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.