WALTHAM, Mass., May 24 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its second fiscal quarter ended April 30, 2004. For the quarter, Novell reported revenues of $294 million, compared to revenues of $276 million for the second fiscal quarter 2003. Net income in the second fiscal quarter 2004 was $10 million. After consideration of a $26 million deemed dividend related to the beneficial conversion feature of preferred stock and related preferred stock cash dividends associated with IBM's investment in Novell, the net loss available to common shareholders was $0.04 loss per share. This compared to a net loss of $29 million, or $0.08 loss per share, for the second fiscal quarter 2003. On a non-GAAP basis, adjusted net income for the second fiscal quarter 2004 was $14 million, or $0.03 per share, which excludes the effect of the preferred stock deemed dividend of $26 million, restructuring charges of $5 million, investment impairments of $1 million and a $2 million gain on a sale of property, plant and equipment. This compares to a non-GAAP adjusted net loss for the second fiscal quarter 2003 of $7 million, or $0.02 loss per share, which excludes primarily $25 million in charges from adjustments to facility-related restructuring and merger liabilities, and impaired investments. Full details on Novell's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial schedules that are a part of this release. For the first six months of fiscal 2004, Novell reported revenue of $561 million and net income of $21 million. After considering the impact of the preferred stock deemed and cash dividends, the net loss available to common shareholders in this period was $0.01 loss per share. For the first six months of fiscal 2003, the company reported revenue of $536 million and a net loss of $41 million, or $0.11 loss per share. "In the quarter, Novell showed continued improvement in its financial performance during what is still a challenging market environment for the IT industry," said Jack L. Messman, Novell chairman, president and chief executive officer. "We are encouraged that NetWare(R)-related revenue in the quarter declined only 2% from the year ago period, or a 5% decline after adjusting for foreign currency effects. This figure compares to the prior year's decline rate in NetWare-related revenue of 12%, after adjusting for foreign currency effects. We believe this slowing of the rate of NetWare-related revenue decline reflects a favorable response from our customers to our Linux* strategy." In the second fiscal quarter 2004, foreign currency exchange rates positively impacted total revenue by approximately $12 million and had a negative impact on net income of less than $1 million year over year. Also in the quarter, G&A expenses were lower due to a reduction of $5 million in legal reserves relating to favorable developments in current litigation matters. On the balance sheet, cash and short-term investments were $636 million at the end of the second fiscal quarter 2004, compared with $605 million at the end of the prior quarter. This increase in cash and short-term investments includes the $50 million preferred stock investment by IBM and negative cash flow from operations of $28 million, which was due primarily to an increase in current accounts receivable. Days sales outstanding (DSO) in accounts receivable increased to 67 days at the end of the second fiscal quarter 2004, up from 60 days in the prior quarter. Deferred revenues were $296 million at the end of the second fiscal quarter 2004, up $29 million or 11% year over year. A summary of Novell's vision, mission and strategy can be accessed on the Novell(R) Web site at: www.novell.com/company/ir/qresults . Conference call notification and Web access detail A live Webcast of a Novell conference call to discuss the quarter will be broadcast at 5PM EDT May 24, 2004, from Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/. The domestic conference call dial-in number is 888-323-5254, password "Novell," and the international dial-in number is +1-773-756-4625, password "Novell." The call will be archived on the Web site approximately 15 minutes after its conclusion, and will be available for telephone playback through midnight, June 7. The domestic toll-free replay number is 800-216-3035, and the international replay number is +1-402-220-3757. A copy of this press release is posted on Novell's Web site at: http://www.novell.com/company/ir/qresults/. Legal notice regarding forward-looking statements This press release includes statements that are not historical in nature and that may be characterized as "forward-looking statements," including those related to future financial and operating results, benefits and synergies of the company's brands and strategies, future opportunities and the growth of the market for open source solutions. You should be aware that Novell's actual results could differ materially from those contained in the forward-looking statements, which are based on current expectations of Novell management and are subject to a number of risks and uncertainties, including, but not limited to, Novell's ability to integrate acquired operations and employees, Novell's success in executing its Linux strategies, Novell's ability to deliver on its one Net vision of the Internet, Novell's ability to take a competitive position in the Linux industry, business conditions and the general economy, market opportunities, potential new business strategies, competitive factors, sales and marketing execution, shifts in technologies or market demand and the other factors described in Novell's Annual Report on Form 10-K for the 2003 fiscal year. Novell disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release. About Novell Novell, Inc. is a leading provider of information solutions that deliver secure identity management (Novell Nsure(TM)), Web application development (Novell exteNd(TM)) and cross-platform networking services (Novell Nterprise(TM)), all supported by strategic consulting and professional services (Novell NgageSM). Active in the open source community with its Ximian(R) and SUSE(R) LINUX brands, Novell provides a full range of Linux products and services for the enterprise from the desktop to the server. Novell's vision of one Net -- a world without information boundaries -- helps customers realize the value of their information securely and economically. For more information, call Novell's Customer Response Center at 888-321-4CRC (4272) or visit http://www.novell.com . Press should visit http://www.novell.com/pressroom . NOTE: Novell, NetWare and Ximian are registered trademarks; exteNd, Nsure and Nterprise are trademarks; and Ngage is a service mark of Novell, Inc. in the United States and other countries. SUSE is a registered trademark of SUSE LINUX AG, a Novell company. *All third-party trademarks are the property of their respective owners. Novell, Inc. Consolidated Unaudited Condensed Statements of Operations (In thousands, except per share data) Fiscal Quarter Ended Fiscal Year-to-Date Apr 30, Apr 30, Apr 30, Apr 30, 2004 2003 2004 2003 Net revenue New software licenses $60,306 $64,465 $115,075 $125,503 Maintenance and services 233,250 211,502 445,588 410,435 Total net revenue 293,556 275,967 560,663 535,938 Cost of revenue New software licenses 6,087 5,962 11,008 11,184 Maintenance and services 100,355 102,809 190,310 195,151 Total cost of revenue 106,442 108,771 201,318 206,335 Gross profit 187,114 167,196 359,345 329,603 Operating expenses Sales and marketing 93,646 101,737 175,415 200,042 Product development 52,031 48,354 102,230 91,276 General and administrative 24,215 30,939 50,472 58,284 Restructuring 4,737 8,675 4,737 8,675 Gain on sale of long-lived asset (1,977) -- (1,977) -- Total operating expenses 172,652 189,705 330,877 358,277 Income (loss) from operations 14,462 (22,509) 28,468 (28,674) Other income (expense), net 375 (12,475) 2,852 (18,664) Income (loss) before taxes 14,837 (34,984) 31,320 (47,338) Income tax expense (benefit) 4,454 (6,372) 10,802 (6,838) Net income (loss) 10,383 (28,612) 20,518 (40,500) Deemed dividend related to beneficial conversion feature of preferred stock (25,680) -- (25,680) -- Preferred stock dividends (102) -- (102) -- Net loss available to common shareholders $(15,399) $(28,612) $(5,264) $(40,500) Net loss per common share: Basic $(0.04) $(0.08) $(0.01) $(0.11) Diluted $(0.04) $(0.08) $(0.01) $(0.11) Weighted average shares: Basic 384,528 368,746 382,317 368,411 Diluted 384,528 368,746 382,317 368,411 Certain reclassifications, none of which affected net income, were made to the prior period amounts in order to conform to the current period's presentation. Novell, Inc. Consolidated Unaudited Condensed Balance Sheets (In thousands) ASSETS Apr 30, 2004 Oct 31, 2003 Current assets Cash and short-term investments $636,134 $751,852 Receivables, net 214,731 232,492 Prepaid expenses 28,732 23,005 Other current assets 28,389 23,204 Total current assets 907,986 1,030,553 Property, plant and equipment, net 248,448 255,526 Long-term investments 52,936 50,948 Goodwill 401,969 213,300 Intangible assets, net 50,057 10,800 Other assets 6,298 6,526 Total assets $1,667,694 $1,567,653 LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities Accounts payable $53,405 $50,258 Accrued compensation 100,816 101,164 Other accrued liabilities 102,606 117,073 Income taxes payable 37,911 35,493 Deferred revenue 296,115 322,470 Total current liabilities 590,853 626,458 Deferred income taxes 16,458 -- Total liabilities 607,311 626,458 Minority interests 6,712 6,725 Preferred stock 50,000 -- Stockholders' equity 1,003,671 934,470 Total liabilities and stockholders' equity $1,667,694 $1,567,653 Certain reclassifications, none of which affected net income, were made to the prior period amounts in order to conform to the current period's presentation. Novell, Inc. Consolidated Unaudited Condensed Statements of Cash Flows (In thousands) Fiscal Quarter Ended Fiscal Year-to-Date Apr 30, Apr 30, Apr 30, Apr 30, 2004 2003 2004 2003 Cash flows from operating activities: Net income (loss) $10,383 $(28,612) $20,518 $(40,500) Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities: Gain on sale of fixed assets (1,977) -- (1,977) (365) Depreciation and amortization 10,940 17,732 27,092 34,984 Loss on impaired investments 750 13,723 1,896 24,523 Changes in assets and liabilities (48,380) (29,205) (44,792) (22,129) Net cash (used) provided by operating activities (28,284) (26,362) 2,737 (3,487) Cash flows from financing activities: Issuance of common stock, net 20,558 5,900 49,051 7,047 Issuance of preferred stock 50,000 -- 50,000 -- Payment of preferred stock dividend (102) -- (102) -- Net cash provided by financing activities 70,456 5,900 98,949 7,047 Cash flows from investing activities: Expenditures for property, plant and equipment (6,547) (7,925) (12,013) (21,777) Proceeds from the sale of property, plant and equipment 1,977 -- 1,977 785 Short-term investment activity (45,213) 93,849 53 (72,802) Cash paid for SUSE LINUX -- -- (211,468) -- Cash received from SUSE LINUX -- -- 11,170 -- Other (4,758) (2,760) (4,865) 771 Net cash (used) provided by investing activities (54,541) 83,164 (215,146) (93,023) (Decrease) increase in cash and cash equivalents (12,369) 62,702 (113,460) (89,463) Cash and cash equivalents - beginning of period 265,841 311,822 366,932 463,987 Cash and cash equivalents - end of period 253,472 374,524 253,472 374,524 Short-term investments - end of period 382,662 251,873 382,662 251,873 Cash and short-term investments - end of period $636,134 $626,397 $636,134 $626,397 Certain reclassifications, none of which affected net income, were made to the prior period amounts in order to conform to the current period's presentation. Novell, Inc. Unaudited Non-GAAP Adjusted Earnings Information (In thousands, except per share data) GAAP Non-GAAP As Reported Adjustments Adjusted Fiscal quarter ended April 30, 2004 Net revenue $293,556 $-- $293,556 Gross profit 187,114 -- 187,114 Income (loss) from operations 14,462 2,929 (a) 17,391 Income (loss) before taxes 14,837 3,679 (b) 18,516 Net income (loss) 10,383 3,408 (c) 13,791 Net income (loss) available to common shareholders (15,399) 29,190) (d) 13,791 Diluted net income (loss) per common share $(0.04) $0.07 (d) $0.03 Fiscal quarter ended January 31, 2004 Net revenue $267,107 $-- $267,107 Gross profit 172,231 -- 172,231 Income (loss) from operations 14,006 -- 14,006 Income (loss) before taxes 16,483 1,145 (e) 17,628 Net income (loss) 10,135 1,145 (e) 11,280 Diluted net income (loss) per common share $0.03 $0.00 (e) $0.03 Fiscal quarter ended April 30, 2003 Net revenue $275,967 $-- $275,967 Gross profit 167,196 -- 167,196 Income (loss) from operations (22,509) 10,792 (f) (11,717) Income (loss) before taxes (34,984) 25,265 (g) (9,719) Net income (loss) (28,612) 21,809 (h) (6,803) Diluted net income (loss) per common share $(0.08) $0.06 (h) $(0.02) Footnotes related to adjustments: (a) Reflects restructuring charges of $4.7 million, a gain on the sale of a long-lived asset of $2.0 million and integration costs related to SUSE of $0.2 million. (b) Reflects the items in footnote (a) and investment write-downs of $0.8 million. (c) Reflects the items in footnotes (a) and (b), and the necessary related tax adjustments. (d) Reflects the items in footnote (a), (b) and (c), the beneficial conversion feature of $25.7 million and preferred stock dividends of $0.1 million. (e) Reflects investment write-downs of $1.1 million. (f) Reflects adjustments to prior restructuring reserves of $8.7 million and merger reserves of $2.1 million. (g) Reflects the items in footnote (f), investment write-downs of $13.7 million and a loss from the acquisition of minority interest shares of $0.8 million. (h) Reflects the items in footnotes (f) and (g), and the necessary related tax adjustments.
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