Novell Reports Financial Results for Third Fiscal Quarter 2007

WALTHAM, Mass., Aug. 29 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its third fiscal quarter ended July 31, 2007. For the quarter, Novell reported net revenue of $243 million, compared to net revenue of $236 million for the third fiscal quarter 2006. The loss from operations for the third fiscal quarter 2007 was $10 million, compared to a loss from operations of $40 million for the third fiscal quarter 2006. The loss available to common stockholders from continuing operations in the third fiscal quarter 2007 was $3 million, or $0.01 loss per common share. This compares to a loss available to common stockholders from continuing operations of $17 million, or $0.05 loss per common share, for the third fiscal quarter 2006. Foreign currency exchange rates favorably impacted total revenue by approximately $4 million and negatively impacted the loss from operations by $1 million year-over-year.

On a non-GAAP basis, adjusted income from operations for the third fiscal quarter 2007 was $12 million. This compares to non-GAAP adjusted income from operations of $6 million in the year-ago quarter. Non-GAAP adjusted income available to common stockholders from continuing operations for the third fiscal quarter 2007 was $16 million, or $0.05 per adjusted diluted common share. This compares to non-GAAP adjusted income available to common stockholders from continuing operations of $24 million, or $0.06 per adjusted diluted common share, for the third fiscal quarter 2006.

For the third fiscal quarter 2007, Novell reported $22 million of revenue from Open Platform Solutions of which $21 million was from Linux* Platform Products, up 77 percent year-over-year. Linux Platform Products invoicing was $38 million, up 95 percent year-over-year. Revenue from Identity and Security Management was $30 million of which Identity and Access Management was $27 million, up 2 percent year-over-year. Revenue from Systems and Resource Management was $35 million, up 4 percent year-over-year. Revenue from our Workgroup business unit declined 2 percent from the year-ago period to $83 million.

"We are encouraged by our Linux performance and the market's continued enthusiasm for our desktop to datacenter strategy. In addition, we are pleased with our operating margin expansion and progress on our strategic initiatives," said Ron Hovsepian, president and CEO of Novell.

Cash, cash equivalents and short-term investments were $1.8 billion at July 31, 2007, consistent with last quarter. Days sales outstanding in accounts receivable was 74 days at the end of the third fiscal quarter 2007, down from 88 days at the end of the year-ago quarter. Total deferred revenue was $734 million at the end of the third fiscal quarter 2007, up $343 million, or 88 percent, from July 31, 2006. Cash flow from operations was $26 million for the third fiscal quarter 2007, compared to $36 million in the third fiscal quarter 2006.

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 Novell management issues the following financial guidance: For the full fiscal year 2007:

-- Net revenue is expected to be between $925 million and $955 million,

in line with prior guidance.

-- On a non-GAAP basis, adjusted income from operations is expected to

exceed previously stated guidance of between break-even and

$10 million.

-- Novell reiterates fiscal 2007 non-GAAP exit rate operating margin, as

defined below, of between 5 and 7 percent.

Non-GAAP exit rate operating margin is defined as an annualized run rate expense level at the end of the period that, when compared to the full fiscal year's revenue, would result in pro forma operating margin for the year.

Non-GAAP Financial Measures

We supplement our consolidated unaudited condensed financial statements presented in accordance with GAAP with certain non-GAAP financial measures. These non-GAAP measures include adjusted income from operations, adjusted diluted income available to common stockholders from continuing operations, and adjusted diluted income per common share from continuing operations based on an adjusted number of diluted weighted average shares. We provide non-GAAP financial measures to (i) enhance an overall understanding of our current financial performance and prospects for the future and (ii) enable investors to evaluate our performance in the same way that management does. Management uses these non-GAAP adjusted financial measures to evaluate performance, allocate resources, and determine commissions and bonuses. The non-GAAP adjusted financial measures do not replace the presentation of our GAAP financial results, but they eliminate expenses and gains that are unusual, that are excluded from analysts' consensus estimates, and/or that arise outside of the ordinary course of business.

These non-GAAP financial measures exclude items such as, but not limited to, stock-based compensation expenses, restructuring expenses, asset impairments, litigation judgments and settlements, the write-off of acquired in-process research and development, and gains (losses) on the sale of business operations, long-term investments, and property, plant and equipment.

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 August 29, 2007, 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 Novell Web site approximately two hours after its conclusion and will remain on the Web site until Sept. 14, 2007. The call will also be available for telephone playback through midnight ET, Sept. 14, 2007. 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 10920968.

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" within the meaning of the Private Securities Litigation Reform Act, 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 Linux Platform Products. 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 realize the benefits anticipated from the Microsoft transaction, Novell's ability to achieve its expense targets, Novell's success in executing its Linux Platform Products, Identity and Access Management, and Systems and Resource Management strategies, Novell's ability to take a competitive position in the Linux Platform Products, Identity and Access Management, and Systems 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, Novell's ability to integrate acquired operations and employees, and the other factors described in Novell's Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 25, 2007. 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 except as required by the securities laws.

About Novell

Novell, Inc. (Nasdaq: NOVL) delivers infrastructure software for the Open Enterprise. Novell is a leader in enterprise-wide operating systems based on Linux and open source and provides the enterprise management services required to operate mixed IT environments. Novell helps customers minimize cost, complexity and risk, allowing them to focus on innovation and growth. For more information, visit http://www.novell.com.

* Novell is a registered 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

Jul 31, Jul 31, Jul 31, Jul 31,

2007 2006 2007 2006

Net revenue:

Software licenses $44,748 $45,435 $124,822 $127,600

Maintenance and subscriptions 124,832 117,538 366,403 361,899

Services (1) 73,555 73,298 215,662 216,462

Total net revenue 243,135 236,271 706,887 705,961 Cost of revenue:

Software licenses 5,286 4,984 13,773 13,570

Maintenance and subscriptions 12,498 13,137 35,423 37,794

Services 54,281 58,537 162,973 179,396

Total cost of revenue 72,065 76,658 212,169 230,760 Gross profit 171,070 159,613 494,718 475,201 Operating expenses:

Sales and marketing 84,591 89,703 263,367 266,871

Product development 54,207 45,993 153,236 136,836

General and administrative 28,647 25,605 82,581 80,172

Total operating expenses before

other 167,445 161,301 499,184 483,879 Income (loss) from operations

before other operating expenses 3,625 (1,688) (4,466) (8,678) Other operating expenses (2) 13,780 37,904 37,342 35,599 Loss from operations (10,155) (39,592) (41,808) (44,277) Other income, net 15,446 10,781 47,246 36,602 Income (loss) from continuing

operations, before income taxes 5,291 (28,811) 5,438 (7,675) Income tax expense (benefit) 8,711 (11,683) 20,927 5,527 Loss from continuing operations (3,420) (17,128) (15,489) (13,202) Income (loss) from discontinued

operations, before income taxes - 12,453 (10,137) 15,346

Income tax expense (benefit) on

discontinued operations - 849 (69) 2,461

Income (loss) from discontinued

operations - 11,604 (10,068) 12,885 Loss before cumulative effect of a

change in accounting principle (3,420) (5,524) (25,557) (317) Cumulative effect of a change in

accounting principle - (897) - (897) Net loss $(3,420) $(6,421) $(25,557) $(1,214) Loss available to common

stockholders: Continuing operations $(3,420) $(17,175) $(15,489) $(13,343) Net loss $(3,420) $(6,468) $(25,557) $(1,355) Loss per share available

to common stockholders: Continuing operations $(0.01) $(0.05) $(0.04) $(0.04) Net loss $(0.01) $(0.02) $(0.07) $(0.00) Weighted average shares 348,177 340,127 346,731 368,106 (1) Services includes consulting, technical support and training services (2) See Page 8 of 13 for a detail of other operating expenses. Certain reclassifications, none of which affected net loss, were made to

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

presentation. Stock-based compensation expense recorded in above amounts:

Fiscal Quarter Ended Fiscal Year-to-Date

Jul 31, Jul 31, Jul 31, Jul 31,

2007 2006 2007 2006 Cost of revenue $1,257 $1,034 $3,241 $3,019

Sales and marketing 2,831 2,819 7,091 9,394

Product development 2,684 1,954 7,370 6,341

General and administrative 2,087 1,880 5,787 10,095

Total operating expenses 7,602 6,653 20,248 25,830

Continuing operations 8,859 7,687 23,489 28,849

Discontinued operations - - - 263

Total stock-based compensation

expense $8,859 $7,687 $23,489 $29,112 Novell, Inc.

Consolidated Unaudited Condensed Balance Sheets

(In thousands) Jul 31, 2007 Oct 31, 2006

Assets Current assets:

Cash and cash equivalents $957,379 $675,787

Short-term investments 865,259 790,500

Receivables, net 200,831 233,986

Prepaid expenses 55,593 32,328

Other current assets 31,931 28,524

Total current assets 2,110,993 1,761,125 Property, plant and equipment, net 180,520 184,084

Long-term investments - 2,263

Goodwill 415,471 424,701

Intangible assets, net 32,613 40,404

Deferred income taxes 4,387 4,770

Other assets 30,156 32,376 Total assets $2,774,140 $2,449,723

Liabilities and Stockholders' Equity Current liabilities:

Accounts payable $36,131 $44,419

Accrued compensation 102,080 103,710

Other accrued liabilities 100,352 106,837

Income taxes payable 48,743 49,600

Deferred revenue 456,253 380,979

Total current liabilities 743,559 685,545 Deferred income taxes 5,642 4,186

Long-term deferred revenue 277,642 45,992

Senior convertible debentures 600,000 600,000 Total liabilities 1,626,843 1,335,723 Preferred stock - 9,350 Stockholders' equity 1,147,297 1,104,650 Total liabilities and stockholders'

equity $2,774,140 $2,449,723 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-to-Date

Jul 31, Jul 31, Jul 31, Jul 31,

2007 2006 2007 2006 Cash flows from operating

activities:

Net loss $(3,420) $(6,421) $(25,557) $(1,214)

Adjustments to reconcile net

loss to net cash provided by

operating activities:

Stock-based compensation

expense 8,859 7,687 23,489 29,112

Stock-based compensation

modification expense 673 - 2,475 -

Depreciation and amortization 9,690 11,530 31,163 33,908

Changes in accounts receivable

allowances (427) 243 (878) (4,660)

Utilization of previously

reserved acquired net operating

losses 10 340 4,835 3,860

Purchased in-process research and

development - - - 2,110

Net gain on sale of property,

plant and equipment - (3,778) - (5,968)

Loss on sale of Japan consulting

group - 8,273 - 8,273

Executive termination benefits,

non-cash - 9,409 - 9,409

Impairment of long-term

investments, net of gains on sale - 128 (1,738) 626

Gain on sale of venture capital

funds - - (3,591) -

Impairment of intangible assets

and goodwill 3,851 - 14,699 -

Gain on sale of discontinued

operations, before taxes - (11,960) (628) (11,960)

Cumulative effect of a change in

accounting principle - 897 - 897

Changes in current assets and

liabilities, excluding the

effect of acquisitions and

dispositions 6,424 19,252 300,324 (27,616) Net cash provided by operating

activities 25,660 35,600 344,593 36,777 Cash flows from financing

activities:

Issuance of common stock, net 6,248 3,592 14,375 21,674

Excess tax effects from stock-

based compensation 1,389 (1,028) 5,452 4,258

Payment of cash dividends on

Series B Preferred Stock - (94) (5) (141)

Repurchases of common stock,

retired - (132,521) - (400,000) Net cash provided (used) by

financing activities 7,637 (130,051) 19,822 (374,209) Cash flows from investing

activities:

Purchases of property, plant

and equipment (4,971) (4,986) (17,479) (19,540)

Proceeds from the sale of

property, plant and equipment - 17,734 - 24,992

Proceeds from repayment of note

receivable - - - 9,092

Short-term investment activity (24,913) (1,223) (72,333) 45,035

Long-term investment activity - 1,586 1,738 (1,428)

Cash paid for equity investment

in Open Invention Network, LLC - - - (4,225)

Proceeds from the sale of

Celerant, net of cash divested - 37,922 - 37,922

Proceeds from the sale of Salmon,

net of cash divested - - 2,749 -

Proceeds from sale of venture

capital funds - - 4,964 -

Cash paid for acquisition of

e-Security, net of cash acquired - - - (71,550)

Cash paid for acquisition of

Redmojo, net of cash acquired - - (9,727) -

Purchase of intangible assets (300) (1,159) (1,175) (1,159)

Other 3,274 3,219 8,440 7,771 Net cash (used) provided by

investing activities (26,910) 53,093 (82,823) 26,910 Increase (decrease) in cash and

cash equivalents 6,387 (41,358) 281,592 (310,522) Cash and cash equivalents -

beginning of period 950,992 542,074 675,787 811,238 Cash and cash equivalents -

end of period $957,379 $500,716 $957,379 $500,716 Novell, Inc.

Unaudited Non-GAAP Adjusted Income (Loss) From Operations

(In thousands, except per share data)

Fiscal Quarter Ended Fiscal Year-to-Date

Jul 31, Jul 31, Jul 31, Jul 31,

2007 2006 2007 2006 GAAP loss from operations $(10,155) $(39,592) $(41,808) $(44,277) Adjustments: Stock-based compensation

expense 8,859 7,687 23,489 28,849 Other operating expenses

(income):

Restructuring expenses

(benefit) 6,024 - 17,898 (1,000)

Purchased in-process

research and development - - - 2,110

Gain on sale of property,

plant and equipment - (3,778) - (5,968)

Litigation-related expense

(income) 450 24,000 (93) 22,775

Loss on sale of Japan

consulting group - 8,273 - 8,273

Executive termination

benefits, non-cash - 9,409 - 9,409

Impairment of intangible

assets 3,851 - 3,851 -

Stock-based compensation

review expenses 3,455 - 15,686 -

Sub-total 13,780 37,904 37,342 35,599 Total operating adjustments 22,639 45,591 60,831 64,448 Non-GAAP income from operations $12,484 $5,999 $19,023 $20,171

Operating Margin % 5.1% 2.5% 2.7% 2.9% Novell, Inc.

Unaudited Non-GAAP Adjusted Net Income (Loss)

(In thousands, except per share data)

Fiscal Quarter Ended Fiscal Year-to-Date

Jul 31, Jul 31, Jul 31, Jul 31,

2007 2006 2007 2006 GAAP loss available to common

stockholders from continuing

operations $(3,420) $(17,175) $(15,489) $(13,343) Operating adjustments

(detailed above) 22,639 45,591 60,831 64,448 Non-operating expenses

(income) adjustments:

Gain on sale of venture

capital funds - - (3,591) -

Impairment of long-term

investments, net of gains

on sale - 128 (1,738) 626

Sub-total - 128 (5,329) 626 Total pre-tax adjustments 22,639 45,719 55,502 65,074 Income tax adjustments (3,075) (6,064) (4,633) (6,768) Diluted income adjustments:

Debt interest expense - 1,493 - 4,479

Allocation of earnings to

preferred stockholders - (98) - (182) Total net adjustments 19,564 41,050 50,869 62,603 Non-GAAP diluted income available

to common stockholders from

continuing operations $16,144 $23,875 $35,380 $49,260 GAAP loss per common share from

continuing operations $(0.01) $(0.05) $(0.04) $(0.04)

Total adjustments detailed

above 0.06 0.11 0.14 0.15 Non-GAAP diluted income per

common share from continuing

operations $0.05 $0.06 $0.10 $0.11 GAAP weighted average shares

from continuing operations 348,177 340,127 346,731 368,106 Change in dilution from

assumed:

Conversion of convertible

debt - 52,074 - 52,074

Adjustments for assumed

stock option exercises 6,622 5,601 5,835 9,980 Non-GAAP diluted weighted

average shares 354,799 397,802 352,566 430,160 Revisions were made to prior period amounts in order to conform to the

current period's presentation.