10-K

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-K
 
                                                                           
                     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE


 
                 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                   FOR THE FISCAL YEAR ENDED OCTOBER 30, 1993
 
                                       OR
 
                                                                           
                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                      SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
             FOR THE TRANSITION PERIOD FROM --------------------
                                                          TO
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                        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) 429-7000
 
              (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 January 11, 1994 (based on the last reported price of the
Common Stock on the NASDAQ National Market System on such date) was
$6,084,873,630.
 
     As of January 11, 1994 there were 308,833,023 shares of the registrant's
common stock outstanding.
 
     Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended October 30, 1993, are incorporated by reference in Parts II and IV of
this Form 10-K to the extent stated herein. Portions of the Registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held on
March 9, 1994, are incorporated by reference in Part III of this Form 10-K to
the extent stated herein.
 
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                                     PART I
 
ITEM 1. BUSINESS
 
THE COMPANY
 
     Novell, Inc. ("Novell" or the "Company") is an information system software
company, which develops, markets and services specialized and general purpose
operating system products and application programming tools. Novell's
NetWare(R), UnixWare(TM) and AppWare(TM) families of products provide matched
software components for distributing information resources within local, wide
area and internetworked information systems.
 
     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) 429-7000.
 
     The Company sells its products domestically and internationally through 33
U.S. sales offices and 31 foreign offices. The Company sells its products
primarily through distributors and national retail chains, who in turn sell the
Company's products to retail dealers. The Company also sells its products
through OEMs, system integrators, and VARs.
 
     The Company conducts product development activities in Cupertino, Monterey,
San Jose, Sunnyvale, and Walnut Creek, California; Boulder, Colorado; Natick,
Massachusetts; Summit, New Jersey; Austin, Texas; Provo, Salt Lake City, and
Sandy, Utah; Toronto, Canada; and Hungerford, U.K. It also contracts out some
product development activities to other third-party developers.
 
     In December 1990, the Company announced that Canon, Fujitsu, NEC, Sony, and
Toshiba, five major Japanese computer companies, joined SOFTBANK Corporation and
Novell as investment partners in Novell Japan, Ltd., a Tokyo-based joint venture
inaugurated in April 1990. Novell has a 54% ownership interest, and accordingly,
the financial statements of Novell Japan, Ltd. are consolidated in the financial
statements of the Company, with the minority interest in profit or loss offset
within other income and expense.
 
     In April 1991, the Company invested $15.0 million in UNIX System
Laboratories, Inc. (USL), a subsidiary of AT&T that develops and licenses the
UNIX operating system and other standards-based software to customers worldwide.
In December 1991, the Company announced the formation of Univel, a joint venture
with USL, formed to accelerate the expanded use of the UNIX operating system in
the personal computer and network computing marketplace. Novell and USL
contributed cash and technology rights to Univel. Then in June 1993, the Company
acquired the remaining portion of USL by issuing approximately 11.1 million
shares of Novell common stock valued at $321.8 million in exchange for all of
the outstanding stock of USL not previously owned by Novell and assumed
additional liabilities of $9.4 million. The transaction was accounted for as a
purchase and, on this basis, resulted in a one-time write-off of $268.7 million
for purchased research and development in the third quarter of fiscal 1993.
 
     On October 28, 1991, the Company completed a merger with Digital Research
Inc. (DRI), a producer of personal computer operating software, whereby DRI
became a wholly owned subsidiary of Novell. There were 6.0 million shares of
Novell common stock exchanged for all of the outstanding stock of DRI. This
transaction was accounted for as a pooling of interests; however, prior year
financial statements have not been restated due to immateriality.
 
     In April 1992, the Company purchased all of the outstanding stock of
International Business Software, Ltd. (IBS), a developer of distributed
computing technology for Apple Macintosh computers, for $5.2 million cash,
whereby IBS became a wholly owned subsidiary of Novell.
 
     In June 1992, the Company purchased all of the outstanding stock of Annatek
Systems, Inc. (Annatek), a developer of software distribution products, for
$10.0 million cash, whereby Annatek became a wholly owned subsidiary of Novell.
 
     In June 1993, the company purchased all of the outstanding stock not
previously owned by Novell of Serius Corporation (Serius), a developer of
object-based application tools, for $17.0 million cash and assumed
 
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liabilities of $5.0 million, whereby Serius became a wholly owned subsidiary of
Novell. Novell previously had invested cash of $1.1 million in Serius. This
transaction was accounted for as a purchase and, on this basis, resulted in a
one-time write-off of $22.1 million for purchased research and development in
the third quarter of fiscal 1993.
 
     In June 1993, the Company acquired all of the outstanding stock of Software
Transformation, Inc. (STI), a developer of software development tools, by
issuing approximately 800,000 shares of Novell common stock in exchange for all
of the outstanding stock of STI. The transaction was accounted for as a pooling
of interests; however, prior periods were not restated due to immateriality.
 
     In July 1993, the Company acquired all of the outstanding stock of Fluent,
Inc. (Fluent), a developer of multimedia software for personal computers, for
$18.5 million cash and assumed liabilities of $3.0 million, whereby Fluent
became a wholly owned subsidiary of Novell. The transaction was accounted for as
a purchase and, on this basis, resulted in a one-time write-off of $20.7 million
for purchased research and development in the third quarter of fiscal 1993.
 
     The Company will continue to look for similar acquisitions, investments, or
strategic alliances which it believes complement its overall business strategy.
 
BUSINESS STRATEGY
 
     Novell's business strategy is to be a leading supplier of software products
for the network computing industry. Over the past several years the Company has
issued common stock or paid cash to acquire technology companies, invested cash
in other technology companies, and formed strategic alliances with still other
technology companies. Novell undertook all of these transactions to promote the
growth of the network computing industry, and in many cases to also broaden the
Company's business as a system software supplier.
 
     Novell believes that companies implement technologies to meet business
needs. People use technology to help them to be more productive in their jobs.
As a result of these motivations, customers have made the NetWare operating
system the most popular network solution in the industry. This is a direct
result of Novell's delivery of a networking environment that contributes to the
success of individuals and companies. Novell is focused on meeting customer
needs.
 
     To meet the needs of its customers, over the past year Novell has embarked
on a strategy to combine the industry's most proven network operating system
with the industry's most proven application platform -- UNIX. This "matched
pair" combines the best network services with the best application services to
deliver to customers the best computing platform on which to run their
businesses. These strong operating systems combine with Novell's innovative
client/server application platform to deliver a total system software solution.
 
     Novell's mission is to accelerate the growth of the network computing
industry through responsible leadership. The Company accomplishes this by
delivering an overall networking environment which includes industry leading
product technology, programs, and partnerships. The key elements of the
Company's overall business strategy are:
 
Technological Leadership.
 
     Integration Platform.  Novell's NetWare network operating system provides a
     platform for the integration of multiple technologies. This includes the
     seamless integration of multiple desktop systems and host environments.
     Novell believes that the customer environments are inherently heterogeneous
     and therefore require an information system that integrates dissimilar
     technologies. The goal of Novell's strategy of integrating various desktop
     systems is to allow IBM and IBM-compatible, Apple Macintosh, and UNIX-based
     PCs and workstations to access and share simultaneously a common set of
     network resources and information. This gives customers the freedom to
     choose the desktop and application server systems that best fit their
     application requirements. In addition to the integration of desktops, host
     environments from vendors such as IBM, DEC, HP and Olivetti are integrated
     into the NetWare network so that users can access host-based resources and
     information from their desktops across the network. Novell continues to
     extend this hardware and infrastructure integration to other communication
 
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     devices such as PBXs and imbedded systems such as cash registers and
     process control devices. The overall objective is to seamlessly connect
     users by shielding them from the underlying network technology used to
     share resources and information across heterogenous systems.
 
     Network Services.  Novell delivers advanced network services on top of the
     integration platform. These services enhance the functionality available to
     users on the network. In the first release of NetWare eleven years ago,
     those services were file and print only. While Novell has continued to
     enhance NetWare file and print services, the services provided by Novell
     and third parties have expanded significantly to include communications,
     network and systems management, messaging, directory, software licensing
     and distribution, imaging and document management, and telephony services.
     Novell continues to add network services through internal development
     efforts, partnerships, and acquisitions.
 
     Application Framework: AppWare.  In addition to the programming interfaces
     that Novell provides for application developers, Novell has begun
     delivering AppWare -- a set of development tools that significantly eases
     the development of true client/server applications. AppWare allows
     application developers and internal IS development teams to deliver
     distributed applications that integrate and take advantage of all of the
     network services available in NetWare and UnixWare.
 
     Directory Services.  With the introduction of NetWare 4 in March 1993,
     Novell began to deliver an industry leading distributed naming
     service -- NetWare Directory Services (NDS). NDS allows administrators and
     users to view the information and resources on the network in a simple and
     integrated way. It provides for one common view of the network rather than
     having to track resources by knowing on which server the resource resides.
     NDS allows the user to login once into the network and access information
     and resources independent of physical location. While this simplifies both
     the administration and use of the network, NDS also improves the security
     of network information with the use of encryption technology. The NetWare
     Directory Service will continue to become the centerpiece of network
     services and client/server applications for the next several years.
 
Programs
 
     Technical Support Alliance.  In May 1991 Novell announced the formation of
     the Technical Support Alliance (TSA), with 37 current members including
     Apple, Compaq, Hewlett-Packard, Intel, IBM, Lotus, Microsoft, Oracle and
     WordPerfect. The TSA was organized to provide one-stop multivendor support.
 
     Certified NetWare Engineer Program.  Through the Certified NetWare 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.
 
     National Authorized Education Centers.  Novell offers education to end
     users through more than 1,200 established Novell Authorized Education
     Centers (NAECs) worldwide, which use Novell-developed courses to instruct
     more than 30,000 students per month in the use and maintenance of Novell
     products. Novell also offers self-paced training products.
 
     Novell Labs.  Through its Independent Manufacturer Support Program (IMSP),
     Novell works with third-party manufacturers to test and certify hardware
     components designed to interoperate with the NetWare operating system.
     Novell distributes these tests results to inform NetWare customers about
     products that have formally demonstrated NetWare compatibility. In effect,
     IMSP certification programs help vendors to market their products through
     Novell's distribution channels. The primary goal of IMSP is to foster
     working relationships between Novell and strategic third-party hardware
     manufacturers. Secondary goals include promoting certified hardware to
     industry resellers, anticipating industry hardware
 
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     directions through comarketing efforts, and working with vendors to
     codevelop critical network hardware components.
 
     Client-Server NetWare Loadable Module (NLM) Testing Program.  Novell is
     committed to ensuring the highest quality customer solutions by raising the
     level of importance that quality assurance and testing hold in the software
     development cycle. The NLM testing program is a result of that commitment;
     it allows developers to submit client-server NLM applications for testing.
 
Partnerships
 
     Development Partners.  When customers request a new network service be
     added to the NetWare operating system, Novell investigates the most
     effective way to deliver that functionality to the user. Very often the
     best way is for Novell to partner with a company who has expertise in that
     specific area. By partnering, the combination of Novell's expertise in
     networks and the partner's expertise in the given product area combine to
     deliver a better solution faster than if Novell would have attempted to
     develop it alone.
 
     Systems Partners.  Novell partners with companies who have complimentary
     software and hardware. The resulting solution is a powerful combination of
     products that deliver enterprise-wide connectivity solutions. These
     partners include system suppliers like IBM, DEC and HP, as well as system
     integration experts like Memorex Telex, Arthur Andersen, EDS, etc.
 
     Application Partners.  Novell works very closely with application
     developers to provide integrated software support for end users. Because
     Novell does not market applications, relationships with software developers
     can be very synergistic.
 
     Multiple Channel Distribution Network.  The Company markets a broad line of
     the NetWare operating system and the UnixWare operating system through
     distributors, dealers, value added resellers, systems integrators, and OEMs
     as well as to major end users.
 
     Worldwide Service and Support.  The Company 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.
 
PRODUCTS
 
     The Company's products fall within three operating groups: NetWare Systems
Group (NSG), UNIX Systems Group (USG), and AppWare Systems Group (ASG).
 
     NETWARE SYSTEMS GROUP.  NSG develops operating systems products to meet
     customer demands and include the following features.
 
     Open Architecture.  Novell maintains an open architecture in all of its
     networking products. Application interfaces to all of the NetWare services
     have been developed and published, allowing developers to take advantage of
     NetWare functionality. NetWare applications interfaces provide access to
     all NetWare services, including file and print, database, communications,
     and messaging services.
 
          The NetWare Directory Service will be the foundation for network
     services and client/server applications for the next several years. Besides
     enhanced NetWare file and print services, the services provided by Novell
     and third parties will also include communications, network and systems
     management, messaging, directory, software licensing and distribution,
     imaging and document management, and telephony services.
 
     Ease of Use.  NetWare 4 reduces administrative costs by allowing network
     supervisors to manage and administer their networks easily. A new graphical
     utility called the NetWare Administrator consolidates all network
     administration tools into a single console, giving intuitive control of the
     entire network.
 
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     Reliability.  NetWare contains a wide variety of features that ensure
     system reliability and data integrity. These features protect everything
     from the storage medium to critical application files, allowing Novell to
     provide the highest levels of network reliability in the industry.
 
          Novell pioneered system fault tolerance in PC-based networks and
     continues to lead the industry in this area. Novell's introduction of
     mirrored server technology in 1992 provides the highest level of fault
     tolerance for PC based networks.
 
     Manageability.  Through NetWare Distributed Management Services (NDMS),
     Novell delivers industry leading products that provide network and systems
     management capabilities. NetWare manages all of a customers critical
     assets -- information, infrastructure, hardware, and software -- through
     delivery of storage management, device, and software licensing and
     distribution services.
 
     Security.  Throughout its history, the NetWare product line has provided
     the tightest security features in the industry. Novell introduced the
     concept of usernames, passwords, and user profiles to the network market in
     NetWare as early as 1983. These user profiles list the resources to which a
     user has access, and the rights he or she has while using that resource.
     With version 2.15 of the NetWare operating system, network managers have
     been able to specify the date, time, and location from which a user can
     login to the network. Intruder detection and lockout features notify
     supervisors of any unauthorized access attempt. NetWare 3 incorporates
     additional security features including encrypted passwords over the wire.
     NetWare 4 network operating system adds new security auditing capabilities
     required in many security conscious network environments.
 
     Workstation Independence.  NetWare currently supports DOS, MS Windows,
     OS/2, Macintosh, and UNIX workstations. By providing a network operating
     system that can integrate all the standard workstation operating systems,
     Novell gives users the freedom to choose their workstation environment
     while ensuring them full network participation.
 
     Hardware Independence.  NetWare is hardware-independent and the Company has
     close working relationships with more than 350 strategic third-party
     hardware manufacturers. This independence and these relationships provide
     the Company with a broad market for its networking software and the ability
     to support new hardware as it is developed.
 
     High Performance.  When Novell introduced the Advanced NetWare network
     operating system to the market in 1985, it represented a major improvement
     in network operating system performance, and NetWare network operating
     systems still lead the market in performance today. The NetWare 3 network
     operating system extends Novell's performance leadership by providing end
     users the potential of up to three times the performance of the NetWare 2
     network computing products. The NetWare 4 network operating system allows
     users and applications to gain access to network-wide information and
     services transparently through technologies such as NetWare Directory
     Services, new security capabilities, wide-area networking improvements, and
     enhanced administration and management tools.
 
     NETWARE OPERATING SYSTEMS PRODUCT LINE.  The NetWare family of network
     operating systems provides solutions to a wide variety of needs ranging
     from small, simple networks to enterprise-wide networks and include the
     following products.
 
     NetWare 4.  In March 1993, Novell introduced the NetWare 4 operating
     system. An elaborate demonstration showed the ability of how one network
     server can support 1,000 clients or how one client can access 1,000
     servers.
 
          Novell sees itself and NetWare at the center of the converging market
     forces reshaping business computing on to downsized, or rightsized
     information systems. Cohesively managed computer networks are taking on
     computing responsibilities held by mainframe computers over the last three
     decades.
 
          NetWare has increasingly defined a system services environment that
     supports this world-wide shift away from mainframe and mid-range computing
     solutions to computer networks.
 
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          Novell's NetWare 4 operating system is designed to deliver the power
     and technology to meet downsizing requirements.
 
     All Encompassing Environment.  Delivering a manageable, global, directory
     framework that provides connectivity to other computing platforms enables
     users to access applications and system services regardless of their
     physical location on the network.
 
     System Fault Tolerance.  Providing robust business-critical reliability to
     a network using the concept of server mirroring allows the workflow of the
     business to be uninterrupted even in the event of a hardware failure.
 
     Large Scale Configurations.  NetWare 4 supports single server
     configurations up to 1,000 concurrent users, or clients, on each server.
 
     NetWare 3.  NetWare 3 is a proven, sophisticated connectivity tool for
     businesses, departments, and workgroups of various sizes. NetWare 3 is a
     full-featured, 32-bit network operating system that supports all key
     desktop operating systems -- DOS, MS Windows, OS/2, UNIX, and
     Macintosh -- as well as the IBM SAA environment. NetWare 3 provides a
     high-performance integration platform for businesses requiring a
     sophisticated network computing solution in a multivendor environment.
     NetWare 3 offers centralized network management and is available in 5-,10-,
     20-, 50-, 100-and 250-user versions, allowing organizations to standardize
     on a high-performance networking solution regardless of their size.
 
     NetWare Clients.  As new desktop operating systems become available Novell
     has continued its Open Desktop Strategy by offering NetWare clients and
     redirectors for connection into NetWare through fulfillment and 1-800
     numbers. This allows existing users of NetWare to update client network
     components while maintaining their investment in NetWare servers. In 1992
     Novell released Workstation kits for MS DOS, DR DOS, MS Windows 3.1 and
     OS/2 2.0. These kits provide users and administrators with the ability to
     get the latest desktop client support available and allows Novell the
     flexibility to enhance the desktop support independently of NetWare
     Operating System releases.
 
     Messaging Services.  Messaging technology provides communications
     capabilities that allow messages to be sent between people, between
     processes, or between a person and a process without using real-time links.
     Novell also provides products with these capabilities.
 
          NetWare MHS is a "store-and-forward" message handling service for the
     Novell distributed computing platform. NetWare MHS platform supports a wide
     range of services including Electronic mail (E-mail), workflow automation,
     calendar and scheduling, and fax services.
 
          Applications from more than 900 developers (including more than 150
     commercial applications) operate on this foundation and support the NetWare
     MHS platform.
 
          For example, Indisy provides connectivity between mainframe,
     minicomputer, and PC-based network users. Indisy's software provides for
     the exchange of mail transparently across IBM SNA networks. In addition to
     electronic mail, Indisy also provides software for the exchange of single
     mail parcels containing spreadsheets, graphics and text, batch report
     distribution, remote job submission, document translation, and other
     functions.
 
     NetWare for Macintosh.  When used in conjunction with a NetWare
     environment, NetWare for Macintosh brings the comprehensive networking
     features of NetWare, such as enhanced security, resource accounting, and
     fault tolerance, to the Apple Macintosh environment. NetWare for Macintosh
     allows Macintosh, DOS, and OS/2 workstations to share data and resources in
     a high-performance, secure network environment. This product is of special
     interest to large-and medium-sized companies that have heterogeneous
     computing environments.
 
          NetWare for Macintosh comes in two versions: NetWare for Macintosh
     4.01 and NetWare for Macintosh 3.12.
 
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          NetWare for Macintosh 4.01 is the premier solution for integrating
     Macintosh computers into the NetWare environment. It provides file
     services, print services, administrative utilities, and AppleTalk routing
     for Macintosh users on a NetWare 4 network. NetWare for Macintosh 4.01 also
     allows fast and secure CD-ROM access and DOS-to-Macintosh application
     mapping.
 
          NetWare for Macintosh 3.12 provides NetWare file, print, routing, and
     administrative utilities to Macintosh users and integrates them into the
     NetWare 3 environment.
 
     Personal NetWare.  As the networking industry continues to grow, new users
     are interested in simple and inexpensive entry level networking solutions
     to connect small groups of users together in workgroups. In September 1991
     Novell introduced a new peer-to-peer desktop networking product aimed at
     this market called NetWare Lite 1.0. In July 1992 Novell released an
     updated NetWare Lite 1.1 that improved the performance of NetWare Lite 1.0
     by adding a full network caching and also improved the reliability and
     Windows support.
 
          Novell continued to enhance its desktop networking solutions with the
     release of Personal NetWare in 1993. Personal NetWare is the ideal solution
     for small businesses and for workgroups in larger businesses and
     enterprise-wide NetWare networks. Personal NetWare allows users to connect
     as many as 50 PCs running DOS or MS Windows so they can share hard disks,
     printers, CD-ROM drives and other resources. In addition to tighter
     integration with NetWare, Personal NetWare will include support for mobile
     users and network management at the desktop.
 
          Other features of Personal NetWare include a single-network view,
     single login, full compatibility with other versions of the NetWare network
     operating system, easy management and administration, security,
     autoreconnect, and a flexible configuration to maximize memory use.
 
     Novell DOS.  In September 1991, the Company introduced DR DOS 6.0, a major
     upgrade of its advanced DR DOS operating system. DR DOS 6.0 represents a
     significant advance over DR DOS 5.0 and other competing products with
     respect to features such as memory management, disk caching and
     task-switching. The latest addition to Novell's desktop operating system
     products is Novell DOS 7.
 
          Novell DOS 7 is the first DOS that fully integrates advanced DOS
     technology with networking. Novell DOS 7 advances the DOS standard by
     providing state-of-the-art network and client management utilities,
     workstation security, disk compression, and NetWare, with all inherent
     peer-to-peer networking capabilities. Fully integrated networking makes
     Novell DOS 7 the best DOS client operating system for the Novell NetWare
     network operating system. It is also fully compatible with the installed
     base of DOS and MS Windows applications.
 
     COMMUNICATIONS AND CONNECTIVITY PRODUCTS.  As the leader in local area
     network technology, the Company has made a significant commitment to
     implementing communications and connectivity services within the NetWare
     environment.
 
     Remote PC Access to Networks.  The company provides two types of dial-in
     services for remote PCs:
 
        NetWare for SAA.  NetWare for SAA 1.3B, which runs on both NetWare 3 and
        NetWare 4 platforms, integrates the NetWare network operating system
        with traditional IBM SNA mainframe and AS/400 environments. With NetWare
        for SAA, NetWare clients can access host data and applications while
        simultaneously accessing files and data on NetWare servers. Built as a
        set of NetWare Loadable Modules (NLMs), NetWare for SAA capitalizes on
        the high performance, security, name services, and administration
        features on the NetWare operating system.
 
        NetWare SNA Links.  NetWare SNA Links 2.0 is an NLM that works with
        NetWare for SAA to provide LAN-to-LAN communications over existing SNA
        networks. With NetWare SNA Links, users in geographically dispersed
        branch offices can access remote LAN and host resources over SDLC and
        Token-Ring backbones without requiring specialized software on the host.
        Network supervisors can administer branch office servers from a central
        location using standard NetWare utilities and management products.
 
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          When installed on a NetWare 3 server or a NetWare MultiProtocol Router
     2.0, NetWare SNA Links can route IPX, IP, AppleTalk, and OSI over leased
     lines using the Point-to-Point Protocol or using X.25 private or public
     data networks.
 
INTERNETWORKING PRODUCTS.  Novell's internetworking products connect NetWare
services at headquarters with services at branch offices, providing access to
information and NetWare resources.
 
NetWare MultiProtocol Router.  The NetWare MultiProtocol Router v2.11 and
NetWare MultiProtocol Router Plus v2.11 are software-based bridge/routers that
run on 80386, 80486, and Pentium PCs. These bridge/routers enable users to
connect to remote offices using familiar NetWare and PC technology. NetWare
MultiProtocol Router is ideal for connecting local area networks by routing the
IPX, IP, AppleTalk, and OSI protocols over a wide range of LAN types, and
source-route bridging over Token-Ring. NetWare MultiProtocol Router Plus
provides remote routing and source-bridge routing over leased lines, Frame
Relay, and x.25.
 
UNIX SYSTEMS GROUP.  USG provides a full suite of UNIX operating system and UNIX
connectivity products. Key products include:
 
Operating System Products.  Novell's UnixWare operating system provides a
powerful application server and client for today's distributed computing
environments. The current product offerings are the UnixWare Application Server
1.1 and the UnixWare Personal Edition 1.1. UnixWare uses the network services
available from NetWare and the cross-platform development tools available from
AppWare to make applications available throughout the entire enterprise.
UnixWare is easy to use, enabling users to be productive right away. Its fully
graphical user interface gives users access to all the enterprise-wide
information and services available in the corporate computing environment with
simple point-and-click mouse functions. UnixWare also supports a variety of
international languages.
 
     Optional products for the Application Server systems include: UnixWare
Server Merge for Windows, which provides UnixWare users with multiuser DOS
access and limited multiuser MS Windows access; UnixWare Online Data Manager
1.1, a UNIX System V, industry-standard, robust file system designed to maximize
system and data availability and improve I/O performance; and OracleWare
System-UnixWare Edition, a powerful applications data server platform which
integrates the UnixWare Application Server 1.1 operating system with Oracle 7
cooperative database server on a single CD-ROM disk.
 
     Optional add-on products for UnixWare Personal Edition include UnixWare
NFS, which enables resource-sharing with other UNIX systems; UnixWare C2
Auditing, which records security-related events to help detect attempts to
breach security; and UnixWare Encryption Utilities, which provide support for
DES encryption and decryption.
 
     Novell also supplies the UNIX operating system source code to other UNIX
system vendors. The latest version, UNIX System V Release 4.2 (SVR4.2), unifies
several earlier versions and offers greatly enhanced ease of use and ease of
administration features.
 
UNIX Connectivity Products.  Novell provides several product families designed
to integrate NetWare into the UNIX and TCP/IP environments.
 
     NetWare NFS provides UNIX workstations with transparent access to the
NetWare 3 and NetWare 4 file systems. Once NetWare NFS is installed,
workstations with NFS client services can share files with other NetWare
clients-such as DOS, Macintosh and OS/2 workstations. NetWare NFS enables UNIX
and NetWare clients to share all network printing devices. It also provides an X
Window System application that enables UNIX network supervisors to remotely
manage NetWare servers. NetWare FLeX/IP provides all the services delivered in
the NetWare NFS product except the transparent access to the NFS distributed
file system.
 
     The NetWare NFS Gateway enables DOS and MS Windows users on NetWare to
transparently access files on NFS servers. It extends the users' reach into the
UNIX world yet preserves the familiar NetWare look and feel. The NetWare NFS
Gateway provides easy-to-use, server-based installation, administration and
management.
 
                                        9
   10
 
     Novell's popular LAN WorkPlace family of products provides users with fast,
direct access to enterprise-wide TCP/IP resources, including the Internet, from
a variety of desktop workstations. LAN WorkPlace for DOS offers unsurpassed
flexibility by including both DOS and MS Windows TCP/IP applications, as well as
new native language versions in French, German, Spanish, Portuguese and
Japanese. LAN WorkGroup provides the same versatile connectivity to DOS and MS
Windows users of large NetWare networks; its server-based installation,
maintenance and management greatly reduce administration time and costs. LAN
WorkPlace products are also available for such users of Macintosh and OS/2
systems. Mobile WorkPlace is the newest member of the family, enabling users to
access TCP/IP resources when they're on the road just as if they were in the
office.
 
     NetWare/IP is another way for customers to tightly integrate NetWare
services into their TCP/IP environments. By installing NetWare/IP on existing
NetWare 3 and NetWare 4 servers, customers can create an environment that
supports both the TCP/IP and IPX transport protocols, or one that uses TCP/IP
only.
 
     Novell also offers a solution for integrating Open Systems Interconnection
(OSI) with NetWare. NetWare FTAM from Firefox is a fully FOSIP-compliant FTAM
server that enables a variety of FTAM clients to access the NetWare 3 file
system. This standard protocol-based product provides a key to enabling
multivendor interoperability with NetWare systems.
 
APPWARE SYSTEMS GROUP.  ASG provides tools and technologies for the development
of network-aware applications. Four key requirements are the focus of ASG's
product line: (1) object based tools and systems for use by corporate and
consulting developers for rapid network application development, (2) libraries
for use by commercial software vendors for writing portable source code,
covering dominant desktop and network system services, (3) transaction
processing monitor technology for the creation and management of mission-
critical corporate transaction applications, and (4) operating systems and
network access technologies for office, commercial, and industrial devices to
connect into local area networks.
 
AppWare Bus and AppWare Loadable Modules.  The AppWare Bus and ALMs provide a
model for software components from separate vendors to work together in custom
applications. The AppWare Bus is a sophisticated engine for managing the
interactions between the ALM components. Novell and many third parties provide
high-level, easy to use ALMs covering network, DBMS, communications, multimedia,
and other application fields. When accessed by a development tool such as
Novell's Visual AppBuilder, the AppWare Bus allows all ALMs to be used rapidly
in any combination to create powerful applications. The AppWare Bus and ALMs are
usually bundled with other Novell products, and several OEM agreements are in
place for building within other vendors' development tools.
 
Visual AppBuilder.  Visual AppBuilder is Novell's rapid development tool for
corporate and consulting developers. It provides an intuitive, visual interface
to application construction, empowering developers who need not necessarily be
fluent with traditional languages such as C and C++. Visual AppBuilder accesses
the AppWare Bus and ALMs to provide the component engine and component set for
developers to visually assemble into custom applications. Visual AppBuilder,
when combined with network ALMs, is one of the most effective tools for building
network-aware applications. Visual AppBuilder is targeted for sale through a
variety of distribution channels, and will be bundled with several other Novell
products.
 
ALM SDK.  The ALM SDK is a tool for C and C++ programmers to use to create new
ALMs. The interface to the AppWare Bus is provided, allowing any third party
programmer or vendor to create ALMs that interoperate with Novell's ALMs. The
ALM SDK is bundled with Visual AppBuilder.
 
AppWare Foundation.  AppWare Foundation is a set of libraries which provide an
application programming interface (API) for C and C++ developers to write
portable source code. The problem of portability which is addressed by the
AppWare Foundation is perhaps one of the most important issues facing software
vendors today. Using the AppWare Foundation, a programmer may write code once
for a new application or software component, and simply recompile the code to
run on any of the dominant desktop computing systems, including MS Windows,
MacIntosh, UnixWare and other versions of UNIX, and soon OS/2 and Windows NT.
The Foundation offers such portable APIs covering graphical interfaces,
operating systems, network systems, and network services. AppWare Foundation is
targeted for sale through a variety of
 
                                       10
   11
 
distribution channels, and several OEM relationships have been formed to
distribute the Foundation libraries as a part of third party development tools.
 
Tuxedo.  Derived from Novell's 1993 acquisition of USL, Tuxedo is a
sophisticated transaction processing manager for mission critical
transaction-oriented applications. Tuxedo provides both client and server
software for connecting client applications and server services together with a
highly reliable, high-performance, secure, managed transaction connection. In
use today in mission critical applications within Fortune 500 companies, Tuxedo
is well recognized as a leading offering in its field. Its integration with
NetWare, via NLMs, and AppWare, via ALMs, provides those key Novell products
with effective transaction processing facilities. Tuxedo is sold largely through
OEM agreements with major system software vendors, and directly to large
corporate customers.
 
Extended Networks Group products.  The Extended Networks Group is developing and
providing system software and application technologies for integrating office,
commercial, and industrial devices into NetWare networks. While its products are
not yet announced, they will include technology components such as:
 
     FlexOS.  Novell's FlexOS is a 32-bit real time operating system which is
     most often embedded in business, commercial, and industrial devices to make
     such devices "intelligent". Widely used today in point-of-sale and
     industrial hardware systems, Flex OS will play an important role in the
     extension of NetWare LANs into emerging device markets.
 
     Device-centric ALMs.  AppWare Loadable Modules which control devices
     through NetWare networks will offer complete system control to application
     developers. Given the other ALMs described above, applications will be able
     to be created quickly integrating control over desktop computer functions,
     network functions, and device functions.
 
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 network and communications software products to satisfactorily
meet specific market needs.
 
     The Company's current product development activities include the
enhancement of existing products and the development of products that will
support (1) further integration of NetWare and UNIX environments and the
establishment of UnixWare as an industry-leading UNIX platform; (2) network
management services; (3) global naming services; (4) international networking
standards; (5) integrated peer services in NetWare clients; (6) integration of
current and future desktop operating systems into the overall networking
environment; (7) host-based versions of NetWare, such as NetWare for UNIX and
NetWare for OS/2; (8) processor independent versions of NetWare; (9) additional
network services; (10) technologies for distributed applications development and
operation; (11) AppWare ALMs for a broad range of Novell and UNIX services; and
(12) multiplatform and multivendor APIs for major network services.
 
     During fiscal 1993, 1992, and 1991, product development expenses were
approximately $164.9 million, $120.8 million, and $77.9 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.
 
SALES AND MARKETING
 
     Novell markets its NetWare family of network products and the UnixWare
operating system 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 provides technical support, training,
and field service to its customers from its field offices and corporate
headquarters. The Company also conducts sales and marketing activities from its
offices in Cupertino, Monterey, San Jose, and Sunnyvale, California; Summit, New
Jersey; Austin, Texas; Provo and Sandy, Utah; and from its 33 U.S. domestic and
31 foreign field offices.
 
                                       11
   12
 
Distributors.  Novell has established a network of independent distributors,
which resell the Company's products to dealers, smaller VARs, and computer
retail outlets. As of December 31, 1993, there were approximately 21 domestic
distributors and approximately 113 foreign 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 value added
resellers 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 network software to domestic and international
OEMs for integration with their products. With the acquisitions of USL and DRI,
the number of OEM agreements the Company has increased significantly as USL and
DRI have marketed their products quite extensively through OEMs, both
domestically and internationally.
 
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 master license agreements with approximately
150 of them to date. Additionally, some upgrade products are sold directly to
end users.
 
Export Sales.  In fiscal 1993, 1992, and 1991, approximately 48%, 47%, and 44%,
respectively, of the Company's net sales were to customers outside the
U.S.--primarily distributors. (See Note L of Notes to Consolidated Financial
Statements.) To date, substantially all international sales except Japanese
sales have been invoiced by the Company in U.S. dollars, and in fiscal 1994 the
Company anticipates that substantially all foreign revenues except Japanese
sales, will continue to be invoiced in U.S. dollars. Except for Germany, which
accounted for 11% of revenue in fiscal 1993, 13% of revenue in fiscal 1992 and
10% of revenue in fiscal 1991, no one foreign country accounted for more than
10% of net sales in any period. Except for one multi-national distributor which
accounted for 12% of revenue in fiscal 1993, 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 of networked computer equipment and individual device testing and
evaluation. The knowledge derived from these laboratories is the basis for the
technical publications published by the Company. These activities are designed
to educate the market about local area 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 NetWare networks. Thousands of multiuser
application software packages are now compatible with the NetWare operating
system. In March 1993, the ninth annual BrainShare Conference (formerly
Developers' Conference) was held to inform and educate developers about NetWare
product strategy, NetWare open architecture programming interfaces, and NetWare
third-party product certification programs.
 
SERVICE, SUPPORT, AND EDUCATION
 
     The purpose of any service program is to help users get the most out of the
products they buy. Novell offers a variety of support alternatives and
encourages users to select the services that meet their own needs. These include
the worldwide service and support organization, the Technical Support Alliance,
the CNE program, NAECs, IMSP and the ClientServer NLM Testing Program.
 
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.
 
                                       12
   13
 
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 absence of significant backlog may contribute to
unpredictability in the Company's net income and to fluctuations in the
Company's stock price. See "Factors Affecting Earnings and Stock Price." The
Company's backlog of orders at January 21, 1994, was approximately $35.3
million, compared with $35.7 million at January 22, 1993.
 
COMPETITION
 
     Novell competes in the highly competitive market for computer software,
including in particular, network operating systems, desktop operating systems
and related systems software. In the market for network operating systems,
Novell believes that the principal competitive factors are hardware independence
and compatibility, availability of application software, marketing strength in
desktop operating systems, system/performance, customer service and support,
reliability, ease of use, price/performance, and connectivity with minicomputer
and mainframe hosts.
 
     The market for operating systems software, including network operating
systems and client operating systems, has become increasingly problematic due to
Microsoft's growing dominance in all sectors of the software business. The
Company does not have the product breadth and market power of Microsoft.
Microsoft's dominant position provides it with enormous competitive advantages,
including the ability to unilaterally determine the direction of future
operating systems and to leverage its strength in one or more product areas to
achieve a dominant position in new markets. This position may enable Microsoft
to increase its dominance even if the Company succeeds in continuing to
introduce products with superior performance and features to those offered by
Microsoft.
 
     Microsoft's ability to offer networking functionality in future versions of
MS Windows and Windows NT, or to provide 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 maintain its business. Moreover, Microsoft's
ability to offer products on a bundled basis can be expected to impair the
Company's competitive position with respect to particular products. Novell may
be unable to maintain compatibility with Microsoft's key products, although
Novell will continue to seek to do so.
 
     The Company has not succeeded in establishing significant sales from DR DOS
following its acquisition of Digital Research Inc. in October 1991. The Company
believes that it will continue to be at a substantial competitive disadvantage
in selling its client operating systems due in part to Microsoft's dominance and
certain of Microsoft's pricing and licensing practices. Such competitive
position and practices may prevent the Company from successfully offering
products to a broad variety of customers or from maintaining demand for these
products. There can be no assurance that the Company will be successful in
competing against Microsoft in any market or market segment in the future.
 
     The application software development tools market in which Novell now
operates is also highly competitive. There can be no assurance that Novell will
be successful in competing in this market or any other market in the future.
 
LICENSES, PATENTS AND TRADEMARKS
 
     The Company currently 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
currently holds six United States patents and has numerous United States patents
pending. Additionally, the Company has a number of patents pending in foreign
jurisdictions. No assurance can be given that such patents pending will be
issued or, if issued, will provide protection for the Company's competitive
position. Although the company intends to protect its patent rights vigorously,
there can be no assurance that these measures will be successful. Additionally,
no assurance can be given 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
 
                                       13
   14
 
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 products business.
 
     The software industry is characterized by frequent litigation regarding
copyright, patent and other intellectual property rights. There can be no
assurance that third parties will not assert claims against the Company with
respect to existing or future products or that licenses will be available on
reasonable terms, or at all, 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 the Company'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, 1993, the Company had 4,335 employees. The functional
distribution of its employees was: sales and marketing -- 939; product
development and marketing-1,817; general and administrative -- 487; service,
support and education -- 807; operations -- 146; and joint ventures -- 139. Of
these, 349 employees are located in U.S. field offices, and 755 employees are in
offices outside the U.S. All other Company personnel are based at the Company's
facilities in Utah, California, Colorado, Massachusetts, New Jersey, or Texas.
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 consultants challenging work, educational opportunities,
competitive wages, and, through sales commission plans, bonuses, and stock
option and purchase plans, opportunities to participate financially in the
Company.
 
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 successful
combination of companies in the high technology industry may be more difficult
to accomplish than in other industries. There can be no assurance that Novell
will be successful in integrating acquired businesses into its own, that it will
retain their key technical and management personnel or that Novell will realize
any of the other anticipated benefits of the acquisitions.
 
     The computer software industry has experienced delays in its product
development and "debugging" efforts, and the Company could experience such
delays in the future. Significant delays in developing, completing or shipping
new or enhanced products would adversely affect the Company. Furthermore, it can
be expected that as products become more complex, development cycles will become
longer and more expensive. There can be no assurance that Novell will be able to
respond effectively to technological changes or new product announcements by
others, or the Novell's research and development efforts will be successful.
 
     The Company's industry is characterized by rapid technological change,
resulting in continuing pressure for price/performance improvements in response
to advances in computer software and hardware technology. The Company believes
that its future success will depend on its ability to continue to enhance its
current products and to develop and introduce new products that maintain its
technological leadership and achieve market acceptance.
 
                                       14
   15
 
     In particular, the Company has recently introduced the NetWare 4 operating
system, a new version of the NetWare operating system which provides increased
functionality as compared to prior releases of the NetWare product, including
the ability to support a substantial increase in the number of clients connected
on a single network. As with the introduction of any major new product or
upgrade, the introduction of the product may cause a deferral in orders or
reduction in demand for prior versions of the NetWare operating system, as
customers and value-added resellers evaluate the functionality of the new
product. Moreover, because the new product addresses new market segments and is
offered at a higher price than prior NetWare product releases, the Company is
unable to predict the level of demand for the NetWare 4 operating system which
will actually occur. Should orders and sales for either the NetWare 4 operating
system or prior versions of the NetWare product fall short of the Company's
objectives, the Company could experience excess inventories and unexpected
costs. As a result, the Company's future sales and earnings may be subject to
substantial fluctuations, particularly in the near term.
 
     The introduction of new products also involves material marketing risks due
to the possibility of errors or shortfalls in product performance. Should any
new product experience a high rate of bugs or performance difficulties, the
Company could experience product returns, unexpected warranty expenses and lower
than expected sales. No assurance can be given as to the Company's financial
results during such periods.
 
     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 the Company's shipment
patterns. As is typical in the software industry, a high percentage of Novell's
revenues are earned in the third month of each fiscal quarter and tend to be
concentrated in the latter half of that month. Accordingly, quarterly financial
results are difficult to predict and quarterly financial results may fall short
of anticipated levels. Because the Company's backlog early in a quarter is not
generally 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 and the high
price/earnings ratio at which the Company's common stock trades, any such
shortfall in earnings could have an immediate and very significant adverse
effect on the trading price of the Company's common stock in any given period.
 
     As a result of the foregoing factors and other factors that may arise in
the future, the market price of the Company's common stock may be subject to
significant fluctuations over 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.
 
                                       15
   16
 
ITEM 1A.  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
- ------------------------------------  ---   --------   ----------------------------------------
                                              
Raymond J. Noorda...................   69   1983       Chairman of the Board, President, and
                                                       Chief Executive Officer
Mary M. Burnside....................   46   1989       Office of the President and Chief
                                                       Operating Officer
James R. Tolonen....................   44   1989       Office of the President and Chief
                                                       Financial Officer
Michael J. DeFazio..................   47   1994       Executive Vice President, UNIX Systems
                                                         Group
John W. Edwards.....................   38   1992       Executive Vice President, AppWare
                                                       Systems Group
Richard W. King.....................   37   1993       Executive Vice President, NetWare
                                                       Systems Group
Kanwal S. Rekhi.....................   47   1989       Executive Vice President, Corporate
                                                       Technology and Director
David R. Bradford...................   43   1986       Senior Vice President, General Counsel,
                                                       and Corporate Secretary
Robert W. Davis.....................   36   1994       Senior Vice President, Corporate
                                                       Marketing
Ernest J. Harris....................   46   1994       Senior Vice President, Human Resources
Joseph A. Marengi...................   40   1993       Senior Vice President, Worldwide Sales
Jan E. Newman.......................   33   1992       Senior Vice President, Service and
                                                       Support and Novell Labs
Stephen C. Wise.....................   39   1990       Senior Vice President, Finance
Darcy G. Mott.......................   41   1989       Treasurer

 
     Raymond J. Noorda, a founder of the Company, has been President, Chief
Executive Officer, and a director of the Company since March 1983, and Chairman
of the Board since January 1986.
 
     Mary M. Burnside joined the Company in January 1988 as Materials Manager.
In November 1988, she was promoted to Vice President, Operations. In January
1989 she became Senior Vice President, Operations and was elected a corporate
officer. In November 1991 she became Executive Vice President, Corporate
Services Group. In August 1993 she joined the Office of the President as Chief
Operating Officer.
 
     James R. Tolonen became a Senior Vice President and Chief Financial Officer
of Novell in August 1989 and was elected a corporate officer. In August 1993 he
joined the Office of the President as Chief Financial Officer. He served as Vice
President, Finance, Chief Financial Officer, and Treasurer of Excelan since
1983. A Certified Public Accountant, he also served as Excelan's acting
President from April through August 1985.
 
     John W. Edwards joined the Company in August 1988 as a Senior Marketing
Manager. In November 1989 he became a Product Line Manager and in April 1991 he
became a Director of Product Marketing. In November 1991 he was promoted to
Director of Marketing and in February 1992 he became Vice President, Marketing.
In April 1992 he became Executive Vice President, Desktop Systems Group and was
elected a corporate officer. In August 1993 he became Executive Vice President,
AppWare Systems Group.
 
     Michael J. DeFazio joined the Company as Vice President, UNIX Systems
Group, when it acquired USL in June 1993. In January 1994 he became Executive
Vice President, UNIX Systems Group and was elected a corporate officer. Previous
to the acquisition, he was USL's Executive Vice President, UNIX System V
Software. Prior to the formation of USL in 1989 he was with AT&T, responsible
for business planning, product management, marketing and licensing for UNIX
System V and associated system software.
 
                                       16
   17
 
     Richard W. King joined the Company in 1985 as Manager of Software
Development and was promoted to Vice President, Software Development in April
1986. In September 1987 he became Vice President, NetWare Products Division and
in September 1991 he became Vice President, Service and Support. Then in August
1993 he was promoted to Executive Vice President, NetWare Systems Group and was
elected a corporate officer.
 
     Darrell L. Miller joined the Company in November 1987 as Vice President of
Corporate Marketing. In June 1988 he became Vice President and General Manager
of the Communications Products Division. In March 1989, he was promoted to
Executive Vice President, Software Group and was elected a corporate officer. In
March 1990, he became Executive Vice President, Strategic Relations. In November
1993, he resigned from the Company.
 
     Kanwal S. Rekhi has been an Executive Vice President from June 1989 to the
present, and is currently Executive Vice President, Corporate Technology and a
director of the Company. Mr. Rekhi, a founder and executive officer of Excelan,
Inc., a company acquired by Novell in June 1989, served as Excelan's President
and Chief Executive Officer from 1988 to June 1989 and as Executive Vice
President of Business Development from 1986 to 1988. Mr. Rekhi was also
Secretary of Excelan from 1982 to 1988 and a member of its Board of Directors
from 1986 to June 1989.
 
     David R. Bradford joined the Company in October 1985 as Corporate Counsel.
He became Corporate Secretary in January 1986, Senior Corporate Counsel in April
1986, and Senior Vice President, General Counsel, and Corporate Secretary in
April 1989.
 
     Robert W. Davis joined the Company when it acquired Excelan in June 1989
where he had held various marketing positions since 1986. In November 1992 he
became Vice President, Connectivity Products and then in August 1993 he became
Vice President Marketing, UNIX Systems Group. In January 1994 he became Senior
Vice President, Corporate Marketing and was elected a corporate officer.
 
     Ernest J. Harris joined the Company when it acquired Excelan in June 1989
as Vice President, Human Resources. He had served in the same capacity at
Excelan since 1984. In May 1990 he became Senior Vice President, Human Resources
and in January 1994 was elected a corporate officer.
 
     Joseph A. Marengi joined the Company when it acquired Excelan in June 1989
where he had been National Sales Manager since January 1989. He served in
various sales positions with the Company until October 1992 when he became
Senior Vice President, Worldwide Sales. In August 1993 he was elected a
corporate officer.
 
     Jan E. Newman joined the Company in June 1986 as a Programmer. In July 1988
he became Manager of Documentation and Testing, followed by a promotion to
Director of Software Services in November 1988. In March 1991 he became Vice
President, Support and Services and was made Vice President, NetWare Products in
November 1991. In April 1992 he became Executive Vice President, NetWare Systems
Group and was elected as a corporate officer. In August 1993 he became Senior
Vice President, Service and Support and Novell Labs.
 
     Stephen C. Wise became Vice President, Accounting and Planning in January
1990 and was elected a corporate officer. In January 1991, he became Vice
President and Corporate Controller. In December 1993 he became Senior Vice
President, Finance. He had served previously as Corporate Controller and
Assistant Treasurer of Excelan since July 1984.
 
     Darcy G. Mott, a Certified Public Accountant, joined the Company in
September 1986 as Manager, Financial Reporting and Taxes. He became Corporate
Controller in February 1989, was elected an officer in November 1989, and became
Treasurer in January 1991.
 
ITEM 2.  PROPERTIES
 
     The Company owns and occupies a 542,000 square-foot office complex in
Provo, Utah, which is used as corporate headquarters and a product development
center. In March 1993, the Company purchased a 52,000 square foot building in
San Jose, California, which it had previously leased. It is used primarily for
product
 
                                       17
   18
 
development. The Company also owns a 175,000 square-foot office complex in
Austin, Texas. Approximately 80,000 square-feet of this complex is used as a
product development center and the remainder is leased to tenants. Additionally,
the Company owns a 100,000 square-foot office building in Herndon, Virginia. The
Company occupies approximately 1/2 of the space in this building and leases the
remainder to tenants. Additionally, the Company owns approximately 48 acres of
undeveloped land in San Jose, California and an additional 17 acres of
undeveloped land in Provo, Utah, for future expansion.
 
     The Company has subsidiaries in Australia, Belgium, Brazil, Canada, France,
Germany, India, Italy, Japan, Korea, Mexico, South Africa, Spain, Sweden,
Switzerland, and the United Kingdom--each of which leases its facilities.
 
     The Company leases offices for product development in Cupertino, Monterey,
San Jose, Sunnyvale, and Walnut Creek, California; Boulder, Colorado; Natick,
Massachusetts; Summit, New Jersey; Salt Lake City and Sandy, Utah; Toronto,
Canada; and Hungerford, U.K.; and a distribution facility in San Jose,
California. The Company also leases sales and support offices in Arizona,
California (6), Colorado, Connecticut, Florida (2), Georgia, Illinois,
Massachusetts (2), Michigan, Minnesota, Missouri, New Jersey, New York (2),
North Carolina, Ohio (2), Oregon, Pennsylvania (2), Tennessee, Texas (3), Utah,
Washington, Hong Kong, Singapore and Taiwan.
 
     The terms of such leases vary from month to month to up to ten years.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     On November 10, 1993, 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 June 23, 1993 through July 26, 1993. Although the case
is in its earliest stages, Novell does not believe that the resolution of this
legal matter will have a material adverse effect on its financial position or
results of operations.
 
     In December of 1991, Roger Billings and his International Academy of
Science, (the "Academy") filed suit against Novell alleging that the Company
infringes on a patent allegedly owned by the Academy. The case is still in its
pretrial phase. The Company believes that the ultimate resolution of this legal
proceeding will not have a material adverse effect on its financial position or
results of operations.
 
     The Company is a party to a number of additional legal proceedings 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 or results of operations.
 
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.
 
                                    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 "Novell, Inc.
Common Stock" on page 38 of the Company's Annual Report to Shareholders for the
fiscal year ended October 30, 1993.
 
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 20 of the Company's Annual Report to
Shareholders for the fiscal year ended October 30, 1993.
 
                                       18
   19
 
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 21 through 24 of the Company's Annual Report to Shareholders for the
fiscal year ended October 30, 1993.
 
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
25 through 36 of the Company's Annual Report to Shareholders for the fiscal year
ended October 30, 1993, and to the information contained in the section
captioned "Selected Consolidated Quarterly Financial Data" on page 37 of the
Company's Annual Report to Shareholders for the fiscal year ended October 30,
1993.
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    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
for the Annual Meeting of Shareholders to be held March 9, 1994, filed with the
Securities and Exchange Commission pursuant to Regulation 14A under the
Securities and Exchange Act of 1934, as amended. Information regarding executive
officers of Novell is set forth under the caption "Executive Officers" in Item
1a hereof.
 
     Each director and each officer of the Company 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. During the period from
November 1, 1992 to fiscal 1993 year end, Director Elaine R. Bond filed her Form
3 upon joining the Board of Directors in a timely manner but inadvertently
omitted a derivative security that she beneficially owned. She subsequently
amended such Form 3 to reflect such ownership, which amendment was filed late.
 
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 March 9, 1994, 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
March 9, 1994, filed with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
 
                                       19
   20
 
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 "Compensation
Committee Interlocks and Insider Participation" of the Registrant's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on March 9,
1994, filed with the Securities and Exchange Commission pursuant to Regulation
14A under the Securities Act of 1934, as amended.
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
     (a) The following documents are filed as a part of this annual report on
Form 10-K for Novell, Inc.:
 
          1. The Consolidated Financial Statements, the Notes to Consolidated
             Financial Statements and the Report of Ernst & Young, Independent
             Auditors, listed below are incorporated herein by reference to
             pages 25 through 36 of the Company's Annual Report to Shareholders
             for the fiscal year ended October 30, 1993.
 
           Consolidated Statements of Operations for the fiscal years ended
           October 30, 1993, October 31, 1992, and October 26, 1991.
 
           Consolidated Balance Sheets at October 30, 1993 and October 31, 1992.
 
           Consolidated Statements of Shareholders' Equity for the fiscal years
           ended October 30, 1993, October 31, 1992, and October 26, 1991.
 
           Consolidated Statements of Cash Flows for the fiscal years ended
           October 30, 1993, October 31, 1992, and October 26, 1991.
 
           Notes to Consolidated Financial Statements.
 
           Report of Ernst & Young, Independent Auditors.
 


                                                                                          PAGE
                                                                                          ----
                                                                                    
          2.   Financial Statement Schedules:
               Schedule I -- Marketable Securities......................................    22
               Schedule VIII -- Valuation and Qualifying Accounts.......................    24
               Schedule X -- Supplementary Income Statement Information.................    25
               Schedules other than those listed above are omitted because they are 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..........    26

 
     (b) Reports on Form 8-K
 
        No reports on Form 8-K were filed by the Registrant during the quarter
        ended October 30, 1993.
 
                                       20
   21
 
                                   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 24, 1994                      By     /s/ RAYMOND J. NOORDA
                                             (Raymond J. Noorda, Chairman of the
                                                            Board,
                                                President 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/ RAYMOND J. NOORDA            Chairman of the Board,             January 24, 1994
           (Raymond J. Noorda)                  President, Chief Executive
                                                Officer and Director
                                                (Principal Executive
                                                Officer)
               /s/ JAMES R. TOLONEN           Office of the President            January 24, 1994
            (James R. Tolonen)                  and Chief Financial Officer
                                                (Principal Financial and
                                                Accounting Officer)
               /s/ KANWAL S. REKHI            Executive Vice President           January 24, 1994
            (Kanwal S. Rekhi)                   Corporate Technology
                                                and Director
                 /s/ ELAINE R. BOND           Director                           January 24, 1994
             (Elaine R. Bond)
               /s/ JACK L. MESSMAN            Director                           January 24, 1994
            (Jack L. Messman)
               /s/ LARRY W. SONSINI           Director                           January 24, 1994
            (Larry W. Sonsini)
                  /s/ IAN R. WILSON           Director                           January 24, 1994
             (Ian R. Wilson)

 
                                       21
   22
 
                                  NOVELL, INC.
 
                      SCHEDULE I -- MARKETABLE SECURITIES
 


                                             NUMBER OF                                   CARRYING
                                             SHARES OR                      MARKET        AMOUNT
                                             UNITS --                       VALUE         IN THE
                                             PRINCIPAL                     OF EACH       10/30/93
            NAME OF ISSUER AND               OF BONDS       COST OF        ISSUE AT       BALANCE
              TITLE OF ISSUE                 OR NOTES      EACH ISSUE      10/30/93        SHEET
- -------------------------------------------  ---------    ------------   ------------
                                                                            
TAX-EXEMPT MUNICIPAL
    INSTRUMENTS:(1)
  Arapahoe, CO Capital Improvement Trust
     Fund..................................  2,300,000    $  2,300,000   $  2,300,000   $ 2,300,000
  Arapahoe, CO Capital Improvement Trust
     Fund..................................  1,500,000    $  1,500,000   $  1,500,000   $ 1,500,000
  Blackrock Insured Series T-28............       100     $  4,993,200   $  5,000,000   $ 4,993,200
  Blackrock Insured Series T-28............        24     $  1,199,760   $  1,200,000   $ 1,199,760
  Brazos Higher Education Series A.........  1,500,000    $  1,500,000   $  1,500,000   $ 1,500,000
  Connecticut Special TO Revenue Bonds.....  3,880,000    $  3,880,000   $  3,880,000   $ 3,880,000
  Connecticut General Obligation Bonds.....  3,000,000    $  3,000,000   $  3,000,000   $ 3,000,000
  Dallas Fort Worth Regional Airport
     Bond..................................  5,000,000    $  5,000,000   $  5,000,000   $ 5,000,000
  Hawaii State Housing & Finance Corp......  5,000,000    $  5,000,000   $  5,000,000   $ 5,000,000
  Homestead, FL Spec Insur Assess Rev C1...  2,000,000    $  2,000,000   $  2,000,000   $ 2,000,000
  Homestead, FL Spec Insur Assess Rev D9...  1,900,000    $  1,900,000   $  1,900,000   $ 1,900,000
  Illinois HDA Series A....................  3,000,000    $  3,000,000   $  3,000,000   $ 3,000,000
  Illinois HDA Series 86A..................  1,765,000    $  1,765,000   $  1,765,000   $ 1,765,000
  Intercapital Insured Income Trust 2......        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Intercapital Insured Income Trust Series
     4.....................................        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Intercaptial Insured AMP Series
     Thursday..............................        80     $  4,000,000   $  4,000,000   $ 4,000,000
  Intercapital Insured Income Trust Series
     W.....................................       100     $  5,000,000   $  5,000,000   $ 5,000,000
  Intercapital Quality Muni Income Series
     1.....................................        45     $  2,250,000   $  2,250,000   $ 2,250,000
  Intercapital Quality Muni Trust Series
     A.....................................        66     $  3,300,000   $  3,300,000   $ 3,300,000
  Intercapital Quality Income Series 5.....        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Joliet Regional Port District, IL ADJ
     IBR...................................  2,400,000    $  2,400,000   $  2,400,000   $ 2,400,000
  Kentucky HC Revenue Bonds................  1,000,000    $  1,000,000   $  1,000,000   $ 1,000,000
  Lee County, FL School Board CTF Series
     A.....................................  2,000,000    $  2,000,000   $  2,000,000   $ 2,000,000
  Lone Star Airport Series B-1.............  1,700,000    $  1,700,000   $  1,700,000   $ 1,700,000
  St Francis, Louisiana PFA................  3,000,000    $  3,000,000   $  3,000,000   $ 3,000,000
  Maine State Educational Loan Marketing
     Corp..................................  4,000,000    $  4,000,000   $  4,000,000   $ 4,000,000
  Maine State Housing Authority............  4,500,000    $  4,500,000   $  4,500,000   $ 4,500,000
  Maryland State CDA DHCD SFM..............  2,545,000    $  2,545,000   $  2,545,000   $ 2,545,000
  Massachusetts State HFA..................  4,000,000    $  4,000,000   $  4,000,000   $ 4,000,000
  Massachusetts HFA SFMR Series 7..........  2,685,000    $  2,685,000   $  2,685,000   $ 2,685,000
  Michigan State BAE Series A..............  2,500,000    $  2,500,000   $  2,500,000   $ 2,500,000
  Minnesota HFA SFMR.......................  4,000,000    $  4,000,000   $  4,000,000   $ 4,000,000
  Missouri State EI & ERA Series A.........  1,800,000    $  1,791,018   $  1,800,000   $ 1,791,018
  Montana Board of Housing SFMR C-2........  2,055,000    $  2,055,000   $  2,055,000   $ 2,055,000
  Muniyield Florida Insured Fund...........        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Muniyield Insured Fund IB................       100     $  5,000,000   $  5,000,000   $ 5,000,000
  Muniyield Insured Fund IE................        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Muniyield New Jersey Fund................        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Muniyield Qual Fund II-B Series B........       100     $  4,987,650   $  5,000,000   $ 4,987,650
  Muniyield Quality I-A Fund...............       100     $  5,000,000   $  5,000,000   $ 5,000,000
  Nuveen Insured Cal Prem Inc Muni Fund....        69     $  3,450,000   $  3,450,000   $ 3,450,000
  Nuveen Pennsylvania Quality Income
     Thursday..............................        80     $  4,000,000   $  4,000,000   $ 4,000,000
  Nuveen Premium Income Muni Fund..........  3,000,000    $  2,997,120   $  3,000,000   $ 2,997,120
  Nuveen Quality Inc Series M..............        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Ohio State Highway GO Series R...........  4,500,000    $  4,598,955   $  4,500,000   $ 4,598,955
  Orange County, CA Apt. Development
     Corp..................................  3,000,000    $  3,000,000   $  3,000,000   $ 3,000,000
  Orlando, FL UCW&E Revenue Refunding......  3,065,000    $  3,065,000   $  3,065,000   $ 3,065,000
  Palm Beach County, FL School District
     GO....................................  3,435,000    $  3,437,301   $  3,435,000   $ 3,437,301
  Panhandle Plains, TX HEW Series 92-A
     SLRB..................................  3,000,000    $  3,000,000   $  3,000,000   $ 3,000,000
  Pennsylvania Housing Finance Agency......  3,250,000    $  3,250,000   $  3,250,000   $ 3,250,000
  Pittsburgh PA URAHI 92-A.................  2,000,000    $  2,000,000   $  2,000,000   $ 2,000,000

 
                                       22
   23
 


                                             NUMBER OF                                   CARRYING
                                             SHARES OR                      MARKET        AMOUNT
                                             UNITS --                       VALUE         IN THE
                                             PRINCIPAL                     OF EACH       10/30/93
            NAME OF ISSUER AND               OF BONDS       COST OF        ISSUE AT       BALANCE
              TITLE OF ISSUE                 OR NOTES      EACH ISSUE      10/30/93        SHEET
- -------------------------------------------  ---------    ------------   ------------
                                                                            
  Rhode Island H&MFC Ser 86-A..............  1,500,000    $  1,500,000   $  1,500,000   $ 1,500,000
  Sisters of Charity Health Facility.......  1,300,000    $  1,300,000   $  1,300,000   $ 1,300,000
  Tooele County, UT Series 1992-A WTRB.....  2,700,000    $  2,700,000   $  2,700,000   $ 2,700,000
  Tooele County, UT Series 1992-A WTRB.....  4,000,000    $  4,000,000   $  4,000,000   $ 4,000,000
  Tooele County, UT Series 1992-A WTRB.....  2,000,000    $  2,000,000   $  2,000,000   $ 2,000,000
  Utah State General Obligation Series
     92-C..................................  2,500,000    $  2,500,000   $  2,500,000   $ 2,500,000
  Van Kampen Merritt Muni Trust Series D...        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Van Kampen Merritt Pennsylvania..........        75     $  3,750,000   $  3,750,000   $ 3,750,000
  Van Kampen Merritt Trust Inv Grade A.....        70     $  3,500,000   $  3,500,000   $ 3,500,000
  Van Kampen Merritt Trust Inv Grade
     Florida...............................        60     $  3,000,000   $  3,000,000   $ 3,000,000
  Vermont HFA Series 88-A..................  3,085,000    $  3,085,000   $  3,085,000   $ 3,085,000
  Wake County, NC Industrial Facilities
     PCR...................................  3,000,000    $  3,000,000   $  3,000,000   $ 3,000,000
  Washington State HF SFMR Series 92.......  2,260,000    $  2,260,000   $  2,260,000   $ 2,260,000
  Wisconsin State GO Refunding Series 1....  3,880,000    $  3,880,000   $  3,880,000   $ 3,880,000
  Wisconsin State GO Refunding.............  2,000,000    $  2,000,000   $  2,000,000   $ 2,000,000
                                                          ------------   ------------   -----------
          SUBTOTAL.........................               $200,025,004   $199,955,000   $200,025,004
MONEY MARKET FUNDS American Bond Fund......  7,898,556    $  7,898,556   $  7,898,556   $ 7,898,556
  American Capital-High Yield
     Tax-Exempt-A..........................  4,494,241    $  4,494,241   $  4,494,241   $ 4,494,241
  Fidelity Spartan Money Market Fund.......  6,907,372    $  6,907,372   $  6,907,372   $ 6,907,372
  Fidelity Tax-Exempt Money Market Trust...  3,811,922    $  3,811,922   $  3,811,922   $ 3,811,922
  Kemper High Yield Money Market Fund......  17,711,225   $ 17,711,225   $ 17,711,225   $17,711,225
  Putnum Daily Dividend Trust MM Fund......  4,523,528    $  4,523,528   $  4,523,528   $ 4,523,528
  Sentra Prime Cash Money Market Fund......  4,549,797    $  4,549,797   $  4,549,797   $ 4,549,797
  Stein Roe Cash Reserve Money Market
     Fund..................................  1,273,546    $  1,273,546   $  1,273,546   $ 1,273,546
                                                          ------------   ------------   -----------
          SUBTOTAL.........................               $ 51,170,187   $ 51,170,187   $51,170,187
MUTUAL FUNDS
  American High Income.....................    90,760     $  1,382,389   $  1,406,785   $ 1,382,389
  Calvert Tax Free Reserves................  1,177,578    $ 12,572,876   $ 12,623,631   $12,572,876
  Fidelity Advisor High Yield..............   478,461     $  5,665,358   $  5,746,319   $ 5,665,358
  Kemper US Government Securities..........   527,401     $  4,894,280   $  4,899,554   $ 4,894,280
  Kemper Diversified Income................   551,040     $  4,601,185   $  4,628,737   $ 4,601,185
  Liberty High Income Bond Fund............   451,618     $  5,039,908   $  5,103,278   $ 5,039,908
  Putnam High Yield Adv-Bbct...............  1,127,643    $ 11,693,655   $ 11,693,655   $11,693,655
  Putnam Income Fund.......................   654,265     $  4,815,392   $  4,815,392   $ 4,815,392
  Putnam High Yield-BBBA...................   882,251     $ 11,601,601   $ 11,601,601   $11,601,601
                                                          ------------   ------------   -----------
          SUBTOTAL.........................               $ 62,266,644   $ 62,518,952   $62,266,644
OTHER
  Kansas City Power & Light A..............  5,000,000    $  5,000,000   $  5,000,000   $ 5,000,000
  Lasmo Funding A..........................         3     $  3,000,000   $  3,000,000   $ 3,000,000
  Lasmo Funding C..........................         4     $  4,000,000   $  4,000,000   $ 4,000,000
  Gupta Common Stock.......................  1,535,000    $  9,593,750   $ 23,025,000   $ 9,593,750
  Hummer Winblad Venture Partners II.......   200,000     $    200,000   $    200,000   $   200,000
  West One Time Deposit....................   345,000     $    345,000   $    345,000   $   345,000
                                                          ------------   ------------   -----------
          SUBTOTAL.........................               $ 22,138,750   $ 35,570,000   $22,138,750
          TOTAL............................               $335,600,585   $349,214,139   $335,600,585
                                                          ------------   ------------   -----------
                                                          ------------   ------------   -----------

 
- ------------
 
(1) The portfolio includes tax exempt municipal bonds with put features and
    interest rates that are reset periodically as specified with no fluctuation.
    It also includes tax exempt commercial paper, and tax exempt auction rate
    instruments.
 
                                       23
   24
 
                                  NOVELL, INC.
 
                SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
 


                                                      ACCOUNTS RECEIVABLE ALLOWANCE
                                           ----------------------------------------------------
                                           BALANCE AT   ADDITIONS                    BALANCE AT
                                           BEGINNING    CHARGED TO                     END OF
                                           OF PERIOD    OPERATIONS   DEDUCTIONS(1)     PERIOD
                                           ----------   ----------   -------------   ----------
                                                                         
Fiscal year ended October 26, 1991.......  $14,212,000  $8,737,000     $1,976,000    $20,973,000
Fiscal year ended October 31, 1992.......  $20,973,000  $14,353,000    $ 584,000     $34,742,000
Fiscal year ended October 30, 1993.......  $34,742,000  $18,868,000    $9,344,000    $44,266,000

 
- ------------
 
(1) Write-off of uncollectible accounts
 
                                       24
   25
 
                                  NOVELL, INC.
 
             SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
 


                                                     CHARGES TO COSTS AND EXPENSES
                                   -----------------------------------------------------------------
                                   FISCAL YEAR ENDED       FISCAL YEAR ENDED       FISCAL YEAR ENDED
                                      OCTOBER 26,             OCTOBER 31,             OCTOBER 30,
                                         1991                    1992                    1993
                                   -----------------       -----------------       -----------------
                                                                          
Royalties........................     $ 7,906,000             $11,726,000             $16,441,000
Advertising costs................     $27,980,000             $35,652,000             $38,719,000

 
                                       25
   26
 
                                 EXHIBIT INDEX
 


EXHIBIT
NUMBER                                       DESCRIPTION
- ------
      
  3.1    Restated Certificate of Incorporation.(4) (Exhibit 3.1)............................
  3.2    By-Laws. (1)(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    Rights Agreement dated December 7, 1988, between Novell, Inc. and Mellon Bank
         (East) N.A., as Rights Agent, relating to the Shareholder Rights Plan.(3)(Exhibit
         1)
 10.1    Novell, Inc. Stock Option Plan.(8)(Exhibit 10.15)..................................
 10.2    Novell, Inc., Employee Retirement and Savings Plan dated December 8, 1986.
         (2)(Exhibit 10.9)..................................................................
 10.3    Agreement and Plan of Reorganization dated March 23, 1989, among Novell, Inc.;
         LansubCorporation; and Excelan, Inc.(5)(Appendix A)................................
 10.4    Novell/Excelan Stock Option Plan. (6)(Exhibit 4.3).................................
 10.5    Novell, Inc. 1989 Employee Stock Purchase Plan.(7)(Exhibit 4.1)....................
 10.6    Agreement and Plan of Reorganization dated July 16, 1991, among Novell, Inc.; MDAC
         Corp.; and Digital Research Inc. (9) (Appendix A)..................................
 10.7    Novell, Inc. 1991 Stock Plan.(10)(Exhibit 10.1)....................................
 10.8    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. (11)(Appendix A).........................
 10.9    UNIX System Laboratories, Inc. Stock Option Plan.(12) (Exhibit 4.3)
   11    Statement regarding computation of per-share earnings.(13).........................
   13    Company's Annual Report to Shareholders for the fiscal year ended October 30,
         1993.(13)..........................................................................
   22    Subsidiaries of the Registrant.(13)................................................
   24    Consent of Ernst & Young, independent auditors.(13)................................

 
- ----------
 
 (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
     December 7, 1988 (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
     on July 27, 1989 (File No. 33-29798).
 
 (7) Incorporated by reference to the Exhibit identified in parentheses, filed
     as an exhibit in the Registrant's Registration Statement on Form S-8, filed
     September 28, 1989 (File No. 33-31299).
 
 (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
     on September 4, 1990 (File No. 33-36673).
 
 (9) 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).
 
(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
     June 5, 1992 (File No. 33-48395).
 
(11) 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).
 
(12) 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).
 
(13) Filed herewith.
 
                                       26

EX-11

   1
 
                                                                      EXHIBIT 11
 
                                  NOVELL, INC.
 
             STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
 
     The computation of common and common share equivalents is as follows:
 


                                                                     FISCAL YEAR ENDED
                                                          ---------------------------------------
                                                          OCTOBER 26,   OCTOBER 31,   OCTOBER 30,
                                                             1991          1992          1993
                                                          -----------   -----------   -----------
                                                                      (IN THOUSANDS)
                                                                             
Weighted average number of common shares outstanding*....   285,464       296,865       307,110
Number of common share equivalents resulting from stock
  options, computed using the treasury stock method*.....    10,504        11,239         7,299
                                                          -----------   -----------   -----------
Number of common and common share equivalents used in
  computation*...........................................   295,968       308,104       314,409
                                                          -----------   -----------   -----------
                                                          -----------   -----------   -----------

 
- ------------
 
* All share amounts reflect the August 12, 1991 and August 26, 1992 two-for-one
  stock splits retroactively.
 
                                       27

EX-13

   1
 
                                                                      EXHIBIT 13
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 


                           OCTOBER 30,    OCTOBER 31,    OCTOBER 26,    OCTOBER 27,    OCTOBER 28,
                              1993           1992           1991           1990           1989
                           -----------    -----------    -----------    -----------    -----------
                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                        
Statement of Operations
Net sales..................  $1,122,896    $ 933,370      $ 640,079      $ 497,512      $ 421,877
Gross profit...............    898,365       749,194        516,785        365,185        269,539
Income from operations.....     74,225       356,862        226,138        134,220         71,541
Income before taxes........    104,048       377,318        248,074        145,106         77,058
Income taxes...............    139,208       128,288         85,586         50,787         28,511
Net income (loss)..........    (35,160)      249,030        162,488         94,319         48,547
Net income (loss) per
  share....................       (.11)          .81            .55            .34            .18
Pro forma net income*......    282,325       249,030        162,488         94,319         48,547
Pro forma net income
  per share*...............        .90           .81            .55            .34            .18
Balance Sheet
Cash and short-term
  investments..............  $ 664,070     $ 545,260      $ 346,765      $ 254,776      $ 129,803
Working capital............    821,771       716,033        434,854        308,342        216,400
Total assets...............  1,343,855     1,096,696        726,250        494,438        346,620
Shareholders' equity.......    996,499       937,806        598,585        398,283        235,808
Key Ratios
Current ratio..............        4.6           5.8            4.7            4.3            5.0
Pro forma return on
  sales*...................       25.1%         26.7%          25.4%          19.0%          11.5%
Pro forma return on average
  total assets*............       23.1%         27.3%          26.6%          22.4%          15.5%
Pro forma return on average
  equity*..................       29.2%         32.4%          32.6%          29.7%          23.7%
Growth
  Percentages--increases
Net sales..................       20.3%         45.8%          28.7%          17.9%          21.6%
Pro forma net income*......       13.4%         53.3%          72.3%          94.3%          35.3%
Pro forma net income per
  share*...................       11.1%         47.3%          61.8%          88.9%          28.6%
Book value per share.......        3.5%         50.0%          47.5%          58.4%          30.9%

 
- ------------
 
* Excluding the impact of one-time charges of $320,500 ($317,485 net of tax) in
fiscal 1993.
 
                                       20
   2
 
          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS
 
INTRODUCTION
 
     Novell's business strategy is to be a leading supplier of software products
for the network computing industry. Over the past several years the Company has
issued common stock or paid cash to acquire technology companies, invested cash
in other technology companies, and formed strategic alliances with still other
technology companies. Novell undertook all of these transactions to promote the
growth of the network computing industry, and in many cases to also broaden the
Company's business as a system software supplier.
 
     In December 1990, the Company announced that Canon, Fujitsu, NEC, Sony and
Toshiba, five major Japanese computer companies, joined SOFTBANK Corporation and
Novell as investment partners in Novell Japan, Ltd., a Tokyo-based joint venture
formed in April 1990. Novell has a 54% ownership interest, and accordingly, the
financial statements of Novell Japan, Ltd. are consolidated in the financial
statements of the Company, with the minority interest in profit or loss offset
within other income and expense.
 
     In April 1991, the Company invested $15.0 million in UNIX System
Laboratories, Inc. (USL), a subsidiary of AT&T that develops and licenses the
UNIX operating system and other standards-based software to customers worldwide.
In December 1991, the Company announced the formation of Univel, a joint venture
with USL, formed to accelerate the expanded use of the UNIX operating system in
the personal computer and network computing marketplace. Novell and USL
contributed cash and technology rights to Univel. Then in June 1993, the Company
acquired the remaining portion of USL by issuing approximately 11.1 million
shares of Novell common stock valued at $321.8 million in exchange for all of
the outstanding stock of USL not previously owned by Novell and assumed
additional liabilities of $9.4 million. The transaction was accounted for as a
purchase and, on this basis, resulted in a one-time write-off of $268.7 million
for purchased research and development in the third quarter of fiscal 1993.
 
     On October 28,1991, the Company completed a merger with Digital Research
Inc. (DRI), a producer of personal computer operating software, whereby DRI
became a wholly owned subsidiary of Novell. There were 6.0 million shares of
Novell common stock exchanged for all of the outstanding stock of DRI. This
transaction was accounted for as a pooling of interests; however, prior year
financial statements have not been restated due to immateriality.
 
     In April 1992, the Company purchased all of the outstanding stock of
International Business Software, Ltd. (IBS), a developer of distributed
computing technology for Apple Macintosh computers, for $5.2 million cash
whereby IBS became a wholly owned subsidiary of Novell.
 
     In June 1992, the Company purchased all of the outstanding stock of Annatek
Systems, Inc. (Annatek), a developer of software distribution products, for
$10.0 million cash, whereby Annatek became a wholly owned subsidiary of Novell.
 
     In June 1993, the Company purchased all of the outstanding stock not
previously owned by Novell of Serius Corporation (Serius), a developer of
object-based application tools, for $17.0 million cash and assumed liabilities
of $5.0 million, whereby Serius became a wholly owned subsidiary of Novell.
Novell previously had invested cash of $1.1 million in Serius. This transaction
was accounted for as a purchase and, on this basis, resulted in a one-time
write-off of $22.1 million for purchased research and development.
 
     In June 1993, the Company acquired all of the outstanding stock of Software
Transformation, Inc. (STI), a developer of software development tools, by
issuing approximately 800,000 shares of Novell common stock in exchange for all
of the outstanding stock of STI. The transaction was accounted for as a pooling
of interests; however, prior periods were not restated due to immateriality.
 
     In July 1993, the Company acquired all of the outstanding stock of Fluent,
Inc. (Fluent), a developer of multimedia software for personal computers, for
$18.5 million cash and assumed liabilities of $3.0 million, whereby Fluent
became a wholly owned subsidiary of Novell. The transaction was accounted for as
a purchase
 
                                       21
   3
 
and, on this basis, resulted in a one-time write-off of $20.7 million for
purchased research and development in the third quarter of fiscal 1993.
 
     The Company will continue to look for similar acquisitions, investments or
strategic alliances which it believes complement its overall business strategy.
 
RESULTS OF OPERATIONS
 
NET SALES
 


                                                   1993     CHANGE     1992     CHANGE     1991
                                                 --------   ------    -------   ------    -------
                                                                           
Net sales (millions)...........................  $1,122.9     20%     $ 933.4     46%     $ 640.1

 
     Throughout fiscal 1993, 1992 and 1991, sales of network computing software
products have continued to increase as a percentage of net sales. Software
revenue represented approximately 92%, 91% and 89% of net sales in fiscal 1993,
1992 and 1991, respectively. The growth in software revenue in fiscal 1993 was
21% over fiscal 1992, and in fiscal 1992 software revenue grew 49% over fiscal
1991.
 
     Fiscal 1993 revenues include approximately 4 1/2 months of USL revenues
subsequent to the merger date. These revenues represented 3% of total revenue in
fiscal 1993 and this new revenue contributed 4% to the Company's overall revenue
growth year over year. The additional revenue growth in fiscal 1993 compared to
fiscal 1992 is the result of volume increases in the Company's recently released
NetWare 4 products, NetWare 3 products, software royalties, communication
products, connectivity products, training and UnixWare, offset by volume
decreases in the NetWare 2 products and DR DOS.
 
     Fiscal 1991 revenues do not include any DRI revenue as the merger with DRI
was completed on the first day of fiscal 1992 and the prior year has not been
restated due to immateriality. DRI accounted for 6% of total revenue in fiscal
1992 and this new revenue contributed 9% to the Company's overall revenue growth
year over year. The additional growth in fiscal 1992 compared to fiscal 1991 is
the result of volume increases in the Company's NetWare 3 products, software
royalties, communication products, connectivity products, and training offset by
volume decreases in the NetWare 2 products.
 
     In addition, net sales were favorably affected by an increase in export
sales, which accounted for approximately 48% of net sales in fiscal 1993, 47% in
fiscal 1992, and 44% in fiscal 1991. However, the rate of export sales growth
began to slow down in late fiscal 1992 and throughout fiscal 1993 primarily due
to weakened European economies. Despite this slowdown in Europe, the Company
expects that export sales will continue to grow at approximately the same rate
as domestic sales in fiscal 1994.
 
GROSS PROFIT
 


                                                   1993     CHANGE    1992     CHANGE    1991
                                                  ------    ------   ------    ------   ------
                                                                         
Gross profit (millions).......................... $898.4      20%    $749.2      45%    $516.8
Percentage of net sales..........................   80.0%              80.3%              80.7%

 
     The gross margin percentage remained fairly flat in fiscal 1993 compared to
both fiscal 1992 and 1991. The slight decrease between years is attributable to
higher costs related to product transitions and to the amortization of purchased
software acquired in the USL acquisition, partially offset by the shift to
high-end products which have better gross margins. Future fluctuations in gross
profit margins will be primarily attributable to price changes, changes in sales
mix by product or distribution channel, and special product promotions. The
Company expects the gross profit margin in fiscal 1994 to be down slightly
compared to the gross profit margin in fiscal 1993 due to the continued
amortization of the purchased software described above.
 
                                       22
   4
 
OPERATING EXPENSES
 


                                                 1993     CHANGE     1992     CHANGE     1991
                                                ------    ------    ------    ------    ------
                                                                         
Sales and marketing (millions)................. $258.6       18%    $219.4      24%     $177.6
Percentage of net sales........................   23.0%               23.5%               27.7%
Product development (millions)................. $164.9       36%    $120.8      55%     $ 77.9
Percentage of net sales........................   14.7%               12.9%               12.2%
General and administrative (millions).......... $ 80.1       54%    $ 52.1      48%     $ 35.1
Percentage of net sales........................    7.1%                5.6%                5.5%
Nonrecurring charges (millions)................ $320.5      n/a         --     n/a          --
Percentage of net sales........................   28.5%                 --                  --
Total operating expenses (millions)............ $824.1      110%    $392.3      35%     $290.6
Percentage of net sales........................   73.4%               42.0%               45.4%

 
     Sales and marketing expenses have been reduced as a percentage of net sales
in each of the past two fiscal years. This has been accomplished in spite of
acquisitions and expansion into additional international markets in the same
period. The decrease is attributable to efficiencies gained through economies of
scale, new third-party distribution and support relationships, and control of
discretionary expenses. Sales and marketing expenses are not expected to decline
further as a percentage of net sales, but may increase due to product
promotions.
 
     Product development expenses have increased as a percentage of net sales in
each of the past two fiscal years, particularly from the acquisitions in fiscal
1993 and from planned headcount increases in an effort to increase the Company's
investment in new products in both years. The Company expects to slightly
decrease spending levels on a percentage basis during fiscal 1994 as the new
acquisitions become more efficient in the Company's product strategies.
 
     General and administrative expenses have increased as a percentage of net
sales in fiscal 1993, compared to fiscal 1992 and 1991. The increase is
primarily attributable to a higher bad debt provision in fiscal 1993 of
approximately $8.0 million related to the write-off of the Company's receivable
from one of its distributors and higher legal expenses in fiscal 1993 related to
the protection of intellectual property rights.
 
     During the third quarter of fiscal 1993, the Company wrote off $311.5
million of non-tax deductible purchased research and development in connection
with the acquisitions of USL, Serius and Fluent. An additional $9.0 million tax
deductible charge was incurred related to restructuring of operations.
 
     Overall, headcount and operating expenses excluding nonrecurring charges
have grown more rapidly than revenues in fiscal 1993 compared to 1992 due to the
acquisitions of USL, Serius, STI and Fluent. Operating expenses in fiscal 1992
grew less rapidly than revenues compared to fiscal 1991 due to control of
headcount growth and discretionary spending.
 


                                                 1993     CHANGE     1992     CHANGE     1991
                                                ------    ------    ------    ------    ------
                                                                         
Employees......................................  4,429      22%      3,637      28%      2,843
Revenue per employee (thousands)............... $  278       1%     $  275      13%     $  243

 
OTHER INCOME (EXPENSE)
 


                                                 1993     CHANGE     1992     CHANGE     1991
                                                ------    ------    ------    ------    ------
                                                                         
Other income (expense), net (millions)......... $ 29.8      46%     $ 20.5      (6%)    $ 21.9
Percentage of net sales........................    2.7%                2.2%                3.4%

 
     The primary component of other income (expense) is investment income, which
was $28.1 million, $21.3 million and $23.0 million in fiscal 1993, 1992 and
1991, respectively. The increase in fiscal 1993 compared to fiscal 1992 is
attributable to a much larger investment portfolio, offset slightly by declining
interest rates. The decrease in fiscal 1992 compared to fiscal 1991 is the
result of a larger investment portfolio, more than offset by declining interest
rates. In order to achieve potentially higher returns, a limited portion of the
Company's investment portfolio is invested in mutual funds which incur some
market risk. The Company believes that the
 
                                       23
   5
 
market risk has been limited by diversification and by use of a funds management
timing service which switches funds out of mutual funds and into money market
funds when preset signals occur.
 
     In fiscal 1993, net non-operating income related primarily to the add back
of the minority interest portion of joint venture losses and foreign currency
translation gains. Net non-operating expenses were minimal in fiscal 1992 and
1991.
 
INCOME TAXES
 


                                                  1993     CHANGE     1992     CHANGE    1991
                                                 ------    ------    ------    ------    -----
                                                                          
Income taxes (millions)......................... $139.2       8%     $128.3      50%     $85.6
Percentage of net sales.........................   12.4%               13.7%              13.4%
Effective tax rate..............................  133.8%               34.0%              34.5%

 
     The effective tax rate substantially differs from prior years due to the
$311.5 million one-time write-off of purchased research and development which is
not tax deductible. Excluding the one-time write-off, the Company's effective
tax rate for fiscal 1993 was reduced to 33.5% primarily due to the recent
reinstatement of the research and development tax credit, offset by the increase
in the federal statutory rate.
 
     The Company will be required to adopt Statement of Financial Accounting
Standards No. 109 -- Accounting for Income Taxes in the first quarter of fiscal
1994. It is not expected to have a material effect on the financial statements
of the Company.
 
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE
 


                                                 1993     CHANGE     1992     CHANGE     1991
                                                ------    ------    ------    ------    ------
                                                                         
Net income (loss) (millions)................... $(35.2)    (114)%   $249.0      53%     $162.5
Percentage of net sales........................   (3.1)%              26.7%               25.4%
Net income (loss) per share.................... $ (.11)    (114)%   $  .81      47%     $  .55

 
     Excluding the impact of the one-time charges in fiscal 1993, pro forma net
income was $282.3 million or 25.1% of sales and $.90 per share. The decrease as
a percentage of sales is attributable to the acquisitions in fiscal 1993 which
are less profitable than the Company was in fiscal 1992.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Cash and short-term investments increased to $664.1 million at October 30,
1993 from $545.3 million at October 31, 1992. The major reasons for this
increase were the $357.5 million of cash provided by operating activities, the
$37.2 million provided by the acquisition of USL, the $41.0 million provided
from the issuance of common stock, and the $10.2 million provided from the sale
of put warrants, offset by the $230.8 million used to reacquire 11.1 million
shares of common stock under the Company's repurchase program, the $70.2 million
used for capital asset purchases, and the $35.5 million used to acquire Serius
and Fluent. The investment portfolio is diversified among security types,
industry groups and individual issuers. The Company's principal sources of
liquidity have been derived from product sales, sales of the Company's
securities and available lines of credit. At October 30, 1993, the Company's
principal unused sources of liquidity consisted of cash and short-term
investments and available borrowing capacity of approximately $19.7 million
under its credit facilities. The Company's liquidity needs are principally for
the Company's financing of accounts receivable, capital assets, acquisitions and
strategic investments and to have flexibility in a dynamic and competitive
operating environment.
 
     During fiscal 1993 the Company has continued to generate cash from
operations. The Company anticipates being able to fund its current operations,
put warrant commitments and capital expenditures planned for the foreseeable
future with existing cash and short-term investments together with internally
generated funds. Borrowings under the Company's credit facilities or public
offerings of equity or debt securities are available if the need arises. As the
Company grows, investments will continue in product development in new and
existing areas of technology. Cash may also be used to acquire technology
through
 
                                       24
   6
 
purchases and strategic acquisitions. Capital expenditures in fiscal 1994 are
anticipated to be approximately $80 million, but could be reduced if the growth
of the Company is less than presently anticipated.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 


                                                                 FISCAL YEAR ENDED
                                                    -------------------------------------------
                                                    OCTOBER 30,     OCTOBER 31,     OCTOBER 26,
                                                       1993            1992            1991
                                                    -----------     -----------     -----------
                                                      (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE
                                                                       DATA)
                                                                           
Net sales..........................................  $1,122,896      $ 933,370       $ 640,079
Cost of sales......................................    224,531         184,176         123,294
                                                    -----------     -----------     -----------
Gross profit.......................................    898,365         749,194         516,785
Operating expenses
  Sales and marketing..............................    258,658         219,399         177,657
  Product development..............................    164,860         120,849          77,924
  General and administrative.......................     80,122          52,084          35,066
  Nonrecurring charges.............................    320,500              --              --
                                                    -----------     -----------     -----------
                                                       824,140         392,332         290,647
Income from operations.............................     74,225         356,862         226,138
Other income (expense)
  Investment income................................     28,131          21,340          22,990
  Interest expense.................................       (442)           (625)           (921)
  Other, net.......................................      2,134            (259)           (133)
                                                    -----------     -----------     -----------
                                                        29,823          20,456          21,936
Income before taxes................................    104,048         377,318         248,074
Income taxes.......................................    139,208         128,288          85,586
                                                    -----------     -----------     -----------
Net income (loss)..................................  $ (35,160)      $ 249,030       $ 162,488
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
Net income (loss) per share........................  $    (.11)      $     .81       $     .55
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
Weighted average shares outstanding................    314,409         308,104         295,968
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------

 
                See notes to consolidated financial statements.
 
                                       25
   7
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 


                                                                   OCTOBER 30,     OCTOBER 31,
                                                                      1993            1992
                                                                   -----------     -----------
                                                                     (DOLLARS IN THOUSANDS,
                                                                     EXCEPT PER SHARE DATA)
                                                                             
Current assets
  Cash and cash equivalents.......................................  $ 328,469       $ 259,933
  Short-term investments..........................................    335,601         285,327
  Receivables, less allowances ($44,266 -- 1993,
     $34,742 -- 1992).............................................    331,662         264,920
  Other...........................................................     56,474          55,805
                                                                   -----------     -----------
          Total current assets....................................  1,052,206         865,985
Property, plant and equipment, net................................    216,849         181,765
Other assets......................................................     74,800          48,946
                                                                   -----------     -----------
          Total assets............................................  $1,343,855      $1,096,696
                                                                   -----------     -----------
                                                                   -----------     -----------
                             LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
  Accounts payable                                                  $  38,794       $  35,177
  Accrued salaries and wages......................................     53,756          33,827
  Accrued marketing liabilities...................................     29,892          25,252
  Other accrued liabilities.......................................     41,566          17,896
  Income taxes payable............................................     50,588          28,277
  Deferred revenue................................................     15,839           9,523
                                                                   -----------     -----------
          Total current liabilities...............................    230,435         149,952
Commitments and contingencies.....................................         --              --
Minority interests................................................     10,205           8,938
Put warrants......................................................    106,716              --
Shareholders' equity
Common stock, par value $.10 per share
  Authorized -- 400,000,000 shares
  Issued -- 308,050,977 shares, 1993
     300,635,181 shares, 1992.....................................     30,805          30,064
Additional paid-in capital........................................    411,064         306,420
Retained earnings.................................................    562,238         601,078
Unearned stock compensation.......................................     (9,814)             --
Cumulative translation adjustment.................................      2,206             244
                                                                   -----------     -----------
          Total shareholders' equity..............................    996,499         937,806
                                                                   -----------     -----------
          Total liabilities and shareholders' equity..............  $1,343,855      $1,096,696
                                                                   -----------     -----------
                                                                   -----------     -----------

 
                See notes to consolidated financial statements.
 
                                       26
   8
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 


                                               COMMON STOCK     ADDITIONAL                UNEARNED    CUMULATIVE
                                            ------------------   PAID-IN      RETAINED     STOCK      TRANSLATION
                                            SHARES     AMOUNT    CAPITAL      EARNINGS  COMPENSATION  ADJUSTMENT      TOTAL
                                            -------    -------  ----------    --------  ------------  -----------    --------
                                                                         (AMOUNTS IN THOUSANDS)
                                                                                                
Balance -- Oct. 27, 1990..................  281,645    $28,164   $155,653     $214,466    $     --      $    --      $398,283
Stock issued from stock plans.............    6,368        637     19,768           --          --           --        20,405
Stock repurchased and retired.............      (40)        (4)      (332)          --          --           --          (336)
Stock plans income tax benefits...........       --         --     17,525           --          --           --        17,525
Cumulative translation adjustment.........       --         --         --           --          --          220           220
Net income................................       --         --         --      162,488          --           --       162,488
                                            -------    -------  ----------    --------  ------------  -----------    --------
Balance -- Oct. 26, 1991..................  287,973     28,797    192,614      376,954          --          220       598,585
DRI acquisition...........................    6,000        600     27,016      (24,906)         --           --         2,710
Stock issued from stock plans.............    6,662        667     35,223           --          --           --        35,890
Stock plans income tax benefits...........       --         --     51,567           --          --           --        51,567
Cumulative translation adjustment.........       --         --         --           --          --           24            24
Net income................................       --         --         --      249,030          --           --       249,030
                                            -------    -------  ----------    --------  ------------  -----------    --------
Balance -- Oct. 31, 1992..................  300,635     30,064    306,420      601,078          --          244       937,806
USL acquisition...........................   11,132      1,113    320,645           --          --           --       321,758
STI acquisition...........................      800         80      2,370       (3,680)         --           --        (1,230)
Stock issued from stock plans.............    6,654        665     63,290           --     (14,944)          --        49,011
Shares repurchased and retired............  (11,130)    (1,113)  (229,645)          --          --           --      (230,758)
Shares cancelled..........................      (40)        (4)    (1,156)          --       1,160           --            --
Stock plans income tax benefits...........       --         --     45,660           --          --           --        45,660
Sale of put warrants......................       --         --    (96,520)          --          --           --       (96,520)
Amortization of unearned stock
  compensation............................       --         --         --           --       3,970           --         3,970
Cumulative translation adjustment.........       --         --         --           --          --        1,962         1,962
Net loss..................................       --         --         --      (35,160)         --           --       (35,160)
                                            -------    -------  ----------    --------  ------------  -----------    --------
Balance -- Oct. 30, 1993..................  308,051    $30,805   $411,064     $562,238    $ (9,814)     $ 2,206      $996,499
                                            -------    -------  ----------    --------  ------------  -----------    --------
                                            -------    -------  ----------    --------  ------------  -----------    --------

 
                See notes to consolidated financial statements.
 
                                       27
   9
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 


                                                                   FISCAL YEAR ENDED
                                                        ---------------------------------------
                                                        OCTOBER 30,   OCTOBER 31,   OCTOBER 26,
                                                           1993          1992          1991
                                                        -----------   -----------   -----------
                                                                (DOLLARS IN THOUSANDS)
                                                                           
Cash flows from operating activities
Net income (loss)......................................  $ (35,160)    $ 249,030     $ 162,488
Adjustments to reconcile net income (loss) to net cash
  provided (used) by operating activities
  Write-off of purchased research and development......    311,500            --            --
  Depreciation and amortization........................     41,733        33,122        24,316
  Stock plans income tax benefits......................     45,660        51,567        17,525
  Minority interest in earnings (loss).................     (1,887)       (3,270)           14
  (Increase) in receivables............................    (46,439)      (88,049)      (52,656)
  Decrease (increase) in other current assets..........        404       (10,439)       (6,327)
  (Decrease) increase in accounts payable..............       (519)       (5,569)        3,781
  Increase in accrued salaries and wages...............      8,992         6,649         5,878
  Increase in accrued marketing liabilities............      4,640         9,837         6,089
  Increase in other accrued liabilities................      8,684         3,548         4,151
  Increase in income taxes payable.....................     19,297           426         4,106
  Increase (decrease) in deferred revenue..............        624        (3,847)         (703)
                                                        -----------   -----------   -----------
                                                           357,529       243,005       168,662
                                                        -----------   -----------   -----------
Cash flows from financing activities
Issuance of common stock, net..........................     40,990        36,000        20,069
Repurchase of common stock.............................   (230,758)           --            --
Sale of put warrants...................................     10,196            --            --
Proceeds from minority interests investment............      3,154         4,000         8,194
                                                        -----------   -----------   -----------
                                                          (176,418)       40,000        28,263
                                                        -----------   -----------   -----------
Cash flows from investing activities
Expenditures for property, plant and equipment.........    (70,230)      (69,940)      (86,902)
(Increase) in short-term investments, net..............    (39,915)     (106,009)      (97,952)
Cash received from acquisitions........................     37,242         2,569            --
Cash paid for acquisitions.............................    (35,500)      (15,200)           --
Other..................................................     (4,172)       (1,939)      (18,034)
                                                        -----------   -----------   -----------
                                                          (112,575)     (190,519)     (202,888)
                                                        -----------   -----------   -----------
                                                        -----------   -----------   -----------
Summary
Increase (decrease) in cash and cash equivalents.......     68,536        92,486        (5,963)
Cash and cash equivalents -- beginning of period.......    259,933       167,447       173,410
                                                        -----------   -----------   -----------
Cash and cash equivalents -- end of period.............  $ 328,469     $ 259,933     $ 167,447
                                                        -----------   -----------   -----------
                                                        -----------   -----------   -----------

 
                See notes to consolidated financial statements.
 
                                       28
   10
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
A.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions have
been eliminated.
 
     The following summarizes the significant accounting policies of the
Company.
 
- - The Company considers all highly liquid debt instruments purchased with an
effective term to maturity of three months or less to be cash equivalents.
 
- - Short-term investments are stated at the lower of cost or market. The
investment portfolio is widely diversified consisting primarily of short-term
investment grade securities, substantially all of which either mature within the
next twelve months or have characteristics of short-term investments.
 
- - Accounts receivable include geographically dispersed distributors, resellers
and OEM customers. No collateral is required. Reserves are provided for product
exchanges and bad debts.
 
- - Plant and equipment are carried at cost less accumulated depreciation and
amortization.
 
- - Provision for depreciation and amortization is computed on the straight-line
method over the estimated useful lives of the assets, or lease term if shorter,
and are as follows:
 


                                                                            USEFUL
                          ASSET CLASSIFICATION                              LIVES
- ------------------------------------------------------------------------  ----------
                                                                       
Buildings...............................................................    30 years
Office and development equipment and furniture..........................   3-7 years
Leasehold improvements and other........................................   3-5 years

 
- - Assets and liabilities of the Company's wholly owned subsidiaries, denominated
in the local currency of the subsidiary, are remeasured into U.S. dollars (the
functional currency) at year-end exchange rates except for equipment and
leasehold improvements which are remeasured at average rates of exchange
prevailing when acquired. Income and expense items are remeasured at average
rates of exchange prevailing during the year, except that depreciation is
translated at historical rates. These transaction gains and losses are included
in net income in the period incurred.
 
- - For the Company's Japanese subsidiary, the functional currency has been
determined to be the yen, and therefore, assets and liabilities are translated
at year-end exchange rates, and income statement items are translated at average
exchange rates prevailing during the year. Such translation adjustments are
recorded as a separate component of shareholders' equity.
 
- - Revenue on product sales is recognized upon shipment. Certain sales require
continuing service, support and performance by the Company, and accordingly, a
portion of the revenue is deferred until the future service, support and
performance is provided. Reserves for sales returns and allowances are recorded
in the same period as the related revenues.
 
- - Product development costs are expensed as incurred. Application of Statement
of Financial Accounting Standards No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed, has not had any material
effect in the consolidated financial statements.
 
- - Income taxes are reduced by allowable tax credits using the flow-through
method. In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. SFAS No. 109 requires the use of the liability method of
accounting for deferred income taxes and must be implemented by the Company no
later than fiscal 1994. The Company follows APB 11 and has not yet implemented
SFAS No. 109; however, it is not expected to have a material effect on the
Company.
 
                                       29
   11
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
- - Net income (loss) per share is computed using the weighted average number of
common shares outstanding during each year, including common stock equivalents
(unless antidilutive). Common stock equivalents consist of outstanding stock
options.
 
- - The consolidated financial statements give retroactive effect to the August
26, 1992 and August 12, 1991 stock splits.
 
     Certain reclassifications, none of which affected net income, have been
made to the prior years' amounts in order to conform to the current year
presentation.
 
B.  MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS
 
     In December 1990, the Company announced that Canon, Fujitsu, NEC, Sony and
Toshiba, five major Japanese computer companies, have joined SOFTBANK
Corporation and Novell as investment partners in Novell Japan, Ltd., a
Tokyo-based joint venture inaugurated in April 1990. The Company has a 54%
ownership interest, and accordingly, the financial statements of Novell Japan,
Ltd. are included in the consolidated financial statements of the Company.
 
     In April 1991, the Company purchased a minority equity position in UNIX
System Laboratories, Inc. (USL), a subsidiary of AT&T that develops and licenses
the UNIX operating system and other standards-based software to vendors
worldwide. This cash investment of $15.0 million was accounted for using the
cost method. Later, in December 1991, the Company announced the formation of
Univel, a 55% owned joint venture with USL, formed to accelerate the expanded
use of the UNIX operating system in the personal computer and network computing
marketplace. Novell and USL contributed cash and technology rights to Univel. In
June 1993, the Company acquired the remaining unowned portion of USL by issuing
approximately 11.1 million shares of Novell common stock valued at $321.8
million in exchange for all of the outstanding stock of USL not previously owned
by Novell and assumed additional liabilities of $9.4 million. The transaction
was accounted for as a purchase and, on this basis, a one-time write-off of
$268.7 million for purchased research and development was incurred.
 
     Univel has been included in the consolidated financial statements of Novell
since December 1991 by virtue of Novell's 55% ownership interest. That ownership
interest is now 100% since the June 14, 1993 acquisition of USL, whereby both
USL and Univel are now included in the consolidated financial statements of
Novell.
 
     On October 28, 1991, the first business day of fiscal 1992, the Company
completed a merger with Digital Research Inc. (DRI), a producer of personal
computer operating software, whereby DRI became a wholly owned subsidiary of
Novell. There were 6.0 million shares of Novell common stock exchanged for all
of the outstanding common stock of DRI. This transaction was accounted for as a
pooling of interests; however, prior year financial statements have not been
restated due to immateriality.
 
     In April 1992, the Company purchased all of the outstanding stock of
International Business Software, Ltd. (IBS), a developer of distributed
computing technology for Apple Macintosh computers, for $5.2 million cash,
whereby IBS became a wholly owned subsidiary of Novell.
 
     In June 1992, the Company purchased all of the outstanding stock of Annatek
Systems, Inc. (Annatek), a developer of software distribution products, for
$10.0 million cash, whereby Annatek became a wholly owned subsidiary of Novell.
 
     In June 1993, the Company purchased all of the outstanding stock not
previously owned by Novell of Serius Corporation (Serius), a developer of
object-based application tools, for $17.0 million cash and assumed liabilities
of $5.0 million, whereby Serius became a wholly owned subsidiary of Novell.
Novell's previous ownership was a $1.1 million cash investment. The transaction
was accounted for as a purchase and, on this basis, resulted in a one-time
write-off of $22.1 million in the third quarter of fiscal 1993.
 
                                       30
   12
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In June 1993, the Company acquired all of the outstanding stock of Software
Transformation, Inc. (STI), a developer of software development tools, by
issuing approximately 800,000 shares of Novell common stock in exchange for all
of the outstanding stock of STI. The transaction was accounted for as a pooling
of interests; however, prior periods were not restated due to immateriality.
 
     In July 1993, the Company acquired all of the outstanding stock of Fluent,
Inc. (Fluent), a developer of multimedia software for personal computers, for
$18.5 million cash and assumed liabilities of $3.0 million, whereby Fluent
became a wholly owned subsidiary of Novell. The transaction was accounted for as
a purchase and, on this basis, resulted in a one-time write-off of $20.7 million
in the third quarter of fiscal 1993.
 
     Pro forma information related to the purchase acquisitions has not been
presented due to immateriality.
 
C.  CASH AND SHORT-TERM INVESTMENTS
 


                                                   OCTOBER 30, 1993   OCTOBER 31, 1992
                                                   ----------------   ----------------
                                                         (DOLLARS IN THOUSANDS)
                                                                
Cash and cash equivalents
  Cash...........................................      $ 67,678           $ 51,259
  Repurchase agreements..........................        16,550             16,502
  Tax exempt money market fund...................        51,041             37,218
  Money market preferreds........................        39,000             43,000
  Municipal securities...........................       154,200            111,954
                                                   ----------------   ----------------
Cash and cash equivalents........................      $328,469           $259,933
                                                   ----------------   ----------------
Short-term investments
  Municipal securities...........................      $200,025           $180,595
  Money market mutual funds......................        51,170             68,768
  Mutual funds...................................        62,267              7,613
  Other..........................................        22,139             28,351
                                                   ----------------   ----------------
Short-term investments...........................      $335,601           $285,327
                                                   ----------------   ----------------
Cash and short-term investments..................      $664,070           $545,260
                                                   ----------------   ----------------
                                                   ----------------   ----------------

 
     The carrying amount of all cash and short-term investments approximate
their fair value except for other short-term investments for which the fair
value is $35.6 million at October 30, 1993.
 
D.  PROPERTY, PLANT AND EQUIPMENT
 


                                                        OCTOBER 30,      OCTOBER 31,
                                                           1993             1992
                                                        -----------      -----------
                                                           (DOLLARS IN THOUSANDS)
                                                                   
Buildings and land....................................   $ 117,335        $ 100,150
Office and development equipment and furniture........     227,225          166,443
Leasehold improvements and other......................  30,753....           26,670
                                                        -----------      -----------
Property, plant and equipment at cost.................     375,313          293,263
Accumulated depreciation and amortization.............    (158,464)        (111,498)
                                                        -----------      -----------
Property, plant and equipment, net....................   $ 216,849        $ 181,765
                                                        -----------      -----------
                                                        -----------      -----------

 
                                       31
   13
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
E.  INCOME TAXES
 


                                                                 FISCAL YEAR ENDED
                                                    -------------------------------------------
                                                    OCTOBER 30,     OCTOBER 31,     OCTOBER 26,
                                                       1993            1992            1991
                                                    -----------     -----------     -----------
                                                              (DOLLARS IN THOUSANDS)
                                                                           
Taxes on income consist of the following
Current
  Federal.......................................     $ 109,052       $ 102,607       $  74,798
  State.........................................        18,984          21,044          14,470
  Foreign.......................................        15,071           8,424           5,133
                                                    -----------     -----------     -----------
          Total current.........................       143,107         132,075          94,401
                                                    -----------     -----------     -----------
Deferred
  Federal.......................................        (1,678)         (3,593)         (7,723)
  State.........................................            74            (134)           (459)
  Foreign.......................................        (2,295)            (60)           (633)
                                                    -----------     -----------     -----------
          Total deferred........................        (3,899)         (3,787)         (8,815)
                                                    -----------     -----------     -----------
                                                     $ 139,208       $ 128,288       $  85,586
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
Differences between the U.S. statutory and
  effective tax rates are as follows
  U.S. statutory rate...........................          35.0%           34.0%           34.0%
  State income taxes, net of federal tax
     effect.....................................           3.5             3.7             3.7
  Research and development tax credits..........          (2.3)           (1.0)           (1.1)
  Tax-exempt FSC income.........................          (1.6)           (1.6)           (1.6)
  Other, net....................................          (1.1)           (1.1)            (.5)
                                                    -----------     -----------     -----------
          Subtotal..............................          33.5            34.0            34.5
  Non-deductible charge for purchased research
     and
     development................................         100.3              --              --
                                                    -----------     -----------     -----------
  Effective tax rate............................         133.8%           34.0%           34.5%
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
The sources of deferred income taxes and their
  tax effects are as follows
  Receivable allowance deducted for tax returns
     in
     periods different than for books...........     $  (3,637)      $  (3,840)      $  (2,598)
  Deferred revenue..............................            --          (1,207)             --
  Other individually immaterial items...........          (262)          1,260          (6,217)
                                                    -----------     -----------     -----------
                                                     $  (3,899)      $  (3,787)      $  (8,815)
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
The domestic and foreign components of income
  before taxes are as follows
  Domestic......................................     $  88,632       $ 363,285       $ 241,529
  Foreign.......................................        15,416          14,033           6,545
                                                    -----------     -----------     -----------
                                                     $ 104,048       $ 377,318       $ 248,074
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------
Cash paid for income taxes......................     $  75,908       $  78,650       $  72,966
                                                    -----------     -----------     -----------
                                                    -----------     -----------     -----------

 
     As of October 30, 1993, the Company has net operating loss carryforwards of
approximately $49.0 million related to the operations of acquired businesses.
Subject to certain annual limitations, these losses can be used to offset the
future taxable income of these businesses. These carryforwards expire in the
years 1999 through 2008.
 
                                       32
   14
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
F.  COMMITMENTS AND CONTINGENCIES
 
     Rent expense for operating and month-to-month leases was $26.0 million,
$16.8 million, and $14.1 million in fiscal 1993, 1992, and 1991, respectively.
 
     As of October 30, 1993, the Company has various operating leases with
remaining terms of more than one year. These leases have minimum annual lease
commitments of $22.9 million in fiscal 1994, $17.8 million in fiscal 1995, $12.9
million in fiscal 1996, $8.0 million in fiscal 1997, $5.6 million in fiscal
1998, and $15.3 million thereafter.
 
     The Company currently has a $10.0 million unsecured revolving bank line of
credit, with interest at the prime rate. The line can be used for either letter
of credit or working capital purposes. The line is subject to the terms of a
loan agreement containing financial covenants and restrictions, none of which
are expected to significantly affect the Company's operations. At October 30,
1993, there were no borrowings, letter of credit acceptances or commitments
under such line.
 
     The Company has an additional $10.0 million credit facility with another
bank which is not subject to a loan agreement. At October 30, 1993, standby
letters of credit of $275,000 were outstanding under this agreement.
 
     On November 10, 1993, 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 June 23, 1993 through July 26, 1993. Although the case
is in its earliest stages, Novell does not believe that the resolution of this
legal matter will have a material adverse effect on its financial position or
results of operations.
 
     In December of 1991, Roger Billings and his International Academy of
Science, (the "Academy") filed suit against Novell alleging that the Company
infringes on a patent allegedly owned by the Academy. The case is still in its
pretrial phase. The Company believes that the ultimate resolution of this legal
proceeding will not have a material adverse effect on its financial position or
results of operations.
 
     The Company is a party to a number of additional legal proceedings 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 or results of operations.
 
G.  PUT WARRANTS
 
     During fiscal 1993, the Company sold put warrants on 5.0 million shares of
its stock, callable on specific dates in the first quarter of fiscal 1994,
giving third parties the right to sell shares of Novell common stock to the
Company at contractually specified prices. The put warrant liability is the
amount the Company would be obligated to pay if all the put warrants were
exercised at the strike price without a cash-out settlement. The proceeds from
the issuance of the put options were accounted for as additional paid-in
capital. The Company expects to settle the put warrant obligations with cash and
thereby eliminate the liability.
 
H.  SHAREHOLDERS' EQUITY
 
     In December 1988, the Board of Directors adopted a Shareholder Rights Plan
and amended it in March 1992. The plan provides for a dividend of rights, which
cannot be exercised until certain events occur, to purchase shares of preferred
stock of the Company or, after certain events, shares of common stock of the
Company. Each shareholder of record receives one right for each share of common
stock that he or she owns. This plan was adopted to insure that all shareholders
of the Company receive fair value for their common stock in the event of any
proposed takeover of the Company and to guard against coercive tactics to gain
control of the Company without offering fair value to the Company's
shareholders.
 
     The Company has 500,000 authorized shares of preferred stock with a par
value of $.10 per share, none of which was outstanding at October 30, 1993 or
October 31, 1992.
 
                                       33
   15
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     In March 1992, shareholders approved the Novell 1991 Stock Plan. During
fiscal 1993, the Company completed several acquisitions and thereby assumed
790,000 stock options related to the respective stock option plans. Under all
Company employee stock option plans 70.7 million shares of common stock have
been reserved for issuance of stock options. Generally, grants to date have been
nonqualified stock options at fair market value on the date of grant for a term
of seven years and are exercisable 25% per year beginning one year from the date
of the grant. The Company also has a stock option plan for non-employee
directors, under which 800,000 shares have been reserved for issuance of
nonqualified stock options. The following table is a summary of activity for the
Company's stock options plans.
 


                                                                           PRICE PER SHARE
                                                                      -------------------------
                                                          NUMBER           RANGE        AVERAGE
                                                        ----------    ---------------   -------
                                                                               
Balance Oct. 27, 1990.................................  25,280,192     $ .07 - $ 5.94   $ 3.34
Granted...............................................   4,042,880      7.69 -  14.91    10.82
Exercised.............................................  (5,477,548)       07 -   5.94     2.91
Cancelled.............................................  (1,023,276)      .41 -  12.25     4.70
                                                        ----------    ---------------   -------
Balance Oct. 26, 1991.................................  22,822,248       .14 -  14.91     4.70
Granted...............................................   7,371,144     22.63 -  29.38    25.43
Exercised.............................................  (5,868,253)      .17 -  23.25     3.77
Cancelled.............................................  (1,245,499)      .87 -  28.75    13.07
                                                        ----------    ---------------   -------
Balance Oct. 31, 1992.................................  23,079,640       .14 -  29.38    11.10
Granted...............................................  13,467,214       .61 -  31.25    24.50
Exercised.............................................  (5,183,180)      .17 -  28.75     4.76
Cancelled.............................................  (1,574,080)     1.87 -  29.00    20.69
                                                        ----------    ---------------   -------
Balance Oct. 30, 1993.................................  29,789,594     $ .14 - $31.25   $17.65
                                                        ----------    ---------------   -------
                                                        ----------    ---------------   -------

 
     As of October 30, 1993, 3.6 million shares were available for future grants
and a total of 116,000 incentive stock options and 29.7 million nonqualified
stock options were outstanding under plans, of which 8.9 million were
exercisable.
 
     The Novell, Inc. 1989 Employee Stock Purchase Plan (Purchase Plan) permits
eligible employees to purchase shares of common stock through payroll deductions
at the lower of 85% of fair market value at the beginning or end of each six
month offering period. As of October 30, 1993, 2.9 million shares have been
issued under the Purchase Plan and 1.1 million shares are reserved for future
issuance.
 
I.  NONRECURRING CHARGES
 
     In connection with the acquisitions of USL, Serius and Fluent (see footnote
B), the Company incurred a write-off of $311.5 million of non-tax deductible
purchased research and development. During the third quarter, the Company
incurred $9.0 million ($6.0 million net of tax) of restructuring charges related
to severance and other charges.
 
J.  EMPLOYEE SAVINGS AND RETIREMENT PLAN
 
     The Company maintains a 401(k) savings and retirement plan that covers all
employees who are 21 years of age or older who are scheduled to complete 1,000
hours of service during any consecutive twelve-month period. The Company's
savings and retirement plan contribution has been 50% of employee contributions
up to 6% of each employee's compensation. The contribution totalled $6.8
million, $3.7 million, and $1.9 million in 1993, 1992, and 1991, respectively.
The fiscal 1993 amount includes $1.4 million related to USL 401(k) plan from
June 14, 1993 forward.
 
                                       34
   16
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
K.  RELATED PARTY TRANSACTIONS
 
     In May 1992, Novell purchased an aircraft from Dialogic Systems Corporation
(DSC), a company which is owned 100% by an officer and director of Novell for
$1.5 million. During fiscal 1993, 1992, and 1991, pursuant to rental agreements
with DSC, Novell used certain business aircraft of DSC and paid approximately
$115,000, $88,000, and $534,000 for such services, respectively.
 
     In October 1992, the Company purchased certain computer software and
related technology from Phaser Systems, Inc., a company which is owned 99% by an
officer and director of Novell for $3.5 million.
 
     The Company has sold products to Micro Technology, Inc., a company in which
an officer and director of Novell has a 36% interest. There were no sales to
this company in fiscal 1993; however, sales totalled $1.4 million and $1.0
million in fiscal 1992 and 1991, respectively.
 
     The Company purchases services from Alpnet, Inc., a company in which an
officer and director of Novell has an 8% interest. Novell paid approximately
$546,000, $109,000, and $461,000 in fiscal 1993, 1992, and 1991, respectively.
 
     In fiscal 1993, 1992, and 1991, legal fees of approximately $2.0 million,
$716,000, and $510,000, respectively, were paid to Wilson, Sonsini, Goodrich &
Rosati, a law firm in which a director of Company is a senior partner.
 
L.  EXPORT SALES AND MAJOR CUSTOMER
 
     The Company markets internationally through distributors who sell to
dealers and end users. In fiscal 1993, 1992, and 1991 export sales to foreign
customers were approximately $539.8 million, $440.9 million and $280.3 million
respectively. In fiscal 1993, 1992, and 1991, 57%, 68%, and 74% respectively, of
export sales were to European countries. Except for Germany, which accounted for
11% of revenue in fiscal 1993, 13% of revenue in fiscal 1992 and 10% of revenue
in fiscal 1991, no one foreign country accounted for more than 10% of revenue in
any period. Except for one multi-national distributor, which accounted for 12%
of revenue in fiscal 1993, no customer accounted for more than 10% of revenue in
any period.
 
                                       35
   17
 
                 REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
 
The Board of Directors and Shareholders
Novell, Inc.
 
     We have audited the accompanying consolidated balance sheets of Novell,
Inc. as of October 30, 1993 and October 31, 1992, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three fiscal years in the period ended October 30, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Novell, Inc. at
October 30, 1993 and October 31, 1992, and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended October 30, 1993, in conformity with generally accepted accounting
principles.
 
                                                              /s/  ERNST & YOUNG
 
San Jose, California
December 7, 1993
 
                                       36
   18
 
           SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
 


                                           FIRST      SECOND      THIRD       FOURTH      FISCAL
                                          QUARTER     QUARTER    QUARTER     QUARTER       YEAR
                                         ---------   ---------   --------    --------    ---------
                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
                                                                          
Fiscal 1993
  Net sales............................  $ 260,174   $ 280,720   $272,806    $309,196    $1,122,896
  Gross profit.........................    209,723     231,282    216,090     241,270      898,365
  Income (loss) before taxes...........    107,397     121,903   (229,059)    103,807      104,048
  Net income (loss)....................     70,882      80,456   (255,406)     68,908      (35,160)
  Net income (loss) per share..........        .23         .26       (.80)        .22         (.11)
Fiscal 1992
  Net sales............................  $ 204,985   $ 224,996   $243,261    $260,128    $ 933,370
  Gross profit.........................    162,775     183,054    196,393     206,972      749,194
  Income before taxes..................     79,036      92,899     99,979     105,404      377,318
  Net income...........................     52,164      61,313     65,986      69,567      249,030
  Net income per share.................        .17         .20        .21         .23          .81
Fiscal 1991
  Net sales............................  $ 134,646   $ 150,198   $167,991    $187,244    $ 640,079
  Gross profit.........................    105,672     123,060    134,764     153,289      516,785
  Income before taxes..................     46,826      59,129     66,181      75,938      248,074
  Net income...........................     30,437      38,434     43,018      50,599      162,488
  Net income per share.................        .10         .13        .15         .17          .55

 
                                       37
   19
 
                               OTHER INFORMATION
 
NOVELL, INC. COMMON STOCK
 
     Novell's common stock trades in the over-the-counter market under the
NASDAQ symbol "NOVL". The following table shows the range of high and low prices
as reported by the NASDAQ National Market System.
 


                                                         HIGH       LOW
                                                        ------     ------
                                                             
Fiscal 1993
Quarter ended January 30, 1993........................ $33 1/2    $25 3/4
Quarter ended May 1, 1993.............................  35 1/4     25 3/4
Quarter ended July 31, 1993...........................  33 1/2     17 5/8
Quarter ended October 30. 1993........................  23 1/4     17

 


                                                         HIGH       LOW
                                                        ------     ------
                                                             
Fiscal 1992
Quarter ended February 1, 1992........................  $32 1/2    $21 3/8
Quarter ended May 2, 1992.............................  32          23 7/8
Quarter ended August 1, 1992..........................  28 1/2      24 5/16
Quarter ended October 31, 1992........................  32 1/8      22 1/2

 
     No dividends have been declared on the Company's common stock. There were
9,800 shareholders of record at December 31, 1993.
 
ANNUAL MEETING
 
     The Company's Annual Meeting will be held on Wednesday, March 9, 1994 at
2:00 p.m. MST at the Novell Corporate Headquarters, 122 East 1700 South, Provo,
Utah 84606.
 
SEC FORM 10-K
 
     A copy of the Company's Form 10-K is available without charge. To obtain a
copy, please write:
 
     Investor Relations, Novell, Inc., 2180 Fortune Drive, San Jose, California
95131.
 
INDEPENDENT AUDITORS
 
     Ernst & Young, San Jose, California
 
TRANSFER AGENT AND REGISTRAR
 
     Mellon Bank N.A., Pittsburgh, Pennsylvania
 
                                       38

EX-22

   1
 
                                                                      EXHIBIT 22
 
                                  NOVELL, INC.
 
                         SUBSIDIARIES OF THE REGISTRANT
 
     As of October 30, 1993, the following companies were subsidiaries of
Novell, Inc.:
 


                                                 STATE OF INCORPORATION
                                                  OR COUNTRY IN WHICH
                 WHOLLY OWNED                          ORGANIZED
- -----------------------------------------------
                                              
Fluent, Inc....................................    Delaware
Novell Pty, Ltd. (Australia)...................    Australia
Novell Belgium B.V.B.A.........................    Belgium
Novell do Brasil Software Ltda.................    Brazil
Novell Canada, Ltd.............................    Canada
Novell Europe, Inc.............................    Delaware
Novell S.A.R.L. (France).......................    France
Novell GmbH (Germany)..........................    Germany
Novell International, Ltd......................    Barbados
Novell Italia S.R.L............................    Italy
Novell Korea Co., Ltd..........................    Korea
Novell de Mexico, S.A.DE C.V...................    Mexico
Novell Spain S.A...............................    Spain
Novell Svenska A.B. (Sweden)...................    Sweden
Novell Schweiz A.G. (Switzerland)..............    Switzerland
Novell U.K., Ltd...............................    United Kingdom
Serius Corporation.............................    Delaware
Software Transformation, Inc...................    California
Univel.........................................    Delaware
UNIX System Laboratories, Inc..................    Delaware
   MAJORITY OWNED
Novell Japan, Ltd..............................    Japan
Onward Novell Software Pvt. Ltd................    India

 
                                      

EX-24

   1
 
                                                                      EXHIBIT 24
 
                 CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
 
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Novell, Inc. of our report dated December 7, 1993, included in the 1993
Annual Report to Shareholders of Novell, Inc.
 
Our audits also included the financial statement schedules of Novell, Inc.,
listed in Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
 
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-14531, No. 33-29798, No. 33-31299, No. 33-36673, No. 33-41719,
No. 33-48395, No. 33-65440, No. 33-67276, No. 33-66704, No. 33-64998, and No.
33-68336) pertaining to the Employee Stock Option and Stock Purchase Plans of
Novell, Inc. and in the related Prospectuses of our report dated December 7,
1993, with respect to the consolidated financial statements and schedules of
Novell, Inc. included or incorporated by reference in the Annual Report (Form
10-K) for the fiscal year ended October 30, 1993.
 
                                            /s/  ERNST & YOUNG
 
San Jose, California
January 24, 1994