Novell Reports Financial Results for Second Fiscal Quarter 2006

WALTHAM, Mass. – May 31, 2006 – Novell, Inc. (NASDAQ:NOVL) today announced financial results for its second fiscal quarter ended April 30, 2006. For the quarter, Novell reported revenue of US$278 million, compared to revenue of $297 million for the second fiscal quarter 2005. Net income available to common stockholders in the second fiscal quarter 2006 was $3 million or $0.01 per diluted common share. This compared to net loss available to common stockholders of $16 million, or $0.04 loss per diluted common share, for the second fiscal quarter 2005.

On a non-GAAP basis, adjusted net income available to common stockholders for the second fiscal quarter 2006 was $10 million, or $0.03 per diluted common share. This compared to non-GAAP adjusted net income available to common stockholders of $2 million, or $0.01 per diluted common share, for the second fiscal quarter 2005. These amounts exclude stock-based compensation, restructuring and acquired in-process research and development expenses, gains on sale of property, plant and equipment and a legal settlement, long-term investment impairments and related adjustments for income taxes, debt interest expense and the allocation of earnings to preferred stockholders.

In the second fiscal quarter 2006, foreign currency exchange rates unfavorably impacted total revenue by approximately $6 million year-over-year. Foreign currency exchange rates favorably impacted net income by $1 million year-over-year.

During the second fiscal quarter 2006, Novell reported total Open Platform Solutions revenue of $57 million, which was up from $20 million in the year ago period. Total Open Platform Solutions included $46 million from sales of Open Enterprise Server (OES), up $38 million year-over-year, and $10 million of revenue from Linux* Platform Products, up 20 per cent year-over-year.

During the second fiscal quarter 2006, Novell reported $61 million of Systems, Security and Identity Management revenue, up 16 per cent year-over-year.

Combined revenue from OES and NetWare-related products declined 16 per cent from the year ago period.

“While Novell delivered on its financial guidance again this quarter, we have not lost sight of our goal to significantly increase our profitability by the end of fiscal year 2008,” said Jack Messman, chairman and CEO of Novell. “We are engaged in many initiatives to grow revenues, increase efficiencies, and lower costs, to enhance shareholder value.”

With regard to the company’s previously announced share repurchase program, Novell repurchased 35 million common shares at a cost of $267 million during the quarter. An additional 16 million common shares were repurchased for $133 million after the quarter’s end, resulting in an aggregate repurchase amount of $400 million, or 51 million shares. These repurchases complete the share repurchase program authorized and announced in September 2005 and amended in April 2006.

Cash, cash equivalents and short-term investments were $1.3 billion at April 30, 2006, down $347 million from last quarter primarily due to cash used to repurchase common stock and the acquisition of e-Security. Days sales outstanding in accounts receivable was 66 days at the end of the second fiscal quarter 2006, up from 59 days in the year ago quarter. Deferred revenue was $346 million at the end of the second fiscal quarter 2006, up $25 million or 8 per cent from the prior year. Cash flow from operations was a negative $24 million for the second fiscal quarter 2006, up from a negative $25 million in the second fiscal quarter 2005.

Full details on Novell’s reported results, including a reconciliation of the non-GAAP adjusted results, are available online at http://www.novell.com/company/ir/qresults/.

Financial Outlook

Due to the previously announced sale on May 24, 2006, of Novell’s ownership in its management consulting subsidiary, Celerant, Novell will no longer consolidate Celerant’s results. Novell expects to report Celerant’s partial period results in the third fiscal quarter 2006 as discontinued operations. Accordingly, Novell management provides the following financial guidance:

• Net revenue, excluding Celerant, for the third fiscal quarter 2006 is expected to be between $239 million and $247 million.
• On a non-GAAP basis, net income per diluted common share, excluding Celerant, for the third fiscal quarter 2006 is expected to be $0.03, excluding an estimated $0.03 per share expense from stock-based compensation.

A summary of Novell’s vision, mission and strategy can be accessed on the Novell® Web site at: http://www.novell.com/company/ir/qresults/.