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Novell Reports Financial Results for Fourth Fiscal Quarter and Full Fiscal Year 2004

Novell, Inc. (NASDAQ:NOVL) today announced financial results for its fourth fiscal quarter ended Oct. 31, 2004.

WALTHAM, Mass. | November 18, 2004

Consolidated Unaudited Condensed Statements of Operations
Consolidated Unaudited Condensed Balance Sheets
Consolidated Unaudited Condensed Statements of Cashflows Statement of Cash Flows
Unaudited Non-GAAP Adjusted Earnings Information

  • 5 percent increase in revenue from year ago period
  • Strong cash flow performance
  • Exceptional growth in SUSE Linux Enterprise Server business

Novell, Inc. (NASDAQ:NOVL) today announced financial results for its fourth fiscal quarter ended Oct. 31, 2004.  For the quarter, Novell reported revenues of $301 million, compared to revenues of $287 million for the fourth fiscal quarter 2003.  Net income available to common stockholders in the fourth fiscal quarter 2004 was $13 million, or $0.03 per diluted common share. This compared to a net loss available to common stockholders of $109 million, or $0.29 loss per common share, for the fourth fiscal quarter 2003.

On a non-GAAP basis, adjusted net income available to common stockholders for the fourth fiscal quarter 2004 was $23 million, or $0.06 per diluted common share, which excludes the effect of restructuring charges of $9 million and net investment impairments of $1 million. This compares to non-GAAP adjusted net income available to common stockholders for the fourth fiscal quarter 2003 of $19 million, or $0.05 per diluted common share, which excludes the effect of restructuring charges of $8 million, an in-process research and development charge of $1 million, investment impairments of $2 million and a $119 million charge to increase a valuation allowance for net deferred tax assets. Full details on Novell’s reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial schedules that are a part of this release.

In the fourth fiscal quarter 2004, foreign currency exchange rates favorably impacted total revenue by approximately $7 million year-over-year. Foreign currency impact to net income was not material. Accrual adjustments in the fourth fiscal quarter 2004 favorably impacted operating income by $10 million.  The accruals were originally created for legal, medical and other potential liabilities. Also, reserve adjustments affecting tax expense favorably impacted net income by $6 million.

During the fourth fiscal quarter 2004, Novell recognized revenue of $12 million associated with its SUSE® LINUX business. Recognized revenue from subscriptions to SUSE Linux Enterprise Server in the quarter was $7 million, a sequential increase of 68% from the third fiscal quarter 2004. Sales of subscriptions to SUSE Linux Enterprise Server (SLES) totaled 21,000 units in the quarter. Not included in this number is the effect of three Linux-related enterprise-wide licensing deals with Fortune 100* customers. Under these multi-year agreements, these customers can deploy SLES throughout the enterprise, and the agreements were priced accordingly. We estimate that in the near term these customers may deploy in the range of 4,000 to 6,000 servers and that there is the potential for them to deploy over 25,000 servers over time.

For Novell's full fiscal year 2004, Novell reported revenue of $1.166 billion and net income available to common stockholders of $31 million, or $0.08 per diluted common share. Comparatively, revenue for the full year fiscal 2003 was $1.105 billion and net loss available to common stockholders was $162 million, or $0.44 loss per common share.

“We are pleased that our revenue and net income remain strong during our ongoing transition to a growth company against the backdrop of a challenging IT market,” said Jack Messman, Chairman and CEO of Novell. “Our key growth initiatives of Linux and Identity Management continued their strong performance. In particular, our Linux solutions are allowing us to reach more and more new customers at a pace not seen at Novell for many years. We see no slowdown to the tremendous progress made by Linux technology to date. However, we still have challenges ahead. While we had a strong finish in closing fiscal year 2004, fiscal year 2005 will be another rebuilding year for Novell as we make significant investments in our solutions, systems and people to try to grow our newer businesses in order to counterbalance the continued decline in our NetWare business.”

On the balance sheet, cash and short-term investments were $1.2 billion at Oct. 31, 2004, compared with $1.1 billion at July 31, 2004. Days sales outstanding (DSO) in accounts receivable was 78 days at the end of the fourth fiscal quarter 2004, up from 74 days in the year ago quarter. Deferred revenues were $374 million at the end of the fourth fiscal quarter 2004, up $52 million or 16% year over year. Cash flow from operations was $52 million for the fourth fiscal quarter 2004, down $1 million from a year ago.

On Nov. 8, 2004, Novell announced an agreement with Microsoft to settle potential antitrust litigation related to Novell's NetWare® operating system in exchange for $536 million in cash, which was received today. After estimated transaction costs and income tax payments, the net cash increase is expected to approximate $438 million. A gain of $448 million, the settlement less estimated transaction costs, will be included in operating income in the first fiscal quarter ended Jan. 31, 2005. Book income tax expense related to this settlement is currently estimated at approximately $80 million, which reflects the use of a portion of net operating loss carryforwards, and will be recorded in the same period. The difference between the book tax expense and the estimated $10 million taxes to be paid results from the nature of the carryforwards used.

A summary of Novell’s vision, mission and strategy can be accessed on the Novell® Web site at: www.novell.com/company/ir/qresults.

Conference call notification and Web access detail

A live Webcast of a Novell® conference call to discuss the quarter will be broadcast at 5PM ET November 18, 2004, from Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/. The domestic conference call dial-in number is 888-323-5254, password “Novell”, and the international dial-in number is +1-773-756-4625, password “Novell”.

The call will be archived on the Web site approximately 15 minutes after its conclusion, and will be available for telephone playback through midnight, December 2.  The domestic toll-free replay number is 888-567-0447, and the international replay number is +1-402-998-1802.

A copy of this press release is posted on Novell’s Web site at: http://www.novell.com/company/ir/qresults/.

Legal notice regarding forward looking statements

This press release includes statements that are not historical in nature and that may be characterized as “forward-looking statements,” including those related to future financial and operating results, benefits and synergies of the company’s brands and strategies, future opportunities and the growth of the market for open source solutions.  You should be aware that Novell’s actual results could differ materially from those contained in the forward-looking statements, which are based on current expectations of Novell management and are subject to a number of risks and uncertainties, including, but not limited to, Novell’s ability to integrate acquired operations and employees, Novell’s success in executing its Linux strategies, Novell’s ability to deliver on its one Net vision of the Internet, Novell’s ability to take a competitive position in the Linux industry, business conditions and the general economy, market opportunities, potential new business strategies, competitive factors, sales and marketing execution, shifts in technologies or market demand and the other factors described in Novell’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2004.  Novell disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release.

About Novell

Novell, Inc. is a leading provider of information solutions that deliver secure identity management (Novell Nsure®), Web application development (Novell exteNd) and cross-platform networking services (Novell Nterprise), all supported by strategic consulting and professional services (Novell NgageSM). Active in the open source community with its Ximian® and SUSE Linux brands, Novell provides a full range of Linux products and services for the enterprise from the desktop to the server.  Novell’s vision of one Net – a world without information boundaries – helps customers realize the value of their information securely and economically. For more information, call Novell’s Customer Response Center at (888) 321-4CRC (4272) or visit http://www.novell.com. Press should visit http://www.novell.com/pressroom.

Novell, NetWare, Nsure and Ximian are registered trademarks; exteNd and Nterprise are trademarks; and Ngage is a service mark of Novell, Inc. in the United States and other countries. SUSE is a registered trademark of SUSE Linux AG, a Novell business. *All third-party trademarks are the property of their respective owners.

Novell, Inc.
Consolidated Unaudited Condensed Statements of Operations
(In thousands, except per share data)

  Fiscal Quarter Ended   Fiscal Year Ended
  Oct 31, 2004   Oct 31, 2003   Oct 31, 2004   Oct 31, 2003
Net revenue
  New software licenses $     64,651   $       70,498   $    238,419   $      265,256
  Maintenance and services 236,006   216,251   927,498   840,240
Total net revenue 300,657   286,749   1,165,917   1,105,496
Cost of revenue
   New software licenses 6,859   5,140   23,481   22,210
  Maintenance and services 103,546   96,197   392,198   392,939
  Intangible asset impairments        -             -             -      23,569
Total cost of revenue 110,405   101,337   415,679   438,718
Gross profit 190,252   185,412   750,238   666,778
Operating expenses
   Sales and marketing 96,156   88,314   362,569   380,826
  Product development 47,332   44,304   198,614   183,758
  General and administrative 23,236   24,300   102,437   110,963
  Restructuring 8,916   8,042   22,903   43,067
  Purchased in-process R&&D -      920   -      920
  Gain on sale of property, plant and equipment        -             -      (1,977)   (24,934)
Total operating expenses 175,640   165,880   684,546   694,600
Income (loss) from operations 14,612   19,532   65,692   (27,822)
Other income (expense), net 248   (3,442)   9,282   (27,188)
Income (loss) before taxes 14,860   16,090   74,974   (55,010)
Income tax expense 1,595   125,094   17,786   106,894
Net income (loss) 13,265   (109,004)   57,188   (161,904)
Deemed dividend related to beneficial conversion feature of preferred stock -      -      (25,680)   -   
Preferred stock dividends (125)          -      (416)          -   
Net income (loss) available to common stockholders $     13,140   $    (109,004)   $      31,092   $    (161,904)
Net income (loss) per common share:
  Basic $          0.03   $         (0.29)   $           0.08   $           (0.44)
  Diluted $       0.03   $      (0.29)   $        0.08   $        (0.44)
Weighted average shares:
  Basic 376,367   373,876   381,100   370,545
  Diluted 386,243   373,876   394,268   370,545
Certain reclassifications, none of which affected net income, were made to the prior period amounts in order to conform to the current period's presentation.

 

Novell, Inc.
Consolidated Unaudited Condensed Balance Sheets
(In thousands)

ASSETS   Oct 31, 2004   Oct 31, 2003
Current assets
  Cash, cash equivalents and short-term investments   $     1,211,467   $       751,852
  Receivables, net   269,431   232,492
  Prepaid expenses   25,190   23,005
  Other current assets                28,846               23,204
Total current assets   1,534,934   1,030,553
Property, plant and equipment, net   231,468   255,526
Long-term investments   55,986   50,948
Goodwill   391,088   213,300
Intangible assets, net   48,616   10,800
Other assets                29,456                  6,526
Total assets   $     2,291,548   $    1,567,653
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities   
  Accounts payable   $           55,956   $          50,258
  Accrued compensation   126,612   101,164
  Other accrued liabilities   98,983   117,073
  Income taxes payable   37,077   35,493
   Deferred revenue              374,186           322,470
Total current liabilities   692,814   626,458
Deferred income taxes   3,855   -    
Long-term debt             600,000                     -    
Total liabilities   1,296,669   626,458
Minority interests   6,515   6,725
Preferred stock   25,000   -    
Stockholders' equity           963,364           934,470
Total liabilities and stockholders' equity   $     2,291,548   $    1,567,653
Certain reclassifications, none of which affected net income, were made to the prior period amounts in order to conform to the current period's presentation.

 

Novell, Inc.
Consolidated Unaudited Condensed Statements of Cash Flows
(In thousands)

  Fiscal Quarter Ended   Fiscal Year Ended
  Oct 31, 2004   Oct 31, 2003   Oct 31, 2004   Oct 31, 2003
Cash flows from operating activities:  
  Net income (loss) $          13,265   $    (109,004)   $          57,188   $    (161,904)
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:  
  (Gain) loss on sale of property, plant and equipment 328   -   (1,639)   (25,299)
  Gain on sale of long-term investments (1,567)   -   (1,567)   -
  Depreciation and amortization 14,536   11,884   53,482   61,058
  Non-cash restructuring charges 7,788   8,042   16,979   31,268
  Intangible asset impairments, net of tax -   -   -   13,935
  Long-term investment impairments 2,967   2,172   5,415   34,735
  In-process R&D expense -   920   -   920
  Changes in assets and liabilities 14,186   138,982   (10,761)   100,293
  Net cash provided by operating activities 51,503   52,996   119,097   55,006
Cash flows from financing activities:  
  Issuance of common stock, net 10,178   12,276   58,162   20,081
  Issuance of preferred stock -       -       50,000   -    
  Issuance of long-term debt -       -       600,000   -    
  Payment of issuance costs on long-term debt -       -       (14,850)   -    
  Payment of preferred stock dividend -       -       (292)   -    
  Repurchase of common stock - held in treasury -       -       (125,000)   -    
  Net cash provided by financing activities 10,178   12,276   568,020   20,081
Cash flows from investing activities:  
  Expenditures for property, plant and equipment (7,473)   (8,863)   (26,997)   (39,468)
  Proceeds from the sale of property, plant and equipment 2,811   -   4,951   125,000
  Proceeds from the sale of long-term investments 1,567   -   1,567   -
  Short-term investment activity (199,667)   (96,630)   (393,181)   (213,870)
  Cash paid for Ximian -       (40,205)   -       (40,205)
  Cash paid for SUSE Linux -       -       (211,468)   -    
  Cash received from SUSE Linux -       -       11,170   -    
  Cash paid for Salmon -       -       (8,470)   -    
  Cash received from Salmon -       -       3,148   -    
  Other 2,161   (3,319)   (51)   (3,599)
  Net cash used by investing activities (200,601)   (149,017)   (619,331)   (172,142)
Increase (decrease) in cash and cash equivalents (138,920)   (83,745)   67,786   (97,055)
Cash and cash equivalents – beginning of period 573,638   450,677   366,932   463,987
Cash and cash equivalents – end of period 434,718   366,932   434,718   366,932
Short-term investments – end of period 776,749   384,920   776,749   384,920
Cash and short-term investments – end of period $ 1,211,467   $   751,852   $ 1,211,467   $   751,852
Certain reclassifications, none of which affected net income, were made to the prior period amounts in order to conform to the current period's presentation.

 

Novell, Inc.
Unaudited Non-GAAP Adjusted Earnings Information
(In thousands, except per share data)

  GAAP
As Reported
Adjustments Non-GAAP
Adjusted
 
Fiscal year ended Oct 31, 2004  
Net revenue $   1,165,917 $  (13,500) (a) $ 1,152,417
Gross profit 750,238 (13,500) (a) 736,738
Income (loss) from operations 65,692 7,775 (b) 73,467
Income (loss) before taxes 74,974 6,580 (c) 81,554
Net income (loss) 57,188 5,417 (d) 62,605
Net income (loss) available to common stockholders 31,092 31,097 (e) 62,189
Diluted net income (loss) per common share $            0.08 $      (0.08) (e) $          0.16
Fiscal quarter ended October 31, 2004  
Net revenue $      300,657 $          -           $    300,657
Gross profit 190,252 -           190,252
Income (loss) from operations 14,612 8,916 (f) 23,528
Income (loss) before taxes 14,860 10,317 (g) 25,177
Net income (loss) 13,265 10,317 (h) 23,582
Net income (loss) available to common stockholders 13,140 10,317 (h) 23,457
Diluted net income (loss) per common share $            0.03 $         0.03 (h) $          0.06
Fiscal quarter ended July 31, 2004  
Net revenue $      304,597 $  (13,500) (a) $    291,097
Gross profit 200,641 (13,500) (a) 187,141
Income (loss) from operations 22,612 (4,070) (i) 18,542
Income (loss) before taxes 28,794 (8,561) (j) 20,233
Net income (loss) 23,405 (9,453) (k) 13,952
Net income (loss) available to common stockholders 23,216 (9,453) (k) 13,763
Diluted net income (loss) per common share $            0.06 $       (0.02) (k) $          0.04
Fiscal quarter ended October 31, 2003  
Net revenue $      286,749 $          -           $    286,749
Gross profit 185,412 -           185,412
Income (loss) from operations 19,532 8,962 (l) 28,494
Income (loss) before taxes 16,090 11,134 (m) 27,224
Net income (loss) (109,004) 128,062 (n) 19,058
Net income (loss) available to common stockholders (109,004) 128,062 (n) 19,058
Diluted net income (loss) per common share $          (0.29) $          0.34 (n) $          0.05

Footnotes related to adjustments:

  1. Reflects satisfaction of judgment against The Canopy Group, Inc. recorded as revenue of $13.5 million.
  2. Reflects the item in footnote (a), restructuring charges of $23 million, a gain on the sale of property, plant and equipment of $2 million and integration costs related to SUSE of $0.4 million.
  3. Reflects the items in footnotes (a) and (b), satisfaction of judgment against The Canopy Group, Inc. recorded as interest income of $5 million and net long-term investment impairments of $4 million.
  4. Reflects the items in footnotes (a), (b) and (c) and the necessary related tax adjustments.
  5. Reflects the items in footnotes (a), (b), (c) and (d) and a beneficial conversion feature of $25.7 million.
  6. Reflects restructuring reserves of $8.9 million.
  7. Reflects the item in footnote (f) and net long-term investment impairments of $1.4 million.
  8. Reflects the items in footnotes (f) and (g), for which there were no tax adjustments.
  9. Reflects the item in footnote (a), restructuring charges of $9.3 million and integration costs related to SUSE of $0.2 million.
  10. Reflects the items in footnotes (h) and (i), satisfaction of judgment against The Canopy Group, Inc. recorded as interest income of $5 million and long-term investment impairments of $0.6 million.
  11. Reflects the items in footnotes (a), (i) and (j) and the necessary related tax adjustments.
  12. Reflects restructuring reserves of $8.0 million and in-process R&D expense of $0.9 million.
  13. Reflects the items in footnote (l) and investment impairments of $2.2 million.
  14. Reflects the items in footnotes (l) and (m), the necessary related tax adjustments and a write down of deferred tax assets of $119 million.

Certain reclassifications, none of which affected net income, were made to the prior period amounts in order to conform to the current period's presentation.


Press Contacts

Bruce Lowry
Novell, Inc.
Telephone: 415-383-8408
Email: blowry@novell.com


Investor Relations Contact

Bill Smith
Novell, Inc.
Telephone: 800-317-3195
Email: wsmith@novell.com



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