Novell Reports Financial Results for First Fiscal Quarter 2005

Press Release

• Consolidated Unaudited Condensed Statements of Operations
• Consolidated Unaudited Condensed Balance Sheets
• Consolidated Unaudited Condensed Statements of Cashflows Statement of Cash Flows
• Unaudited Non-GAAP Adjusted Earnings Information

WALTHAM, Mass. — Feb 22, 2005 — Novell, Inc. (NASDAQ:NOVL) today announced financial results for its first fiscal quarter ended Jan. 31, 2005. For the quarter, Novell reported revenues of $290 million, compared to revenues of $267 million for the first fiscal quarter 2004. Net income available to common stockholders in the first fiscal quarter 2005 was $392 million, or $0.90 per diluted common share. This compared to net income available to common stockholders of $10 million, or $0.03 per diluted common share, for the first fiscal quarter 2004.

On a non-GAAP basis, adjusted net income available to common stockholders for the first fiscal quarter 2005 was $10 million, or $0.03 per diluted common share, which excludes a $448 million net gain on a previously announced legal settlement with Microsoft, $6 million of restructuring expense, a $2 million gain on a sale of property, $1 million of long-term investment impairments and the related adjustments for income taxes 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 2004 of $11 million, or $0.03 per diluted common share, which excludes the effect of long-term investment impairments of $1 million. 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.

In the first fiscal quarter 2005, foreign currency exchange rates favorably impacted total revenue by approximately $10 million year-over-year. Foreign currency exchange rates favorably impacted net income by $2 million year-over-year.

During the first fiscal quarter 2005, Novell recognized revenue of $15 million associated with its SUSE® LINUX business, including $7 million of recognized revenue from subscriptions to SUSE Linux Enterprise Server. Sales of subscriptions to SUSE Linux Enterprise Server totaled 21,000 units in the quarter.

“Novell made steady progress on executing its strategy this quarter. We still have work ahead of us as we continue to reposition the company in our growth markets ,” said Jack Messman, Chairman and CEO of Novell. “Our solid balance sheet gives us increased financial flexibility to execute strategic initiatives in the future.”

On the balance sheet, cash and short-term investments were $1.7 billion at Jan. 31, 2005, compared with $1.2 billion at Oct. 31, 2004. Days sales outstanding (DSO) in accounts receivable was 59 days at the end of the first fiscal quarter 2005, down from 60 days in the year ago quarter. Deferred revenues were $343 million at the end of the first fiscal quarter 2005, up $49 million or 17% year over year. Cash flow from operations was $452 million for the first fiscal quarter 2005, up from $31 million a year ago, mainly due to the net $448 million Microsoft settlement payment.

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 5PM ET Feb. 22, 2005, from Novell's Investor Relations Web page: www.novell.com/company/ir/qresults/. The domestic conference call dial-in number is 888-323-5254, password “Novell”, and the international dial-in number is +1-773-756-4625, 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, March 8. The domestic toll-free replay number is 888-562-2893, and the international replay number is +1-402-530-7604.

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 open source 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 strategies, Novell’s ability to deliver on its one Net vision of the Internet, Novell’s ability to take a competitive position in the Linux industry, 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. 13, 2005. 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.

Novell, Nsure and Ximian are registered trademarks; exteNd and Nterprise are trademarks; and Ngage is a service mark of Novell, Inc. in the United States and other countries. SUSE is a registered trademark of SUSE Linux AG, a Novell business. *All 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, 2005		Jan 31, 2004
Net revenue
	New software licenses	$      44,296		$      54,769
	Maintenance and services	245,832		212,338
Total net revenue		290,128		267,107
Cost of revenue
	New software licenses	4,632		4,922
	Maintenance and services	107,419		89,954
Total cost of revenue		112,051		94,876
Gross profit		178,077		172,231
Operating expenses
	Sales and marketing	94,009		81,769
	Product development	48,993		50,199
	General and administrative	28,240		26,257
	Restructuring expenses	6,419		-
	Gain on sale of property, plant and equipment	(1,589)		-
	Gain on legal settlement	(447,560)		-
Total operating expenses		(271,488)		158,225
Income from operations		449,565		14,006
Other income (expense), net		5,035		2,477
Income before income taxes		454,600		16,483
Income tax expense		59,439		6,348
Net income		$   395,161		$    10,135
Net income available to common stockholders - basic		$   390,891		$    10,135
Net income available to common stockholders - diluted		$   392,384		$    10,135
Net income per common share:
	Basic	$        1.04		$       0.03
	Diluted	$        0.90		$       0.03
Weighted average shares:
	Basic	377,257		378,566
	Diluted	435,467		391,371
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. Consolidated Unaudited Condensed Balance Sheets (In thousands)
ASSETS			Jan 31, 2005		Oct 31, 2004
Current assets
	Cash and cash equivalents		$     771,844		$       434,404
	Short-term investments		886,558		777,063
	Receivables, net		201,328		269,431
	Prepaid expenses		30,641		25,190
	Other current assets		29,847		28,846
Total current assets			1,920,218		1,534,934
Property, plant and equipment, net			219,835		231,468
Long-term investments			57,511		55,986
Goodwill			362,307		391,088
Intangible assets, net			59,861		48,616
Other assets			28,577		29,456
Total assets			$     2,648,309		$    2,291,548
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable		$           45,903		$          55,956
	Accrued compensation		105,473		126,612
	Other accrued liabilities		89,113		98,983
	Income taxes payable		56,560		37,077
	Deferred revenue		343,104		374,186
Total current liabilities			640,153		692,814
Deferred income taxes			4,640		3,855
Senior convertible debentures			600,000		600,000
Total liabilities			1,244,793		1,296,669
Minority interests			6,364		6,515
Preferred stock			25,000		25,000
Stockholders' equity			1,372,152		963,364
Total liabilities and stockholders' equity			$     2,648,309		$    2,291,548
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. Consolidated Unaudited Condensed Statements of Cash Flows (In thousands)
		Fiscal Quarter Ended
		Jan 31, 2005		Jan 31, 2004
Cash flows from operating activities:
	Net income	$   395,161		$      10,135
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization	12,895		16,152
	Stock plans' income tax benefits	4,260		-
	Utilization of previously reserved acquired NOLs	29,000		-
	Gain on sale of property, plant and equipment	(1,589)		-
	Impairment of investments	1,013		1,145
	Changes in current assets and liabilities, excluding the effect of acquisitions	10,907		3,589
	Net cash provided by operating activities	451,647		31,021
Cash flows from financing activities:
	Issuance of common stock, net	4,467		28,493
	Payment of cash dividends on preferred stock	(250)		-
	Net cash provided by financing activities	4,217		28,493
Cash flows from investing activities:
	Purchases of property, plant and equipment	(5,649)		(5,466)
	Proceeds from the sale of property, plant and equipment	10,421		-
	Short-term investment activity	(111,706)		45,266
	Cash paid for acquisition of SUSE, net of cash acquired	-		(200,298)
	Other	(11,490)		(107)
	Net cash used by investing activities	(118,424)		(160,605)
Increase (decrease) in cash and cash equivalents		337,440		(101,091)
Cash and cash equivalents – beginning of period		434,404		366,932
Cash and cash equivalents – end of period		$  771,844		$  265,841
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)
	GAAP As Reported	Adjustments	Non-GAAP Adjusted
Fiscal quarter ended January 31, 2005
Net revenue	$     290,128	$          -	$   290,128
Gross profit	178,077	-	178,077
Income from operations	449,565	(442,730) (a)	6,835
Income before income taxes	454,600	(441,717) (b)	12,883
Net income	395,161	(385,095) (c)	10,066
Net income available to common stockholders - diluted	392,384	(382,547) (d)	9,837
Diluted net income per common share	$            0.90	$      (0.87) (d)	$          0.03
Diluted weighted average shares	435,467	(52,074) (e)	383,393
Fiscal quarter ended October 31, 2004
Net revenue	$     300,657	$          -	$   300,657
Gross profit	190,252	-	190,252
Income from operations	14,612	8,916 (f)	23,528
Income before income taxes	14,860	10,317 (g)	25,177
Net income	13,265	10,317 (g)	23,582
Net income available to common stockholders - diluted	14,757	10,317 (h)	25,074
Diluted net income per common share	$            0.03	$        0.03 (h)	$          0.06
Diluted weighted average shares	438,106	-	438,106
Fiscal quarter ended January 31, 2004
Net revenue	$     267,107	$          -	$   267,107
Gross profit	172,231	-	172,231
Income from operations	14,006	-	14,006
Income before income taxes	16,483	1,145 (i)	17,628
Net income	10,135	1,145 (i)	11,280
Net income available to common stockholders - diluted	10,135	1,145 (i)	11,280
Diluted net income per common share	$            0.03	$         0.00 (i)	$          0.03
Diluted weighted average shares	391,371	-	391,371
Footnotes related to adjustments: Reflects a gain on a legal settlement of $447.6 million, restructuring provisions of $6.4 million and a gain on the sale of property, plant and equipment of $1.6 million. Reflects the items in footnote (a) and long-term investment impairments of $1 million. Reflects the items in footnotes (a) and (b) and the related tax adjustments. Reflects the items in footnotes (a), (b) and (c), a $4 million decrease in the allocation of earnings to preferred stockholders, and the addition of $1.5 million in convertible debt interest expense. Reflects potential common shares related to convertible debt that are anti-dilutive when included with other dilutive shares in computing non-GAAP diluted net income per common share. Reflects restructuring provisions of $8.9 million. Reflects the item in footnote (e) and net long-term investment impairments of $1.4 million. Reflects the items in footnotes (e) and (f), for which there were no tax adjustments. Reflects long-term investments impairments of $1.1 million, for which there were no tax adjustments.