Novell Reports Preliminary Financial Results for First Fiscal Quarter 2007

Press Release

Linux Platform Products recognized revenue grows 46% year-over-year, invoicing grows 659%
Balance sheet strengthened through increased operating cash flow

WALTHAM, Mass.— 01 Mar 2007— Novell, Inc. (NASDAQ:NOVL) today announced preliminary financial results for its first fiscal quarter ended Jan. 31, 2007. These financial results are preliminary because Novell, during the third fiscal quarter of 2006, 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 report for the third fiscal quarter ended July 31, 2006, its Form 10-K report for the full fiscal year ended Oct. 31, 2006, and its Form 10-Q report for the first fiscal quarter ended Jan. 31, 2007.

Financial Results
For the first fiscal quarter 2007, Novell reported net revenue of $230 million, compared to net revenue of $242 million for the first fiscal quarter 2006. The loss available to common stockholders from continuing operations in the first fiscal quarter 2007 was $20 million, or $0.06 loss per common share. This compares to income available to common stockholders from continuing operations of $4 million, or $0.01 per diluted common share, for the first fiscal quarter 2006.

On a non-GAAP basis, which includes stock-based compensation as described below, adjusted loss available to common stockholders from continuing operations for the first fiscal quarter 2007 was $3 million, or $0.01 loss per common share. This compares to non-GAAP adjusted income available to common stockholders from continuing operations of $4 million, or $0.01 per diluted common share, for the first fiscal quarter 2006.

During the first fiscal quarter 2007, Novell reported $15 million of revenue from Linux* Platform Products, up 46 percent year-over-year, and $91 million of invoicing, up 659 percent year-over-year. Revenue from Identity and Access Management was $24 million, down 7 percent year-over-year. Combined revenue from Open Enterprise Server and products related to NetWare® declined 18 percent from the year ago period.

"We are very pleased with our first quarter Linux results and momentum," said Ron Hovsepian, President and CEO of Novell. "We have made good progress toward implementing our strategic initiatives and achieving our key fiscal year 2007 milestones. Overall, our quarterly results were mixed and we will need to improve our execution in our identity, security and systems management businesses. We feel confident that we are on the right path to put Novell on target for sustained profitability."

Cash, cash equivalents and short-term investments were $1.8 billion at January 31, 2007, up from $1.5 billion last quarter. Days sales outstanding in accounts receivable was 57 days at the end of the first fiscal quarter 2007, down from 59 days in the year ago quarter. Deferred revenue was $728 million at the end of the first fiscal quarter 2007, up $361 million, or 98 percent, from the prior year. Cash flow from operations was $348 million for the first fiscal quarter 2007, up from $25 million from the first fiscal quarter 2006. Both deferred revenue and cash flow from operations were up from the prior year due to the Microsoft agreement completed in the quarter.

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.

Update on Stock-Based Compensation Review
Novell's previously announced, self-initiated review of its historical stock-based compensation practices, which is being conducted by the Audit Committee of its Board of Directors with the assistance of independent outside counsel, is on-going. Novell expects to file its Form 10-Q report for the third fiscal quarter ended July 31, 2006, its Form 10-K report for the full fiscal year ended October 31, 2006, and its Form 10-Q report for the first fiscal quarter ended Jan. 31, 2007, following the conclusion of the review.

Update on Preliminary Full Fiscal Year 2006 Results
Because of the stock-based compensation review, the financial results of the third and fourth fiscal quarters 2006 and full fiscal year 2006 remain preliminary. We are required to revise results for those periods as a result of material changes in estimates. Accordingly, an increase of $15 million in other accrued liabilities as a result of a change in estimate identified during the first fiscal quarter 2007 must be recognized as an expense in the third fiscal quarter 2006. Similarly, a decrease of $2 million in accrued compensation as a result of a change in estimate identified during the first fiscal quarter 2007 must be recognized as a reduction of expense in the fourth fiscal quarter 2006. As a result, the following changed in the full fiscal year 2006:

Cost of revenue and operating expenses decreased a combined $13 million,
Income available to common stockholders from continuing operations decreased from $21 million, or $0.06 per diluted common share, to $7 million, or $0.02 per diluted common share, and
Non-GAAP adjusted income available to common stockholders from continuing operations of $29 million increased to $30 million, and adjusted income per diluted common share of $0.08 remained unchanged.

Financial Outlook
Novell management reiterates the following financial guidance:

For the full fiscal year 2007:

Net revenue is expected to be between $945 million and $975 million.
On a non-GAAP basis, adjusted income from operations is expected to be between breakeven and $10 million, excluding an estimated $35 million to $45 million in stock-based compensation expense.
Novell is targeting fourth fiscal quarter 2007 exit rate operating margins, as described below, of between 5 and 7 percent.

For the full fiscal year 2008:

Novell is targeting fourth fiscal quarter 2008 exit rate operating margins of between 12 and 15 percent.

Exit rate operating margins are 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 a pro forma operating margin for the year.

Non-GAAP Financial Measures
To supplement Novell's preliminary consolidated unaudited condensed financial statements presented in accordance with GAAP and to better reflect comparative quarter-over-quarter and year-over-year operating performance, Novell uses non-GAAP financial measures of adjusted diluted income (loss) available to common stockholders from continuing operations and adjusted diluted income (loss) per common share from continuing operations, which reflect the exclusion of certain expenses and gains, and adjusted diluted weighted average shares outstanding. Novell's financial outlook uses a non-GAAP income from operations measure. These non-GAAP financial measures do not replace the presentation of Novell's GAAP financial results but are provided to improve overall understanding of current financial performance and prospects for the future.

Novell considers non-GAAP adjusted diluted income (loss) available to common stockholders from continuing operations to be after-tax income (loss) generated from continuing operations excluding certain non-recurring or non-core items such as, but not limited to, restructuring expenses, asset impairments, actual and estimated 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.

In the full fiscal year 2006, Novell excluded stock-based compensation expense from non-GAAP adjusted diluted income (loss) available to common stockholders from continuing operations for transition purposes following the adoption of FAS 123R, "Accounting for Stock-Based Compensation," to provide investors with an easier comparison to the prior year's performance. Beginning in the first fiscal quarter 2007, Novell no longer excludes stock-based compensation expense from its non-GAAP financial measures. Accordingly, the fiscal year 2006 non-GAAP financial measures were revised to include stock-based compensation for comparative purposes to the current year.

Novell does not provide financial guidance for GAAP financial measures because items identified as excluded from non-GAAP financial measures are difficult to forecast.

A summary of Novell's vision, mission and strategy can be accessed on the Novell® Web site.

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 March 1, 2007, from Novell's Investor Relations Web page. 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, March 9, 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 8070024.

A copy of this press release is posted on Novell's Web site.

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 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, the final conclusions of the Audit Committee (and the timing of such conclusions) concerning matters relating to the company's review of its historical 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 ("SEC") 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 and fourth fiscal quarter 2006, the full fiscal year 2006, the first fiscal quarter 2007 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 continue to adversely affect our ability to file required reports with the SEC on a timely basis, may change our conclusions on the effectiveness of our internal control over financial reporting and disclosure controls and procedures and may affect 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.

Novell and NetWare are registered trademarks 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 (Preliminary) (In thousands, except per share data)

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		Fiscal Quarter Ended
		Jan 31, 2007	Jan 31, 2006

Net revenue:
	Software licenses	$38,351	$42,102
	Maintenance and services	191,225	200,192
Total net revenue		229,576	242,294

Cost of revenue:
	Software licenses	4,227	4,545
	Maintenance and services	69,956	76,778
Total cost of revenue		74,183	81,323

Gross profit		155,393	160,971

Operating expenses:
	Sales and marketing	90,940	88,193
	Product development	46,433	43,724
	General and administrative	25,985	28,801
Total operating expenses before other		163,358	160,718
Income (loss) from operations before other operating expenses (income)		(7,965)	253
Other operating expenses (income) (1)		23,334	(1,000)
Income (loss) from operations		(31,299)	1,253
Other income, net		18,059	12,978

Income (loss) from continuing operations, before income taxes		(13,240)	14,231
Income tax expense		6,672	10,001
Income (loss) from continuing operations		(19,912)	4,230
Loss from discontinued operations, before income taxes		-	(1,043)
Income tax expense		-	1,322
Loss from discontinued operations		-	(2,365)

Net income (loss)		$(19,912)	$1,865

Income (loss) available to common stockholders - diluted:
	Continuing operations	$(19,912)	$4,167
	Net income (loss)	$(19,912)	$1,811

Income (loss) per share available to common stockholders - diluted:
	Continuing operations	$(0.06)	$0.01
	Net income (loss)	$(0.06)	$0.00

Weighted average shares - diluted		345,522	394,534

(1) See Page 10 of 15 for a detail of other operating expenses (income). Certain reclassifications, none of which affected net income (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
		Jan 31, 2007	Jan 31, 2006

	Cost of revenue	$1,017	$1,062
	Sales and marketing	1,928	3,532
	Product development	2,117	2,637
	General and administrative	1,404	6,271
	Total operating expenses	5,449	12,440
	Discontinued operations	-	193
	Total stock-based compensation expense	$6,466	$13,695

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

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Assets		Jan 31, 2007	Oct 31, 2006

Current assets:
	Cash and cash equivalents	$1,025,478	$675,787
	Short-term investments	790,033	790,500
	Receivables, net	146,291	233,986
	Prepaid expenses	38,099	32,328
	Other current assets	27,254	28,524
Total current assets		2,027,155	1,761,125

Property, plant and equipment, net		182,721	184,084
Long-term investments		-	2,263
Goodwill		420,275	424,701
Intangible assets, net		38,980	40,404
Deferred income taxes		4,586	4,770
Other assets		32,391	32,376

Total assets		$2,706,108	$2,449,723

Liabilities and Stockholders' Equity

Current liabilities:
	Accounts payable	$41,592	$44,419
	Accrued compensation	71,031	103,710
	Other accrued liabilities	101,941	106,837
	Income taxes payable	47,560	49,600
	Deferred revenue	469,791	426,971
Total current liabilities		731,915	731,537

Deferred income taxes		4,119	4,186
Deferred revenue - long-term		258,573	-
Senior convertible debentures		600,000	600,000

Total liabilities		1,594,607	1,335,723

Preferred stock		-	9,350

Stockholders' equity		1,111,501	1,104,650

Total liabilities and stockholders' equity		$2,706,108	$2,449,723

Amounts reported as 'preliminary' for the fourth fiscal quarter ended October 31, 2006 have been updated for a known change in estimate. Also, reclassifications, none of which affected net income (loss), 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 (Preliminary) (In thousands)

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		Fiscal Quarter Ended
		Jan 31, 2007	Jan 31, 2006

Cash flows from operating activities:
	Net income (loss)	$(19,912)	$1,865
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Stock-based compensation expense	6,466	13,695
	Depreciation and amortization	11,164	11,511
	Changes in accounts receivable allowances	773	(2,973)
	Utilization of previously reserved acquired net operating losses	2,471	544
	Net (gain) loss on impaired long-term investments	(1,738)	387
	Gain on sale of venture capital partnership interests	(3,591)	-
	Impairment of goodwill and intangible assets	10,848	-
	Changes in current assets and liabilities, excluding the effect of acquisitions and dispositions	341,047	94

	Net cash provided by operating activities	347,528	25,123

Cash flows from financing activities:
	Issuance of common stock, net	7,385	9,876
	Excess tax benefits from stock-based compensation	1,986	4,039
	Payment of cash dividends on Series B Preferred Stock	(5)	-

Net cash provided by financing activities		9,366	13,915

Cash flows from investing activities:
	Purchases of property, plant and equipment	(4,958)	(7,603)
	Short-term investment activity	132	4,474
	Long-term investment activity	1,738	(256)
	Cash paid for equity share of Open Invention Network, LLC	-	(4,225)
	Proceeds from sale of venture capital partnership interests	4,964	-
	Cash paid for acquisition of Redmojo	(9,727)	-
	Other	648	2,462

	Net cash used in investing activities	(7,203)	(5,148)

Increase in cash and cash equivalents		349,691	33,890

Cash and cash equivalents - beginning of period		675,787	811,238

Cash and cash equivalents - end of period		$1,025,478	$845,128

Certain reclassifications, none of which affected net income (loss), were made to prior period amounts in order to conform to the current period's presentation.

Novell, Inc. Unaudited Non-GAAP Adjusted Earnings Information (Preliminary) (In thousands, except per share data)

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		Fiscal Quarter Ended
		Jan 31, 2007	Jan 31, 2006

GAAP diluted income (loss) available to common stockholders from continuing operations		$(19,912)	$4,167
	Pre-tax adjustments:
	Other operating expenses (income):
	Restructuring expenses	7,351	(1,000)
	Litigation-related income	(543)	-
	Impairment of goodwill and intangible assets	10,848	-
	Stock-based compensation review expenses	5,678	-
	Sub-total	23,334	(1,000)

	Non-operating expenses (income):
	Gain on sale of venture capital partnership interests	(3,591)	-
	Net (gain) loss on impaired long-term investments	(1,738)	387
	Sub-total	(5,329)	387

	Total pre-tax adjustments	18,005	(613)
	Income tax adjustments	(1,567)	756
	Diluted income (loss) adjustments:
	Allocation of earnings to preferred stockholders	-	(1)
	Total net adjustments	16,438	142

Non-GAAP diluted income (loss) available to common stockholders from continuing operations		$(3,474)	$4,309

GAAP diluted income (loss) per common share from continuing operations		$(0.06)	$0.01
	Adjustments detailed above	0.05	0.00
Non-GAAP diluted income (loss) per common share from continuing operations		$(0.01)	$0.01

GAAP diluted weighted average shares from continuing operations		345,522	394,534
	Change in dilution from assumed:
	Stock option exercises	-	-
Non-GAAP diluted weighted average shares		345,522	394,534

Revisions were made to prior period amounts in order to include stock-based compensation in the non-GAAP adjusted earnings information and conform to the current period's presentation.