SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
September 23, 2002
Date of Report (Date of earliest event reported):
NOVELL, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-13351 87-0393339
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
1800 South Novell Place
Provo, Utah 84606
(Address of principal executive offices)
(801) 429-7000
Registrant's telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
- ------------------------------------------------------------------------
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
(i) The consolidated financial statements of SilverStream as of December
31, 2001 and 2000 and for the year ended December 31, 2001, 2000,
and 1999, filed as exhibit 99.1 to this report.
(ii) The unaudited consolidated financial statements of SilverStream as
of March 31, 2002 and for the three months ended March 31, 2002,
filed as exhibit 99.2 to this report.
(b) Pro Forma Financial Information
NOVELL UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On July 19, 2002, Novell, Inc. acquired SilverStream, Inc. and
SilverStream became a wholly owned subsidiary of Novell. Under the merger
agreement Novell purchased each share of SilverStream common stock issued and
outstanding immediately prior to the effective date at a price of $9.00 per
share. Novell assumed all outstanding stock options and stock plans of
SilverStream. As of July 19, 2002, there were 23,427,448 shares of SilverStream
common stock issued and outstanding that were purchased by Novell and
15,005,466, converted, options assumed. The merger is being accounted for using
the purchase method of accounting. The Unaudited Pro Forma Combined Condensed
Financial Statements have been prepared on the basis of assumptions described
herein.
What these pro forma statements show
The unaudited pro forma combined condensed financial statements give
effect to the merger using the purchase method of accounting. The unaudited pro
forma combined condensed statement of operations for the year ended October 31,
2001 and the nine months ended July 31, 2002 assume the merger took place on
November 1, 2000.
The unaudited pro forma combined condensed statement of operations for
the year ended October 31, 2001 combine Novell's historical results of
operations for the year ended October 31, 2001 with SilverStream's historical
results of operations for the year ended December 31, 2001. Additionally, the
combined condensed statement of operations for the year ended October 31, 2001
includes historical results of operations for Cambridge Technology Partners,
Inc. ("Cambridge") for the nine months ended June 30, 2001. The Company acquired
Cambridge on July 11, 2001 and has included Cambridge operating results in its
statement of operations beginning July 11, 2001. Information regarding the
Cambridge acquisition can be found in the Company's filing on Form 8-K dated
July 24, 2001.
The unaudited pro forma combined condensed statement of operations for
the nine months ended July 31, 2002 combine Novell's historical results of
operations for the nine months ended July 31, 2002 with SilverStream's
historical results of operations for the nine months ended June 30, 2002.
An unaudited pro forma combined condensed balance sheet has not been
included as the actual unaudited combined balance sheet has been filed as part
of Novell's third quarter 2002 report on Form 10-Q, filed on September 16, 2002.
Basis of Presentation
The unaudited pro forma combined condensed financial statements reflect
the SilverStream merger accounted for using the purchase method of accounting
and have been prepared on the basis of assumptions described in the notes
thereto, including assumptions relating to the allocation of the amount of
consideration paid to the assets and liabilities of SilverStream based upon
preliminary estimates of their fair value.
Purchased In-Process Research and Development
In connection with the merger, the Company incurred a charge of
approximately $3.0 million related to in-process research and development. The
Unaudited Pro Forma Combined Condensed Financial Statements do not reflect this
charge. The charge related to in-process research and development was reflected
in Novell's consolidated financial statements filed as a part of its quarterly
filing on Form 10Q on July 16, 2002
Merger Charges
Novell expects to incur liabilities for the estimated costs to be
incurred as a result of the merger, including costs resulting from vacating
duplicate SilverStream facilities and reducing headcount. These liabilities are
included as part of the allocation of the purchase price. The unaudited pro
forma combined condensed statements of operations do not reflect these charges
because they are non-recurring. These charges have been included in the third
quarter fiscal 2002 financial statements filed on Form 10-Q on September 16,
2002, and will be reflected in Novell's fiscal 2002 consolidated financial
statements. The third quarter fiscal 2002 financial statements filed on Form
10-Q also include costs of integration, which will affect future operations.
These pro forma unaudited combined condensed statements of operations
should be read with each company's financial statements
The unaudited pro forma combined condensed financial statements of
operations should be read in conjunction with the related notes included herein
in this Current Report on Form 8-K and the consolidated audited and consolidated
condensed unaudited financial statements of Novell previously filed with the
Securities and Exchange Commission, and the consolidated audited and unaudited
financial statements of SilverStream included in this Current Report on Form
8-K. The unaudited pro forma combined condensed statements of operations are not
necessarily indicative of what the actual results of operations would have been
had the SilverStream merger taken place on November 1, 2000 and are not
indicative of future results of operations.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Nine Months Ended July 31, 2002
(in thousands, except per share amounts)
Historical Pro Forma Pro Forma
Novell SilverStream Adjustments Combined
Net sales.......................................... $ 833,985 $ 27,855 $ -- $ 861,840
Cost of sales...................................... 340,219 16,532 841 (a)
576 (b)
656 (c)
8,059 (f) 366,883
----------- ---------- --------------- -------
Gross profit....................................... 493,766 11,323 (10,132) 494,957
Operating expenses:
Sales and marketing........................... 261,660 26,635 111 (a)
665 (b)
87 (c) 289,158
Product development........................... 122,976 14,163 1,338 (a)
517 (b)
1,044 (c) 140,038
General and administrative.................... 90,946 9,828 29 (a)
(1,758) (b)
23 (c) 99,068
Goodwill amortization / impairment............ -- 37,908 (3,065) (e) 34,843
Stock options................................. -- 2,319 (2,319) (a) --
Restructuring charge.......................... 19,100 1,470 -- 20,570
----------- ---------- ---------- ----------
Total operating expenses.................. 494,682 92,323 (3,328) 583,677
----------- ---------- --------- ----------
Income (loss) from operations...................... (916) (81,000) (6,804) (88,720)
Other income (expense), net........................ (698) 1,760 -- 1,062
------------ ---------- ---------- ----------
Income (loss) before taxes......................... (1,614) (79,240) (6,804) (87,658)
Income tax expense (benefit)....................... 6,835 -- (2,608)(g) 4,227
----------- ---------- --------------- ----------
Income (loss) before cumulative effect of
change in accounting principle............ $ (8,449) $ (79,240) $ (4,196) $ (91,885)
============ =========== =========== ===========
Weighted average shares outstanding:
Basic......................................... 363,131 363,131
Diluted....................................... 363,131 363,131
Income (loss) per share, before cumulative effect
of change in accounting principle:
Basic......................................... $ (0.02) $ (0.25)
=========== ===========
Diluted....................................... $ (0.02) $ (0.25)
=========== ===========
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended October 31, 2001
(in thousands, except per share amounts)
Historical Pro Forma Pro Forma
Novell Cambridge SilverStream Adjustments Combined
Net sales.................................... $1,040,097 $ 345,538 $ 67,935 $ -- $1,453,570
Cost of sales....................................327,935 214,974 43,408 1,121 (a)
1,086 (b)
875 (c)
10,746 (f)
90,780 (h) 690,925
----------- ---------- ---------- ------------- ----------
Gross profit.................................. 712,162 130,564 24,527 (104,608) 762,645
Operating expenses:
Sales and marketing................... ..... 443,828 52,148 44,615 149 (a)
1,219 (b)
116 (c)
. 750 (h) 542,825
Product development................... ..... 191,709 -- 19,431 1,784 (a)
861 (b)
1,392 (c) 215,177
General and administrative............ ..... 117,261 160,927 16,003 39 (a)
(3,166) (b)
30 (c)
(91,530) (h) 199,564
Goodwill amortization / impairment............ -- -- 53,002 (18,159) (e) 34,843
Stock options................................. -- -- 3,093 (3,093) (a) --
Restructuring charge.........................80,177 26,000 10,658 (2,100) (d) 114,735
------ ---------- ---------- -------------- ----------
Total operating expenses.................832,975 239,075 146,802 (111,708) 1,107,144
-------- ----------- ---------- --------- -----------
Income (loss) from operations................... (120,813) (108,511) (122,275) 7,100 (344,499)
Other income (expense)..................... (155,953) (3,555) 7,091 (2,100)(d) (154,517)
--------- ---------- ---------- ------------- ----------
Income (loss) before taxes...................... (276,766) (112,066) (115,184) 5,000 (499,016)
Income tax expense (benefit)..................... (14,944) (39,223) -- (3,477)(g) (57,644)
-------- ------------ ----------- ------------- -----------
Income (loss) before cumulative effect of
change in accounting principle............ $ (261,822) $ (72,843) $ (115,184) $ 8,477 $ (441,372)
============ =========== =========== ======== ============
Weighted average shares outstanding:
Basic....................................... 332,582 28,293 (i) 360,875
Diluted..................................... 332,582 28,293 (i) 360,875
Net income (loss) per share before cumulative
effect of change in accounting principle:
Basic................................... $ (0.79) $ (1.22)
=========== ===========
Diluted...................................$ (0.79) $ (1.22)
=========== ===========
1. Basis of Presentation
The unaudited pro forma combined condensed statements of operations
give effect to Novell's acquisition of SilverStream through a merger and
purchase of outstanding SilverStream shares. The merger is being accounted for
using the purchase method of accounting. The unaudited pro forma combined
condensed financial statements have been prepared on the basis of assumptions
described in the following notes and include assumptions relating to the
allocation of the consideration paid for the assets and liabilities of
SilverStream based on estimated fair value. The final allocation of the purchase
price may differ from the preliminary allocations. In the opinion of management,
all adjustments necessary for a fair presentation of such unaudited pro forma
combined financial statements have been made based on the terms and structure of
the merger.
The unaudited pro forma combined condensed statement of operations for
the nine month period ended July 31, 2002 includes the results for Novell for
the nine month period ended July 31, 2002 and the results for SilverStream for
the nine month period ended June 30, 2001. The unaudited pro forma combined
condensed statement of operations for the year ended October 31, 2001 includes
the results for Novell for the year ended October 31, 2001 and the results for
SilverStream for the year ended December 31, 2001. Additionally, the combined
condensed statement of operations for the year ended October 31, 2001 include
historical results of operations for Cambridge Technology Partners, Inc.
("Cambridge") for the nine months ended June 30, 2001. The Company acquired
Cambridge on July 11, 2001 and has included Cambridge operating results in its
statement of operations beginning July 11, 2001. Information regarding the
Cambridge acquisition can be found in the Company's filing on Form 8-K dated
July 24, 2001. The pro forma combined condensed financial statements assume the
acquisition of SilverStream occurred on November 1, 2000.
For the year ended October 31, 2001 and for the nine months ended July
31, 2002, the pro forma net loss per share and loss per share before cumulative
effect of accounting change, respectively, is based on the weighed average
number of shares of Novell common stock outstanding during each period plus, for
diluted earnings per share, the dilutive effect of SilverStream options assumed
had the merger occurred on November 1, 2000.
In connection with the merger, the Company has incurred a charge of
approximately $3.0 million related to in-process research and development, which
was not included in these unaudited pro forma combined condensed financial
statements of operations. The charge related to in-process research and
development was reflected in Novell's consolidated financial statements included
in its third quarter fiscal 2002 filing on Form 10-Q filed on September 16,
2002. The consolidated financial statements filed as a part of its third quarter
fiscal 2002 also included costs of integration, which will affect future
operations.
The pro forma adjustments are preliminary and based on management's
estimates. Based on the finalization of the integration plans and other factors,
final adjustments may differ materially from those presented in these pro forma
statements of operations. These unaudited pro forma combined condensed
consolidated statements of operations should be read in conjunction with the
historical annual and interim financial statements of Novell previously filed
with the Securities and Exchange Commission and annual and interim financial
statements of SilverStream included in this Current Report on Form 8-K.
An unaudited pro forma combined condensed balance sheet has not been
included, as the actual unaudited combined balance sheet has been filed as part
of Novell's third quarter 2002 report on Form 10-Q, filed on September 16, 2002.
2. Purchase Price Allocation
Pursuant to the terms of an Agreement and Plan of Merger, dated as of
June 9, 2002 by and among Novell, Delaware Planet, Inc., a wholly owned
subsidiary of Novell, and SilverStream Software, Inc., a Delaware corporation
("SilverStream"), Delaware Planet commenced a cash tender offer on June 18, 2002
to acquire all of the outstanding shares of SilverStream common stock at a price
of $9.00 per share. On July 17, 2002, Delaware Planet announced the completion
of its cash tender offer, pursuant to which it purchased almost all outstanding
shares of SilverStream common stock at a price of $9.00 per share. On July 19,
2002, Novell completed its acquisition of SilverStream by merging Delaware
Planet into SilverStream on July 19, 2002. As a result of the merger, each share
of SilverStream common stock that was not tendered in the tender offer now
represents the right to receive $9.00 in cash, without interest.
SilverStream provides software products and services that enable
organizations to more effectively conduct business using the Web. SilverStream's
products and services leverage the power of standards such as Java and XML to
unify relevant information and services while enabling businesses to leverage
prior technology investments. They also help customers rapidly deliver Web-based
applications that are scalable, reliable and secure. The Company acquired
SilverStream to enhance its current Web services product and service offerings,
and further its development in this area.
At the closing date of the merger, there were 23,427,448 shares of
SilverStream outstanding resulting in a total cash acquisition price of $210.8
million. Direct transaction costs are estimated to be $4.0 million and
SilverStream stock options assumed, both vested and unvested, totaled $28.6
million.
With respect to stock options assumed as a part of the merger, all
SilverStream options, vested and unvested, were exchanged for Novell options
with the same terms and vesting characteristics. The fair value of these options
was included in the acquisition purchase price. The portion of the intrinsic
value of unvested options that will be earned over the remaining vesting period
of those options has been deducted from the fair value of these unvested
options. This deferred compensation will be amortized over that remaining
vesting period of approximately two years, in accordance with Financial
Accounting Standards Board Interpretation Number 44 ("FIN 44"). In total,
options to purchase 4.9 million shares of SilverStream common stock were
converted into options to purchase 15.0 million shares of Novell stock issued
using a conversion ratio of 3.0518 per share.
The fair value of the options was determined using the Black-Scholes
model using the following assumptions:
o Fair market value of the underlying shares was based on the
average closing price of Novell's common stock on June 10, 2002
and the three days prior and subsequent to that date.
o Expected life of 2-5 years
o Expected volatility of 80%
o Risk free interest rate of 5%
o Expected dividend rate of 0%
The value of the acquisition was preliminarily allocated as follows (in
thousands):
Estimated
Acquisition Cost Asset Life (in years)
Adjusted net tangible assets acquired $ 97,833 N/A
Deferred compensation 4,826 2 years
Purchased in-process research and development 3,000 expensed in the third quarter of fiscal 2002
Developed technology 19,800 3 years
Trademarks / trade names 2,200 indefinite life
Goodwill 115,771 N/A
-----------
$ 243,430
The above purchase price allocation will be adjusted over the next twelve
months as integration plans are finalized, as allowed by Statements of Financial
Accounting Standards ("SFAS") No. 141, Business Combinations. There are no
outstanding contingencies that could affect the allocation.
Goodwill from the acquisition resulted from the Company's belief that the
technology SilverStream had developed was valuable to its Web services strategy.
The Company also believes it was more beneficial to acquire such technology
rather than develop it in-house. The goodwill from the SilverStream acquisition
has been allocated to the Company's product segment as the eXtend product suite
will be included with the Net Directory Services group of products. In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," issued by
the Financial Accounting Standards Board ("FASB") in June 2001, the Company will
not amortize the goodwill or intangibles with indefinite lives associated with
this acquisition. The Company will review these assets periodically for
potential impairment issues. Goodwill is not deductible for tax purposes.
Net tangible assets of SilverStream consisted mainly of cash and cash
equivalents, accounts receivable, fixed assets, accounts payable, and other
liabilities.
The value of deferred compensation of approximately $4.8 million
represents the intrinsic value of the unvested options assumed by Novell and was
determined under the guidance of FIN 44.
The $3.0 million of in-process research and development pertains to
acquired research and development on the eXtend line of products that are not
currently technologically feasible, meaning they have not reached the working
model stage and do not contain all of the major functions planned for the
product nor are they ready for initial customer testing. The estimated amount of
the in-process research and development charge represents a preliminary estimate
and represents technology related to replacement and enhancement to be included
in the next versions of the SilverStream's eXtend product line. Shortly before
the acquisition, SilverStream released its latest version of each of its
products in the eXtend line: Application Server, Composer, Workbench, and
Director. Therefore, there was minimal research and development in process.
In-process research and development was valued based on discounting forecasted
cash flows directly from the related products. Completion of development on the
future upgrades of these products is dependant upon the Company delivering on
its web services strategy and successfully integrating SilverStream. The
in-process research and development does not have any alternative future use and
did not otherwise qualify for capitalization.
To determine the value of the developed technology, the expected future
cash flow attributable to the existing product technology, the family of eXtend
products which are currently shipping and can be combined with Novell products
or services, was discounted, taking into account risks associated with these
assets relative to the in-process research and development. The analysis
resulted in a valuation of approximately $19.8 million for developed technology,
which has reached technological feasibility.
The value of trademarks and trade names was determined based on
assigning a royalty rate to the revenue streams that were expected to leverage
the eXtend trade names. The royalty rate was determined based on trade name
recognition, marketing support and contribution of the trade name's value
relative to the revenue drivers. The pre-tax royalty rates of 0.5 percent to the
product revenues were then discounted to a present value, resulting in a
valuation of approximately $2.2 million. 3. Pro Forma Adjustments
Novell and SilverStream had certain accounting policies and procedures
that differed. These differences primarily related to classification of assets,
liabilities and certain line items in the liabilities and statement of
operations line items. The following pro forma adjustments include entries to
account for the acquisition and to conform the two companies' accounting
policies:
(a) To reflect the reclassification of deferred compensation amortization
related to restricted stock to cost of sales, sales and marketing,
product development, and general and administrative expenses to conform
to Novell's presentation.
(b) To reflect the reclassification of certain SilverStream operating costs
from general and administrative costs to cost of sales, sales and
marketing, and product development expenses to conform to Novell's
presentation.
(c) To record the amortization related to unearned stock compensation costs
for unvested options assumed.
(d) To reflect the reclassification of investment impairment from operating
costs to other income (expense), net to conform to Novell's
presentation.
(e) To eliminate goodwill amortization based on adoption of Financial
Accounting SFAS No. 142 effective November 1, 2001.
(f) To record the amortization related to acquired developed technology.
(g) To adjust income tax expense based on deductible pro forma adjustments.
(h) To reflect the reclassification of certain Cambridge operating costs
from general and administrative costs to cost of sales and sales and
marketing expenses to conform to Novell's presentation.
(i) To reflect the issuance Novell common stock for the acquisition of
Cambridge as of November 1, 2000.
(c) Exhibits
Exhibit
Number Description
2.1 Agreement and Plan of Reorganization, dated as of June 9,
2002, by and among Novell, Inc., SilverStream, Inc.,
incorporated by reference to Exhibit 2.1 of Novell's filing
on Form 8-K dated June 10, 2002.
23.1 Consent of Ernst & Young LLP, Independent Accountants.
99.1 The consolidated financial statements of SilverStream as of
December 31, 2001 and 2000 and for the years ended December
31, 2001, 2000 and 1999.
99.2 The unaudited consolidated financial statements of
SilverStream as of March 31, 2002 and for the three months
ended March 31, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 23, 2002 NOVELL, INC.
/s/ Joseph A. LaSala
--------------------
Joseph A. LaSala
General Counsel
INDEX TO EXHIBITS
Exhibit
Number Description of Document
2.2 Agreement and Plan of Reorganization, dated as of June 9, 2002, by
and among Novell, Inc., SilverStream, Inc., incorporated by reference
to Exhibit 2.1 of Novell's filing on Form 8-K dated June 10, 2002.
23.1 Consent of Ernst & Young LLP, Independent Accountants.
99.1 The consolidated financial statements of SilverStream as of December
31, 2001 and 2000 and for the years ended December 31, 2001, 2000
and 1999.
99.2 The unaudited consolidated financial statements of SilverStream as of
March 31, 2002 and for the three months ended March 31, 2002.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 33-14531, 33-54483, 33-64998, 33-65440, 33-68336, 333-04775,
333-04823, 333-62087, 333-62103, 333-95409, 333-41328, 333-71502, and 333-97713)
and in the related Prospectuses of Novell, Inc. of our report dated February 12,
2002, with respect to the consolidated financial statements of SilverStream
Software, Inc. for the years ended December 31, 2001, 2000, and 1999 included in
this Current Report on Form 8-K of Novell, Inc. dated September 23, 2002.
/s/ Ernst & Young
Boston, Massachusetts
September 16, 2002