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Novell Reports First Fiscal Quarter Results

Novell, Inc., today reported revenue of $245 million for its first fiscal quarter ended Jan. 31, 2001.

PROVO, Utah | February 15, 2001

Novell, Inc., today reported revenue of $245 million for its first fiscal quarter ended Jan. 31, 2001. Earnings per share, on a diluted basis, was $0.01 before the cumulative effective of an accounting change made in the quarter, and a loss of ($0.02) after the one time adjustment. The company made an accounting change in the quarter to recognize revenue upon shipment of products by channel partners to their customers, commonly known as "sell-through."

These results compare to revenue of $316 million, and diluted earnings per share of $0.13 in the same period a year ago. In the first fiscal quarter of last year, the company experienced especially strong software license purchases as customers prepared computer systems for the year 2000 date change.

"While we anticipate poor year-over-year comparisons through the first half of fiscal 2001, we are making progress as we transition to becoming a Net services software company," said Novell chairman and chief executive officer, Eric Schmidt. "In the second half of the year we intend to return to growth as the impact of our transformation to a Net services company becomes more visible.

"Noteworthy validations of our one Net vision, that began last fall, continued in the first quarter of 2001: from the largest Net services win ever, to large network license growth that has led to $220 million of deferred revenue that will contribute to our business over coming quarters. We are advancing our Net services strategy, and building the necessary foundation for success around our new business."

During the quarter, Novell won a major procurement award from a European government for the largest deployment of NDS eDirectory to date, a multi-year, one Net solution for up to 35 million users. Details of the deployment will be disclosed by the customer later this year. The contract is valued at more than $6 million in Net services licenses and consulting services over the next three years.

Plans for new Net services software deployments are being driven by customer decisions to adopt a one Net model that supports secure access by Web browsers to multiple IT applications and business processes from over the Internet. During the quarter, licensees moving to these new e-solutions included Freddie Mac, SPX Corporation, Towers Perrin and OeNB the national bank of Austria.

Novell is also entering into new business relationships with leading consulting systems integrators who can recommend and design better e-solutions using Novell Net services software as the infrastructure to secure, simplify and accelerate these deployments. During the first quarter, Novell and PricewaterhouseCoopers, the world's largest professional services organization, agreed to combine their efforts to deliver comprehensive patient record security, integrated solutions, and Internet access to the multi-billion dollar healthcare IT marketplace.

In addition, Novell and Atos Origin, one of the world's largest e-business services providers, entered into an agreement to work together to provide Novell Net services as the management and security foundation for enterprise resource planning practices solutions built around SAP, PeopleSoft and Baan deployments.

Novell executive vice president and chief financial officer Dennis Raney said, "As we change our business model, add new methods of distribution, and develop new partner relationships for Net services, we viewed this quarter as the right time to make a change in the way we recognize revenue on channel sales. This approach entails recognizing revenue after shipment of product by the channel partner to the customer." The company has been steadily reducing inventory of its products in its traditional distribution channel over the last year. Making this change led to a one-time charge of $11 million, net of tax, for the inventory remaining in the channel at the beginning of the quarter.

"Expense management has also been critical during this period of declining revenue performance," said Raney. " We reduced operating expenses ten percent, net of restructuring, from the most recent quarter, while balancing impacts of our seasonally weakest period, an IT market that continued to slow, and accelerated spending by our new content networking subsidiary, Volera."

In the first fiscal quarter, Novell's traditional packaged software license deliveries declined by $73 million year-over-year, or 62 percent, to account for 18 percent of total Novell revenue. Novell's large network site-license business grew by $9 million year-over-year to $184 million, or 75 percent of total revenue. This growth in site licenses also drove a 22 percent year-over-year increase in deferred revenue on the balance sheet of $220 million. These dollars represent pre-paid service and upgrade support associated with Novell's growing site-license business. They are recognized as revenue over the typical annual billing cycle.

Review of Q1 Performance
Sequentially, revenue in the first fiscal quarter of 2001 declined ten percent from the fourth quarter of fiscal 2000.

>>> Revenue by product category: Net Management Services revenue declined ten percent sequentially from the fourth fiscal quarter to $187 million in the first fiscal quarter. Within this total, directory-enabled NetWare(r) server operating system revenue was up slightly to $114 million; management and collaboration products declined 15 percent to $64 million. UNIX royalties and other older products declined 56 percent to $9 million.

Net Directory Services revenue was $8 million, down ten percent sequentially from the fourth fiscal quarter 2000.

Net Content Services, which is the basis for Volera, Inc., the new Novell subsidiary company, contributed $2 million in the first fiscal quarter. Revenue was lower than expected due to a change made by the company to recognize royalty and service revenue one month in arrears.

Customer service, education and consulting revenue was $49 million, down ten percent sequentially from the fourth fiscal quarter 2000.

>>> Revenue by geography: During the first fiscal quarter 2001, revenue in the United States, declined 13 percent from the fourth quarter of fiscal 2000, to $139 million. In the Europe, Middle East and Africa region, revenue sequentially was up slightly, to $70 million. Asia Pacific revenue declined sequentially by 22 percent, to $21 million. Revenue from Canada and the Americas was declined 14 percent sequentially, to $15 million.

>>> Expenses: Operating expenses were reduced by 26 percent from the prior quarter to $192 million.

>>> Other Income was $18 million in the first fiscal quarter, down 15 percent from the fourth quarter fiscal 2000.

On the balance sheet, positive cash flow from operations contributed $65 million. Cash and short term investments were $655 million at the end of the first quarter, compared with $698 million at the October 2000 fiscal year-end. During the quarter, the company spent $65 million to repurchase 10.6 million shares of Novell common stock. Days sales outstanding (DSO) decreased to 60 days, down from 65 days at the end of the fourth quarter fiscal 2000.

Business Outlook
Seasonality in Novell's business typically leads to a sequential decline in first fiscal quarter revenue, followed by sequential increases in revenue through successive quarters, with the fourth fiscal quarter being the strongest in the year. The company expects this model to apply to its business in fiscal 2001.

Conference Call Notification with Web Access Detail.
A live Web cast of a Novell conference call to discuss the fourth fiscal quarter results with financial analysts will be broadcast at 5 PM EST February 15, on the Quarterly Results page at Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/

Through midnight, February 22, an audio replay of the call will be available on the Quarterly Results page of Novell's Investor Relations Web page at: http://www.novell.com/company/ir/qresults A telephone replay of the conference call will be available after 6:30 PM EST February 15, through midnight, February 22. To access the playback dial: 888-566-0787.

Forward Looking Statements
This press release contains forward-looking statements that involve a number of risks and uncertainties, as well as assumptions about changing markets, marketing efforts, near and long-term objectives, potential new business, strategies, new methods of distribution, Net services, anticipated demand for new offerings from markets that Novell is entering, future business performance and outlook. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially. The risks and uncertainties include the following: business conditions and the general economy; changes in distribution choices and channel partners; competitive factors; sales and marketing execution; shifts in technologies or market demand. Additional information covering factors that could cause results to differ materially from projected statements can be found in Novell's fiscal 2000 report on Form 10-K, as well as in its annual report and Form 10-Q filings.

About Novell

Novell, Inc. (NASDAQ:NOVL), is the leading provider of Net services software that delivers services to secure and power all types of networks the Internet, intranets, and extranets; wired to wireless; corporate and public across leading operating systems. Novell's Net services software provides the foundation for one Net a single global network that supports new applications and forms of business. Worldwide channel, consulting, education and technical support programs, along with strategic alliances, combine Novell Net services software with third-party products and services to form complete Net solutions.

For information on Novell's complete range of products and services, contact Novell's Customer Response Center at (888) 321-4CRC (4272), or visit Novell's Web site at http://www.novell.com. Press may access Novell announcements and company information on the World Wide Web at http://www.novell.com/pressroom. In addition, detailed comparisons between Novell products and competitive offerings from other vendors are available on the Web at http://www.novell.com/competitive.

Novell, NetWare and NDS are registered trademarks, and eDirectory is a trademark of Novell, Inc. in the United States and other countries. * All third party trademarks are the property of their respective owner.

Novell, Inc.
Consolidated Unaudited Condensed Balance Sheets
(In thousands)
         
ASSETS   Jan 31, 2001   Oct 31, 2000
         
Current assets        
   Cash and short-term investments   $ 655,449   $ 698,193
   Receivables, net *   161,095   196,672
   Inventories   1,898   2,621
   Prepaid expenses   25,458   26,120
   Deferred & refundable income taxes   56,996   60,109
   Other current assets   25,179   23,644
Total current assets   926,075   1,007,359
         
Property, plant and equipment, net   282,937   290,104
Long-term investments   397,876   383,583
Other assets   38,566   31,300
         
Total assets   $1,645,454   $1,712,346
         
LIABILITIES & SHAREHOLDERS' EQUITY        
         
Current liabilities        
   Accounts payable   $ 94,286   $85,050
   Accrued compensation   56,849   54,546
   Accrued marketing liabilities   12,500   13,632
   Other accrued liabilities   58,786   59,644
   Income taxes payable   26,145   39,043
   Deferred taxes   -   -
   Deferred revenue   220,154   203,163
Total current liabilities   468,720   455,078
         
Minority interests   11,457   12,183
         
Shareholders' equity   1,165,277   1,245,085
         
Total liabilities and shareholders' equity   $1,645,454   $1,712,346
         
         
* Receivables, net include trade receivables less allowances. All other non-trade receivables are included in other current assets.


Novell, Inc.
Consolidated Unaudited Condensed Statements of Income
(In thousands, except per share data)
         
    Fiscal Quarter Ended
    Jan 31, 2001   Jan 31, 2000
         
Net sales   $ 245,035   $ 316,043
Cost of sales   65,862   78,727
Gross profit   179,173   237,316
         
Operating expenses        
   Sales and marketing   121,747   113,656
   Product development   49,488   57,937
   General and administrative   21,222   19,193
   Restructuring                -                -
Total operating expenses   192,457   190,786
         
         
Income (loss) from operations   (13,284)   46,530
         
Other income, net   17,831   15,741
         
Income before taxes   4,547   62,271
         
Income taxes   1,273   17,436
         
Net income before accounting change   3,274   44,835
         
Cumulative effect of accounting change, net of tax   (11,048)                -
         
NET INCOME (LOSS)   $(7,774)   $44,835
         
Net income (loss) per share:        
   Basic        
   Before cumulative effect of accounting change   $ 0.01   $ 0.14
   Cumulative effect of accounting change   (0.03)                -
    $ (0.02)   $ 0.14
   Diluted        
   Before cumulative effect of accounting change   $ 0.01   $ 0.13
   Cumulative effect of accounting change   (0.03)                -
    $(0.02)   $0.13
         
Weighted average shares:        
   Basic   322,183   326,906
   Diluted   322,183   342,105
         
Note: Certain reclassifications, none of which affect net income, have been made to prior period's amounts in order to conform to the current year's presentation.


Press Contacts

Peter Troop
Novell, Inc.
Telephone: 408-967-8150
Email: ptroop@novell.com



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