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NOVELL, INC.

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NOVELL : Reports Financial Results for First Fiscal Quarter 2011

03/03/2011 | 04:10pm EDT

WALTHAM, Mass., March 3, 2011 /PRNewswire/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its first fiscal quarter ended January 31, 2011. For the quarter, Novell reported net revenue of $191 million. This compares to net revenue of $202 million for the first fiscal quarter of 2010. GAAP income from operations for the first fiscal quarter of 2011 was $12 million. This compares to GAAP income from operations of $21 million for the first fiscal quarter of 2010. GAAP net loss in the first fiscal quarter of 2011 was $18 million, or a $0.05 loss per share, which included a $31 million net tax charge in connection with the planned repatriation of a majority of non-U.S. cash. This compares to GAAP net income of $20 million, or $0.06 per share, for the first fiscal quarter of 2010. Foreign currency exchange rates negatively impacted revenue and positively impacted operating expenses by $1 million and did not materially impact income from operations year-over-year.

On a non-GAAP basis, income from operations for the first fiscal quarter of 2011 was $31 million. This compares to non-GAAP income from operations of $33 million in the same period last year. Non-GAAP net income for the first fiscal quarter of 2011 was $26 million, or $0.07 per share. This compares to non-GAAP net income of $25 million, or $0.07 per share, for the first fiscal quarter of 2010. A reconciliation of GAAP to non-GAAP results is provided in the financial schedules as part of this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Cash, cash equivalents and short-term investments were $1.1 billion at January 31, 2011, consistent with last quarter. Days sales outstanding in accounts receivable was 42 days at the end of the first fiscal quarter of 2011, down from 50 days at the end of the year-ago quarter. Total deferred revenue was $593 million at the end of the first fiscal quarter of 2011, down from $646 million at the end of the year-ago quarter. For the first fiscal quarter of 2011, cash flow from operations was $9 million. This compares to cash flow from operations of $5 million for the first fiscal quarter of 2010.

Further details on Novell's reported results are included in the financial schedules that are a part of this release.

Non-GAAP Financial Measures

We supplement our consolidated unaudited condensed financial statements presented in accordance with GAAP with certain non-GAAP financial measures. These non-GAAP measures include adjusted income from operations, adjusted operating margin, adjusted net income and adjusted net income per share. We provide non-GAAP financial measures to enhance an overall understanding of our current financial performance and prospects for the future and to enable investors to evaluate our performance in the same way that management does. Management uses these same non-GAAP financial measures to evaluate performance, allocate resources, and determine compensation. The non-GAAP financial measures do not replace the presentation of our GAAP financial results, but they eliminate expenses and gains that are excluded from most analysts' consensus estimates, that are unusual, and/or that arise outside of the ordinary course of business, such as, but not limited to, those related to stock-based compensation, acquisition-related intangible asset amortization, restructuring, asset impairments, litigation judgments and settlements, strategic alternatives review, the sale of business operations, long-term investments, property, plant and equipment, and unusual and discrete income tax effects.

Legal Notice Regarding Forward-Looking Statements

This press release may include 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 of 1995, including those related to future financial and operating results, targets, and prospects; future opportunities; market leadership and positioning; short-term and long-term trends; the macroeconomic environment; customer priorities; timing of realization of projections; functionality, characteristics, quality and performance capabilities of Novell's products and technology; and results achievable and benefits attainable through deployment of Novell's products and provision of services. Forward-looking statements forecasting growth in financial metrics are predicated on assumptions regarding improvements in the overall economy and the markets served by Novell and in which Novell operates, the timing of which are impossible to accurately predict. Actual results may differ materially from the results discussed in or implied by such forward-looking statements, which are based upon information that is currently available to us and/or management's current expectations and speak only as of the date hereof. We are subject to a number of risks, including, among others, the risk that our merger with Attachmate Corporation may be delayed or may not be consummated, the risk that the merger agreement may be terminated in circumstances that require Novell to pay Attachmate a termination fee of $60 million; risks related to the diversion of management's attention from Novell's ongoing business operations; risks regarding the failure of Attachmate to obtain the necessary financing to complete the merger; the effect of the announcement of the merger and the patent sale to CPTN Holdings LLC on Novell's business relationships (including, without limitation, partners and customers), operating results and business generally; and risks related to obtaining the requisite consents to the merger or the patent sale, including, without limitation, the timing (including possible delays) and receipt of regulatory approvals from various governmental entities (including any conditions, limitations or restrictions placed on these approvals) and the risk that one or more governmental entities may deny approval, as well as risks related to indirect sales, growth rates of our business units, renewal of SUSE® Linux Enterprise Server subscriptions with customers who have received certificates from Microsoft, decline rates of Open Enterprise Server and NetWare® revenue, development of products and services, the intelligent workload management market, software vulnerabilities, delays in product releases, reliance on open source software, adequacy of renewal rates, uncertain economic conditions, competition, rapid technological changes, failure to expand brand awareness, adequacy of technical support, pricing pressures, system failures, integration of acquisitions, industry consolidation, challenges resulting from a global business, foreign research and development operations, loss of key employees, intellectual property infringement, litigation matters, unpredictable financial results, impairments, the timing of revenue recognition, our investments and effective use of our cash.

A detailed discussion of these and other factors that could affect our results is included in our SEC filings, including, but not limited to, our Annual Report on Form 10-K for the Fiscal Year Ended October 31, 2010 filed with the SEC on December 13, 2010, which may be obtained by calling (800) 317- 3195, or at our Investor Relations web page at: www.novell.com/company/ir.

We expressly disclaim any obligation, except as required by law, or undertaking to update or revise any forward-looking statements contained in this press release to reflect any change of expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statement is based, in whole or in part.

About Novell

Novell, Inc. (Nasdaq: NOVL), a leader in intelligent workload management, through WorkloadIQ(TM), helps organizations securely deliver and manage computing services across physical, virtual and cloud computing environments. We help customers reduce the cost, complexity, and risk associated with their IT systems through our solutions for identity and security, systems management, collaboration and Linux-based operating platforms. With our infrastructure software and ecosystem of partnerships, Novell integrates mixed IT environments, allowing people and technology to work as one. For more information, visit www.novell.com.

Copyright © 2011 Novell, Inc. All rights reserved. NetWare, Novell, the Novell Logo, the N Logo, and SUSE are registered trademarks and WorkloadIQ is a trademark of Novell, Inc. in the United States and other countries. 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,         Jan 31,
                                2011            2010
                              --------        --------
    Net revenue:
      Software licenses         $20,387         $21,193
      Maintenance and
       subscriptions            150,393         158,951
      Services (1)               19,934          22,222
                                 ------          ------
    Total net revenue           190,714         202,366
                                -------         -------

    Cost of revenue:
      Software licenses           1,520           1,688
      Maintenance and
       subscriptions             20,819          22,572
      Services                   19,210          19,458
    Total cost of revenue        41,549          43,718
                                 ------          ------

    Gross profit                149,165         158,648
                                -------         -------

    Operating expenses:
      Sales and marketing        67,256          68,916
      Product development        38,365          39,702
      General and
       administrative            20,818          25,827
      Other operating
       expenses (2)              11,173           2,774
                                 ------           -----
    Total operating
     expenses                   137,612         137,219

    Income from operations       11,553          21,429
    Operating margin %             6.1%           10.6%

    Other income, net:
      Interest income, net        1,964           2,899
      Other income, net           1,992           3,767
    Total other income,
     net                          3,956           6,666
                                  -----           -----

    Income before taxes          15,509          28,095

    Income tax expense           33,451           7,906
                                 ------           -----

    Net (loss) income          $(17,942)        $20,189
                               ========         =======

    (Loss) income per
     share                       $(0.05)          $0.06

    Weighted average
     shares                     352,001         349,144



    (1) Services includes professional services, technical support and
    training services.
    (2) See Page 7 of 10 for a detail of other operating expenses.

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


                                           Jan 31,          Oct 31,
                                             2011             2010
                                          --------         --------
    Assets

      Current assets:
          Cash and cash equivalents         $981,426        $685,594
          Short-term investments             150,009         441,096
          Receivables, net                    89,465         171,607
          Prepaid expenses                    15,280          16,233
          Current deferred income taxes       36,137          49,169
          Other current assets                21,126          33,725
                                              ------          ------
      Total current assets                 1,293,443       1,397,424

      Property, plant and equipment,
       net                                   151,378         156,033
      Goodwill                               353,818         353,415
      Intangible assets, net                  26,988          28,746
      Deferred income taxes                  227,363         243,583
      Other assets                            48,013          46,797
                                              ------          ------

      Total assets                        $2,101,003      $2,225,998
                                          ==========      ==========


    Liabilities and Stockholders'
     Equity

      Current liabilities:
          Accounts payable                   $30,102         $26,785
          Accrued compensation                49,319          83,181
          Other accrued liabilities           66,412          86,223
          Deferred revenue                   448,744         487,590
                                             -------         -------
      Total current liabilities              594,577         683,779

      Deferred income taxes                    7,622           7,622
      Other long-term liabilities             35,997          35,655
      Long-term deferred revenue             144,065         163,394
                                             -------         -------

      Total liabilities                      782,261         890,450

      Stockholders' equity                 1,318,742       1,335,548
                                           ---------       ---------

      Total liabilities and
       stockholders' equity               $2,101,003      $2,225,998
                                          ==========      ==========

                                Novell, Inc.
          Consolidated Unaudited Condensed Statements of Cash Flows
                               (In thousands)


                                                        Fiscal Quarter Ended
                                                        --------------------
                                                       Jan 31,        Jan 31,
                                                          2011          2010
                                                      --------       --------

    Cash flows from operating activities
        Net (loss) income                              $(17,942)      $20,189
        Adjustments to reconcile net (loss)
         income to net cash provided
          by operating activities:
         Stock-based compensation expense                 6,060         6,450
         Depreciation and amortization                    7,347         7,437
         Change in accounts receivable allowances            46        (1,209)
         Gain on sale of previously impaired
          investments                                         -        (5,228)
         Deferred income taxes                           29,341         4,496
        Changes in assets and liabilities               (15,685)     (26,939)
                                                        -------       -------

      Net cash provided by operating
       activities                                         9,167         5,196
                                                          -----         -----

    Cash flows from investing activities
        Purchases of property, plant and
         equipment                                         (889)       (8,128)
        Short-term investment activity                  284,703        11,998
        Long-term investment activity                         -         7,303
        Cash proceeds from sale of discontinued
         operations                                           -           243
        Other                                              (738)        1,142
                                                           ----         -----

      Net cash provided by investing
       activities                                       283,076        12,558
                                                        -------        ------

    Cash flows from financing activities
         Issuance of common stock                         1,366           832
         Excess tax effects from stock-based
          compensation                                      181             1
                                                            ---           ---

      Net cash provided by financing
       activities                                         1,547           833
                                                          -----           ---

    Effect of exchange rate changes on cash               2,042        (3,193)
                                                          -----        ------
    Increase in cash and cash equivalents               295,832        15,394
    Cash and cash equivalents -beginning of
     period                                             685,594       591,656
                                                        -------       -------

    Cash and cash equivalents -end of
     period                                            $981,426      $607,050
                                                       ========      ========


    Revisions were made to prior period amounts in order to conform to
    the current period's presentation.

                               Novell, Inc.
            Unaudited Non-GAAP Adjusted Income From Operations
                              (In thousands)


                                                     Fiscal Quarter Ended
                                                    --------------------
                                                  Jan 31,        Jan 31,
                                                    2011           2010
                                                 --------       --------

    GAAP income from operations                    $11,553        $21,429
                                                   -------        -------

    GAAP operating margin %                           6.1%          10.6%

      Adjustments:
        Stock-based compensation expense:
         Cost of revenue                               692            559
         Sales and marketing                         1,891          1,840
         Product development                         1,735          2,064
         General and administrative                  1,742          1,987
                                                     -----          -----
             Sub-total                               6,060          6,450
                                                     -----          -----

        Acquisition-related intangible asset
         amortization:
         Cost of revenue                             1,129          1,090
         Sales and marketing                           629          1,008
                                                       ---          -----
             Sub-total                               1,758          2,098
                                                     -----          -----

        Other operating expenses (income):
         Restructuring expense                           -          2,774
         Strategic alternatives review expense      10,478              -
         Litigation related activity                   695              -
                                                       ---            ---
             Sub-total                              11,173          2,774
                                                    ------          -----


      Total operating adjustments                   18,991         11,322

    Non-GAAP income from operations                $30,544        $32,751
                                                   =======        =======

    Non-GAAP operating margin %                      16.0%          16.2%

                               Novell, Inc.
                  Unaudited Non-GAAP Adjusted Net Income
                  (In thousands, except per share data)


                                                      Fiscal Quarter Ended
                                                     --------------------
                                                   Jan 31,        Jan 31,
                                                     2011           2010
                                                  --------       --------

    GAAP net (loss) income                         $(17,942)       $20,189
                                                   --------        -------


      Operating adjustments (detailed above)         18,991         11,322
      Non-operating expenses (income)
       adjustments:
        Gain on sale of previously impaired
         investments                                      -         (5,228)
                                                        ---         ------
           Sub-total                                      -         (5,228)
                                                        ---         ------

      Total pre-tax adjustments                      18,991          6,094

      Income tax adjustments                         25,124         (1,475)
                                                     ------         ------

      Total net adjustments                          44,115          4,619

    Non-GAAP net income                             $26,173        $24,808
                                                    =======        =======


    GAAP net (loss) income per share                 $(0.05)         $0.06
      Total adjustments detailed above                 0.12           0.01
                                                       ----           ----

    Non-GAAP net income per share                     $0.07          $0.07
                                                      =====          =====


    GAAP weighted average shares                    352,001        349,144

        Change from basic to diluted weighted
         average shares                               4,326              -
                                                      -----            ---

    Non-GAAP weighted average shares                356,327        349,144
                                                    =======        =======

SOURCE Novell, Inc.


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