Novell Reports Financial Results for Second Fiscal Quarter 2006 Year-Over-Year Results Show Continued Growth in Linux and Identity Revenues

and Improvement in Overall Profitability



    WALTHAM, Mass., May 31 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq:  
 NOVL) today announced financial results for its second fiscal quarter ended
 April 30, 2006. For the quarter, Novell reported revenue of $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 percent
 year-over-year.
     During the second fiscal quarter 2006, Novell reported $61 million of
 Systems, Security and Identity Management revenue, up 16 percent year-over-
 year.
     Combined revenue from OES and NetWare-related products declined 16
 percent 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 percent 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 included in the financial schedules
 that are a part of this release.
     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(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 May 31, 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 15 minutes
 after its conclusion, and will be available for telephone playback through
 midnight ET, June 7, 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 8678383.
     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 Open
 Platform Solutions. 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 integrate acquired operations and employees,
 Novell's success in executing its Linux and identity and resource
 management strategies, Novell's ability to take a competitive position in
 the Linux and identity 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 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.
     About Novell
     Novell, Inc. delivers Software for the Open Enterprise(TM). With more
 than 50,000 customers in 43 countries, Novell helps customers manage,
 simplify, secure and integrate their technology environments by leveraging
 best-of- breed, open standards-based software. With over 20 years of
 experience, 5,000 employees, 5,000 partners and support centers around the
 world, Novell helps customers gain control over their IT operating
 environment while reducing cost. More information about Novell can be found
 at http://www.novell.com.
     Novell and NetWare are registered trademarks, and Software for the Open
 Enterprise is a trademark 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
                     (In thousands, except per share data)
 
                                      Fiscal Quarter Ended  Fiscal Year-to-Date
                                        Apr 30,  Apr 30,     Apr 30,  Apr 30,
                                         2006      2005       2006      2005
     Net revenue:
        Software licenses               $40,063   $45,768    $82,165   $90,064
        Maintenance and services        238,253   251,283    470,559   497,115
     Total net revenue                  278,316   297,051    552,724   587,179
 
     Cost of revenue:
        Software licenses                 4,041     4,863      8,337     9,495
        Maintenance and services        100,408   112,478    197,374   219,897
     Total cost of revenue              104,449   117,341    205,711   229,392
 
     Gross profit                       173,867   179,710    347,013   357,787
 
     Operating expense (income):
         Sales and marketing             96,003    98,479    189,212   192,488
         Product development             48,328    51,652     93,389   100,645
         General and administrative      33,377    30,140     68,831    58,380
         Restructuring expenses              --     5,361     (1,064)   11,780
         Purchased in-process research
          and development                 2,110       480      2,110       480
         Gain on sale of property,
          plant and equipment            (2,190)       --     (2,190)   (1,589)
         Gain on litigation settlements  (1,225)       --     (1,225) (447,560)
     Total operating expense (income)   176,403   186,112    349,063   (85,376)
 
     Income (loss) from operations       (2,536)   (6,402)    (2,050)  443,163
 
     Other income, net                   13,377     7,455     26,079    12,490
 
     Income before income taxes          10,841     1,053     24,029   455,653
 
     Income tax expense                   7,499    16,680     18,822    76,119
 
     Net income (loss)                   $3,342  $(15,627)    $5,207  $379,534
 
     Net income (loss) available to
        common stockholders - basic      $3,282  $(15,752)    $5,093  $375,310
 
     Net income (loss) available to
        common stockholders - diluted    $3,178  $(15,752)    $5,021  $378,296
 
     Net income (loss) per common share:
         Basic                            $0.01    $(0.04)     $0.01     $0.99
         Diluted                          $0.01    $(0.04)     $0.01     $0.87
 
     Weighted average shares:
         Basic                          378,403   378,219    382,095   377,738
         Diluted                        385,320   378,219    389,657   434,962*
     Certain reclassifications, none of which affected net income, were made
 to the prior period amounts in order to conform to the current period's
 presentation.
     *The fiscal year-to-date 2005 diluted weighted average shares includes
 52 million potential common shares related to convertible debt, which are
 not included in the current quarter calculation because they are
 anti-dilutive.
     Stock-based compensation expense recorded in above amounts:
 
 
                                      Fiscal Quarter Ended Fiscal Year-to-Date
                                         Apr 30, Apr 30,    Apr 30,   Apr 30,
                                          2006    2005       2006      2005
 
     Cost of revenue                       $923     $1      $1,985       $2
     Sales and marketing                  3,044    224       6,576      358
     Product development                  1,750    329       4,387      653
     General and administrative           2,013    398       8,477      398
       Total stock-based compensation
        expense                          $7,730   $952     $21,425   $1,411
 
 
                                  Novell, Inc.
                Consolidated Unaudited Condensed Balance Sheets
                                 (In thousands)
 
                                                 Apr 30, 2006      Oct 31, 2005
     Assets
 
     Current assets:
         Cash and cash equivalents                 $542,074          $811,238
         Short-term investments                     796,967           843,666
         Receivables, net                           219,242           293,627
         Prepaid expenses                            36,047            30,777
         Other current assets                        31,234            29,745
     Total current assets                         1,625,564         2,009,053
 
     Property, plant and equipment, net             204,274           212,377
     Long-term investments                           56,856            54,340
     Goodwill                                       454,163           395,509
     Intangible assets, net                          47,484            56,421
     Deferred income taxes                            1,582             1,384
     Other assets                                    32,677            32,774
 
     Total assets                                $2,422,600        $2,761,858
 
     Liabilities and Stockholders' Equity
 
     Current liabilities:
         Accounts payable                           $46,713           $45,445
         Accrued compensation                       105,146           113,760
         Other accrued liabilities                   80,022           131,105
         Income taxes payable                        57,829            56,869
         Deferred revenue                           345,768           405,751
     Total current liabilities                      635,478           752,930
 
     Deferred income taxes                            4,066             4,537
     Senior convertible debentures                  600,000           600,000
 
     Total liabilities                            1,239,544         1,357,467
 
     Minority interests                               2,974             8,555
 
     Preferred stock                                  9,350             9,350
 
     Stockholders' equity                         1,170,732         1,386,486
 
     Total liabilities and stockholders'
      equity                                     $2,422,600        $2,761,858
 
 
                                  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,
                                           2006      2005      2006      2005
     Cash flows from operating activities:
         Net income (loss)                $3,342  $(15,627)   $5,207  $379,534
         Adjustments to reconcile net
          income (loss) to net cash
          (used) provided by
          operating activities:
           Stock-based compensation
            expense                        7,730       952    21,425     1,411
           Tax effects of stock-based
            compensation plans             1,247     9,000     5,286    13,260
           Excess tax benefits from stock-
            based compensation            (1,247)       --    (5,286)       --
           Depreciation and amortization  10,867    17,354    22,378    29,790
           Decrease in accounts receivable
            allowances                    (1,930)     (570)   (4,903)   (5,789)
           Utilization of previously
            reserved acquired net
            operating losses               2,976       600     3,520    29,600
           Gain on sale of property, plant
            and equipment                 (2,190)       --    (2,190)   (1,589)
           Impairment of long-term
            investments, net of gains        111       917       498     1,930
           Purchased in-process research
            and development                2,110       480     2,110       480
           Changes in current assets and
            liabilities, excluding the
            effect of acquisitions       (46,962)  (38,090)  (46,868)  (21,964)
 
         Net cash (used) provided by
          operating activities           (23,946)  (24,984)    1,177   426,663
 
     Cash flows from financing
      activities:
           Issuance of common stock, net   8,206     8,512    18,082    12,979
           Excess tax benefits from stock-
            based compensation             1,247        --     5,286        --
           Payment of cash dividends on
            Series B preferred stock         (47)       --       (47)     (250)
           Repurchase of common stock -
            retired                     (267,479)       --  (267,479)       --
 
         Net cash (used) provided by
          financing activities          (258,073)    8,512  (244,158)   12,729
 
     Cash flows from investing activities:
           Purchases of property, plant
            and equipment                 (6,951)   (6,035)  (14,554)  (11,684)
           Proceeds from the sale of
            property, plant and equipment  7,258        --     7,258    10,421
           Proceeds from payoff of note
            receivable                     9,092        --     9,092        --
           Short-term investment activity 41,784   274,081    46,258   162,375
           Long-term investment activity  (2,758)     (771)   (3,014)   (3,018)
           Cash paid for equity
            investment in Open Invention
            Network, LLC                      --        --    (4,225)       --
           Cash paid for acquisition of
            Tally and Immunix, net of
            cash acquired                     --   (33,829)       --   (33,829)
           Cash paid for acquisition of
            e-Security, net of cash
            acquired                     (71,550)       --   (71,550)       --
           Purchase of intangible assets      --        --        --   (15,500)
           Other                           2,090    (1,939)    4,552     4,318
 
         Net cash (used) provided by
          investing activities           (21,035)  231,507   (26,183)  113,083
 
     (Decrease) increase in cash and
      cash equivalents                  (303,054)  215,035  (269,164)  552,475
 
     Cash and cash equivalents -
      beginning of period                845,128   771,844   811,238   434,404
 
     Cash and cash equivalents - end of
      period                            $542,074  $986,879  $542,074  $986,879
 
     Certain 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
                     (In thousands, except per share data)
 
                                       Fiscal Quarter Ended Fiscal Year-to-Date
                                          Apr 30,  Apr 30,   Apr 30,  Apr 30,
                                           2006      2005     2006      2005
     GAAP diluted net income (loss)
      available to common stockholders     $3,178  $(15,752)  $5,021  $378,296
 
       Pre-tax adjustments:
         Stock-based compensation expense   7,730       952   21,425     1,411
         Restructuring expenses                --     5,361   (1,064)   11,780
         Purchased in-process research
          and development                   2,110       480    2,110       480
         Gains on sale of property, plant
          and equipment                    (2,190)       --   (2,190)   (1,589)
         Gain on litigation settlements    (1,225)       --   (1,225) (447,560)
         Transaction costs related to
          Celerant divestiture                588        --      588        --
         Impairment of long-term
          investments, net of gains           111       917      498     1,930
 
       Income tax adjustments:
         Tax adjustments, net                 209    (1,766)   1,975    (2,404)
         Cumulative tax effect of the
          Microsoft settlement                 --    12,100       --    69,360
 
       Diluted net income (loss)
        adjustments:
         Debt interest expense                 --        --    2,986    (2,986)
         Allocation of earnings to
          preferred and minority
          stockholders                        (29)      (24)     (86)    3,841
 
       Total net adjustments                7,304    18,020   25,017  (365,737)
     Non-GAAP diluted net income available
      to common stockholders              $10,482    $2,268  $30,038   $12,559
 
     GAAP diluted net income (loss) per
      common share                          $0.01    $(0.04)   $0.01     $0.87
       Adjustments detailed above            0.02      0.05     0.06     (0.84)
 
     Non-GAAP diluted net income per
        common share                        $0.03     $0.01    $0.07     $0.03
 
     GAAP diluted weighted average shares 385,320   378,219  389,657   434,962
 
       Change in dilution from assumed:
         Conversion of convertible debt        --        --   52,074   (52,074)
         Conversion of preferred stock         --        --       --        --
         Stock option exercises             4,022     4,035    4,363        --
         Restricted stock and stock-based
          compensation changes               (315)       --     (618)     (374)
 
       Non-GAAP diluted weighted average
        shares                            389,027   382,254  445,476   382,514
     Certain reclassifications were made to the prior period amounts in
 order to conform to the current period's presentation.
 
 

SOURCE Novell, Inc.
RELATED LINKS
http://www.novell.com

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