0000758004-95-000009.txt : 19950914 0000758004-95-000009.hdr.sgml : 19950914 ACCESSION NUMBER: 0000758004-95-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950729 FILED AS OF DATE: 19950908 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: 95571986 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 July 29, 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 August 26, 1995 there were 370,387,385 shares of the registrant's common stock outstanding. Part I. Financial Information, Item 1. Financial Statements NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS Jul. 29, Oct. 29, Dollars in thousands, except per share data 1995 1994 ------------------------------------------------------------------------- ASSETS Current assets Cash and short-term investments $1,230,344 $ 861,809 Receivables, less allowances ($98,304 - July; $82,934 - October) 467,315 391,342 Inventories 35,134 32,221 Prepaid expenses 51,528 69,324 Deferred income taxes 93,723 98,435 Total current assets 1,878,044 1,453,131 Property, plant and equipment, net 377,432 394,682 Other assets 113,572 115,668 Total assets $2,369,048 $1,963,481 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 101,692 $ 67,176 Accrued compensation 88,872 81,639 Accrued marketing liabilities 79,327 66,800 Other accrued liabilities 102,253 121,165 Income taxes payable 76,144 78,139 Deferred revenue 47,126 47,801 Total current liabilities 495,414 462,720 Minority interests 16,531 13,774 Shareholders' equity Common stock, par value $.10 a share Authorized - 600,000,000 shares Issued - 370,156,267 shares-July 364,354,887 shares-October 37,016 36,436 Additional paid-in capital 720,252 645,419 Retained earnings 1,099,835 805,132 Total shareholders' equity 1,857,103 1,486,987 Total liabilities and shareholders' equity $2,369,048 $1,963,481 See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME Fiscal Quarter Ended Nine Months Ended -------------------- ----------------- Amounts in thousands, Jul. 29, Jul. 30, Jul. 29, Jul. 30, except per share data 1995 1994 1995 1994 ------------------------------------------------------------------------------- Net sales $ 537,922 $488,924 $1,560,655 $1,512,132 Cost of sales 125,600 105,504 366,930 354,678 Gross profit 412,322 383,420 1,193,725 1,157,454 Operating expenses Sales and marketing 149,010 145,713 437,187 398,594 Product development 89,788 90,619 272,605 257,079 General and administrative 39,368 37,191 109,132 123,582 Nonrecurring charges -- 114,420 -- 129,389 ------------------------------------------------------------------------------- Total operating expenses 278,166 387,943 818,924 908,644 Income (loss) from operations 134,156 (4,523) 374,801 248,810 Other income (expense) Investment income 14,572 7,062 39,176 25,923 Merger expenses -- (5,778) -- (5,778) Other, net 4,604 (1,501) 6,102 (2,440) ------------------------------------------------------------------------------- Other income (expense), net 19,176 (217) 45,278 17,705 ------------------------------------------------------------------------------- Income (loss) before taxes 153,332 (4,740) 420,079 266,515 Income taxes 51,366 (275) 140,726 80,156 ------------------------------------------------------------------------------- Net income (loss) $101,966 $(4,465) $279,353 $186,359 =============================================================================== Weighted average shares outstanding 376,494 368,313 374,302 368,290 =============================================================================== Net income (loss) per share $ 0.27 $ (0.01) $ 0.75 $ 0.51 =============================================================================== See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended ----------------- Jul. 29, Jul. 30, Amounts in thousands 1995 1994 --------------------------------------------------------------------------- Cash flows from operating activities Net income $279,353 $186,359 Adjustments to reconcile net income to net cash provided (used) by operating activities Write-off of purchased research and development -- 129,389 Depreciation and amortization 69,398 62,531 WordPerfect fiscal year conversion -- (39,856) Stock plans income tax benefits 22,954 16,862 (Increase) decrease in receivables (75,973) 11,137 (Increase) in inventories (2,913) (635) Decrease (increase) in prepaid expenses 17,796 (32,400) Decrease (increase) in deferred income taxes 7,046 (50,387) Increase in current liabilities 32,694 4,697 --------------------------------------------------------------------------- Net cash provided by operating activities 350,355 287,697 --------------------------------------------------------------------------- Cash flows from financing activities Issuance of common stock, net 48,974 21,491 Repayment of debt -- (118,280) Borrowings -- 24,466 --------------------------------------------------------------------------- Net cash provided (used) by financing activities 48,974 (72,323) --------------------------------------------------------------------------- Cash flows from investing activities Expenditures for property, plant and equipment (48,131) (62,826) (Increase) in short-term investments (241,083) (255,330) Acquisition of Quattro Pro product line -- (110,000) Other 17,337 (3,659) --------------------------------------------------------------------------- Net cash used by investing activities (271,877) (431,815) --------------------------------------------------------------------------- Total increase (decrease) in cash and cash equivalents $127,452 $(216,441) Cash and cash equivalents - beginning of period 228,426 383,596 --------------------------------------------------------------------------- Cash and cash equivalents - end of period 355,878 167,155 Short-term investments - end of period 874,466 590,931 --------------------------------------------------------------------------- Cash and short-term investments - end of period $1,230,344 $758,086 =========================================================================== 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. 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) Jul. 29, 1995 Gains Losses Jul. 29, 1995 Oct. 29, 1994 --------------------------------------------------------------------------------------------------------- Cash and cash equivalents Cash $123,194 $ -- $ -- $123,194 $101,331 Repurchase agreements 11,300 -- -- 11,300 19,309 Tax exempt money market fund 73,858 -- -- 73,858 29,394 Taxable money market investments 84,594 -- -- 84,594 13,357 Municipal securities 62,985 -- -- 62,985 65,035 --------------------------------------------------------------------------------------------------------- Cash and cash equivalents $355,931 $ -- $ -- $355,931 $228,426 --------------------------------------------------------------------------------------------------------- Short-term investments Municipal securities $266,326 $ 3,414 $ -- $269,740 $201,491 Money market mutual funds 27,371 -- -- 27,371 104,388 Money market preferreds 433,200 150 -- 433,350 306,700 Mutual funds 100,117 -- (7) 100,110 13,017 Equity securities 18,389 25,453 -- 43,842 7,787 --------------------------------------------------------------------------------------------------------- Short-term investments $845,403 $29,017 $(7) $874,413 $633,383 --------------------------------------------------------------------------------------------------------- Cash and short-term investments $1,201,334 $29,017 $(7) $1,230,344 $861,809 ---------------------------------------------------------------------------------------------------------
During the first nine months of fiscal 1995 the Company had net realized gains of $4 million on the sale of securities compared to net realized gains in the first nine months of fiscal 1994 of $5 million. D. Income Taxes The Company's estimated effective tax rate for the first nine months 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 $105 million and $109 million, in the first nine months 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 July 29, 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 July 29, 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 and the plaintiffs have appealed that ruling. Novell does not believe that the resolution of the either 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 directly to end users and through distributors and OEM's who sell to dealers and end users. For the nine months ended July 29, 1995 and July 30, 1994, sales to international customers were approximately $712 million and $658 million, respectively. In the first nine months of fiscal 1995 and fiscal 1994, 57% and 59%, 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 17% of revenue in the first nine months of 1995 and 13% of revenue in the first nine months of fiscal 1994, no customer accounted for more than 10% of revenue in any period. G. Net Income (Loss) 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 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 to connect people with other people and the information they need, enabling them to act on it anytime, anyplace. 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 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 acquisitions, investments or strategic alliances which it believes complement its overall business strategy. Results of Operations Net Sales Q3 Q3 YTD YTD 1995 Change 1994 1995 Change 1994 ----------------------------------------------------------------------------- Net sales (millions) $538 10% $489 $1,561 3% $1,512 =============================================================================
During the second quarter of fiscal 1994, the Company sold a one time fully paid license for UNIX technology to Sun Microsystems for $81 million. Excluding this transaction, net sales grew by 9% in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. With the acquisition of WordPerfect in fiscal 1994, Novell organized itself into four product groups, all within the software industry. They are the NetWare Systems Group (NSG), the Novell Applications Group (NAG) , the UNIX Systems Group (USG), and the Information Access and Management Group (IAMG). While revenue increased in both the third quarter of fiscal 1994 to the third quarter of fiscal 1995 and in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994, analysis of the individual product groups characterizes the changes that have occurred. NSG revenues grew by 26% in the third quarter of fiscal 1995 compared to the like period in fiscal 1994 and by 17% in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. Strong growth was experienced in the NetWare 4 product family, partially offset by decreases in the NetWare 3 product family as well as other NSG products. NAG revenues decreased sharply by 27% in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994 and declined by 9% during the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. The decrease in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994, as well as the first nine months of fiscal 1995 compared to the like period in fiscal 1994, is the result of revenue decreases in standalone personal productivity application products. NAG revenues were clearly impacted by the MS Windows application market slowdown in anticipation of Microsoft's Windows 95. Novell's standalone and suite applications run on Microsoft's Windows 95 today, however, versions of these applications that take advantage of the new operating system features are expected to ship in early fiscal 1996. Microsoft currently offers a bundled suite of its products for Microsoft's Windows 95. To the extent that Microsoft and other competitors are more successful in gaining market share for Miscrosoft's Windows 95 applications, the Company's business and results of operations could be materially adversely affected. USG revenues increased by 18% in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994 and decreased by 52% in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. The increase in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994 was due to increases in UnixWare and Tuxedo. The decrease from the first nine months of fiscal 1994 to the like period in fiscal 1995 was attributable to a one time fully paid license for UNIX technology to Sun Microsystems for $81 million during the second quarter of fiscal 1994. Excluding this one-time license in fiscal 1994, USG revenues grew by 4% in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. IAMG revenues increased by 23% in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994 and by 11% in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. The increase was a result of increases across all IAMG product lines excepting the newly transitioned Consumer Products Division. Other revenues, made up largely of service and training, increased by 44% in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994 and by 43% in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. Excluding the one-time license fee in fiscal 1994, international sales represented 46% of total sales in both the first nine months of fiscal 1995 and the first nine months of fiscal 1994. Gross Profit Q3 Q3 YTD YTD 1995 Change 1994 1995 Change 1994 --------------------------------------------------------------------------- Gross profit (millions) $412 8% $383 $1,194 3% $1,157 Percentage of net sales 77% 78% 76% 77% ===========================================================================
In connection with the Sun Microsystems transaction described above, the Company revalued the software and other intangibles remaining on the balance sheet related to the USL acquisition in fiscal 1993. Accordingly, $35 million of costs associated with the sale of the license to Sun Microsystems were charged to cost of sales during the second quarter of fiscal 1994. Excluding the Sun Microsystems revenue and the related costs, the gross profit percentage would have been 78% in the first nine months of fiscal 1994. The gross profit percentage was down for the third quarter of fiscal 1995 as compared to the third quarter of fiscal 1994 and, excluding the Sun Microsystems revenue and related costs impact in fiscal 1994, was down for the first nine months of fiscal 1995 compared to the first nine months in fiscal 1994 mainly as a result of higher royalties and training and education expenses. Future fluctuations in the gross profit percentage 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 percentage in fiscal 1995 to not vary significantly from the gross profit percentage in fiscal 1994. Operating Expenses Q3 Q3 YTD YTD 1995 Change 1994 1995 Change 1994 -------------------------------------------------------------------------------- Sales and marketing (millions) $149 2% $146 $437 10% $399 Percentage of net sales 28% 30% 28% 26% -------------------------------------------------------------------------------- Product development (millions) $90 -1% $91 $273 6% $257 Percentage of net sales 17% 19% 17% 17% -------------------------------------------------------------------------------- General and administrative (millions) $39 5% $37 $109 -12% $124 Percentage of net sales 7% 8% 7% 8% -------------------------------------------------------------------------------- Nonrecurring charges (millions) -- -- $114 -- -- $129 Percentage of net sales -- 23% -- 9% -------------------------------------------------------------------------------- Total operating expenses (millions) $278 -28% $388 $819 -10% $909 Percentage of net sales 52% 79% 52% 60%
Sales and marketing expenses decreased from 30% of net sales in the third quarter of fiscal 1994 to 28% of net sales in the third quarter of fiscal 1995. The decrease is attributable to relatively lower domestic and international selling expenses as a result of reduced headcount, partially offset by higher corporate and product marketing expenses. Excluding the Sun Microsystems revenues in fiscal 1994, sales and marketing expenses remained flat at 28% of net sales in the first nine months of fiscal 1994 and in the first nine months of fiscal 1995. 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 decreased from 19% of net sales in the third quarter of 1994 to 17% of net sales in the third quarter of fiscal 1995. Excluding the Sun Microsystems revenue in fiscal 1994, product development expenses decreased to 17% of net sales as compared to 18% of net sales in the first nine months of fiscal 1994. The decrease relates primarily to lower headcount on higher revenues in fiscal 1995 compared to fiscal 1994. General and administrative expenses decreased from 8% to 7% of net sales in the third quarter of fiscal 1995 compared to the third quarter in fiscal 1994 and, excluding the Sun Microsystems revenue in fiscal 1994, decreased from 9% to 7% of net sales in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. The decreases are attributable to lower legal expenses and a reduction in administrative headcount subsequent to the merger with WordPerfect. 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. During the third quarter of 1994, the Company also wrote off $114 million of tax deductible purchased research and development in connection with the acquisition of the Quattro Pro spreadsheet product line from Borland, International, Inc. Total operating expenses have grown less rapidly than revenues in the third quarter of fiscal 1995 compared to the third quarter of fiscal 1994. Total operating expenses, excluding nonrecurring charges, have grown less rapidly than revenues in the first nine months of fiscal 1995 compared to the first nine months of fiscal 1994. The slower growth is due primarily to headcount reductions. YTD YTD 1995 Change 1994 -------------------------------------------------------------------------- Employees 7,599 (19)% 9,402 Annualized revenue per employee (000's) $259 35% $192 ==========================================================================
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 35% in the first nine months of fiscal 1995 compared to the same period in fiscal 1994. Other Income (Expense) Q3 Q3 YTD YTD 1995 Change 1994 1995 Change 1994 --------------------------------------------------------------------------- Other income (expense), net (millions) $19 -- $ $45 150% $18 Percentage of net sales 4% $ 3% 1% ===========================================================================
The primary component of other income (expense) is investment income, which was $15 million in the third quarter of fiscal 1995 compared to $7 million in the third quarter of fiscal 1994. During first nine months of fiscal 1995, investment income was $39 million compared to $26 million in the first nine months of fiscal 1994. The increase is the result of higher average yields on the Company's higher cash balances somewhat offset by lower capital gains on its investment portfolio. 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. In addition to the investment income, both the third quarter and the first nine months of fiscal 1995 included a $4 million gain on the sale of the Company's facility in Austin, Texas. Additionally as an offset to the investment income in the third quarter and first nine months of fiscal 1994, the Company incurred merger expenses of $6 million in connection with the WordPerfect merger. Income Taxes Q3 Q3 YTD YTD 1995 Change 1994 1995 Change 1994 --------------------------------------------------------------------------- Income taxes (millions) $51 -- -- $141 76% $80 Percentage of net sales 9% -- 9% 5% Effective tax rate 34% 34% 30% ===========================================================================
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. The higher effective rate in fiscal 1994 was attributable to non-tax deductible merger expenses. Net Income and Net Income Per Share Q3 Q3 YTD YTD 1995 Change 1994 1995 Change 1994 ------------------------------------------------------------------------- Net income (millions) $102 -- $(4) $279 50% $186 Percentage of net sales 19% (1)% 18% 12% Net income per share $.27 -- $(.01) $.75 47% $.51 =========================================================================
Excluding the impact of nonrecurring items and normalizing income taxes, net income for the third quarter of fiscal 1995 would remain at $102 million or 19% of net sales compared to $77 million or 16% of net sales in the third quarter of fiscal 1994. In the first nine months of fiscal 1995, net income would remain at $279 million or 18% of net sales while in the first nine months of fiscal 1994 net income would have been $237 million or 17% of net sales. Liquidity and Capital Resources YTD Q4 1995 Change 1994 -------------------------------------------------------------------------- Cash and short-term investments (millions) $1,230 43% $862 Percentage of total assets 52% 44% ==========================================================================
Cash and short-term investments increased to $1,230 million at July 29, 1995 from $862 million at October 29, 1994. The major reasons for this increase were the $350 million of cash provided by operating activities, the $49 million provided by financing activities and the $17 million provided from other investing activities, partially offset by the $48 million used for capital asset purchases. The Company's principal source of liquidity has been from operations. At July 29, 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 investment portfolio is diversified among security types, industry groups, and individual issuers. 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 July 29, 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: September 8, 1995 /s/ Robert J. Frankenberg ----------------------------- Robert J. Frankenberg Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer) Date: September 8, 1995 /s/ James R. Tolonen ---------------------------- James R. Tolonen Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: September 8, 1995 /s/ Stephen C. Wise ---------------------------- Stephen C. Wise Senior Vice President, Finance (Principal Accounting Officer) EX-27 2
5 9-MOS OCT-28-1995 JUL-29-1995 355,931 874,413 467,315 (98,304) 35,134 1,878,044 679,755 (302,323) 2,369,048 495,414 0 37,016 0 0 1,820,087 2,369,048 1,560,655 1,560,655 366,930 366,930 818,924 0 0 420,079 140,726 279,353 0 0 0 279,353 .75 .75