SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Quarter Ended January 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from ______
to ______
Commission File Number: 0-13351
NOVELL, INC.
(Exact name of registrant as specified in its charter)
Delaware 87-0393339
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 East 1700 South
Provo, Utah 84606
(Address of principal executive offices and zip code)
(801) 861-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
suchfiling requirements for the past 90 days.
YES X NO ___
As of February 27, 1998 there were 351,627,630 shares of the registrant's
common stock outstanding.
</PAGE>
<TABLE>
Part I. Financial Information, Item 1. Financial Statements
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED BALANCE SHEETS
<S> <C> <C>
Jan. 31, Oct. 31,
Dollars in thousands, except per share data 1998 1997
- ---------------------------------------------------------------------------
ASSETS
Current assets
Cash and short-term investments $ 1,045,144 $ 1,033,473
Receivables, less allowances 225,039 234,358
($45,457 - January; $33,053 - October)
Inventories 9,178 10,656
Prepaid expenses 66,205 57,685
Deferred and refundable income taxes 119,833 134,210
- --------------------------------------------------------------------------
Total current assets 1,465,399 1,470,382
Property, plant and equipment, net 363,508 373,865
Other assets 73,754 66,402
- ---------------------------------------------------------------------------
Total assets $ 1,902,661 $ 1,910,649
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 66,490 $ 82,759
Accrued compensation 48,041 51,397
Accrued marketing liabilities 24,059 27,728
Other accrued liabilities 83,336 85,157
Income taxes payable 4,831 --
Deferred revenue 83,586 74,915
- ---------------------------------------------------------------------------
Total current liabilities 310,343 321,956
Minority interests 20,711 23,276
Shareholders' equity
Common stock, par value $.10 a share
Authorized - 600,000,000 shares
Issued - 351,145,781 shares-January
350,937,812 shares-October 35,115 35,094
Additional paid-in capital 380,117 378,582
Retained earnings 1,202,455 1,188,361
Unearned stock compensation (6,351) (7,189)
Cumulative translation adjustment (552) (666)
Unrealized (loss) on investments (39,177 (28,765)
- ---------------------------------------------------------------------------
Total shareholders' equity 1,571,607 1,565,417
- -----------------------------------------------------------------------------
See notes to consolidated unaudited condensed financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME
<S> <C> <C>
Fiscal Quarter Ended
Amounts in thousands, Jan. 31, Jan. 31,
except per share data 1998 1997
- ---------------------------------------------------------------------------
Net sales $252,042 $374,847
Cost of sales 55,139 75,971
- ---------------------------------------------------------------------------
Gross profit 196,903 298,876
Operating expenses
Sales and marketing 101,735 127,890
Product development 57,786 71,755
General and administrative 32,450 37,731
- ----------------------------------------------------------------------------
Total operating expenses 191,971 237,376
Income from operations 4,932 61,500
Other income (expense)
Investment income 14,399 16,614
Other, net 244 (2,837)
- ----------------------------------------------------------------------------
Other income, net 14,643 13,777
- ----------------------------------------------------------------------------
Income before taxes 19,575 75,277
Income taxes 5,481 24,465
- ----------------------------------------------------------------------------
Net income $ 14,094 $ 50,812
============================================================================
Weighted average shares outstanding
Basic 351,031 346,506
Diluted 352,971 347,095
============================================================================
Net income per share
Basic $ 0.04 $ 0.15
Diluted $ 0.04 $ 0.15
=============================================================================
See notes to consolidated unaudited condensed financial statements.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
NOVELL, INC.
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
<S> <C> <C>
Fiscal Quarter Ended
Jan. 31, Jan. 31,
Amounts in thousands 1998 1997
- ----------------------------------------------------------------------------
Cash flows from operating activities
Net income $ 14,094 $ 50,812
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 19,889 23,816
Stock plans income tax benefits 132 1,803
Decrease in receivables 9,319 58,837
Decrease (increase) in inventories 1,478 (3,364)
(Increase) decrease in prepaid expenses (8,520) 5,431
Decrease (increase) in deferred
and refundable incometaxes 14,378 (13,049)
(Decrease) in current liabilities, net (11,613) (11,190)
- ----------------------------------------------------------------------------
Net cash provided from operating activities 39,157 113,096
- -----------------------------------------------------------------------------
Cash flows from financing activities
Issuance of common stock, net 1,424 2,685
Sale of put warrants -- 2,300
Settlement of put warrants -- (6,250)
- -----------------------------------------------------------------------------
Net cash provided (used) from
financing activities 1,424 (1,265)
- -----------------------------------------------------------------------------
Cash flows from investing activities
Expenditures for property, plant
and equipment (8,694) (27,543)
Purchases of short-term investments (484,596) (714,467)
Maturities of short-term investments 342,605 507,663
Sales of short-term investments 145,517 166,868
Other (9,804) 1,007
- -----------------------------------------------------------------------------
Net cash (used) by investing activities (14,972) (66,472)
- -----------------------------------------------------------------------------
Total increase in cash and cash equivalents $ 25,609 $ 45,359
Cash and cash equivalents
- - beginning of period 208,543 145,521
- ----------------------------------------------------------------------------
Short-term investments - end of period 810,992 911,441
- ----------------------------------------------------------------------------
Cash and short-term investments
- - end of period $1,045,144 $1,102,321
See notes to consolidated unaudited condensed financial statements.
</TABLE>
</PAGE> NOVELL, INC.
NOTES TO CONSOLIDATED UNAUDITED CONDENSED FINANCIAL STATEMENTS
A. Quarterly Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
accompanying consolidated unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q but do not include
all of the information and footnotes required by generally accepted accounting
principles and should, therefore, be read in conjunction with the Company's
fiscal 1997 Annual Report to Shareholders. These statements do include all
normal recurring adjustments which the Company believes necessary for a
fair presentation of the statements. The interim operating results are
not necessarily indicative of the results for a full year.
Certain reclassifications, none of which affected net income, have been made
to the prior years' amounts in order to conform to the current year's
presentation.
In the first quarter of fiscal 1997, the Company implemented a change to
itsfiscal year and month ending dates. The Company now recognizes its
fiscalyear end on the last calendar day of October, as opposed to prior years
on thelast Saturday in October. Likewise, each fiscal month now ends on the
last calendar day of each month, and each fiscal quarter will have a unique
number of days as opposed to the consistent 13 weeks in prior years.
Implementing this change resulted in an extra five days in the first fiscal
quarter of 1997 which the Company believes did not have a material impact on
its financial position, results of operations, or cash flows.
B. Significant Events
During the third quarter of fiscal 1997, Novell took measures to reduce
and realign its resources and better manage and control its business.
These measures were in response to declines in sales of boxed products
through indirect distribution channel customers, controlled shifts to
multi-product licenses, lower licensing revenue of certain older products to
OEM's, as well as competitive pressures in the small network market.
Specifically, the Company did not ship boxed products to its indirect
distribution channel customers except to accommodate product exchanges and
returns. In addition,the Company reduced its workforce by approximately 1,000
employees, or 17% and consolidated a number of facilities. This resulted in a
one-time restructuring charge of $55 million, principally comprised of
severance and excess facilities costs. The restructuring charge contributed a
loss of $0.10 per share, net of tax, to the reported loss in fiscal 1997.
On March 12, 1998, the Company announced the resignation of James R. Tolonen
as Senior Vice President and Chief Financial Officer. The Company also
announced that Dennis R. Raney has joined the Company as interim Chief
Financial Officer while the Company continues to actively recruit a Chief
Operating Officer.
C. Cash and Short-term Investments are carried at fair market value, with the
unrealized gains and losses, net of tax, included in shareholders equity.
Municipal securities included in short-term investments have contractual
maturities from 1-5 years. Money market preferreds have contractual maturities
of less than 90 days. No other short-term investments have contractual
maturities. The cost of securities sold is based on the
specific identification method. Such securities are available to be used
forcurrent operations and are therefore classified as current assets, even
though some maturities may extend beyond one year.
</PAGE>
<PAGE>
<TABLE>
The following is a summary of cash and short-term investments, all of
which are considered available-for-sale.
<S> <C> <C> <C> <C>
Gross Gross Fair
Cost at Unrealized Unrealized Market Value at
Jan. 31, 1998 Gains Losses Jan. 31, 1998
(Dollars in thousands)
- ----------------------------------------------------------------------------
Cash and cash equivalents
Cash $ 75,555 $ -- $ -- $ 75,555
Repurchase agreements 770 -- -- 770
Taxable money market fund 39,362 -- -- 39,362
Municipal securities 118,465 -- -- 118,465
- -----------------------------------------------------------------------------
Cash and cash equivalents $ 234,152 $ -- $ -- $ 234,152
- -----------------------------------------------------------------------------
Short-term investments
Municipal securities $ 468,883 $ 6,073 $ (99) $ 474,857
Money market mutual funds 48 -- -- 48
Money market preferreds 146,065 2 (17) 146,050
Mutual funds 106,226 46 -- 106,272
Equity securities 153,555 24,878 (94,668) 83,765
- -----------------------------------------------------------------------------
Short-term investments $ 874,777 $ 30,999 $ (94,784) $ 810,992
- -----------------------------------------------------------------------------
Cash and short-term
investments $1,108,929 $ 30,999 $ (94,784) $1,045,144
- -----------------------------------------------------------------------------
Gross Gross Fair
Cost at Unrealized Unrealized Market Value at
Oct. 31, 1997 Gains Losses Oct. 31, 1997
(Dollars in thousands)
- -----------------------------------------------------------------------------
Cash and cash equivalents
Cash $ 84,151 $ -- $ -- $ 84,151
Repurchase agreements 4,932 -- -- 4,932
Money market fund 42,581 -- -- 42,581
Municipal securities 76,879 -- -- 76,879
- ------------------------------------------------------------------------------
Short-term investments
Municipal securities $ 463,443 $ 4,551 $ (84) $ 467,910
Money market mutual funds 88,999 -- -- 88,999
Money market preferreds 150,817 -- (17) 150,800
Mutual funds 14,721 33 (1) 14,753
Equity securities 153,785 25,829 (77,146) 102,468
- -----------------------------------------------------------------------------
Short-term investments $ 871,765 $30,413 $(77,248) $ 824,930
- -----------------------------------------------------------------------------
Cash and short-term
investments $1,080,308 $30,413 $(77,248) $1,033,473
- -----------------------------------------------------------------------------
During the first quarter of fiscal 1998 the Company had realized gains of
$3 million on the sale of securities compared to realized gains of $6 million
in the first quarter of fiscal 1997, while realizing losses on sales
of securities of $1 million in the first quarter of fiscal 1998.
D. Income Taxes
The Company's estimated effective tax rate for the first quarter of fiscal
1998 was 28.0% compared to 32.5% in the first quarter of fiscal 1997. The
Company paid cash amounts for income taxes of $1 million and $3 million, in
the first quarter of fiscal 1998 and 1997, respectively.
</TABLE>
</PAGE>
<PAGE>
E. Commitments and Contingencies
The Company currently has a $10 million unsecured revolving bank line
of credit, with interest at the prime rate. The line can be used for
either letter of credit or working capital purposes. The line is subject to
the terms of a loan agreement containing financial covenants and restrictions,
none of which are expected to significantly affect the Company's operations.
At January 31, 1998 there were no borrowings, letter of credit acceptances or
commitments under such line.
The Company has an additional $5 million line of credit with another bank which
is not subject to a loan agreement. At January 31, 1998 standby letters of
credit of approximately $200,000 were outstanding under this line ofcredit.
In fiscal 1997, the Company entered into agreements to lease buildings
being constructed on land owned by the Company in San Jose, California and in
Provo, Utah. The lessor has committed to fund up to $272 million for
construction ofthe buildings. The leases are for a period of seven years and
can be renewed for two additional five year periods, subject to the approval of
the lender and the Company, at the sole discretion of each party. Rent
obligations will commence upon the Company's occupation of the buildings in
fiscal 1999 and fiscal 2000. If the Company does not purchase the buildings,
or arrange for the sale of the buildings, at the end of the lease, the Company
will guarantee approximately $272 million) as determined at the inception of
the leases. Inaddition, the agreement calls for the Company to maintain a
specific level of restricted cash to serve as collateral for the leases and
maintain compliance with certain financial covenants. The value of restricted
cash held as collateral at January 31, 1998 was approximately $ 28 million, and
is included in other assets.
In 1993, a suit was filed due to a failed contract against a company
that Novell subsequently acquired. The plaintiff obtained a jury verdict
against the acquired company in 1996. Novell does not believe that the
resolution ofthis legal matter will have a material adverse effect on its
financial position, results of operations, or cash flows.
The Company is a party to a number of legal claims arising in the
ordinary course of business. The Company believes the ultimate resolution of
the claims will not have a material adverse effect on its financial
position, results of operations, or cash flows.
F. Put Warrants
In fiscal 1997, the Company sold put warrants on 2 million shares of its
common stock for $2 million, callable on specific dates in the third quarter
of fiscal 1997, giving a third party the right to sell shares of Novell common
stock to the Company at contractually specified prices. The put warrant
liability is the amount the Company would be obligated to pay if all the
outstanding put warrants were exercised at the strike price without a cash
settlement. During fiscal 1997, the Company also settled all of its
remaining put warrants obligations on 6 million shares for cash of $21 million
and therefore reversed the put warrant obligation back to additional
paid-in capital.
G. International Sales
The Company markets internationally both directly to end users and
through distributors who sell to dealers and end users. For the fiscal
quarters ended January 31, 1998 and January 31, 1997, sales to international
customers were approximately $109 million and $172 million, respectively.
In the first quarters of fiscal 1998 and fiscal 1997, 65% and 62%, respectively,
of international sales were to European countries. No one foreign
country accounted for 10% or more of total sales in either period. Except for
one multi-national distributor, which accounted for 15% of revenue in the first
quarter of 1998 and 18% of revenue in the first quarter of fiscal 1997,
no customer accounted for more than 10% of revenue in any period.
</PAGE>
H. Net Income Per Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share is what the Company previously reported as earnings
per share. Earnings per share amounts for all periods have been presented
and where appropriate, restated to conform to the Statement No. 128
requirements.
</PAGE>
<PAGE>
<TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
andResults of Operations
Introduction
Novell is the world's leading provider of network software. The Company offers
a wide range of network solutions, education, and support for distributed
network, Internet, and small-business markets.
During the third quarter of fiscal 1997, Novell took measures to reduce
and realign its resources and better manage and control its business.
The measures were in response to declines in sales of boxed products
through indirect distribution channel customers, controlled shifts to
multi-product licenses, lower licensing revenue of certain older products to
OEM's, as well as competitive pressures in the small network market.
Specifically, the Company did not ship boxed products to its indirect
distribution channel customers except to accommodate product exchanges and
returns. The Company believes this action, which significantly reduced reported
revenue in the quarter, brought indirect distribution channel inventories of
boxed software products in line with current market demand. The decision to
withhold shipments to the Company's indirect distributor channel resulted in
an operating loss in the third quarter of fiscal 1997. The Company will
continue to monitor channel inventory levels to keep them in line with estimated
market demand. In addition, the Company reduced its workforce by approximately
1,000 employees, or 17%, and consolidated a number of facilities. This
resulted in a one-time restructuring charge of $55 million, principally
comprised ofseverance and excess facilities costs. The restructuring charge
contributed a loss of $0.10 per share, net of tax, to the reported loss in
fiscal 1997.
The workforce reduction and associated consolidation of facilities returned the
Company to break even for the fourth quarter of fiscal 1997 and is expected to
lower future operating expenses by appproximately $100 million annually.
In the first quarter of fiscal 1997, the Company implemented a change to
its fiscal year and month ending dates. The Company now recognizes its
fiscal year end on the last calendar day of October, as opposed to prior years
which ended on the last Saturday in October. Likewise, each fiscal month end
now ends on the last calendar day of each month, and each fiscal quarter has
a unique number of days as opposed to the consistent 13 weeks in prior years.
quarter of 1997, which the Company believes did not have a material impact
on its financial position, results of operations, or cash flows.
Results of Operations
<S> <C> <C> <C>
Net Sales
Q1 Q1
1998 Change 1997
- -----------------------------------------------------------------------------
Net sales (millions) $252 -33% $375
=============================================================================
In general, the Company has experience continued competitive pressures in
the marketplace, resulting in the action taken in the third quarter of
fiscal 1997 described above. These competitive pressures also resulted in
lower overall revenues in the first quarter of fiscal 1998 compared to the
first quarter of fiscal 1997.
Novell's product lines can be categorized into server operating environments;
network services; UNIX royalties; and education, service and other.
While revenue decreased from the first quarter of 1997 to the first quarter of
1998, analysis of the individual product categories characterizes the changes
that have occurred.
Server operating environments revenues decreased by $103 million or 41% in
the first quarter of 1998 compared to the first quarter of 1997.
Decreases occurred in both the NetWare 4 product family of $60 million or a 32%
decline from the first quarter of 1997 and in the NetWare 3 product family of
$43 million or a 66% decline from the first quarter of 1997.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
Network services revenues decreased by $13 million or 16% in the
first quarter of 1998 compared to the first quarter of 1997. The decrease is
mainly the result of decreases in TCP/IP access products of $9 million,
GroupWare application products of $6 million, Host Connectivity products of $5
million and Network management products of $4 million, somewhat offset by a $7
million increase in Tuxedo, and the Company's border manager product of $5
million.
UNIX royalties revenues decreased $3 million or 29% in the first quarter
of 1998 compared to the first quarter of 1997. The decrease was attributable
to declining sales of UNIX licenses.
Education, service and other revenues decreased by $5 million or 14% in
the first quarter of 1998 compared to the first quarter of 1997. The decrease
was a result of lower revenues in training and other product categories,
partially offset by an increase in service related revenue.
International sales represented 43% of total sales in the first quarter of 1998
compared to 46% in the first quarter of 1997. This change is a result ofa 30%
decrease in domestic revenues compared to a 36% decrease in international
revenues in the first quarter of fiscal 1998 compared to the first quarter
of fiscal 1997.
<S> <C> <C> <C>
Gross Profit
Q1 Q1
1998 Change 1997
- -----------------------------------------------------------------------------
Gross profit (millions) $197 -34% $299
Percentage of net sales 78% 80%
==============================================================================
The gross margin percentage decreased in the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997 due to the fixed portion of
cost of sales being a higher percentage of the lower revenue in the first
quarter of fiscal 1998 notwithstanding the substantial cost reductions in
absolute dollars.
Operating Expenses
Q1 Q1
1998 Change 1997
- -----------------------------------------------------------------------------
Sales and marketing (millions) $102 -20% $128
Percentage of net sales 40% 34%
- ------------------------------------------------------------------------------
Product development (millions) $58 -19% $72
Percentage of net sales 23% 19%
- -----------------------------------------------------------------------------
General and administrative (millions)$32 -14% $37
Percentage of net sales 13% 10%
- -----------------------------------------------------------------------------
Total operating expenses (millions) $192 -19% $237
Percentage of net sales 76% 63%
==============================================================================
Sales and marketing expenses decreased by $26 million in the first quarter
of fiscal 1998 compared to the first quarter of fiscal 1997 primarily due
to workforce reductions and lower facilities costs as a result of the Company's
restructuring in the third quarter of fiscal 1997. Sales and marketing
expenses increased as a percentage of net sales in the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997 due to a lower revenue
base. Sales and marketing expenses fluctuate as a percentage of net sales in
any given period due to product promotions, advertising or other
discretionary expenses.
Product development expenses decreased by $14 million in the first quarter
of fiscal 1998 compared to the first quarter of fiscal 1997 primarily due to
workforce reductions in fiscal 1997, but decreased in absolute dollars due to
a lower revenue base.
General and administrative expenses decreased by $5 million in the
first quarter of fiscal 1998 compared to the first quarter of fiscal 1997
primarily due to workforce reductions in fiscal 1997, while increasing as a
percentage of net sales due to a lower revenue base.
Overall, operating expenses have declined less rapidly than revenues in
the first quarter of fiscal 1998 compared to the first quarter of fiscal 1997,
but as a percentage of net sales as compared to the fourth quarter of fiscal
1997.
</TABLE>
</PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Q1 Q1
1998 Change 1997
- -----------------------------------------------------------------------------
Employees 4,638 -20% 5,796
Annualized revenue per
employee (000's) $214 -17% $257
==============================================================================
In fiscal 1997, the Company reduced its workforce by approximately
1,000 employees as the Company realigned its resources to better manage and
control its business.
Other Income, Net
Q1 Q1
1998 Change 1997
- -----------------------------------------------------------------------------
Other income, net (millions) $15 7% $14
Percentage of net sales 6% 4%
==============================================================================
The primary component of other income, net is investment income, which was
$14 million in the first quarter of fiscal 1998 compared to $17 million in
the first quarter of fiscal 1997. The decrease is the result of higher
realized capital gains in the first quarter of fiscal 1997. In order to
achieve potentially higher returns, a limited portion of the Company's
investment portfolio is invested in mutual funds which incur some market risk.
The Company believes that the market risk has been limited by diversification
and by use of a funds management timing service which switches funds out
of mutual funds and into money market funds when preset signals occur.
Income Taxes
Q1 Q1
1998 Change 1997
- -----------------------------------------------------------------------------
Income taxes (millions) $5 -79% $24
Percentage of net sales 2% 6%
Effective tax rate 28% 33%
==============================================================================
The effective tax rate for fiscal 1998 is estimated to be 28% compared to a tax
benefit of 48% in fiscal 1997 due to a loss before taxes in fiscal
1997 compared to anticipated earnings in fiscal 1998.
Net Income and Net Income Per Share
Q1 Q1
1998 Change 1997
- -----------------------------------------------------------------------------
Net income (millions) $14 -73% $51
Percentage of net sales 6% 14%
Net income per share
- - basic and diluted $.04 -73% $.15
==============================================================================
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is what the Company previously reported as earnings per
share. Earnings per share amounts for all periods have been presented and where
appropriate, restated to conform to the Statement No. 128 requirements.
Liquidity and Capital Resources
Q1 Q4
1998 Change 1997
- -----------------------------------------------------------------------------
Cash and short-term
investments (millions) $1,045 1% $1,033
Percentage of total assets 55% 54%
==============================================================================
Cash and short-term investments increased to $1,045 million at January
31, 1998 from $1,033 million at October 31, 1997. The major reason for
this increase was the $39 million provided by operating activities, offset by
the $9 million of cash used for expenditures on property, plant and equipment,
and the $10 million used by other investing activities. The investment
portfolio is diversified among security types, industry groups, and individual
issuers.
</TABLE>
</PAGE>
<PAGE>
The Company's principal source of liquidity has been from operations.
At January 31, 1998, the Company's principal unused sources of
liquidity consisted of cash and short-term investments and available borrowing
capacity of approximately $15 million under its credit facilities. The
Company's liquidity needs are principally for the Company's financing of
accounts receivable, capital assets, strategic investments and flexibility in a
dynamic and competitive operating environment.
During the first fiscal quarter of 1998, the Company has continued to
generate cash from operations. The Company anticipates being able to fund its
current operations and capital expenditures planned for the foreseeable future
with existing cash and short-term investments together with internally
generated funds. The Company believes that borrowings under the Company's
credit facilities, or public offerings of equity or debt securities are
available if the need arises. Investments will continue in product development
and in new and existing areas of technology. Cash may also be used to
acquire technology through purchases and strategic acquisitions. Capital
expenditures in fiscal 1998 are anticipated to be approximately $45 million,
but could be reduced if the growth of the Company is less than presently
anticipated.
The Company's future results of operations involve a number of risks
and uncertainties. Among the factors that could cause actual results to
differ materially from historical results are the following: business
conditions and the general economy; competitive factors, such as rival
operating systems, acceptance of new products and price pressures; availability
of third-party compatible products at reasonable prices; risk of nonpayment of
accounts or notes receivable; risks associated with foreign operations; risk of
product line or inventory obsolescence due to shifts in technologies or market
demand; timing of software product introductions; market fluctuations of
investment securities; and litigation.
The Company is addressing the issues associated with the year 2000.
The Company is utilizing resources to identify, correct, reprogram and test
both its systems used internally as well as the products it sells for year 2000
compliance. It is anticipated that all reprogramming efforts will be completed
during fiscal 1998. Novell believes that it has the product offerings,
facilities, personnel, and competitive and financial resources for
continued business success, but future revenues, costs, margins, product
mix, and profits are all influenced by a number of factors, such as those
discussed above, as well as risks described in detail in the Company's fiscal
1997 report on Form 10K.
Part II. Other Information
Except as listed below, all information required by items in Part II is omitted
because the items are inapplicable or the answer is negative.
Item 1. Legal Proceedings.
The information required by this item is incorporated herein by reference to
Footnote E of the Company's financial statements contained in Part I, Item 1 of
this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
- -------- ------------
27* Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the quarter
ended January 31, 1998.
______________________
*Filed herewith.
</PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Novell, Inc.
------------------
(Registrant)
Date: March 16, 1998 /s/ Dr. Eric Schmidt
----------------------
Dr. Eric Schmidt
Chairman of the Board
and Chief Executive
Officer
(Principal Executive
Officer)
Date: March 16, 1998 /s/ Dennis R. Raney
---------------------
Dennis R. Raney
Chief Financial Officer
(Principal Financial
Officer)
Date: March 16, 1998 /s/ Cliff Simpson
--------------------
Cliff Simpson
Vice President Finance and
Corporate Controller
(Principal Accounting
Officer)
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 234,152
<SECURITIES> 810,992
<RECEIVABLES> 225,039
<ALLOWANCES> (45,457)
<INVENTORY> 9,178
<CURRENT-ASSETS> 1,465,399
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0
0
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