-----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, rGeivnwxivwKVccmVBmbrirg4K1xKIkwoR8CNzEP1Cwo1bou/SPogE76sVWozBHT 2rHf2ggBOXwcc5z3E950mA== 0000758004-95-000007.txt : 19950615 0000758004-95-000007.hdr.sgml : 19950615 ACCESSION NUMBER: 0000758004-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950128 FILED AS OF DATE: 19950313 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVELL INC CENTRAL INDEX KEY: 0000758004 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 870393339 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13351 FILM NUMBER: 95520452 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 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 28, 1995 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.) 1555 N. Technology Way Orem, Utah 84057 (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 25, 1995 there were 366,352,534 shares of the registrant's common stock outstanding. Part I. Financial Information, Item 1. Financial Statements NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS Jan. 28, Oct. 29, Dollars in thousands, except per share data 1995 1994 - ------------------------------------------- --------- -------- ASSETS Current assets Cash and short-term investments $ 961,270 $ 861,809 Receivables, less allowances ($87,585 - January; $82,934 - October) 421,592 391,342 Inventories 26,504 32,221 Prepaid expenses 57,472 69,324 Deferred income taxes 102,055 98,435 Total current assets 1,568,893 1,453,131 Property, plant and equipment, net 382,414 394,682 Other assets 104,635 115,668 Total assets $2,055,942 $1,963,481 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 94,117 $ 67,176 Accrued compensation 74,737 81,639 Accrued marketing liabilities 63,917 66,800 Other accrued liabilities 92,828 121,165 Income taxes payable 78,331 78,139 Deferred revenue 43,260 47,801 Total current liabilities 447,190 462,720 Minority interests 15,268 13,774 Shareholders' equity Common stock, par value $.10 a share Authorized - 400,000,000 shares Issued - 365,575,883 shares-January 364,354,887 shares-October 36,558 36,436 Additional paid-in capital 661,348 645,419 Retained earnings 895,578 805,132 Total shareholders' equity 1,593,484 1,486,987 Total liabilities and shareholders' equity $2,055,942 $1,963,481 See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME Fiscal Quarter Ended --------------------- Amounts in thousands, Jan. 28, Jan. 29, except per share data 1995 1994 - --------------------- --------------------- Net sales $493,225 $488,278 Cost of sales 116,875 103,777 Gross profit 376,350 384,501 Operating expenses Sales and marketing 139,803 126,220 Product development 89,817 83,543 General and administrative 33,970 44,027 Nonrecurring charges -- 14,969 Total operating expenses 263,590 268,759 Income from operations 112,760 115,742 Other income (expense) Investment income 9,567 10,949 Other, net 258 (247) Other income, net 9,825 10,702 Income before taxes 122,585 126,444 Income taxes 41,066 31,984 Net income $ 81,519 $ 94,460 Weighted average shares outstanding 372,027 368,076 Net income per share $ 0.22 $ 0.26 See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS Fiscal Quarter Ended -------------------- Jan. 28, Jan. 29, Amounts in thousands 1995 1994 - -------------------- -------- -------- Cash flows from operating activities Net income $ 81,519 $ 94,460 Adjustments to reconcile net income to net cash provided (used) by operating activities Write-off of purchased research and development -- 14,969 Depreciation and amortization 23,065 20,073 WordPerfect fiscal year conversion -- (39,856) Stock plans income tax benefits 4,734 7,012 (Increase) decrease in receivables (30,250) 47,911 Decrease (increase) in inventories 5,717 (3,184) Decrease in prepaid expenses 11,852 2,334 (Increase) in deferred income taxes (1,505) (9,248) (Decrease) in current liabilities (15,530) (37,378) Net cash provided from operating activities 79,602 97,093 Cash flows from financing activities Issuance of common stock, net 7,669 4,281 Repayment of debt -- -- Other -- 7,033 Net cash provided from financing activities 7,669 11,314 Cash flows from investing activities Expenditures for property, plant and equipment (9,372) (17,345) (Increase) decrease in short-term investments (106,021) 573 Other 21,562 10,456 Net cash used by investing activities (93,831) (6,316) Total (decrease) increase in cash and cash equivalents $ (6,560) $102,091 Cash and cash equivalents - beginning of period 228,426 383,596 Cash and cash equivalents - end of period 221,866 485,687 Short-term investments - end of period 739,404 335,028 Cash and short-term investments - end of period $ 961,270 $ 820,715 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 1994 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 June 1994, the Company completed a merger with WordPerfect Corporation (WordPerfect) whereby WordPerfect was merged directly into Novell. Approximately 51 million shares of Novell common stock were exchanged for all of the outstanding common stock of WordPerfect. In addition, outstanding employee stock options to purchase WordPerfect common stock were converted into options to purchase approximately 8 million shares of Novell common stock. The transaction was accounted for as a pooling of interests and therefore, all prior period financial statements presented have been restated as if the merger took place at the beginning of such periods. In order to conform WordPerfect s year end to Novell s fiscal year end, the consolidated statement of income for fiscal 1994 includes two months (November and December 1993) for WordPerfect which are also included in the consolidated statement of income for the fiscal year ended October 30, 1993. Accordingly, an adjustment has been made in fiscal 1994 to retained earnings for the duplication of net income of $40 million for such two month period. Other results of operations for such two month period of WordPerfect include net sales of $137 million, income before taxes of $35 million, and income tax benefits of $5 million. Additionally, in June 1994, the Company acquired from Borland International, Inc. its Quattro Pro spreadsheet product line for $110 million of cash and assumed liabilities of $10 million, and purchased a three year license to reproduce and distribute up to one million copies of current and future versions of Borland s Paradox relational database product for $35 million of cash. The transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $114 million for purchased research and development. C. Cash and Short-term Investments The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities in the first quarter of fiscal 1995. All marketable debt and equity securities are included in cash and short-term investments and are considered available-for-sale and carried at fair market value. Such securities are anticipated to be used for current operations and are therefore classified as current assets, even though some maturities may extend beyond one year. In accordance with SFAS No. 115, prior period financial statements have not been restated to reflect this change in accounting principal. The opening balance of shareholders equity was increased by $9 million, net of $4 million of deferred income taxes, to reflect the net unrealized holding gains on securities classified as available-for-sale, which were previously carried at the lower-of-cost-or-market. The following is a summary of cash and short-term investments, all of which are considered available-for-sale. Gross Gross Fair Cost at Unrealized Unrealized market value at Cost at (Dollars in thousands) Jan. 28, 1995 Gains Losses Jan. 28, 1995 Oct. 29, 1994 - ------------------------- ------------- ----------- ---------- --------------- ------------- Cash and cash equivalents Cash $ 82,124 $ -- $ -- $ 82,124 $101,331 Repurchase agreements 26,400 26,400 19,309 Tax exempt money market fund 33,672 -- -- 33,672 29,394 Taxable money market investments 19,270 -- -- 19,270 13,357 Municipal securities 60,400 -- -- 60,400 65,035 - -------------------------------------------------------------------------------------------------- Cash and cash equivalents $221,866 $ -- $ -- $221,866 $228,426 - -------------------------------------------------------------------------------------------------- Short-term investments Municipal securities $206,285 $ -- $ 827 $205,458 $201,491 Money market mutual funds 41,278 -- -- 41,278 104,388 Money market preferreds 387,350 -- -- 387,350 306,700 Mutual funds 77,771 201 -- 77,972 13,017 Equity securities 13,722 13,624 -- 27,346 7,787 - -------------------------------------------------------------------------------------------------- Short-term investments $726,406 $13,825 $ 827 $739,404 $633,383 - -------------------------------------------------------------------------------------------------- Cash and short-term investments $948,272 $13,825 $ 827 $961,270 $861,809 - --------------------------------------------------------------------------------------------------
During the first quarter of fiscal 1995 the Company had no realized gains on the sale of securities compared to realized gains in the first quarter of fiscal 1994 of $7 million and realized losses of $1 million on the sale or disposition of securities. D. Income Taxes The Company's estimated effective tax rate for the first quarter of fiscal 1995 was 33.5%. Excluding non-tax deductible one-time charges related to the write-off of purchased research and development of $15 million in fiscal 1994 and adjusting fiscal 1994 to reflect a provision for income taxes as if WordPerfect and its S corporation subsidiaries had never been S corporations, the Company s effective tax rate would have been 34% in fiscal 1994. The Company paid cash amounts for income taxes of $27 million and $15 million, in the first quarter of fiscal 1995 and 1994, respectively. E. Commitments and Contingencies The Company currently has a $10 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 28, 1995 there were no borrowings, letter of credit acceptances or commitments under such line. The Company has an additional $10 million credit facility with another bank which is not subject to a loan agreement. At January 28, 1995 standby letters of credit of approximately $100,000 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. Another lawsuit alleging similar claims was filed August 26, 1994. Both lawsuits were brought as purported class actions on behalf of purchasers of Novell common stock. On February 22, 1995 the plaintiffs amended November 10, 1993 lawsuit was dismissed with prejudice. Novell does not believe that the resolution of the August 26, 1994 lawsuit will 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 business. The Company believes the ultimate resolution of the claims will not have a material adverse effect on its financial position or results of operations. F. International Sales The Company markets internationally through distributors who sell to dealers and end users. For the fiscal quarters ended January 28, 1995 and January 29, 1994, sales to international customers were approximately $222 million and $217 million, respectively. In the first quarters of fiscal 1995 and fiscal 1994, 59% and 64%, respectively, of international sales were to European countries. No one foreign country accounted for 10% or more of total sales in either period. Except for one multi-national distributor, which accounted for 18% of revenue in the first quarter of 1995 and 11% of revenue in the first quarter of fiscal 1994, 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 is connecting people with other people and the information they need, enabling them to act on it anytime, anyplace. Novell is a leading provider of networking and application software. The Company s software products provide the distributed infrastructure, network services, advanced network access and network applications required to make networked information and computing an integral part of everyone s daily life. Over the past several years, 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 a pervasive computing environment, and in many cases to also broaden the Company s business as a system and application software supplier. In June 1994, the Company completed a merger with WordPerfect Corporation (WordPerfect), whereby WordPerfect was merged directly into Novell. Approximately 51 million shares of Novell common stock were exchanged for all of the outstanding common stock of WordPerfect. In addition, the outstanding employee stock options to purchase WordPerfect common stock were converted into options to purchase approximately 8 million shares of Novell common stock. The transaction was accounted for as a pooling of interests and therefore, all prior financial statements presented herein have been restated as if the merger took place at the beginning of such periods. Additionally, in June 1994, the Company acquired from Borland International, Inc. its Quattro Pro spreadsheet product line for $110 million of cash and assumed liabilities of $10 million, and purchased a three year license to reproduce and distribute up to one million copies of current and future versions of Borland s Paradox relational database product for $35 million of cash. The transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $114 million for purchased research and development. 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 1995 Change 1994 - -------------------------------------------------------------------- Net sales (millions) $493 1% $488 ==================================================================== With the acquisition of WordPerfect in fiscal 1994, Novell has redefined itself into four product groups, all within the software industry. They are the NetWare Systems Group, the Novell Applications Group, the UNIX Systems Group, and the Information Access and Management Group. While revenue increased from the first quarter of 1994 to the first quarter of 1995, analysis of the individual product groups characterizes the changes that have occurred. NetWare Systems Group (NSG) revenues grew by 19% in the first quarter of 1995 compared to the first quarter of 1994. Most of the growth was in the NetWare 4 product family, slightly offset by a decrease in the NetWare 3 product family. Novell Applications Group (NAG) revenues decreased by 18% in the first quarter of 1995 compared to the first quarter of 1994. The decrease is the result of decreases in stand alone WordPerfect products, somewhat offset by increases from the PerfectOffice suite as well as GroupWare applications. UNIX Systems Group (USG) revenues decreased 14% in the first quarter of 1995 compared to the first quarter of 1994. The decrease was attributable to lower source code revenues and to the anticipation of a new UnixWare version to be released in the second quarter of fiscal 1995. Information Access and Management Group (IAMG) revenues decreased by 13% in the first quarter of 1995 compared to the first quarter of 1994. The decrease was a result of lower shipments of Host Connectivity products as well as a decline in Advanced Access Applications. International sales represented 45% of total sales in the first quarter of 1995 compared to 44% in the first quarter of 1994. The Company expects that international sales will continue to grow at least at the same rate as domestic sales in fiscal 1995. Gross Profit Q1 Q1 1995 Change 1994 - ------------------------------------------------------------------- Gross profit (millions) $376 -2% $385 Percentage of net sales 76% 79% =================================================================== The gross margin percentage decreased in the first quarter of fiscal 1995 compared to the first quarter of fiscal 1994 due to the introduction and upgrade pricing for PerfectOffice sales and to higher royalty costs related to the Paradox license amortization. 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 1995 to be relatively flat compared to the gross profit margin in fiscal 1994. Operating Expenses Q1 Q1 1995 Change 1994 - ---------------------------------------------------------------------- Sales and marketing (millions) $140 11% $126 Percentage of net sales 28% 26% - ---------------------------------------------------------------------- Product development (millions) $90 7% $84 Percentage of net sales 18% 17% - ---------------------------------------------------------------------- General and administrative (millions) $34 -23% $44 Percentage of net sales 7% 9% - ---------------------------------------------------------------------- Nonrecurring charges (millions) -- -- $15 Percentage of net sales -- 3% - ---------------------------------------------------------------------- Total operating expenses (millions) $264 -2% $269 Percentage of net sales 53% 55% ======================================================================
Sales and marketing expenses increased as a percentage of net sales in the first quarter of fiscal 1995 compared to the first quarter of fiscal 1994. The increase is attributable to relatively higher corporate and product marketing expenses somewhat offset by lower domestic and international selling expenses. Sales and marketing expenses fluctuate as a percentage of net sales in any given period due to product promotions, advertising or other discretionary expenses. Product development expenses increased as a percentage of net sales in the first quarter of fiscal 1995 compared to the first quarter of fiscal 1994 as a result of an effort to increase the Company's investment in new products. General and administrative expenses decreased as a percentage of net sales in the first quarter of fiscal 1994 compared to the first quarter of fiscal 1994. The decrease is attributable to lower legal expenses and a reduction in headcount. During the first quarter of 1994, the Company wrote off $15 million of non-tax deductible purchased research and development in connection with the acquisition of SoftSolutions. Overall, operating expenses, excluding nonrecurring charges, have grown more rapidly than revenues in the first quarter of fiscal 1995 compared to the first quarter of fiscal 1994 due to higher sales and marketing expenses as well as higher product development costs. Q1 Q1 1995 Change 1994 - --------------------------------------------------------------------------- Employees 7,808 -16% 9,350 Annualized revenue per employee (000's) $243 23% $197 ===========================================================================
Early in fiscal 1994 WordPerfect reduced its workforce by approximately 1,000 employees. Subsequent to the merger between Novell and WordPerfect, there was an additional reduction in force of approximately 1,100. In the first quarter of 1995 an additional 650 employees functions were outsourced as part of the restructuring. As a result of these reductions, annualized revenue per employee increased 23% in the first quarter of 1995 compared to the same period in 1994. Other Income (Expense) Q1 Q1 1995 Change 1994 - ---------------------------------------------------------------------------- Other income (expense), net (millions) $10 -9% $11 Percentage of net sales 2% 2% ============================================================================
The primary component of other income (expense) is investment income, which was $10 million in the first quarter of fiscal 1995 compared to $11 million in the first quarter of fiscal 1994. The decrease is the result of the sale of some of the Company s holdings in Gupta Technologies, Inc. in the first quarter of 1994. 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 1995 Change 1994 - --------------------------------------------------------------------- Income taxes (millions) $41 28% $32 Percentage of net sales 8% 7% Effective tax rate 34% 25% =====================================================================
The Company s estimated tax rate for fiscal 1995 is 33.5%, which is down slightly from the fiscal 1994 rate of 34%, excluding the effect of the non-tax deductible one-time charges related to the write-off of purchased research and development of $15 million in the first quarter of fiscal 1994 and adjusting to reflect a provision for income taxes as if WordPerfect and its S corporation subsidiaries had never been S corporations. Net Income and Net Income Per Share Q1 Q1 1995 Change 1994 - --------------------------------------------------------------------- Net income (millions) $82 -13% $94 Percentage of net sales 17% 19% Net income per share $.22 -15% $.26 =====================================================================
Liquidity and Capital Resources Q1 Q4 1995 Change 1994 - ------------------------------------------------------------------------------ Cash and short-term investments (millions) $961 11% $862 Percentage of total assets 47% 44% ===============================================================================
Cash and short-term investments increased to $961 million at January 28, 1995 from $862 million at October 29, 1994. The major reasons for this increase were the $80 million of cash provided by operating activities, the $8 million provided by financing activities and the $22 million provided from other investing activities, offset by the $9 million used for capital asset purchases. The investment portfolio is diversified among security types, industry groups, and individual issuers. The Company's principal source of liquidity has been from operations. At January 28, 1995, the Company's principal unused sources of liquidity consisted of cash and short-term investments and available borrowing capacity of approximately $20 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 1995 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 1995 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 Except as listed below, all information required by items in Part II is omitted because the items are inapplicable or the answer is negative. Item 1. Legal Proceedings. The information required by this item is incorporated herein by reference to Footnote E of the Company s financial statements contained in Part I, Item 1 of this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number Description - ------- ----------- 27* Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant during the quarter ended January 28, 1995. - ------------------------------- *Filed herewith 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, 1995 /s/ Robert J. Frankenberg ------------------------- Robert J. Frankenberg Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer) Date: March 10, 1995 /s/ James R. Tolonen ------------------------ James R. Tolonen Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: March 10, 1995 /s/ Stephen C. Wise ------------------------ Stephen C. Wise Senior Vice President, Finance (Principal Accounting Officer) EX-27 2
5 3-MOS OCT-28-1995 JAN-28-1995 221,866 739,404 421,592 (87,585) 26,504 1,568,893 688,499 (306,085) 2,055,942 447,190 0 36,558 0 0 1,556,926 2,055,942 493,225 493,225 116,875 116,875 263,590 0 0 122,585 41,066 81,519 0 0 0 81,519 .22 .22
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