Novell Reports Financial Results for First Fiscal Quarter 2006

WALTHAM, Mass., March 2 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its first fiscal quarter ended Jan. 31, 2006. For the quarter, Novell reported revenue of $274 million, compared to revenue of $290 million for the first fiscal quarter 2005. Net income available to common stockholders in the first fiscal quarter 2006 was $2 million or $0.00 per diluted common share. This compared to net income available to common stockholders of $392 million, or $0.90 per diluted common share, for the first fiscal quarter 2005, which included a $448 million net gain related to the settlement with Microsoft in that quarter.

On a non-GAAP basis, adjusted net income available to common stockholders for the first fiscal quarter 2006 was $18 million, or $0.04 per diluted common share, excluding stock-based compensation expense, the benefit from restructuring reversals 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 first fiscal quarter 2005 of $10 million, or $0.03 per diluted common share, excluding the gain from the legal settlement with Microsoft, restructuring expenses, a gain on a sale of property, long-term investment impairments, and adjustments for income taxes, debt interest expense and the allocation of earnings to preferred stockholders.

In the first fiscal quarter 2006, foreign currency exchange rates unfavorably impacted total revenue by approximately $7 million year-over-year. Foreign currency exchange rates favorably impacted net income by $1 million year-over-year.

During the first fiscal quarter 2006, Novell recognized total Open Platform Solutions revenue of $56 million, which was up from $14 million in the year ago period. Total Open Platform Solutions included $43 million from sales of Open Enterprise Server (OES) and $13 million of revenue from other Linux* Platform Products and Other Open Platform Products. The year ago period did not include revenue from OES as it was introduced in the second fiscal quarter of 2005.

During the first fiscal quarter 2006, Novell recognized $63 million of Systems, Security and Identity Management revenue, up 20% year-over-year.

Also in the first fiscal quarter 2006, revenue from OES and NetWare- related products declined 11% from the year ago period.

Please refer to the financial schedules that are a part of this press release for a description of new solution revenue categories.

"We are pleased with the continued improvement in the core business this quarter," said Jack Messman, chairman and CEO of Novell. "Our growth businesses of Linux, Identity and Resource Management are performing well, and we believe we will continue to see growth throughout the fiscal year."

Cash, cash equivalents and short-term investments were $1.7 billion at Jan. 31, 2006, consistent with last quarter. Days sales outstanding in accounts receivable was 59 days at the end of the first fiscal quarter 2006, consistent with the year ago quarter. Deferred revenue was $367 million at the end of the first fiscal quarter 2006, up $24 million or 7% from the prior year. Cash flow from operations was $25 million for the first fiscal quarter 2006, up from $4 million in the first fiscal quarter 2005, excluding the Microsoft settlement payment.

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. Financial Outlook

Novell management provided the following financial guidance:

-- Net revenue for the second fiscal quarter 2006 is expected to be

between $272 million and $282 million.

-- On a non-GAAP basis, net income per diluted common share for the second

fiscal quarter 2006 is expected to be between $0.02 and $0.03,

excluding an estimated $0.02 per share expense from stock-based

compensation. 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 ET March 2, 2006, 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, March 16. 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 4945003.

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 and Access Management and Open 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on Jan. 10, 2006. 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. Novell is a registered trademark, 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

Jan 31, 2006 Jan 31, 2005 Net revenue

Software licenses $42,102 $44,296

Maintenance and services 232,306 245,832

Total net revenue 274,408 290,128 Cost of revenue

Software licenses 4,297 4,632

Maintenance and services 96,965 107,419

Total cost of revenue 101,262 112,051 Gross profit 173,146 178,077 Operating expenses

Sales and marketing 94,153 95,244

Product development 44,117 47,758

General and administrative 35,454 28,240

Restructuring expenses (1,064) 6,419

Gain on sale of property, plant and equipment -- (1,589)

Gain on settlement of potential litigation -- (447,560)

Total operating expenses 172,660 (271,488) Income from operations 486 449,565 Other income, net 12,702 5,035 Income before income taxes 13,188 454,600 Income tax expense 11,323 59,439 Net income $1,865 $395,161 Net income available to common stockholders

- basic $1,811 $390,891 Net income available to common stockholders

- diluted $1,811 $392,384 Net income per common share:

Basic $0.00 $1.04

Diluted $0.00 $0.90 Weighted average shares:

Basic 385,787 377,257

Diluted 394,534 435,467 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. The first fiscal quarter 2005 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. Stock-based compensation expense recorded in above amounts:

Fiscal Quarter Ended

Jan 31, 2006 Jan 31, 2005

Cost of revenue $1,062 $1

Sales and marketing 3,532 134

Product development 2,637 324

General and administrative 6,464 --

Total stock-based compensation expense $13,695 $459

Novell, Inc.

Consolidated Unaudited Condensed Balance Sheets

(In thousands) Jan 31, 2006 Oct 31, 2005

Assets Current assets

Cash and cash equivalents $845,128 $811,238

Short-term investments 840,462 843,666

Receivables, net 185,251 293,627

Prepaid expenses 34,423 30,777

Other current assets 26,305 29,745

Total current assets 1,931,569 2,009,053 Property, plant and equipment, net 209,624 212,377

Long-term investments 54,221 54,340

Goodwill 396,676 395,509

Intangible assets, net 39,499 56,421

Deferred income taxes 679 1,384

Other assets 42,797 32,774 Total assets $2,675,065 $2,761,858 Liabilities and Stockholders' Equity Current liabilities

Accounts payable $43,602 $45,445

Accrued compensation 86,512 113,760

Other accrued liabilities 82,985 131,105

Income taxes payable 58,817 56,869

Deferred revenue 367,451 405,751

Total current liabilities 639,367 752,930 Deferred income taxes 4,369 4,537

Senior convertible debentures 600,000 600,000 Total liabilities 1,243,736 1,357,467 Minority interests 2,805 8,555 Preferred stock 9,350 9,350 Stockholders' equity 1,419,174 1,386,486 Total liabilities and stockholders' equity $2,675,065 $2,761,858

Novell, Inc.

Consolidated Unaudited Condensed Statements of Cash Flows

(In thousands) Fiscal Quarter Ended

Jan 31, 2006 Jan 31, 2005 Cash flows from operating activities:

Net income $1,865 $395,161

Adjustments to reconcile net income to net

cash provided by operating activities:

Depreciation and amortization 11,511 12,436

Decrease in accounts receivable allowances (2,973) (5,219)

Stock-based compensation expense 13,695 459

Tax effects of stock-based compensation plans 4,039 4,260

Excess tax benefits from stock-based

compensation (4,039) --

Utilization of previously reserved acquired

net operating losses 544 29,000

Net gain on sale of property, plant and

equipment -- (1,589)

Net loss on long-term investments 387 1,013

Changes in current assets and liabilities 94 16,126 Net cash provided by operating activities 25,123 451,647 Cash flows from financing activities:

Issuance of common stock, net 9,876 4,467

Excess tax benefits from stock-based

compensation 4,039 --

Payment of cash dividends on preferred stock -- (250) Net cash provided by financing activities 13,915 4,217 Cash flows from investing activities:

Purchases of property, plant and equipment (7,603) (5,649)

Proceeds from the sale of property, plant and

equipment -- 10,421

Short-term investment activity 4,474 (111,706)

Long-term investment activity (256) (2,247)

Cash paid for equity share of Open Invention

Network LLC (4,225) --

Purchase of intangible assets -- (15,500)

Other 2,462 6,257 Net cash used in investing activities (5,148) (118,424) Increase in cash and cash equivalents 33,890 337,440 Cash and cash equivalents - beginning of period 811,238 434,404 Cash and cash equivalents - end of period $845,128 $771,844

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.

Novell, Inc.

Unaudited Non-GAAP Adjusted Earnings Information

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

Jan 31, 2006 Jan 31, 2005

GAAP diluted net income available to common

stockholders $1,811 $392,384 Pre-income tax adjustments:

Microsoft settlement -- (447,560)

Stock-based compensation expense 13,695 459

Restructuring expenses (1,064) 6,419

Gain on sale of property, plant and equipment -- (1,589)

Net loss on long-term investments 387 1,013 Income tax adjustments:

Tax adjustments, net 1,766 (638)

Cumulative tax effect of the Microsoft

settlement -- 57,260 Diluted net income adjustments:

Debt interest expense 1,493 (1,493)

Allocation of earnings to preferred and

minority stockholders (57) 4,036 Total net adjustments 16,220 (382,093)

Non-GAAP diluted net income available to common

stockholders $18,031 $10,291

GAAP diluted net income per common share $0.00 $0.90

Adjustments detailed above 0.04 (0.87) Non-GAAP diluted net income per common share $0.04 $0.03 GAAP diluted weighted average shares 394,534 435,467 Change in dilution from assumed:

Conversion of convertible debt 52,074 (52,074)

Stock option exercises 4,003 --

Restricted stock and stock-based

compensation changes (771) (851) Non-GAAP diluted weighted average shares 449,840 382,542 Certain reclassifications were made to the prior period amounts in order to conform to the current period's presentation.