<PAGE> 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)
<TABLE>
<S> <C>
Delaware 87-0393339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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.
<PAGE> 2
PART I.
FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Dollars in thousands, except per share data Apr. 30, 1994 Oct. 30, 1993
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
===========================
</TABLE>
See notes to consolidated unaudited condensed financial statements.
2
<PAGE> 3
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
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
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
=========================== ==========================
</TABLE>
See notes to consolidated unaudited condensed financial statements.
3
<PAGE> 4
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> Six Months Ended
----------------------------------
Apr. 30, May 1,
Amounts in thousands 1994 1993
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
===============================
</TABLE>
See notes to consolidated unaudited condensed financial statements.
4
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 9
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
Q2 Q2 YTD YTD
1994 Change 1993 1994 Change 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales (millions) $406.6 45% $280.7 $718.0 33% $540.9
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
GROSS PROFIT Q2 Q2 YTD YTD
1994 Change 1993 1994 Change 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE> 10
OPERATING EXPENSES
<TABLE>
<CAPTION>
Q2 Q2 YTD YTD
1994 Change 1993 1994 Change 1993
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
YTD YTD
1994 Change 1993
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Employees 4,336 21% 3,571
Annualized revenue per employee (000's) $291 -3% $300
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
Annualized revenue per employee in fiscal 1994 excludes the $80.5 million of
net sales from the Sun Microsystems transaction.
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
Q2 Q2 YTD YTD
1994 Change 1993 1994 Change 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 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.
<TABLE>
<CAPTION>
INCOME TAXES
Q2 Q2 YTD YTD
1994 Change 1993 1994 Change 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
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
<PAGE> 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.
<TABLE>
<S> <C> <C>
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)
</TABLE>
12
