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Press Release

Novell Reports Financial Results for Third Fiscal Quarter 2005

WALTHAM, Mass.
25 Aug 2005

Novell, Inc. (NASDAQ:NOVL) today announced financial results for its third fiscal quarter ended July 31, 2005. For the quarter, Novell reported revenues of $290 million, compared to revenues of $305 million for the third fiscal quarter 2004. Net income available to common stockholders in the third fiscal quarter 2005 was $2 million or $0.00 earnings per diluted common share. This compared to a net income available to common stockholders of $24 million, or $0.06 per diluted common share, for the third fiscal quarter 2004.

On a non-GAAP basis, adjusted net income available to common stockholders for the third fiscal quarter 2005 was $14 million, or $0.03 per diluted common share, excluding restructuring charges of $9 million and excluding a net gain of $1 million on the sale of previously impaired long-term investments. This compares to non-GAAP adjusted net income available to common stockholders for the third fiscal quarter 2004 of $14 million, or $0.03 per diluted common share, which excluded the effect of the payment from Canopy of $19 million as a result of a legal judgment in favor of Novell, restructuring charges of $9 million, and long-term investment impairments of $1 million. In the third fiscal quarter of 2004, $14 million of the Canopy payment was recorded as revenue and the remaining $5 million as interest income. 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 third fiscal quarter 2005 as compared to the prior year's period, foreign currency exchange rates favorably impacted total revenue by approximately $4 million and did not have a material impact on net income.

During the third fiscal quarter 2005, Novell recognized Linux-related product revenue of $44 million, including $31 million from sales of Novell Open Enterprise Server (OES) and $8 million from subscriptions to SUSETM LINUX Enterprise Server (SLES). OES revenue of $31 million reflects the first full quarter that OES was available. Sales of stand-alone subscriptions to SLES totaled 28,000 subscriptions in the quarter.

For the first nine months of fiscal 2005, Novell reported revenue of $877 million and net income available to common stockholders of $382 million, or $0.88 per diluted common share, including a $448 million net legal settlement with Microsoft. For the first nine months of fiscal 2004, which includes the Canopy payment, the company reported revenue of $865 million and net income available to common stockholders of $18 million, or $0.05 per diluted common share.

“Customers continue to embrace Novell's Linux and Identity solutions,” said Jack Messman, Chairman and CEO of Novell. “We were particularly pleased with our initial penetration of the Chinese market where Linux is an attractive technology for government and commercial users. Our increasingly customer-focused, go-to-market approach is leading to a stronger Novell as evidenced by our positive operating cash flow and growth in deferred revenue in the quarter. While we were profitable this quarter, we still have improvements to make in our business which will lead to cost reductions. ”

On the balance sheet, cash and short-term investments were $1.6 billion at July 31, 2005, consistent with $1.6 billion at April 30, 2005. Days sales outstanding (DSO) in accounts receivable was 77 days at the end of the third fiscal quarter 2005, consistent with the year ago quarter. Deferred revenue was $365 million at the end of the third fiscal quarter 2005, up $28 million or 8% from the prior year. Cash flow from operations was a positive $15 million for the third fiscal quarter 2005, down from $65 million in the third fiscal quarter 2004, which included the $19 million payment from Canopy.

A summary of Novell’s vision, mission and strategy can be accessed on the Novell® 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 5PM ET August 25, 2005, 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, September 7. 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 8265930.

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

open source and identity management 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 management strategies, Novell’s ability to take a competitive position in the Linux and identity 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 January 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.

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.

testNovell is a registered trademark of Novell, Inc.; and SUSE 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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Novell, Inc. Consolidated Unaudited Condensed Statements of Operations (In thousands, except per share data)

		Fiscal Quarter Ended		Fiscal Year-to-Date
		Jul 31, 2005	Jul 31, 2004	Jul 31, 2005	Jul 31, 2004

Net revenue
	New software licenses	$ 45,628	$ 57,024	$ 135,692	$ 172,043
	Maintenance and services	244,586	247,573	741,701	693,217
Total net revenue		290,214	304,597	877,393	865,260

Cost of revenue
	New software licenses	4,475	5,613	13,970	16,621
	Maintenance and services	101,534	98,343	321,431	288,653
Total cost of revenue		106,009	103,956	335,401	305,274

Gross profit		184,205	200,641	541,992	559,986

Operating (income) expenses
	Sales and marketing	93,464	91,660	288,420	268,534
	Product development	48,655	48,390	146,832	149,161
	General and administrative	31,788	28,729	90,168	79,201
	Restructuring expenses	9,375	9,250	21,155	13,987
	Acquired in-process research and development	-	-	480	-
	Gain on sale of property, plant and equipment	-	-	(1,589)	(1,977)
	Gain on settlement of potential litigation	-	-	(447,560)	-
Total operating (income) expenses		183,282	178,029	97,906	508,906

Income from operations		923	22,612	444,086	51,080

Other income (expense), net		9,258	6,182	21,748	9,034

Income before income taxes		10,181	28,794	465,834	60,114

Income tax expense		8,041	5,389	84,160	16,191

Net income		$ 2,140	$ 23,405	$ 381,674	$ 43,923

Deemed dividend related to beneficial conversion feature of preferred stock		-	-	-	(25,680)

Preferred stock dividends		(125)	(189)	(375)	(291)

Allocation of earnings to preferred stockholders		(21)	-	(3,987)	-

Net income available to common stockholders - basic		$ 1,994	$ 23,216	$ 377,312	$ 17,952

Net income available to common stockholders - diluted		$ 1,910	$ 23,886	$ 381,539	$ 17,952

Net income per common share:
	Basic	$ 0.01	$ 0.06	$ 1.00	$ 0.05
	Diluted	$ 0.00	$ 0.06	$ 0.88	$ 0.05

Weighted average shares:
	Basic	380,242	383,400	378,573	382,678
	Diluted	385,377	414,191	435,820*	393,758

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. * Year-to-date fiscal 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.



Novell, Inc. Consolidated Unaudited Condensed Balance Sheets (In thousands)

ASSETS		Jul 31, 2005	Oct 31, 2004

Current assets
	Cash and cash equivalents	$ 985,830	$ 434,404
	Short-term investments	618,461	777,063
	Receivables, net	255,426	269,431
	Prepaid expenses	33,399	25,190
	Other current assets	25,095	28,846
Total current assets		1,918,211	1,534,934

Property, plant and equipment, net		211,729	231,468
Long-term investments		56,490	55,986
Goodwill		395,379	391,088
Intangible assets, net		61,715	48,616
Deferred income taxes		630	-
Other assets		27,098	29,456

Total assets		$ 2,671,252	$ 2,291,548

LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities
	Accounts payable	$ 48,660	$ 55,956
	Accrued compensation	101,195	126,612
	Other accrued liabilities	96,360	98,983
	Income taxes payable	52,855	37,077
	Deferred revenue	365,365	374,186
Total current liabilities		664,435	692,814

Deferred income taxes		4,065	3,855
Senior convertible debentures		600,000	600,000

Total liabilities		1,268,500	1,296,669

Minority interests		6,308	6,515

Preferred stock		25,000	25,000

Stockholders' equity		1,371,444	963,364

Total liabilities and stockholders' equity		$ 2,671,252	$ 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		Fiscal Year-to-Date
		Jul 31, 2005	Jul 31, 2004	Jul 31, 2005	Jul 31, 2004

Cash flows from operating activities:
	Net income	$ 2,140	$ 23,405	$ 381,674	$ 43,923
	Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization	11,107	11,854	42,308	38,956
	Change in accounts receivable allowances	(3,563)	81	(9,352)	(1,843)
	Income tax benefits related to stock plans	2,906	-	16,166	-
	Utilization of previously reserved acquired net operating losses	-	-	29,600	-
	(Gain) loss on sale of property, plant and equipment	-	10	(1,589)	(1,977)
	(Gain) loss on impairment of investments	(822)	552	1,108	2,448
	Acquired in-process research and development	-	-	480	-
	Changes in current assets and liabilities, excluding the effect of acquisitions	3,527	28,955	(18,247)	(13,913)

	Net cash provided by operating activities	15,295	64,857	442,148	67,594

Cash flows from financing activities:
	Issuance of common stock, net	3,056	1,364	16,035	47,983
	Issuance of convertible preferred stock	-	-	-	50,000
	Issuance of senior convertible debentures	-	600,000	-	600,000
	Payment of issuance costs on senior convertible debentures	-	(14,850)	-	(14,850)
	Payment of cash dividends on preferred stock	(125)	(190)	(375)	(291)
	Repurchase of common stock, held in treasury	-	(125,000)	-	(125,000)

	Net cash provided by financing activities	2,931	461,324	15,660	557,842

Cash flows from investing activities:
	Purchases of property, plant and equipment	(8,484)	(7,511)	(20,168)	(19,524)
	Proceeds from the sale of property, plant and equipment	-	163	10,421	2,140
	Proceeds from the sale of long-term investments	2,405	-	2,405	-
	Short-term investment activity	(8,583)	(193,567)	153,792	(193,514)
	Cash paid for acquisition of Salmon, net of cash acquired	-	(5,322)	-	(5,322)
	Cash paid for acquisition of SUSE, net of cash acquired	-	-	-	(200,298)
	Cash paid for acquisiton of Tally and Immunix, net of cash acquired	-	-	(33,829)	-
	Other	(4,613)	222	(19,003)	(2,212)

	Net cash (used in) provided by investing activities	(19,275)	(206,015)	93,618	(418,730)

Increase in cash and cash equivalents		(1,049)	320,166	551,426	206,706

Cash and cash equivalents – beginning of period		986,879	253,472	434,404	366,932

Cash and cash equivalents – end of period		$ 985,830	$ 573,638	$ 985,830	$ 573,638

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 July 31, 2005
Net revenue	$ 290,214	$ -	$ 290,214
Gross profit	184,205	-	184,205
Income from operations	923	9,375 ^(a)	10,298
Income before income taxes	10,181	8,553 ^(b)	18,734
Net income	2,140	11,194 ^(c)	13,334
Diluted net income available to common stockholders	1,910	12,577 ^(d)	14,487
Diluted net income per common share	$ 0.00	$ $0.03 ^(d)	$ 0.03
Diluted weighted average shares	385,377	52,075 ^(e)	437,452

Fiscal quarter ended April 30, 2005
Net revenue	$ 297,051	$ -	$ 297,051
Gross profit	179,710	-	179,710
Income (loss) from operations	(6,402)	5,841 ^(f)	(561)
Income before income taxes	1,053	6,758 ^(g)	7,811
Net income (loss)	(15,627)	17,092 ^(h)	1,465
Diluted net income (loss) available to common stockholders	(15,752)	17,078 ⁽ⁱ⁾	1,326
Diluted net income (loss) per common share	$ (0.04)	$ 0.04 ⁽ⁱ⁾	$ 0.00
Diluted weighted average shares	378,219	4,384 ^(j)	382,603

Fiscal quarter ended July 31, 2004
Net revenue	$ 304,597	$ (13,500) ^(k)	$ 291,097
Gross profit	200,641	(13,500) ^(k)	187,141
Income from operations	22,612	(4,070) ^(l)	18,542
Income before income taxes	28,794	(8,561) ^(m)	20,233
Net income	23,405	(9,453) ⁽ⁿ⁾	13,952
Diluted net income available to common stockholders	23,886	(9,453) ⁽ⁿ⁾	14,433
Diluted net income per common share	$ 0.06	$ (0.03) ⁽ⁿ⁾	$ 0.03
Diluted weighted average shares	414,191	-	414,191

Footnotes related to adjustments: Reflects restructuring expenses of $9.4 million. Reflects the item in footnote (a) and a net gain on the sale of previously impaired long-term investments of $0.8 million. Reflects the items in footnotes (a) and (b), and the related tax adjustments, including a $2.9 million adjustment related to the cumulative tax effect of a settlement of potential litigation. Reflects the items in footnotes (a), (b) and (c), and the related adjustments for preferred stock dividends and the allocation of earnings to preferred stockholders. Reflects potential common shares related to convertible debt that are added to weighted average shares in computing non-GAAP diluted net income per common share. Reflects restructuring expenses of $5.4 million and acquired in-process research and development expense of $0.5 million. Reflects the items in footnote (f) and long-term investment impairments of $0.9 million. Reflects the items in footnotes (f) and (g), and the related tax adjustments, including a $12.1 million adjustment related to the cumulative tax effect of a settlement of potential litigation. Reflects the items in footnotes (f), (g) and (h), and the related adjustments for preferred stock dividends and the allocation of earnings to preferred stockholders. Reflects potential common shares related to stock options and unvested restricted stock that are added to weighted average shares in computing non-GAAP diluted net income per common share. Reflects satisfaction of judgment against The Canopy Group, Inc. recorded as revenue of $13.5 million. Reflects the item in footnote (k), restructuring charges of $9.3 million and integration costs related to SUSE of $0.2 million. Reflects the items in footnotes (k) and (l), satisfaction of judgment against The Canopy Group, Inc. recorded as interest income of $5 million and long-term investment impairments of $0.6 million. Reflects the items in footnotes (k), (l) and (m), and the necessary related tax adjustments.

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