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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 26, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-13351
NOVELL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 8700393339
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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122 EAST 1700 SOUTH
PROVO, UTAH 84606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(801) 861-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.10 per share
Preferred Share Purchase Rights
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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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's common stock held by
nonaffiliates on December 31, 1996 (based on the last reported price of the
Common Stock on the NASDAQ National Market System on such date) was
$3,276,624,587.
As of December 31, 1996 there were 346,579,445 shares of the registrant's
common stock outstanding.
Portions of Registrant's Annual Report to Shareholders for the fiscal year
ended October 26, 1996, are incorporated by reference in Parts II and IV of this
Form 10-K to the extent stated herein. Portions of Registrant's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on April 9, 1997,
are incorporated by reference in Part III of this Form 10-K to the extent stated
herein.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Novell, Inc. ("Novell" or the "Company") is the world's leading network
software provider. The Company offers a wide range of network solutions with
distributed network, Internet, and intranet products for both large enterprise
and small-business markets.
The Company was incorporated in Delaware on January 25, 1983. Novell's
executive offices are located at 122 East 1700 South, Provo, Utah 84606. Its
telephone number at that address is (801) 861-7000.
The Company markets its products through 40 U.S. and 63 international sales
offices. The Company sells its products through distributors and national retail
chains, who in turn sell the Company's products to retail dealers. The Company
also sells its products to OEMs, system integrators, and VARs as well as direct
to end users through licensing agreements.
The Company primarily conducts product development activities in San Jose,
California; and Orem and Provo, Utah. It also contracts out some product
development activities to third-party developers.
During fiscal 1996, Novell sold its UnixWare and personal productivity
applications product lines in exchange for significant ownership interest in the
two acquiring companies. Also, during fiscal 1996, the Company significantly
reduced the amount of its product held by distributors by reducing shipments
into the distribution channel by approximately $225 million in the second
quarter. These actions significantly reduced fiscal 1996 reported revenue
compared to fiscal 1995, and make meaningful year-to-year comparisons difficult.
After completing these transactions during the first half of fiscal 1996, the
Company reported significantly improved profitability in the second half of
fiscal 1996.
In December 1995, Novell sold its UnixWare product line to the Santa Cruz
Operation, Inc. (SCO). The Company realized a small gain and recorded $19
million of Unix technology royalty revenue from this transaction in the first
quarter of fiscal 1996. Under the agreement, Novell received approximately 6
million shares of SCO common stock, resulting in ownership of approximately 17%
of SCO common stock. The agreement also calls for Novell to receive a revenue
stream from SCO based on revenue performance of the purchased UnixWare product
line. This revenue stream is not to exceed $84 million net present value, and
will end by the year 2002. In addition, Novell will continue to receive revenue
from existing licenses for older versions of UNIX System source code. Novell
acquired this product line as part of its 1993 purchase of UNIX Systems
Laboratories, Inc.
In March 1996, the Company completed the sale of its personal productivity
applications product line to Corel Corporation (Corel). The Company received
approximately 10 million shares of Corel common stock and approximately $11
million of cash. This resulted in an ownership position of approximately 17% of
the outstanding Corel common stock. The Company reported a one-time gain of $20
million in the second quarter of fiscal 1996 related to this transaction.
Additionally, Corel licensed GroupWise client software, Envoy electronic
publishing software, and other technologies from Novell for a minimum royalty
obligation of approximately $50 million over the next five years. The Company
originally acquired the personal productivity applications product line as part
of its merger with WordPerfect Corporation (WordPerfect) and the related
purchase of the Quattro Pro spreadsheet product line from Borland International,
Inc. (Borland) in fiscal 1994.
During the second quarter of fiscal 1996, the Company implemented the
change to its traditional distribution stocking policy because the Company had
experienced strong growth in revenue from software licensing programs, thereby
lowering the need for higher volume of product in the distribution channel.
In June 1994, the Company completed a merger with 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. The transaction was accounted for as a pooling of interests.
Additionally, in June 1994, the Company acquired from Borland its Quattro Pro
spreadsheet product line for
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$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.
BUSINESS STRATEGY
Novell provides standards-based network software for intranets and the
Internet. The Internet has accelerated the pace at which networks are becoming
the center of information technology solutions. Networks have become the primary
information asset in business. The value of information resources is shifting
from individual applications, operating systems and files to how they are
collectively distributed and accessed across networks. Novell provides network
software to make these information resources available to network users where
and when they are needed. The Company's network solutions enable businesses to
protect and expand their investments in information resources in an increasingly
networked world.
Novell's network solutions integrate information resources and provide
necessary network management, messaging and groupware capabilities for customers
worldwide. Networks are inherently a mix of varied computer systems,
applications and other devices. Novell software creates an infrastructure for
managing, maintaining and accessing distributed network resources.
Novell has oriented all of its products to Internet standards, enabling
customers to increase the performance of traditional local and wide area
networks. Today, businesses are rapidly developing corporate intranets that
leverage the rapid and easy file access available on the World Wide Web.
Corporate intranets maintain and provide secure access to distributed
information assets across networks.
Novell network software provides customers with choices for significantly
enhancing the affordability, management, and ease of use of the changing mix of
computer operating systems and applications that are important to information
technology solutions. Together with its partners, the Company is a driving force
in expanding the value of networks for customers worldwide.
TECHNOLOGIES
Establishing Novell Directory Services as a de facto industry
standard. Novell Directory Services (NDS) is a key part of Novell's strategy
for providing infrastructure software for business intranets and the Internet.
NDS is a distributed database of users, network equipment, computer systems,
applications, files and other network resources. It provides distributed
centralized access control, security, management and administration of
information resources across computer networks. NDS is integrated with the
company's IntranetWare server operating system and in 1997 will be available as
a standalone product for single servers that run other leading server operating
systems. NDS provides full support for Internet protocols, including the
lightweight directory access protocol (LDAP). To establish NDS as the de facto
industry standard for all server platforms, Novell will distribute in 1997,
single-server NDS royalty-free to computer server OEMs to include with their
UNIX server operating systems. Novell will also make a binary version of NDS
that runs on the Windows NT server operating system available to manufacturers
of Intel servers. With NDS on leading server platforms, Novell and its partners
will provide value-added network services software that uses the directory as a
foundation. The first of these products from Novell will enable replication and
synchronization of the directory between individual servers on the network.
Providing Novell Directory Services for the Internet. Since 1994, Novell
has been partnering with telecommunications carriers and Internet service
providers (ISPs) to provide NDS for the Internet. Novell's partners use NDS as
the basis for business intranet services that enable their customers to
out-source the complexity and lower the cost of maintaining wide-area networks.
These services provide managed Internet access that authenticates users and
provides secure, reliable communications and access to confidential business
information resources over the Internet. AT&T in the United States and NTT in
Japan were the first to make NDS for the Internet available. Other carriers and
ISPs plan to make the service available in 1997. Novell's partners are
cooperating to provide interoperability between their networks and maintain a
replicated NDS directory that spans between their different services.
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Providing value-added network services software for business intranets and
the Internet. Novell delivers network services that run on the company's
IntranetWare/NetWare network operating system for business intranets and the
Internet. These network services add intelligence to the network to reduce costs
of ownership and administration, simplify management tasks for administrators,
and make access to network-based information easier for end users. In the first
release of NetWare thirteen years ago, network services encompassed only file
and print. Over the past decade, network services provided by Novell have
expanded to include host communications, network management, collaboration and
messaging, Web services, security, and advanced file and print.
Providing network applications for network solutions. GroupWise is Novell's
leading network application, providing electronic mail, calendaring, scheduling
task and document management features. GroupWise can be hosted on servers
running the IntranetWare, Windows NT and UNIX operating systems. In 1996, the
Company expanded the functionality of GroupWise by including Internet access and
greater integration with network directories and management products. ManageWise
is the market leading management software offering for managing all network
resources from the servers that run IntranetWare and NT server operating systems
to the clients, computers, and other devices that access information resources.
To provide complete network management solutions, ManageWise integrates with
enterprise management products from Hewlett Packard, IBM, Sun and others.
PROGRAMS
Technical Support Alliance. In May 1991, Novell announced the formation of
the Technical Support Alliance (TSA), with 40 current members including Apple,
Compaq, Hewlett-Packard, Intel, IBM, Lotus, Microsoft, and Oracle. The TSA was
organized to provide one-stop multivendor support. Member companies provide
cooperative efforts to support their customers.
Certified Novell Engineer Program. Through the Certified Novell Engineer
(CNE) program, Novell is strengthening the networking industry's Level I support
self-sufficiency. CNEs are individuals who receive high-level training,
information, and advanced technical telephone support (Level II) from Novell.
CNEs may be employed by resellers, independent support organizations, or Novell
Support Organizations (NSOs). The NSO program pools the capabilities of the
industry's best support providers. NSOs have contractual agreements with Novell
that are designed to ensure quality service on a national or global level for
NetWare and other Novell products.
Novell Authorized Education Centers. Novell offers education to end users
through nearly 1,300 independent Novell Authorized Education Centers (NAECs)
worldwide, which use Novell-developed courses to instruct students in the use
and maintenance of Novell products. Novell also offers self-paced training
products.
Novell Labs. Novell Labs works with third-party manufacturers to test and
certify hardware and software components designed to interoperate with Novell
products. Novell distributes these test results to inform customers about
products that have formally demonstrated Novell product compatibility. Novell
Lab certification programs help vendors to market their products through
Novell's distribution channels. The primary goal of Novell Labs is to foster
working relationships between Novell and third-party hardware and software
suppliers. Secondary goals include promoting certified products to industry
resellers, anticipating industry products' direction through co-marketing
efforts, and working with vendors to co-develop critical network components.
DeveloperNet. Novell's DeveloperNet delivers software, tools, training,
education, support and partnering opportunities to developers through the global
DeveloperNet subscription. This program is the primary communication channel to
the developer community, with over 6,000 DeveloperNet subscribers. Novell's
development initiative, DeveloperNet 2000 is Novell's initiative to give
developers the flexibility to build network-aware applications for the Internet
and business intranets by using the development tools of their choice. Through
DeveloperNet 2000, Novell is committed to making its network services accessible
to developers using Java, Scripting, RAD Components and C/C++.
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Yes Program. Novell developed the Yes program and the Yes logo to help
customers identify and purchase third-party hardware and software products that
are compatible with Novell products. The program is designed to be the method by
which third-party compatible products are branded and recognized by Novell. The
Yes logo is recognized around the world as a mark that indicates a specific
product's compatibility with Novell products.
PARTNERSHIPS
Development Partners. When customers request a new service or function be
added to Novell products, Novell investigates the most effective way to deliver
that functionality to the user. Sometimes the best way is for Novell to partner
with a company who has expertise in that specific area. By partnering, the
combination of Novell's core expertise in networks and the partner's expertise
in the given product area combine to deliver a better solution faster than if
Novell would have attempted to develop it alone.
Systems Partners. Novell partners with companies who have complimentary
software and hardware. The resulting solution is a powerful combination of
products that deliver enterprise-wide connectivity solutions. These partners
include system suppliers like IBM, Compaq, DEC and HP, as well as system
integration experts like Memorex Telex, Arthur Andersen, and EDS.
Application Partners. Novell works very closely with application
developers to provide integrated software products and support for end users. As
network applications grow in importance, this program will help assure broad
availability of well integrated multivendor applications.
Enterprise Consulting Partners. This select group of the industry's
leading systems integrators and consulting organizations work with Novell to
deliver distributed client/server solutions for customers with large
enterprise-wide networks.
Multiple Channel Distribution Network. The Company markets its products
through a broad range of distributors, dealers, value added resellers, systems
integrators, and OEMs as well as to major end users.
Worldwide Service and Support. The Company is committed to providing
service and support on a worldwide basis to its resellers and to their end-user
customers. The Company has established agreements with third party service
vendors to expand and complement the service provided directly by the Company's
service personnel and the Company's resellers.
NOVELL PRODUCTS
The Company's products fall within three categories: Internet Access
Products, Management Products and Groupware Products. Novell products work
together, interoperate with thousands of third-party solutions, and span data
networks from workgroup LANs to the Internet.
Internet Access Products provide the foundation of networking and network
services that can be extended throughout an organization's network, intranets
and the Internet. These products include: NetWare 3 network operating system,
which provides users with access to data and resources controlled by a single
server. NetWare 4 network operating system, which features NetWare Directory
Services (NDS) and provides the user with access to the resources of the entire
enterprise or wide-area network; IntranetWare, which encompasses NetWare 4 and
adds Intranet/Internet connectivity and Web site hosting capabilities; and
Intranetware for Small Business, a version of IntranetWare that leverages the
strengths of NetWare and IntranetWare with ease of installation and
administration required by small business.
Management Products provide reliable management solutions for reducing down
time and support costs, for maximizing network efficiency and enabling customers
to focus more on their core business. The flagship product, ManageWise, is the
only comprehensive, integrated management solution on the market today, enabling
customers to manage and optimize their heterogeneous networking environment. It
features server management, desktop management, network traffic analysis,
automated network inventory, remote control, and virus protection.
Administration products allow efficient management of rights and resources for
NDS and NT Domains. The Novell Application Launcher and ManageWise significantly
reduce the cost of managing
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networked computers, improve the productivity of network administrators and
increase the availability of new and updated software. Ultimately, the family of
management solutions helps to improve network efficiency, performance and the
bottom line.
Groupware Products utilize IntranetWare network services to provide rich
access to network-based information. The Company's GroupWise family of groupware
products now serves over 7 million users with integrated E-Mail, group
calendaring, scheduling, online conferencing, forms and document management.
GroupWise is the premier collaboration product for intranets and the Internet
and integrates these capabilities along with Internet E-mail, fax and voice
messages.
PRODUCT DEVELOPMENT
Due to the rapid pace of technological change in its industry, the Company
believes that its future success will depend, in part, on its ability to enhance
and develop its software products to satisfactorily meet dynamic market needs.
During fiscal 1996, 1995, and 1994, product development expenses were
approximately $276 million, $368 million, and $347 million, respectively. The
Company's product development effort consists primarily of work performed by
employees; however, the Company also utilizes third-party technology partners to
assist with product development.
SALES AND MARKETING
Novell markets its NetWare family of network products through distributors,
dealers, vertical market resellers, systems integrators, and OEMs who meet the
Company's criteria, as well as to major end users. In addition, the Company
conducts sales and marketing activities and provides technical support,
training, and field service to its customers from its offices in San Jose,
California; Provo and Orem, Utah; and from its 40 U.S. and 63 international
sales offices.
Distributors. Novell has established a network of independent
distributors, which resell the Company's products to dealers, VARs, and computer
retail outlets. As of December 31, 1996, there were approximately 16 U.S.
distributors and approximately 140 international distributors.
Dealers. The Company also markets its products to large-volume dealers and
regional and national computer retail chains.
VARs and Systems Integrators. Novell also sells directly to value added
resellers and systems integrators who market data processing systems to vertical
markets, and whose volume of purchases warrants buying directly from the
Company.
OEMs. The Company licenses its systems software to domestic and
international OEMs for integration with their products.
End Users. Generally, the Company refers prospective end-user customers to
its resellers. However, the Company has the internal resources to work directly
with major end users and has developed U.S. and international master license
agreements with approximately 450 of them to date. Additionally, some upgrade
products are sold directly to end users.
International Sales. In fiscal 1996, 1995, and 1994, approximately 50%,
47%, and 43%, respectively, of the Company's net sales were to customers outside
the U.S. To date, substantially all international sales except Japanese sales,
Indian sales, and certain European sales to non-multinational distributors that
were shipped from its distribution center in Dublin, Ireland have been invoiced
by the Company in U.S. dollars. In fiscal 1997 the Company anticipates that a
portion of international revenues will continue to be invoiced in U.S. dollars.
The exceptions to the U.S. dollar invoicing will be Japanese sales through the
Company's joint venture in Japan, Indian sales through the Company's joint
venture in India and certain sales from its distribution center in Dublin,
Ireland. No one foreign country accounted for more than 10% of net sales in any
period. In fiscal 1995 and 1994, the Company had one multinational distributor,
which accounted for 15% and 12% of revenue, respectively. Otherwise, no customer
accounted for more than 10% of revenue in any period.
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Marketing. The Company's marketing activities include distribution of
sales literature and press releases, advertising, periodic product
announcements, support of NetWare user groups, publication of technical and
other articles in the trade press, and participation in industry seminars,
conferences, and trade shows. The marketing departments of the Company employ
many technical laboratories which test and evaluate networked computer equipment
and individual devices. The knowledge derived from these laboratories is the
basis for the technical publications published by the Company. These activities
are designed to educate the market about networks in general, as well as to
promote the Company's products. Through the Professional Developers Program, the
Company strongly supports independent software and hardware vendors in
developing products that work on Novell networks. Thousands of multiuser
application software packages are now compatible with the NetWare operating
system. In March 1996, the twelfth annual BrainShare Conference was held to
inform and educate developers about Novell product strategy, Novell open
architecture programming interfaces, and Novell third-party product
certification programs.
SERVICE, SUPPORT, AND EDUCATION
The purpose of any service program is to help users get the most out of the
products they buy. Novell offers a variety of support alternatives and
encourages users to select the services that best meet their needs. These
include the worldwide service and support organization, the Technical Support
Alliance, the Certified Novell Engineer program, Novell Authorized Education
Centers, the Independent Manufacturer Support Program, and the Client-Server
Testing Program.
MANUFACTURING SUPPLIERS
The Company's products, which consist primarily of software diskettes and
manuals, are duplicated by outside vendors. This allows the Company to minimize
the need for expensive capital equipment in an industry in which multiple
high-volume manufacturers are available.
BACKLOG
Lead times for the Company's products are typically short. Consequently,
the Company does not believe that backlog is a reliable indicator of future
sales or earnings. The absence of significant backlog may contribute to
unpredictability in the Company's net income and to fluctuations in the
Company's stock price. See "Factors Affecting Earnings and Stock Price." The
Company's backlog of orders at January 20, 1997, was approximately $66 million,
compared with $112 million at January 20, 1996.
COMPETITION
Novell competes in the highly competitive market for computer software.
Novell believes that the principal competitive factors are technical innovation
to meet dynamic market needs, hardware independence and compatibility, marketing
strength, system/performance, customer service and support, reliability, ease of
use, price/performance, and connectivity with minicomputer and mainframe hosts.
The market for computer software, has become increasingly competitive due
to Microsoft's growing presence in all sectors of the software business. The
Company does not have the product breadth and market power of Microsoft.
Microsoft's dominant position provides it with distinct competitive advantages.
This position may enable Microsoft to increase its market position even if the
Company succeeds in introducing products with performance and features superior
to those offered by Microsoft. In addition, Microsoft's ability to offer
networking functionality in future versions of its products or to provide
incentives to customers to purchase certain products in order to obtain
favorable sales terms or necessary compatibility or information with respect to
other products, may significantly inhibit the Company's ability to grow its
business. In addition,
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as Microsoft creates new operating systems and applications, there can be no
assurance that Novell will be able to ensure that its products will be
compatible with those of Microsoft.
As the Company sharpened its focus, it decided to sell product
lines -- UnixWare and the WordPerfect personal productivity applications, which
did not contribute to Novell's network focus. Even with a sharpened focus, the
Company may face competition from other industry companies which could introduce
competitive operating systems. If any of these competing products achieves
market acceptance, Novell's business and results of operations could be
materially adversely affected.
LICENSES, PATENTS AND TRADEMARKS
The Company relies on copyright, patent, trade secret and trademark law, as
well as provisions in its license, distribution and other agreements in order to
protect its intellectual property rights. The Company has been issued what it
considers to be valuable patents and has numerous other patents pending. No
assurance can be given that the patents pending will be issued or, if issued,
will provide protection for the Company's competitive position. Although Novell
intends to protect its patent rights vigorously, there can be no assurance that
these measures will be successful nor that the claims on any patents held by the
Company will be sufficiently broad to protect the Company's technology. In
addition, no assurance can be given that any patents issued to the Company will
not be challenged, invalidated or circumvented or that the rights granted
thereunder will provide competitive advantages to the Company. The loss of
patent protection on the Company's technology or the circumvention of its patent
protection by competitors could have a material adverse effect on the Company's
ability to compete successfully in its business.
The software industry is characterized by frequent litigation regarding
copyright, patent and other intellectual property rights. The Company has from
time to time had infringement claims asserted by third parties against it and
its products. While there are no known or pending threatened claims against the
Company, the unsatisfactory resolution of which would have a material adverse
effect on the Company's results of operations and financial condition, there can
be no assurance that such third party claims will not be asserted, or if
asserted, will be resolved in a satisfactory manner. In addition, there can be
no assurance that third parties will not assert other claims against the Company
with respect to any third-party technology. In the event of litigation to
determine the validity of any third-party claims, such litigation could result
in significant expense to the Company and divert the efforts of the Company's
technical and management personnel, whether or not such litigation is determined
in favor of the Company.
In the event of an adverse result in any such litigation, the Company could
be required to expend significant resources to develop non-infringing technology
or to obtain licenses to the technology which is the subject of the litigation.
There can be no assurance that the Company would be successful in such
development or that any such licenses would be available. In addition, the laws
of certain countries in which Novell's products are or may be developed,
manufactured or sold may not protect the Company's products and intellectual
property rights to the same extent as the laws of the United States.
EMPLOYEES
As of December 31, 1996, the Company had 5,818 employees. The functional
distribution of its employees was: sales and marketing -- 1,806; product
development -- 1,930; general and administrative -- 886; service, support,
education, and operations -- 1,196. Of these, 1,659 employees are in offices
outside the U.S. All other Company personnel are based at the Company's
facilities in Utah, California, and various U.S. field offices. None of the
employees is represented by a labor union, and the Company considers its
employee relations to be excellent.
Competition for qualified personnel in the computer industry is intense. To
make a long-term relationship with the Company rewarding, Novell endeavors to
give its employees and in some cases its consultants, challenging work,
educational opportunities, competitive wages, sales commission plans, bonuses,
and through stock option and, stock purchase plans, opportunities to participate
financially in the ownership and success of the Company.
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FACTORS AFFECTING EARNINGS AND STOCK PRICE
In addition to factors described above under "Competition" which may
adversely affect the Company's earnings and stock price, other factors may also
adversely affect the Company's earnings and stock price. The ability of the
Company to maintain its competitive technological position will depend, in large
part, on its ability to attract and retain highly qualified development and
managerial personnel. Competition for such personnel is intense and there is a
risk of departure due to the competitive environment in the software industry.
The loss of a significant group of key personnel would adversely affect the
Company's product development efforts.
As is common in the computer software industry, Novell has experienced
delays in the introduction of new products, due to the complexity of software
products, the need for extensive testing of software to ensure compatibility of
new releases with a wide variety of application software and hardware devices
and the need to "debug" products prior to extensive distribution. Significant
delays in developing, completing or shipping new or enhanced products would
adversely affect the Company.
Moreover, the Company may experience delays in market acceptance of new
releases of its products as the Company engages in marketing and education of
the user base regarding the advantages and system requirements for the new
products and as customers evaluate the advantages and disadvantages of
upgrading. The Company has encountered these issues on each major new release of
its products, and expects that it will encounter such issues in the future.
Novell's ability to achieve desired levels of sales growth depends at least in
part on the successful completion, introduction and sale of new versions of its
products. There can be no assurance that the Company will be able to respond
effectively to technological changes or new product announcements by others, or
that the Company's research and development efforts will be successful. Should
Novell experience material delays or sales shortfalls with respect to new
product releases, the Company's sales and net income could be adversely
affected.
A goal of the Company is to deliver groupware application solutions
combining network services and workgroup applications. The future success of
this strategy will depend in part on the Company's ability to develop and market
new competitive products for workgroup productivity and information processing.
Development of these products has already required and will continue to require
a substantial investment in research and development, particularly as a result
of the decision to offer products across multiple operating environments.
Although Novell's existing network of distributors should assist in this
transition, marketing and distribution of these products may require developing
new marketing and sales strategies and will entail significant expense. The
Company has had only limited experience in the market for these products, and
there can be no assurance that the Company will be successful in developing and
marketing these new products.
The Company's future earnings and stock price could be subject to
significant volatility, particularly on a quarterly basis. The Company's
revenues and earnings may be unpredictable due to its shipment patterns. As is
typical in the software industry, a high percentage of the Company's revenues
are expected to be earned in the third month of each fiscal quarter and will
tend to be concentrated in the latter half of that month. Accordingly, quarterly
financial results will be difficult to predict and quarterly financial results
may fall short of anticipated levels. Because the Company's backlog early in a
quarter will not generally be large enough to assure that it will meet its
revenue targets for any particular quarter, quarterly results may be difficult
to predict until the end of the quarter. A shortfall in shipments at the end of
any particular quarter may cause the results of that quarter to fall
significantly short of anticipated levels. Due to analysts' expectations of
continued growth, any such shortfall in earnings can be expected to have an
immediate and very significant adverse effect on the trading price of Novell's
Common Stock in any given period. The past pattern of new product introductions
has caused revenues to fluctuate, sometimes significantly, on a
quarter-by-quarter basis. Such revenue fluctuations may contribute to the
volatility of the trading price of Novell Common Stock in any given period.
In addition, the market prices for securities of software companies have
been historically volatile. The market price of Novell Common Stock, in
particular, has been subject to wide fluctuations in the past. As a result of
the foregoing factors and other factors that may arise in the future, the market
price of Novell's
8
<PAGE> 10
Common Stock may be subject to significant fluctuations within a short period of
time. These fluctuations may be due to factors specific to the Company, to
changes in analysts' earnings estimates, or to factors affecting the computer
industry or the securities markets in general.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles with Novell, and present and
past positions of the persons currently serving as executive officers of Novell.
<TABLE>
<CAPTION>
HAS BEEN
NAME AGE OFFICER SINCE POSITION OR OFFICE
- ------------------------------------- --- ------------- --------------------------------------
<S> <C> <C> <C>
Joseph A. Marengi.................... 43 1993 President and Chief Operating Officer
Mary M. Burnside..................... 49 1989 Executive Vice President, Corporate
Services
Glenn Ricart......................... 47 1996 Executive Vice President and Chief
Technology Officer
James R. Tolonen..................... 47 1989 Executive Vice President and Chief
Financial Officer
David R. Bradford.................... 46 1986 Senior Vice President, General
Counsel, and Corporate Secretary
Denise Y. Gibson..................... 41 1996 Senior Vice President, Internet
Products
Ronald E. Heinz...................... 38 1996 Senior Vice President, Worldwide Sales
Jennifer A. Konecny-Costa............ 50 1996 Senior Vice President, Human Resources
Victor C. Langford................... 44 1996 Senior Vice President, Internet
Strategies
Darcy G. Mott........................ 44 1989 Vice President and Treasurer
</TABLE>
Joseph A. Marengi joined the Company in 1989 through the Excelan merger and
held various sales positions with the Company until October 1992 when he became
Senior Vice President, Worldwide Sales. In August 1993 he was elected a
corporate officer. In April 1994 he became Executive Vice President, Worldwide
Sales and in August 1996 he became President and Chief Operating Officer.
Mary M. Burnside joined the Company in 1988 and in January 1989 she became
Senior Vice President, Operations and was elected a corporate officer. In
November 1991 she became Executive Vice President, Corporate Services Group. In
August 1993 she joined the Office of the President as Chief Operating Officer.
In April 1994 she became Executive Vice President and Chief Operating Officer.
In August 1996 she became Executive Vice President, Corporate Services.
Glenn Ricart joined the Company in August 1995 as Senior Vice President,
Corporate Research and Development. In February 1996 he became the Chief
Technology Officer and was elected a corporate officer. Prior to joining Novell,
he served at the University of Maryland since 1982 in various capacities
including, Director of the Computer Science Center, Affiliate Associate
Professor of the Computer Science Department and as the Assistant Vice
Chancellor for Academic Information Technology. In September 1994 he began a
sabbatical at the Advanced Research Projects Agency, a branch of the United
States Department of Defense.
James R. Tolonen, a Certified Public Accountant, joined the Company in 1989
through the Excelan merger and became a Senior Vice President and Chief
Financial Officer in August 1989 and was elected a corporate officer. In August
1993 he joined the Office of the President as Chief Financial Officer. In April
1994 he became Executive Vice President and Chief Financial Officer.
David R. Bradford joined the Company in October 1985 as Corporate Counsel.
He became Corporate Secretary in January 1986, Senior Corporate Counsel in April
1986, and Senior Vice President, General Counsel, and Corporate Secretary in
April 1989.
Denise Y. Gibson joined the Company in May 1996 and has served in various
positions including Senior Vice President and General Manager of the Distributed
Networks Business Unit. In October 1996, she became Senior Vice President,
Internet Products, and was elected a corporate officer. Prior to joining Novell
9
<PAGE> 11
she served since 1990 as Vice President of Developer Services and General
Manager of Value Added Services Division of Tandem Computers, a computer
hardware and software company.
Ronald E. Heinz joined the Company in 1987 and has served in various sales
and marketing positions including Vice President, North America and Latin
America Sales and Marketing. In January 1997 he became Senior Vice President,
Worldwide Sales and was elected a corporate officer.
Jennifer A. Konecny-Costa joined the Company in June 1996 as Senior Vice
President, Human Resources and was elected a corporate officer. From 1994 to
June 1996, she was Vice President, Human Resources at Wilson, Sonsin, Goodrich &
Rosati, a law firm representing high technology companies. Prior to that, she
was Vice President, Human Resources from 1988 through 1994 at Silicon Graphics,
a software company.
Victor C. Langford joined the Company in July 1994 and has served in
various positions including Senior Vice President and General Manager of the
Internet/Intranet Services Business Unit. In October 1996, he became Senior Vice
President, Internet Strategies, and was elected a corporate officer. Prior to
joining Novell, he served since April 1992 as Vice President of Worldwide
Research and Development at Software Publishing Corporation, a software company.
Prior to that he served since April 1990 as President of Tymlabs, a software
company.
Darcy G. Mott, a Certified Public Accountant, joined the Company in
September 1986. He served in various finance positions and became Corporate
Controller in February 1989. He was elected a corporate officer in November 1989
and became Treasurer in January 1991. In December 1995 he became Vice President
and Treasurer.
ITEM 2. PROPERTIES
The Company owns and occupies a 1,000,000 square-foot office complex on 99
acres in Orem, Utah, which is used as a product development center. It also owns
and occupies a 550,000 square-foot office complex on 46 acres in Provo, Utah,
which is used as corporate headquarters and a product development center. It
also owns a 380,000 square-foot manufacturing and distribution facility on 23
acres in Lindon, Utah, all of which is leased to a third party manufacturer. The
Company also owns a 100,000 square-foot office building in Herndon, Virginia.
The Company occupies approximately 1/3 of the space in this building and leases
the remainder to tenants. The Company also owns two buildings, totaling 87,000
square feet in San Jose, California, which it had previously leased. They are
used primarily for product development. The Company also has an Irish subsidiary
which owns a 72,000 square foot office building in the United Kingdom and leases
the building to the Company's United Kingdom subsidiary. Additionally, the
Company owns approximately 48 acres of undeveloped land in San Jose, California
and has capacity to expand on its land in Orem and Provo, Utah.
The Company has subsidiaries in Argentina, Australia, Austria, Belgium,
Brazil, Canada, Colombia, Czech Republic, Denmark, Finland, France, Germany,
Hong Kong, Hungary, India, Ireland, Italy, Japan, Korea, Mexico, Netherlands,
Norway, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland,
United Kingdom, and Venezuela -- each of which leases its facilities.
The Company leases offices for product development in San Jose, California;
Berkeley Heights, New Jersey; and Hungerford, U.K.; and a distribution facility
in San Jose, California. The Company also leases sales and support offices in
Arizona, California (5), Colorado, Connecticut, District of Columbia, Florida
(3), Georgia, Illinois, Massachusetts, Michigan, Minnesota, Missouri (2), New
Jersey, New York (2), North Carolina, Ohio (3), Oregon, Pennsylvania (2),
Tennessee, Texas (3), Utah, Virginia, Washington, Chile, China, Malaysia, New
Zealand, Russia, Taiwan, Thailand, and United Arab Emirates.
The terms of such leases vary from month to month to up to ten years.
10
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
In 1993, a suit was filed due to a failed contract against a company that
Novell subsequently acquired. The plaintiff obtained a jury verdict against the
acquired company in 1996. The acquired company is seeking to have the verdict
overturned. Novell does not believe the resolution of this legal matter will
have a material adverse effect on its financial position, results of operations,
or cash flows.
The Company is a party to a number of additional legal claims 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, results of operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K is incorporated herein by
reference to the information contained in the section captioned "Selected
Consolidated Quarterly Financial Data" on page 33 of the Company's Annual Report
to Shareholders for the fiscal year ended October 26, 1996.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 of Form 10-K is incorporated herein by
reference to the information contained in the section captioned "Selected
Consolidated Financial Data" on page 14 of the Company's Annual Report to
Shareholders for the fiscal year ended October 26, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 of Form 10-K is incorporated herein by
reference to the information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 15 through 19 of the Company's Annual Report to Shareholders for the
fiscal year ended October 26, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is incorporated herein by
reference to the Company's consolidated financial statements and related notes
thereto, together with the report of the independent auditors presented on pages
20 through 32 of the Company's Annual Report to Shareholders for the fiscal year
ended October 26, 1996, and to the information contained in the section
captioned "Selected Consolidated Quarterly Financial Data" on page 33 of the
Company's Annual Report to Shareholders for the fiscal year ended October 26,
1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required with respect to identification of directors is
incorporated herein by reference to the information contained in the section
captioned "Election of Directors" of the Registrant's definitive Proxy Statement
for the Annual Meeting of Shareholders to be held April 9, 1997, to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, as
11
<PAGE> 13
amended. Information regarding executive officers of Novell is set forth under
the caption "Executive Officers" in Item 1a hereof.
Each director and each officer of the Company who is subject to Section 16
of the Securities Exchange Act of 1934 (the "Act") is required by Section 16(a)
of the Act to report to the Securities and Exchange Commission by a specified
date his or her transactions in the Company's securities. In fiscal 1996, the
Company believes that all Forms 3, 4 and 5 were filed on time except for
Director Hector, whose Form 4 for the purchase of 5,000 shares was filed one
week late. Mr. Frankenberg, whose Form 4 for the purchase of 1,000 shares was
filed two months late.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to the information contained in the sections captioned "Executive
Compensation" of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 9, 1997, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Securities
Ownership of Certain Beneficial Owners and Management" of the Registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
April 9, 1997, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Certain
Transactions" of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 9, 1997, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Act of 1934, as amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this annual report on
Form 10-K for Novell, Inc.:
<TABLE>
<C> <S> <C>
1. The Consolidated Financial Statements, the Notes to Consolidated Financial
Statements and the Report of Ernst & Young LLP, Independent Auditors, listed
below are incorporated herein by reference to pages 20 through 32 of the
Company's Annual Report to Shareholders for the fiscal year ended October 26,
1996.
Consolidated Statements of Income for the fiscal years ended October 26, 1996,
October 28, 1995, and October 29, 1994.
Consolidated Balance Sheets at October 26, 1996 and October 28, 1995.
Consolidated Statements of Shareholders' Equity for the fiscal years ended
October 26, 1996, October 28, 1995, and October 29, 1994.
Consolidated Statements of Cash Flows for the fiscal years ended October 26,
1996, October 28, 1995, and October 29, 1994.
Notes to Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
2. Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts................................... 15
Schedules other than that listed above are omitted because they are not
required, not applicable or because the required information is shown in the
consolidated financial statements or notes thereto.
3. Exhibits:
A list of the exhibits required to be filed as part of this report is set forth
in the Exhibit Index, which immediately precedes such exhibits, and is
incorporated herein by this reference thereto................................. 16
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended October 26, 1996.
13
<PAGE> 15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
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)
By /s/ JOHN A. YOUNG
------------------------------------
(John A. Young, Chairman of the
Board)
Date: January 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ -------------------------------- -----------------
<C> <S> <C>
/s/ JOSEPH A. MARENGI President and Chief Operating January 21, 1997
- ------------------------------------------ Officer (Principal Executive
(Joseph A. Marengi) Officer)
/s/ JAMES R. TOLONEN Executive Vice President and January 21, 1997
- ------------------------------------------ Chief Financial Officer
(James R. Tolonen) (Principal Financial and
Accounting Officer)
/s/ ELAINE R. BOND Director January 21, 1997
- ------------------------------------------
(Elaine R. Bond)
/s/ HANS-WERNER HECTOR Director January 21, 1997
- ------------------------------------------
(Hans-Werner Hector)
/s/ JACK L. MESSMAN Director January 21, 1997
- ------------------------------------------
(Jack L. Messman)
/s/ LARRY W. SONSINI Director January 21, 1997
- ------------------------------------------
(Larry W. Sonsini)
/s/ IAN R. WILSON Director January 21, 1997
- ------------------------------------------
(Ian R. Wilson)
</TABLE>
14
<PAGE> 16
NOVELL, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE ALLOWANCE
--------------------------------------------------------------------------
ADDITIONS ADDITIONS DEDUCTIONS DEDUCTIONS
BALANCE AT CHARGED TO CHARGED TO FROM FROM BAD BALANCE
BEGINNING RETURN BAD DEBT RETURN DEBT AT END
OF PERIOD RESERVES RESERVES RESERVES RESERVES OF PERIOD
---------- ---------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Fiscal year ended October 29, 1994....... $ 50,202 $228,295 $ 8,293 $194,101 $ 9,755 $82,934
Fiscal year ended October 28, 1995....... $ 82,934 $290,613 $ 10,470 $305,679 $ 3,481 $74,857
Fiscal year ended October 26, 1996....... $ 74,857 $314,979 $ 6,481 $323,438 $ 11,939 $60,940
</TABLE>
15
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
3.1 Restated Certificate of Incorporation.(4)(Exhibit 3.1)
3.2 By-Laws.(1)(Exhibit 3.1)
4.1 Reference is made to Exhibit 3.1.
4.2 Form of certificate representing the shares of Novell Common Stock.(1)(Exhibit 4.3)
4.3 Rights Agreement dated December 7, 1988, between Novell, Inc. and Mellon Bank (East)
N.A., as Rights Agent, relating to the Shareholder Rights Plan.(3)(Exhibit 1)
10.1 Novell, Inc., Employee Retirement and Savings Plan dated December 8, 1996(2)(Exhibit
10.9)
10.2 Agreement and Plan of Reorganization dated March 23, 1989, among Novell, Inc.;
Lansub Corporation; and Excelan, Inc.(5)(Appendix A)
10.3 Novell, Inc. 1989 Employee Stock Purchase Plan.(6)(Exhibit 4.1)
10.4 Agreement and Plan of Reorganization dated July 16, 1991, among Novell, Inc.; MDAC
Corp.; and Digital Research Inc.(7)(Appendix A)
10.5 Novell, Inc. 1991 Stock Plan.(8)(Exhibit 10.1)
10.6 Agreement and Plan of Reorganization and Merger dated February 12, 1993, among
Novell, Inc.; Novell Acquisition Corp.; UNIX System Laboratories, Inc.; and American
Telephone and Telegraph Company(9)(Appendix A)
10.7 UNIX System Laboratories, Inc. Stock Option Plan.(10)(Exhibit 4.3)
10.8 Agreement and Plan of Reorganization dated March 21, 1994 and amended May 31, 1994,
among Novell, Inc.; Novell Acquisition Corp.; WordPerfect Corporation, Alan C.
Ashton, Bruce W. Bastian, and Melanie L. Bastian.(11)(Appendix A and Exhibit 1.1)
10.9 Novell, Inc. Novell/WordPerfect Stock Plan.(12)(Exhibit 10.1)
11 Statement regarding computation of per share earnings.(13)
13 Company's Annual Report to Shareholders for the fiscal year ended October 26,
1996.(13)
21 Subsidiaries of the Registrant.(13)
23.1 Consent of Ernst & Young LLP, independent auditors.(13)
27 Financial Data Schedule.(13)
</TABLE>
- ---------------
(1) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-1, filed
November 30, 1984, and amendments thereto (File No. 2-94613).
(2) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Annual Report on Form 10-K, filed for the
fiscal year ended October 25, 1986 (File No. 0-13351).
(3) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Current Report on Form 8-K, dated
December 7, 1988 (File No. 0-13351).
(4) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Annual Report on Form 10-K, filed for the
fiscal year ended October 29, 1988 (File No. 0-13351).
(5) Incorporated by reference to the Appendix identified in parentheses, filed
as an appendix in the Registrant's Registration Statement on Form S-4,
filed May 9, 1989 (File No. 33-28470).
(6) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-8, filed
September 28, 1989 (File No. 33-31299).
(7) Incorporated by reference to the Appendix identified in parentheses, filed
as an appendix in the Registrant's Registration Statement on Form S-4,
filed September 24, 1991 (File No. 33-42254).
(8) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-8, filed
June 5, 1992 (File No. 33-48395).
(9) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-4, filed
May 13, 1993 (File No. 33-60120).
(10) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-8, filed
July 2, 1993 (File No. 33-65440).
(11) Incorporated by reference to the Appendix and Exhibit identified in
parentheses, filed as an appendix and exhibit in the Registrant's
Registration Statement on Form S-4, filed June 13, 1994 (File No.
33-53215).
(12) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-8, filed
July 8, 1994 (File No. 33-54483)
(13) Filed herewith.
16
<PAGE> 1
EXHIBIT 11
NOVELL, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The computation of common and common share equivalents is as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
OCTOBER 29, OCTOBER 28, OCTOBER 26,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average number of common shares outstanding*......... 361,648 367,963 355,478
Number of common share equivalents resulting from stock
options, computed using the treasury stock method*.......... 6,684 6,621 2,441
------- ------- -------
Number of common and common share equivalents used in
computation*................................................ 368,332 374,584 357,919
======= ======= =======
</TABLE>
- ---------------
* All share amounts reflect the June 1994 merger with WordPerfect Corporation.
17
<PAGE> 1
//every.network/every.file/every.resource/every.person/
NOVELL(R)
1996 Annual Report
www.novell.com
<PAGE> 2
Networks have become the primary information asset in business. The value of
information resources is shifting from individual applications, operating
systems, and files to how they are collectively distributed and accessed across
networks. As the largest provider of software for network services, Novell(R)
offers network solutions that enable businesses to protect and expand their
investments in information resources in an increasingly networked world.
<PAGE> 3
To Our Shareholders
For Novell, fiscal year 1996 was a year of tough choices, decisive
action, and profound internal changes in the context of a rapidly
changing industry. Our overriding objective throughout the year has
been to turn Novell around and reclaim recognition for our leadership
in network software.
Five priorities have guided our efforts to re-energize the company:
- Increase revenue growth
- Refocus our efforts around customer segments
- Become more competitive
- Remain profitable
- Increase shareholder value
During the year, we made choices to achieve these objectives effectively
and rapidly. Although work remains to complete our transition, we have made
solid progress in 1996.
Among the positive changes at Novell were our focus on the company's core
networking competency and the sale of businesses that didn't fit our ongoing
strategy. We shifted product lines to take advantage of new market opportunities
spurred by the exploding Internet and intranet markets. We implemented the
largest marketing campaign in Novell's history to launch new products and
increase brand visibility. We accelerated the pace of internal operations to
make Novell more competitive. And, we are driving aggressively to translate
Novell's vision, strategy, and execution into tangible value outside the
company.
Other aspects of Novell have not changed. We remained at the center of a
$20 billion a year network "economy" of partners, resellers, integrators, and
customers. We continued to invest 17 cents of every dollar -- $276 million in
fiscal 1996 -- exclusively on the development of network software solutions.
And, our base of nodes, or connections, continues to grow, approaching 60
million by year end.
In 1996, we delivered more and better products -- all intranet focused --
than at any time in our history. IntranetWare,(TM) a full-service intranet
platform that includes Web server, browser, and publishing tools as well as all
the functionality of NetWare(R) 4.11, allows customers to meet their evolving
needs for Internet/intranet access, while preserving their existing network
investment. We believe that IntranetWare will be an effective host for
platform-independent applications developed in Java,* Sun Microsystems'
development language for Internet/intranet solutions. GroupWise 5,(TM) the
leading E-mail Internet application, supports popular Web browsers on all the
major platforms, stores Internet addresses in its Universal Mailbox, and links
directly from those addresses to a referenced home page. ManageWise(R) 2.1
network management software enables system administrators to manage IntranetWare
and Windows NT* servers and desktop environments to maintain optimum network
performance.
CUSTOMER DIRECTIONS
The commercialization of the Internet is having a profound effect on Novell's
business. Customers are seamlessly integrating their local area networks and
wide area networks with the Internet, moving beyond isolated private networks.
As organizations of every size and type establish their World Wide Web presence,
PCs have changed from computing devices to communication hubs, and Web browsers
and E-mail are becoming ubiquitous. Customers are rapidly developing intranets
- -- corporate networks based on Internet technology and open standards -- to
empower employees to access information, applications, data bases, and other
internal resources.
We envision an even greater future convergence of today's early-stage
corporate intranets with the world of traditional corporate networks. The
full-service intranet of tomorrow will connect to an enterprise's proprietary
data bases for instant, but controlled, internal access to mission-critical
information. For rapid information flow beyond an organization's border,
non-proprietary intranet information will be accessible to the company's
universe of customers, partners, and suppliers.
1.
<PAGE> 4
[PHOTO] Joseph A. Marengi and John A. Young
These industry forces play to Novell's strengths. They make Novell even
more central to enabling its customers' network solutions. For network
administrators and users, the increasing complexity of interconnected networks
underscores the value of a directory service. The best weapon against network
gridlock, a directory manages and provides secure access to all network
resources -- people, printers, fax servers, Web servers, files, applications,
data bases, routers, Internet gateways, and more. As intranets connect first to
the Internet and, soon, to each other, security measures to prevent unauthorized
network access and message interception have surfaced as a major concern of
network managers. These trends are driving explosive growth of the intranet
software market, expected to reach $10 billion by the year 2000. Above all, they
demonstrate the potential for revenue growth in Novell's area of expertise --
network software solutions.
BUSINESS DIRECTIONS
Novell Directory Services(TM) (NDS(TM)) is a key part of Novell's ongoing
strategy for building profitable revenue from the commercialization of the
Internet. With more than 17 million users and a significant technological
advantage, NDS is already the directory of choice for the world's largest
business networks. Based on the X.500 open standard, NDS provides full support
for leading Internet protocols, including the Lightweight Directory Access
Protocol (LDAP) -- an emerging directory standard.
Today, we are leveraging these strengths to establish NDS as the de facto
industry standard for all server platforms, corporate intranets, and the
Internet. In 1997 we will distribute single-server NDS royalty-free to major
providers of UNIX* servers and Microsoft's Windows NT operating system. Our
agreements to make single-server NDS available on UNIX platforms from
Hewlett-Packard, IBM, The Santa Cruz Operation, and Sun Microsystems advance
this objective, and other server vendors are expected to follow.
Mass adoption of NDS across all server platforms is designed to seed the
market for Novell and its partners to provide value-added network services
software that uses the directory as a foundation. These network services include
server replication for scalability, messaging and collaboration, network
management, security, Web, and advanced file and print -- capabilities developed
and refined for our flagship IntranetWare(TM)/NetWare(R) operating system and
complementary products.
In 1997, Novell will deliver powerful, new network services that customers
need to access information quickly and confidentially on business intranets and
the Internet. Novell's proxy caching technology stores frequently used Web pages
on a local area network server so that users spend less time waiting for
Internet information to be delivered. By avoiding the constant reloading of Web
pages from the Internet, proxy caching greatly reduces network traffic and
delivers approximately two and a half times as much throughput over the same
physical connection in a typical environment.
2.
<PAGE> 5
In addition, Novell's new security service supports two-way access between
corporate intranets and the Internet, while protecting sensitive internal
information from unauthorized penetration. This technology lets internal users
take advantage of the Internet's wealth of information and allows approved users
outside the company to access specified intranet resources.
We believe that our server business will be indirectly supported by the
growth of network services software for Windows NT and UNIX servers. Although
IntranetWare and NetWare are sold based on performance, reliability, and
manageability, the broad availability of NDS and network services gives us
heightened visibility in the Internet/intranet market.
FINANCIAL RESULTS
Novell's underlying financial model has remained sound despite the tough
measures implemented during the year to turn the company around. We remained
profitable for the year, generating revenue of $1.4 billion and after tax
earnings of $126 million or $0.35 per share. We finished 1996 with $1 billion of
cash and short-term investments, and no debt, even with spending $456 million
during the year to repurchase and retire 33 million shares of our stock.
After selling our personal productivity applications and UnixWare* product
lines and dramatically reducing the channel inventory held by our distributors
during the first half of the year, we established a profitable financial
baseline in the third quarter of fiscal 1996. Fourth quarter revenue of $384
million increased $19 million sequentially over the third quarter. And our key
brands -- IntranetWare, NetWare, GroupWise,(TM) and ManageWise -- were refreshed
with new product releases during the quarter.
Comparisons of 1996 financial results with earlier years are not meaningful
due to the product line divestitures and the reduction of channel inventory. The
impact of these actions reduced comparative revenue by over $0.5 billion for the
year, although positioning us as a stronger company.
Profitable revenue growth, the clearest indicator of vitality in our core
business and an important sign of the company's inherent health, is our
objective throughout fiscal 1997. We believe this goal is achievable based on
our market position, current product offerings, and new network solutions under
development for midyear release.
THE FUTURE OF NOVELL
There are those who did not think Novell would defend against competitive
encroachment in its traditional core market. But we are acting, and we are doing
so decisively and boldly. There are those who have been predicting Novell's
demise, some recently, some in the 1980s. But we have stayed the course as the
world leader of network software and, today, we are more committed to success
than ever. There is a fresh entrepreneurial spirit at Novell driving our actions
to capture a significant share of the Internet/intranet software market. In
fiscal 1997, we will harness that energy to complete our turnaround, build on
our momentum, and direct our actions to:
- - Drive adoption of NDS as the de facto industry standard directory
- - Lead in new categories of Internet/intranet related products that we
define
- - Reorient existing products to the Internet/intranet market
- - Invest selectively in services and technologies that are synergistic
with the company's network software business, and
- - Continue to foster a culture of urgency
These tactics will make Novell stronger and more competitive. Overall, we are
confident about Novell's future and our ability to gain full credit for all that
we have accomplished thus far and all that we will do in fiscal 1997.
/s/Joseph A. Marengi
- --------------------
Joseph A. Marengi
PRESIDENT AND CHIEF OPERATING OFFICER
/s/John A. Young
- ----------------
John A. Young
CHAIRMAN OF THE BOARD
December 23, 1996
3.
<PAGE> 6
[GRAPHIC]
(1)
From IntranetWare(TM) servers, through GroupWise(TM) messaging and COLLABORATION
SOLUTIONS, to Novell(R) Directory Services(TM) (NDS(TM)) and other distributed
services--Novell solutions for the Internet and intranets integrate all the
resources of a company's network. Novell software supports the different
computers, server types, information resources, and geographies connected by the
network. Novell provides distributed information solutions that are highly
secure, scalable, manageable, fast, and most importantly, reliable. Novell
protects user investments in information systems by creating solutions for the
mix of heterogeneous computing resources in a networked world. 1
//EVERY.NETWORK/
<PAGE> 7
(2)
Novell's flagship INTRANETWARE is the logical evolution of
NetWare(R) software from a network operating
system to a full-service, standards-based
intranet solution. IntranetWare combines the
world's best networking engine--NetWare
4(TM)--with the network services users need
most: integrated messaging, file, print,
scalable management, directory, Internet and
World Wide Web connectivity, Web publishing,
and more. Novell provides an Internet
standard infrastructure that lets users
fully participate in the networked economy.
Novell became the world leader in network software by recognizing that networks
are inherently collections of different computers, (1) and that the value of the
network is in the ease with which users can access information. (2) Internet
standards and technologies take this value proposition to new levels (3) by
significantly expanding the scope of information resources that the network can
deliver to users where and when needed. (4) In 1996, Novell oriented all of its
products to the Internet and business intranets.
(3) In an Internet world, a network's value is in the resources it
connects and delivers. The significance of NDS is that it
enables diverse, RESOURCE-RICH networks to be securely
connected, managed, and accessed. Using Novell's directory
services, system managers define and maintain relationships
among users, information resources, files, systems, and
devices across varied network locations. NDS allows them to
consider their whole network as a single asset.
(4) Intranets bring the Internet's model of easy World Wide Web
file ACCESS to business networks. They allow users to easily
discover and access information resources. With NDS as a de
facto standard for security, discovery, access, and management
of network resources, customers are able to connect their
intranets to each other--as extranets-- and do business
securely over the Internet.
5.
<PAGE> 8
[GRAPHIC]
(5)
NDS, a highly scalable directory, provides the security and content management
underpinnings for intranet and extranet connections across the Internet. In
1997, NDS will allow FILES and directory information to be securely replicated
and maintained between different servers across an intranet and the Internet.
Content-rich UNIX* servers from the world's leading computer vendors will be
able to replicate and synchronize their information with Windows NT* servers.
And, both UNIX and Windows NT servers can replicate and synchronize their
information with IntranetWare servers.
//EVERY.FILE/
<PAGE> 9
(6) NDS(TM) fully implements Internet directory standards. NDS
begins as an X.500-based directory and utilizes all the major
network protocols important to the Internet: the Web's
HyperText Transport Protocol, to allow you to look at and
change NDS through any browser; the Internet transfer support
protocol, TCP/IP, for replication between directories; the
emerging standard directory access protocol, LDAP, for adding
and accessing content in the directory; SSL for security; the
Java* programming language for network applications; and other
standards.
The World Wide Web is built on file access. Corporate home pages, Web pages, and
HyperText links are all files.(5) The evolution of business networks to
intranets makes what is already a file-oriented environment all the more
dependent on rapid, secure, file access. Standards-based NDS (6) securely
manages this content-rich environment, and the file access performance (7) of
IntranetWare is without parallel.
(7)
As intranets spur increased file
transactions, users and administrators need
new and better ways to manage network
PERFORMANCE and usage. Novell is leading the
way in providing Web proxy caching
capabilities, scheduled for release in 1997.
Network traffic is reduced and delivery
speeds increased as local IntranetWare
servers maintain, or cache, Web pages that
are frequently needed by intranet users.
7.
<PAGE> 10
[GRAPHIC]
(8)
The VALUE of business networks is defined by the information resources they
provide access to: E-mail, documents, PCs, printers, routers, Web servers, fax
servers, modems, and mission-critical applications of all types. With
standards-based NDS, all these varied resources become directory content,
enabling users to securely discover and access resources that are maintained and
managed through a common directory environment.
//EVERY.RESOURCE/
<PAGE> 11
(9)
MANAGEWISE(R) from Novell has become the market-leading standards-based
solution for managing everything on the network from the server level
to the clients. It manages IntranetWare, Windows NT, and UNIX servers;
other computers; and devices on the network. ManageWise provides the
foundation for comprehensive network management by integrating with
enterprise management solutions from Sun, Hewlett-Packard, and IBM.
Information systems are shifting to networks (8) that manage (9) distributed
information resources. With this comes a new way of thinking about how
information is accessed. A client/network model is evolving from the narrower
client/server architecture, just as intranets are evolving from local area
networks. Increasingly, network users expect to gain access to any information
resource on business intranets and the Internet, irrespective of the server
platforms and operating systems that host these resources.(10)
(10) JAVA is a significant new application
development platform for creating a new
class of network applications that are
written once and can run on any computer on
the network. Novell and Sun Microsystems are
working together to provide developers with
the programming tools to fully link to
Novell network services and create
directory-enabled Java applications that
rely on NDS for security, access control,
and management.
9.
<PAGE> 12
[GRAPHIC]
(11)
The UNIVERSAL network browser has become the universal network client. In
intranets and the Internet, the browser is the window to all network resources.
Through browsers, new network computers, Web phones, and other devices will
increasingly rely on NDS for accessing network resources. The directory securely
authenticates users and discovers network resources based on identifying
attributes that it maintains.
//EVERY.PERSON/
<PAGE> 13
(13) New categories of INTERNET PRODUCTS from
Novell are planned for 1997. "Border
services" will provide important
improvements in intranet performance,
security, and in the manageability of
Internet connections. A comprehensive
firewall class security framework will be
new. Border services reflect Novell's plan
to expand its network software around Web
directory, Web management, and Web security
for corporate intranets and the Internet.
(12)
GROUPWISE from Novell became the leading groupware application in 1996, and the
first to support Internet access of combined mail, work flow, calendaring,
scheduling, and document management features. A directory-enabled network
application, GroupWise runs on IntranetWare, Windows NT, and UNIX servers for
messaging and collaboration across intranets and the Internet. It can
be accessed from any device that supports a standard Web browser.
Every person at every business around the world can be networked today. (11)
Networks enable people to collaborate (12) and better use information resources
in whatever they do. Intranets greatly expand the availability of these
resources to the people in a business, and ultimately to their suppliers,
partners, and customers. Novell, with leading network software (13) and support
for network standards, makes this happen better (14) than any other information
technology vendor.
(14)
NDS ON THE INTERNET will span from new "virtual
private networks" between individual intranets across
the Internet to secure public networks from the
world's leading telecommunications carriers. Novell
has licensed NDS to AT&T, NTT in Japan, Deutsche
Telekom AG, and other leading Internet service
providers. These Internet service providers use NDS
to enable their business customers to confidently
conduct business over secure, authenticated Internet
connections.
11.
<PAGE> 14
[GRAPHIC]
network solutions for
intranets and the Internet
<PAGE> 15
FINANCIAL CONTENTS
Selected Consolidated Financial Data 14.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 15.
Consolidated Statements of Income 20.
Consolidated Balance Sheets 21.
Consolidated Statements of Shareholders' Equity 22.
Consolidated Statements of Cash Flows 23.
Notes to Consolidated Financial Statements 24.
Report of Ernst & Young LLP, Independent Auditors 32.
Selected Consolidated Quarterly Financial Data (Unaudited) 33.
Directors and Executives 34.
Office Locations 35.
Corporate Directory 36.
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
OCT. 26 Oct. 28 Oct. 29 Oct. 30 Oct. 31
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME
<S> <C> <C> <C> <C> <C>
Continuing product line sales* $1,311,646 $1,629,003 $1,448,336 $1,130,200 $ 857,533
Discontinued product line sales 63,210 412,171 549,741 700,211 654,955
- ------------------------------------------------------------------------------------------------------------------------
Net sales 1,374,856 2,041,174 1,998,077 1,830,411 1,512,488
Gross profit 1,068,095 1,551,841 1,531,011 1,427,809 1,185,781
Income from operations 108,944 452,109 269,943 108,098 428,146
Income before taxes 179,988 508,729 297,383 138,157 461,807
Income taxes 53,997 170,424 90,652 97,437 139,829
Net income 125,991 338,305 206,731 40,720 321,978
Net income per share .35 .90 .56 .11 .90
- ------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
Cash and short-term investments $1,024,755 $1,321,231 $ 861,809 $ 719,197 $ 631,829
Working capital 1,225,987 1,464,237 990,411 859,308 727,068
Total assets 2,049,466 2,416,830 1,963,481 1,745,337 1,430,475
Long-term debt -- -- -- 84,289 12,256
Shareholders' equity 1,615,509 1,938,262 1,486,987 1,146,026 1,115,047
- ------------------------------------------------------------------------------------------------------------------------
KEY RATIOS
Current ratio 4.4 4.2 3.1 3.2 3.5
Return on net sales 9% 17% 10% 2% 21%
Return on average total assets 6% 15% 11% 3% 25%
Return on average equity 7% 20% 16% 4% 32%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* During the second quarter of fiscal 1996, the Company estimates that it
reduced revenue by approximately $225 million by withholding product shipments
to the worldwide distribution channels.
14.
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
Novell is the world's leading network software provider. The Company offers a
wide range of network solutions with distributed network, Internet, and intranet
products for both large enterprise and small-business markets.
During fiscal 1996, Novell sold its UnixWare and personal productivity
applications product lines in exchange for significant ownership interests in
the two acquiring companies. Also during fiscal 1996, the Company significantly
reduced the amount of its product held by distributors by reducing shipments
into the distribution channel by approximately $225 million in the second
quarter. These actions significantly reduced fiscal 1996 reported revenue
compared to fiscal 1995, and make meaningful year-to-year comparisons difficult.
After completing these transactions during the first half of fiscal 1996, the
Company reported significantly improved profitability in the second half of
fiscal 1996.
In December 1995, Novell sold its UnixWare product line to the Santa Cruz
Operation, Inc. (SCO). The Company realized a small gain and recorded $19
million of Unix technology royalty revenue from this transaction in the first
quarter of fiscal 1996. Under the agreement, Novell received approximately 6
million shares of SCO common stock, resulting in ownership of approximately 17%
of SCO common stock. The agreement also calls for Novell to receive a revenue
stream from SCO based on revenue performance of the purchased UnixWare product
line. This revenue stream is not to exceed $84 million net present value, and
will end by the year 2002. In addition, Novell will continue to receive revenue
from existing licenses for older versions of UNIX System source code. Novell
acquired this product line as part of its 1993 purchase of UNIX Systems
Laboratories, Inc.
In March 1996, the Company completed the sale of its personal productivity
applications product line to Corel Corporation (Corel). The Company received
approximately 10 million shares of Corel common stock and approximately $11
million of cash. This resulted in an ownership position of approximately 17% of
the outstanding Corel common stock. The Company reported a one-time gain of $20
million in the second quarter of fiscal 1996 related to this transaction.
Additionally, Corel licensed GroupWise client software, Envoy electronic
publishing software, and other technologies from Novell for a minimum royalty
obligation of approximately $50 million over the next five years. The Company
originally acquired the personal productivity applications product line as part
of its merger with WordPerfect Corporation (WordPerfect) and the related
purchase of the Quattro Pro spreadsheet product line from Borland International,
Inc. (Borland) in fiscal 1994.
During the second quarter of fiscal 1996, the Company implemented the
change to its traditional distribution stocking policy because the Company had
experienced strong growth in revenue from software licensing programs, thereby
lowering the need for higher volume of product in the distribution channel.
In June 1994, the Company completed a merger with 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. The transaction was accounted for as a pooling of interests.
Additionally, in June 1994, the Company acquired from Borland 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.
15.
<PAGE> 18
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales (millions) $1,375 - 33% $2,041 2% $1,998
================================================================================
</TABLE>
With the sale of its UnixWare product line in the first quarter of fiscal
1996 and the sale of its personal productivity applications, along with the
change in its distribution stocking policy in the second quarter of fiscal 1996,
the components of revenue in fiscal 1996 are significantly different from the
components of revenue in fiscal 1995 and 1994.
The analysis that follows describes the product lines consistent with the
Company's current ongoing business.
Continuing product lines can be categorized into server operating
environments, network services, UNIX royalties, and education, service, and
other. Historical revenues also include revenue from product lines that have
been sold or discontinued, such as the personal productivity applications
product line which was sold to Corel in March 1996.
The server operating environments product line includes IntranetWare and
NetWare 4 as well as NetWare 3 products. Server operating environments revenue
was $754 million in fiscal 1996 compared to $1,045 million in fiscal 1995, and
$892 million in fiscal 1994. In addition to the estimated $225 million impact of
the change in its distribution stocking policy discussed previously, the
decrease in fiscal 1996 from fiscal 1995 is a result of an 18% growth in
IntranetWare and NetWare 4 sales offset by a 57% decline in sales of NetWare 3.
The increase between fiscal 1995 and fiscal 1994 is primarily attributable to
strong sales of NetWare 4 somewhat offset by a moderate decline in NetWare 3
sales. The server operating environments product line represented 55% of revenue
in fiscal 1996 compared to 51% of revenue in fiscal 1995, and 45% in fiscal
1994.
The network services product line includes infrastructure products and
application products. Infrastructure products include TCP/IP access products,
host connectivity products, Tuxedo, and mobile/remote connectivity products
among others. Application products include ManageWise and GroupWise products.
The network services product line had revenue of $328 million in fiscal 1996
compared to $343 million in fiscal 1995, and $284 million in fiscal 1994.
Revenue was down slightly from fiscal 1995 to fiscal 1996 with a 41% increase in
application products offset by a 26% decrease in infrastructure products.
Revenue in fiscal 1995 was higher than revenue in fiscal 1994 due to growth in
both infrastructure products and application products. Network services revenue
represented 24% of total revenue in fiscal 1996 compared to 17% in fiscal 1995,
and 14% in fiscal 1994.
UNIX royalties were $79 million in fiscal 1996 compared to $75 million in
fiscal 1995, and $157 million in fiscal 1994. The increase from fiscal 1995 to
fiscal 1996 was attributable to a one-time $19 million paid-up royalty
recognized in the sale of UNIX technology to SCO in fiscal 1996. The decrease in
fiscal 1995 compared to fiscal 1994 was due to a one-time fully paid license for
UNIX technology sold to Sun Microsystems for $81 million in fiscal 1994. UNIX
royalties were 6% of revenues in fiscal 1996 compared to 4% of revenues in
fiscal 1995, and 8% of revenues in fiscal 1994.
Education, service, and other revenues were $151 million in fiscal 1996
compared to $166 million in fiscal 1995, and $115 million in fiscal 1994.
Education, service, and other revenues were 11% of revenue in fiscal 1996
compared to 8% of revenue in fiscal 1995, and 6% of revenue in fiscal 1994.
Revenue from sold or discontinued product lines, made up primarily of the
personal productivity applications product line which was sold to Corel in March
1996, was $63 million in fiscal 1996 compared to $412 million in fiscal 1995,
and $550 million in fiscal 1994. Sold or discontinued product lines were 5% of
revenue in fiscal 1996 compared to 20% of revenue in fiscal 1995, and 27% of
revenue in fiscal 1994.
International sales accounted for 50% of revenue in fiscal 1996 compared to
47% of revenue in fiscal 1995, and 43% of revenue in fiscal 1994.
16.
<PAGE> 19
<TABLE>
<CAPTION>
GROSS PROFIT
1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross profit (millions) $1,068 - 31% $1,552 1% $1,531
Percentage of net sales 78% 76% 77%
================================================================================
</TABLE>
The higher gross profit percentage in fiscal 1996 compared to fiscal 1995 was a
result of lower material costs due to an increase in licensing revenue and the
decrease in sales from the lower margin personal productivity applications
product line. The lower gross profit percentage in fiscal 1995 compared to
fiscal 1994 is attributable to increased royalty costs and product training and
education costs in fiscal 1995.
<TABLE>
<CAPTION>
OPERATING EXPENSES
1996 Change 1995 Change 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales and marketing (millions) $ 519 -10% $ 579 3% $ 562
Percentage of net sales 38% 28% 28%
Product development (millions) $ 276 -25% $ 368 6% $ 347
Percentage of net sales 20% 18% 17%
General and administrative (millions) $ 146 -5% $ 153 -6% $ 162
Percentage of net sales 11% 7% 8%
Restructuring charges (millions) $ 18 -- -- -- $ 51
Percentage of net sales 1% -- 3%
Other nonrecurring charges (millions) -- -- -- -- $ 139
Percentage of net sales -- -- 7%
Total operating expenses (millions) $ 959 -13% $1,100 -13 $1,261
Percentage of net sales 70% 54% 63%
==========================================================================================================
</TABLE>
Operating expenses declined in absolute dollars although they increased
generally as a percentage of net sales in fiscal 1996 compared to fiscal 1995
due to the change in the Company's distribution stocking policy, which reduced
fiscal 1996 revenues by an estimated $225 million without a corresponding
decrease in operating expenses.
Sales and marketing expenses decreased by 10% from fiscal 1995 to fiscal
1996, primarily due to the sale of the UnixWare and personal productivity
applications product lines, even though they increased as a percentage of net
sales in fiscal 1996 compared to fiscal 1995 primarily due to the change in the
Company's distribution stocking policy. Sales and marketing expenses can
fluctuate as a percentage of net sales in any given period due to product
promotions, advertising, or other discretionary expenses.
Product development expenses decreased by 25% from fiscal 1995 to fiscal
1996, primarily due to the sale of the UnixWare and personal productivity
applications product lines, yet have increased as a percentage of net sales
primarily due to the change in the Company's distribution stocking policy.
General and administrative expenses decreased by 5% from fiscal 1995 to
fiscal 1996, primarily due to the sale of the UnixWare and personal productivity
applications product lines, yet increased as a percentage of net sales primarily
due to the change in the Company's distribution stocking policy. The decrease in
fiscal 1995 was attributable to workforce reductions after the merger with
WordPerfect.
During the first quarter of fiscal 1996, the Company incurred $18 million
of tax deductible restructuring charges for redundant facilities and excess
personnel as the Company prepared for the sale of its personal productivity
applications product line. During the fourth quarter of fiscal 1994, the Company
incurred a restructuring charge of $51 million for redundant facilities, excess
personnel, and products to be discontinued. Of the original reserve,
approximately $5 million remained at the end of fiscal 1996 related to a lease
obligation.
In fiscal 1994, the Company incurred other nonrecurring charges of $139
million, related primarily to the write-off of purchased research and
development in connection with acquisitions.
17.
<PAGE> 20
OPERATING EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
1996 Change 1995 Change 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employees 5,870 - 24% 7,762 - 8% 8,457
Revenue per employee (thousands) $ 202 $ 252 $ 211
===================================================================================================
</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. During the first half of
fiscal 1995, an additional 650 employees' functions were outsourced as part of
the fiscal 1994 restructuring.
In fiscal 1996, the Company reduced its employment by 1,725 employees as
the Company completed the sale of its UnixWare and personal productivity
applications product lines and terminated or transitioned former UnixWare and
personal productivity group employees to Corel, SCO, and other third parties.
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Other income (expense), net (millions) $71 25% $57 111% $27
Percentage of net sales 5% 3% 1%
===============================================================================================
</TABLE>
The primary component of other income (expense) is investment income, which was
$58 million, $54 million, and $36 million in fiscal 1996, 1995, and 1994,
respectively. The increase in fiscal 1996 compared to fiscal 1995 is the result
of a flat yield on a slightly higher average investment portfolio. The increase
in fiscal 1995 compared to fiscal 1994 was attributable to a much larger average
investment portfolio due to cash being generated from operations in excess of
other cash uses. To achieve potentially higher returns, a limited portion of the
Company's investment portfolio is invested in mutual funds which incur 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 fiscal 1996, in addition to the investment income, the Company had a
gain on the sale of its personal productivity applications product line of
approximately $20 million, offset by foreign currency exchange losses. In fiscal
1995, in addition to the investment income, the Company had a gain on the
disposal of its Austin, Texas facility, offset by foreign currency exchange
losses. In fiscal 1994, investment income was offset by merger expenses and
interest expense related to notes payable to WordPerfect shareholders.
<TABLE>
<CAPTION>
INCOME TAXES
1996 Change 1995 Change 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income taxes (millions) $ 54 - 68% $170 87% $ 91
Percentage of net sales 4% 8% 5%
Effective tax rate 30% 34% 31%
====================================================================================
</TABLE>
The effective tax rate for fiscal 1996 was lower than the effective tax rate for
fiscal 1995 as a result of lower earnings for fiscal 1996. The effective tax
rate for fiscal 1995 was higher than the effective tax rate for fiscal 1994 as a
result of WordPerfect's S corporation status change to C corporation status in
the first quarter of fiscal 1994.
18.
<PAGE> 21
<TABLE>
<CAPTION>
NET INCOME AND NET INCOME PER SHARE
1996 Change 1995 Change 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (millions) $126 - 63% $338 63% $ 207
Percentage of net sales 9% 17% 10%
Net income per share $.35 - 61% $.90 61% $ .56
========================================================================================
</TABLE>
The nonrecurring UNIX license revenues, acquisition related expense items,
and normalization of income taxes for WordPerfect represented a decrease in net
income of $91 million or $.25 per share in fiscal 1994.
FUTURE RESULTS
The Company's future results of operations involve a number of risks and
uncertainties. Among the factors that could cause actual results to differ
materially from historical results are the following: business conditions and
the general economy; competitive factors, such as rival operating systems,
acceptance of new products and price pressures; availability of third-party
compatible products at reasonable prices; risk of nonpayment of accounts or
notes receivable; risks associated with foreign operations; risk of inventory
obsolescence due to shifts in technologies or market demand; timing of software
product introductions; and litigation.
Novell believes that it has the product offerings, facilities, personnel,
and competitive and financial resources for continued business success, but
future revenues, costs, margins, product mix, and profits are all influenced by
a number of factors, as discussed above.
<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES
1996 Change 1995 Change 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and short-term investments (millions) $1,025 -22% $1,321 53% $ 862
Percentage of total assets 50% 55% 44%
==============================================================================================================
</TABLE>
Cash and short-term investments decreased to $1.025 billion at October 26, 1996
from $1.321 billion at October 28, 1995. The major reasons for this decrease
were the $456 million used to repurchase and retire 33 million shares of Novell
common stock and $101 million used for property, plant, and equipment
expenditures. These uses were partially offset by the $192 million of cash
provided by operating activities, $54 million provided by other financing
activities, and $21 million from other investing activities. The investment
portfolio is diversified among security types, industry groups, and individual
issuers. The Company's principal source of liquidity has been from operations.
At October 26, 1996, the Company's principal unused sources of liquidity
consisted of cash and short-term investments and available borrowing capacity of
approximately $15 million under its credit facilities. The Company's liquidity
needs are principally for the Company's financing of accounts receivable,
capital assets, strategic investments, and flexibility in a dynamic and
competitive operating environment.
During fiscal 1996, 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. Investments will continue in
product development and in new and existing areas of technology. Cash may also
be used to acquire technology through purchases and strategic acquisitions.
Capital expenditures in fiscal 1997 are anticipated to be approximately $80
million, but could be reduced if the growth of the Company is less than
presently anticipated.
19.
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED Oct. 26 Oct. 28 Oct. 29
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 1,374,856 $ 2,041,174 $ 1,998,077
Cost of sales 306,761 489,333 467,066
- --------------------------------------------------------------------------------
Gross profit 1,068,095 1,551,841 1,531,011
Operating expenses
Sales and marketing 518,846 579,370 562,034
Product development 275,627 367,562 346,706
General and administrative 146,236 152,800 161,855
Restructuring charges 18,442 -- 51,463
Other nonrecurring charges -- -- 139,010
- --------------------------------------------------------------------------------
Total operating expenses 959,151 1,099,732 1,261,068
Income from operations 108,944 452,109 269,943
Other income (expense)
Investment income 58,195 53,839 36,360
Gain on sale of assets 19,815 -- --
Merger expenses -- -- (5,778)
Other, net (6,966) 2,781 (3,142)
- --------------------------------------------------------------------------------
Other income, net 71,044 56,620 27,440
- --------------------------------------------------------------------------------
Income before taxes 179,988 508,729 297,383
Income taxes 53,997 170,424 90,652
- --------------------------------------------------------------------------------
Net income $ 125,991 $ 338,305 $ 206,731
================================================================================
Weighted average shares outstanding 357,919 374,584 368,332
================================================================================
Net income per share $ .35 $ .90 $ .56
================================================================================
</TABLE>
See notes to consolidated financial statements.
20.
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
OCT. 26 Oct. 28
1996 1995
- ------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and short-term investments $ 1,024,755 $ 1,321,231
Receivables, less allowances ($60,940 -- 1996,
$74,857 -- 1995) 452,327 470,437
Inventories 16,837 23,025
Prepaid expenses 59,009 50,576
Deferred income taxes 37,831 59,913
- ------------------------------------------------------------------------------
Total current assets 1,590,759 1,925,182
Property, plant, and equipment, net 394,684 390,452
Other assets 64,023 101,196
- ------------------------------------------------------------------------------
Total assets $ 2,049,466 $ 2,416,830
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 96,933 $ 116,305
Accrued compensation 54,731 97,637
Accrued marketing liabilities 48,402 72,339
Other accrued liabilities 118,133 90,623
Income taxes payable -- 29,942
Deferred revenue 46,573 54,099
- ------------------------------------------------------------------------------
Total current liabilities 364,772 460,945
Minority interests 17,035 17,623
Put warrants 52,150 --
SHAREHOLDERS' EQUITY
Common stock, par value $.10 per share
Authorized -- 600,000,000 shares
Issued -- 346,059,050 shares, 1996
371,567,158 shares, 1995 34,606 37,157
Additional paid-in capital 309,831 737,481
Retained earnings 1,266,657 1,140,666
Unearned stock compensation (4,141) (2,718)
Cumulative translation adjustment 1,183 2,249
Unrealized gain on investments 7,373 23,427
- ------------------------------------------------------------------------------
Total shareholders' equity 1,615,509 1,938,262
- ------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,049,466 $ 2,416,830
==============================================================================
</TABLE>
See notes to consolidated financial statements.
21.
<PAGE> 24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Retained
Shares Amount Capital Earnings Other Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- OCT. 30, 1993 359,431 $ 35,943 $ 485,253 $ 635,551 $ (10,721) $ 1,146,026
Stock issued from stock plans 4,988 499 35,814 -- (612) 35,701
Stock plans' income tax benefits -- -- 21,747 -- -- 21,747
Shares cancelled (64) (6) (1,833) -- 1,839 --
Settlement of put warrants -- -- 104,438 -- -- 104,438
Unearned stock compensation -- -- -- -- 3,821 3,821
Cumulative translation adjustment -- -- -- -- 8,444 8,444
Distributions to shareholders -- -- -- (65) -- (65)
WordPerfect fiscal year conversion -- -- -- (39,856) -- (39,856)
Net income -- -- -- 206,731 -- 206,731
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE -- OCT. 29, 1994 364,355 $ 36,436 $ 645,419 $ 802,361 $ 2,771 $ 1,486,987
Stock issued from stock plans 7,315 732 68,459 -- (4,909) 64,282
Stock plans' income tax benefits -- -- 25,128 -- -- 25,128
Shares cancelled (103) (11) (1,525) -- 1,451 (85)
Unrealized gain on investments -- -- -- -- 23,427 23,427
Unearned stock compensation -- -- -- -- 5,506 5,506
Cumulative translation adjustment -- -- -- -- (5,288) (5,288)
Net income -- -- -- 338,305 -- 338,305
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE -- OCT. 28, 1995 371,567 $ 37,157 $ 737,481 $ 1,140,666 $ 22,958 $ 1,938,262
Stock issued from stock plans 7,651 765 58,485 -- (11,091) 48,159
Stock plans' income tax benefits -- -- 14,027 -- -- 14,027
Shares cancelled (159) (16) (2,119) -- 1,655 (480)
Shares repurchased and retired (33,000) (3,300) (452,401) -- -- (455,701)
Sale of put warrants -- -- (77,830) -- -- (77,830)
Settlement of put warrants -- -- 32,188 -- -- 32,188
Unrealized loss on investments -- -- -- -- (16,054) (16,054)
Unearned stock compensation -- -- -- -- 8,013 8,013
Cumulative translation adjustment -- -- -- -- (1,066) (1,066)
Net income -- -- -- 125,991 -- 125,991
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE -- OCT. 26, 1996 346,059 $ 34,606 $ 309,831 $ 1,266,657 $ 4,415 $ 1,615,509
==============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
22.
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED OCT. 26 Oct. 28 Oct. 29
1996 1995 1994
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 125,991 $ 338,305 $ 206,731
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 104,782 94,190 86,379
Gain on non-cash sale of assets (19,815) -- --
WordPerfect fiscal year conversion -- -- (39,856)
Stock plans' income tax benefits 14,027 25,128 21,747
Decrease (increase) in receivables 18,110 (79,095) 3,992
Decrease (increase) in inventories 6,188 9,196 (2,388)
(Increase) decrease in prepaids (8,433) 18,748 (29,248)
Decrease (increase) in deferred income taxes 47,278 45,228 (70,294)
(Decrease) increase in current liabilities, net (96,173) (1,775) 73,487
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities 191,955 449,925 379,939
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net 47,679 64,197 35,701
Repurchases of common stock (455,701) -- --
Sale of put warrants 12,195 -- --
Settlement of put warrants (5,687) -- --
Distributions to shareholders -- -- (65)
Repayment of debt -- -- (118,901)
Other -- -- 24,531
- --------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (401,514) 64,197 (58,734)
- --------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant, and equipment (101,001) (84,454) (73,488)
Purchases of short-term investments (3,163,643) (4,432,301) (2,253,008)
Maturities of short-term investments 2,698,313 3,417,724 1,556,345
Sales of short-term investments 588,174 662,320 398,881
Proceeds from sale of assets 10,750 -- --
Cash paid for acquisitions -- -- (110,000)
Other 10,323 6,327 4,895
- --------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 42,916 (430,384) (476,375)
- --------------------------------------------------------------------------------------------------
Total (decrease) increase in cash and cash equivalents $ (166,643) $ 83,738 $ (155,170)
Cash and cash equivalents -- beginning of period 312,164 228,426 383,596
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents -- end of period 145,521 312,164 228,426
Short-term investments -- end of period 879,234 1,009,067 633,383
- --------------------------------------------------------------------------------------------------
Cash and short-term investments -- end of period $ 1,024,755 $ 1,321,231 $ 861,809
==================================================================================================
</TABLE>
See notes to consolidated financial statements.
23.
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated.
The following summarizes the significant accounting policies of the
Company:
- - The Company considers all highly liquid debt instruments purchased with a term
to maturity of three months or less to be cash equivalents. Short-term
investments are widely diversified, consisting primarily of short-term
investment grade securities, substantially all of which either mature within the
next twelve months or have characteristics of short-term investments. Municipal
securities included in short-term investments have contractual maturities
ranging from 1 to 5 years. Money market preferreds have contractual maturities
of less than 90 days. No other short-term investments have contractual
maturities. 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, with the unrealized gains and losses, net of tax, included in
shareholders' equity. The cost of securities sold is based on the specific
identification method. 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.
- - Accounts receivable include geographically dispersed distributors, resellers,
and OEM customers. No collateral is required. Reserves are provided for product
exchanges and bad debts.
- - Inventories are stated at the lower of cost (first-in, first-out method) or
market.
- - Plant and equipment are carried at cost less accumulated depreciation and
amortization.
- - Provision for depreciation and amortization is computed on the straight-line
method over the estimated useful lives of the assets, or lease term if shorter,
and are as follows:
Asset Classification Useful Lives
- --------------------------------------------------------------
Buildings 30 years
Furniture and equipment 3 - 5 years
Leasehold improvements and other 3 - 7 years
Intangible assets 3 - 15 years
- - Assets and liabilities of the Company's wholly owned subsidiaries, denominated
in the local currency of the subsidiary, are remeasured into U.S. dollars (the
functional currency) at year-end exchange rates except for equipment and
leasehold improvements, which are remeasured at average rates of exchange
prevailing when acquired. Income and expense items are remeasured at average
rates of exchange prevailing during the year, except that depreciation is
remeasured at historical rates. These remeasurement gains and losses are
included in net income in the period incurred.
- - For the Company's Japanese and Indian subsidiaries, the functional currency
has been determined to be the local currency, and therefore assets and
liabilities are translated at year-end exchange rates and income statement items
are translated at average exchange rates prevailing during the year. Such
translation adjustments are recorded in shareholders' equity.
- - Revenue on product sales is recognized upon shipment. Certain sales require
continuing service, support, and performance by the Company, and accordingly a
portion of the revenue is deferred until the future service, support, and
performance are provided. Reserves for sales returns and allowances are recorded
in the same period as the related revenues.
- - Product development costs are expensed as incurred. Application of Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed," has not had any material
effect on the consolidated financial statements.
- - Net income per share is computed using the weighted average number of common
shares outstanding during each year, including common stock equivalents (unless
antidilutive). Common stock equivalents consist of outstanding stock options.
- - Required adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," effective for the Company during the first fiscal quarter of
1997, is not expected to have a material impact on the consolidated financial
statements of the Company.
- - The Company intends to adopt Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," effective for the Company during
the first fiscal quarter of 1997. The Company has chosen to disclose the impact
of stock-based compensation in its footnotes and will not include such impact on
its recorded earnings.
Certain reclassifications, none of which affected net income, have been
made to the prior years' amounts in order to conform to the current year's
presentation.
24.
<PAGE> 27
B. SIGNIFICANT EVENTS
In December 1995, Novell sold its UnixWare product line to the Santa Cruz
Operation, Inc. (SCO). The Company realized a small gain and recorded $19
million of UNIX technology royalty revenue from this transaction in the first
quarter of fiscal 1996. Under the agreement, Novell received approximately 6
million shares of SCO common stock, resulting in ownership of approximately 17%
of SCO common stock. The agreement also calls for Novell to receive a revenue
stream from SCO based on revenue performance of the purchased UnixWare product
line. This revenue stream is not to exceed $84 million net present value, and
will end by the year 2002. In addition, Novell will continue to receive revenue
from existing licenses for older versions of UNIX System source code.
In March 1996, the Company completed the sale of its personal productivity
applications product line to Corel Corporation (Corel). The Company received
approximately 10 million shares of Corel common stock and approximately $11
million in cash. This resulted in an ownership position of approximately 17% of
the outstanding Corel common stock. The Company reported a one-time gain of $20
million in the second quarter of fiscal 1996 related to this transaction. Net of
tax, the gain was $13 million, or $0.04 per share. Additionally, Corel licensed
GroupWise client software, Envoy electronic publishing software, and other
technologies from Novell for a minimum royalty obligation of approximately $50
million over the next five years.
During the second quarter of fiscal 1996, the Company implemented a change
to its traditional distribution stocking policy that significantly reduced
revenue and earnings in that quarter. Because the Company has experienced strong
growth in revenue from software licensing programs, the Company decided to
reduce channel inventories to better match evolving purchase patterns. The
Company estimates that it reduced product inventories in the worldwide
distribution channels during the second quarter of 1996 by approximately $225
million. This was accomplished primarily by reducing shipments to distributors
during the second quarter. Additionally, net returns of approximately $20
million were accepted during the second quarter related to this policy change.
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. The transaction was accounted for as a pooling of
interests. Additionally, in June 1994, the Company acquired from Borland
International, Inc. (Borland) 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.
C. CASH AND SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
Fair Market
Cost at Gross Gross Value at
Oct. 26 Unrealized Unrealized Oct. 26
(Dollars in thousands) 1996 Gains Losses 1996
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
<S> <C> <C> <C> <C>
Cash $ 77,374 $ -- $ -- $ 77,374
Repurchase agreements 4,526 -- -- 4,526
Tax exempt money market fund 36,821 -- -- 36,821
Municipal securities 26,800 -- -- 26,800
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 145,521 $ -- $ -- $ 145,521
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
Municipal securities $ 376,510 $ 1,524 $ (12) $ 378,022
Money market mutual funds 78,514 -- -- 78,514
Money market preferreds 224,000 -- -- 224,000
Mutual funds 14,151 14 (10) 14,155
Equity securities 174,054 35,432 (24,943) 184,543
- ------------------------------------------------------------------------------------------------------------------------------
Short-term investments $ 867,229 $ 36,970 $ (24,965) $ 879,234
- ------------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments $ 1,012,750 $ 36,970 $ (24,965) $ 1,024,755
==============================================================================================================================
</TABLE>
25.
<PAGE> 28
C. CASH AND SHORT-TERM INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
Fair Market
Cost at Gross Gross Value at
Oct. 28 Unrealized Unrealized Oct. 28
(Dollars in thousands) 1995 Gains Losses 1995
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
<S> <C> <C> <C> <C>
Cash $ 152,930 $ -- $-- $ 152,930
Repurchase agreements 23,794 -- -- 23,794
Tax exempt money market fund 63,065 -- -- 63,065
Municipal securities 72,375 -- -- 72,375
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 312,164 $ -- $-- $ 312,164
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS
Municipal securities $ 375,491 $ 3,222 $(2) $ 378,711
Money market mutual funds 38,475 -- -- 38,475
Money market preferreds 442,500 176 -- 442,676
Mutual funds 91,423 31 (1) 91,453
Equity securities 23,055 $ 34,697 -- 57,752
- ------------------------------------------------------------------------------------------------------------------------------
Short-term investments $ 970,944 $ 38,126 $(3) $ 1,009,067
- ------------------------------------------------------------------------------------------------------------------------------
Cash and short-term investments $ 1,283,108 $ 38,126 $(3) $ 1,321,231
==============================================================================================================================
</TABLE>
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," was adopted in the first quarter of
fiscal 1995, resulting in unrealized gains of $7 million and $23 million, net of
deferred taxes, as of the end of fiscal 1996 and 1995, respectively.
The Company realized gains on the sales of securities of $20 million, $7
million, and $7 million in fiscal 1996, 1995, and 1994, respectively. In fiscal
1994, the Company realized losses on the sales of securities of $2 million.
D. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
Oct. 26 Oct. 28
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Buildings and land $246,250 $214,218
Furniture and equipment 401,661 403,177
Leasehold improvements and other 75,218 66,127
- ------------------------------------------------------------
Property, plant, and equipment
at cost 723,129 683,522
Accumulated depreciation (328,445) (293,070)
- ------------------------------------------------------------
Property, plant, and equipment, net $394,684 $390,452
============================================================
</TABLE>
E. INCOME TAXES
Novell, Inc. adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," effective October 31,
1993 for fiscal year 1994. Adoption of SFAS No. 109 had no material impact on
the financial statements of the Company.
Prior to September 30, 1993, WordPerfect and related affiliates elected to
be taxed as S corporations whereby the income tax effects accrued directly to
the shareholders. On September 30, 1993, the WordPerfect and related domestic
affiliates terminated their S corporation elections. On December 31, 1993, the
WordPerfect related foreign affiliates terminated their S corporation elections.
As a result, deferred income taxes under the provisions of SFAS No. 109 were
established on the dates the S corporation elections were terminated.
As of October 26, 1996, the Company has net operating loss carryforwards
from acquired companies of approximately $24 million that expire in years 1999
through 2008. Subject to certain annual limitations, these losses can be used to
offset the future taxable income of these businesses. A valuation allowance of
approximately $7 million has been recognized to offset the deferred tax assets
related to those carryforwards.
26.
<PAGE> 29
E. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
Fiscal Year Ended Oct. 26 Oct. 28 Oct. 29
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
TAXES ON INCOME
Current
<S> <C> <C> <C>
Federal $ (19,649) $ 85,344 $132,543
State (1,352) 20,829 21,344
Foreign 12,085 36,048 22,362
- ----------------------------------------------------------------------------------------------------
Total current (8,916) 142,221 176,249
- ----------------------------------------------------------------------------------------------------
Deferred
Federal 54,794 24,382 (55,788)
State 8,060 4,423 (10,510)
Foreign 59 (602) (3,751)
Change in tax status -- -- (15,548)
- ----------------------------------------------------------------------------------------------------
Total deferred 62,913 28,203 (85,597)
- ----------------------------------------------------------------------------------------------------
Total taxes on income $ 53,997 $170,424 $ 90,652
====================================================================================================
DIFFERENCES BETWEEN THE U.S. STATUTORY AND EFFECTIVE TAX RATES
U.S. statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax effect 3.1 3.2 3.5
Research and development tax credits (1.3) (1.6) (2.6)
FSC benefit (0.9) (0.7) (2.1)
Tax exempt income (5.6) (2.0) (2.0)
Other, net (0.3) (0.4) 2.2
- ----------------------------------------------------------------------------------------------------
Subtotal 30.0 33.5 34.0
- ----------------------------------------------------------------------------------------------------
Change in tax status -- -- (5.2)
Nondeductible charge for purchased research and development -- -- 1.7
- ----------------------------------------------------------------------------------------------------
Effective tax rate 30.0% 33.5% 30.5%
====================================================================================================
DOMESTIC AND FOREIGN COMPONENTS OF INCOME BEFORE TAXES
Domestic $ 180,198 $450,094 $312,563
Foreign (210) 58,635 (15,180)
- ----------------------------------------------------------------------------------------------------
Total income before taxes $ 179,988 $508,729 $297,383
====================================================================================================
Cash paid for income taxes $ 26,370 $162,020 $115,016
====================================================================================================
<CAPTION>
Oct. 26 Oct. 28
DEFERRED INCOME TAXES AS OF 1996 1995
- ----------------------------------------------------------------------------------------------------
Deferred tax assets
<S> <C> <C>
Receivable valuation accounts $ 17,824 $ 20,869
Restructuring provision 6,141 8,428
Acquired intangibles -- 29,746
Reserves and accruals 22,388 25,310
Foreign earnings 13,496 12,136
Other individually immaterial items 25,367 25,259
- ----------------------------------------------------------------------------------------------------
85,216 121,748
Valuation allowance for deferred tax assets (7,462) (9,018)
- ----------------------------------------------------------------------------------------------------
77,754 112,730
Deferred tax liabilities
Unrealized gain on investments (26,997) (14,695)
- ----------------------------------------------------------------------------------------------------
Net deferred tax assets $ 50,757 $ 98,035
====================================================================================================
</TABLE>
27.
<PAGE> 30
F. COMMITMENTS AND CONTINGENCIES
Rent expense for operating and month-to-month leases was $29 million, $32
million, and $34 million in fiscal 1996, 1995, and 1994, respectively.
As of October 26, 1996, the Company has various operating leases with
remaining terms of more than one year. These leases have minimum annual lease
commitments of $24 million in fiscal 1997, $22 million in fiscal 1998, $16
million in fiscal 1999, $9 million in fiscal 2000, $7 million in fiscal 2001,
and $37 million thereafter. Furthermore, the Company has $56 million of
minimum rentals to be received in the future.
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 October 26,
1996, there were no borrowings, letter of credit acceptances, or commitments
under such line.
The Company has an additional $5 million credit facility with another bank
which is not subject to a loan agreement. At October 26, 1996, standby letters
of credit of $300,000 were outstanding under this agreement.
In 1993, a suit was filed due to a failed contract against a company that
Novell subsequently acquired. The plaintiff obtained a jury verdict against the
acquired company in 1996. The acquired company is seeking to have the verdict
overturned. Novell does not believe that the resolution of this legal matter
will have a material adverse effect on its financial position, results of
operations, or cash flows.
The Company is a party to a number of additional legal claims arising in
the ordinary course of business. The Company believes the ultimate resolution of
the claims will not have a material adverse effect on its financial position,
results of operations, or cash flows.
G. PUT WARRANTS
During fiscal 1996, the Company sold put warrants on 9 million shares of its
common stock for $12 million, callable on specific dates in the third and fourth
quarters of fiscal 1996 and the first and second quarters of fiscal 1997, giving
a third party the right to sell shares of Novell common stock to the Company at
contractually specified prices. During fiscal 1996, the Company settled put
warrant obligations on 5 million shares for cash of $6 million. The put warrant
liability is the amount the Company would be obligated to pay if all the
outstanding put warrants were exercised at the strike price without a cash
settlement. The proceeds from the issuance of the put options were accounted for
as additional paid-in capital. The company expects to settle the put warrant
obligations with cash and thereby eliminate the liability. As of fiscal year
end, the cash settlement would be approximately $12 million.
H. SHAREHOLDERS' EQUITY
In December 1988, the Board of Directors adopted a Shareholder Rights Plan and
amended it in March 1992 and December 1996. The plan provides for a dividend of
rights, which cannot be exercised until certain events occur, to purchase shares
of preferred stock of the Company. Each shareholder of record receives one right
for each share of common stock that he or she owns. This plan was adopted to
ensure that all shareholders of the Company receive fair value for their common
stock in the event of any proposed takeover of the Company and to guard against
coercive tactics to gain control of the Company without offering fair value to
the Company's shareholders.
The Company has 500,000 authorized shares of preferred stock with a par
value of $.10 per share, none of which was outstanding at October 26, 1996 or
October 28, 1995.
Pursuant to a share repurchase program whereby the Company was authorized
to repurchase up to 10% of its outstanding common stock in fiscal 1996, the
Company repurchased and retired approximately 33 million shares at a cost of
approximately $456 million in fiscal 1996.
During fiscal 1994, the Company completed the acquisition of WordPerfect
Corporation and thereby assumed 8 million stock options related to its
respective stock option plan. Under all Company stock option plans, 110 million
shares of common stock have been reserved for issuance of stock options, 53
million shares have been exercised, 41 million shares are outstanding, 13
million shares are available for future grants, and 3 million shares have
expired.
The shares reserved for issuance are increased each November 1 through
November 1, 1998, based on a calculation of 2.9% of total common stock
outstanding at previous fiscal year end. Generally, grants to date have been
nonqualified stock options granted at fair market value on the date of grant for
a term of seven or ten years and are exercisable 25% per year beginning one year
from the date of grant. The Company also has a stock option plan for nonemployee
directors, under which 1.5 million shares have been reserved for issuance of
nonqualified stock options. The following table is a summary of activity for the
Company's stock option plans and has been restated to include the WordPerfect
stock options for all periods presented.
28.
<PAGE> 31
H. SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Oct. 26 Oct. 28 Oct. 29
Fiscal Year Ended 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING
<S> <C> <C> <C>
Beginning balance 41,280,912 39,109,706 37,282,781
Options granted 18,527,866 12,575,366 20,602,634
Options exercised (5,956,026) (5,834,579) (4,036,142)
Options cancelled (12,521,485) (4,569,581) (14,739,567)
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance 41,331,267 41,280,912 39,109,706
==============================================================================================================================
EXCHANGE PROGRAM (INCLUDED ABOVE)
Options cancelled -- -- 11,149,199
Options regranted -- -- 7,430,961
RESTRICTED STOCK GRANT (INCLUDED ABOVE)
Options granted 932,261 50,000 306,500
OPTION PRICE DATA
Grant price range $ .10-14.88 $ .10-21.50 $ .10-21.13
Weighted average grant price $ 11.98 $ 19.14 $ 15.79
Exercise price range $ .10-18.00 $ .10-21.25 $ .10-25.00
Weighted average exercise price $ 5.36 $ 7.41 $ 5.18
Cancelled price range $ .61-29.00 $ .61-29.00 $ .61-29.00
Weighted average cancelled price $ 16.67 $ 18.19 $ 25.70
Weighted average outstanding price $ 14.77 $ 15.24 $ 13.25
OPTION TERMS
Percentage vesting per year 25% 25% 25%
Maximum term 7 or 10 years 7 or 10years 7 or 10 years
Percentage granted at fair market value on date of grant 95% 99% 99%
AS OF YEAR END
Options exercisable 16,583,867 17,418,497 15,863,911
Options available for future grants 13,037,380 8,009,685 5,476,318
OTHER INFORMATION
Shares of common stock outstanding at year end 346,059,050 371,567,158 364,354,887
Annual option reserve increase based on evergreen provision 10,775,447 10,566,291 8,933,478
Options granted as a percentage of outstanding common stock,
net of cancellations 1.7% 2.2% 1.6%
Option holders as a percentage of total employees 100% 100% 100%
</TABLE>
29.
<PAGE> 32
H. SHAREHOLDERS' EQUITY (CONTINUED)
In 1994, the Company implemented a stock option exchange program whereby option
holders could exchange higher priced options for new options on a two new shares
for three old shares ratio. All option holders except for directors and officers
were permitted to participate in the program.
The Novell, Inc. 1989 Employee Stock Purchase Plan (Purchase Plan) permits
eligible employees to purchase shares of common stock through payroll deductions
at lower of 85% of fair market value at the beginning or end of each six-month
offering period. On April 12, 1995, shareholders approved an amendment to
increase the reserve to 8 million shares. As of October 26, 1996, 7 million
shares have been issued under the Purchase Plan.
I. RESTRUCTURING CHARGES
During the first quarter of fiscal 1996, the Company incurred $18 million of tax
deductible restructuring charges for redundant facilities and excess personnel
as the Company prepared for the sale of its personal productivity applications
product line.
During the fourth quarter of fiscal 1994, the Company incurred a
restructuring charge of $51 million for redundant facilities, excess personnel,
and products to be discontinued. Of the original reserve, approximately $5
million remained at the end of fiscal 1996 related to a lease obligation.
J. OTHER NONRECURRING CHARGES
In fiscal 1994, the Company incurred other nonrecurring charges of $139
million, primarily related to the write-off of purchased research and
development in connection with acquisitions.
K. EMPLOYEE SAVINGS AND RETIREMENT PLAN
The Company adopted a 401(k) savings and retirement plan in December 1986. The
plan covers all employees who are 21 years of age or older who are scheduled to
complete 1,000 hours of service during any consecutive twelve-month period.
Prior to January 1, 1995, the Company's retirement and savings plan contribution
has been a 50% matching contribution for employee contributions up to 6% of each
employee's compensation. On January 1, 1995, the Company's retirement and
savings plan contribution was changed to be a 100% matching contribution for
employee contributions up to 4% of each employee's compensation. Company
matching contributions were $16 million, $17 million, and $15 million in fiscal
1996, 1995, and 1994, respectively.
L. RELATED PARTY TRANSACTIONS
In fiscal 1996, 1995, and 1994, legal fees of approximately $1 million,
$2 million, and $2 million, respectively, were paid to Wilson, Sonsini,
Goodrich & Rosati, a law firm in which a director of the Company is a senior
partner.
M. PRO FORMA DATA
If WordPerfect had been a C corporation for all periods presented, fiscal 1994
would have had income tax expense of $106 million, net income of $191 million,
and net income per share of $.52.
30.
<PAGE> 33
N. SALES BY GEOGRAPHY
<TABLE>
<CAPTION>
Fiscal Year Ended Oct. 26 Oct. 28 Oct. 29
(Dollars in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
Net sales
<S> <C> <C> <C>
U.S. operations $ 902,684 $ 1,623,565 $1,874,537
Irish operations 344,512 228,812 --
Other international operations 128,564 189,568 125,286
Eliminations (904) (771) (1,746)
- ------------------------------------------------------------------------------------------------------------------------------
Total net sales $ 1,374,856 $ 2,041,174 $1,998,077
==============================================================================================================================
Income from operations
U.S. operations $ 417,618 $ 658,774 $ 299,578
Irish operations 9,098 3,481 --
Other international operations (129) 20,008 14,542
Eliminations (317,643) (230,154) (44,177)
- ------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 108,944 $ 452,109 $ 269,943
==============================================================================================================================
Identifiable assets
U.S. operations $ 2,102,574 $ 2,437,599 $1,900,766
Irish operations 57,471 54,065 --
Other international operations 46,816 58,288 51,210
Eliminations (157,395) (133,122) (11,505)
- ------------------------------------------------------------------------------------------------------------------------------
Total identifiable assets $ 2,049,466 $ 2,416,830 $1,963,481
==============================================================================================================================
</TABLE>
The Company markets internationally through distributors who sell to dealers and
end users. Intercompany sales between geographic areas are accounted for at
prices representative of unaffiliated party transactions. "U.S. operations"
include shipments to customers in the U.S., licensing to OEMs, and exports of
finished goods directly to international customers, primarily in Canada, South
America, and Asia. In fiscal 1996, 1995, and 1994, sales to international
customers were approximately $682 million, $960 million, and $861 million,
respectively. In fiscal 1996, 1995, and 1994, international sales to European
countries were 55%, 56%, and 58%, respectively. No one foreign country accounted
for more than 10% of total sales in any period. In fiscal 1995 and 1994, the
Company had one multinational distributor, which accounted for 15% and 12% of
revenue, respectively. Otherwise, no customer accounted for more than 10% of
revenue in any period.
31.
<PAGE> 34
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
NOVELL, INC.
We have audited the accompanying consolidated balance sheets of Novell, Inc. as
of October 26, 1996 and October 28, 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended October 26, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Novell, Inc. at October 26, 1996 and October 28, 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended October 26, 1996, in conformity with generally accepted accounting
principles.
/s/ERNST & YOUNG LLP
San Jose, California
November 26, 1996
32.
<PAGE> 35
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
33
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
- -------------------------------------------------------------------------------------------------------------------
FISCAL 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 437,919 $ 188,180 $ 365,091 $ 383,666 $1,374,856
Gross profit 341,908 119,566 289,473 317,148 1,068,095
Income (loss) before taxes 95,580 (83,246) 84,712 82,942 179,988
Net income (loss) 63,561 (55,359) 58,759 59,030 125,991
Net income (loss) per share .17 (.15) .17 .17 .35
COMMON STOCK PRICE PER SHARE
High 19 1/8 14 5/8 15 5/8 12 1/4 19 1/8
Low 12 11 3/8 10 1/8 10 10
FISCAL 1995
Net sales $ 493,225 $ 529,508 $ 537,922 $ 480,519 $2,041,174
Gross profit 376,350 405,053 412,322 358,116 1,551,841
Income before taxes 122,585 144,162 153,332 88,650 508,729
Net income 81,519 95,868 101,966 58,952 338,305
Net income per share .22 .26 .27 .16 .90
COMMON STOCK PRICE PER SHARE
High 20 7/8 22 1/4 23 1/4 21 5/8 23 1/4
Low 15 3/4 17 5/8 17 7/8 13 3/4 13 3/4
FISCAL 1994
Net sales $ 488,278 $ 534,930 $ 488,924 $ 485,945 $1,998,077
Gross profit 384,501 389,533 383,420 373,557 1,531,011
Income (loss) before taxes 126,444 144,811 (4,740) 30,868 297,383
Net income (loss) 94,460 96,364 (4,465) 20,372 206,731
Net income (loss) per share .26 .26 (.01) .06 .56
COMMON STOCK PRICE PER SHARE
High 25 3/8 26 1/4 19 1/2 17 23/32 26 1/4
Low 19 1/4 15 14 13 3/4 13 3/4
</TABLE>
Novell's common stock trades in the over-the-counter market under the NASDAQ
symbol "NOVL".
No dividends have been declared on the Company's common stock. There were 12,631
shareholders of record at December 31, 1996.
33.
<PAGE> 36
DIRECTORS AND EXECUTIVES
BOARD OF DIRECTORS
ELAINE R. BOND +#
Retired Chase Fellow/Sr. Consultant
The Chase Manhattan Bank, N.A.
HANS-WERNER HECTOR
Cofounder
SAPAG, Germany
JACK L. MESSMAN +#
President and Chief Executive Officer
Union Pacific Resources Group, Inc.
LARRY W. SONSINI *
Partner
Wilson, Sonsini, Goodrich & Rosati
IAN R. WILSON *
Managing Partner
Dartford Partnership
JOHN A. YOUNG +#
Retired President and Chief Executive Officer
Hewlett-Packard Company
+ Member of Audit Committee
# Member of Compensation Committee
* Member of Corporate Governance Committee
CORPORATE EXECUTIVE STAFF
JOSEPH A. MARENGI
President and
Chief Operating Officer
MARY M. BURNSIDE
Executive Vice President
Corporate Services
GLENN RICART
Executive Vice President and
Chief Technology Officer
JAMES R. TOLONEN
Executive Vice President and
Chief Financial Officer
SHERI ANDERSON
Senior Vice President and
Chief Information Officer
DAVID R. BRADFORD
Senior Vice President,
General Counsel, and Corporate Secretary
DENICE Y. GIBSON
Senior Vice President
Internet Products
RONALD E. HEINZ
Senior Vice President
Worldwide Sales
JENNIFER A. KONECNY-COSTA
Senior Vice President
Human Resources
VICTOR C. LANGFORD
Senior Vice President
Internet Strategies
RICHARD A. NORTZ
Senior Vice President
Services and Support
CAROLYN G. ROSE
Senior Vice President
Education
MARIDALE G. GARREN
Vice President
Communications
DARCY G. MOTT
Vice President and
Treasurer
34.
<PAGE> 37
OFFICE LOCATIONS
UNITED STATES
ARIZONA Phoenix
CALIFORNIA Irvine
Los Angeles
Sacramento
San Diego
San Francisco
San Jose
Santa Clara
COLORADO Englewood
CONNECTICUT Glastonbury
DISTRICT OF COLUMBIA Washington, D.C.
FLORIDA Ft. Lauderdale
Tampa
GEORGIA Atlanta
ILLINOIS Rolling Meadows
MASSACHUSETTS Wellesley
MICHIGAN Southfield
MINNESOTA Bloomington
MISSOURI Kansas City
St. Louis
NEW JERSEY Berkeley Heights
Paramus
NEW YORK New York
Pittsford
NORTH CAROLINA Charlotte
OHIO Cincinnati
Columbus
Independence
OREGON Portland
PENNSYLVANIA Berwyn
Pittsburgh
TENNESSEE Memphis
TEXAS Austin
Dallas
Houston
UTAH Orem
Provo
Salt Lake City
VIRGINIA Herndon
WASHINGTON Kirkland
INTERNATIONAL
ARGENTINA Buenos Aires
AUSTRALIA Adelaide
Brisbane
Canberra
Melbourne
Perth
Sydney
AUSTRIA Vienna
BELGIUM Brussels
Kieberg
BRAZIL Brasilia
Sao Paulo
CANADA Calgary
Hull
Markham
Montreal
Quebec
Vancouver
CHILE Santiago
CHINA, PEOPLE'S
REPUBLIC OF Beijing
COLOMBIA Bogota
CZECH REPUBLIC Prague
DENMARK Copenhagen
FINLAND Helsinki
FRANCE Paris
GERMANY Berlin
Dusseldorf
Frankfurt
Munich
HONG KONG Wanchai
HUNGARY Budapest
INDIA Bangalore
Bombay
New Delhi
IRELAND Dublin
ISRAEL Herzliyya
ITALY Milan
Rome
JAPAN Osaka
Tokyo
KOREA Seoul
MALAYSIA Kuala Lumpur
MEXICO Mexico City
NETHERLANDS Rotterdam
NEW ZEALAND Auckland
NORWAY Oslo
POLAND Warsaw
PORTUGAL Lisbon
RUSSIA Moscow
SINGAPORE Singapore
SOUTH AFRICA Cape Town
Johannesburg
SPAIN Barcelona
Madrid
SWEDEN Kista
Stockholm
SWITZERLAND Zurich
TAIWAN Taipei
THAILAND Bangkok
UNITED ARAB EMIRATES Dubai
UNITED KINGDOM Bracknell
Hungerford
VENEZUELA Caracas
35.
<PAGE> 38
CORPORATE DIRECTORY
NOVELL CORPORATE HEADQUARTERS
122 East 1700 South
Provo, UT 84606
USA
Ph 801 861-7000
Toll-free 800 453-1267
Fx 801 228-7077
NOVELL WORLDWIDE SALES
AND MARKETING
2180 Fortune Drive
San Jose, CA 95131
Ph 408 434-2300
Fx 408 577-5775
AMERICAS REGION
NOVELL ARGENTINA
Av. Leandro N. Alem 1110
Piso 9(0), 1001 Buenos Aires
Argentina
Ph 541 312 2626
Fx 541 312 8025
NOVELL BRAZIL
Av. Naceos Unidas
04578-000
Sao Paulo - SP
Brazil
Ph 55 11 5505 4040
Fx 55 11 5505 4041
NOVELL CANADA
3100 Steeles Avenue East
Suite 500
Markham, Ontario L3R 8T3
Canada
Ph 905 940-2670
Fx 905 940-2688
NOVELL CHILE
Av. Nueva Tajamar 555
Of 901
Las Condes, Santiago
Chile
Ph 562 3397070
Fx 562 3397071
NOVELL COLOMBIA
World Trade Center
Calle 100 #8A-49
Torre B PH
Santafe de Bogota
Colombia
Ph 571 218 3933
Fx 571 611 3984
NOVELL MEXICO
Periferico Sur 4124
Piso 8, Torre Zafiro II
Pedregal De San Angel
Mexico D.F., C.P. 01900
Mexico
Ph 525 728 3500
Fx 525 728 3599
NOVELL VENEZUELA
Av. La Estancia
Torre Las Mercedes
Piso 6, Oficina 608
Chuao, Caracas 1050-A
Venezuela
Ph 582 925744
Fx 582 925521
EUROPE, MIDDLE EAST,
AFRICA REGION
NOVELL AUSTRIA
Theresianumgasse 7
A-1040 Vienna
Austria
Ph 43 1 504 5200
Fx 43 1 504 5211
NOVELL BELGIUM
Excelsiorlaan 13
1930 Zaventem
Belgium
Ph 32 2 716 99 11
Fx 32 2 716 99 66
NOVELL CZECH REPUBLIC
Olbrachtova 3
146 00 Prague 4
Czech Republic
Ph 42 2 6121 5096
Fx 42 2 6121 5105
NOVELL DENMARK
Slotsmarken 12
DK2970 Horsholm
Denmark
Ph 45 45 16 00 20
Fx 45 45 16 00 40
NOVELL FINLAND
Sinimaentie 10 C
02630 Espoo
Finland
Ph 35 89 502 951
Fx 35 89 502 95300
NOVELL FRANCE
Tour Framatome
1, Place de la Coupole
92084 Paris la Defense Cedex
France
Ph 33 1 47 96 60 00
Fx 33 1 47 78 94 72
NOVELL GERMANY
Monschauer Strasse 12
40549 Dusseldorf
Germany
Ph 49 211 56310
Fx 49 211 563 1250
NOVELL HUNGARY
East-West Business Center
Rak--czi ut 1-3
1088 Budapest
Hungary
Ph 36 1 266 7770
Fx 36 1 266 6360
NOVELL IRELAND
The Treasury Building
2nd Floor
Lower Grand Canal Street
Dublin 2
Ireland
Ph 353 1 605 8000
Fx 353 1 605 8200
NOVELL ISRAEL
Ackerstein Building
Medinat Hayehudim St. 103
Herzliyya 46776
Israel
Ph 972 95 27 774
Fx 972 95 65 336
NOVELL ITALY
Piazza Don Mapelli 75
Edificio U3
Sesto San Giovanni
20099 Milan
Italy
Ph 39 2 5517634
Fx 39 2 26295800
NOVELL MIDDLE EAST
Dubai World Trade Center, 17th Fl.
P.O. Box 9313
Dubai
United Arab Emirates
Ph 971 43 16 444
Fx 971 43 19 248
NOVELL NETHERLANDS
Barbizonlaan 25
2908 MB Capelle a/d IJssel
The Netherlands
Ph 31 10 28 64 444
Fx 31 10 28 64 010
NOVELL NORWAY
Postboks 6555, Etterstad
Grensesvingen 9
0606 Oslo
Norway
Ph 47 22 19 15 80
Fx 47 22 19 28 90
NOVELL POLAND
ul. Sienna 64
00-825 Warsaw
Poland
Ph 48 22 620 39 79
Fx 48 22 620 31 03
NOVELL PORTUGAL
Taguspark Parque de Ciencia Tecnologia
Nucleo Central, Sala N. 301
2780 Oeiras
Portugal
Ph 35 11 421 1432
Fx 35 11 421 1438
NOVELL RUSSIA
Radisson Slavyanskaya Hotel
Americom Business Center
Suite 509
2, Berezhkovskaya Embankment
121059 Moscow
Russia
Local Ph 7 095 941 8075
Local Fx 7 095 941 8066
Satellite Ph 44 1 819133 215
Satellite Fx 44 1 819133 238
NOVELL SOUTH AFRICA
Morning View Office Park
214 Rivonia Road, Morningside
P.O. Box 1840
Rivonia 2128
Johannesburg
Republic of South Africa
Ph 27 11 322 8300
Fx 27 11 322 8400
NOVELL SPAIN
Paseo de la Castellana
95 Planta 27
Edif Torre Europa
28046 Madrid
Spain
Ph 34 1 555 65 67
Fx 34 1 555 29 15
NOVELL SWEDEN
Farogatan 7
164 40 Kista
Sweden
Ph 46 8 703 23 50
Toll-free 020 35 3030
Fx 46 8 703 94 34
NOVELL SWITZERLAND
Leutschenbachstrasse 41
8050 Zurich
Switzerland
Ph 41 1 308 47 47
Fx 41 1 302 04 01
NOVELL UNITED KINGDOM
Novell House,1 Arlington Square
Downshire Way
Bracknell
Berkshire RG12 1WA
United Kingdom
Ph 44 1 344 724000
Fx 44 1 344 724001
ASIA-PACIFIC REGION
NOVELL AUSTRALIA
Level 18, 201 Miller Street
North Sydney
NSW 2060
Australia
Ph 61 2 9925 3000
Fx 61 2 9922 2113
NOVELL CHINA
A2 Fuxing Menwai Avenue
Annex Building, Floor 6
Sinochem Mansion
Beijing 100045
People's Republic of China
Ph 86 10 685 68 616
Fx 86 10 685 68 615
NOVELL HONG KONG
Room 4601-5
China Resources Building
26 Harbour Road
Wanchai
Hong Kong
Ph 852 2 588 5288
Fx 852 2 827 6555
NOVELL INDIA*
Onward Novell Software Ltd.
Marwah Bhavan
Sakivihar Road, Sakinaka
Andheri (East)
Bombay 400 072
India
Ph 91 22 8509764
Fx 91 22 8504691
NOVELL JAPAN LTD.*
Toei Mishuku Building
1-13-1 Mishuku
Setagaya-Ku
Tokyo 154
Japan
Ph 81 3 5481-1551
Fx 81 3 5481-4100
NOVELL KOREA
11th Floor, Kunja Building
942-1, Daechi-dong
Kangnam-Ku
Seoul
Korea, 135 280
Ph 82-2 528 1400
Fx 82-2 528 1414
NOVELL MALAYSIA
Suite 23.3 Level 23
Menara Genesis
33, Jalan Sultan Ismail
50250 Kuala Lumpur
Malaysia
Ph 60 3 243 0678
Fx 60 3 243 0728
NOVELL SINGAPORE
300 Beach Road #28-00
The Concourse
Singapore 199555
Ph 65 296 2866
Fx 65 296 1266
NOVELL TAIWAN
Room E-F, 5th Floor
168 Tun-Hwa North Road
Taipei
Taiwan, R.O.C.
Ph 886 2 718 9733
Fx 886 2 514 9806
NOVELL THAILAND
Level 23, CP Tower
313 Silom Road
Bangkok 10500
Thailand
Ph 662 231 8166
Fx 662 231 8246
*Joint venture
36.
<PAGE> 39
OTHER INFORMATION
Novell on the Internet
http://www.novell.com
Corporate, product, program, financial, and shareholder information, including
press releases and quarterly earnings announcements, is available at Novell's
World Wide Web site.
ANNUAL MEETING
The Company's Annual Meeting will be held on Wednesday, April 9, 1997, at 2:00
p.m. local time at the Novell California Office, 2180 Fortune Drive, Bldg. 6,
San Jose, California 95131.
FORM 10-K
A copy of the Company's Form 10-K is available without charge. To obtain a copy,
please write: Investor Relations, Novell, Inc. 2180 Fortune Drive San Jose, CA
95131
NOVELL NEWS HOTLINE
800 668-5329
Press releases are available toll-free from Novell's menu-driven fax
distribution system.
FINANCIAL LITERATURE
800 467-2498
408 577-8400
Mailed copies of financial literature may be obtained from Novell's automated
telephone access system.
SHAREHOLDER SERVICES
Novell, Inc.
2180 Fortune Drive
San Jose, CA 95131
800 NOVL STK
408 577-8644
Information on Novell's Annual Meeting, changes in stock registration, and other
stock administration services is available through Novell's shareholder
representatives.
INVESTOR RELATIONS
Novell, Inc.
2180 Fortune Drive
San Jose, CA 95131
800 317-3195
408 577-8384
Investor-related inquiries are answered by Novell's Investor Relations staff.
PRODUCT INFORMATION
Novell, Inc.
122 East 1700 South
Provo, UT 84606
800 638-9273
Information on Novell's products, programs, and services can be obtained over
the phone and on the Internet.
INDEPENDENT AUDITORS
Ernst & Young LLP, San Jose, CA
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, LLC
Ridgefield Park, NJ
Copyright (C) 1997 Novell, Inc. All rights reserved.
Novell, NetWare, and TUXEDO are registered trademarks of Novell, Inc. in the
United States and other countries. ManageWise is a registered trademark and
Envoy, GroupWise, GroupWise 5, IntranetWare, NDS, NetWare 3, NetWare 4, and
Novell Directory Services are trademarks of Novell, Inc.
Paradox is a registered trademark of Borland International, Inc. Corel is a
registered trademark of Corel Corporation in the United States and other
countries. Quattro Pro is a registered trademark of Corel Corporation Limited in
the United States. WordPerfect is a registered trademark of Corel Corporation
Limited in the United States and other countries. Windows NT is a registered
trademark of Microsoft Corporation. The Santa Cruz Operation and SCO are
registered trademarks of The Santa Cruz Operation, Inc. UnixWare is a registered
trademark of The Santa Cruz Operation, Inc. in the United States and other
countries. Java is a trademark or registered trademark of Sun Microsystems,
Inc., in the United States and other countries. UNIX is a registered trademark
of X/Open Company, Ltd., in the United States and other countries.
Created by: Frankfurt Balkind Partners ny/la/sf
Photography: Abrams/Lacagnina
Portrait: Dan Escobar
[LOGO]Financial section of this annual report printed on recycled paper.
<PAGE> 40
WWW.NOVELL.COM
Novell Corporate Headquarters
122 East 1700 South
Provo, Utah 84606
801 861-7000
<PAGE> 1
EXHIBIT 21
NOVELL, INC.
SUBSIDIARIES OF THE REGISTRANT
As of October 26, 1996, the following companies were subsidiaries of
Novell, Inc.:
<TABLE>
<CAPTION>
STATE OF INCORPORATION OR
WHOLLY OWNED COUNTRY IN WHICH ORGANIZED
- ---------------------------------------------------------------------- --------------------------
<S> <C>
Fluent, Inc. ......................................................... Delaware
Novell de Argentina S.A. ............................................. Argentina
Novell Austria........................................................ Austria
Novell Belgium B.V.B.A. .............................................. Belgium
Novell do Brasil Software Ltda. ...................................... Brazil
Novell Canada, Ltd. .................................................. Canada
Novell Columbia....................................................... Columbia
Novell Czech Republic................................................. Czech Republic
Novell Denmark A/S.................................................... Denmark
Novell Europe, Inc. .................................................. Delaware
Novell European Support Center GmbH................................... Germany
Novell Finland OY..................................................... Finland
Novell GmbH........................................................... Germany
Novell Hong Kong...................................................... Hong Kong
Novell Hungary KFT.................................................... Hungary
Novell International, Ltd. ........................................... Barbados
Novell Ireland Software Limited....................................... Ireland
Novell Israel......................................................... Israel
Novell Italia S.R.L. ................................................. Italy
Novell Korea Co., Ltd. ............................................... Korea
Novell Latino America Norte, CA....................................... Venezuela
Novell de Mexico, S.A.DE C.V. ........................................ Mexico
Novell Netherland B.V. ............................................... Netherlands
Novell Norway......................................................... Norway
Novell Polska Sp.Zo.o. ............................................... Poland
Novell Portugal Informatica LDA....................................... Portugal
Novell Pty, Ltd. ..................................................... Australia
Novell S.A.R.L. ...................................................... France
Novell Services Asia Pacific Pty Ltd. ................................ Australia
Novell Singapore...................................................... Singapore
Novell Software Development Pvt., Ltd. ............................... India
Novell South Africa Proprietary Ltd. ................................. South Africa
Novell Spain S.A. .................................................... Spain
Novell Svenska A.B. .................................................. Sweden
Novell Schweiz A.G. .................................................. Switzerland
Novell U.K., Ltd. .................................................... United Kingdom
<CAPTION>
MAJORITY OWNED
- ----------------------------------------------------------------------
<S> <C>
Novell Japan, Ltd. ................................................... Japan
Onward Novell Software Pvt., Ltd. .................................... India
</TABLE>
18
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Novell, Inc. of our report dated November 26, 1996, included in the
1996 Annual Report to Shareholders of Novell, Inc.
Our audits also included the financial statement schedule of Novell, Inc.,
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-14531, No. 33-29798, No. 33-31299, No. 33-36673, No.
33-41719, No. 33-48395, No. 33-54483, No. 33-64998, No. 33-65440, No. 33-66704,
No. 33-67276 and No. 33-68336) pertaining to the Employee Stock Option and Stock
Purchase Plans of Novell, Inc. of our report dated November 26, 1996, with
respect to the consolidated financial statements incorporated herein by
reference, and our report included in the preceding paragraph with respect to
the financial statement schedule included in this Annual Report (Form 10-K) of
Novell, Inc.
/s/ ERNST & YOUNG LLP
San Jose, California
January 22, 1997
2
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<PERIOD-END> OCT-26-1996
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0
0
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