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NOVELL, INC.

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NOVELL : Reports Financial Results for Second Fiscal Quarter 2010

05/27/2010 | 04:05pm EDT

WALTHAM, Mass., May 27 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its second fiscal quarter ended April 30, 2010. For the quarter, Novell reported net revenue of $204 million. This compares to net revenue of $216 million for the second fiscal quarter of 2009. GAAP income from operations for the second fiscal quarter of 2010 was $20 million. This compares to GAAP income from operations of $18 million for the second fiscal quarter of 2009. GAAP net income in the second fiscal quarter of 2010 was $20 million, or $0.06 per share. This compares to GAAP net income of $16 million, or $0.05 per share, for the second fiscal quarter of 2009. Foreign currency exchange rates favorably impacted net revenue by $2 million and negatively impacted operating expenses by $6 million and income from operations by $4 million compared to the same period last year.

On a non-GAAP basis, income from operations for the second fiscal quarter of 2010 was $30 million. This compares to non-GAAP income from operations of $35 million in the same period last year. Non-GAAP net income for the second fiscal quarter of 2010 was $24 million, or $0.07 per share. This compares to non-GAAP net income of $29 million, or $0.08 per share, for the second fiscal quarter of 2009. 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."

"We are experiencing good strategic momentum with the execution of our intelligent workload management strategy," said Ron Hovsepian, President and CEO of Novell. "As customers increasingly adopt virtualization and cloud computing models, they need tools to help them securely manage and optimize their computing resources. Since announcing our strategy, we have shipped several products to help customers build, secure, manage and measure workloads. In addition, we are very excited about the new partnerships we have forged with several service providers to extend Novell's reach into the market."

Cash, cash equivalents and short-term investments were $980 million at April 30, 2010, down from $991 million last quarter. Days sales outstanding in accounts receivable was 56 days at the end of the second fiscal quarter of 2010, up from 55 days at the end of the year-ago quarter. Total deferred revenue was $615 million at the end of the second fiscal quarter of 2010, down from $659 million at the end of the year-ago quarter due to the recognition of deferred revenue from our agreement with Microsoft. Total deferred revenue was up from the prior year, excluding the impact of Microsoft. For the second fiscal quarter of 2010, cash flow from operations was negative $7 million. This compares to cash flow from operations of negative $26 million for the second fiscal quarter of 2009.

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

Financial Outlook

Novell management issues the following guidance for the third fiscal quarter of 2010:

    --  Net revenue is expected to be between $205 million and $210 million
    --  Non-GAAP operating margin is expected to be similar to second fiscal
        quarter of 2010 non-GAAP operating margin levels

Conference Call Notification and Web Access Detail

A one-hour conference call with Novell management to discuss the quarter will be broadcast at 5:00PM ET on May 27, 2010. The conference call will be available live as a listen-only webcast from Novell's Investor Relations web page at: www.novell.com/company/ir/qresults. The domestic toll-free dial-in number is 866-335-5255, password "Novell." The international dial-in number is +1-706-679-2263, password "Novell."

Following the live event, an archived version of the webcast will be available for twelve months on the Novell® Investor Relations web page at: www.novell.com/company/ir/qresults.

A copy of this press release is posted on the Novell Investor Relations web page at: www.novell.com/company/ir/qresults.

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 income from continuing operations, adjusted net income, adjusted income per share from continuing operations 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, and the sale of business operations, long-term investments, and property, plant and equipment.

We also present a projection of our non-GAAP operating margin. This projection is a forward-looking, non-GAAP financial measure. The corresponding GAAP financial measure of operating margin is not available and cannot be provided without undue effort because we are unable to accurately forecast information regarding expenses or gains such as, but not limited to, those listed above. We believe that the corresponding GAAP financial measure is not likely to be significant to an understanding of our business because there is likely to be substantial variability between projected and actual realization of the expenses and gains described above and/or that such expenses or gains are likely to arise outside of the ordinary course of business.

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, 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 the Company and in which the Company 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, risks relating to: uncertainty introduced by the review of various alternatives to enhance stockholder value authorized by our Board, indirect sales, growth rates of our business units, renewal of SUSE Linux Enterprise Server((TM)) 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, 2009 filed with the SEC on December 22, 2009, 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, 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 .

Novell is a registered 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           Fiscal Year-to-Date
                                                        -------------------
                      Apr 30,                      Apr 30,          Apr 30,
                       2010         Apr 30, 2009     2010            2009
                                                                   --------
    Net revenue:
      Software
       licenses        $27,691            $30,250   $48,884          $58,517
      Maintenance
       and
       subscriptions   153,855            158,329   312,806          317,144
      Services (1)      22,468             27,016    44,690           54,805
                        ------             ------    ------           ------
    Total net
     revenue           204,014            215,595   406,380          430,466
                       -------            -------   -------          -------

    Cost of
     revenue:
      Software
       licenses          1,925              1,856     3,613            3,892
      Maintenance
       and
       subscriptions    20,825             21,958    43,397           44,660
      Services          18,562             21,468    38,020           43,627
                        ------             ------    ------           ------
    Total cost of
     revenue            41,312             45,282    85,030           92,179
                        ------             ------    ------           ------

    Gross profit       162,702            170,313   321,350          338,287
                       -------            -------   -------          -------

    Operating
     expenses:
      Sales and
       marketing        74,853             75,697   143,769          152,591
      Product
       development      39,368             44,552    79,070           89,944
      General and
       administrative   28,334             25,032    54,161           49,227
      Other
       operating
       expenses (2)        244              7,408     3,018           15,257
                           ---              -----     -----           ------
    Total
     operating
     expenses          142,799            152,689   280,018          307,019

    Income from
     operations         19,903             17,624    41,332           31,268
    Operating
     margin %             9.8%               8.2%     10.2%             7.3%

    Other income,
     net:
      Interest
       income, net       2,508              3,333     5,407            9,123
      Other              2,678             (3,129)    6,445           (6,555)
                         -----             ------     -----           ------
    Total other
     income, net         5,186                204    11,852            2,568
                         -----                ---    ------            -----

    Income from
     continuing
     operations
     before taxes       25,089             17,828    53,184           33,836

    Income tax
     expense             5,177              2,777    13,083            9,144
                         -----              -----    ------            -----

    Income from
     continuing
     operations         19,912             15,051    40,101           24,692

    Income from
     discontinued
     operations              -                566         -            1,602
                           ---                ---       ---            -----

    Net income         $19,912            $15,617   $40,101          $26,294
                       =======            =======   =======          =======


    Diluted
     earnings per
     share:

      Continuing
       operations        $0.06              $0.04     $0.11            $0.07

      Net income         $0.06              $0.05     $0.11            $0.08

    Weighted
     average
     shares            352,008            345,839   350,136          345,543

    (1) Services includes professional services, technical support and
    training services.
    (2) See Page 8 of 11 for a detail of other operating expenses.


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



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



                                                 Apr 30, 2010 Oct 31, 2009
                                                 ------------ ------------
    Assets

      Current assets:
          Cash and cash equivalents                  $581,425     $591,656
          Short-term investments                      398,161      391,809
          Restricted cash                              53,052       53,033
          Receivables, net                            131,864      177,898
          Prepaid expenses                             20,300       17,708
          Current deferred tax assets                   4,624        5,521
          Other current assets                         22,648       26,747
                                                       ------       ------
      Total current assets                          1,212,074    1,264,372

      Property, plant and equipment, net              163,420      170,459
      Long-term investments                                 -       10,303
      Goodwill                                        353,734      356,033
      Intangible assets, net                           32,488       36,621
      Deferred income taxes                            19,009       26,717
      Other assets                                     34,033       38,403
                                                       ------       ------

      Total assets                                 $1,814,758   $1,902,908
                                                   ==========   ==========


    Liabilities and Stockholders' Equity

      Current liabilities:
          Accounts payable                            $31,682      $37,628
          Accrued compensation                         58,628       87,928
          Other accrued liabilities                    79,308       97,154
          Income taxes payable                          1,059            -
          Deferred revenue                            441,866      495,245
      Total current liabilities                       612,543      717,955

      Deferred income taxes                             8,314        8,403
      Other long-term liabilities                      46,943       48,502
      Long-term deferred revenue                      173,170      193,526
                                                      -------      -------

      Total liabilities                               840,970      968,386

      Stockholders' equity                            973,788      934,522
                                                      -------      -------

      Total liabilities and stockholders' equity   $1,814,758   $1,902,908
                                                   ==========   ==========

    Revisions were made to 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
                         --------------------             -------------------
                       Apr 30,         Apr 30,       Apr 30,         Apr 30,
                         2010            2009          2010            2009
                      --------        --------      --------        --------

    Cash flows
     from
     operating
     activities
      Net income        $19,912         $15,617       $40,101         $26,294
      Adjustments
       to reconcile
       net income
       to net cash
       used in
        operating
         activities:
       Stock-based
        compensation
        expense           8,292           5,691        14,742          13,722
       Depreciation
        and
        amortization      7,218          10,452        14,655          21,473
       Change in
        accounts
        receivable
        allowances          638             124          (571)            336
       Utilization
        of
        previously
        reserved
        acquired net
        operating
        losses                -       (1,102)         -            -
       Gain on
        debenture
        repurchases           -               -             -             (68)
       Income from
        discontinued
        operations            -            (566)            -          (1,602)
       Impairment of
        investments           -           1,419             -           3,096
       Gain on sale
        of
        previously
        impaired
        investments      (2,781)           -     (8,009)           -
       Loss on sale
        of long-
        term
        investments         814               -           814               -
       Loss (gain)
        on sale of
        subsidiaries          -             184             -             (16)
      Changes in
       current
       assets and
       liabilities,
       excluding
       the
        effect of
         acquisitions
         and
         dispositions   (41,487)        (57,514)      (63,930)        (76,332)
                        -------         -------       -------         -------

      Net cash used
       in operating
       activities        (7,394)        (25,695)       (2,198)        (13,097)
                         ------         -------        ------         -------

    Cash flows
     from
     investing
     activities
      Purchases of
       property,
       plant and
       equipment         (5,304)         (3,070)      (13,432)         (6,582)
      Short-term
       investment
       activity         (14,881)          3,877        (2,883)         10,420
      Long-term
       investment
       activity           1,326           1,201         8,629           1,736
      Change in
       restricted
       cash                  (7)            (82)          (19)           (260)
      Cash proceeds
       from sale of
       discontinued
       operations           228               -           471           1,036
      Net cash paid
       for
       acquisitions           -          (5,522)            -         (48,472)
      Other                (627)          3,823           527           1,473
                           ----           -----           ---           -----

      Net cash
       (used in)
       provided by
       investing
       activities       (19,265)         227     (6,707)     (40,649)
                        -------             ---        ------         -------

    Cash flows
     from
     financing
     activities
        Issuances of
         common stock     4,704             169         5,536           1,152
        Excess tax
         effects from
         stock-based
         compensation         -          (2,814)            1          (2,788)
        Debt
         repayment            -            (186)            -            (378)
        Debenture
         repurchases          -               -             -          (3,869)
                            ---             ---           ---          ------

      Net cash
       provided by
       (used in)
       financing
       activities         4,704       (2,831)     5,537       (5,883)
                          -----          ------         -----          ------

    Effect of
     exchange
     rate changes
     on cash             (3,670)            154        (6,863)           (457)
                         ------             ---        ------            ----
    Decrease in
     cash and
     cash
     equivalents        (25,625)        (28,145)      (10,231)        (60,086)
    Cash and cash
     equivalents
     -beginning
     of period          607,050         648,093       591,656         680,034
                        -------         -------       -------         -------

    Cash and cash
     equivalents
     -end of
     period            $581,425        $619,948      $581,425        $619,948
                       ========        ========      ========        ========

    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, except per share data)



                            Fiscal Quarter Ended         Fiscal Year-to-Date
                            --------------------         -------------------
                          Apr 30,         Apr 30,   Apr 30,          Apr 30,
                           2010             2009     2010             2009
                         --------        --------  --------         --------

    GAAP
     income
     from
     operations            $19,903         $17,624   $41,332          $31,268
                           -------         -------   -------          -------

      Adjustments:
        Stock-
         based
         compensation
         expense:
         Cost of
          revenue              772             671     1,331            1,583
         Sales and
          marketing          2,349           1,550     4,189            4,113
         Product
          development        2,075           2,289     4,139            4,794
         General
          and
          administrative     3,096           1,181     5,083            3,232
                             -----           -----     -----            -----
             Sub-total       8,292           5,691    14,742           13,722
                             -----           -----    ------           ------

         Acquisition-
         related
         intangible
         asset
         amortization:
         Cost of
          revenue            1,364           2,735     2,454            5,488
         Sales and
          marketing            671           1,562     1,679            3,112
                               ---           -----     -----            -----
             Sub-total       2,035           4,297     4,133            8,600
                             -----           -----     -----            -----

        Other
         operating
         expenses
         (income):
          Restructuring
          expense                -           7,224     2,774           15,273
         Strategic
          alternatives
          review
          expense            1,494               -     1,494                -
         Litigation
          related
          activity          (1,250)              -    (1,250)               -
         Loss
          (gain) on
          sale of
          subsidiaries           -             184         -              (16)
                               ---             ---       ---              ---
             Sub-total         244           7,408     3,018           15,257
                               ---           -----     -----           ------


      Total
       operating
       adjustments          10,571          17,396    21,893           37,579

    Non-GAAP
     income
     from
     operations            $30,474         $35,020   $63,225          $68,847
                           =======         =======   =======          =======

    Non-GAAP
     operating
     margin %                14.9%           16.2%     15.6%            16.0%



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



                         Fiscal Quarter Ended             Fiscal Year-to-Date
                         --------------------             -------------------
                       Apr 30,         Apr 30,       Apr 30,         Apr 30,
                         2010            2009          2010            2009
                      --------        --------      --------        --------

    GAAP net
     income             $19,912         $15,617       $40,101         $26,294
                        -------         -------       -------         -------


      Operating
       adjustments
       (detailed
       above)            10,571          17,396        21,893          37,579
      Non-
       operating
       expenses
       (income)
       adjustments:
        Net gain on
         sale of
         previously
         impaired
         investments     (1,967)           -     (7,195)           -
        Gain on
         debenture
         repurchases          -               -             -             (68)
        Impairment of
         investments          -           1,419             -           3,096
           Sub-total     (1,967)          1,419        (7,195)          3,028
                         ------           -----        ------           -----

      Total pre-
       tax
       adjustments        8,604          18,815        14,698          40,607

      Income tax
       adjustments       (4,424)         (4,517)       (5,899)        (11,540)

      Income from
       discontinued
       operations             -            (566)            -          (1,602)
                            ---            ----           ---          ------

      Total net
       adjustments        4,180          13,732         8,799          27,465

    Non-GAAP net
     income and
     non-GAAP
     income
      from
       continuing
       operations       $24,092         $29,349       $48,900         $53,759
                        =======         =======       =======         =======


    GAAP net
     income per
     share                $0.06           $0.05         $0.11           $0.08
      Total
       adjustments
       detailed
       above               0.01            0.03          0.03            0.08
                           ----            ----          ----            ----

    Non-GAAP net
     income per
     share and
     non-GAAP
      income from
       continuing
       operations
       per share          $0.07           $0.08         $0.14           $0.16
                          =====           =====         =====           =====


    Non-GAAP
     weighted
     average
     shares             352,008         345,839       350,136         345,543

SOURCE Novell, Inc.


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