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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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MARK ONE
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000
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.)
1800 SOUTH NOVELL PLACE
PROVO, UTAH 84606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(801) 861-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
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
non-affiliates on December 31, 2000 (based on the last reported price of the
Common Stock on the NASDAQ National Market System on such date) was
$1,652,513,180. For purposes of this disclosure, shares of common stock held by
persons who hold more than 5% of the outstanding common stock and common stock
held by executive officers and directors of the registrant have been excluded in
that such persons may be deemed to be "affiliates" as that term is defined under
the rules and regulations promulgated under the Securities Act of 1933. This
determination is not necessarily conclusive for other purposes.
As of December 31, 2001 there were 317,722,033 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on April 17, 2001, are incorporated by reference in
Part III of this Form 10-K to the extent stated herein.
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NOVELL, INC.
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item 7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 46
Item 11. Executive Compensation...................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 46
Item 13. Certain Relationships and Related Transactions.............. 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 47
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NOVELL, INC.
FORM 10-K
PART I
In addition to historical information, this Annual Report on Form 10-K
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. As contained herein, the words "expects,"
"anticipates," "believes," "intends," "will," and similar types of expressions
identify forward-looking statements, which are based on information that is
currently available to the Company, speak only as of the date hereof, and are
subject to certain risks and uncertainties. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or to reflect any change in events,
conditions, or circumstances on which any such forward-looking statement is
based, in whole or in part. The Company's actual results may differ materially
from the results discussed in such forward-looking statements. Factors that may
cause such a difference include, but are certainly not limited to, those
discussed in the section in Item I entitled "Competition" and "Additional
Factors Affecting Financial Results and Stock Price" and the section in Item 7
entitled "Risk Factors Affecting Future Results of Operation." Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission, including the
Quarterly Reports on Form 10-Q to be filed by the Company in 2001. All period
references are to the Company's fiscal years ended October 31, 2000, 1999, and
1998, unless otherwise indicated.
ITEM 1. BUSINESS
THE COMPANY
Novell is a leading provider of Net services software. Novell Net
services(R) secure and simplify networks and enable businesses and governments
to accelerate their moves to a one Net solution. Net services from Novell make
networks more manageable and secure, and integrate a complete range of computer
platforms, applications, services and devices. Novell maintains worldwide
channel, developer, education, consulting and technical support programs that
support network solutions.
The Company was incorporated in Delaware on January 25, 1983. Novell's
executive offices are located at 1800 South Novell Place, Provo, Utah 84606. Its
telephone number at that address is (801) 861-7000.
The Company markets its products through 34 U.S. and 73 international sales
offices. The Company licenses its products through site-license agreements that
are either sold directly by Novell, or service providers and software
distribution channel partners. The Company also distributes licenses as packaged
software products that are resold by systems integrators and other value-added
resellers. In addition, Novell products are licensed to original equipment
manufacturers.
The Company primarily conducts product development activities in San Jose,
California; Provo and Orem, Utah; Ireland, and India. It also contracts out some
product development activities to third-party developers.
Changes in the economic and business environment for network software have
occurred in the last several years, which have led to strategic and operational
changes at Novell. The Company has evolved its business to focus on Net services
software applications, which support highly distributed network solutions and
capitalize on the growth of the Internet. Novell has expanded its Net services
offerings around open Internet standards and its own eDirectory(TM) network
infrastructure products. The Company's education and training, service and
support, and consulting business has also been refocused and expanded to provide
support for new Net services based solutions.
Novell annual report 2000 1
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In fiscal 2000, the Company experienced a rapid decline in traditional
packaged software license distribution by computer resellers, a post Y2K
slowdown in IT-spending, increased competition and lengthened selling cycles for
new network solutions. The Company reorganized around four product and services
groups effective in fiscal 2000: Net Management Services; Net Directory
Services; Net Content Services and Novell Customer Services. As a result of this
reorganization, the Company restructured in the fourth quarter of fiscal 2000,
reducing its total full-time employee base by 13 percent. In part, the decline
in packaged software license delivery reflects the Company's shift away from
individual product licenses delivered by resellers to lower cost site-licensing
agreements that are more appropriate for Net services solutions deployed across
networks of numerous computers.
BUSINESS STRATEGY
Novell is a leading provider of Net services software that delivers
services to secure and power all types of networks -- the Internet, intranets,
and extranets; wired to wireless; corporate and public -- across leading
operating systems. Novell's Net services software provides the foundation for
"one Net" -- a single global network that supports new applications and forms of
business. Worldwide channel, consulting, education and technical support
programs, along with strategic alliances, combine Novell Net services software
with third-party products and services to form complete Net solutions.
Novell's network solutions provide essential network management, messaging
and groupware capabilities integrated through Novell's directory services.
Networks are inherently a varied mix of infrastructure, computer systems,
applications and other devices. Novell software provides the framework and
applications for managing, maintaining and accessing the information and
services of these networks.
Today, businesses are rapidly developing corporate intranets that leverage
the broad range of capabilities of the Internet. Novell has oriented all of its
products to Internet standards, enabling customers to increase the performance
of traditional local and wide area networks.
PRINCIPAL MARKETS AND SEGMENT AND GEOGRAPHIC INFORMATION
Novell sells its products, technologies and solutions primarily to
large-scale corporations, government entities, and educational institutions,
resellers and distributors both domestically and internationally. The Company
has traditionally operated in one business segment, directory-enabled networking
software and services. All products, technologies and solutions were evaluated
as a single unit. Segment disclosures and geographical information for fiscal
years 2000, 1999, and 1998 are presented in Part II, Item 8, Footnote M. of this
report.
PRODUCTS, TECHNOLOGIES AND SOLUTIONS
As a result of the Company's restructuring during the fourth quarter of
fiscal 2000, the Company reorganized operations, including products,
technologies and solutions, into four business units. Beginning in fiscal 2001,
these business units will be classified as follows:
Net Directory Services. Novell's Net Directory business includes all of the
NDS(R) eDirectory solutions as well as iChain(TM), and DirXML(TM).
Novell Directory Services(R) (NDS) eDirectory is a key part of Novell's
strategy for providing unique value in business intranets and the Internet. NDS
eDirectory can maintain a replicated database of users, network equipment,
computer systems, applications, files and other network resources. It provides
distributed access control that is secure, manageable, can be centrally
administered, and allows for information resources to be administered across
computer networks. NDS eDirectory is integrated with the Company's NetWare(R)
4.x and 5.x server operating system. Novell also provides NDS eDirectory for NT
that integrates with Microsoft's Windows NT*, and NDS eDirectory for Solaris*
along with other versions that integrate with
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various other operating systems. NDS eDirectory provides full support for
Internet protocols, including the lightweight directory access protocol (LDAP).
With NDS eDirectory on leading server platforms, Novell and its partners will
provide value-added network services software that use the directory as a
foundation. Novell's ZENworks(R) for Desktops and ZENworks for Servers products
are examples. Both of these products allow customers to manage desktops and
servers throughout their network utilizing Novell's directory.
iChain is a trusted e-business network providing a common security and
management framework for integrating e-business applications. Through its
integration with directories, executive reporting program systems, applications,
databases and Web servers, iChain provides a bridge between intranets and
extranets. iChain utilizes Novell's eDirectory, benefiting from its security,
manageability and scalability. With iChain, users can be assigned privileges
reflecting their role in business processes and can be provided customized,
secure access to information and services based on their identity. Regardless of
network platform, iChain integrates enterprise, e-commerce, and extranet
directories. iChain integrates more Internet and de facto standards than any
other directory, enabling it to easily interoperate with existing technology
investments as well as take advantage of current leading edge and future
standards-based applications.
DirXML is a data sharing service flexible enough to accommodate most
applications, databases, or directories. DirXML extends the data replication and
synchronization capabilities of NDS eDirectory to other data sources,
eliminating the isolation of data among various applications. As a data sharing
service, DirXML and NDS eDirectory allow the automation of business process data
flow. Through rules and policies stored in NDS eDirectory, not only can DirXML
manage the flow of data, but the authoritative sources of data are also
preserved and enforced. DirXML is event driven, so the changes to data are
propagated through a business environment in real-time.
Net Management Services. Novell's Net Management business includes all
NetWare products, collaboration products (GroupWise(R) Novell Internet Messaging
System(TM) (NIMS(TM)) and Portal Services), and management products (ZENworks,
ManageWise(R) and BorderManager(R)).
NetWare 5.1 integrates new Web and application server technologies that
extend an organization's reach into the worlds of e-business and Web-based
network management. Tools such as IBM WebSphere Application Server 3.0, Standard
Edition and NetWare Enterprise Web Server simplify the once intricate processes
of Web application development, deployment, and management. Support for
Microsoft Office 2000, open standards, strong security, and an outstanding
developer toolset combine with Internet and intranet technology to make NetWare
5.1 the best platform for deploying powerful, Web-based applications.
GroupWise is a seamless, cross-platform collaboration and messaging system
that is ideal for businesses of all sizes. With GroupWise organizations
communicate across intranets and the Internet simply and easily. GroupWise makes
it easy for individuals to gather, access, and communicate information.
Novell's Internet Messaging System (NIMS) leverages NDS eDirectory and
provides corporations, Internet Service Providers (ISPs) and Application Service
Providers (ASPs) with a highly scalable Internet messaging system for hosting
and centrally managing millions, even billions, of user accounts.
Novell Portal Services (NPS) provides all the right resources to the right
person in one simple Web page. Relevant information, resources, tools and
applications from any local, remote or Web source can be directly accessed
through a standard browser. Portal users get access to everything -- in one
place. Using secure identity management, NPS authenticates access and manages
connections ensuring that relevant resources are available to the right
individuals.
Novell ZENworks for Desktops is currently one of the only directory-enabled
desktop management solution. With NDS eDirectory, it simplifies networking for
users, cuts administrative costs, and helps businesses manage change. Novell
ZENworks for Servers automates server management so that administrators can
focus on the IT issues that really matter. ZENworks for Servers is a
comprehensive server management solution that provides policy-based server
management, and highly scalable server-to-server
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distribution. ZENworks for Servers increases control of local and remote servers
while cutting administrative cost.
ManageWise manages and remotely controls an entire network and reduces the
total cost of ownership. ManageWise allows users to accomplish all management
tasks from a single point of administration. Users can also monitor NDS
eDirectory, manage NetWare and Windows NT servers, analyze network traffic, and
keep track of network inventory and health reporting -- all from a single
location. In addition, early-warning alarms help prevent downtime by alerting
users to problems before they impact network performance.
Novell BorderManager is a complete Internet security management suite with
which businesses can leverage the power of NDS eDirectory on NetWare, NT, and
UNIX* networks. This standards-based suite allows organizations of all sizes to
cost-effectively deploy industry leading firewall, authentication, virtual
private network (VPN), and caching services for comprehensive security
protection. Taking advantage of tight integration with NDS eDirectory,
BorderManager is the first security management solution to deliver secure single
sign-on for users accessing confidential company information from the Internet,
intranet or extranet.
Net Content Services. Novell's Net Content business provides products and
services that improve the web experience by accelerating the delivery of web
content.
Novell Internet Caching System(TM) (ICS) is an appliance technology that
empowers Internet-enabled organizations to gain customer loyalty and increase
employee productivity by significantly decreasing Internet wait times. Novell
Internet Caching System-based appliances continue to demonstrate superior
performance at independent caching benchmark events.
Novell Content Exchange allows web-hosting centers around the world to
offer fully-managed services that combine site acceleration, unlimited site
scalability, and Internet content transformation and redistribution on-the-fly.
Novell has created Novell Content Exchange to address Web site speed and
reliability, which directly affect the success of e-businesses. This fully
managed, Web-content acceleration service ensures that a site's visitors can
access Web pages with speed and consistency, regardless of traffic volumes.
Novell's Content Exchange technology has resulted in significant business
partnerships with Global Center, Akamai, Foundry Networks and Mirror Image
Internet.
Novell Customer Services. Novell Customer Services is composed of Technical
Services, Education and Consulting Services. Novell Technical Services has an
established infrastructure worldwide with support centers in the United States,
Europe and Asia. These centers have established quality standards with ISO 9001
certification around the world. Novell Technical Services offers a wide variety
of flexible support offerings, bringing critical network issues to a quick and
efficient resolution. Premium Services includes around-the-clock direct access
to Novell's most experienced engineers. Dedicated Support Engineer, Primary
Support Engineer, and Account Management programs allow customers to build an
ongoing support relationship with Novell.
Novell Education is a pioneer in the networking certification arena. Novell
Education has issued over 700,000 certifications to IT professionals around the
world. Novell Education continues to demonstrate innovative leadership in the IT
certification and training industry with new programs focused on Novell's
Directory and on the Internet. In addition to the Certified Novell Engineer(SM)
(CNE(R)) certification program, Novell Education offers a Certified Directory
Engineer(SM) (CDE(SM)) certification program. Both CNE and CDE students receive
advanced technical telephone support (Level II) from Novell. Resellers,
independent support organizations, or Novell Support Organizations (NSOs) may
employ CNE and CDE certification holders.
Novell Education also offers education to end users through nearly 700
independent Novell Authorized Education Centers(SM) (NAEC(SM)) and 600 Novell
Education Academic Partners(SM) (NEAP(SM)) worldwide,
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which use Novell-developed courses to instruct students in the use and
maintenance of Novell products. This year, Novell launched its Professional
Education Programs business to deliver an expanded portfolio of training and
education assessment services to partners, customers and employees worldwide.
The Professional Education Programs business offers both instructor led and
e-Learning solutions to customers directly and through Novell's Authorized
Education Channel. Education has also established quality standards and recently
gained ISO 9001 certification.
Novell Consulting is responsible for delivering advanced consultative
expertise to Novell's customers and partners throughout the world. Novell
Consulting, using proven methodologies, designs and delivers technology-based
business solutions focusing on Internet, intranet, extranet, and e-Business.
Novell Consulting also delivers expertise in design, planning, and
implementation of Novell's Net Directory, Net Management, and Net Content
products, allowing all types of networks to work together as one Net.
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 multi-vendor 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. CNE certificate holders are individuals who receive high-level
training, information, and high-level skills to administer Novell and other
networks.
Certified Directory Engineer Program. Through the CDE program, Novell is
strengthening the directory industry's Level II support self-sufficiency. CDE
certificate holders are individuals who receive high-level directory training
and skills to administer eBusinesses and eDirectories in the Net economy.
STRATEGIC RELATIONSHIPS
Development Partners. When customers request that Novell add a new service
or function to its products, Novell investigates the most effective way to
deliver that functionality to the user. In certain situations, Novell will
determine that the best way to add a new service or function to its products is
to form a strategic relationship with a company that has expertise in that area.
By forming strategic relationships, the combination of Novell's core expertise
in Net services solutions and the strategic partner's expertise in the given
product area combine to deliver a better solution faster than if Novell
attempted to develop it alone.
Systems Partners. Novell forms strategic relationships with companies who
have complementary software and hardware. The resulting solution is a powerful
combination of products that deliver enterprise-wide connectivity solutions.
These strategic partners include system suppliers like IBM, Compaq and HP, as
well as system integration experts like Deloitte & Touche, Cap Gemini Ernst &
Young, and Perot Systems.
Application Partners. Novell works closely with application developers to
provide integrated software products and support for end users. As Net services
and directory solutions grow in importance, this program will help assure broad
availability of well integrated, multi-vendor applications.
Enterprise Consulting Partners. Leading systems integrators and consulting
organizations work with Novell to deliver distributed client/server solutions
for customers with large enterprise-wide networks.
In November 1999, Novell and marchFIRST, formerly Whittman-Hart, formed a
strategic alliance to accelerate the deployment of Novell Directory Services
(NDS) in enterprise and e-business solutions. The alliance will enable both
companies to satisfy the needs of mid-sized businesses for secure, manageable
e-business solutions that span the enterprise and the Internet. In connection
with this alliance, Novell invested $100 million in marchFIRST in exchange for
shares of marchFIRST's common stock. In addition, the
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companies agreed to jointly develop customized NDS solutions for mid-sized
businesses. Further, marchFIRST agreed to establish a "Solutions Development
Center" to train employees in regard to these solutions and demonstrate them to
customers. marchFIRST will train over 600 consultants in NDS and other
Novell-related solutions, including qualification of these consultants as Novell
Certified Directory Engineers(SM).
Multiple Channel Distribution Network. The Company markets and delivers 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 a global corporation,
servicing its customers from offices located throughout the world. It 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.
PRODUCT DEVELOPMENT
Due to the rapid pace of technological change in its industry, Novell
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.
Product development expenses for the fiscal years 2000, 1999, and 1998, are
discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," of this report.
Novell's move to a business unit environment has resulted in the product
development groups having greater direct interaction with customers. It has also
led to increased interaction between business groups within Novell resulting in
better solutions for customers. Business unit developers work with consulting
and support to solve specific customer problems and in the process generate
integrated solutions that can be used more broadly.
Product development activities are placed strategically throughout the
world to translate, test and meet the needs of our customers world wide.
Novell's commitment to deliver world class products that simplify, secure and
accelerate the Net means continued investment in product development.
SALES AND MARKETING
Novell markets its networking and Net Services 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 34 U.S. and 73 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, 2000, there were 2 U.S. distributors and
approximately 40 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 VARs 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.
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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 1,800 of them to date. Additionally, some upgrade
products are sold directly to end users. Customers can also purchase some
products and services through Novell's commercial website, ShopNovell(SM), or be
directed to a Dealer or Reseller near their geographic location.
International Sales. In fiscal 2000, 1999, and 1998, approximately 43%,
45%, and 42%, respectively, of the Company's net sales were to customers outside
the U.S. Approximately 45% of all international sales have been invoiced by the
Company in U.S. dollars. The exceptions to the U.S. dollar invoicing are
Japanese Yen sales through the Company's joint venture in Japan, Indian Rupee
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 1999 and 1998, the Company
had one multinational distributor, which accounted for 11% and 15% of revenue,
respectively. Otherwise, no customer accounted for more than 10% of revenue in
any of the last three fiscal years. For information regarding risk related to
foreign operations, see Part II, Item 7, "Risk Factors Affecting Future Results
of Operations."
Marketing. The Company's marketing activities include distribution of sales
literature, 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 technical laboratories, which test
and evaluate networked computer equipment and individual devices. The knowledge
derived from these laboratories is the basis for the technical literature
published by the Company. These activities are designed to educate the market
about Net services solutions 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 with Novell Net services solutions. Thousands of multiuser application
software packages are now compatible with Net services. In March 2000, the
fifteenth 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.
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. The company does not rely on a single
provider for its raw materials, nor has it encountered problems with its
existing suppliers.
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 Company's practice is to ship its products promptly upon
the receipt of purchase orders from its customers and, therefore, backlog is not
significant.
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, marketing strength, system/performance, customer
service and support, reliability, ease of use, security, and price/performance.
The market for computer software remains competitive due to such factors as
Microsoft's presence in all sectors of the software business. The Company does
not have the product breadth and market power of Microsoft. Microsoft's ability
to ship networking products with features and functionality that are competitive
with Novell, together with its ability to offer incentives to customers to
purchase certain products in order to
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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, 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.
Additionally, the Company may face competition from other industry
companies, which could introduce competitive products. If any of these competing
products achieves market acceptance, Novell's business and results of operations
could be materially adversely affected.
COPYRIGHT, 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. The Company has
an increasing concern that computer industry companies that have huge financial
resources and patent portfolios such as Lucent, AT&T, Microsoft, and IBM, will
increasingly assert patent infringement claims against smaller companies such as
Novell. While Novell has no reason to think it would not have defensible claims,
the cost and time of defending such claims can be significant. Although Novell
intends to protect its patent rights vigorously, there can be no assurance that
these measures will be successful or 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 that are expected to result in unsatisfactory resolution that 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.
SEASONALITY
The Company often experiences a higher volume of sales at the end of each
quarter and during the fourth quarter.
EMPLOYEES
As of December 31, 2000, the Company had 4,893 employees. The functional
distribution of its employees was: sales and marketing -- 1,652; product
development -- 1,258; general and administrative --
8 Novell annual report 2000
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11
644; service, support, education, and operations -- 1,339. Of these, 1,834
employees are in locations 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 challenging work, educational opportunities, competitive
wages, sales commission plans, bonuses, and opportunities to participate
financially in the ownership and success of the Company through stock option and
stock purchase plans.
ADDITIONAL FACTORS AFFECTING FINANCIAL RESULTS AND STOCK PRICE
In addition to factors described above under "Competition" that may
adversely affect the Company's earnings and stock price, other factors may also
adversely affect the Company's earnings and stock price, including but not
limited to:
- competition for qualified employees
- delays in the introduction of new products
- success of new products or technologies
- stock market fluctuations unrelated to Company performance
For further discussion of risks the Company faces, please refer to the sections
entitled "Risk Factors Affecting Future Results of Operations" of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Part II, Item 7 of this filing.
ITEM 2. PROPERTIES
The Company owns 218,873 square feet of office space and leases an
additional 235,274 square feet of office space in a business complex in Orem,
Utah. Approximately 101,000 square feet of the owned property and all of the
leased space is used by the Company as a product development center and for
administrative offices. The remaining square-feet of the owned property is
leased to various tenants.
The Company also owns and occupies a 500,000 square-foot office complex and
leases approximately 437,000 square feet on 46 acres in Provo, Utah, which is
used as corporate headquarters and a product development center. Additionally,
the Company owns approximately 48 acres of land in San Jose, California on which
it leases a 545,000 square-foot office complex, which is used as a product
development center and administrative offices, of which approximately 270,000
square-feet is subleased to various tenants.
The Company also has the capacity to expand on its land in San Jose,
California, and in Provo and Orem, Utah.
In addition, the Company also owns a 380,000 square-foot manufacturing and
distribution facility on 23 acres in Lindon, Utah, 338,000 square feet of which
is leased to a third party, and a 100,000 square-foot office building in
Herndon, Virginia, 80,000 square-feet of which is leased to third party tenants.
Internationally, the Company owns a 72,000 square-foot office building in
the United Kingdom and a 42,000 square foot building in the Netherlands, both of
which are used for administrative offices.
The Company leases sales and support offices in Arizona, California (6),
Colorado, Connecticut, Florida (2), Georgia, Illinois, Massachusetts (2),
Michigan, Minnesota, Missouri (2), New York (2), Ohio (3), Oregon, Pennsylvania
(2), Tennessee, Texas (4), Utah, and Washington. The Company also leases an
office in Berkeley Heights, New Jersey, which is used for certain product
development efforts.
Novell annual report 2000 9
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12
The Company has subsidiaries in Argentina, Australia, Austria, Belgium,
Brazil, Canada, Chile, Colombia, Czech Republic, Denmark, Finland, France,
Germany, Hong Kong, Hungary, India, Ireland, Israel, Italy, Japan, Malaysia,
Mexico, New Zealand, Norway, Philippines, Poland, Portugal, Puerto Rico, Russia,
Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, and
Uruguay -- each of which leases its facilities.
The terms of the above leases vary from month to month to up to ten years.
The Company believes that its existing facilities are adequate to meet its
current requirements and it anticipates that suitable additional or substitute
space will be available, as necessary, pursuant to terms that are favorable to
the Company.
ITEM 3. LEGAL PROCEEDINGS
In February 1998, a suit was filed against Novell and certain of its
officers and directors, alleging violation of federal securities laws. The
lawsuit was brought as a purported class action on behalf of purchasers of
Novell common stock from November 1, 1996, through April 22, 1997. The Federal
District Court recently dismissed the original complaint, however, the
plaintiffs have filed an amended complaint in the U.S. District Court for the
District of Utah in an effort to remedy inadequacies in the original complaint;
Novell intends to seek dismissal of the amended complaint and believes that the
case is without merit. If the case continues, Novell intends to vigorously
defend against the allegations. While there can be no assurance as to the
ultimate disposition of the lawsuit, Novell does not believe that the resolution
of this litigation will have a material adverse effect on its financial
position, results of operations, or cash flows.
In January 2001, Novell is scheduled to begin a jury trial in a suit filed
against Novell by Lantec, Inc. The suit was filed in January 1995 in the U.S.
District Court for the District of Utah claiming alleged anti-trust violations
arising from Novell's acquisition of the GroupWise technology. Novell intends to
vigorously defend against the claims. While there can be no assurance as to the
ultimate disposition of the lawsuit, Novell does not believe that the resolution
of this litigation 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.
Executive Officers of the Registrant
Set forth below are the names, ages, and titles of the persons currently
serving as executive officers of Novell.
HAS BEEN
OFFICER
NAME AGE SINCE POSITION OR OFFICE
---- --- -------- ------------------
Eric E. Schmidt............. 45 1997 Chairman of the Board and Chief Executive Officer
Stewart G. Nelson........... 40 1997 Executive Vice President, Chief Operating Officer
Dennis R. Raney............. 58 1998 Executive Vice President, Chief Financial Officer
(Chief Financial and Accounting Officer)
Richard A. Nortz............ 56 1997 Senior Vice President, Worldwide Sales
Eric E. Schmidt joined the Company in March 1997, as chief executive
officer and became Chairman of the Board and Chief Executive Officer in April
1997. Prior to joining Novell, he served as Chief Technology
10 Novell annual report 2000
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Officer from February 1994 to March 1997 at Sun Microsystems, Inc. (Sun), a
supplier of network computing solutions. In his 14 years at Sun, he held a range
of progressively more responsible executive positions.
Stewart G. Nelson joined the Company in June 1994 through the WordPerfect
merger and has served in various product development positions. From October
1996 to September 1997 he served as Vice President of Applications. In October
1997, he was elected a corporate officer as Senior Vice President of
Applications, in June 1998 he became Senior Vice President of Product
Development, in November 1999 he was named Senior Vice President, Marketing and
Products and in November 2000 he was appointed Executive Vice President and
Chief Operating Officer. Prior to joining Novell, he held various product
development positions at WordPerfect from 1987 to 1994.
Dennis R. Raney joined the Company in March 1998 as Chief Financial Officer
and was elected a corporate officer. In June 1998, he became Senior Vice
President and Chief Financial Officer. In November 2000 he was named Executive
Vice President and Chief Financial Officer. Prior to joining Novell, from
February 1997 to December 1997 he was the Chief Financial Officer at QAD, Inc.,
an enterprise software company. From May 1996 to February 1997 he was Executive
Vice President, Chief Financial Officer of California Microwave, microwave radio
business. He also held positions as Chief Financial Officer position at General
Magic and Senior Vice President and Chief Financial Officer at Bristol-Meyers
Squibb Pharmaceutical Group. Prior to this he spent 24 years at Hewlett-Packard
in various finance, international and real estate positions.
Richard A. Nortz joined the Company in October 1995 as Senior Vice
President, Technical Services. In February 1997, he became Senior Vice
President, Customer Services and was elected a corporate officer. In June 2000
he was appointed Senior Vice President Worldwide Sales. Prior to joining Novell,
he was Senior Vice President for Wang Laboratories' worldwide customer service
business from 1991 to 1995, and also spent time as acting General Manager of
Wang's European Operations.
Novell annual report 2000 11
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The following chart sets forth the high and low closing prices of the
Company's Common Stock during each quarter of the last two fiscal years:
FIRST SECOND THIRD FOURTH FISCAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
FISCAL 2000
Common stock price per share
High........................... $39.938 $43.063 $18.938 $12.250 $43.063
Low............................ $18.438 $19.188 $ 7.969 $ 7.719 $ 7.719
FISCAL 1999
Common stock price per share
High........................... $20.750 $28.125 $31.188 $27.000 $31.188
Low............................ $13.938 $17.250 $21.813 $16.063 $13.938
On December 30, 1999 Novell, Inc. acquired all of the issued and
outstanding shares of JustOn, Inc., a California corporation, by a payment of
cash and 477,394 shares of unregistered common stock to the shareholders of
JustOn, Inc. The shares were issued pursuant to the exemption from registration
set forth in Section 4(2) of the Securities Act of 1933, as amended.
On February 4, 2000, Novell acquired the assets of PGSoft, Inc., a
California corporation, by a payment of cash and 185,627 shares of unregistered
common stock to PGSoft, Inc. The shares were issued pursuant to the exemption
from registration set forth in Section 4(2) of the Securities Act of 1933, as
amended.
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. The Company has no current plans to pay cash dividends and intends to
retain its earnings for use in its business. There were 8,982 shareholders of
record at December 31, 2000.
12 Novell annual report 2000
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15
ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEAR ENDED
-------------------------------------------------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 26,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS
Net sales............................ $1,161,735 $1,272,820 $1,083,887 $1,007,311 $1,374,856
Gross profit......................... 834,337 974,979 825,992 726,403 1,065,406
Income (loss) from operations........ (31,582) 223,052 98,446 (200,004) 108,944
Income (loss) from operations before
restructuring...................... 16,310 -- -- (144,669) 127,386
Income (loss) before taxes........... 70,672 243,836 141,634 (150,570) 179,988
Income tax expense (benefit)......... 21,202 53,089 39,658 (72,274) 53,997
Net income (loss).................... 49,470 190,747 101,976 (78,296) 125,991
Net income (loss) before
restructuring...................... 85,367 -- -- (44,320) 125,260
Net income (loss) per share
Basic.............................. $ .15 $ .57 $ .29 $ (.22) $ .35
Diluted............................ $ .15 $ .55 $ .29 $ (.22) $ .35
Diluted before restructuring....... $ .25 -- -- $ (.13) $ .35
BALANCE SHEET
Cash and short-term investments...... $ 698,193 $ 895,404 $1,007,167 $1,033,473 $1,024,755
Working capital...................... 552,281 895,984 1,021,005 1,148,426 1,225,987
Total assets......................... 1,712,346 1,942,319 1,924,112 1,910,649 2,049,466
Shareholders' equity................. 1,245,085 1,492,241 1,493,498 1,565,417 1,615,509
See the results of operations for discussion of data comparisons.
Novell annual report 2000 13
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") and other parts of this Form 10-K contain
forward-looking statements that involve risks and uncertainties. All
forward-looking statements are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. The Company's actual results may differ materially
from the results discussed in such forward-looking statements as a result of a
number of factors, which include, but are certainly not limited to, those set
forth below in the MD&A sections entitled "Risk Factors Affecting Future Results
of Operations," "Euro Conversion," "Financial Market Risks," and those factors
set forth in sections of Item 1 of this Form 10-K entitled "Competition" and
"Additional Factors Affecting Earnings and Stock Price."
INTRODUCTION
Novell is a leading provider of Net services software. Novell Net services
secure and simplify networks and enable businesses and governments to accelerate
their moves to a one Net solution. Net services from Novell make networks more
manageable and secure, and integrate a complete range of computer platforms,
applications, services and devices. Novell maintains worldwide channel,
developer, education, consulting and technical support programs that support
network solutions.
The Company markets its products through 34 U.S. and 73 international sales
offices. The Company licenses its products through site-license agreements that
are either sold directly by Novell, or by service providers and software
distribution channel partners. The Company also distributes licenses as packaged
software products that are resold by systems integrators and other value-added
resellers. In addition, Novell products are licensed to original equipment
manufacturers.
Changes in the economic and business environment for network software have
occurred in the last several years, which have led to strategic and operational
changes at Novell. The Company has evolved its business to focus on Net services
software applications, which support highly distributed network solutions and
capitalize on the growth of the Internet. Novell has expanded its Net services
offerings around open Internet standards and its own eDirectory network
infrastructure products. The Company's education and training, service and
support, and consulting business has also been refocused and expanded to provide
support for new Net services based solutions.
In fiscal 2000, the Company experienced a rapid decline in traditional
packaged software license distribution by computer resellers, a post Y2K
slowdown in IT-spending, increased competition and lengthened selling cycles for
new network solutions. The Company reorganized around four product and services
groups effective in fiscal 2000: Net Management Services; Net Directory
Services; Net Content Services; and Novell Customer Services. The Company
restructured in the fourth quarter of fiscal 2000, reducing its total full-time
employee base by 13 percent. In part, the decline in packaged software license
delivery reflects the Company's shift away from individual product licenses
delivered by resellers to lower cost site-licensing agreements that are more
appropriate for Net services solutions deployed across networks of numerous
computers.
14 Novell annual report 2000
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17
RESULTS OF OPERATIONS
Net sales
2000 CHANGE 1999 CHANGE 1998
------ ------ ------ ------ ------
Net sales (millions)........................... $1,162 (9)% $1,273 17% $1,084
Beginning in fiscal 2001, products will be categorized according to the
Company's new business units. Financial information for the new business units
is not yet available for fiscal 2000, 1999, and 1998; therefore, discussion of
the results for these years will be presented according to the following product
categories, all within the directory-enabled networking software services
segment.
- Directory-enabled server platforms, which includes NetWare 4 and NetWare
5
- Directory-enabled applications products, or Net Services Software, which
include NetWare for SAA* host connectivity products, BorderManager, ICS
(Internet Caching System), NDS integration and high availability server
products, as well as collaboration and management products including
GroupWise, ManageWise, and ZENworks
- Service, education and consulting revenue, which is generated from
customer service, educational products and courses, and consulting for
network solutions
- Pre-directory product revenue consisting of NetWare 3,
non-directory-enabled infrastructure products and UNIX royalties
Directory-enabled server platforms revenue was $501 million in fiscal 2000,
compared to $659 million in fiscal 1999 and $534 million in fiscal 1998. The
decrease from fiscal 1999 to fiscal 2000 was primarily the result of the decline
in sales of the older NetWare 4 products, partially offset by increased sales of
NetWare 5. NetWare sales have been affected by lower sales of boxed product
through the Company's distribution channel, which decreased significantly year
over year, from 27% of total revenue in fiscal 1999 to only 8% of total revenue
in fiscal 2000. NetWare licensing revenue has increased slightly to help offset
some of this decline. The increase from fiscal 1998 to fiscal 1999 was primarily
the result of a full year of NetWare 5 sales in fiscal 1999, which more than
offset the early declines in NetWare 4 sales. NetWare 5 was introduced in the
fourth quarter of fiscal 1998. The directory-enabled server platforms product
line represented 43% of total revenue in fiscal 2000 compared to 52% of total
revenue in fiscal 1999 and 49% of total revenue in fiscal 1998.
Revenue from directory-enabled applications products was $327 million in
fiscal 2000 compared to $315 million in fiscal 1999 and $227 million in fiscal
1998. The increase in fiscal 2000 revenue compared to fiscal 1999 is primarily
the result of continued unit sales growth in the Company's management and
collaboration products, ICS and BorderManager, and NDS for NT. The increase in
fiscal 1999 revenue compared to fiscal 1998 was also the result of strong unit
sales growth in management and collaboration products, NDS for NT, and
BorderManager. Several of the management and collaboration products and
BorderManger were introduced in fiscal 1998 and have helped to increase
directory-enabled applications revenue each quarter. Directory-enabled
applications revenue represented 28% of total revenue in fiscal 2000 compared to
25% of total revenue in fiscal 1999 and 21% of total revenue in fiscal 1998.
Service, education and consulting revenue was $217 million in fiscal 2000
compared to $181 million in fiscal 1999 and $129 million in fiscal 1998. The
increase in fiscal 2000 revenue compared to fiscal 1999 is primarily the result
of increased growth in the service and consulting areas as the Company continued
to focus its efforts on growing these areas. The increase in fiscal 1999 revenue
compared to fiscal 1998 was primarily the result of the Company's continued
focus on expanding the service, education and consulting business. Service,
education and consulting revenues were 19% of total revenue in fiscal 2000
compared to 14% of total revenue in fiscal 1999 and 12% of total revenue in
fiscal 1998.
Novell annual report 2000 15
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18
Revenue from pre-directory products was $116 million in fiscal 2000
compared to $118 million in fiscal 1999 and $194 million in 1998. The slight
decrease in fiscal 2000 revenue was due primarily to the discontinuation of
NetWare 3 offset somewhat by a one-time royalty settlement of $36 million from
Caldera, Inc., the principal portion of which relates to an antitrust settlement
between Caldera, Inc. and Microsoft. The decrease in fiscal 1999 revenue
compared to fiscal 1998 was primarily due to the one-time benefit of $36 million
in Tuxedo royalty income in fiscal 1998 and the decline in sales of older,
pre-directory products. Pre-directory revenues were 10% of total revenue in
fiscal 2000 compared to 9% of total revenue in fiscal 1999 and 18% of total
revenue in fiscal 1998.
Sales outside the U.S., comprised of sales to international customers in
Europe, the Middle East, Canada, South America, and Asia Pacific, represented
43% of total revenue in fiscal 2000 compared to 45% of total revenue in fiscal
1999 and 42% of total revenue in fiscal 1998. Sales outside the U.S. decreased
in fiscal 2000 from fiscal 1999 primarily due to weak sales in Europe and to the
declining value of the Euro and other European currencies. International sales
increased as a percentage of total revenue in fiscal 1999 compared to fiscal
1998 due to strong sales in Europe.
Gross profit
2000 CHANGE 1999 CHANGE 1998
---- ------ ---- ------ ----
Gross profit (millions)............................ $834 (14)% $975 18% $826
Percentage of net sales............................ 72% 77% 76%
The decrease in gross profit from fiscal 1999 to fiscal 2000 is due
primarily to the decrease in overall sales and increased service and consulting
costs. In addition, gross profit as a percentage of sales decreased in fiscal
2000 due to a change in the mix of sales as software sales decreased and
education and consulting revenues, which typically carry lower margins,
increased as a percentage of total revenue. The increase in the gross profit
percentage in fiscal 1999 compared to 1998 was primarily attributable to lower
inventory management costs as the Company continued to tighten its management of
product flowing into its indirect distribution channel. In addition, overhead
and material costs as a percentage of revenue were lower in fiscal 1999 compared
to 1998 due to increased sales and the shift in mix to multi-product licenses
rather than from the inventory-intensive distribution channel.
Operating expenses
2000 CHANGE 1999 CHANGE 1998
---- ------ ---- ------ ----
Sales and marketing (millions)..................... $496 14% $434 9% $399
Percentage of net sales............................ 43% 34% 37%
Product development (millions)..................... $235 -- $234 (1)% $236
Percentage of net sales............................ 20% 18% 22%
General and administrative (millions).............. $ 87 5% $ 84 (10)% $ 93
Percentage of net sales............................ 8% 7% 9%
Restructuring charges (millions)................... $ 48 -- -- -- --
Percentage of net sales............................ 4% -- --
Total operating expenses (millions)................ $866 15% $752 3% $728
Percentage of net sales............................ 75% 59% 67%
Operating expenses increased in absolute dollars in fiscal 2000 compared to
fiscal 1999 due primarily to a $48 million restructuring charge and increased
advertising and promotional spending to promote Novell brand recognition.
Operating expenses also increased as a percentage of net sales in fiscal 2000
compared to fiscal 1999 due to decreased revenue. Operating expenses increased
slightly in absolute dollars in fiscal 1999 compared to fiscal 1998 due to
additional spending in the sales and marketing areas for new product
16 Novell annual report 2000
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19
introductions and sales force expansion. As a percentage of net sales, operating
expenses in fiscal 1999 decreased compared to fiscal 1998 due to a larger
increase in revenue and the Company's continued efforts to bring these expenses
in line with industry leading benchmarks.
Sales and marketing expenses increased 14% in fiscal 2000 compared to
fiscal 1999 due primarily to costs related to sales force training and
development and increased spending for advertising and promotion. In fiscal
2000, the Company began a large-scale marketing promotion, including print and
television advertising, which it traditionally had not done. Sales and marketing
expenses increased by 9% in fiscal 1999 compared to fiscal 1998 primarily due to
increased sales commissions on higher revenues, sales force expansion, and
increased corporate marketing expenses related to the launch of new products.
Sales and marketing expenses can fluctuate as a percentage of net sales in any
given period due to product promotions, advertising, and other discretionary
expenses.
Product development expenses have remained relatively flat over the last
three fiscal years. The increase as a percentage of sales from fiscal 1999 to
fiscal 2000 is primarily due to lower sales levels. Product development expenses
decreased by 1% in fiscal 1999 compared to fiscal 1998 due to continued focus on
operational control.
General and administrative expenses increased 5% from fiscal 1999 to fiscal
2000 primarily due to higher bad debt expense and increased consulting fees.
General and administrative expenses decreased in total and as a percentage of
sales in fiscal 1999, compared to fiscal 1998 reflecting the Company's efforts
to manage these costs as well as benefits from the workforce reductions in 1997
and the consolidation of certain functions in 1998.
During the fourth quarter of fiscal 2000, the Company incurred $48 million
of pre-tax, restructuring charges resulting from the Company's plan to change
its business strategy to address changes in the market due to technology
changes, customer demands, and methods of distribution. The new business
strategy focuses on a Net services business model and on electronic or
e-solutions. This included a reorganization of the Company into new business
units, refocusing research and development efforts, analyzing profitability of
products and discontinuing unprofitable ones, defining sales and marketing
efforts to be more customer-oriented and market driven, and adjusting the
overall cost structure given current revenue levels. The charge included $17
million of severance for a reduction in workforce of approximately 700
personnel, $5 million for redundant facilities, $23 million for abandonment of
technologies that no longer fit with the Company's strategic focus, and $3
million for other related charges. The Company also realigned its remaining
resources to better manage and control its business. As a result of this
reorganization, the Company estimates that its operating expenses will be
reduced by approximately $40 million per quarter through fiscal 2001, before
increased strategic expenditures.
Of the total $48 million charge, cash payments of $13 million was paid out
during the year and accruals of $14 million remain as of October 31, 2000,
primarily related to severance to be paid during fiscal 2001 and redundant
facility charges.
2000 CHANGE 1999 CHANGE 1998
------ ------ ------ ------ ------
Employees...................................... 4,893 (10)% 5,430 19% 4,557
Revenue per average employee (000's)........... $ 225 $ 254 $ 232
Fiscal 2000 headcount decreased compared to fiscal 1999 due to the
restructuring. The Company reduced its headcount by approximately 700 employees
as the Company restructured its resources to better align with expected business
levels and its new business strategy. In fiscal 1999, headcount increased
reflecting the growth in the Company's sales, with the largest increases coming
from worldwide sales, product development
Novell annual report 2000 17
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20
and network and directory consulting areas. The Company continues to monitor
headcount to ensure the Company is in line with industry leading benchmarks.
Other income, net
2000 CHANGE 1999 CHANGE 1998
---- ------ ---- ------ ----
Other income, net (millions)......................... $102 392% $21 (52)% $43
Percentage of net sales.............................. 9% 2% 4%
The primary component of other income, net, is net investment income, which
was $109 million, $41 million, and $45 million in fiscal 2000, 1999, and 1998,
respectively. In fiscal 2000, the Company realized higher gains on the sale of
equity securities compared to fiscal 1999. Lower average cash balances due to
the repurchase of common stock during fiscal 1999 kept investment income flat
compared to fiscal 1998. Other income, net, excluding investment income,
increased in fiscal 2000 compared to fiscal 1999 primarily due to lower
investment write-offs and increased foreign currency translation gains. Other
income, net, excluding investment income, decreased in fiscal 1999 compared to
fiscal 1998 primarily due to the write-off of certain long-term investments,
partially offset by the negative minority interest impact of profit improvements
in the Company's Japanese subsidiary.
Income tax expense
2000 CHANGE 1999 CHANGE 1998
---- ------ ---- ------ ----
Income tax expense (millions)......................... $21 (60)% $53 34% $40
Percentage of net sales............................... 2% 4% 4%
Effective tax rate.................................... 30% 22% 28%
Absent restructuring charges in 2000 and the Internal Revenue Service
("IRS") settlement in 1999, the effective tax rate for 2000, 1999 and 1998 was
28% which is lower than the federal statutory rate of 35% primarily due to
research credits, tax exempt income and low taxed foreign earnings. The overall
effective tax rate for fiscal 2000 was higher than the effective tax rate for
fiscal 1999 due to a portion of the fiscal 2000 restructuring costs being
non-deductible for tax purposes and the settlement with the IRS in fiscal 1999.
The effective tax rate for fiscal 1999 was lower than the effective tax rate for
fiscal 1998 due to the settlement the Company reached with the IRS.
At October 31, 2000, the Company had gross deferred tax assets of $120
million. A portion of these assets is realizable based on the Company's ability
to offset existing deferred tax liabilities. Realization of the remaining
portion of these assets is dependent on the Company's ability to generate
approximately $400 million of future taxable income. Management believes that
sufficient income will be earned in the future to realize these assets.
Management will evaluate the realizability of the deferred tax assets quarterly
and assess the need for valuation allowances.
18 Novell annual report 2000
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21
Net income and net income per share
2000 CHANGE 1999 CHANGE 1998
---- ------ ---- ------ ----
Net income (millions)............................. $ 49 (74)% $191 87% $102
Percentage of net sales........................... 4% 15% 9%
Net income before restructuring (millions)........ $ 85 -- -- -- --
Net income per share
Basic........................................... $.15 (74)% $.57 97% $.29
Diluted......................................... $.15 (73)% $.55 90% $.29
Diluted before restructuring.................... $.25 -- -- -- --
Net income per share decreased in fiscal 2000 compared to fiscal 1999 due
primarily to decreased revenue, a $48 million (pre-tax) restructuring charge,
and increased sales and marketing expenses, as discussed above. Net income per
share increased in fiscal 1999 compared to fiscal 1998 due to the increased
revenue and profitability discussed above, along with the decrease in the number
of shares outstanding due to the Company's stock repurchase program.
LIQUIDITY AND CAPITAL RESOURCES
OCTOBER 31, OCTOBER 31,
2000 CHANGE 1999
----------- ------ -----------
Cash and short-term investments (millions)........... $698 (22)% $895
Percentage of total assets........................... 41% 46%
Cash and short-term investments decreased to $698 million at October 31,
2000 from $895 million at October 31, 1999, and $1,007 million at October 31,
1998. The fiscal 2000 decrease can be attributed to $318 million used to
repurchase common stock, $206 million invested in long-term and venture capital
funds, $62 million used for other long-term investing activities, $58 million of
cash used for expenditures on property, plant and equipment, and $37 million
cash used to increase the cash reserved as collateral for building leases. These
expenditures were partially offset by $342 million provided by operating
activities, $88 million provided by issuances of common stock, and $54 million
provided from the sale of buildings on the Company's Orem, Utah campus.
During the year, the Company continued to consolidate its Utah operations
to its Provo facility making the properties currently owned and occupied in
Orem, Utah unnecessary. In May and October 2000, the Company finalized the sale
of a portion of these buildings. The remaining buildings are expected to be sold
during the first half of fiscal 2001.
The Company's investment portfolio is diversified among security types,
industry groups, and individual issuers. To achieve potentially higher returns,
a portion of the Company's investment portfolio is invested in equity securities
and mutual funds, which incur market risk.
The Company's combined short and long term investment portfolio includes
securities with net unrealized losses of $80 million, before effects of deferred
taxes, as of October 31, 2000. The majority of the Company's unrealized losses
are due to the Company's investment in marchFIRST, which is carried at fair
market value. marchFIRST's earnings and stock price has continued to decline
since fiscal year end; however, they have taken steps to address this by
restructuring the company and raising $150 million of venture capital in
December 2000. The Company will continue to monitor the status of this
investment.
The Company's principal source of liquidity continues to be from
operations. At October 31, 2000, the Company's principal unused sources of
liquidity consisted of cash and short-term investments and available borrowing
capacity of approximately $18 million under its credit facilities. The Company's
liquidity needs are principally for financing of accounts receivable, capital
assets, strategic investments, product development, and flexibility in a dynamic
and competitive operating environment.
Novell annual report 2000 19
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22
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 2001 are anticipated to
be approximately $65 million, but could be reduced if the growth of the Company
is less than presently anticipated. The Company also intends to commit an
additional $30 million during fiscal 2001 to venture capital funds.
During the fourth quarter of 2000, the Board of Directors authorized the
use of up to $500 million for the repurchase of additional outstanding shares of
the Company's common stock through October 31, 2001. As of October 31, 2000, $17
million had been spent to repurchase 1.8 million shares under this plan. In July
1999, the Board of Directors authorized up to $500 million for the repurchase of
outstanding shares of the Company's common stock through October 31, 2000. As of
October 31, 2000, all $500 million had been used to repurchase outstanding
shares at an average price of $25.16 per share.
Euro Conversion
On January 1, 1999, 11 of the 15 members of the European Union established
fixed conversion rates among their existing sovereign currencies and adopted the
Euro as their common legal currency. At the end of a three-year transition
period during which companies may choose to operate either in the Euro or
national currencies, the legacy currencies will be eliminated. In June 1998, the
Company formed a cross-functional team to assess the impact of the conversion on
the Company's operations and to address associated issues.
The Company is currently conducting transactions in the Euro and expects to
have all affected information systems fully converted by April 2001. Novell does
not expect the Euro conversion to have a material effect on its competitive
position or financial results.
RISK FACTORS AFFECTING FUTURE RESULTS OF OPERATIONS
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,
directories and applications; acceptance of new products and price pressures;
availability of third-party compatible products at below market 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.
Our Financial Results May Vary
The Company often experiences a higher volume of sales at the end of the
quarter and during the fourth quarter. Because of this, fixed costs that are out
of line with sales levels may not be detected until late in any given quarter.
As a result, results of operations could be adversely affected, and even produce
a loss.
Operating results have been and may also be affected by other factors
including, but not limited to:
- timing of orders from customers and shipments to customers
- product mix, a shift from higher margin products, such as licensing, to
lower margin products or services, such as boxed products
- delays or problems with our fulfillment agents
- impact of foreign currency exchange rates on the price of our products in
international locations
20 Novell annual report 2000
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23
- our inability to respond to the decline in sales through the distribution
channel
- our inability to derive benefits from the restructuring and new corporate
strategy
We Face Intense Competition for Attracting and Retaining Qualified Personnel
in the Computer Industry
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 performance. Over the past year, the Company has
lost several of its vice presidents. The failure to successfully promote and
hire suitable replacements in a timely manner could have a material adverse
effect on the Company's business.
We Have Experienced Delays in the Introduction of New Products Due to Various
Factors
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.
We May Not Be Successful at Introducing New Technologies
Another goal of the Company is to achieve widespread acceptance and
adoption of Novell's Net Services and e-solutions products, Directory Services
(NDS), and the products and applications that take advantage of directory
services. The Company's ability to achieve success with its Net Services and NDS
solutions is dependent on a number of factors including but not limited to the
following: development of key Net Services and directory products and upgrades,
the acceptance of those products by large industry partners, the marketing of
those products through appropriate channels of distribution, and the acceptance
of those products in major accounts. The Company has only had limited success in
introducing new technologies and there can be no assurance of success with Net
Services or NDS solutions.
Our Existing Product Sales May Deteriorate More Rapidly than Sales of Our New
Products Increase
The Company has several existing products, which it has been selling and
upgrading for many years. Technology shifts or competition could occur causing
sales of these products to decline at a faster rate than the Company is able to
increase sales of new products or technologies.
We Face Risks from Our International Operations
The Company has sales offices in countries worldwide. It also has
significant operations in Ireland and Japan, and conducts product development in
India. International operations are subject to inherent risks
Novell annual report 2000 21
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24
including, but not limited to: fluctuating currency exchange rates, longer
payment cycles, difficulties in managing multiple offshore operations, increased
tariffs and duties, price controls, restrictions on foreign currencies, trade
barriers, and political unrest. These factors could have a material impact on
our financial condition in the future.
Our Long-term and Venture Capital Fund Investments Could Become Impaired
Included in the Company's investment portfolio are investments made for
strategic business purposes, such as marchFIRST, and investments through the
Novell Venture Fund. Novell Venture Fund investments are in private companies,
generally small capitalization stocks in the high-technology industry sector,
and funds managed by venture capitalists. The value of these investments is
dependent on the performance, successful acquisition, and/or initial public
offering of the investees. Some or all of these investments could become
permanently impaired in the future requiring the Company to record investment
losses.
Our Stock Price Will Fluctuate
The Company's future earnings and stock price could be subject to
significant volatility, particularly on a quarterly basis. Due to analysts'
expectations of continued growth, any such shortfall in earnings can be expected
to have an immediate and significant adverse effect on the trading price of
Novell's Common Stock in any given period. Revenue fluctuations may also
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 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.
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.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial market risks, including changes in
interest rates, foreign currency exchange rates and marketable equity security
prices. To mitigate some of these risks, the Company utilizes currency forward
contracts and currency options. The Company does not use derivative financial
instruments for speculative or trading purposes, and no derivative financial
instruments were outstanding at October 31, 2000.
Interest Rate Risk
The primary objective of the Company's investment activities is to preserve
principal while maximizing yields without significantly increasing risk. This is
accomplished by investing in widely diversified short-term investments,
consisting primarily of investment grade securities, substantially all of which
either mature within the next twelve months or have characteristics of
short-term investments. A hypothetical 50 basis point increase in interest rates
would result in an approximate $6 million decrease (approximately 1%) in the
fair value of the Company's available-for-sale securities.
22 Novell annual report 2000
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25
Market Risk
The Company also holds available-for-sale equity securities in its
short-term investment portfolio. A 10% adverse change in prices of these
short-term equity securities would result in an approximate $3 million decrease
in the fair value of the Company's short-term investments.
In addition, the Company invests in long-term equity securities, included
in its portfolio of investments, for the promotion of business and strategic
objectives. These investments are generally in small capitalization stocks in
the high-technology industry sector, both public and private. Because of the
nature of these investments, the Company is exposed to equity price risks. The
Company typically does not attempt to reduce or eliminate its market exposure on
these securities. As of October 31, unrealized losses on long-term public equity
securities totaled $83 million, the majority of which pertains to the Company's
investment in marchFIRST. A 10% adverse change in equity prices of long-term
equity securities would result in an approximate $14 million decrease in the
fair value of the Company's available-for-sale securities.
Foreign Currency Risk
The Company hedges currency risks of investments denominated in foreign
currencies with currency forward contracts. Gains and losses on these foreign
currency investments would generally be offset by corresponding losses and gains
on the related hedging instruments, resulting in negligible net exposure to the
Company. A substantial majority of the Company's revenue, expense and capital
purchasing activities are transacted in U.S. dollars. However, the Company does
enter into transactions in other currencies, primarily Japanese yen and certain
other Asian and European currencies. To protect against reductions in value and
the volatility of future cash flows caused by changes in foreign exchange rates,
the Company has established balance sheet hedging programs. Currency forward
contracts and currency options are utilized in these hedging programs. The
Company's hedging programs reduce, but do not always entirely eliminate, the
impact of foreign currency exchange rate movements. If the Company did not hedge
against foreign currency exchange rate movement, an adverse change of 10% in
exchange rates would result in a decline in income before taxes of approximately
$11 million.
All of the potential changes noted above are based on sensitivity analyses
performed on the Company's financial position at October 31, 2000. Actual
results may differ materially.
Novell annual report 2000 23
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26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NOVELL, INC.
PAGE
----
Consolidated Statements of Operations....................... 25
Consolidated Balance Sheets................................. 26
Consolidated Statements of Shareholders' Equity............. 27
Consolidated Statements of Cash Flows....................... 28
Notes to Consolidated Financial Statements.................. 29
Report of Ernst & Young LLP, Independent Auditors........... 44
24 Novell annual report 2000
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27
NOVELL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
-----------------------------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 1998
------------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales.............................................. $1,161,735 $1,272,820 $1,083,887
Cost of sales.......................................... 327,398 297,841 257,895
---------- ---------- ----------
Gross profit........................................... 834,337 974,979 825,992
Operating expenses:
Sales and marketing.................................. 495,985 434,339 398,532
Product development.................................. 234,571 234,032 235,744
General and administrative........................... 87,471 83,556 93,270
Restructuring charge................................. 47,892 -- --
---------- ---------- ----------
Total operating expenses..................... 865,919 751,927 727,546
Income (loss) from operations.......................... (31,582) 223,052 98,446
Other income (expense):
Investment income.................................... 109,390 41,472 44,727
Other, net........................................... (7,136) (20,688) (1,539)
---------- ---------- ----------
Other income, net...................................... 102,254 20,784 43,188
Income before taxes.................................... 70,672 243,836 141,634
Income tax expense..................................... 21,202 53,089 39,658
---------- ---------- ----------
Net income............................................. $ 49,470 $ 190,747 $ 101,976
========== ========== ==========
Weighted average shares outstanding:
Basic................................................ 326,621 334,460 350,525
Diluted.............................................. 335,034 349,393 356,437
Net income per share:
Basic................................................ $ .15 $ .57 $ .29
Diluted.............................................. $ .15 $ .55 $ .29
See notes to consolidated financial statements.
Novell annual report 2000 25
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28
NOVELL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
OCTOBER 31, OCTOBER 31,
2000 1999
------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
Current assets:
Cash and short-term investments........................... $ 698,193 $ 895,404
Receivables, less allowances ($33,469 -- 2000,
$36,318 -- 1999)....................................... 196,672 284,510
Inventories............................................... 2,621 3,753
Prepaid expenses.......................................... 26,120 47,738
Deferred and refundable income taxes...................... 60,109 60,266
Other current assets...................................... 23,644 43,945
---------- ----------
Total current assets.............................. 1,007,359 1,335,616
Property, plant, and equipment, net......................... 290,104 347,012
Long-term investments....................................... 383,583 229,114
Other assets................................................ 31,300 30,577
---------- ----------
Total assets...................................... $1,712,346 $1,942,319
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 85,050 $ 85,037
Accrued compensation...................................... 54,546 62,778
Accrued marketing liabilities............................. 13,632 11,449
Other accrued liabilities................................. 59,644 50,133
Income taxes payable...................................... 39,043 57,085
Deferred revenue.......................................... 203,163 173,150
---------- ----------
Total current liabilities......................... 455,078 439,632
Minority interests.......................................... 12,183 10,446
Shareholders' equity:
Common stock, par value $.10 per share
Authorized -- 600,000,000 shares Issued -- 327,618,192
shares, 2000; 326,593,911 shares, 1999................. 32,762 32,659
Additional paid-in capital................................ -- --
Retained earnings......................................... 1,319,853 1,432,624
Accumulated other comprehensive income (loss)............. (84,427) 35,189
Other..................................................... (23,103) (8,231)
---------- ----------
Total shareholders' equity........................ 1,245,085 1,492,241
---------- ----------
Total liabilities and shareholders' equity........ $1,712,346 $1,942,319
========== ==========
See notes to consolidated financial statements.
26 Novell annual report 2000
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29
NOVELL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
COMMON COMMON ADDITIONAL OTHER
STOCK STOCK PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) OTHER TOTAL
------- ------- ---------- ---------- ------------- -------- ----------
(AMOUNTS IN THOUSANDS)
Balance -- October 31, 1997........ 350,938 $35,094 $ 378,582 $1,188,361 $ (29,431) $ (7,189) $1,565,417
Stock issued from stock plans...... 7,675 767 55,130 -- -- (1,032) 54,865
Stock plans' income tax benefits... -- -- 10,261 -- -- -- 10,261
Shares cancelled................... (20) (2) (212) -- -- -- (214)
Shares repurchased and retired..... (21,000) (2,100) (242,864) -- -- -- (244,964)
Amortization of unearned stock
compensation..................... -- -- -- -- -- 2,825 2,825
Unrealized gain on investments..... -- -- -- -- 4,419 -- 4,419
Cumulative translation
adjustment....................... -- -- -- -- (1,087) -- (1,087)
Net income......................... -- -- -- 101,976 -- -- 101,976
----------
Comprehensive income............... -- -- -- -- -- -- 105,308
------- ------- --------- ---------- --------- -------- ----------
Balance -- October 31, 1998........ 337,593 $33,759 $ 200,897 $1,290,337 $ (26,099) $ (5,396) $1,493,498
Stock issued from stock plans...... 11,946 1,194 102,690 -- -- (6,251) 97,633
Stock plans' income tax benefits... -- -- 50,659 -- -- -- 50,659
Shares cancelled................... (94) (9) (2,409) -- -- -- (2,418)
Shares repurchased and retired..... (22,851) (2,285) (351,837) (48,460) -- -- (402,582)
Amortization of unearned stock
compensation..................... -- -- -- -- -- 3,416 3,416
Unrealized gain on investments..... -- -- -- -- 62,108 -- 62,108
Cumulative translation
adjustment....................... -- -- -- -- (820) -- (820)
Net income......................... -- -- -- 190,747 -- -- 190,747
----------
Comprehensive income............... -- -- -- -- -- -- 252,035
------- ------- --------- ---------- --------- -------- ----------
Balance -- October 31, 1999........ 326,594 $32,659 $ -- $1,432,624 $ 35,189 $ (8,231) $1,492,241
Stock issued from stock plans...... 12,997 1,300 119,469 -- -- (29,848) 90,921
Stock plans' income tax benefits... -- -- 22,918 -- -- -- 22,918
Stock issued for acquisitions...... 645 65 17,301 -- -- -- 17,366
Shares cancelled................... (265) (27) (4,690) -- -- 2,156 (2,561)
Shares repurchased and retired..... (12,353) (1,235) (154,998) (162,241) -- -- (318,474)
Amortization of unearned stock
compensation..................... -- -- -- -- -- 12,820 12,820
Unrealized loss on investments..... -- -- -- -- (118,956) -- (118,956)
Cumulative translation
adjustment....................... -- -- -- -- (660) -- (660)
Net income......................... -- -- -- 49,470 -- -- 49,470
----------
Comprehensive loss................. -- -- -- -- -- -- (70,146)
------- ------- --------- ---------- --------- -------- ----------
Balance -- October 31, 2000........ 327,618 $32,762 $ -- $1,319,853 $ (84,427) $(23,103) $1,245,085
======= ======= ========= ========== ========= ======== ==========
See notes to consolidated financial statements.
Novell annual report 2000 27
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30
NOVELL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
-----------------------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 1998
----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 49,470 $ 190,747 $ 101,976
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................. 81,909 70,156 76,170
Stock plans' income tax benefits.......................... 22,918 50,659 10,261
Restructuring charge...................................... 22,635 -- --
Decrease (increase) in receivables........................ 87,838 (52,718) (32,953)
Decrease (increase) in inventories........................ 1,132 (191) 7,094
Decrease (increase) in prepaid expenses................... 21,618 15,427 (5,480)
Decrease in deferred and refundable income taxes.......... 18,610 38,979 43,662
Decrease (increase) in other current assets............... 20,301 (9,276) 848
Increase in current liabilities, net...................... 15,446 24,937 92,739
--------- ----------- -----------
Net cash provided by operating activities.......... 341,877 328,720 294,317
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net............................. 88,360 95,215 54,650
Repurchases of common stock............................... (318,474) (402,582) (244,964)
--------- ----------- -----------
Net cash (used) by financing activities............ (230,114) (307,367) (190,314)
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant, and equipment........... (57,811) (69,181) (57,375)
Proceeds from the sale of property, plant and equipment... 53,579 -- --
Purchases of short-term investments....................... (839,645) (1,743,695) (2,048,391)
Maturities of short-term investments...................... 644,655 1,346,432 1,490,661
Sales of short-term investments........................... 348,519 689,910 535,405
Increase in restricted cash............................... (36,881) (91,668) (83,107)
Purchases of long-term investments........................ (206,272) (37,358) (12,498)
Other..................................................... (2,639) 2,983 18,252
--------- ----------- -----------
Net cash (used) provided by investing activities... (96,495) 97,423 (157,053)
Total increase (decrease) in cash and cash equivalents...... 15,268 118,776 (53,050)
Cash and cash equivalents -- beginning of period............ 274,269 155,493 208,543
--------- ----------- -----------
Cash and cash equivalents -- end of period.................. 289,537 274,269 155,493
Short-term investments -- end of period..................... 408,656 621,135 851,674
--------- ----------- -----------
Cash and short-term investments -- end of period............ $ 698,193 $ 895,404 $ 1,007,167
========= =========== ===========
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Issuance of restricted stock for acquisitions............... $ 17,366 $ -- $ --
See notes to consolidated financial statements.
28 Novell annual report 2000
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31
NOVELL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Novell is a leading provider of Net services software. Novell Net services
secure and simplify networks and enable businesses and governments to accelerate
their moves to a one Net solution. Net services from Novell make networks more
manageable and secure, and integrate a complete range of computer platforms,
applications, services and devices. Novell maintains worldwide channel,
developer, education, consulting and technical support programs that support
network solutions.
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 materially 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 7 years. Money
market preferreds have contractual maturities of less than 180 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 and after
applicable valuation allowances, included in shareholders' equity. Fair
market values are based on quoted market prices where available; if
quoted market prices are not available, then fair market values are based
on quoted market prices of comparable instruments. 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 amounts owed by geographically dispersed end
users, distributors, resellers, and OEM customers. No collateral is
required. Reserves are provided for sales returns, product exchanges and
bad debts.
- Plant and equipment are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization expense related to plant and
equipment totaled $57 million, $66 million, and $76 million, in fiscal
2000, 1999, and 1998, respectively.
- Provision for depreciation and amortization is computed on the
straight-line method over the estimated use