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Novell Inc. Reports Operating Results (10-Q)

June 08, 2010 | About:
10qk

10qk

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Novell Inc. (NOVL) filed Quarterly Report for the period ended 2010-04-30.

Novell Inc. has a market cap of $2.08 billion; its shares were traded at around $5.96 with a P/E ratio of 20.5 and P/S ratio of 2.4. NOVL is in the portfolios of John Paulson of Paulson & Co., Columbia Wanger of Columbia Wanger Asset Management, Columbia Wanger of Columbia Wanger Asset Management, HOTCHKIS & WILEY of HOTCHKIS & WILEY Capital Management LLC, Louis Moore Bacon of Moore Capital Management, LP, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors, Jeremy Grantham of GMO LLC, Chuck Royce of Royce& Associates, Bruce Kovner of Caxton Associates, George Soros of Soros Fund Management LLC.

Highlight of Business Operations:

For the first six months of fiscal 2010, we reported operating margins of 10%, which compares to 7% for the prior year period. The first six 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 $9.4 million, or 19%, in the first six months of fiscal 2010 compared to the prior year period.

As more fully described in Note M, 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 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 second quarter and first six months of fiscal 2010 and 2009. For the second quarter and first six months of fiscal 2009, in our consolidated statements of operations, $9.1 million and $18.4 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.

Revenue from maintenance and subscriptions decreased in the second quarter and first six months of fiscal 2010 compared to the prior year periods. Maintenance and subscriptions revenue from SMOP was relatively flat in the second quarter of fiscal 2010 compared to the prior year period, and increased $4.8 million, or 3%, in the first six months of fiscal 2010, compared to the prior year period. Maintenance and subscriptions revenue from CS declined $4.7 million, or 7%, in the second quarter of fiscal 2010, and $9.2 million, or 7%, in the first six months of fiscal 2010, compared to the prior year periods.

Revenue from SMOP decreased in the first six months of fiscal 2010 compared to the prior year period. Revenue associated with our Systems and Resource Management products decreased by $2.0 million, or 2%, and SMOP services revenue declined $5.8 million, or 15%, compared to the prior year period. These revenue decreases were offset by higher revenue from Identity, Access and Compliance Management products, which increased by $5.9 million, or 11%, and Linux Platform Products, which increased by $0.7 million, or 1%, compared to the prior year period. Overall, product invoicing for SMOP increased 10% compared to the prior year period, due primarily to stronger 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 quarter 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 challenges gaining traction in this market segment.

Revenue from CS decreased in the first six months of fiscal 2010 compared to the prior year period primarily from lower Collaboration product revenue of $5.6 million, or 11%, lower combined OES and NetWare-related product revenue of $5.4 million, or 6%, and lower services revenue of $4.3 million, or 26%. Overall, product invoicing for CS decreased 12% in the first six months of fiscal 2010 compared to the prior year period. Invoicing for Collaboration products and combined OES and NetWare-related products decreased 9% and 5%, respectively, in the first six months of fiscal 2010 compared to the prior year period. These declines were primarily due to the mature lifecycle stage of our CS products.

We had total deferred revenue of $615.0 million as of April 30, 2010 compared to $659.4 million and $688.8 million at April 30, 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 $73.8 million compared to October 31, 2009 is primarily attributable to seasonably lower invoicing in the first six months of the fiscal year and from the recognition of deferred revenue related to our agreement with Microsoft to purchase SLES certificates.

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