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Novell Inc. Reports Operating Results (10-Q)

September 09, 2010 | About:
10qk

10qk

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Novell Inc. (NOVL) filed Quarterly Report for the period ended 2010-07-31.

Novell Inc. has a market cap of $1.99 billion; its shares were traded at around $5.68 with a P/E ratio of 21 and P/S ratio of 2.3. NOVL is in the portfolios of John Paulson of Paulson & Co., Columbia Wanger of Columbia Wanger Asset Management, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, George Soros of Soros Fund Management LLC, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Bruce Kovner of Caxton Associates, Jeremy Grantham of GMO LLC, Steven Cohen of SAC Capital Advisors, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.

Highlight of Business Operations:

For the first nine months of fiscal 2010, we reported an operating margin of 10%, compared to 8% for the prior year period. The first nine months of fiscal 2010 included a $4.6 million change in accounting estimate related to fiscal 2009 sales compensation expense that increased profitability in the period. Foreign currency exchange rate fluctuations, as measured using the prior year period foreign currency exchange rates on non-U.S. dollar denominated revenue and expenses, unfavorably impacted income from operations by $7.3 million, or 10%, in the first nine months of fiscal 2010 compared to the prior year period.

As more fully described in Note N, Segment Information, during the first quarter of fiscal 2010, we reorganized our business unit segment structure and management resulting in a change to our reportable business unit segments. In connection with this reorganization, we evaluated our internal cost structure to ensure the resulting business unit segment gross profit and operating income were reflective of our business unit segment management structure. As a result of this evaluation, we determined that the allocation and assignment of costs between maintenance and subscriptions and services within cost of revenue should be adjusted to be reflective of the new business unit segment management structure. For the third quarter and first nine months of fiscal 2009, in our consolidated statements of operations, $9.6 million and $28.0 million of costs, respectively, were moved from the services cost of revenue line item to the maintenance and subscriptions cost of revenue line item. This change impacted only the components of cost of revenue and had no impact on revenue, total cost of revenue or total gross profit.

Maintenance and subscriptions revenue from SMOP decreased $2.3 million, or 2%, in the third quarter of fiscal 2010, and increased $2.5 million, or 1%, in the first nine months of fiscal 2010, compared to the prior year periods. Maintenance and subscriptions revenue from CS declined $8.9 million, or 13%, in the third quarter of fiscal 2010, and $18.1 million, or 9%, in the first nine months of fiscal 2010, compared to the prior year periods.

Revenue from SMOP decreased in the first nine months of fiscal 2010 compared to the prior year period primarily as a result, we believe, of the uncertainty associated with Recent Company Developments. Revenue associated with our Linux Platform Products and Systems and Resource Management products decreased by $2.0 million, or 2%, and $3.5 million, or 3%, respectively, and SMOP services revenue declined $8.4 million, or 15%, compared to the prior year period. These revenue decreases were partially offset by higher revenue from Identity, Access and Compliance Management products, which increased by $8.1 million, or 10%, compared to the prior year period. Overall, product invoicing for SMOP increased 3% compared to the prior year period, due primarily to higher invoicing for our Linux Platform Products and Identity, Access and Compliance Management products, partially offset by a decline in invoicing for our Systems and Resource Management products. The higher invoicing for our Linux Platform Products resulted from significant growth in our non-Microsoft invoicing, partially offset by lower invoicing associated with the Microsoft SLES certificates. Identity, Access and Compliance Management revenue and invoicing increased due in part to several large deals in the first quarter of fiscal 2010. However, we believe this positive momentum was negatively impacted in the second and third quarters of fiscal 2010, by the uncertainty associated with Recent Company Developments. The revenue and invoicing declines for Systems and Resource Management products were primarily due to, we believe, the uncertainty associated with Recent Company Developments and challenges gaining traction in this market segment.

Revenue from CS decreased in the first nine months of fiscal 2010 compared to the prior year period primarily from the same factors described above for the third quarter of fiscal 2010. These factors are reflected in the lower Collaboration product revenue of $10.9 million, or 14%, lower combined OES and NetWare-related product revenue of $10.2 million, or 8%, and lower services revenue of $5.5 million, or 23%. Overall, product invoicing for CS decreased 14% in the first nine months of fiscal 2010 compared to the prior year period. Invoicing for Collaboration products and combined OES and NetWare-related products decreased 16% and 8%, respectively, in the first nine months of fiscal 2010 compared to the prior year period.

We had total deferred revenue of $623.7 million as of July 31, 2010 compared to $674.3 million and $688.8 million at July 31, 2009 and October 31, 2009, respectively. Deferred revenue represents revenue that is expected to be recognized in future periods primarily under maintenance contracts and subscriptions that are recognized ratably over the related contract periods, typically one to three years. Deferred revenue related to our agreements with Microsoft is recognized ratably over various related service periods, which can extend up to five years. The decrease in total deferred revenue of $65.1 million compared to October 31, 2009 is primarily attributable to lower invoicing in the first nine months of the fiscal year and from the recognition of $56.3 million of deferred revenue related to our agreements with Microsoft.

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