Novell Reports Preliminary Financial Results for Fourth Fiscal Quarter and Full Fiscal Year 2006

Novell, Inc. (Nasdaq: NOVL) today announced preliminary financial results for its fourth fiscal quarter and fiscal year ended Oct. 31, 2006. These financial results are preliminary because Novell, during the third fiscal quarter, 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 for the third fiscal quarter ended July 31, 2006 and Form 10-K for the full fiscal year ended Oct. 31, 2006.

Financial Results

For the fourth fiscal quarter 2006, Novell reported net revenue of $245 million, compared to net revenue of $288 million for the fourth fiscal quarter 2005. The net income available to common stockholders from continuing operations in the fourth fiscal quarter 2006 was $25 million, or $0.06 per diluted common share. This compares to a loss available to common stockholders from continuing operations of $6 million, or $0.02 loss per diluted common share, for the fourth fiscal quarter 2005.

On a non-GAAP basis, which is described below, adjusted income available to common stockholders from continuing operations for the fourth fiscal quarter 2006 was $20 million, or $0.05 per diluted common share. This compares to non-GAAP adjusted income available to common stockholders from continuing operations of $32 million, or $0.07 per diluted common share, for the fourth fiscal quarter 2005.

For the full fiscal year

2006, Novell reported revenue of $967 million and net income available to common stockholders from continuing operations of $21 million, or $0.06 per diluted common share. Comparatively, revenue for the full fiscal year 2005 was $1.039 billion and net income available to common stockholders from continuing operations was $373 million, or $0.85 per diluted common share, including a $448 million net legal settlement with Microsoft.

During the fourth fiscal quarter 2006, Novell reported $13 million of revenue from Linux* Platform Products, up 32 percent year-over-year. Revenue from Identity and Access Management was $24 million, up 3 percent year-over- year. Combined revenue from Open Enterprise Server and NetWare(R)-related products declined 25 percent from the year ago period.

"We are pleased with the progress we made in our key growth categories of Linux and Identity in fiscal year 2006," said Ron Hovsepian, president and CEO of Novell. "Coupled with the unprecedented Linux partnership with Microsoft just recently announced, we will add significant momentum to our Linux business. With these proof points established and with the initiatives we have begun to improve our sales model, development processes and back office efficiencies, we feel confident that we are on the right path to put Novell on target for sustained profitability in the future."

Cash, cash equivalents and short-term investments were $1.5 billion at Oct. 31, 2006, up from $1.3 billion last quarter. Days sales outstanding in accounts receivable was 86 days at the end of the fourth fiscal quarter 2006, up from 81 days in the year ago quarter. Accounts receivable aging remains within historical ranges. Deferred revenue was $427 million at the end of the fourth fiscal quarter 2006, up $21 million, or 5 percent, from the prior year. Cash flow from operations was $62 million for the fourth fiscal quarter 2006, up from $58 million from the fourth fiscal quarter 2005.

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 and Form 10-K report for the full fiscal year ended Oct. 31, 2006 following the conclusion of the review.

Update on Third Fiscal Quarter 2006

Because the financial results for the third fiscal quarter ended July 31, 2006 remain preliminary, an increase of $9 million in accrued liabilities as a result of a change in estimate identified during the fourth fiscal quarter 2006 must be recognized as an expense in the third fiscal quarter. As a result, operating expenses increased by $9 million, and the net loss available to common stockholders from continuing operations in the third fiscal quarter 2006 increased from the previously reported $3 million, or $0.01 loss per diluted common share, to $10 million, or $0.03 loss per diluted common share. Third fiscal quarter 2006 non-GAAP adjusted income available to common stockholders from continuing operations of $20 million, or $0.05 per diluted common share, remained unchanged.

Financial Outlook

Novell management provides 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 expense from stock-based compensation. However, in fiscal year 2007, Novell anticipates it will no longer exclude stock-based compensation expense from its non-GAAP financial measures.

-- 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 available to common stockholders from continuing operations and adjusted diluted income 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 available to common stockholders from continuing operations to be after-tax income generated from continuing operations excluding certain non-recurring or non-core items such as, but not limited to, stock-based compensation for fiscal year 2006, 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.

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(R) Web site at: http://www.novell.com/company/ir/qresults/ .

Conference call notification and Web access detail

A live Webcast of a Novell conference call to discuss the quarter will be broadcast at 5:00 PM ET Dec. 5, 2006, from Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/ . The domestic conference call dial-in number is 866-335-5255, password "Novell," and the international dial-in number is +1-706-679-2263, password "Novell."

The call will be archived on the Web site approximately two hours after its conclusion, and will be available for telephone playback through midnight ET, Dec. 12, 2006. 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 9942446.

A copy of this press release is posted on Novell's Web site at: http://www.novell.com/company/ir/qresults/ .

Legal notice regarding forward-looking statements

This press release includes statements that are not historical in nature and that may be characterized as "forward-looking statements," including those related to future financial and operating results, benefits and synergies of the company's brands and strategies, future opportunities and the growth of the market for 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, Identity and Access Management and Resource Management strategies, Novell's ability to take a competitive position in the Linux, Identity and Access Management 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 time of such conclusions) concerning matters relating to the company's 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 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 and full fiscal year 2006 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 U.S. Securities and Exchange Commission ("SEC") on a timely basis, our conclusions on the effectiveness of our internal control over financial reporting and disclosure controls and procedures and 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.

About Novell

Novell, Inc. delivers infrastructure software for the Open Enterprise. We are a leader in enterprise-wide operating systems based on Linux and open source and the security and systems management services required to operate mixed IT environments. We help our customers minimize cost, complexity and risk, allowing them to focus on innovation and growth. For more information, visit http://www.novell.com .

NOTE: 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)

Fiscal Quarter Ended Fiscal Year Ended

Oct. 31, Oct. 31, Oct. 31, Oct. 31,

2006 2005 2006 2005

Net revenue:

Software licenses $46,078 $78,111 $173,678 $213,803

Maintenance and

services 198,827 209,507 793,599 825,420

Total net revenue 244,905 287,618 967,277 1,039,223

Cost of revenue:

Software licenses 4,206 7,630 17,528 21,600

Maintenance and

services 72,759 81,423 303,107 330,466

Total cost of revenue 76,965 89,053 320,635 352,066

Gross profit 167,940 198,565 646,642 687,157

Operating expense

(income):

Sales and marketing 87,795 92,209 352,829 354,335

Product development 45,169 54,678 185,796 205,627

General and

administrative 23,995 24,514 104,181 92,632

Restructuring expenses 5,405 38,061 4,405 57,753

Other operating expense

(income) (1) 3,120 1,521 24,719 (447,148)

Total operating expense 165,484 210,983 671,930 263,199

Income (loss) from

operations 2,456 (12,418) (25,288) 423,958

Other income, net 32,781 12,177 69,541 33,993

Income (loss) from

continuing operations,

before income taxes 35,237 (241) 44,253 457,951

Income tax expense 12,028 5,426 23,218 86,660

Income (loss) from

continuing operations 23,209 (5,667) 21,035 371,291

Income (loss) from

discontinued operations,

before income taxes (843) 549 12,900 8,191

Income tax expense

(benefit) -- (166) 972 2,760

Income (loss) from

discontinued operations (843) 715 11,928 5,431

Income (loss) before

cumulative effect of a

change in accounting

principle 22,366 (4,952) 32,963 376,722

Cumulative effect of a

change in accounting

principle -- -- (897) --

Net income (loss) $22,366 $(4,952) $32,066 $376,722

Income (loss) available to

common

stockholders - diluted:

Continuing operations $24,554 $(5,758) $20,761 $373,183

Net income (loss) $23,714 $(5,043) $31,575 $378,159

Income (loss) per share

available

to common stockholders -

diluted:

Continuing operations $0.06 $(0.02) $0.06 $0.85

Net income (loss) $0.06 $(0.01) $0.09 $0.86

Weighted average shares -

diluted 395,456 (2) 382,279 365,659 440,585 (2)

(1) See Page 10 of 14 for a detail of other operating expense (income).

(2) Diluted weighted average shares includes 52 million potential shares

related to convertible debt.

Amounts reported as 'preliminary' for the third fiscal quarter ended

July 31, 2006 have been updated for a known change in estimate, impacting

net income. Also, reclassifications, none of which affected net income,

were made to the prior period amounts in order to conform to the current

period's presentation.

Stock-based compensation expense recorded in above amounts:

Fiscal Quarter Fiscal Year

Ended Ended

Oct. 31, Oct. 31, Oct. 31, Oct. 31,

2006 2005 2006 2005

Cost of revenue $1,057 $2 $4,095 $6

Sales and marketing 2,115 194 11,824 998

Product development 1,956 225 8,342 1,172

General and administrative 1,016 93 10,644 (428)

Discontinued operations -- -- 263 --

Total stock-based compensation

expense $6,144 $514 $35,168 $1,748

Novell, Inc.

Consolidated Unaudited Condensed Balance Sheets (Preliminary)

(In thousands)

Oct. 31, 2006 Oct. 31, 2005

Assets

Current assets:

Cash and cash equivalents $675,787 $811,238

Short-term investments 790,500 843,666

Receivables, net 233,986 293,627

Prepaid expenses 32,328 30,777

Other current assets 28,524 29,745

Total current assets 1,761,125 2,009,053

Property, plant and equipment, net 184,084 212,377

Long-term investments 2,263 54,340

Goodwill 424,701 395,509

Intangible assets, net 40,404 56,421

Deferred income taxes 4,770 1,384

Other assets 32,376 32,774

Total assets $2,449,723 $2,761,858

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $44,419 $45,445

Accrued compensation 105,410 113,760

Other accrued liabilities 91,837 131,105

Income taxes payable 49,598 56,869

Deferred revenue 426,971 405,751

Total current liabilities 718,235 752,930

Deferred income taxes 4,186 4,537

Senior convertible debentures 600,000 600,000

Total liabilities 1,322,421 1,357,467

Minority interests -- 8,555

Preferred stock 9,350 9,350

Stockholders' equity 1,117,952 1,386,486

Total liabilities and stockholders'

equity $2,449,723 $2,761,858

Amounts reported as 'preliminary' for the third fiscal quarter ended

July 31, 2006 have been updated for a known change in estimate. Also,

reclassifications, none of which affected net income, were made to the

prior period amounts in order to conform to the current period's

presentation.

Novell, Inc.

Consolidated Unaudited Condensed Statements of Cash Flows (Preliminary)

(In thousands)

Fiscal Quarter Ended Fiscal Year Ended

Oct. 31, Oct. 31, Oct. 31, Oct. 31,

2006 2005 2006 2005

Cash flows from operating

activities:

Net income (loss) $22,366 $(4,952) $32,066 $376,722

Adjustments to reconcile net

income (loss) to net cash

provided by

operating activities:

Stock-based compensation expense 6,144 514 35,168 1,748

Tax effects of stock-based

compensation plans 10,994 (2,367) 15,252 13,799

Excess tax benefits from stock-

based compensation (10,994) -- (15,252) --

Depreciation and amortization 13,068 13,439 46,976 54,513

Changes in accounts receivable

allowances (2,228) 1,514 (6,888) (7,838)

Utilization of previously reserved

acquired net operating losses 2,725 -- 6,585 29,600

Purchased in-process research and

development -- -- 2,110 480

Gain on sale of property, plant

and equipment -- -- (5,968) (1,589)

Loss on sale of Japan consulting

group -- -- 8,273 --

Executive termination benefits -- -- 9,409 --

Impairment of long-term

investments, net of gains (1,371) 192 (745) 1,300

Gain on sale of venture capital

funds (17,953) -- (17,953) --

Impairment of intangible assets 1,230 1,521 1,230 1,521

Celerant discontinued operations,

before taxes 843 -- (11,117) --

Cumulative effect of a change in

accounting principle -- -- 897 --

Changes in current assets and

liabilities, excluding the effect

of acquisitions and dispositions 37,448 48,392 (994) 30,158

Net cash provided by operating

activities 62,272 58,253 99,049 500,414

Cash flows from financing

activities:

Issuance of common stock, net 18,457 6,073 40,131 22,108

Excess tax benefits from stock-

based compensation 10,994 -- 15,252 --

Payment of cash dividends on

Series B Preferred Stock (46) (216) (187) (591)

Repurchases of common stock,

retired -- -- (400,000) --

Net cash provided (used) by

financing activities 29,405 5,857 (344,804) 21,517

Cash flows from investing

activities:

Purchases of property, plant and

equipment (7,128) (10,613) (26,668) (30,781)

Proceeds from the sale of

property, plant and equipment -- -- 24,992 10,421

Proceeds from repayment of note

receivable -- -- 9,092 --

Short-term investment activity 12,184 (228,162) 57,219 (74,370)

Long-term investment activity 2,901 1,633 1,473 281

Cash paid for equity investment in

Open Invention Network, LLC -- -- (4,225) --

Proceeds from the sale of

Celerant, net of cash divested -- -- 37,922 --

Proceeds from the sale of Japan

consulting group, net of cash

divested 1,450 -- 1,450 --

Proceeds from the sale of venture

capital funds 71,298 -- 71,298 --

Cash paid for acquisition of Tally

Systems and Immunix, net of cash

acquired -- -- -- (33,829)

Cash paid for acquisition of e-

Security, net of cash acquired -- -- (71,550) --

Purchase of intangible assets -- -- (1,159) (15,500)

Restricted cash for acquisition of

India joint venture -- (7,500) -- (7,500)

Other 2,689 5,940 10,460 6,181

Net cash provided (used) by

investing activities 83,394 (238,702) 110,304 (145,097)

Increase (decrease) in cash and

cash equivalents 175,071 (174,592) (135,451) 376,834

Cash and cash equivalents -

beginning of period 500,716 985,830 811,238 434,404

Cash and cash equivalents - end of

period $675,787 $811,238 $675,787 $811,238

Amounts reported as 'preliminary' for the third fiscal quarter ended July

31, 2006 have been updated for a known change in estimate, impacting net

income. Also,

reclassifications, none of which affected net income, were made to the

prior period amounts in order to conform to the current period's

presentation.

Novell, Inc.

Unaudited Non-GAAP Adjusted Earnings Information (Preliminary)

(In thousands, except per share data)

Fiscal Quarter Fiscal Year

Ended Ended

Oct. 31, Oct. 31, Oct. 31, Oct. 31,

2006 2005 2006 2005

GAAP diluted income (loss)

available to common

stockholders from continuing

operations $24,554 $(5,758) $20,761 $373,183

Pre-tax adjustments:

Operating expenses:

Stock-based compensation

expense 6,144 514 34,905 1,748

Restructuring expenses 5,405 38,061 4,405 57,753

Sub-total 11,549 38,575 39,310 59,501

Other operating expenses

(income):

Purchased in-process research

and development -- -- 2,110 480

Gain on sale of property, plant

and equipment -- -- (5,968) (1,589)

Litigation-related expense

(income) -- -- 7,775 (447,560)

Loss on sale of Japan

consulting group -- -- 8,273 --

Executive termination benefits -- -- 9,409 --

Impairment of intangible assets 1,230 1,521 1,230 1,521

Stock-based compensation review

expenses 1,890 -- 1,890 --

Sub-total 3,120 1,521 24,719 (447,148)

Non-operating expenses (income):

Gain on sale of venture capital

funds (17,953) -- (17,953) --

Impairment of long-term

investments, net of gains (1,371) 486 (745) 1,594

Sub-total (19,324) 486 (18,698) 1,594

Total pre-tax adjustments (4,655) 40,582 45,331 (386,053)

Income tax adjustments:

Tax adjustments, net 74 (2,176) (2,519) (4,231)

Cumulative tax effect of the

Microsoft settlement -- (1,700) -- 70,560

Diluted income (loss)

adjustments:

Debt interest expense -- 1,493 5,972 --

Allocation of earnings to

preferred stockholders 20 (236) (177) 3,116

Total net adjustments (4,561) 37,963 48,607 (316,608)

Non-GAAP diluted income available

to common stockholders from

continuing operations $19,993 $32,205 $69,368 $56,575

GAAP diluted income (loss) per

common share from continuing

operations $0.06 $(0.02) $0.06 $0.85

Adjustments detailed above (0.01) 0.09 0.10 (0.72)

Non-GAAP diluted income per common

share from continuing operations $0.05 $0.07 $0.16 $0.13

GAAP diluted weighted average

shares from continuing operations 395,456 382,279 365,659 440,585

Change in dilution from assumed:

Conversion of convertible debt -- 52,074 52,074 --

Stock option exercises 1,655 8,400 4,358 --

Non-GAAP diluted weighted average

shares 397,111 442,753 422,091 440,585

Amounts reported as 'preliminary' for the third fiscal quarter ended

July 31, 2006 have been updated for a known change in estimate,

impacting net income. Also, reclassifications, none of which affected

net income, were made to the prior period amounts in order to conform to

the current period's presentation.

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