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Novell Reports First Fiscal Quarter 1996 Results and Change in Distribution Sales Policy: Change to Negatively Impact Second Quarter |
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Orem, UT -- February 21, 1996 -- Novell, Inc. (NASDAQ:NOVL) today reported revenue of $438 million for its first fiscal quarter ended January 27, 1996, compared with $493 million in first-quarter 1995. Net income was $64 million, or $0.17 per share, compared with $82 million or $0.22 per share in the year-earlier quarter. Revenue from NetWare network operating system software totaled $228 million in the quarter. NetWare 4 revenue grew 80 percent from the year-earlier quarter to $131 million and contributed nearly 58 percent of total NetWare revenue. This growth was offset by a decline in NetWare 3 as customers continue their migration to the higher functionality of NetWare 4. GroupWise, Novell's electronic messaging and workgroup application, contributed $21 million in first-quarter 1996, a 39-percent increase from the year-ago quarter. Business applications products declined to $42 million from $126 million in the year-ago quarter. During the first-quarter Novell reduced its employment by 625 employees and incurred restructuring charges of $18 million for severance and redundant facilities as the company prepared for the sale of its personal productivity applications business. Excluding a $0.03 per share impact from these nonrecurring charges, first quarter earnings were $0.20 per share. Company-wide cost controls reduced total operating expenses by $40 million from fourth-quarter 1995 levels. As a result of these measures, income from operations, excluding nonrecurring charges, improved to $101 million in the first fiscal quarter, up 31 percent from $77 million in the fourth fiscal quarter 1995. Robert J. Frankenberg, chairman and CEO of Novell, said, "The positive results we achieved in our first quarter are based on having the right controls in place to tightly manage Novell's business as we took significant actions to refocus Novell to network software. We believe the steps taken position Novell to gain the full benefit of our network software leadership." On the balance sheet, cash generated from operations during the quarter was $27 million. Cash and short-term investments now total $1.2 billion, compared with $1.3 billion at October 28, 1995. Novell repurchased approximately 7 million shares of its common stock for $106 million during the first fiscal quarter. The company's Board of Directors authorized the repurchase of up to 37 million shares of common stock through October 1996. Distribution Stocking Policy Change Looking forward to its second fiscal quarter, Novell has decided to implement a change in its traditional distribution stocking policy that will significantly reduce revenue and earnings in that quarter. Because Novell is experiencing rapid growth in revenue from expanding multi-product network software licensing programs the company has decided to reduce and rebalance channel inventories to change the mix of product in the channel and better match evolving purchase patterns. "We are changing a long standing policy at Novell that over the years served our channel partners and customers well by maintaining worldwide availability for what at times were more than a thousand individual product configurations," said Frankenberg. "Over recent years Novell has developed and tested license programs to make it easier for our channel partners to combine Novell products into complete network solutions. Today, these license programs are fast becoming a preferred alternative for deploying network solutions." In 1996 these multi-product license programs are expected to account for more than 35 percent of total Novell product revenue, up from four percent of company revenue when they were launched in 1994. Since the 1980s, Novell has consistently maintained high channel inventories of packaged software products to guarantee product availability to customers. But,with an increasing proportion of revenue now derived from channel partner and customer license agreements,and OEM royalties, high levels of individual product inventories are no longer necessary. Channel partners and programs will continue as the primary way for customers to purchase Novell network solutions, but a declining percentage of this business will be from delivery of individual products in individual boxes. Novell intends to reduce product inventories by up to $225 million across its worldwide distribution channels in its second-quarter 1996. This reduction is expected to decrease second-quarter revenue by a corr! esponding amount and will likely result in a moderate loss in the quarter. The resetting of channel inventories is expected to have several positive effects. For Novell channel partners it will improve inventory turns and likely lead to increased profits. For Novell, it will help reduce cost-of-goods and lessen costs associated with channel promotions and the rotation of old product out of the channel as products are updated. The company believes the actions it is taking in quarter one and two will lead to a favorable outlook for improving earnings in the second half of the year. The above statements relating to Novell's change in distribution stocking policy are forward looking and involve a number of risks and uncertainties. "s such, actual results could materially differ from those we are projecting in these forward looking statements. Unanticipated declines in revenue due to competitive, market and general economic factors could limit the company's ability to gain the benefit of improved earnings resulting from its lowered cost structure. Novell's projections of increasing licensing revenue are based on historical trends which, should they reverse, would negatively impact growth projections of revenue and earnings. Further uncertainties are associated with any impact to our distribution channel resulting from this change in distribution stocking policy. Novell believes this action is in the best interests of its customers, channel partners and shareholders, but implementing this program may result in some short-term business interruption as our pa! rtners and customers work through this change. Novell, Inc. (NASDAQ: NOVL), is the world's leading networking software provider. Novell software provides the infrastructure for a networked world, enabling our customers to connect with other people and the information they need, anytime and anyplace. Novell partners with other technology and market leaders to help customers make networks a part of their everyday lives. ###
Press Contact:
Novell, Inc.
First Fiscal Quarter Ended
January 27, January 28,
1996 1995
Net sales $ 437,919 $ 493,225
Cost of sales 96,011 116,875
Gross profit 341,908 376,350
Operating expenses
Sales and marketing 123,465 139,803
Product development 78,633 89,817
General and administrative 38,538 33,970
Restructuring charges 18,442 --
Total operating expenses 259,078 263,590
Income from operations 82,830 112,760
Other income (expense)
Investment income 14,900 9,567
Other, net (2,150) 258
Other income, net 12,750 9,825
Income before income taxes 95,580 122,585
Income taxes 32,019 41,066
Net income $ 63,561 $ 81,519
Net income per share $ 0.17 $ 0.22
Weighted average shares
outstanding 371,585 372,027
Novell, Inc.
January 27, October 28,
1996 1995
ASSETS
Cash and short-term investments $1,247,924 $1,321,231
Receivables, net 518,027 470,437
Inventories 25,469 23,025
Prepaid expenses 46,641 50,576
Deferred income taxes 66,749 59,913
Total current assets 1,904,810 1,925,182
Property, plant and equipment, net 379,155 390,452
Other assets 71,299 101,196
Total assets $2,355,264 $2,416,830
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 78,471 $ 116,305
Accrued compensation 71,099 97,637
Accrued marketing liabilities 76,119 72,339
Other accrued liabilities 108,466 90,623
Income taxes payable 44,867 29,942
Deferred revenue 64,877 54,099
Total current liabilities 443,899 460,945
Minority interests 16,903 17,623
Shareholders' equity 1,894,462 1,938,262
Total liabilities and shareholder
equity $2,355,264 $2,416,830
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