Novell Reports Financial Results for Second Fiscal Quarter 2006

WALTHAM, Mass., May 31 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its second fiscal quarter ended April 30, 2006. For the quarter, Novell reported revenue of $278 million, compared to revenue of $297 million for the second fiscal quarter 2005. Net income available to common stockholders in the second fiscal quarter 2006 was $3 million or $0.01 per diluted common share. This compared to net loss available to common stockholders of $16 million, or $0.04 loss per diluted common share, for the second fiscal quarter 2005.

On a non-GAAP basis, adjusted net income available to common stockholders for the second fiscal quarter 2006 was $10 million, or $0.03 per diluted common share. This compared to non-GAAP adjusted net income available to common stockholders of $2 million, or $0.01 per diluted common share, for the second fiscal quarter 2005. These amounts exclude stock-based compensation, restructuring and acquired in-process research and development expenses, gains on sale of property, plant and equipment and a legal settlement, long-term investment impairments and related adjustments for income taxes, debt interest expense and the allocation of earnings to preferred stockholders.

In the second fiscal quarter 2006, foreign currency exchange rates unfavorably impacted total revenue by approximately $6 million year-over-year. Foreign currency exchange rates favorably impacted net income by $1 million year-over-year.

During the second fiscal quarter 2006, Novell reported total Open Platform Solutions revenue of $57 million, which was up from $20 million in the year ago period. Total Open Platform Solutions included $46 million from sales of Open Enterprise Server (OES), up $38 million year-over-year, and $10 million of revenue from Linux* Platform Products, up 20 percent year-over-year.

During the second fiscal quarter 2006, Novell reported $61 million of Systems, Security and Identity Management revenue, up 16 percent year-over- year.

Combined revenue from OES and NetWare-related products declined 16 percent from the year ago period.

"While Novell delivered on its financial guidance again this quarter, we have not lost sight of our goal to significantly increase our profitability by the end of fiscal year 2008," said Jack Messman, chairman and CEO of Novell. "We are engaged in many initiatives to grow revenues, increase efficiencies, and lower costs, to enhance shareholder value."

With regard to the company's previously announced share repurchase program, Novell repurchased 35 million common shares at a cost of $267 million during the quarter. An additional 16 million common shares were repurchased for $133 million after the quarter's end, resulting in an aggregate repurchase amount of $400 million, or 51 million shares. These repurchases complete the share repurchase program authorized and announced in September 2005 and amended in April 2006.

Cash, cash equivalents and short-term investments were $1.3 billion at April 30, 2006, down $347 million from last quarter primarily due to cash used to repurchase common stock and the acquisition of e-Security. Days sales outstanding in accounts receivable was 66 days at the end of the second fiscal quarter 2006, up from 59 days in the year ago quarter. Deferred revenue was $346 million at the end of the second fiscal quarter 2006, up $25 million or 8 percent from the prior year. Cash flow from operations was a negative $24 million for the second fiscal quarter 2006, up from a negative $25 million in the second fiscal quarter 2005.

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.

Financial Outlook

Due to the previously announced sale on May 24, 2006, of Novell's ownership in its management consulting subsidiary, Celerant, Novell will no longer consolidate Celerant's results. Novell expects to report Celerant's partial period results in the third fiscal quarter 2006 as discontinued operations. Accordingly, Novell management provides the following financial guidance:

-- Net revenue, excluding Celerant, for the third fiscal quarter 2006 is

expected to be between $239 million and $247 million.

-- On a non-GAAP basis, net income per diluted common share, excluding

Celerant, for the third fiscal quarter 2006 is expected to be $0.03,

excluding an estimated $0.03 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 May 31, 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, June 7, 2006. 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 8678383.

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, 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 and NetWare 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-to-Date

Apr 30, Apr 30, Apr 30, Apr 30,

2006 2005 2006 2005

Net revenue:

Software licenses $40,063 $45,768 $82,165 $90,064

Maintenance and services 238,253 251,283 470,559 497,115

Total net revenue 278,316 297,051 552,724 587,179 Cost of revenue:

Software licenses 4,041 4,863 8,337 9,495

Maintenance and services 100,408 112,478 197,374 219,897

Total cost of revenue 104,449 117,341 205,711 229,392 Gross profit 173,867 179,710 347,013 357,787 Operating expense (income):

Sales and marketing 96,003 98,479 189,212 192,488

Product development 48,328 51,652 93,389 100,645

General and administrative 33,377 30,140 68,831 58,380

Restructuring expenses -- 5,361 (1,064) 11,780

Purchased in-process research

and development 2,110 480 2,110 480

Gain on sale of property,

plant and equipment (2,190) -- (2,190) (1,589)

Gain on litigation settlements (1,225) -- (1,225) (447,560)

Total operating expense (income) 176,403 186,112 349,063 (85,376) Income (loss) from operations (2,536) (6,402) (2,050) 443,163 Other income, net 13,377 7,455 26,079 12,490 Income before income taxes 10,841 1,053 24,029 455,653 Income tax expense 7,499 16,680 18,822 76,119 Net income (loss) $3,342 $(15,627) $5,207 $379,534 Net income (loss) available to

common stockholders - basic $3,282 $(15,752) $5,093 $375,310 Net income (loss) available to

common stockholders - diluted $3,178 $(15,752) $5,021 $378,296 Net income (loss) per common share:

Basic $0.01 $(0.04) $0.01 $0.99

Diluted $0.01 $(0.04) $0.01 $0.87 Weighted average shares:

Basic 378,403 378,219 382,095 377,738

Diluted 385,320 378,219 389,657 434,962*

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 fiscal year-to-date 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 Fiscal Year-to-Date

Apr 30, Apr 30, Apr 30, Apr 30,

2006 2005 2006 2005 Cost of revenue $923 $1 $1,985 $2

Sales and marketing 3,044 224 6,576 358

Product development 1,750 329 4,387 653

General and administrative 2,013 398 8,477 398

Total stock-based compensation

expense $7,730 $952 $21,425 $1,411

Novell, Inc.

Consolidated Unaudited Condensed Balance Sheets

(In thousands) Apr 30, 2006 Oct 31, 2005

Assets Current assets:

Cash and cash equivalents $542,074 $811,238

Short-term investments 796,967 843,666

Receivables, net 219,242 293,627

Prepaid expenses 36,047 30,777

Other current assets 31,234 29,745

Total current assets 1,625,564 2,009,053 Property, plant and equipment, net 204,274 212,377

Long-term investments 56,856 54,340

Goodwill 454,163 395,509

Intangible assets, net 47,484 56,421

Deferred income taxes 1,582 1,384

Other assets 32,677 32,774 Total assets $2,422,600 $2,761,858 Liabilities and Stockholders' Equity Current liabilities:

Accounts payable $46,713 $45,445

Accrued compensation 105,146 113,760

Other accrued liabilities 80,022 131,105

Income taxes payable 57,829 56,869

Deferred revenue 345,768 405,751

Total current liabilities 635,478 752,930 Deferred income taxes 4,066 4,537

Senior convertible debentures 600,000 600,000 Total liabilities 1,239,544 1,357,467 Minority interests 2,974 8,555 Preferred stock 9,350 9,350 Stockholders' equity 1,170,732 1,386,486 Total liabilities and stockholders'

equity $2,422,600 $2,761,858

Novell, Inc.

Consolidated Unaudited Condensed Statements of Cash Flows

(In thousands) Fiscal Quarter Ended Fiscal Year-to-Date

Apr 30, Apr 30, Apr 30, Apr 30,

2006 2005 2006 2005

Cash flows from operating activities:

Net income (loss) $3,342 $(15,627) $5,207 $379,534

Adjustments to reconcile net

income (loss) to net cash

(used) provided by

operating activities:

Stock-based compensation

expense 7,730 952 21,425 1,411

Tax effects of stock-based

compensation plans 1,247 9,000 5,286 13,260

Excess tax benefits from stock-

based compensation (1,247) -- (5,286) --

Depreciation and amortization 10,867 17,354 22,378 29,790

Decrease in accounts receivable

allowances (1,930) (570) (4,903) (5,789)

Utilization of previously

reserved acquired net

operating losses 2,976 600 3,520 29,600

Gain on sale of property, plant

and equipment (2,190) -- (2,190) (1,589)

Impairment of long-term

investments, net of gains 111 917 498 1,930

Purchased in-process research

and development 2,110 480 2,110 480

Changes in current assets and

liabilities, excluding the

effect of acquisitions (46,962) (38,090) (46,868) (21,964) Net cash (used) provided by

operating activities (23,946) (24,984) 1,177 426,663 Cash flows from financing

activities:

Issuance of common stock, net 8,206 8,512 18,082 12,979

Excess tax benefits from stock-

based compensation 1,247 -- 5,286 --

Payment of cash dividends on

Series B preferred stock (47) -- (47) (250)

Repurchase of common stock -

retired (267,479) -- (267,479) -- Net cash (used) provided by

financing activities (258,073) 8,512 (244,158) 12,729 Cash flows from investing activities:

Purchases of property, plant

and equipment (6,951) (6,035) (14,554) (11,684)

Proceeds from the sale of

property, plant and equipment 7,258 -- 7,258 10,421

Proceeds from payoff of note

receivable 9,092 -- 9,092 --

Short-term investment activity 41,784 274,081 46,258 162,375

Long-term investment activity (2,758) (771) (3,014) (3,018)

Cash paid for equity

investment in Open Invention

Network, LLC -- -- (4,225) --

Cash paid for acquisition of

Tally and Immunix, net of

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

Cash paid for acquisition of

e-Security, net of cash

acquired (71,550) -- (71,550) --

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

Other 2,090 (1,939) 4,552 4,318 Net cash (used) provided by

investing activities (21,035) 231,507 (26,183) 113,083 (Decrease) increase in cash and

cash equivalents (303,054) 215,035 (269,164) 552,475 Cash and cash equivalents -

beginning of period 845,128 771,844 811,238 434,404 Cash and cash equivalents - end of

period $542,074 $986,879 $542,074 $986,879 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.

Novell, Inc.

Unaudited Non-GAAP Adjusted Earnings Information

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

Apr 30, Apr 30, Apr 30, Apr 30,

2006 2005 2006 2005

GAAP diluted net income (loss)

available to common stockholders $3,178 $(15,752) $5,021 $378,296 Pre-tax adjustments:

Stock-based compensation expense 7,730 952 21,425 1,411

Restructuring expenses -- 5,361 (1,064) 11,780

Purchased in-process research

and development 2,110 480 2,110 480

Gains on sale of property, plant

and equipment (2,190) -- (2,190) (1,589)

Gain on litigation settlements (1,225) -- (1,225) (447,560)

Transaction costs related to

Celerant divestiture 588 -- 588 --

Impairment of long-term

investments, net of gains 111 917 498 1,930 Income tax adjustments:

Tax adjustments, net 209 (1,766) 1,975 (2,404)

Cumulative tax effect of the

Microsoft settlement -- 12,100 -- 69,360 Diluted net income (loss)

adjustments:

Debt interest expense -- -- 2,986 (2,986)

Allocation of earnings to

preferred and minority

stockholders (29) (24) (86) 3,841 Total net adjustments 7,304 18,020 25,017 (365,737)

Non-GAAP diluted net income available

to common stockholders $10,482 $2,268 $30,038 $12,559 GAAP diluted net income (loss) per

common share $0.01 $(0.04) $0.01 $0.87

Adjustments detailed above 0.02 0.05 0.06 (0.84) Non-GAAP diluted net income per

common share $0.03 $0.01 $0.07 $0.03 GAAP diluted weighted average shares 385,320 378,219 389,657 434,962 Change in dilution from assumed:

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

Conversion of preferred stock -- -- -- --

Stock option exercises 4,022 4,035 4,363 --

Restricted stock and stock-based

compensation changes (315) -- (618) (374) Non-GAAP diluted weighted average

shares 389,027 382,254 445,476 382,514

Certain reclassifications were made to the prior period amounts in order to conform to the current period's presentation.