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Novell Reports Preliminary Financial Results for Third Fiscal Quarter 2006

  • Linux Platform Products revenue grows 30 percent year-over-year
  • Identity and Access Management revenue up 46 percent year-over-year
  • Announces voluntary stock-based compensation review

WALTHAM, Mass. | August 29, 2006

Novell, Inc. (NASDAQ:NOVL) today announced preliminary financial results for its third fiscal quarter ended July 31, 2006. These financial results are preliminary because Novell, during this quarter, began a self-initiated, voluntary review of the company's historical stock-based compensation practices and related potential accounting impact. The financial results reported today do not take into account any adjustments that may be required in connection with the completion of the stock-based compensation review and should be considered preliminary until Novell files its Form 10-Q for the third fiscal quarter ended July 31, 2006.

Financial Results

For the third fiscal quarter 2006, Novell reported net revenue of $241 million, compared to net revenue of $252 million for the third fiscal quarter 2005. The loss available to common stockholders from continuing operations in the third fiscal quarter 2006 was $3 million or $0.01 loss per diluted common share. This compares to income available to common stockholders from continuing operations of $0.4 million, or $0.00 per diluted common share, for the third fiscal quarter 2005.

On a non-GAAP basis, adjusted income available to common stockholders from continuing operations for the third fiscal quarter 2006 was $20 million, or $0.05 per diluted common share. Those amounts excluded stock-based compensation, severance-related expenses, a loss on the planned disposition of our Japan consulting group, a gain on sale of property, plant and equipment and related adjustments for income taxes, debt interest expense and the allocation of earnings to preferred stockholders. This compares to non-GAAP adjusted income available to common stockholders from continuing operations of $13 million, or $0.03 per diluted common share, for the third fiscal quarter 2005. These amounts primarily exclude restructuring charges and related adjustments for income taxes, debt interest expense and the allocation of earnings to preferred stockholders.

In the third fiscal quarter 2006, Novell finalized the disposition of its Celerant consulting subsidiary. Accordingly, all Celerant financial results were excluded from Novell's continuing operations for income statement reporting purposes. Celerant's results for all periods presented are reported as discontinued operations.

During the third fiscal quarter 2006, Novell reported $12 million of revenue from Linux* Platform Products, up 30% year-over-year. Revenue from Identity and Access Management was $26 million, up 46% year-over-year. Combined revenue from Open Enterprise Server and NetWare-related products declined 19% from the year ago period.

"Novell's focus on execution and acceleration of our strategy resulted in continued strong growth in Linux and Identity revenues," said Ron Hovsepian, president and CEO of Novell. "The launch of SUSE Linux Enterprise 10 and the rollout of a new marketing campaign earlier this month has generated widespread customer and partner enthusiasm, and we are aggressively moving to drive adoption of the new platform."

Cash, cash equivalents and short-term investments were $1.3 billion at July 31, 2006, consistent with last quarter. Days sales outstanding in accounts receivable was 88 days at the end of the third fiscal quarter 2006, up from 77 days in the year ago quarter. Accounts receivable aging remains within historical ranges. Deferred revenue was $391 million at the end of the third fiscal quarter 2006, up $25 million, or 7%, from the prior year. Cash flow from operations was $33 million for the third fiscal quarter 2006, up from $15 million from the third fiscal quarter 2005.

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

Stock-Based Compensation Review

Novell initiated the voluntary review of historical stock-based compensation practices and the related potential accounting impact in light of news about the stock option practices of numerous companies across several industries. Based on preliminary findings, the Audit Committee of Novell's Board of Directors engaged independent outside legal counsel to conduct the review.

The Audit Committee is working to complete the stock-based compensation review in a timely manner, and Novell intends to file its Quarterly Report on Form 10-Q for the period ended July 31, 2006 as soon as practicable after the Audit Committee's review is concluded. At this time, Novell is not in a position to predict when the stock-based compensation review will be completed and it is possible that Novell may not file its Quarterly Report on Form 10-Q for the third fiscal quarter ended July 31, 2006 on a timely basis.

This review may result in the need to record non-cash stock compensation charges and related tax effects. Novell does not know whether any such compensation charges would affect the preliminary financial results for its third fiscal quarter ended July 31, 2006 being announced today, or would be deemed to be material and require the company to restate previously issued financial statements. Novell will also need to determine the impact of this matter on its system of internal controls.

Financial Outlook

Novell management provides the following financial guidance:

  • Net revenue for the fourth fiscal quarter 2006 is expected to be between $246 million and $256 million.
  • On a non-GAAP basis, income available to common stockholders from continuing operations per diluted common share for the fourth fiscal quarter 2006 is expected to be $0.04, 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® Web site at: 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, 2006, from Novell's Investor Relations Web page: 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 two hours after its conclusion, and will be available for telephone playback through midnight ET, September 6, 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 3713912.

A copy of this press release is posted on Novell's Web site at: 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 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 success in executing its Linux, Identity and Access Management and Resource Management strategies, Novell's ability to take a competitive position in the Linux, Identity and Access Management 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, the final conclusions of the Audit Committee (and the time of such conclusions) concerning matters relating to the company's stock-based compensation practices 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 except as required by the securities laws.

There can be no assurance that the outcome of the review by the company's Audit Committee of the company's past stock-based compensation practices and the related potential accounting impact will not result in changes in the preliminary financial results for the third fiscal quarter 2006 or a restatement of financial results provided by the company for any historical period. In addition, the review and possible conclusions may require additional expenses to be recorded; may adversely affect our ability to file required reports with the U.S. Securities and Exchange Commission ("SEC") on a timely basis, our conclusions on the effectiveness of our internal control over financial reporting and disclosure controls and procedures and our ability to meet the requirements of the Nasdaq Stock Market for continued listing of our shares; and may result in claims and proceedings relating to such matters, including shareholder litigation and actions by the SEC and/or other governmental agencies and negative tax or other implications for the company resulting from any accounting adjustments or other factors.

About Novell

Novell, Inc. (Nasdaq: NOVL) delivers Software for the Open Enterprise™. 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 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


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