Novell Reports Preliminary Financial Results for Third Fiscal Quarter 2006 - Linux Platform Products revenue grows 30 percent year-over-year

- Identity and Access Management revenue up 46 percent year-over-year

- Announces voluntary stock-based compensation review



    WALTHAM, Mass., Aug. 29 /PRNewswire-FirstCall/ -- Novell, Inc. (Nasdaq:  
 NOVL) today announced preliminary financial results for its third fiscal
 quarter ended July 31, 2006. These financial results are preliminary
 because Novell, during this 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.
     Financial Results
     For the third fiscal quarter 2006, Novell reported net revenue of $241
 million, compared to net revenue of $252 million for the third fiscal
 quarter 2005. The loss available to common stockholders from continuing
 operations in the third fiscal quarter 2006 was $3 million or $0.01 loss
 per diluted common share. This compares to income available to common
 stockholders from continuing operations of $0.4 million, or $0.00 per
 diluted common share, for the third fiscal quarter 2005.
     On a non-GAAP basis, adjusted income available to common stockholders
 from continuing operations for the third fiscal quarter 2006 was $20
 million, or $0.05 per diluted common share. Those amounts excluded
 stock-based compensation, severance-related expenses, a loss on the planned
 disposition of our Japan consulting group, a gain on sale of property,
 plant and equipment and related adjustments for income taxes, debt interest
 expense and the allocation of earnings to preferred stockholders. This
 compares to non-GAAP adjusted income available to common stockholders from
 continuing operations of $13 million, or $0.03 per diluted common share,
 for the third fiscal quarter 2005. These amounts primarily exclude
 restructuring charges and related adjustments for income taxes, debt
 interest expense and the allocation of earnings to preferred stockholders.
     In the third fiscal quarter 2006, Novell finalized the disposition of
 its Celerant consulting subsidiary. Accordingly, all Celerant financial
 results were excluded from Novell's continuing operations for income
 statement reporting purposes. Celerant's results for all periods presented
 are reported as discontinued operations.
     During the third fiscal quarter 2006, Novell reported $12 million of
 revenue from Linux* Platform Products, up 30% year-over-year. Revenue from
 Identity and Access Management was $26 million, up 46% year-over-year.
 Combined revenue from Open Enterprise Server and NetWare-related products
 declined 19% from the year ago period.
     "Novell's focus on execution and acceleration of our strategy resulted
 in continued strong growth in Linux and Identity revenues," said Ron
 Hovsepian, president and CEO of Novell. "The launch of SUSE Linux
 Enterprise 10 and the rollout of a new marketing campaign earlier this
 month has generated widespread customer and partner enthusiasm, and we are
 aggressively moving to drive adoption of the new platform."
     Cash, cash equivalents and short-term investments were $1.3 billion at
 July 31, 2006, consistent with last quarter. Days sales outstanding in
 accounts receivable was 88 days at the end of the third fiscal quarter
 2006, up from 77 days in the year ago quarter. Accounts receivable aging
 remains within historical ranges. Deferred revenue was $391 million at the
 end of the third fiscal quarter 2006, up $25 million, or 7%, from the prior
 year. Cash flow from operations was $33 million for the third fiscal
 quarter 2006, up from $15 million from the third fiscal quarter 2005.
     Full details on Novell's preliminary results, including a
 reconciliation of the non-GAAP adjusted results, are included in the
 financial schedules that are a part of this release.
     Stock-Based Compensation Review
     Novell initiated the voluntary review of historical stock-based
 compensation practices and the related potential accounting impact in light
 of news about the stock option practices of numerous companies across
 several industries. Based on preliminary findings, the Audit Committee of
 Novell's Board of Directors engaged independent outside legal counsel to
 conduct the review.
     The Audit Committee is working to complete the stock-based compensation
 review in a timely manner, and Novell intends to file its Quarterly Report
 on Form 10-Q for the period ended July 31, 2006 as soon as practicable
 after the Audit Committee's review is concluded. At this time, Novell is
 not in a position to predict when the stock-based compensation review will
 be completed and it is possible that Novell may not file its Quarterly
 Report on Form 10-Q for the third fiscal quarter ended July 31, 2006 on a
 timely basis.
     This review may result in the need to record non-cash stock
 compensation charges and related tax effects. Novell does not know whether
 any such compensation charges would affect the preliminary financial
 results for its third fiscal quarter ended July 31, 2006 being announced
 today, or would be deemed to be material and require the company to restate
 previously issued financial statements. Novell will also need to determine
 the impact of this matter on its system of internal controls.
     Financial Outlook
     Novell management provides the following financial guidance:
 
     -- Net revenue for the fourth fiscal quarter 2006 is expected to be
        between $246 million and $256 million.
     -- On a non-GAAP basis, income available to common stockholders from
        continuing operations per diluted common share for the fourth fiscal
        quarter 2006 is expected to be $0.04, 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 August 29, 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, September 6, 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 3713912.
     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 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 fiscal quarter
 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 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 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 .
     NOTE: 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
                                 (Preliminary)
                     (In thousands, except per share data)
 
 
                                 Fiscal Quarter Ended    Fiscal Year-to-Date
                                  Jul 31,      Jul 31,     Jul 31,   Jul 31,
                                    2006         2005        2006      2005
     Net revenue:
       Software licenses         $45,435      $45,628    $127,600  $135,692
       Maintenance and services  195,917      206,754     594,772   615,913
     Total net revenue           241,352      252,382     722,372   751,605
 
     Cost of revenue:
       Software licenses           4,984        4,475      13,322    13,970
       Maintenance and services   75,711       80,171     230,348   249,043
     Total cost of revenue        80,695       84,646     243,670   263,013
 
     Gross profit                160,657      167,736     478,702   488,592
 
     Operating expense (income):
       Sales and marketing        89,463       84,457   265,034   262,126
       Product development        47,238       50,304   140,627   150,949
       General and administrative 25,298       24,453    80,186    68,118
       Restructuring expenses          -        9,443    (1,000)   19,692
       Purchased in-process
        research and development       -            -     2,110       480
       Gain on sale of property,
        plant and equipment       (3,778)           -    (5,968)   (1,589)
       Gain on legal settlements       -            -    (1,225) (447,560)
       Loss on Japan consulting
        group held for sale        8,273            -     8,273         -
       Executive termination
        benefits                   9,409            -     9,409         -
     Total operating expense     175,903      168,657   497,446    52,216
 
     Income (loss) from
      operations                 (15,246)        (921)  (18,744)  436,376
 
     Other income, net            10,811        8,350    36,760    21,816
 
     Income (loss) from
      continuing operations,
       before income taxes        (4,435)       7,429    18,016   458,192
 
     Income tax expense
      (benefit)                   (1,948)       6,869    13,031    81,234
 
     Income (loss) from
      continuing operations       (2,487)         560     4,985   376,958
 
     Income from discontinued
      operations, before income
      taxes                       12,165        2,752    13,743     7,642
     Income tax expense
      (benefit)                   (2,871)       1,172       972     2,926
     Income from discontinued
      operations                  15,036        1,580    12,771     4,716
 
     Income before cumulative
      effect of a change in
      accounting principle        12,549        2,140    17,756   381,674
 
     Cumulative effect of a
      change in accounting
      principle                     (897)           -      (897)        -
 
     Net income                  $11,652       $2,140   $16,859  $381,674
 
 
     Income (loss) available
      to common stockholders -
      diluted:
 
       Continuing operations     $(2,534)        $430    $4,824  $377,125
 
       Net income                $11,554       $1,910   $16,478  $381,539
 
 
     Income (loss) per share
      available to common
      stockholders - diluted:
 
       Continuing operations      $(0.01)       $0.00     $0.01     $0.87
 
       Net income                  $0.03        $0.00     $0.04     $0.88
 
 
     Weighted average shares -
      diluted                    340,127      385,377   374,472   435,820 (1)
 
 
     (1) Diluted weighted average shares includes 52 million potential shares
     related to convertible debt.
 
     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
                                                 Ended           Year-to-Date
                                            Jul 31,  Jul 31,   Jul 31,  Jul 31,
                                              2006     2005      2006     2005
     Cost of revenue                        $1,053       $2    $3,038       $4
     Sales and marketing                     3,133      446     9,709      804
     Product development                     1,999      294     6,386      947
     General and administrative              1,414     (919)    9,628     (521)
       Total stock-based compensation
        expense                             $7,599    $(177)  $28,761   $1,234
 
 
 
                                  Novell, Inc.
         Consolidated Unaudited Condensed Balance Sheets (Preliminary)
                                 (In thousands)
 
 
                                               Jul 31, 2006      Oct 31, 2005
     Assets
 
     Current assets:
         Cash and cash equivalents                 $500,716          $811,238
         Short-term investments                     798,615           843,666
         Receivables, net                           236,112           293,627
         Prepaid expenses                            32,159            30,777
         Other current assets                        24,766            29,745
         Current assets held for sale                 2,930                 -
     Total current assets                         1,595,298         2,009,053
 
     Property, plant and equipment, net             186,752           212,377
     Long-term investments                           55,064            54,340
     Goodwill                                       427,375           395,509
     Intangible assets, net                          44,919            56,421
     Deferred income taxes                            1,334             1,384
     Other assets                                    33,085            32,774
 
     Total assets                                $2,343,827        $2,761,858
 
 
     Liabilities and Stockholders' Equity
 
     Current liabilities:
         Accounts payable                           $40,320           $45,445
         Accrued compensation                       105,934           113,760
         Other accrued liabilities                   78,521           131,105
         Income taxes payable                        53,894            56,869
         Deferred revenue                           390,799           405,751
         Current liabilities held for sale              619                 -
     Total current liabilities                      670,087           752,930
 
     Deferred income taxes                            3,995             4,537
     Senior convertible debentures                  600,000           600,000
 
     Total liabilities                            1,274,082         1,357,467
 
     Minority interests                                   -             8,555
 
     Preferred stock                                  9,350             9,350
 
     Stockholders' equity                         1,060,395         1,386,486
 
     Total liabilities and stockholders'
      equity                                     $2,343,827        $2,761,858
 
 
 
                                  Novell, Inc.
    Consolidated Unaudited Condensed Statements of Cash Flows (Preliminary)
                                 (In thousands)
 
 
                                           Fiscal Quarter          Fiscal
                                                Ended           Year-to-Date
                                          Jul 31,   Jul 31,   Jul 31,   Jul 31,
                                            2006      2005      2006      2005
 
     Cash flows from operating
      activities:
       Net income                        $11,652    $2,140   $16,859  $381,674
       Adjustments to reconcile net
        income to net cash provided
        by operating activities:
         Stock-based compensation expense  7,599      (177)   29,024     1,234
         Tax effects of stock-based
          compensation plans              (1,028)    2,906     4,258    16,166
         Excess tax benefits from stock-
          based compensation               1,028         -    (4,258)        -
         Depreciation and amortization     8,773    11,284    31,151    41,074
         Loss on Japan consulting group
          held for sale                    8,273         -     8,273         -
         Gain on sale of Celerant,
          discontinued operations before
          taxes                          (11,960)        -   (11,960)        -
         Executive termination benefits    9,409         -     9,409         -
         Cumulative effect of a change in
          accounting principle               897         -       897         -
         Changes in accounts receivable
          allowances                         243    (3,563)   (4,660)   (9,352)
         Utilization of previously reserved
          acquired net operating losses      340         -     3,860    29,600
         Gain on sale of property, plant
          and equipment                   (3,778)        -    (5,968)   (1,589)
         Impairment of long-term
          investments, net of gains          128      (822)      626     1,108
         Purchased in-process research and
          development                          -         -     2,110       480
         Changes in current assets and
          liabilities, excluding the
          effect of acquisitions and
          dispositions                     1,267     3,730   (45,601)  (18,234)
 
       Net cash provided by operating
        activities                        32,843    15,498    34,020   442,161
 
     Cash flows from financing
      activities:
         Issuance of common stock, net     3,592     3,056    21,674    16,035
         Excess tax benefits from stock-
          based compensation              (1,028)        -     4,258         -
         Payment of cash dividends on
           Series B Preferred Stock          (94)     (125)     (141)     (375)
         Repurchases of common stock,
          retired                       (132,521)        -  (400,000)        -
 
       Net cash (used) provided by
        financing activities            (130,051)    2,931  (374,209)   15,660
 
     Cash flows from investing
      activities:
         Purchases of property, plant and
          equipment                       (2,229)   (8,484)  (16,783)  (20,168)
         Proceeds from the sale of
          property, plant and equipment   17,734         -    24,992    10,421
         Proceeds from repayment of note
          receivable                           -         -     9,092         -
         Short-term investment activity   (1,223)   (8,583)   45,035   153,792
         Long-term investment activity     1,586     1,666    (1,428)   (1,352)
         Cash paid for equity investment in
          Open Invention Network, LLC          -         -    (4,225)        -
         Proceeds from the sale of
          Celerant, net of cash divested  37,922         -    37,922         -
         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)        -    (1,159)  (15,500)
         Other                             3,219    (4,077)    7,771       241
 
       Net cash provided (used) by
        investing activities              55,850   (19,478)   29,667    93,605
 
     (Decrease) increase in cash and
      cash equivalents                   (41,358)   (1,049) (310,522)  551,426
 
     Cash and cash equivalents -
      beginning of period                542,074   986,879   811,238   434,404
 
     Cash and cash equivalents -
      end of period                     $500,716  $985,830  $500,716  $985,830
 
 
     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 (Preliminary)
                     (In thousands, except per share data)
 
 
                                            Fiscal Quarter        Fiscal
                                                Ended          Year-to-Date
                                            Jul 31,  Jul 31,  Jul 31,  Jul 31,
                                              2006     2005     2006      2005
       GAAP diluted income (loss)
        available to common
       stockholders from continuing
        operations                         $(2,534)    $430   $4,824  $377,125
 
         Pre-tax adjustments:
           Stock-based compensation
            expense                          7,599     (177)  28,761     1,234
           Restructuring expenses                -    9,443   (1,000)   19,692
           Purchased in-process research
            and development                      -        -    2,110       480
           Gain on sale of property, plant
            and equipment                   (3,778)       -   (5,968)   (1,589)
           Gain on legal settlements             -        -   (1,225) (447,560)
           Loss on Japan consulting group
            held for sale                    8,273        -    8,273         -
           Executive termination benefits    9,409        -    9,409         -
           Impairment of long-term
            investments, net of gains          128     (822)     626     1,108
 
         Income tax adjustments:
           Tax adjustments, net                (49)    (301)    (752)   (2,055)
           Cumulative tax effect of the
            Microsoft settlement                 -    2,900        -    72,260
 
         Diluted income (loss)
          adjustments:
           Debt interest expense             1,493    1,493    4,479    (4,479)
           Allocation of earnings to
            preferred stockholders             (83)    (114)    (161)    3,727
 
         Total net adjustments              22,992   12,422   44,552  (357,182)
 
       Non-GAAP diluted income available
        to common stockholders from
        continuing operations              $20,458  $12,852  $49,376   $19,943
 
 
       GAAP diluted income (loss) per
        common share from
        continuing operations               $(0.01)   $0.00    $0.01     $0.87
           Adjustments detailed above         0.06     0.03     0.10     (0.82)
 
       Non-GAAP diluted income per common
        share from
        continuing operations                $0.05    $0.03    $0.11     $0.05
 
 
       GAAP diluted weighted average
        shares from
        continuing operations              340,127  385,377  374,472   435,820
 
         Change in dilution from:
           Conversion of convertible debt   52,074   52,074   52,074   (52,074)
           Stock option exercises            5,460        -    4,146         -
           Restricted stock                    141     (272)    (532)        -
 
       Non-GAAP diluted weighted average
        shares                             397,802  437,179  430,160   383,746
 
 
      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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