 30, 1993. The major reasons for this increase were the $99.8 million of cash provided by operating activities and the $2.8 million provided by financing activities, offset by the $500,000 used by investing activities. The investment portfolio is diversified among security types, industry groups, and individual issuers. The Company's principal sources of liquidity have been derived from product sales, sales of the Company's securities, and available lines of credit. At January 29, 1994, the Company's principal unused sources of liquidity consisted of cash and short-term investments and available borrowing capacity of approximately $19.7 million under its credit facilities. The Company's liquidity needs are principally for the Company's financing of accounts receivable, capital assets, acquisitions and strategic investments and to have flexibility in a dynamic and competitive operating environment. During fiscal 1994 the Company has continued to generate cash from operations. The Company anticipates being able to fund its current operations and capital expenditures planned for the foreseeable future with existing cash and short-term investments together with internally generated funds. Borrowings under the Company's credit facilities, or public offerings of equity or debt securities are available if the need arises. As the Company grows, investments will continue in product development in new and existing areas of technology. Cash may also be used to acquire technology through purchases and strategic acquisitions. Capital expenditures in fiscal 1994 are anticipated to be approximately $80 million, but could be reduced if the growth of the Company is less than presently anticipated. Part II. Other Information All information required by items in Part II is omitted because the items are inapplicable, the answer is negative or substantially the same information has been previously reported by the registrant. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Novell, Inc. Registrant Date March 10, 1993 /s/ Raymond J. Noorda Raymond J. Noorda Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer) Date March 10, 1993 /s/ James R. Tolonen James R. Tolonen Office of the President and Chief Financial Officer (Principal Financial and Accounting Executive Officer) -----END PRIVACY-ENHANCED MESSAGE-----