<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Quarter Ended July 29, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _________
to _________
Commission File Number: 0-13351
NOVELL, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0393339
(State or other jurisdiction of (I.R.S.
Employer incorporation or organization) Identification No.)
1555 N. Technology Way
Orem, Utah 84057
(Address of principal executive offices and zip code)
(801) 429-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
As of August 26, 1995 there were 370,387,385 shares of the
registrant's common stock outstanding.
</PAGE>
<PAGE>
<TABLE>
Part I. Financial Information, Item 1. Financial Statements
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
<S> <C> <C>
Jul. 29, Oct. 29,
Dollars in thousands, except per share data 1995 1994
-------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $1,230,344 $ 861,809
Receivables, less allowances ($98,304 - July;
$82,934 - October)
467,315 391,342
Inventories 35,134 32,221
Prepaid expenses 51,528 69,324
Deferred income taxes 93,723 98,435
Total current assets 1,878,044 1,453,131
Property, plant and equipment, net 377,432 394,682
Other assets 113,572 115,668
Total assets $2,369,048 $1,963,481
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 101,692 $ 67,176
Accrued compensation 88,872 81,639
Accrued marketing liabilities 79,327 66,800
Other accrued liabilities 102,253 121,165
Income taxes payable 76,144 78,139
Deferred revenue 47,126 47,801
Total current liabilities 495,414 462,720
Minority interests 16,531 13,774
Shareholders' equity
Common stock, par value $.10 a share
Authorized - 600,000,000 shares
Issued - 370,156,267 shares-July
364,354,887 shares-October 37,016 36,436
Additional paid-in capital 720,252 645,419
Retained earnings 1,099,835 805,132
Total shareholders' equity 1,857,103 1,486,987
Total liabilities and shareholders' equity $2,369,048 $1,963,481
See notes to consolidated unaudited condensed financial statements.
</PAGE>
</TABLE>
<PAGE>
<TABLE>
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
Fiscal Quarter Ended Nine Months Ended
-------------------- -----------------
<S> <C> <C> <C> <C>
Amounts in thousands, Jul. 29, Jul. 30, Jul. 29, Jul. 30,
except per share data 1995 1994 1995 1994
-------------------------------------------------------------------------------
Net sales $ 537,922 $488,924 $1,560,655 $1,512,132
Cost of sales 125,600 105,504 366,930 354,678
Gross profit 412,322 383,420 1,193,725 1,157,454
Operating expenses
Sales and marketing 149,010 145,713 437,187 398,594
Product development 89,788 90,619 272,605 257,079
General and administrative 39,368 37,191 109,132 123,582
Nonrecurring charges -- 114,420 -- 129,389
-------------------------------------------------------------------------------
Total operating expenses 278,166 387,943 818,924 908,644
Income (loss) from operations 134,156 (4,523) 374,801 248,810
Other income (expense)
Investment income 14,572 7,062 39,176 25,923
Merger expenses -- (5,778) -- (5,778)
Other, net 4,604 (1,501) 6,102 (2,440)
-------------------------------------------------------------------------------
Other income (expense), net 19,176 (217) 45,278 17,705
-------------------------------------------------------------------------------
Income (loss) before taxes 153,332 (4,740) 420,079 266,515
Income taxes 51,366 (275) 140,726 80,156
-------------------------------------------------------------------------------
Net income (loss) $101,966 $(4,465) $279,353 $186,359
===============================================================================
Weighted average shares
outstanding 376,494 368,313 374,302 368,290
===============================================================================
Net income (loss) per share $ 0.27 $ (0.01) $ 0.75 $ 0.51
===============================================================================
See notes to consolidated unaudited condensed financial statements.
</PAGE>
</TABLE>
<PAGE>
<TABLE>
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
-----------------
<S> <C> <C>
Jul. 29, Jul. 30,
Amounts in thousands 1995 1994
---------------------------------------------------------------------------
Cash flows from operating activities
Net income $279,353 $186,359
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Write-off of purchased research and development -- 129,389
Depreciation and amortization 69,398 62,531
WordPerfect fiscal year conversion -- (39,856)
Stock plans income tax benefits 22,954 16,862
(Increase) decrease in receivables (75,973) 11,137
(Increase) in inventories (2,913) (635)
Decrease (increase) in prepaid expenses 17,796 (32,400)
Decrease (increase) in deferred income taxes 7,046 (50,387)
Increase in current liabilities 32,694 4,697
---------------------------------------------------------------------------
Net cash provided by operating activities 350,355 287,697
---------------------------------------------------------------------------
Cash flows from financing activities
Issuance of common stock, net 48,974 21,491
Repayment of debt -- (118,280)
Borrowings -- 24,466
---------------------------------------------------------------------------
Net cash provided (used) by financing activities 48,974 (72,323)
---------------------------------------------------------------------------
Cash flows from investing activities
Expenditures for property, plant and equipment (48,131) (62,826)
(Increase) in short-term investments (241,083) (255,330)
Acquisition of Quattro Pro product line -- (110,000)
Other 17,337 (3,659)
---------------------------------------------------------------------------
Net cash used by investing activities (271,877) (431,815)
---------------------------------------------------------------------------
Total increase (decrease) in cash and cash
equivalents $127,452 $(216,441)
Cash and cash equivalents - beginning of period 228,426 383,596
---------------------------------------------------------------------------
Cash and cash equivalents - end of period 355,878 167,155
Short-term investments - end of period 874,466 590,931
---------------------------------------------------------------------------
Cash and short-term investments - end of period $1,230,344 $758,086
===========================================================================
See notes to consolidated unaudited condensed financial statements.
</PAGE>
</TABLE>
<PAGE>
NOVELL, INC.
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
A. Quarterly Financial Statements
The accompanying consolidated unaudited condensed financial
statements have been prepared in accordance with the
instructions to Form 10-Q but do not include all of the
information and footnotes required by generally accepted
accounting principles and should therefore, be read in
conjunction with the Company's fiscal 1994 Annual Report to
Shareholders. These statements do include all normal recurring
adjustments which the Company believes necessary for a fair
presentation of the statements. The interim operating results
are not necessarily indicative of the results for a full year.
B. Mergers, Acquisitions, and Strategic Investments
In June 1994, the Company completed a merger with WordPerfect
Corporation (WordPerfect) whereby WordPerfect was merged
directly into Novell. Approximately 51 million shares of Novell
common stock were exchanged for all of the outstanding common
stock of WordPerfect. In addition, outstanding employee stock
options to purchase WordPerfect common stock were converted into
options to purchase approximately 8 million shares of Novell
common stock. The transaction was accounted for as a pooling of
interests and therefore, all prior period financial statements
presented have been restated as if the merger took place at the
beginning of such periods.
In order to conform WordPerfect's year end to Novell's fiscal
year end, the consolidated statement of income for fiscal 1994
includes two months (November and December 1993) for WordPerfect
which are also included in the consolidated statement of income
for the fiscal year ended October 30, 1993. Accordingly, an
adjustment has been made in fiscal 1994 to retained earnings for
the duplication of net income of $40 million for such two month
period. Other results of operations for such two month period
of WordPerfect include net sales of $137 million, income before
taxes of $35 million, and income tax benefits of $5 million.
Additionally, in June 1994, the Company acquired from Borland
International, Inc. its Quattro Pro spreadsheet product line for
$110 million of cash and assumed liabilities of $10 million, and
purchased a three year license to reproduce and distribute up to
one million copies of current and future versions of Borland's
Paradox relational database product for $35 million of cash.
The transaction was accounted for as a purchase and, on this
basis, resulted in a one-time write-off of $114 million for
purchased research and development.
C. Cash and Short-term Investments
The Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities in the first quarter
of fiscal 1995. All marketable debt and equity securities are
included in cash and short-term investments and are considered
available-for-sale and carried at fair market value. Such
securities are anticipated to be used for current operations and
are therefore classified as current assets, even though some
maturities may extend beyond one year.
</PAGE>
<PAGE>
The following is a summary of cash and short-term investments, all of
which are considered available-for-sale.
<TABLE>
<S> <C> <C> <C> <C> <C>
Gross Gross Fair
Cost at Unrealized Unrealized Market Value at Cost at
(Dollars in thousands) Jul. 29, 1995 Gains Losses Jul. 29, 1995 Oct. 29, 1994
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents
Cash $123,194 $ -- $ -- $123,194 $101,331
Repurchase agreements 11,300 -- -- 11,300 19,309
Tax exempt money market fund 73,858 -- -- 73,858 29,394
Taxable money market
investments 84,594 -- -- 84,594 13,357
Municipal securities 62,985 -- -- 62,985 65,035
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents $355,931 $ -- $ -- $355,931 $228,426
---------------------------------------------------------------------------------------------------------
Short-term investments
Municipal securities $266,326 $ 3,414 $ -- $269,740 $201,491
Money market mutual funds 27,371 -- -- 27,371 104,388
Money market preferreds 433,200 150 -- 433,350 306,700
Mutual funds 100,117 -- (7) 100,110 13,017
Equity securities 18,389 25,453 -- 43,842 7,787
---------------------------------------------------------------------------------------------------------
Short-term investments $845,403 $29,017 $(7) $874,413 $633,383
---------------------------------------------------------------------------------------------------------
Cash and short-term
investments $1,201,334 $29,017 $(7) $1,230,344 $861,809
---------------------------------------------------------------------------------------------------------
</TABLE>
During the first nine months of fiscal 1995 the Company had net
realized gains of $4 million on the sale of securities compared
to net realized gains in the first nine months of fiscal 1994 of
$5 million.
D. Income Taxes
The Company's estimated effective tax rate for the first nine
months of fiscal 1995 was 33.5%. Excluding non-tax deductible
one-time charges related to the write-off of purchased research
and development of $15 million in fiscal 1994 and adjusting
fiscal 1994 to reflect a provision for income taxes as if
WordPerfect and its S corporation subsidiaries had never been S
corporations, the Company's effective tax rate would have been
34% in fiscal 1994. The Company paid cash amounts for income
taxes of $105 million and $109 million, in the first nine months
of fiscal 1995 and 1994, respectively.
E. Commitments and Contingencies
The Company currently has a $10 million unsecured revolving bank
line of credit, with interest at the prime rate. The line can
be used for either letter of credit or working capital purposes.
The line is subject to the terms of a loan agreement containing
financial covenants and restrictions, none of which are expected
to significantly affect the Company's operations. At July 29,
1995 there were no borrowings, letter of credit acceptances or
commitments under such line.
The Company has an additional $10 million credit facility with
another bank which is not subject to a loan agreement.
At July 29, 1995 standby letters of credit of approximately
$100,000 were outstanding under this agreement.
On November 10, 1993, a suit was filed against Novell and
certain of its officers and directors alleging violation of
federal securities laws. Another lawsuit alleging similar
claims was filed August 26, 1994. Both lawsuits were brought as
purported class actions on behalf of purchasers of Novell common
stock. On February 22, 1995 the plaintiffs amended November
10, 1993 lawsuit was dismissed with prejudice and the plaintiffs
have appealed that ruling. Novell does not believe that the
resolution of the either lawsuit will have a material adverse
effect on its financial position or results of operations.
</PAGE>
<PAGE>
The Company is a party to a number of additional legal
proceedings arising in the ordinary course of business. The
Company believes the ultimate resolution of the claims will not
have a material adverse effect on its financial position or
results of operations.
F. International Sales
The Company markets internationally directly to end users and
through distributors and OEM's who sell to dealers and end
users. For the nine months ended July 29, 1995 and July 30,
1994, sales to international customers were approximately $712
million and $658 million, respectively. In the first nine
months of fiscal 1995 and fiscal 1994, 57% and 59%,
respectively, of international sales were to European countries.
No one foreign country accounted for 10% or more of total sales
in either period. Except for one multi-national distributor,
which accounted for 17% of revenue in the first nine months of
1995 and 13% of revenue in the first nine months of fiscal 1994,
no customer accounted for more than 10% of revenue in any
period.
G. Net Income (Loss) Per Share
Net income per share is computed using the weighted average
number of common shares outstanding during the periods,
including common stock equivalents (unless antidilutive).
Common stock equivalents consist of outstanding stock options.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Introduction
Novell is a leading provider of networking and application software.
The Company's software products provide the distributed
infrastructure, network services, advanced network access and network
applications to connect people with other people and the information
they need, enabling them to act on it anytime, anyplace.
Over the past several years, the Company has issued common stock or
paid cash to acquire technology companies, invested cash in other
technology companies, and formed strategic alliances with still other
technology companies. Novell undertook all of these transactions to
promote a pervasive computing environment, and in many cases to also
broaden the Company's business as a system and application software
supplier.
In June 1994, the Company completed a merger with WordPerfect
Corporation (WordPerfect), whereby WordPerfect was merged into
Novell. Approximately 51 million shares of Novell common stock were
exchanged for all of the outstanding common stock of WordPerfect. In
addition, the outstanding employee stock options to purchase
WordPerfect common stock were converted into options to purchase
approximately 8 million shares of Novell common stock. The
</PAGE>
<PAGE>
transaction was accounted for as a pooling of interests and
therefore, all prior financial statements presented herein have been
restated as if the merger took place at the beginning of such
periods.
Additionally, in June 1994, the Company acquired from Borland
International, Inc. its Quattro Pro spreadsheet product line for $110
million of cash and assumed liabilities of $10 million, and purchased
a three year license to reproduce and distribute up to one million
copies of current and future versions of Borland's Paradox relational
database product for $35 million of cash. The transaction was
accounted for as a purchase and, on this basis, resulted in a one-
time write-off of $114 million for purchased research and
development.
The Company will continue to look for acquisitions, investments or
strategic alliances which it believes complement its overall business
strategy.
<TABLE>
Results of Operations
<S> <C> <C> <C> <C> <C> <C>
Net Sales
Q3 Q3 YTD YTD
1995 Change 1994 1995 Change 1994
-----------------------------------------------------------------------------
Net sales (millions) $538 10% $489 $1,561 3% $1,512
=============================================================================
</TABLE>
During the second quarter of fiscal 1994, the Company sold a one time fully
paid license for UNIX technology to Sun Microsystems for $81 million.
Excluding this transaction, net sales grew by 9% in the first nine months
of fiscal 1995 compared to the first nine months of fiscal 1994.
With the acquisition of WordPerfect in fiscal 1994, Novell organized itself
into four product groups, all within the software industry. They are the
NetWare Systems Group (NSG), the Novell Applications Group (NAG) , the UNIX
Systems Group (USG), and the Information Access and Management Group
(IAMG). While revenue increased in both the third quarter of fiscal 1994
to the third quarter of fiscal 1995 and in the first nine months of fiscal
1995 compared to the first nine months of fiscal 1994, analysis of the
individual product groups characterizes the changes that have occurred.
NSG revenues grew by 26% in the third quarter of fiscal 1995 compared to
the like period in fiscal 1994 and by 17% in the first nine months of
fiscal 1995 compared to the first nine months of fiscal 1994. Strong
growth was experienced in the NetWare 4 product family, partially offset
by decreases in the NetWare 3 product family as well as other NSG products.
NAG revenues decreased sharply by 27% in the third quarter of fiscal 1995
compared to the third quarter of fiscal 1994 and declined by 9% during the
</PAGE>
<PAGE>
first nine months of fiscal 1995 compared to the first nine months of
fiscal 1994. The decrease in the third quarter of fiscal 1995 compared to
the third quarter of fiscal 1994, as well as the first nine months of
fiscal 1995 compared to the like period in fiscal 1994, is the result of
revenue decreases in standalone personal productivity application products.
NAG revenues were clearly impacted by the MS Windows application market
slowdown in anticipation of Microsoft's Windows 95. Novell's standalone
and suite applications run on Microsoft's Windows 95 today, however,
versions of these applications that take advantage of the new operating
system features are expected to ship in early fiscal 1996. Microsoft
currently offers a bundled suite of its products for Microsoft's Windows
95. To the extent that Microsoft and other competitors are more successful
in gaining market share for Miscrosoft's Windows 95 applications, the
Company's business and results of operations could be materially adversely
affected.
USG revenues increased by 18% in the third quarter of fiscal 1995 compared
to the third quarter of fiscal 1994 and decreased by 52% in the first nine
months of fiscal 1995 compared to the first nine months of fiscal 1994.
The increase in the third quarter of fiscal 1995 compared to the third
quarter of fiscal 1994 was due to increases in UnixWare and Tuxedo. The
decrease from the first nine months of fiscal 1994 to the like period in
fiscal 1995 was attributable to a one time fully paid license for UNIX
technology to Sun Microsystems for $81 million during the second quarter of
fiscal 1994. Excluding this one-time license in fiscal 1994, USG revenues
grew by 4% in the first nine months of fiscal 1995 compared to the first
nine months of fiscal 1994.
IAMG revenues increased by 23% in the third quarter of fiscal 1995 compared
to the third quarter of fiscal 1994 and by 11% in the first nine months of
fiscal 1995 compared to the first nine months of fiscal 1994. The increase
was a result of increases across all IAMG product lines excepting the newly
transitioned Consumer Products Division.
Other revenues, made up largely of service and training, increased by 44%
in the third quarter of fiscal 1995 compared to the third quarter of fiscal
1994 and by 43% in the first nine months of fiscal 1995 compared to the
first nine months of fiscal 1994.
Excluding the one-time license fee in fiscal 1994, international sales
represented 46% of total sales in both the first nine months of fiscal 1995
and the first nine months of fiscal 1994.
<TABLE>
Gross Profit
<S> <C> <C> <C> <C> <C> <C>
Q3 Q3 YTD YTD
1995 Change 1994 1995 Change 1994
---------------------------------------------------------------------------
Gross profit (millions) $412 8% $383 $1,194 3% $1,157
Percentage of net sales 77% 78% 76% 77%
===========================================================================
</TABLE>
</PAGE>
<PAGE>
In connection with the Sun Microsystems transaction described above, the
Company revalued the software and other intangibles remaining on the
balance sheet related to the USL acquisition in fiscal 1993. Accordingly,
$35 million of costs associated with the sale of the license to Sun
Microsystems were charged to cost of sales during the second quarter of
fiscal 1994. Excluding the Sun Microsystems revenue and the related
costs, the gross profit percentage would have been 78% in the first nine
months of fiscal 1994.
The gross profit percentage was down for the third quarter of fiscal
1995 as compared to the third quarter of fiscal 1994 and, excluding
the Sun Microsystems revenue and related costs impact in fiscal 1994,
was down for the first nine months of fiscal 1995 compared to the first
nine months in fiscal 1994 mainly as a result of higher royalties and
training and education expenses. Future fluctuations in the gross profit
percentage will be primarily attributable to price changes, changes
in sales mix by product or distribution channel, and special product
promotions. The Company expects the gross profit percentage in fiscal
1995 to not vary significantly from the gross profit percentage in
fiscal 1994.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Operating Expenses
Q3 Q3 YTD YTD
1995 Change 1994 1995 Change 1994
--------------------------------------------------------------------------------
Sales and marketing (millions) $149 2% $146 $437 10% $399
Percentage of net sales 28% 30% 28% 26%
--------------------------------------------------------------------------------
Product development (millions) $90 -1% $91 $273 6% $257
Percentage of net sales 17% 19% 17% 17%
--------------------------------------------------------------------------------
General and
administrative (millions) $39 5% $37 $109 -12% $124
Percentage of net sales 7% 8% 7% 8%
--------------------------------------------------------------------------------
Nonrecurring charges (millions) -- -- $114 -- -- $129
Percentage of net sales -- 23% -- 9%
--------------------------------------------------------------------------------
Total operating
expenses (millions) $278 -28% $388 $819 -10% $909
Percentage of net sales 52% 79% 52% 60%
</TABLE>
Sales and marketing expenses decreased from 30% of net sales in the third
quarter of fiscal 1994 to 28% of net sales in the third quarter of fiscal
1995. The decrease is attributable to relatively lower domestic and
international selling expenses as a result of reduced headcount, partially
offset by higher corporate and product marketing expenses. Excluding the
Sun Microsystems revenues in fiscal 1994, sales and marketing expenses
remained flat at 28% of net sales in the first nine months of fiscal 1994
</PAGE>
<PAGE>
and in the first nine months of fiscal 1995. Sales and marketing expenses
fluctuate as a percentage of net sales in any given period due to product
promotions, advertising or other discretionary expenses.
Product development expenses decreased from 19% of net sales in the third
quarter of 1994 to 17% of net sales in the third quarter of fiscal 1995.
Excluding the Sun Microsystems revenue in fiscal 1994, product development
expenses decreased to 17% of net sales as compared to 18% of net sales in
the first nine months of fiscal 1994. The decrease relates primarily to
lower headcount on higher revenues in fiscal 1995 compared to fiscal 1994.
General and administrative expenses decreased from 8% to 7% of net sales
in the third quarter of fiscal 1995 compared to the third quarter in
fiscal 1994 and, excluding the Sun Microsystems revenue in fiscal 1994,
decreased from 9% to 7% of net sales in the first nine months of fiscal
1995 compared to the first nine months of fiscal 1994. The decreases are
attributable to lower legal expenses and a reduction in administrative
headcount subsequent to the merger with WordPerfect.
During the first quarter of 1994, the Company wrote off $15 million of
non-tax deductible purchased research and development in connection with
the acquisition of SoftSolutions. During the third quarter of 1994, the
Company also wrote off $114 million of tax deductible purchased research
and development in connection with the acquisition of the Quattro Pro
spreadsheet product line from Borland, International, Inc.
Total operating expenses have grown less rapidly than revenues in the
third quarter of fiscal 1995 compared to the third quarter of fiscal 1994.
Total operating expenses, excluding nonrecurring charges, have grown less
rapidly than revenues in the first nine months of fiscal 1995 compared to
the first nine months of fiscal 1994. The slower growth is due primarily
to headcount reductions.
<TABLE>
<S> <C> <C> <C>
YTD YTD
1995 Change 1994
--------------------------------------------------------------------------
Employees 7,599 (19)% 9,402
Annualized revenue per employee (000's) $259 35% $192
==========================================================================
</TABLE>
Early in fiscal 1994 WordPerfect reduced its workforce by approximately
1,000 employees. Subsequent to the merger between Novell and WordPerfect,
there was an additional reduction in force of approximately 1,100. In the
first quarter of 1995 an additional 650 employees functions were
outsourced as part of the restructuring. As a result of these reductions,
annualized revenue per employee increased 35% in the first nine months of
fiscal 1995 compared to the same period in fiscal 1994.
</PAGE>
<PAGE>
<TABLE>
Other Income (Expense)
<S> <C> <C> <C> <C> <C> <C>
Q3 Q3 YTD YTD
1995 Change 1994 1995 Change 1994
---------------------------------------------------------------------------
Other income (expense),
net (millions) $19 -- $ $45 150% $18
Percentage of net sales 4% $ 3% 1%
===========================================================================
</TABLE>
The primary component of other income (expense) is investment income,
which was $15 million in the third quarter of fiscal 1995 compared to $7
million in the third quarter of fiscal 1994. During first nine months of
fiscal 1995, investment income was $39 million compared to $26 million in
the first nine months of fiscal 1994. The increase is the result of
higher average yields on the Company's higher cash balances somewhat
offset by lower capital gains on its investment portfolio. In order to
achieve potentially higher returns, a limited portion of the Company's
investment portfolio is invested in mutual funds which incur some market
risk. The Company believes that the market risk has been limited by
diversification and by use of a funds management timing service which
switches funds out of mutual funds and into money market funds when preset
signals occur.
In addition to the investment income, both the third quarter and the first
nine months of fiscal 1995 included a $4 million gain on the sale of the
Company's facility in Austin, Texas. Additionally as an offset to the
investment income in the third quarter and first nine months of fiscal
1994, the Company incurred merger expenses of $6 million in connection
with the WordPerfect merger.
<TABLE>
Income Taxes
<S> <C> <C> <C> <C> <C> <C>
Q3 Q3 YTD YTD
1995 Change 1994 1995 Change 1994
---------------------------------------------------------------------------
Income taxes (millions) $51 -- -- $141 76% $80
Percentage of net sales 9% -- 9% 5%
Effective tax rate 34% 34% 30%
===========================================================================
</TABLE>
The Company's estimated tax rate for fiscal 1995 is 33.5%, which is down
slightly from the fiscal 1994 rate of 34%, excluding the effect of the non-
tax deductible one-time charges related to the write-off of purchased
research and development of $15 million in the first quarter of fiscal 1994
and adjusting to reflect a provision for income taxes as if WordPerfect and
</PAGE>
<PAGE>
its S corporation subsidiaries had never been S corporations. The higher
effective rate in fiscal 1994 was attributable to non-tax deductible merger
expenses.
<TABLE>
Net Income and Net Income Per Share
<S> <C> <C> <C> <C> <C> <C>
Q3 Q3 YTD YTD
1995 Change 1994 1995 Change 1994
-------------------------------------------------------------------------
Net income (millions) $102 -- $(4) $279 50% $186
Percentage of net sales 19% (1)% 18% 12%
Net income per share $.27 -- $(.01) $.75 47% $.51
=========================================================================
</TABLE>
Excluding the impact of nonrecurring items and normalizing income taxes,
net income for the third quarter of fiscal 1995 would remain at $102
million or 19% of net sales compared to $77 million or 16% of net sales in
the third quarter of fiscal 1994. In the first nine months of fiscal 1995,
net income would remain at $279 million or 18% of net
sales while in the first nine months of fiscal 1994 net income would have
been $237 million or 17% of net sales.
<TABLE>
Liquidity and Capital Resources
<S> <C> <C> <C>
YTD Q4
1995 Change 1994
--------------------------------------------------------------------------
Cash and short-term
investments (millions) $1,230 43% $862
Percentage of total assets 52% 44%
==========================================================================
</TABLE>
Cash and short-term investments increased to $1,230 million at July 29,
1995 from $862 million at October 29, 1994. The major reasons for this
increase were the $350 million of cash provided by operating activities,
the $49 million provided by financing activities and the $17 million
provided from other investing activities, partially offset by the $48
million used for capital asset purchases. The Company's principal source
of liquidity has been from operations. At July 29, 1995, the Company's
principal unused sources of liquidity consisted of cash and short-term
investments and available borrowing capacity of approximately $20 million
under its credit facilities. The investment portfolio is diversified
among security types, industry groups, and individual issuers. The
Company's liquidity needs are principally for the Company's financing of
</PAGE>
<PAGE>
accounts receivable, capital assets, acquisitions and strategic investments
and to have flexibility in a dynamic and competitive operating environment.
During fiscal 1995 the Company has continued to generate cash from
operations. The Company anticipates being able to fund its current
operations and capital expenditures planned for the foreseeable future with
existing cash and short-term investments together with internally generated
funds. Borrowings under the Company's credit facilities, or public
offerings of equity or debt securities are available if the need arises.
As the Company grows, investments will continue in product development in
new and existing areas of technology. Cash may also be used to acquire
technology through purchases and strategic acquisitions. Capital
expenditures in fiscal 1995 are anticipated to be approximately $80
million, but could be reduced if the growth of the Company is less than
presently anticipated.
Part II. Other Information
Except as listed below, all information required by items in Part II is
omitted because the items are inapplicable or the answer is negative.
Item 1. Legal Proceedings.
The information required by this item is incorporated herein by reference
to Footnote E of the Company's financial statements contained in Part I,
Item 1 of this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
27* Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the
quarter ended July 29, 1995.
-------------------------
*Filed herewith
</PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Novell,Inc.
------------
(Registrant)
Date: September 8, 1995 /s/ Robert J. Frankenberg
-----------------------------
Robert J. Frankenberg
Chairman of the Board,
President, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: September 8, 1995 /s/ James R. Tolonen
----------------------------
James R. Tolonen
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: September 8, 1995 /s/ Stephen C. Wise
----------------------------
Stephen C. Wise
Senior Vice President, Finance
(Principal Accounting Officer)
</PAGE>
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<FISCAL-YEAR-END> OCT-28-1995
<PERIOD-END> JUL-29-1995
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<ALLOWANCES> (98,304)
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<DEPRECIATION> (302,323)
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0
0
<OTHER-SE> 1,820,087
<TOTAL-LIABILITY-AND-EQUITY> 2,369,048
<SALES> 1,560,655
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