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Technology Stocks : Novell (NOVL) dirt cheap, good buy? -- Ignore unavailable to you. Want to Upgrade?

To: Jim McCormack who wrote (20742)	3/5/1998 11:26:00 PM
From: E_K_S	Read Replies (1) \| Respond to of 42771

Hi Jim - I say they stuff again. This has been their standard operating mode! Can we conclude differently? The current "Bulls" have not been around long enough to understand just what type of management we have. With CFO Toolon you just never know what is accurately reported and what is just fiction. Only until he resigns and an independent audit is performed can we really build a forecast that we can rely upon. I believe the street has also come to this conclusion. I still have a small position left in my IRA at a cost of $15 which I will sell if and when we reach that price. I will however be open to buy more Novell if (1) significant management changes occur (like Toolon resigns); (2) additional lay offs and reduction in operating expenses occur to fall more in line with the reduced revenues; (3) the company expands it's revenue streams into "service" type revenues that make up more than 35% of the total flow; or (4) new products show significant revenue growth for more than two quarters. Based on my best forward looking, none of these events seem to be developing. Regards EKS

To: Jim McCormack who wrote (20742)	3/6/1998 12:24:00 AM
From: Bald Man from Mars	Respond to of 42771

Jimmy: Thanks for the numbers. But I am more interested in your projection of its stock price with the information that you know... It is at 10-1/2, so what is the upside/downside for the rest of the year.

To: Jim McCormack who wrote (20742)	3/7/1998 10:34:00 PM
From: E_K_S	Read Replies (1) \| Respond to of 42771

Hi Jim - I received my annual report today and have some comments and questions. Please jump in with your comments or anybody else for that matter.... 1) Why was the annual meeting site changed to UTAH (1997 FY) from San Jose(1996 FY)? I believe a significant number of employees are still located in San Jose. Also the IR (Investor Relations), shareholder services, independent auditors Ernst & Young, and many of the corporate functions still function out of SJ too. The following items relate to the 1997 Annual Report: 2) Pg-14- Cash Flows from Operating activities I assume the large adjustment to receivables $217,969,000 made in 1997 reflects the channel stuffing activities. Also note the positive adjustment due to "refundable income tax" in the amount $93,082,000. I believe this is what Steve discussed as the benefit from a lower tax rate (about $0.26/share). 3) Pg-20- Put Warrants The company's trading activity in this area surprised me. I assumed these types of transactions allow the company to purchase new company shares....like a planned corporate stock buy back program. This should be a positive for the shareholder unless (i) the company uses these derivatives for speculation purposes, (ii) is better off to buy shares on the open market,or (iii) ends up losing shareholder's money in these transactions. Well, it appears that the latter was the case in 1997. On each option sold they received about $1.00/share and ended buying the options back for $4.00/share. There was a net reduction in total outstanding shares (8 million shares) but it is not clear to me that this was due to these put warrant transactions. Pg-14- Cash Flows from Financing Activities Novell reported a net loss of $18,460,000 in 1977 or about <$0.05/share> as a result of speculating with these Put Warrants! 4) Pg-14- Cash Flows from investment activities ...a decrease of $37,186,000 ($0.11/share). It appears that none of the Corell, INTS, or any other of their stock investments were sold. I would of thought our management could have performed better in this area. The S&P 500 was up 25% for the same period. 5) Pg-20- Description of the New Building financing Buildings are leased to Novell and the lessor will finance up to $157 million of the construction costs. Novell is guaranteed stable rents for the new facilities and also has the option of purchasing the buildings over the term of the lease. Novell already owns the land out right. ====================================================================== In summary there are not too many surprises. The free flow cash flow was still positive for 1997 by $95 million dollars. At current expense levels, this will become negative when (1) revenues decrease another 9% (about $23 million per quarter) from 1997 levels, or (2) if another channel inventory adjustment is made. Therefore to this investor, the expense levels are still too large to support current revenue streams. Based on Jim M's revenue figures, Novell will operate in a negative free flow cash flow state. My guess is that it will be around <$100 million> for the year if not larger. This loss will impact book value but more importantly will make it difficult for CEO Schmidt to complete his turn around as the company will now need to dip into that $1 Billion just to make payroll. This is not the sign of a growth company but more like a company going through a downsizing phase. EKS