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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 0-13351
NOVELL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0393339
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
122 EAST 1700 SOUTH
PROVO, UTAH 84606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(801) 861-7000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
nonaffiliates on December 31, 1999 (based on the last reported price of the
Common Stock on the NASDAQ National Market System on such date) was
$12,991,771,310.
As of December 31, 1999 there were 326,533,928 shares of the Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Annual Report to Shareholders for the fiscal year
ended October 31, 1999, are incorporated by reference in Parts II and IV of this
Form 10-K to the extent stated herein. Portions of Registrant's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on April 11, 2000,
are incorporated by reference in Part III of this Form 10-K to the extent stated
herein.
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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 sections below entitled "Competition" and "Additional Factors
Affecting Earnings and Stock Price." 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 2000. All period references are to the
Company's fiscal years ended October 31, 1999, 1998, and 1997, unless otherwise
indicated.
ITEM 1. BUSINESS
THE COMPANY
Novell is a leading provider of network and Internet directory software and
services. Novell Internet solutions make networks more manageable and secure,
integrating the complete range of computer platforms, applications, services and
devices, and they reduce the total cost of ownership for organizations of every
kind and size. Novell's worldwide channel, developer, education, consulting and
technical support programs are among the most extensive in the network computing
industry.
The Company was incorporated in Delaware on January 25, 1983. Novell's
executive offices are located at 122 East 1700 South, Provo, Utah 84606. Its
telephone number at that address is (801) 861-7000.
The Company markets its products through 38 U.S. and 64 international sales
offices. The Company sells its products to end users through licensing
agreements as well as through distributors and national retail chains, who in
turn sell the Company's products to retail dealers. The Company also sells its
products to OEMs, system integrators, and value added resellers (VARs).
The Company primarily conducts product development activities in San Jose,
California; Provo and Orem, Utah, 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 software
applications which leverage network capabilities and capitalize on the growth of
the Internet. With products like NetWare 5 and Novell Directory Services (NDS),
Novell continues to expand in Internet directory products based on open
standards. The Company's education and training, service and support, and
consulting areas continued to grow as the Company retained its position of being
the leading expert in providing these services.
In fiscal 1999, the Company continued its focus on delivering new products
consistent with its strategy and enjoyed the benefits of a lower cost and
restructured organization. The results were significant. The Company delivered a
number of new applications, utilizing directory technology, which robustly
captures the benefits of networking and the Internet. New software delivery
technologies have enabled the Company to continue its shift from heavy reliance
on physical distribution of product toward lower cost licensing agreements.
Indirect distribution channel product shipments, which includes revenue from
individually boxed products sold by computer resellers and systems integrators,
education materials, and support and consulting services not included in
site-license contracts, accounted for only approximately one-third of total
revenue in 1999.
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Fiscal 1999 also saw a continued growth in earnings, incrementally every
quarter. Through operational control, rigorous business practices, and improved
internal management systems, expense structures were reduced as a percentage of
revenue and moved closer to leading software company benchmarks. These expense
controls were complemented by sequential revenue growth each quarter of fiscal
1999.
BUSINESS STRATEGY
Novell provides standards-based network software for intranets and the
Internet. The Internet has accelerated the pace at which networks are becoming a
strategic asset for business, becoming the primary provider of a vast range of
services essential to business including personal communications, publishing of
information, supply chain management and electronic transactions. Novell
provides network software to make these services available to network users
wherever and whenever they are needed, more quickly and at a lower cost than
ever before. The Company's network solutions enable businesses to protect and
expand their investments in these services in an increasingly networked world.
Novell's network solutions provide essential network management, messaging
and groupware capabilities integrated through Novell's industry leading
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.
Novell has oriented all of its products to Internet standards, enabling
customers to increase the performance of traditional local and wide area
networks. Today, businesses are rapidly developing corporate intranets that
leverage the broad range of capabilities of the Internet.
TECHNOLOGIES
Establishing Novell Directory Services as a de facto industry
standard. Novell Directory Services (NDS) is a key part of Novell's strategy for
providing unique value in business intranets and the Internet. NDS can maintain
a replicated database of users, network equipment, computer systems,
applications, files and other network resources. It provides distributed access
control that can be centrally administered, security, management and
administration of information resources across computer networks. NDS is
integrated with the company's NetWare 4 and 5 server operating systems and
Novell also provides NDS for NT that integrates with Microsoft's Windows NT, and
NDS for Solaris and others that integrate with various other operating systems.
NDS provides full support for Internet protocols, including the lightweight
directory access protocol (LDAP). With NDS on leading server platforms, Novell
and its partners will provide value-added network services software that uses
the directory as a foundation. Novell's ZENworks is an example. ZENworks allows
customers to manage desktops throughout their network from Novell's directory.
ZENworks has become one of Novell's fastest growing products.
Netware 5. In 1998, Novell released Netware 5, a major update to its
networking platform. Netware 5 includes a new microkernel, support for
record-breaking Java server-side execution, a next generation file system, and
Novell Distributed Print Services. Netware 5 joined Netware 4.2 and Netware 3.2
as Year 2000 ready solutions for Novell customers.
Providing Novell Directory Services for the Internet. Novell's
BorderManager product leverages NDS to authenticate trusted users and provide
them with remote access and Virtual Private Networking (VPN) services across
BorderManager's firewall. BorderManager also accelerates web page access across
the Internet through its very fast caching technology. By using the cache in
reverse mode, in front of a web server, about 10,000 web hits per second can be
accommodated.
Providing value-added network services software for business intranets and
the Internet. Novell delivers network services that run on a company's NetWare
network operating system for business intranets and the Internet. These network
services add value to the network by reducing costs of ownership and
administration, simplifying management tasks for administrators, and making
access to network-based information easier for end users. In the first release
of NetWare, network services encompassed only file and print. Over the past
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decade, network services provided by Novell have expanded to include host
communications, network management, collaboration and messaging, Web services,
security, and advanced file and print.
Providing network applications for network solutions. GroupWise is Novell's
leading network application for end users, providing electronic mail,
calendaring, scheduling, and task and document management features. In 1998, the
Company expanded the functionality of GroupWise by including extended document
management capabilities and web publishing features. ManageWise is the leading
management software offering for managing all network resources from the servers
that run NetWare and NT server operating systems to the clients, computers, and
other devices that access information resources. To provide complete network
management solutions, ManageWise integrates with leading enterprise management
products.
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. CNEs are individuals who receive high-level training,
information, and advanced technical telephone support (Level II) from Novell.
CNEs may be employed by resellers, independent support organizations, or Novell
Support Organizations (NSOs). The NSO program pools the capabilities of the
industry's best support providers. NSOs have contractual agreements with Novell
that are designed to ensure quality service on a national or global level for
NetWare and other Novell products.
Novell Authorized Education Centers. Novell offers education to end users
through nearly 1,300 independent Novell Authorized Education Centers (NAECs)
worldwide, which use Novell-developed courses to instruct students in the use
and maintenance of Novell products. Novell also offers self-paced training
products.
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 networks 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, DEC and HP,
as well as system integration experts like Memorex Telex, Arthur Andersen, and
EDS.
Application Partners. Novell works closely with application developers to
provide integrated software products and support for end users. As network
applications 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 Whittman-Hart, Inc., 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 Whittman-Hart in exchange for shares
of Whittman-Hart's common stock. In addition, the
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companies agreed to jointly develop customized NDS solutions for mid-sized
businesses. Further, Whittman-Hart agreed to establish a "Solutions Development
Center" to train employees in regard to these solutions and demonstrate them to
customers, and Whittman-Hart 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.
NOVELL PRODUCTS
The Company's products work together, interoperate with thousands of
third-party solutions, and span data networks from workgroup LANs to the
Internet.
Directory-Enabled Server Operating Systems, or Net Services Software
Novell is known for delivering proven network reliability, scalability,
performance, and security, backed by the largest support infrastructure in the
world -- delivering up to 23 days a year more server uptime for users. Products
include: NetWare 5, NetWare for Small Business, and NetWare 4.
Directory-enabled Applications
Network Infrastructure -- The directory enables businesses to manage their
entire heterogeneous network as a single, unified entity, all from a centralized
location. Tasks that used to take hours can now be done in a few minutes.
Products include: Novell Directory Services (NDS), NDS for NT, and NDS for
Solaris.
Novell can help expand networks to branch offices, into intranets, and the
Internet to get the most out of networks. But more importantly, Novell products
can keep these connections fast and secure. Products include: BorderManager,
NetScape Servers for NetWare, intraNetWare HostPublisher, Host Connectivity, and
High Availability Servers.
Management -- Novell's management tools allow businesses to control and
administer most aspects of their network from one central site. Network
administrators can change users, perform routine administration duties, and even
roll out software to users. Products include: ManageWise, ZENworks, and
ConsoleOne.
Collaboration -- One of the best assets a company has is the collective
knowledge of its employees. Novell's products are designed to allow users to
share files, send e-mails, manage documents and publish documents to the
Internet so as to enable a company to leverage the collective knowledge of its
employees. Products include: GroupWise, GroupWise WebPublisher, NetWare NFS
Services, Replication Services, and Novell Distributed Print Services.
PRODUCT DEVELOPMENT
Due to the rapid pace of technological change in its industry, the Company
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.
During fiscal 1999, 1998, and 1997, product development expenses were
approximately $228 million, $236 million and $301 million, respectively. The
Company's product development effort consists primarily of work performed by
employees; however, the Company also utilizes third-party technology partners to
assist with product development.
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SALES AND MARKETING
Novell markets its networking 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 37 U.S. and 64 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, 1999, there were approximately 10 U.S. distributors
and approximately 120 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.
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 1,100 of them to date. Additionally, some upgrade
products are sold directly to end users. Customers can also purchase a few
limited products and services through Novell's commercial website, "Shop
Novell", or be directed to a Dealer, and or Reseller near their geographic
location.
International Sales. In fiscal 1999, 1998, and 1997, approximately 45%,
42%, and 44%, respectively, of the Company's net sales were to customers outside
the U.S. To date, substantially all international sales except Japanese sales,
Indian sales, and certain European sales to non-multinational distributors that
were shipped from its distribution center in Dublin, Ireland have been invoiced
by the Company in U.S. dollars. In fiscal 2000, the Company anticipates that a
large portion of international revenues will continue to be invoiced in U.S.
dollars. The exceptions to the U.S. dollar invoicing will be Japanese sales
through the Company's joint venture in Japan, Indian 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, 1998 and 1997, the Company had one multinational
distributor, which accounted for 11%, 15% and 11% of revenue, respectively.
Otherwise, no customer accounted for more than 10% of revenue in any period.
Marketing. The Company's marketing activities include distribution of sales
literature and 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 many 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 networks 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 on Novell networks. Thousands of multiuser application
software packages are now compatible with the NetWare operating system. In March
1999, the fourteenth 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.
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CUSTOMER SERVICES
Novell's Customer Services is composed of Technical Services, Education and
Consulting Services. The Technical Services Group has an established
infrastructure worldwide with support centers in the United States, Europe and
Asia. These centers are World Class and have established quality standards with
ISO 9001 certification around the world. Novell Technical Services offers a wide
variety of flexible support offerings.
Novell Education is the pioneer in the networking certification arena.
Novell Education has issued over 580,000 certifications at its customer and
partner sites around the world. Novell education continues to pioneer the
certification process with new programs focused on Novell's Directory and on the
Internet, we now offer a Certified Directory Engineer (CDE) certification
program. 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 intranet, and e-Business. Consulting also
delivers expertise in design, planning, and implementation of the traditional
Novell award-winning products.
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.
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, 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 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 operating systems. 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
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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 nor 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, the unsatisfactory resolution of which 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.
EMPLOYEES
As of December 31, 1999, the Company had 5,629 employees. The functional
distribution of its employees was: sales and marketing -- 1,755; product
development -- 1,676; general and administrative -- 819; service, support,
education, and operations -- 1,379. Of these, 1,757 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 and in some cases its consultants, 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 EARNINGS AND STOCK PRICE
In addition to factors described above under "Competition" which may
adversely affect the Company's earnings and stock price, other factors may also
adversely affect the Company's earnings and stock price. 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 product development efforts.
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
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"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.
Another goal of the Company is to achieve widespread acceptance and
adoption of Novell's Directory Services (NDS) and the products and applications
that take advantage of directory services. The Company's ability to achieve
success with NDS is dependent on a number of factors including but not limited
to the following: development of key 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 NDS.
The Company's future earnings and stock price could be subject to
significant volatility, particularly on a quarterly basis. The Company's
revenues and earnings may be unpredictable due to its shipment patterns. As is
typical in the software industry, a high percentage of the Company's revenues
are expected to be earned in the third month of each fiscal quarter and will
tend to be concentrated in the latter half of that month. Accordingly, quarterly
financial results will be difficult to predict and quarterly financial results
may fall short of anticipated levels. Because the Company's backlog early in a
quarter will not generally be large enough to assure that it will meet its
revenue targets for any particular quarter, quarterly results may be difficult
to predict until the end of the quarter. A shortfall in shipments at the end of
any particular quarter may cause the results of that quarter to fall
significantly short of anticipated levels. 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. The past pattern of new product introductions has
caused revenues to fluctuate, sometimes significantly, on a quarter-by-quarter
basis. Such revenue fluctuations may 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.
There is also a substantial risk that Novell will be sued for issues or
problems associated with the Year 2000. While Novell has not yet been sued and
has made substantial efforts in assuring its shipping products and the products
it is currently utilizing internally conform to appropriate Year 2000 design
parameters, there can be no assurance that third party claims will not be
asserted or, if asserted, would be resolved in a manner satisfactory to Novell.
For further discussion of the Company's Year 2000 risks, please refer to the
"Future Results" section of "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 15 through 17 of the Company's
Annual Report to Shareholders for the fiscal year ended October 31, 1999.
9
10
ITEM 2. PROPERTIES
The Company owns and occupies a 1,000,000 square-foot office complex on 99
acres in Orem, Utah, which is used as a product development center and
administrative offices, of which approximately 400,000 square-feet is leased to
various tenants. It also owns and occupies a 500,000 square-foot office complex,
with plans to expand the complex by up to 400,000 square-feet in fiscal 2000, 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 219,000 square-feet is subleased to various
tenants. It also owns a 380,000 square-foot manufacturing and distribution
facility on 23 acres in Lindon, Utah, all of which is leased to a third party
manufacturer. The Company also owns a 100,000 square-foot office building in
Herndon, Virginia. The Company occupies approximately 20,000 square-feet of the
space in this building and leases the remainder to tenants. The Company also has
an Irish subsidiary, which owns a 72,000 square-foot office building in the
United Kingdom and leases the building to the Company's United Kingdom
subsidiary. The Company also has the capacity to expand on its land in San Jose,
California, and in Provo and Orem, Utah.
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, Korea,
Mexico, Netherlands, New Zealand, Norway, Panama, Peru, Poland, Portugal, Puerto
Rico, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United
Kingdom, Uruguay, and Venezuela -- each of which leases its facilities.
The Company leases sales and support offices in Arizona, California (5),
Colorado, Connecticut, Florida (2), Georgia, Illinois, Massachusetts, Michigan,
Minnesota, Missouri (2), New York (2), Ohio (3), Oregon, Pennsylvania (2),
Tennessee, Texas (4), Utah, Washington, China, Malaysia, Russia, Taiwan,
Thailand, and United Arab Emirates. The Company also leases an office in
Berkeley Heights, New Jersey.
The terms of such 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 case is
in its preliminary stages. Novell believes that the case is without merit and
intends to defend vigorously 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.
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.
10
11
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, titles with Novell, and present and
past positions of the persons currently serving as executive officers of Novell.
HAS BEEN
OFFICER
NAME AGE SINCE POSITION OR OFFICE
---- --- -------- ------------------
Eric E. Schmidt........... 44 1997 Chairman of the Board and Chief Executive Officer
Ronald E. Heinz, Jr. ..... 41 1996 Senior Vice President, Worldwide Sales
Stewart G. Nelson......... 39 1997 Senior Vice President, Products & Marketing
Richard A. Nortz.......... 55 1997 Senior Vice President, Customer Services
Dennis R. Raney........... 57 1998 Senior Vice President, Chief Financial Officer
(Chief Accounting Officer)
Eric E. Schmidt joined the Company in March 1997 and became Chairman of the
Board and Chief Executive Officer in April 1997. Prior to joining Novell, he
served as Chief Technology Officer and Corporate Executive Officer at Sun
Microsystems, Inc. (Sun). In his 14 years at Sun, he held a range of
progressively more responsible executive positions.
Ronald E. Heinz, Jr. joined the Company in February 1989 and has served in
various sales and marketing positions including Vice President, North America
and Latin America Sales and Marketing. In January 1997 he became Senior Vice
President, Worldwide Sales and was elected a corporate officer.
Stewart G. Nelson joined the Company in June 1994 through the WordPerfect
merger and has served in various product development positions. In October 1997,
he was elected a corporate officer, in June 1998 he became Senior Vice President
of Product Development, and in November 1999 he was named as Senior Vice
President, Marketing and Products. Prior to joining Novell, he held various
product development positions at WordPerfect from 1987 to 1994.
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. 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.
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. Prior to joining Novell, he was the Chief
Financial Officer at QAD, Inc., an enterprise planning company. He also held
Chief Financial Officer positions at General Magic and California Microwave. In
addition, he was also 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.
11
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 of Form 10-K is incorporated herein by
reference to the information contained in the section captioned "Selected
Consolidated Quarterly Financial Data" on page 36 of the Company's Annual Report
to Shareholders for the fiscal year ended October 31, 1999.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 of Form 10-K is incorporated herein by
reference to the information contained in the section captioned "Selected
Consolidated Financial Data" on page 10 of the Company's Annual Report to
Shareholders for the fiscal year ended October 31, 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 of Form 10-K is incorporated herein by
reference to the information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 11 through 18 of the Company's Annual Report to Shareholders for the
fiscal year ended October 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Form 10-K is incorporated herein by
reference to the Company's consolidated financial statements and related notes
thereto, together with the report of the independent auditors presented on pages
19 through 35 of the Company's Annual Report to Shareholders for the fiscal year
ended October 31, 1999, and to the information contained in the section
captioned "Selected Consolidated Quarterly Financial Data" on page 36 of the
Company's Annual Report to Shareholders for the fiscal year ended October 31,
1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
12
13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required with respect to identification of directors is
incorporated herein by reference to the information contained in the section
captioned "Election of Directors" of the Registrant's definitive proxy statement
(the "Proxy Statement") for the Annual Meeting of Shareholders to be held April
11, 2000, to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities and Exchange Act of 1934, as amended.
Information regarding the Registrant's executive officers is set forth above
following Item 4 in Part I hereof under the heading entitled "Executive
Officers."
Each director and executive officer of the Registrant who is subject to
Section 16 of the Securities Exchange Act of 1934 (the "Act") is required by
Section 16(a) of the Act to report to the Securities and Exchange Commission by
a specified date his or her transactions in the Company's securities. In fiscal
1999, there were compliance exceptions to this requirement, as more fully
described in the section captioned "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Proxy Statement, and such information is hereby incorporated
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated by
reference to the information contained in the sections captioned "Executive
Compensation" of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 11, 2000, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Securities
Ownership of Certain Beneficial Owners and Management" of the Registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
April 11, 2000, to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Certain
Transactions" of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held April 11, 2000, to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities Act of 1934, as amended.
13
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS.
The following documents are filed as a part of this Annual Report on Form
10-K for Novell, Inc.:
The Consolidated Financial Statements, the Notes to Consolidated
Financial Statements and the Report of Ernst & Young LLP, Independent
Auditors, listed below are incorporated herein by reference to pages 19
through 35 of the Company's Annual Report to Shareholders for the fiscal
year ended October 31, 1999.
Consolidated Statements of Operations for the fiscal years ended October
31, 1999, October 31, 1998, and October 31, 1997.
Consolidated Balance Sheets at October 31, 1999 and October 31, 1998.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended October 31, 1999, October 31, 1998, and October 31, 1997.
Consolidated Statements of Cash Flows for the fiscal years ended October
31, 1999, October 31, 1998, and October 31, 1997.
Notes to Consolidated Financial Statements.
Report of Ernst & Young LLP, Independent Auditors.
2. FINANCIAL STATEMENT SCHEDULES:
PAGE
----
Schedule II -- Valuation and Qualifying Accounts............ 16
Schedules other than that listed above are omitted because they are not
required, not applicable or because the required information is shown in
the consolidated financial statements or notes thereto
3. EXHIBITS:
A list of the exhibits required to be filed as part of this
report is set forth in the Exhibit Index, which immediately
precedes such exhibits, and is incorporated herein by this
reference thereto........................................... 17
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Registrant during
the quarter ended October 31, 1999.
Joint press release between Novell, Inc. and Whittman-Hart, Inc.
announcing Novell's investment of $100 million in Whittman-Hart, and the
formation of an alliance between the two companies to jointly develop
Novell Directory Services(R) (NDS(R)) solutions for mid-sized
businesses, dated as of September 30, 1999 as filed on October 14, 1999.
Preferred Shares Rights Agreement, dated as of December 7, 1988, as
amended and restated effective September 20, 1999, by and between
Novell, Inc. and ChaseMellon Shareholder Services, L.L.C., as filed on
December 12, 1999.
14
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Novell, Inc.
(Registrant)
Date: January 27, 2000 By /s/ DR. ERIC SCHMIDT
------------------------------------
(Dr. Eric Schmidt,
Chairman of the Board,
and Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ DR. ERIC SCHMIDT Chairman of the Board, Chief January 27, 2000
- -------------------------------------------------------- Executive Officer and
(Dr. Eric Schmidt) Director (Principal
Executive Officer)
/s/ DENNIS R. RANEY Senior Vice President, Chief January 27, 2000
- -------------------------------------------------------- Financial Officer (Principal
(Dennis R. Raney) Financial and Accounting
Officer)
/s/ JOHN A. YOUNG Vice Chairman of the Board January 27, 2000
- --------------------------------------------------------
(John A. Young)
/s/ ELAINE R. BOND Director January 27, 2000
- --------------------------------------------------------
(Elaine R. Bond)
/s/ HANS-WERNER HECTOR Director January 27, 2000
- --------------------------------------------------------
(Hans-Werner Hector)
/s/ REED E. HUNDT Director January 27, 2000
- --------------------------------------------------------
(Reed E. Hundt)
Director January 27, 2000
- --------------------------------------------------------
(William N. Joy)
/s/ JACK L. MESSMAN Director January 27, 2000
- --------------------------------------------------------
(Jack L. Messman)
/s/ RICHARD L. NOLAN Director January 27, 2000
- --------------------------------------------------------
(Richard A. Nolan)
Director January 27, 2000
- --------------------------------------------------------
(Larry W. Sonsini)
15
16
NOVELL, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE
(IN THOUSANDS)
ADDITIONS ADDITIONS DEDUCTIONS DEDUCTIONS
BALANCE AT CHARGED TO CHARGED TO FROM FROM BAD BALANCE
BEGINNING RETURN BAD DEBT RETURN DEBT AT END
OF PERIOD RESERVES RESERVES RESERVES RESERVES OF PERIOD
---------- ---------- ---------- ---------- ---------- ---------
Fiscal year ended October 31,
1997............................. $60,940 $185,545 $4,437 $210,205 $7,664 $33,053
Fiscal year ended October 31,
1998............................. $33,053 $102,513 $1,701 $ 87,342 $2,004 $47,921
Fiscal year ended October 31,
1999............................. $47,921 $ 69,713 $3,581 $ 80,984 $3,913 $36,318
16
17
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation, as amended and
restated April 23, 1997.(4)(Exhibit 3.1)
3.2 By-Laws, as amended and restated September 21,
1998.(3)(Exhibit 3.1)
4.1 Reference is made to Exhibit 3.1.
4.2 Form of certificate representing the shares of Novell Common
Stock.(1)(Exhibit 4.3)
4.3 Preferred Shares Rights Agreement, dated as of December 7,
1988, as amended and restated effective September 20, 1999,
by and between the Registrant and ChaseMellon Shareholder
Services, L.L.C, filed on December 12, 1999. (15) (Exhibit
1)
10.1 Novell, Inc., Employee Retirement and Savings Plan dated
December 8, 1996.(2) (Exhibit 10.9)
10.2 Agreement and Plan of Reorganization dated March 23, 1989,
among Novell, Inc.; Lansub Corporation; and Excelan,
Inc.(5)(Appendix A)
10.3 Novell, Inc. 1989 Employee Stock Purchase Plan.(6)(Exhibit
4.1)
10.4 Agreement and Plan of Reorganization dated July 16, 1991,
among Novell, Inc.; MDAC Corp.; and Digital Research
Inc.(7)(Appendix A)
10.5 Novell, Inc. 1991 Stock Plan.(8)(Exhibit 4.1)
10.6 Agreement and Plan of Reorganization and Merger dated
February 12, 1993, among Novell, Inc.; Novell Acquisition
Corp.; UNIX System Laboratories, Inc.; and American
Telephone and Telegraph Company.(9)(Appendix A)
10.7 UNIX System Laboratories, Inc. Stock Option
Plan.(10)(Exhibit 4.3)
10.8 Agreement and Plan of Reorganization dated March 21, 1994
and amended May 31, 1994, among Novell, Inc.; Novell
Acquisition Corp.; WordPerfect Corporation, Alan C. Ashton,
Bruce W. Bastian, and Melanie L. Bastian.(11)(Appendix A &
Exhibit 1.1)
10.9 Novell, Inc. Novell/WordPerfect Stock Plan.(12)(Exhibit
10.1)
10.10 Novell, Inc. Stock Option Plan for Non-Employee
Directors.(13) (Exhibit 4.1)
10.11 Novell, Inc. 1997 Non-Statutory Stock Option Plan.(14)
(Exhibit 4.1)
13 Company's Annual Report to Shareholders for the fiscal year
ended October 31, 1999.(16)
21 Subsidiaries of the Registrant.(16)
23.1 Consent of Ernst & Young LLP, independent auditors.(16)
27 Financial Data Schedule.(16)
- ---------------
(1) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-1, filed
November 30, 1984, and amendments thereto (File No. 2-94613).
(2) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Annual Report on Form 10-K, filed for the
fiscal year ended October 25, 1986 (File No. 0-13351).
(3) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Current Report on Form 8-K, dated
November 20, 1998 (File No. 0-13351).
(4) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Annual Report on Form 10-K, filed for the
fiscal year ended October 29, 1988 (File No. 0-13351).
(5) Incorporated by reference to the Appendix identified in parentheses, filed
as an appendix in the Registrant's Registration Statement on Form S-4,
filed May 9, 1989 (File No. 33-28470).
(6) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-8, filed
August 24, 1998 (File No. 333-62087).
(7) Incorporated by reference to the Appendix identified in parentheses, filed
as an appendix in the Registrant's Registration Statement on Form S-4,
filed September 24, 1991 (File No. 33-42254).
(8) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-8, filed
May 29, 1996 (File No. 333-04775).
18
(9) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement of Form S-4, filed
May 13, 1993 (File No. 33-60120).
(10) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement on Form S-8, filed
July 2, 1993 (File No. 33-65440).
(11) Incorporated by reference to the Appendix and Exhibit identified in
parentheses, filed as an appendix and exhibit in the Registrant's
Registration Statement on Form S-4, filed June 13, 1994 (File No.
33-53215).
(12) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement of Form S-8, filed
July 8, 1994 (File No. 33-55483).
(13) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement of Form S-8, filed
May 30, 1996 (File No. 333-04823).
(14) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Registration Statement of Form S-8, filed
August 24, 1998 (File No. 333-62103).
(15) Incorporated by reference to the Exhibit identified in parentheses, filed
as an exhibit in the Registrant's Current Report on Form 8-A12G, dated
December 13, 1999 (File No. 0-13351).
(16) Filed herewith.