Novell Reports Financial Results for Fourth Fiscal Quarter and Full Fiscal Year 2005

WALTHAM, Mass., Dec. 1 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its fourth fiscal quarter and fiscal year ended Oct. 31, 2005. For the quarter, Novell reported revenue of $320 million, compared to revenue of $301 million for the fourth fiscal quarter 2004. Net loss available to common stockholders in the fourth fiscal quarter 2005 was $5 million or $0.01 loss per diluted common share. This compared to net income available to common stockholders of $15 million, or $0.03 per diluted common share, for the fourth fiscal quarter 2004.

On a non-GAAP basis, adjusted net income available to common stockholders for the fourth fiscal quarter 2005 was $33 million, or $0.07 per diluted common share, which excludes restructuring charges of $38 million, impairments of investments and intangible assets of $2 million and adjustments for income taxes, debt interest expense and the allocation of earnings to preferred stockholders. This compares to non-GAAP adjusted net income available to common stockholders for the fourth fiscal quarter 2004 of $25 million, or $0.06 per diluted common share, which excludes restructuring charges of $9 million and net investment impairments of $1 million.

For the full fiscal year 2005, Novell reported revenue of $1.198 billion and diluted net income available to common stockholders of $378 million, or $0.86 per diluted common share, including a $448 million net legal settlement with Microsoft. Comparatively, revenue for the full fiscal year 2004 was $1.166 billion and diluted net income available to common stockholders was $31 million, or $0.08 per diluted common share.

During the fourth fiscal quarter 2005, Novell recognized Linux* platform revenue of $61 million, which was up 418 percent from the year ago quarter. Linux platform revenue included $46 million from sales of Open Enterprise Server (OES) and $15 million of revenue from other Linux products and services. Sales of stand-alone subscriptions to SUSE(R) Linux Enterprise Server (SLES) totaled 65,000 subscriptions in the quarter, excluding subscriptions sold under enterprise-wide licensing deals, up 137 percent sequentially and 216 percent on a year over year basis. For the full fiscal year 2005, Novell reported Linux platform revenue of $148 million, up 278 percent from fiscal 2004.

During the fourth fiscal quarter 2005, Novell recognized $84 million of Identity-driven computing revenue, up 35 percent year over year. Identity-driven computing revenue for the full fiscal year 2005 totaled $258 million, an increase of 14 percent year over year.

"We are very pleased with the strong finish we had in this fiscal year," said Jack Messman, Chairman and CEO of Novell. "Our quarterly revenue and profitability on a non-GAAP basis were the highest Novell has achieved for several years. We've made steady progress over the past two years in transforming Novell, including hiring key executives, restructuring our field operations and focusing our business on the Linux and Identity markets. While we are not yet fully complete in that transformation and we still have operational hurdles ahead of us, we enter fiscal year 2006 better prepared to take advantage of our growth opportunities in Linux and Identity."

Cash, cash equivalents and short-term investments were $1.7 billion at Oct. 31, 2005, up from $1.6 billion at July 31, 2005. Days sales outstanding (DSO) in accounts receivable was 81 days at the end of the fourth fiscal quarter 2005, up from 77 in the year ago quarter. Deferred revenue was $406 million at the end of the fourth fiscal quarter 2005, up $32 million or eight percent from the prior year. Cash flow from operations was $58 million for the fourth fiscal quarter 2005, up from $52 million in the fourth fiscal quarter 2004.

Full details on Novell's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial schedules that are a part of this release.

With regard to the previously announced common stock repurchase plan, Novell has not repurchased any of its common stock to date because it has been continuously subject to self-imposed trading blackouts since the share repurchase program was announced on Sept. 22, 2005. Financial Outlook

Novell management provided the following financial guidance: -- Net revenue for the first fiscal quarter 2006 is expected to be between

$260 and $270 million.

-- Net income per diluted common share for the first fiscal quarter 2006

is expected to be between $0.02 and $0.03, excluding an estimated $0.03

per share expense from adoption of the new stock-based compensation

accounting standard.

-- The previously announced restructuring is expected to negatively impact

revenue by approximately $40 to $50 million in the full fiscal year

2006, excluding continued expected revenue declines in Novell's legacy

Workgroup businesses.

-- Novell is targeting operating margins between 12% and 15% for fiscal

year 2008. A summary of Novell's vision, mission and strategy can be accessed on the Novell(R) Web site at: http://www.novell.com/company/ir/qresults/ . Conference call notification and Web access detail

A live Webcast of a Novell conference call to discuss the quarter will be broadcast at 5:00 PM EST Dec. 1, 2005, from Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/ . The domestic conference call dial-in number is 866-335-5255, password "Novell," and the international dial-in number is +1-706-679-2263, password "Novell."

The call will be archived on the Web site approximately 15 minutes after its conclusion, and will be available for telephone playback through midnight ET, Dec. 14. The domestic toll-free replay number is 800-642-1687, and the international replay number is +1-706-645-9291. Replay listeners must enter conference ID number 2116994.

A copy of this press release is posted on Novell's Web site at: http://www.novell.com/company/ir/qresults/ . Legal notice regarding forward-looking statements

This press release includes statements that are not historical in nature and that may be characterized as "forward-looking statements," including those related to future financial and operating results, benefits and synergies of the company's brands and strategies, future opportunities and the growth of the market for Identity-driven computing and Linux and Platform solutions. You should be aware that Novell's actual results could differ materially from those contained in the forward-looking statements, which are based on current expectations of Novell management and are subject to a number of risks and uncertainties, including, but not limited to, Novell's ability to integrate acquired operations and employees, Novell's success in executing its Linux and identity and resource management strategies, Novell's ability to take a competitive position in the Linux and identity and resource management industries, business conditions and the general economy, market opportunities, potential new business strategies, competitive factors, sales and marketing execution, shifts in technologies or market demand and the other factors described in Novell's Post-Effective Amendment No. 5 to Form S-3 filed with the Securities and Exchange Commission on Oct. 14, 2005. Novell disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release. About Novell

Novell, Inc. delivers Software for the Open Enterprise.(TM) With more than 50,000 customers in 43 countries, Novell helps customers manage, simplify, secure and integrate their technology environments by leveraging best-of-breed, open standards-based software. With over 20 years of experience, more than 5,000 employees, 5,000 partners and support centers around the world, Novell helps customers gain control over their IT operating environment while reducing cost. More information about Novell can be found at http://www.novell.com . NOTE: Novell and SUSE are registered trademarks, and Software for the Open Enterprise is a trademark of Novell, Inc. in the United States and other countries. * Linux is a registered trademark of Linus Torvalds. All other third-party trademarks are the property of their respective owners.

Novell, Inc.

Consolidated Unaudited Condensed Statements of Operations

(In thousands, except per share data) Fiscal Quarter Ended Fiscal Year Ended

Oct 31, Oct 31, Oct 31, Oct 31,

2005 2004 2005 2004

Net revenue

Software licenses $78,111 $61,994 $213,803 $234,037

Maintenance and services 242,192 238,663 983,893 931,880

Total net revenue 320,303 300,657 1,197,696 1,165,917 Cost of revenue

Software licenses 7,630 6,857 21,600 23,478

Maintenance and services 100,088 103,548 421,519 392,201

Total cost of revenue 107,718 110,405 443,119 415,679 Gross profit 212,585 190,252 754,577 750,238 Operating expenses

Sales and marketing 100,426 96,785 388,846 365,319

Product development 53,798 46,703 200,630 195,864

General and administrative 31,858 23,236 122,026 102,437

Restructuring expenses 37,951 8,916 59,106 22,903

Acquired in-process

research and development -- -- 480 --

Gain on sale of property,

plant and equipment -- -- (1,589) (1,977)

Gain on settlement of

potential litigation -- -- (447,560) --

Total operating expenses 224,033 175,640 321,939 684,546

Income (loss) from operations (11,448) 14,612 432,638 65,692 Other income, net 11,756 248 33,504 9,282 Income before income taxes 308 14,860 466,142 74,974 Income tax expense 5,260 1,595 89,420 17,786 Net income (loss) $(4,952) $13,265 $376,722 $57,188 Deemed dividend related to

beneficial conversion feature

of preferred stock -- -- -- (25,680)

Preferred stock dividends (91) (125) (466) (416)

Allocation of earnings to

preferred stockholders -- -- (3,667) (274) Net income (loss) available to

common stockholders -

basic $(5,043) $13,140 $372,589 $30,818 Net income (loss) available to

common stockholders -

diluted $(5,043) $14,758 $378,159 $30,818 Net income (loss) per common

share:

Basic $(0.01) $0.03 $0.98 $0.08

Diluted $(0.01) $0.03 $0.86 $0.08

Weighted average shares:

Basic 382,279 376,367 379,499 381,100

Diluted 382,279 438,317 * 440,585 * 390,879

Certain reclassifications, none of which affected net income, were made to

the prior period amounts in order to conform to the current period's

presentation.

* Fiscal year 2005 and the fourth fiscal quarter 2004 diluted weighted

average shares includes 52 million potential common shares related

to convertible debt which are not included in the current quarter

calculation because they are anti-dilutive.

Novell, Inc.

Consolidated Unaudited Condensed Balance Sheets

(In thousands) ASSETS Oct 31, 2005 Oct 31, 2004 Current assets

Cash and cash equivalents $818,738 $434,404

Short-term investments 843,666 777,063

Receivables, net 293,627 269,431

Prepaid expenses 30,777 27,000

Other current assets 29,745 28,846

Total current assets 2,016,553 1,536,744 Property, plant and equipment, net 212,377 231,468

Long-term investments 54,340 55,986

Goodwill 395,509 391,088

Intangible assets, net 56,421 48,616

Deferred income taxes 1,384 --

Other assets 25,274 29,456 Total assets $2,761,858 $2,293,358

LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities

Accounts payable $45,445 $55,956

Accrued compensation 113,760 126,612

Other accrued liabilities 131,105 98,983

Income taxes payable 56,869 37,077

Deferred revenue 405,751 374,186

Total current liabilities 752,930 692,814 Deferred income taxes 4,537 3,855

Senior convertible debentures 600,000 600,000 Total liabilities 1,357,467 1,296,669 Minority interests 8,555 8,325 Preferred stock 9,350 25,000 Stockholders' equity 1,386,486 963,364 Total liabilities and stockholders'

equity $2,761,858 $2,293,358

Certain reclassifications were made to the prior period amounts in order

to conform to the current period's presentation.

Novell, Inc.

Consolidated Unaudited Condensed Statements of Cash Flows

(In thousands) Fiscal Quarter Ended Fiscal Year Ended

Oct 31, Oct 31, Oct 31, Oct 31,

2005 2004 2005 2004 Cash flows from operating activities:

Net income (loss) $(4,952) $13,265 $376,722 $57,188

Adjustments to reconcile net

income (loss) to net cash

provided by operating activities:

Depreciation and amortization 13,953 14,536 56,261 53,482

Change in accounts receivable

allowances 1,514 (3,154) (7,838) (4,923)

Income tax benefits related to

stock plans (2,367) -- 13,799 --

Utilization of previously

reserved acquired net

operating losses -- -- 29,600 --

(Gain) loss on sale of property,

plant and equipment -- 328 (1,589) (1,639)

Impairment of intangible assets 1,521 -- 1,521 --

Impairment of investments 192 1,400 1,300 3,848

Acquired in-process research

and development -- -- 480 --

Changes in current assets and

liabilities, excluding the

effect of acquisitions 48,392 25,128 30,158 11,250 Net cash provided by operating

activities 58,253 51,503 500,414 119,206 Cash flows from financing activities:

Issuance of common stock, net 6,073 10,178 22,108 58,162

Issuance of convertible preferred

stock -- -- -- 50,000

Issuance of senior convertible

debentures -- -- -- 600,000

Payment of issuance costs on

senior convertible debentures -- -- -- (14,850)

Payment of cash dividends on

preferred stock (216) -- (591) (292)

Repurchase of common stock, held

in treasury -- -- -- (125,000) Net cash provided by financing

activities 5,857 10,178 21,517 568,020 Cash flows from investing activities:

Purchases of property, plant and

equipment (10,613) (7,473) (30,781) (26,997)

Proceeds from the sale of

property, plant and equipment -- 2,811 10,421 4,951

Long-term investment activity 1,633 (1,414) 281 (9,399)

Short-term investment activity (228,162) (199,981) (74,370) (393,495)

Cash paid for acquisition of

Salmon, net of cash acquired -- -- -- (5,322)

Cash paid for acquisition of

SUSE, net of cash acquired -- -- -- (200,298)

Cash paid for acquisiton of

Tally and Immunix, net of

cash acquired -- -- (33,829) --

Purchase of intangible assets -- -- (15,500) --

Other 5,940 5,142 6,181 10,806 Net cash used in investing

activities (231,202) (200,915)(137,597) (619,754) Increase (decrease) in cash and

cash equivalents (167,092) (139,234) 384,334 67,472 Cash and cash equivalents -

beginning of period 985,830 573,638 434,404 366,932 Cash and cash equivalents -

end of period $818,738 $434,404 $818,738 $434,404 Certain reclassifications were made to the prior period amounts in order to conform to the current period's presentation.

Novell, Inc.

Unaudited Non-GAAP Adjusted Earnings Information

(In thousands, except per share data)

Fiscal Quarter Ended Fiscal Year Ended

Oct 31, Oct 31, Oct 31, Oct 31,

2005 2004 2005 2004 GAAP diluted net income (loss)

available to common stockholders $(5,043) $14,758 $378,159 $30,818 Pre-income tax adjustments:

Microsoft settlement -- -- (447,560) --

Canopy settlement -- -- -- (18,566)

Restructuring expenses 37,951 8,916 59,106 22,903

Gain on sale of property, plant

and equipment -- -- (1,589) (1,977)

Impairment of intangible assets 1,521 -- 1,521 --

Acquired in-process research and

development -- -- 480 --

Integration costs -- -- -- 372

Impairment of investments 486 1,401 1,594 3,848

Sub-total 39,958 10,317 (386,448) 6,580 Income tax adjustments:

Tax adjustments, net (1,569) -- (4,232) (1,163)

Cumulative tax effect of the

Microsoft settlement (1,700) -- 70,560 -- Diluted net income (loss) adjustments:

Debt interest expense 1,493 -- -- 1,974

Preferred stock dividends -- -- -- 416

Preferred stock beneficial

conversion feature -- -- -- 25,680

Allocation of earnings to

preferred and minority

stockholders (391) -- 2,991 275 Non-GAAP diluted net income

available to common stockholders $32,748 $25,075 $61,030 $64,580

GAAP diluted net income (loss) per

common share $(0.01) $0.03 $0.86 $0.08

Adjustments detailed above 0.08 0.03 (0.72) 0.08 Non-GAAP diluted net income per

common share $0.07 $0.06 $0.14 $0.16

GAAP diluted weighted average shares 382,279 438,317 440,585 390,879 Change in dilution from assumed:

Conversion of convertible debt 52,075 -- -- 17,122

Conversion of preferred stock -- -- -- 3,388

Stock option exercises 8,304 -- -- --

Restricted stock and stock-based

compensation changes 403 -- -- -- Non-GAAP diluted weighted average

shares 443,061 438,317 440,585 411,389 Certain reclassifications were made to the prior period amounts in order to conform to the current period's presentation.