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NOVELL, INC.

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NOVELL : Reports Financial Results for Third Fiscal Quarter 2010

08/26/2010 | 04:10pm EDT

WALTHAM, Mass., Aug. 26 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq: NOVL) today announced financial results for its third fiscal quarter ended July 31, 2010. For the quarter, Novell reported net revenue of $199 million. This compares to net revenue of $216 million for the third fiscal quarter of 2009. GAAP income from operations for the third fiscal quarter of 2010 was $21 million. This compares to GAAP income from operations of $21 million for the third fiscal quarter of 2009. GAAP net income in the third fiscal quarter of 2010 was $16 million, or $0.04 per share. This compares to GAAP net income of $17 million, or $0.05 per share, for the third fiscal quarter of 2009. Foreign currency exchange rates favorably impacted net revenue by $1 million, operating expenses by $1 million and income from operations by $2 million compared to the same period last year.

On a non-GAAP basis, income from operations for the third fiscal quarter of 2010 was $30 million. This compares to non-GAAP income from operations of $33 million in the same period last year. Non-GAAP net income for the third fiscal quarter of 2010 was $22 million, or $0.06 per share. This compares to non-GAAP net income of $25 million, or $0.07 per share, for the third 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."

"Our third quarter revenue was below our initial expectations, which we believe is principally related to customer uncertainty associated with the Novell Board of Directors' ongoing review of various alternatives to enhance stockholder value as described in Novell's March 20, 2010 press release," said Ron Hovsepian, President and CEO of Novell. "However, I am pleased that we achieved consistent profitability levels. The growth prospects of our target markets remain strong and our focus going forward is on returning to top line growth via execution of our differentiated strategy, WorkloadIQ(TM)."

Cash, cash equivalents and short-term investments were $1 billion at July 31, 2010, up from $980 million last quarter. Days sales outstanding in accounts receivable was 66 days at the end of the third fiscal quarter of 2010, down from 71 days at the end of the year-ago quarter. Total deferred revenue was $624 million at the end of the third fiscal quarter of 2010, down from $674 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 third fiscal quarter of 2010, cash flow from operations was $26 million. This compares to cash flow from operations of $30 million for the third fiscal quarter of 2009.

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

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 August 26, 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.

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 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 Quarterly Report on Form 10-Q for the period ended April 30, 2010 filed with the SEC on June 8, 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.

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
                                         --------------------
                                       Jul 31,         Jul 31,
                                         2010            2009
                                      --------        --------
    Net revenue:
      Software licenses                 $24,968         $27,020
      Maintenance and subscriptions     152,459         163,699
      Services (1)                       21,553          25,365
                                         ------          ------
    Total net revenue                   198,980         216,084
                                        -------         -------

    Cost of revenue:
      Software licenses                   2,355           2,315
      Maintenance and subscriptions      22,533          23,677
      Services                           18,619          20,991
                                         ------          ------
    Total cost of revenue                43,507          46,983
                                         ------          ------

    Gross profit                        155,473         169,101
                                        -------         -------

    Operating expenses:
      Sales and marketing                70,792          74,647
      Product development                39,400          45,683
      General and administrative         23,305          25,997
      Other operating expenses (2)          878           1,400
                                            ---           -----
    Total operating expenses            134,375         147,727

    Income from operations               21,098          21,374
    Operating margin %                    10.6%            9.9%

    Other income, net:
      Interest income, net                2,795           2,944
      Other                                  62          (3,810)
                                            ---          ------
    Total other income, net               2,857            (866)
                                          -----            ----

    Income from continuing
     operations before taxes             23,955          20,508

    Income tax expense                    8,278           4,151
                                          -----           -----

    Income from continuing
     operations                          15,677          16,357

    Income from discontinued
     operations                               -             302
                                            ---             ---

    Net income                          $15,677         $16,659
                                        =======         =======


    Diluted earnings per share:

      Continuing operations               $0.04           $0.05

      Net income                          $0.04           $0.05

    Weighted average shares             354,826         346,660






                                           Fiscal Year-to-Date
                                           -------------------
                                       Jul 31,
                                         2010        Jul 31, 2009
                                      --------       ------------
    Net revenue:
      Software licenses                 $73,852           $85,537
      Maintenance and subscriptions     465,265           480,843
      Services (1)                       66,243            80,170
                                         ------            ------
    Total net revenue                   605,360           646,550
                                        -------           -------

    Cost of revenue:
      Software licenses                   5,968             6,207
      Maintenance and subscriptions      65,930            68,337
      Services                           56,639            64,618
    Total cost of revenue               128,537           139,162
                                        -------           -------

    Gross profit                        476,823           507,388
                                        -------           -------

    Operating expenses:
      Sales and marketing               214,561           227,238
      Product development               118,470           135,627
      General and administrative         77,466            75,224
      Other operating expenses (2)        3,896            16,657
                                          -----            ------
    Total operating expenses            414,393           454,746

    Income from operations               62,430            52,642
    Operating margin %                    10.3%              8.1%

    Other income, net:
      Interest income, net                8,202            12,067
      Other                               6,507           (10,365)
    Total other income, net              14,709             1,702
                                         ------             -----

    Income from continuing
     operations before taxes             77,139            54,344

    Income tax expense                   21,361            13,295
                                         ------            ------

    Income from continuing
     operations                          55,778            41,049

    Income from discontinued
     operations                               -             1,904
                                            ---             -----

    Net income                          $55,778           $42,953
                                        =======           =======


    Diluted earnings per share:

      Continuing operations               $0.16             $0.12

      Net income                          $0.16             $0.12

    Weighted average shares             352,346           346,120



    (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)


                                        Jul 31, 2010       Oct 31, 2009
                                        ------------       ------------
    Assets

      Current assets:
          Cash and cash equivalents          $605,050           $591,656
          Short-term investments              437,865            391,809
          Restricted cash                      17,723             53,033
          Receivables, net                    146,059            177,898
          Prepaid expenses                     20,105             17,708
          Current deferred tax assets           4,368              5,521
          Other current assets                 22,640             26,747
                                               ------             ------
      Total current assets                  1,253,810          1,264,372

      Property, plant and equipment,
       net                                    159,820            170,459
      Long-term investments                         -             10,303
      Goodwill                                353,335            356,033
      Intangible assets, net                   30,505             36,621
      Deferred income taxes                    14,973             26,717
      Other assets                             33,584             38,403
                                               ------             ------

      Total assets                         $1,846,027         $1,902,908
                                           ==========         ==========


    Liabilities and Stockholders'
     Equity

      Current liabilities:
          Accounts payable                    $27,184            $37,628
          Accrued compensation                 66,979             87,928
          Other accrued liabilities            76,833             97,154
          Deferred revenue                    462,856            495,245
      Total current liabilities               633,852            717,955

      Deferred income taxes                     7,622              8,403
      Other long-term liabilities              47,673             48,502
      Long-term deferred revenue              160,860            193,526
                                              -------            -------

      Total liabilities                       850,007            968,386

      Stockholders' equity                    996,020            934,522
                                              -------            -------

      Total liabilities and
       stockholders' equity                $1,846,027         $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
                                                            --------------
                                                     Jul 31,         Jul 31,
                                                       2010            2009
                                                     --------       --------

    Cash flows from operating activities
        Net income                                    $15,677         $16,659
        Adjustments to reconcile net income to net
         cash provided by
          operating activities:
         Stock-based compensation expense               6,083           6,476
         Depreciation and amortization                  7,747           9,545
         Change in accounts receivable allowances         (96)           (719)
         Utilization of previously reserved acquired
          net operating losses                              -             455
         Loss (gain) on debenture repurchases               -              57
         Income from discontinued operations                -            (302)
         Impairment of long-term investments                -           2,370
         Net gain on sale of previously impaired
          investments                                       -               -
         Gain on sale of subsidiaries                       -               -
        Changes in current assets and liabilities,
         excluding the
          effect of acquisitions and dispositions      (3,259)         (4,092)
                                                       ------          ------

      Net cash provided by operating activities        26,152          30,449
                                                       ------          ------

    Cash flows from investing activities
        Purchases of property, plant and equipment     (1,806)         (8,181)
        Short-term investment activity                (37,844)           (121)
        Long-term investment activity                       -           2,173
        Change in restricted cash                      35,329             (47)
        Cash proceeds from sale of discontinued
         operations                                       234               -
        Net cash paid for acquisitions                      -               -
        Other                                             852           4,425
                                                          ---           -----

      Net cash used in investing activities            (3,235)         (1,751)
                                                       ------          ------

    Cash flows from financing activities
         Issuances of common stock                      2,112           1,773
         Excess tax effects from stock-based
          compensation                                     (1)              -
         Debt repayment                                     -            (193)
         Debenture repurchases                              -        (121,668)
                                                          ---        --------

      Net cash provided by (used in) financing
       activities                                       2,111        (120,088)
                                                        -----        --------

    Effect of exchange rate changes on cash            (1,403)          8,306
                                                       ------           -----
    Increase (decrease) in cash and cash
     equivalents                                       23,625         (83,084)
    Cash and cash equivalents -beginning of
     period                                           581,425         619,948
                                                      -------         -------

    Cash and cash equivalents - end of period        $605,050        $536,864
                                                     ========        ========





                                                        Fiscal Year-to-
                                                              Date
                                                           ---------------
                                                     Jul 31,         Jul 31,
                                                       2010            2009
                                                     --------       --------

    Cash flows from operating activities
        Net income                                    $55,778         $42,953
        Adjustments to reconcile net income to net
         cash provided by
          operating activities:
         Stock-based compensation expense              20,825          20,198
         Depreciation and amortization                 22,402          31,018
         Change in accounts receivable allowances        (667)           (383)
         Utilization of previously reserved acquired
          net operating losses                              -             455
         Loss (gain) on debenture repurchases               -             (11)
         Income from discontinued operations                -          (1,904)
         Impairment of long-term investments                -           5,466
         Net gain on sale of previously impaired
          investments                                  (7,195)              -
         Gain on sale of subsidiaries                       -             (16)
        Changes in current assets and liabilities,
         excluding the
          effect of acquisitions and dispositions     (67,189)        (80,424)
                                                      -------         -------

      Net cash provided by operating activities        23,954          17,352
                                                       ------          ------

    Cash flows from investing activities
        Purchases of property, plant and equipment    (15,238)        (14,763)
        Short-term investment activity                (40,727)         10,299
        Long-term investment activity                   8,629           3,909
        Change in restricted cash                      35,310            (307)
        Cash proceeds from sale of discontinued
         operations                                       705           1,036
        Net cash paid for acquisitions                      -         (48,472)
        Other                                           1,379           5,898
                                                        -----           -----

      Net cash used in investing activities            (9,942)        (42,400)
                                                       ------         -------

    Cash flows from financing activities
         Issuances of common stock                      7,648           2,925
         Excess tax effects from stock-based
          compensation                                      -          (2,788)
         Debt repayment                                     -            (571)
         Debenture repurchases                              -        (125,537)
                                                          ---        --------

      Net cash provided by (used in) financing
       activities                                       7,648        (125,971)
                                                        -----        --------

    Effect of exchange rate changes on cash            (8,266)          7,849
                                                       ------           -----
    Increase (decrease) in cash and cash
     equivalents                                       13,394        (143,170)
    Cash and cash equivalents -beginning of
     period                                           591,656         680,034
                                                      -------         -------

    Cash and cash equivalents - end of period        $605,050        $536,864
                                                     ========        ========


    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          Fiscal Year-to-
                                         Ended                    Date
                                    --------------      ---------------
                               Jul 31,       Jul 31,  Jul 31,       Jul 31,
                                 2010          2009     2010          2009
                              --------      -------- --------      --------

    GAAP income from
     operations                $21,098       $21,374  $62,430       $52,642
                               -------       -------  -------       -------

      Adjustments:
        Stock-based
         compensation
         expense:
         Cost of revenue           846           554    2,177         2,137
         Sales and marketing     1,464         1,243    5,653         5,356
         Product development     1,937         2,817    6,076         7,611
         General and
          administrative         1,836         1,862    6,919         5,094
                                 -----         -----    -----         -----
             Sub-total           6,083         6,476   20,825        20,198
                                 -----         -----   ------        ------

        Acquisition-related
         intangible asset
         amortization:
         Cost of revenue         1,312         2,398    3,766         7,886
         Sales and marketing       671         1,478    2,350         4,590
             Sub-total           1,983         3,876    6,116        12,476
                                 -----         -----    -----        ------

        Other operating
         expenses (income):
         Restructuring
          expense                    -         1,227    2,774        16,500
         Strategic
          alternatives review
          expense                1,503             -    2,997             -
         Litigation related
          activity                (625)            -   (1,875)            -
         Gain on sale of
          subsidiaries               -             -        -           (16)
         IT outsourcing
          transition costs           -           173        -           173
             Sub-total             878         1,400    3,896        16,657
                                   ---         -----    -----        ------


      Total operating
       adjustments               8,944        11,752   30,837        49,331

    Non-GAAP income
     from operations           $30,042       $33,126  $93,267      $101,973
                               =======       =======  =======      ========

    Non-GAAP operating
     margin %                    15.1%         15.3%    15.4%         15.8%

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


                             Fiscal Quarter        Fiscal Year-to-
                                  Ended                  Date
                               --------------        ---------------
                         Jul 31,        Jul 31,   Jul 31,        Jul 31,
                           2010           2009      2010           2009
                         --------       --------  --------       --------

    GAAP net income       $15,677        $16,659   $55,778        $42,953
                          -------        -------   -------        -------


      Operating
       adjustments
       (detailed
       above)               8,944         11,752    30,837         49,331
      Non-operating
       expenses
       (income)
       adjustments:
        Net gain on sale
         of previously
         impaired
         investments            -              -    (7,195)             -
        Loss (gain) on
         debenture
         repurchases            -             57         -            (11)
        Impairment of
         long-term
         investments            -          2,370         -          5,466
           Sub-total            -          2,427    (7,195)         5,455
                              ---          -----    ------          -----

      Total pre-tax
       adjustments          8,944         14,179    23,642         54,786

      Income tax
       adjustments         (2,136)        (5,549)   (8,035)       (17,089)

      Income from
       discontinued
       operations               -           (302)        -         (1,904)
                              ---           ----       ---         ------

      Total net
       adjustments          6,808          8,328    15,607         35,793

    Non-GAAP net
     income and non-
     GAAP income
      from continuing
       operations         $22,485        $24,987   $71,385        $78,746
                          =======        =======   =======        =======


    GAAP net income
     per share              $0.04          $0.05     $0.16          $0.12
      Total
       adjustments
       detailed above        0.02           0.02      0.04           0.11
                             ----           ----      ----           ----

    Non-GAAP net
     income per
     share and non-
     GAAP
      income from
       continuing
       operations per
       share                $0.06          $0.07     $0.20          $0.23
                            =====          =====     =====          =====


    Non-GAAP
     weighted
     average shares       354,826        346,660   352,346        346,120

SOURCE Novell, Inc.


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