-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KIyUeU0PDk0UqRWDwMh3QTNu3j9EDq5NQX4o7FnUUsNloWLr+4TWtDdQZ3vGP6ZY c+TWm0QHt93YVU7njnsUIQ== 0000758004-98-000009.txt : 19980318 0000758004-98-000009.hdr.sgml : 19980318 ACCESSION NUMBER: 0000758004-98-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980317 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVELL INC CENTRAL INDEX KEY: 0000758004 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 870393339 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13351 FILM NUMBER: 98567753 BUSINESS ADDRESS: STREET 1: 122 EAST 1700 SOUTH CITY: PROVO STATE: UT ZIP: 84097 BUSINESS PHONE: 8012226600 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 31, 1998 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) 861-7000 (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 suchfiling requirements for the past 90 days. YES X NO ___ As of February 27, 1998 there were 351,627,630 shares of the registrant's common stock outstanding. Part I. Financial Information, Item 1. Financial Statements NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS Jan. 31, Oct. 31, Dollars in thousands, except per share data 1998 1997 - --------------------------------------------------------------------------- ASSETS Current assets Cash and short-term investments $ 1,045,144 $ 1,033,473 Receivables, less allowances 225,039 234,358 ($45,457 - January; $33,053 - October) Inventories 9,178 10,656 Prepaid expenses 66,205 57,685 Deferred and refundable income taxes 119,833 134,210 - -------------------------------------------------------------------------- Total current assets 1,465,399 1,470,382 Property, plant and equipment, net 363,508 373,865 Other assets 73,754 66,402 - --------------------------------------------------------------------------- Total assets $ 1,902,661 $ 1,910,649 =========================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 66,490 $ 82,759 Accrued compensation 48,041 51,397 Accrued marketing liabilities 24,059 27,728 Other accrued liabilities 83,336 85,157 Income taxes payable 4,831 -- Deferred revenue 83,586 74,915 - --------------------------------------------------------------------------- Total current liabilities 310,343 321,956 Minority interests 20,711 23,276 Shareholders' equity Common stock, par value $.10 a share Authorized - 600,000,000 shares Issued - 351,145,781 shares-January 350,937,812 shares-October 35,115 35,094 Additional paid-in capital 380,117 378,582 Retained earnings 1,202,455 1,188,361 Unearned stock compensation (6,351) (7,189) Cumulative translation adjustment (552) (666) Unrealized (loss) on investments (39,177 (28,765) - --------------------------------------------------------------------------- Total shareholders' equity 1,571,607 1,565,417 - ----------------------------------------------------------------------------- See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME Fiscal Quarter Ended Amounts in thousands, Jan. 31, Jan. 31, except per share data 1998 1997 - --------------------------------------------------------------------------- Net sales $252,042 $374,847 Cost of sales 55,139 75,971 - --------------------------------------------------------------------------- Gross profit 196,903 298,876 Operating expenses Sales and marketing 101,735 127,890 Product development 57,786 71,755 General and administrative 32,450 37,731 - ---------------------------------------------------------------------------- Total operating expenses 191,971 237,376 Income from operations 4,932 61,500 Other income (expense) Investment income 14,399 16,614 Other, net 244 (2,837) - ---------------------------------------------------------------------------- Other income, net 14,643 13,777 - ---------------------------------------------------------------------------- Income before taxes 19,575 75,277 Income taxes 5,481 24,465 - ---------------------------------------------------------------------------- Net income $ 14,094 $ 50,812 ============================================================================ Weighted average shares outstanding Basic 351,031 346,506 Diluted 352,971 347,095 ============================================================================ Net income per share Basic $ 0.04 $ 0.15 Diluted $ 0.04 $ 0.15 ============================================================================= See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS Fiscal Quarter Ended Jan. 31, Jan. 31, Amounts in thousands 1998 1997 - ---------------------------------------------------------------------------- Cash flows from operating activities Net income $ 14,094 $ 50,812 Adjustments to reconcile net income to net cash provided (used) by operating activities Depreciation and amortization 19,889 23,816 Stock plans income tax benefits 132 1,803 Decrease in receivables 9,319 58,837 Decrease (increase) in inventories 1,478 (3,364) (Increase) decrease in prepaid expenses (8,520) 5,431 Decrease (increase) in deferred and refundable incometaxes 14,378 (13,049) (Decrease) in current liabilities, net (11,613) (11,190) - ---------------------------------------------------------------------------- Net cash provided from operating activities 39,157 113,096 - ----------------------------------------------------------------------------- Cash flows from financing activities Issuance of common stock, net 1,424 2,685 Sale of put warrants -- 2,300 Settlement of put warrants -- (6,250) - ----------------------------------------------------------------------------- Net cash provided (used) from financing activities 1,424 (1,265) - ----------------------------------------------------------------------------- Cash flows from investing activities Expenditures for property, plant and equipment (8,694) (27,543) Purchases of short-term investments (484,596) (714,467) Maturities of short-term investments 342,605 507,663 Sales of short-term investments 145,517 166,868 Other (9,804) 1,007 - ----------------------------------------------------------------------------- Net cash (used) by investing activities (14,972) (66,472) - ----------------------------------------------------------------------------- Total increase in cash and cash equivalents $ 25,609 $ 45,359 Cash and cash equivalents - - beginning of period 208,543 145,521 - ---------------------------------------------------------------------------- Short-term investments - end of period 810,992 911,441 - ---------------------------------------------------------------------------- Cash and short-term investments - - end of period $1,045,144 $1,102,321 See notes to consolidated unaudited condensed financial statements.
NOVELL, INC. NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS A. Quarterly Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 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 1997 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. Certain reclassifications, none of which affected net income, have been made to the prior years' amounts in order to conform to the current year's presentation. In the first quarter of fiscal 1997, the Company implemented a change to itsfiscal year and month ending dates. The Company now recognizes its fiscalyear end on the last calendar day of October, as opposed to prior years on thelast Saturday in October. Likewise, each fiscal month now ends on the last calendar day of each month, and each fiscal quarter will have a unique number of days as opposed to the consistent 13 weeks in prior years. Implementing this change resulted in an extra five days in the first fiscal quarter of 1997 which the Company believes did not have a material impact on its financial position, results of operations, or cash flows. B. Significant Events During the third quarter of fiscal 1997, Novell took measures to reduce and realign its resources and better manage and control its business. These measures were in response to declines in sales of boxed products through indirect distribution channel customers, controlled shifts to multi-product licenses, lower licensing revenue of certain older products to OEM's, as well as competitive pressures in the small network market. Specifically, the Company did not ship boxed products to its indirect distribution channel customers except to accommodate product exchanges and returns. In addition,the Company reduced its workforce by approximately 1,000 employees, or 17% and consolidated a number of facilities. This resulted in a one-time restructuring charge of $55 million, principally comprised of severance and excess facilities costs. The restructuring charge contributed a loss of $0.10 per share, net of tax, to the reported loss in fiscal 1997. On March 12, 1998, the Company announced the resignation of James R. Tolonen as Senior Vice President and Chief Financial Officer. The Company also announced that Dennis R. Raney has joined the Company as interim Chief Financial Officer while the Company continues to actively recruit a Chief Operating Officer. C. Cash and Short-term Investments are carried at fair market value, with the unrealized gains and losses, net of tax, included in shareholders equity. Municipal securities included in short-term investments have contractual maturities from 1-5 years. Money market preferreds have contractual maturities of less than 90 days. No other short-term investments have contractual maturities. The cost of securities sold is based on the specific identification method. Such securities are available to be used forcurrent 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 Jan. 31, 1998 Gains Losses Jan. 31, 1998 (Dollars in thousands) - ---------------------------------------------------------------------------- Cash and cash equivalents Cash $ 75,555 $ -- $ -- $ 75,555 Repurchase agreements 770 -- -- 770 Taxable money market fund 39,362 -- -- 39,362 Municipal securities 118,465 -- -- 118,465 - ----------------------------------------------------------------------------- Cash and cash equivalents $ 234,152 $ -- $ -- $ 234,152 - ----------------------------------------------------------------------------- Short-term investments Municipal securities $ 468,883 $ 6,073 $ (99) $ 474,857 Money market mutual funds 48 -- -- 48 Money market preferreds 146,065 2 (17) 146,050 Mutual funds 106,226 46 -- 106,272 Equity securities 153,555 24,878 (94,668) 83,765 - ----------------------------------------------------------------------------- Short-term investments $ 874,777 $ 30,999 $ (94,784) $ 810,992 - ----------------------------------------------------------------------------- Cash and short-term investments $1,108,929 $ 30,999 $ (94,784) $1,045,144 - ----------------------------------------------------------------------------- Gross Gross Fair Cost at Unrealized Unrealized Market Value at Oct. 31, 1997 Gains Losses Oct. 31, 1997 (Dollars in thousands) - ----------------------------------------------------------------------------- Cash and cash equivalents Cash $ 84,151 $ -- $ -- $ 84,151 Repurchase agreements 4,932 -- -- 4,932 Money market fund 42,581 -- -- 42,581 Municipal securities 76,879 -- -- 76,879 - ------------------------------------------------------------------------------ Short-term investments Municipal securities $ 463,443 $ 4,551 $ (84) $ 467,910 Money market mutual funds 88,999 -- -- 88,999 Money market preferreds 150,817 -- (17) 150,800 Mutual funds 14,721 33 (1) 14,753 Equity securities 153,785 25,829 (77,146) 102,468 - ----------------------------------------------------------------------------- Short-term investments $ 871,765 $30,413 $(77,248) $ 824,930 - ----------------------------------------------------------------------------- Cash and short-term investments $1,080,308 $30,413 $(77,248) $1,033,473 - ----------------------------------------------------------------------------- During the first quarter of fiscal 1998 the Company had realized gains of $3 million on the sale of securities compared to realized gains of $6 million in the first quarter of fiscal 1997, while realizing losses on sales of securities of $1 million in the first quarter of fiscal 1998. D. Income Taxes The Company's estimated effective tax rate for the first quarter of fiscal 1998 was 28.0% compared to 32.5% in the first quarter of fiscal 1997. The Company paid cash amounts for income taxes of $1 million and $3 million, in the first quarter of fiscal 1998 and 1997, 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 31, 1998 there were no borrowings, letter of credit acceptances or commitments under such line. The Company has an additional $5 million line of credit with another bank which is not subject to a loan agreement. At January 31, 1998 standby letters of credit of approximately $200,000 were outstanding under this line ofcredit. In fiscal 1997, the Company entered into agreements to lease buildings being constructed on land owned by the Company in San Jose, California and in Provo, Utah. The lessor has committed to fund up to $272 million for construction ofthe buildings. The leases are for a period of seven years and can be renewed for two additional five year periods, subject to the approval of the lender and the Company, at the sole discretion of each party. Rent obligations will commence upon the Company's occupation of the buildings in fiscal 1999 and fiscal 2000. If the Company does not purchase the buildings, or arrange for the sale of the buildings, at the end of the lease, the Company will guarantee approximately $272 million) as determined at the inception of the leases. Inaddition, the agreement calls for the Company to maintain a specific level of restricted cash to serve as collateral for the leases and maintain compliance with certain financial covenants. The value of restricted cash held as collateral at January 31, 1998 was approximately $ 28 million, and is included in other assets. In 1993, a suit was filed due to a failed contract against a company that Novell subsequently acquired. The plaintiff obtained a jury verdict against the acquired company in 1996. Novell does not believe that the resolution ofthis legal matter will have a material adverse effect on its financial position, results of operations, or cash flows. The Company is a party to a number of legal claims 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, results of operations, or cash flows. F. Put Warrants In fiscal 1997, the Company sold put warrants on 2 million shares of its common stock for $2 million, callable on specific dates in the third quarter of fiscal 1997, giving a third party the right to sell shares of Novell common stock to the Company at contractually specified prices. The put warrant liability is the amount the Company would be obligated to pay if all the outstanding put warrants were exercised at the strike price without a cash settlement. During fiscal 1997, the Company also settled all of its remaining put warrants obligations on 6 million shares for cash of $21 million and therefore reversed the put warrant obligation back to additional paid-in capital. G. International Sales The Company markets internationally both directly to end users and through distributors who sell to dealers and end users. For the fiscal quarters ended January 31, 1998 and January 31, 1997, sales to international customers were approximately $109 million and $172 million, respectively. In the first quarters of fiscal 1998 and fiscal 1997, 65% and 62%, 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 15% of revenue in the first quarter of 1998 and 18% of revenue in the first quarter of fiscal 1997, no customer accounted for more than 10% of revenue in any period. H. Net Income Per Share In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is what the Company previously reported as earnings per share. Earnings per share amounts for all periods have been presented and where appropriate, restated to conform to the Statement No. 128 requirements. Item 2. Management's Discussion and Analysis of Financial Condition andResults of Operations Introduction Novell is the world's leading provider of network software. The Company offers a wide range of network solutions, education, and support for distributed network, Internet, and small-business markets. During the third quarter of fiscal 1997, Novell took measures to reduce and realign its resources and better manage and control its business. The measures were in response to declines in sales of boxed products through indirect distribution channel customers, controlled shifts to multi-product licenses, lower licensing revenue of certain older products to OEM's, as well as competitive pressures in the small network market. Specifically, the Company did not ship boxed products to its indirect distribution channel customers except to accommodate product exchanges and returns. The Company believes this action, which significantly reduced reported revenue in the quarter, brought indirect distribution channel inventories of boxed software products in line with current market demand. The decision to withhold shipments to the Company's indirect distributor channel resulted in an operating loss in the third quarter of fiscal 1997. The Company will continue to monitor channel inventory levels to keep them in line with estimated market demand. In addition, the Company reduced its workforce by approximately 1,000 employees, or 17%, and consolidated a number of facilities. This resulted in a one-time restructuring charge of $55 million, principally comprised ofseverance and excess facilities costs. The restructuring charge contributed a loss of $0.10 per share, net of tax, to the reported loss in fiscal 1997. The workforce reduction and associated consolidation of facilities returned the Company to break even for the fourth quarter of fiscal 1997 and is expected to lower future operating expenses by appproximately $100 million annually. In the first quarter of fiscal 1997, the Company implemented a change to its fiscal year and month ending dates. The Company now recognizes its fiscal year end on the last calendar day of October, as opposed to prior years which ended on the last Saturday in October. Likewise, each fiscal month end now ends on the last calendar day of each month, and each fiscal quarter has a unique number of days as opposed to the consistent 13 weeks in prior years. quarter of 1997, which the Company believes did not have a material impact on its financial position, results of operations, or cash flows. Results of Operations Net Sales Q1 Q1 1998 Change 1997 - ----------------------------------------------------------------------------- Net sales (millions) $252 -33% $375 ============================================================================= In general, the Company has experience continued competitive pressures in the marketplace, resulting in the action taken in the third quarter of fiscal 1997 described above. These competitive pressures also resulted in lower overall revenues in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. Novell's product lines can be categorized into server operating environments; network services; UNIX royalties; and education, service and other. While revenue decreased from the first quarter of 1997 to the first quarter of 1998, analysis of the individual product categories characterizes the changes that have occurred. Server operating environments revenues decreased by $103 million or 41% in the first quarter of 1998 compared to the first quarter of 1997. Decreases occurred in both the NetWare 4 product family of $60 million or a 32% decline from the first quarter of 1997 and in the NetWare 3 product family of $43 million or a 66% decline from the first quarter of 1997.
Network services revenues decreased by $13 million or 16% in the first quarter of 1998 compared to the first quarter of 1997. The decrease is mainly the result of decreases in TCP/IP access products of $9 million, GroupWare application products of $6 million, Host Connectivity products of $5 million and Network management products of $4 million, somewhat offset by a $7 million increase in Tuxedo, and the Company's border manager product of $5 million. UNIX royalties revenues decreased $3 million or 29% in the first quarter of 1998 compared to the first quarter of 1997. The decrease was attributable to declining sales of UNIX licenses. Education, service and other revenues decreased by $5 million or 14% in the first quarter of 1998 compared to the first quarter of 1997. The decrease was a result of lower revenues in training and other product categories, partially offset by an increase in service related revenue. International sales represented 43% of total sales in the first quarter of 1998 compared to 46% in the first quarter of 1997. This change is a result ofa 30% decrease in domestic revenues compared to a 36% decrease in international revenues in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997. Gross Profit Q1 Q1 1998 Change 1997 - ----------------------------------------------------------------------------- Gross profit (millions) $197 -34% $299 Percentage of net sales 78% 80% ============================================================================== The gross margin percentage decreased in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 due to the fixed portion of cost of sales being a higher percentage of the lower revenue in the first quarter of fiscal 1998 notwithstanding the substantial cost reductions in absolute dollars. Operating Expenses Q1 Q1 1998 Change 1997 - ----------------------------------------------------------------------------- Sales and marketing (millions) $102 -20% $128 Percentage of net sales 40% 34% - ------------------------------------------------------------------------------ Product development (millions) $58 -19% $72 Percentage of net sales 23% 19% - ----------------------------------------------------------------------------- General and administrative (millions)$32 -14% $37 Percentage of net sales 13% 10% - ----------------------------------------------------------------------------- Total operating expenses (millions) $192 -19% $237 Percentage of net sales 76% 63% ============================================================================== Sales and marketing expenses decreased by $26 million in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 primarily due to workforce reductions and lower facilities costs as a result of the Company's restructuring in the third quarter of fiscal 1997. Sales and marketing expenses increased as a percentage of net sales in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 due to a lower revenue base. 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 by $14 million in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 primarily due to workforce reductions in fiscal 1997, but decreased in absolute dollars due to a lower revenue base. General and administrative expenses decreased by $5 million in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997 primarily due to workforce reductions in fiscal 1997, while increasing as a percentage of net sales due to a lower revenue base. Overall, operating expenses have declined less rapidly than revenues in the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997, but as a percentage of net sales as compared to the fourth quarter of fiscal 1997.
Q1 Q1 1998 Change 1997 - ----------------------------------------------------------------------------- Employees 4,638 -20% 5,796 Annualized revenue per employee (000's) $214 -17% $257 ============================================================================== In fiscal 1997, the Company reduced its workforce by approximately 1,000 employees as the Company realigned its resources to better manage and control its business. Other Income, Net Q1 Q1 1998 Change 1997 - ----------------------------------------------------------------------------- Other income, net (millions) $15 7% $14 Percentage of net sales 6% 4% ============================================================================== The primary component of other income, net is investment income, which was $14 million in the first quarter of fiscal 1998 compared to $17 million in the first quarter of fiscal 1997. The decrease is the result of higher realized capital gains in the first quarter of fiscal 1997. 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 1998 Change 1997 - ----------------------------------------------------------------------------- Income taxes (millions) $5 -79% $24 Percentage of net sales 2% 6% Effective tax rate 28% 33% ============================================================================== The effective tax rate for fiscal 1998 is estimated to be 28% compared to a tax benefit of 48% in fiscal 1997 due to a loss before taxes in fiscal 1997 compared to anticipated earnings in fiscal 1998. Net Income and Net Income Per Share Q1 Q1 1998 Change 1997 - ----------------------------------------------------------------------------- Net income (millions) $14 -73% $51 Percentage of net sales 6% 14% Net income per share - - basic and diluted $.04 -73% $.15 ============================================================================== In 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share. Statement No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is what the Company previously reported as earnings per share. Earnings per share amounts for all periods have been presented and where appropriate, restated to conform to the Statement No. 128 requirements. Liquidity and Capital Resources Q1 Q4 1998 Change 1997 - ----------------------------------------------------------------------------- Cash and short-term investments (millions) $1,045 1% $1,033 Percentage of total assets 55% 54% ============================================================================== Cash and short-term investments increased to $1,045 million at January 31, 1998 from $1,033 million at October 31, 1997. The major reason for this increase was the $39 million provided by operating activities, offset by the $9 million of cash used for expenditures on property, plant and equipment, and the $10 million used by other investing activities. 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 31, 1998, the Company's principal unused sources of liquidity consisted of cash and short-term investments and available borrowing capacity of approximately $15 million under its credit facilities. The Company's liquidity needs are principally for the Company's financing of accounts receivable, capital assets, strategic investments and flexibility in a dynamic and competitive operating environment. During the first fiscal quarter of 1998, 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. The Company believes that borrowings under the Company's credit facilities, or public offerings of equity or debt securities are available if the need arises. Investments will continue in product development and in new and existing areas of technology. Cash may also be used to acquire technology through purchases and strategic acquisitions. Capital expenditures in fiscal 1998 are anticipated to be approximately $45 million, but could be reduced if the growth of the Company is less than presently anticipated. The Company's future results of operations involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially from historical results are the following: business conditions and the general economy; competitive factors, such as rival operating systems, acceptance of new products and price pressures; availability of third-party compatible products at reasonable prices; risk of nonpayment of accounts or notes receivable; risks associated with foreign operations; risk of product line or inventory obsolescence due to shifts in technologies or market demand; timing of software product introductions; market fluctuations of investment securities; and litigation. The Company is addressing the issues associated with the year 2000. The Company is utilizing resources to identify, correct, reprogram and test both its systems used internally as well as the products it sells for year 2000 compliance. It is anticipated that all reprogramming efforts will be completed during fiscal 1998. Novell believes that it has the product offerings, facilities, personnel, and competitive and financial resources for continued business success, but future revenues, costs, margins, product mix, and profits are all influenced by a number of factors, such as those discussed above, as well as risks described in detail in the Company's fiscal 1997 report on Form 10K. 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 31, 1998. ______________________ *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 16, 1998 /s/ Dr. Eric Schmidt ---------------------- Dr. Eric Schmidt Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: March 16, 1998 /s/ Dennis R. Raney --------------------- Dennis R. Raney Chief Financial Officer (Principal Financial Officer) Date: March 16, 1998 /s/ Cliff Simpson -------------------- Cliff Simpson Vice President Finance and Corporate Controller (Principal Accounting Officer) EX-27 2
5 3-MOS OCT-31-1998 JAN-31-1998 234,152 810,992 225,039 (45,457) 9,178 1,465,399 767,218 (403,710) 1,902,661 310,343 0 0 0 35,115 1,536,492 1,902,661 252,042 252,042 55,139 55,139 191,971 0 0 19,575 5,481 14,594 0 0 0 14,094 .04 .04
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