-----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, nAlJYaIHrhzHeAWyBTrr5fTmojtvDCEeLlyGqCCUIPlpscFHBDsgXLjTBlioqFQW 6Qa3DCdrqRSGNBVlZ3m1VQ== 0000891618-94-000126.txt : 19940614 0000891618-94-000126.hdr.sgml : 19940614 ACCESSION NUMBER: 0000891618-94-000126 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940430 FILED AS OF DATE: 19940610 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOVELL INC CENTRAL INDEX KEY: 0000758004 STANDARD INDUSTRIAL CLASSIFICATION: 7373 IRS NUMBER: 870393339 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13351 FILM NUMBER: 94533691 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 NOVELL 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 April 30, 1994 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to _____________ Commission File Number: 0-13351 NOVELL, INC. (Exact name of registrant as specified in its charter) Delaware 87-0393339 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
122 East 1700 South Provo, Utah 84606 (Address of principal executive offices and zip code) (801) 429-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ As of May 27, 1994 there were 310,849,064 shares of the registrant's common stock outstanding. 2 PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
Dollars in thousands, except per share data Apr. 30, 1994 Oct. 30, 1993 - - ------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 427,396 $ 328,469 Short-term investments 502,158 335,601 Receivables, less allowances ($47,971 - April; $44,266 - October) 290,797 331,662 Other 72,460 56,474 ----------------------------- Total current assets 1,292,811 1,052,206 Property, plant and equipment, net 225,799 216,849 Other assets 60,619 74,800 ----------------------------- Total assets $1,579,229 $1,343,855 =========================== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 34,357 38,794 Accrued salaries and wages 43,692 53,756 Accrued marketing liabilities 32,959 29,892 Other accrued liabilities 46,431 41,566 Income taxes payable 67,081 50,588 Deferred revenue 16,152 15,839 ----------------------------- Total current liabilities 240,672 230,435 Deferred income taxes 11,711 -- Minority interests 12,759 10,205 Put warrants -- 106,716 SHAREHOLDERS' EQUITY Common stock, par value $.10 a share Authorized - 400,000,000 shares Issued - 310,598,991 shares-April 308,050,977 shares-October 31,060 30,805 Additional paid-in capital 545,963 411,064 Retained earnings 739,964 562,238 Unearned stock compensation (7,007) (9,814) Cumulative translation adjustment 4,107 2,206 ------------------------------- Total shareholders' equity 1,314,087 996,499 ------------------------------- Total liabilities and shareholders' equity $1,579,229 $1,343,855 ===========================
See notes to consolidated unaudited condensed financial statements. 2 3 NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
Fiscal Quarter Ended Six Months Ended ----------------------------- ------------------------------- Amounts in thousands, Apr. 30, May 1, Apr. 30, May 1, except per share data 1994 1993 1994 1993 - - -------------------------------------------------------------------------------------------------------- Net sales $406,591 $280,720 $717,975 $540,894 Cost of sales 107,861 49,438 172,001 99,889 ------------------------- -------------------------- Gross profit 298,730 231,282 545,974 441,005 ------------------------- -------------------------- OPERATING EXPENSES Sales and marketing 72,233 61,466 141,452 115,051 Product development 53,820 37,123 110,350 71,368 General and administrative 22,568 18,395 45,382 39,442 -------------------------- --------------------------- 148,621 116,984 297,184 225,861 -------------------------- -------------------------- Income from operations 150,109 114,298 248,790 215,144 OTHER INCOME (EXPENSE) Investment income 7,912 6,289 18,861 13,191 Other, net (258) 1,316 (394) 965 --------------------------- --------------------------- 7,654 7,605 18,467 14,156 --------------------------- --------------------------- Income before taxes 157,763 121,903 267,257 229,300 Income taxes 52,851 41,447 89,531 77,962 --------------------------- --------------------------- Net income $104,912 $80,456 $177,726 $151,338 =========================== =========================== Net income per share $0.33 $0.26 $ 0.57 $0.49 ============================ =========================== Weighted average shares outstanding 314,371 311,940 314,154 311,399 =========================== ==========================
See notes to consolidated unaudited condensed financial statements. 3 4 NOVELL, INC. CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended ---------------------------------- Apr. 30, May 1, Amounts in thousands 1994 1993 - - ------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $177,726 $151,338 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Costs associated with sale of license 35,000 -- Depreciation and amortization 26,325 18,576 Stock plans income tax benefits 14,278 37,859 Minority interest in earnings (loss) 952 (508) Decrease (increase) in receivables 40,865 (6,654) (Increase) decrease in other current assets (15,986) 1,207 (Decrease) in accounts payable (4,437) (11,370) (Decrease) in accrued salaries and wages (10,064) (4,217) Increase in accrued marketing liabilities 3,067 5,325 Increase in other accrued liabilities 4,865 114 Increase in income taxes payable 16,493 18,356 Increase (decrease) in deferred revenue 313 (2,606) ------------------------------- 289,397 207,420 ------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock, net 17,473 25,491 Settlement of put warrants (2,278) - Proceeds from minority interests investment 1,602 1,561 ----------------------------- 16,797 27,052 ----------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant and equipment (33,503) (36,865) (Increase) in short-term investments (166,557) (137,142) Other (7,207) (2,083) -------------------------------- (207,267) (176,090) -------------------------------- SUMMARY Increase in cash and cash equivalents 98,927 58,382 Cash and cash equivalents - beginning of period 328,469 259,933 ------------------------------- Cash and cash equivalents - end of period $427,396 $318,315 ===============================
See notes to consolidated unaudited condensed financial statements. 4 5 NOVELL, INC. NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS A. QUARTERLY FINANCIAL STATEMENTS The accompanying consolidated unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q but do not include all of the information and footnotes required by generally accepted accounting principles and should therefore, be read in conjunction with the Company's fiscal 1993 Annual Report to Shareholders. These statements do include all normal recurring adjustments which the Company believes necessary for a fair presentation of the statements. The interim operating results are not necessarily indicative of the results for a full year. B. MERGERS, ACQUISITIONS, AND STRATEGIC INVESTMENTS In April 1991, the Company purchased a minority equity position in UNIX System Laboratories, Inc., (USL) a subsidiary of AT&T that develops and licenses the UNIX operating system and other standards-based software to vendors worldwide. This cash investment of $15.0 million was accounted for using the cost method. Later, in December 1991, the Company announced the formation of Univel, a 55% owned joint venture with USL, formed to accelerate the expanded use of the UNIX operating system in the personal computer and network computing marketplace. Novell and USL contributed cash and technology rights to Univel. In June 1993, the Company acquired the remaining unowned portion of USL by issuing approximately 11.1 million shares of Novell common stock valued at $321.8 million in exchange for all of the outstanding stock of USL not previously owned by Novell and assumed additional liabilities of $9.4 million. The transaction was accounted for as a purchase and, on this basis a one-time write-off of $268.7 million for purchased research and development was incurred. Univel has been included in the consolidated financial statements of Novell since December 1991 by virtue of Novell's 55% ownership interest. That ownership interest is now 100% since the June 1993 acquisition of USL, whereby both USL and Univel are now included in the consolidated financial statements of Novell. In June 1993, the Company purchased all of the outstanding stock not previously owned by Novell of Serius Corporation (Serius), a developer of object-based application tools, for $17.0 million cash and assumed liabilities of $5.0 million, whereby Serius became a wholly owned subsidiary of Novell. Novell's previous ownership was a $1.1 million cash investment. The transaction was accounted for as a purchase and on this basis, resulted in a one-time write-off of $22.1 million in the third quarter of fiscal 1993. In June 1993, the Company acquired all of the outstanding stock of Software Transformation, Inc. (STI), a developer of software development tools, by issuing approximately 800,000 shares of Novell Common stock in exchange for all of the outstanding stock of STI. The transaction was accounted for as a pooling of interests, however, prior periods were not restated due to immateriality. In July 1993, the Company acquired all of the outstanding stock of Fluent, Inc. (Fluent), a developer of multimedia software for personal computers, for $18.5 million cash and assumed liabilities of $3.0 million, whereby Fluent became a wholly owned subsidiary of Novell. The transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $20.7 million in the third quarter of fiscal 1993. In March 1994, the Company signed a definitive merger agreement to acquire all of the outstanding stock of WordPerfect Corporation (WordPerfect), a developer of application software for personal computers, by issuing 51.4 million shares of Novell common stock in exchange for all of the outstanding shares of WordPerfect common stock and assuming the 7.8 million WordPerfect stock options outstanding. This transaction would be accounted for as a pooling of interests. Additionally in March 1994, the Company signed an agreement with Borland International, Inc. to purchase its QuattroPro spreadsheet product line for approximately $110 million of cash and 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 approximately $35 million of cash. These transactions are all expected to be completed during the third quarter of fiscal 1994. 5 6 C. INCOME TAXES The Company's estimated effective tax rate for the first six months of fiscal 1994 was 33.5%. The estimated tax rate for fiscal 1994 is equal to the fiscal 1993 rate, excluding the one-time charge related to purchased research and development in the third quarter of fiscal 1993, which was not deductible for income tax purposes. The Company paid cash amounts for income taxes of $66.1 million and $25.1 million, in the first six months of fiscal 1994 and 1993, respectively. The Company adopted the provisions of SFAS No. 109 effective October 31, 1993 for fiscal year 1994. As permitted under the new rules, prior years financial statements have not been restated. D. COMMITMENTS AND CONTINGENCIES The Company currently has a $10.0 million unsecured revolving bank line of credit, with interest at the prime rate. The line can be used for either letter of credit or working capital purposes. The line is subject to the terms of a loan agreement containing financial covenants and restrictions, none of which are expected to significantly affect the Company's operations. At April 30, 1994, there were no borrowings, letter of credit acceptances, or commitments under such line. The Company has an additional $10.0 million credit facility with another bank which is not subject to a loan agreement. At April 30, 1994, standby letters of credit of $207,000 were outstanding under this agreement. On November 10, 1993, a suit was filed against Novell and certain of its officers and directors alleging violation of federal securities laws. The lawsuit was brought as a purported class action on behalf of purchasers of Novell common stock from June 23, 1993 through July 26, 1993. Novell does not believe that the resolution of this legal matter will have a material adverse effect on its financial position or results of operations. In December of 1991, Roger Billings and his International Academy of Science, (the Academy) filed suit against Novell alleging that the Company infringes on a patent allegedly owned by the Academy. The case is still in its pretrial phase. On June 6, 1994, Novell filed a petition with the U.S. Patent and Trademark office requesting that it invalidate the patent. The Company believes that the ultimate resolution of this legal proceeding will not have a material adverse effect on its financial position or results of operations. The Company is a party to a number of additional legal proceedings arising in the ordinary course of its business. The Company believes the ultimate resolution of these claims will not have a material adverse effect on its financial position or results of operations. 6 7 E. PUT WARRANTS During fiscal 1993, the Company sold put warrants on 5.0 million shares of its stock, callable on specific dates in the first quarter of fiscal 1994, giving third parties the right to sell shares of Novell common stock to the Company at contractually specified prices. The put warrant balance on the balance sheet at October 30, 1993 is the amount the Company would have been obligated to pay if all the put warrants were exercised at the strike price without a cash-out settlement. During the first quarter of fiscal 1994, the Company settled all of its put warrant obligations for cash of $2.3 million and therefore reversed the put warrant obligation back to paid-in capital. F. EXPORT SALES The Company markets internationally through distributors who sell to dealers and end users. For the six months ended April 30, 1994 and May 1, 1993, export sales to international customers were approximately $308.8 million and $260.9 million, respectively. In the first six months of fiscal 1994 and fiscal 1993, 58% and 63%, respectively, of export sales were to European countries. Except for Germany, which accounted for 13% of revenue in the first six months of fiscal 1993, no one foreign country accounted for 10% or more of total sales in either period. Except for one multi-national distributor, which accounted for 10% of revenue in the first six months of 1994 and 11% of revenue in the first six months of fiscal 1993, no customer accounted for more than 10% of revenue in any period. G. NET INCOME PER SHARE Net income per share is computed using the weighted average number of common shares outstanding during the periods, including common stock equivalents (unless antidilutive). Common stock equivalents consist of outstanding stock options. 7 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations INTRODUCTION Novell's business strategy is to be a leading supplier of software products for the network computing industry. Over the past several years, in addition to its internal growth, the Company has issued common stock or paid cash to acquire technology companies, invested cash in other technology companies, and formed strategic alliances with still other technology companies. Novell undertook all of these transactions to promote the growth of the network computing industry, and in many cases to also broaden the Company's business as a system software supplier. In April 1991, the Company invested $15.0 million in UNIX System Laboratories, Inc. (USL), a subsidiary of AT&T that develops and licenses the UNIX operating system and other standards-based software to customers worldwide. In December 1991, the Company announced the formation of Univel, a joint venture with USL, formed to accelerate the expanded use of the UNIX operating system in the personal computer and network computing marketplace. Novell and USL contributed cash and technology rights to Univel. Then in June 1993, the Company acquired the remaining portion of USL by issuing approximately 11.1 million shares of Novell common stock valued at $321.8 million in exchange for all of the outstanding stock of USL not previously owned by Novell and assumed additional liabilities of $9.4 million. The transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $268.7 million for purchased research and development in the third quarter of fiscal 1993. In June 1993, the Company purchased all of the outstanding stock not previously owned by Novell of Serius Corporation (Serius), a developer of object-based application tools, for $17.0 million cash and assumed liabilities of $5.0 million, whereby Serius became a wholly owned subsidiary of Novell. Novell previously had invested cash of $1.1 million in Serius. This transaction was accounted for as a purchase and, on this basis, resulted in a one-time write-off of $22.1 million for purchased research and development in the third quarter of fiscal 1993. In June 1993, the Company acquired all of the outstanding stock of Software Transformation, Inc. (STI), a developer of software development tools, by issuing approximately 800,000 shares of Novell common stock in exchange for all of the outstanding stock of STI. The transaction was accounted for as a pooling of interests, however, prior periods were not restated due to immateriality. In July 1993, the Company acquired all of the outstanding stock of Fluent, Inc. (Fluent), a developer of multimedia software for personal computers, for $18.5 million cash and assumed liabilities of $3.0 whereby Fluent became a wholly owned subsidiary of Novell. The transaction was accounted for as a purchase and, on this basis resulted in a one-time write-off of $20.7 million for purchased research and development in the third quarter of fiscal 1993. In March 1994, the Company signed a definitive merger agreement to acquire all of the outstanding stock of WordPerfect Corporation (WordPerfect), a developer of application software for personal computers, by issuing 51.4 million shares of Novell common stock in exchange for all of the outstanding shares of WordPerfect common stock and assuming the 7.8 million WordPerfect stock options outstanding. This transaction would be accounted for as a pooling of interests. Additionally, the Company signed an agreement with Borland International, Inc. to purchase its Quattro Pro spreadsheet product line for approximately $110 million of cash, and to purchase 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 approximately $35 million of cash. These transactions are all expected to be completed during the third quarter of fiscal 1994. The Company will continue to look for acquisitions, investments, or strategic alliances which it believes complement its overall business strategy. 8 9 RESULTS OF OPERATIONS NET SALES
Q2 Q2 YTD YTD 1994 Change 1993 1994 Change 1993 - - ------------------------------------------------------------------------------------------------------------ Net sales (millions) $406.6 45% $280.7 $718.0 33% $540.9 - - ------------------------------------------------------------------------------------------------------------
During the second quarter of fiscal 1994, the Company sold a one time fully paid license for UNIX technology to Sun Microsystems for $80.5 million. This transaction accounted for 29% growth in net sales for the second quarter of fiscal 1994 compared to the second quarter of fiscal 1993 and 15% growth in the first six months of fiscal 1994 compared to the first six months of fiscal 1993. The analysis of net sales that follows excludes the Sun Microsystems transaction. The remaining growth in net sales in both the second quarter and the first six months of fiscal 1994 compared to the same periods of fiscal 1993 is the result of increases in the Company's NetWare 3, NetWare J, software royalties, Personal NetWare, connectivity products, and training, offset by decreases in NetWare 4, NetWare 2, NetWare SFT III, communication products, and hardware royalties. In addition, approximately 7% of the growth in both the second quarter and first six months of fiscal 1994 compared to the same periods of fiscal 1993 is attributable to the acquisition of USL in mid-June 1993 as its revenue was not included in the first six months of fiscal 1993. Net sales were also favorably affected by growth in both domestic and international sales in the first six months of fiscal 1994 compared to the first six months of fiscal 1993. International sales grew 18% while domestic sales grew 17% in the first six months of fiscal 1994 compared to the first six months of 1993. Export sales were approximately 48% of net sales in both the first six months of fiscal 1994 and the first six months of 1993. The rate of export sales growth began to slow down in late fiscal 1992, primarily due to an economic slowdown in central Europe. However, despite this slowdown in central Europe, the Company expects that total export sales will continue to grow during the remainder of fiscal 1994 because of growth in non-central European markets.
GROSS PROFIT Q2 Q2 YTD YTD 1994 Change 1993 1994 Change 1993 - - ------------------------------------------------------------------------------------------------------------ Gross profit (millions) $298.7 29% $231.3 $546.0 24% $441.0 Percentage of net sales 73.5% 82.4 76.0% 81.5% - - -------------------------------------------------------------------------------------------------------------
In connection with the Sun Microsystems transaction, 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 4.2 percentage points higher in the second quarter of fiscal 1994 and 2.5 percentage points higher in the first six months of fiscal 1994. The remaining decreases of 4.7 percentage points in the second quarter of fiscal 1994 compared to the second quarter of fiscal 1993 and of 3.0 percentage points in the first six months of fiscal 1994 compared to the first six months of fiscal 1993 are attributable to relatively higher costs related to product transitions, the amortization of purchased software acquired in the USL acquisition, and an upgrade program during the second quarter of fiscal 1994. Future fluctuations in the gross profit margin will be primarily attributable to price changes, changes in sales mix by product or distribution channel, and special product promotions. The Company expects the gross profit margin in fiscal 1994 to be down slightly compared to the gross profit margin in fiscal 1993 due to the items described above. 9 10 OPERATING EXPENSES
Q2 Q2 YTD YTD 1994 Change 1993 1994 Change 1993 - - ------------------------------------------------------------------------------------------------------------ Sales and marketing (millions) 72.2 18% 61.5 $141.5 23% $115.1 Percentage of net sales 17.8% 21.9% 19.7% 21.3% - - ------------------------------------------------------------------------------------------------------------ Product development (millions) 53.8 45% $37.1 $110.4 55% $71.4 Percentage of net sales 13.2% 13.2% 15.4% 13.2% - - ------------------------------------------------------------------------------------------------------------ General and administrative (millions) 22.6 23% $18.4 $45.4 15% $39.4 Percentage of net sales 5.6% 6.6% 6.3% 7.3% - - ------------------------------------------------------------------------------------------------------------ Total operating expenses (millions) $148.6 27% $117.0 $297.2 32% $225.9 Percentage of net sales 36.6% 41.7% 41.4% 41.8% - - ------------------------------------------------------------------------------------------------------------
Excluding the Sun Microsystems revenue, sales and marketing expenses were fairly flat at 22% of net sales in both the second quarter and first six months of fiscal 1994 compared to the same periods of fiscal 1993. However, sales and marketing expenses may fluctuate as a percentage of net sales in any given period due to product promotions, advertising, or other discretionary expenses. Excluding the Sun Microsystems revenue, product development expenses increased as a percentage of net sales in the second quarter to 16.5% and in the first six months of fiscal 1994 to 17.3% compared to the same periods of fiscal 1993. The increase is a result of the acquisitions in fiscal 1993 and from planned headcount increases in an effort to increase the Company's investment in new products. The acquisitions had relatively higher product development expenses as a percentage of net sales. Excluding the Sun Microsystems revenue, general and administrative expenses remained flat at 7% of net sales in both the second quarter and first six months of fiscal 1994 compared to the same periods of fiscal 1993. Even though these expenses were flat between years, the comparative periods of fiscal 1994 had relatively higher legal fees and lower bad debt expense compared to the same periods of fiscal 1993. These changes tended to offset each other. Overall, headcount and operating expenses have grown more rapidly than revenues in both the second quarter and first six months of fiscal 1994 compared to the same periods of fiscal 1993 due to the acquisitions, which occurred in the third quarter of fiscal 1993.
YTD YTD 1994 Change 1993 - - ------------------------------------------------------------------------------------------------------------- Employees 4,336 21% 3,571 Annualized revenue per employee (000's) $291 -3% $300 - - -------------------------------------------------------------------------------------------------------------
Annualized revenue per employee in fiscal 1994 excludes the $80.5 million of net sales from the Sun Microsystems transaction. OTHER INCOME (EXPENSE)
Q2 Q2 YTD YTD 1994 Change 1993 1994 Change 1993 - - ---------------------------------------------------------------------------------------------------------- Other income (expense), net (millions) $7.7 1% $7.6 $18.5 31% $14.2 Percentage of net sales 1.9% 2.7% 2.6% 2.6% - - -----------------------------------------------------------------------------------------------------------
10 11 The increases in other income (expense) are primarily the result of a larger investment portfolio in fiscal 1994 and the timing of capital gains generated from the 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.
INCOME TAXES Q2 Q2 YTD YTD 1994 Change 1993 1994 Change 1993 - - ---------------------------------------------------------------------------------------------------------- Income taxes (millions) $52.9 27% $41.4 $89.5 15% $78.0 Percentage of net sales 13.0% 14.8% 12.5% 14.4% Effective tax rate 33.5% 34.0% 33.5% 34.0% - - -----------------------------------------------------------------------------------------------------------
The Company's estimated effective tax rate for fiscal 1994 remained at 33.5% which is equal to the fiscal 1993 rate, excluding the effect of the one-time write-off of purchased research and development in fiscal 1993, which was not tax deductible. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, in the first quarter of fiscal 1994. Adoption of SFAS No. 109 had no material effect on the financial statements of the Company. LIQUIDITY AND CAPITAL RESOURCES Cash and short-term investments increased to $929.6 million at April 30, 1994 from $664.1 million at October 30, 1993. The major reasons for this increase were the $289.4 million of cash provided by operating activities and the $16.8 million provided by financing activities, offset by the $40.7 million used by 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 April 30, 1994, the Company's principal unused sources of liquidity consisted of cash and short-term investments and available borrowing capacity of approximately $19.8 million under its credit facilities. The Company's liquidity needs are principally for the Company's financing of accounts receivable, capital assets, acquisitions and strategic investments and to have flexibility in a dynamic and competitive operating environment. During fiscal 1994 the Company has continued to generate cash from operations. The Company anticipates being able to fund its current operations and capital expenditures planned for the foreseeable future with existing cash and short-term investments together with internally generated funds. Borrowings under the Company's credit facilities, or public offerings of equity or debt securities are available if the need arises. As the Company grows, investments will continue in product development in new and existing areas of technology. Cash may also be used to acquire technology through purchases and strategic acquisitions. It is anticipated that during the third quarter of fiscal 1994, the Company will use $145 million of its cash to acquire the QuattroPro spreadsheet product line and one million Paradox licenses from Borland International, Inc. Additionally, it is anticipated that the Company will pay approximately $120 million to retire all of the short and long- term debt of WordPerfect Corporation, once the merger is completed. Capital expenditures in fiscal 1994 are anticipated to be approximately $80 million, but could be reduced if the growth of the Company is less than presently anticipated. PART II. OTHER INFORMATION All information required by items in Part II is omitted because the items are inapplicable, the answer is negative or substantially the same information has been previously reported by the registrant. 11 12 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 June 7, 1994 /s/ Robert J. Frankenberg -------------------- --------------------------------------------- Robert J. Frankenberg President, and Chief Executive Officer (Principal Executive Officer) Date June 7, 1994 /s/ James R. Tolonen -------------------- --------------------------------------------- James R. Tolonen Chief Financial Officer (Principal Financial and Accounting Executive Officer)
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