Novell Reports Financial Results for Fourth Fiscal Quarter and Full Fiscal Year 2004

Consolidated Unaudited Condensed Statements of Operations
Consolidated Unaudited Condensed Balance Sheets
Consolidated Unaudited Condensed Statements of Cashflows Statement of Cash Flows
Unaudited Non-GAAP Adjusted Earnings Information

• 5 percent increase in revenue from year ago period
• Strong cash flow performance
• Exceptional growth in SUSE Linux Enterprise Server business

Novell, Inc. (NASDAQ:NOVL) today announced financial results for its fourth fiscal quarter ended Oct. 31, 2004.  For the quarter, Novell reported revenues of $301 million, compared to revenues of $287 million for the fourth fiscal quarter 2003.  Net income available to common stockholders in the fourth fiscal quarter 2004 was $13 million, or $0.03 per diluted common share. This compared to a net loss available to common stockholders of $109 million, or $0.29 loss per common share, for the fourth fiscal quarter 2003.

On a non-GAAP basis, adjusted net income available to common stockholders for the fourth fiscal quarter 2004 was $23 million, or $0.06 per diluted common share, which excludes the effect of restructuring charges of $9 million and net investment impairments of $1 million. This compares to non-GAAP adjusted net income available to common stockholders for the fourth fiscal quarter 2003 of $19 million, or $0.05 per diluted common share, which excludes the effect of restructuring charges of $8 million, an in-process research and development charge of $1 million, investment impairments of $2 million and a $119 million charge to increase a valuation allowance for net deferred tax assets. 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.

In the fourth fiscal quarter 2004, foreign currency exchange rates favorably impacted total revenue by approximately $7 million year-over-year. Foreign currency impact to net income was not material. Accrual adjustments in the fourth fiscal quarter 2004 favorably impacted operating income by $10 million.  The accruals were originally created for legal, medical and other potential liabilities. Also, reserve adjustments affecting tax expense favorably impacted net income by $6 million.

During the fourth fiscal quarter 2004, Novell recognized revenue of $12 million associated with its SUSE® LINUX business. Recognized revenue from subscriptions to SUSE Linux Enterprise Server in the quarter was $7 million, a sequential increase of 68% from the third fiscal quarter 2004. Sales of subscriptions to SUSE Linux Enterprise Server (SLES) totaled 21,000 units in the quarter. Not included in this number is the effect of three Linux-related enterprise-wide licensing deals with Fortune 100* customers. Under these multi-year agreements, these customers can deploy SLES throughout the enterprise, and the agreements were priced accordingly. We estimate that in the near term these customers may deploy in the range of 4,000 to 6,000 servers and that there is the potential for them to deploy over 25,000 servers over time.

For Novell's full fiscal year 2004, Novell reported revenue of $1.166 billion and net income available to common stockholders of $31 million, or $0.08 per diluted common share. Comparatively, revenue for the full year fiscal 2003 was $1.105 billion and net loss available to common stockholders was $162 million, or $0.44 loss per common share.

“We are pleased that our revenue and net income remain strong during our ongoing transition to a growth company against the backdrop of a challenging IT market,” said Jack Messman, Chairman and CEO of Novell. “Our key growth initiatives of Linux and Identity Management continued their strong performance. In particular, our Linux solutions are allowing us to reach more and more new customers at a pace not seen at Novell for many years. We see no slowdown to the tremendous progress made by Linux technology to date. However, we still have challenges ahead. While we had a strong finish in closing fiscal year 2004, fiscal year 2005 will be another rebuilding year for Novell as we make significant investments in our solutions, systems and people to try to grow our newer businesses in order to counterbalance the continued decline in our NetWare business.”

On the balance sheet, cash and short-term investments were $1.2 billion at Oct. 31, 2004, compared with $1.1 billion at July 31, 2004. Days sales outstanding (DSO) in accounts receivable was 78 days at the end of the fourth fiscal quarter 2004, up from 74 days in the year ago quarter. Deferred revenues were $374 million at the end of the fourth fiscal quarter 2004, up $52 million or 16% year over year. Cash flow from operations was $52 million for the fourth fiscal quarter 2004, down $1 million from a year ago.

On Nov. 8, 2004, Novell announced an agreement with Microsoft to settle potential antitrust litigation related to Novell's NetWare® operating system in exchange for $536 million in cash, which was received today. After estimated transaction costs and income tax payments, the net cash increase is expected to approximate $438 million. A gain of $448 million, the settlement less estimated transaction costs, will be included in operating income in the first fiscal quarter ended Jan. 31, 2005. Book income tax expense related to this settlement is currently estimated at approximately $80 million, which reflects the use of a portion of net operating loss carryforwards, and will be recorded in the same period. The difference between the book tax expense and the estimated $10 million taxes to be paid results from the nature of the carryforwards used.

A summary of Novell’s vision, mission and strategy can be accessed on the Novell® Web site at: 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 5PM ET November 18, 2004, from Novell's Investor Relations Web page: https://www.novell.com/company/ir/qresults/. The domestic conference call dial-in number is 888-323-5254, password “Novell”, and the international dial-in number is +1-773-756-4625, 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, December 2.  The domestic toll-free replay number is 888-567-0447, and the international replay number is +1-402-998-1802.

A copy of this press release is posted on Novell’s Web site at: https://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 open source 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 strategies, Novell’s ability to deliver on its one Net vision of the Internet, Novell’s ability to take a competitive position in the Linux industry, 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 Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2004.  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.

Novell, NetWare, Nsure and Ximian are registered trademarks; exteNd and Nterprise are trademarks; and Ngage is a service mark of Novell, Inc. in the United States and other countries. SUSE is a registered trademark of SUSE Linux AG, a Novell business. *All 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 Ended
		Oct 31, 2004		Oct 31, 2003		Oct 31, 2004		Oct 31, 2003
Net revenue
	New software licenses	$     64,651		$       70,498		$    238,419		$      265,256
	Maintenance and services	236,006		216,251		927,498		840,240
Total net revenue		300,657		286,749		1,165,917		1,105,496
Cost of revenue
	New software licenses	6,859		5,140		23,481		22,210
	Maintenance and services	103,546		96,197		392,198		392,939
	Intangible asset impairments	-		-		-		23,569
Total cost of revenue		110,405		101,337		415,679		438,718
Gross profit		190,252		185,412		750,238		666,778
Operating expenses
	Sales and marketing	96,156		88,314		362,569		380,826
	Product development	47,332		44,304		198,614		183,758
	General and administrative	23,236		24,300		102,437		110,963
	Restructuring	8,916		8,042		22,903		43,067
	Purchased in-process R&&D	-		920		-		920
	Gain on sale of property, plant and equipment	-		-		(1,977)		(24,934)
Total operating expenses		175,640		165,880		684,546		694,600
Income (loss) from operations		14,612		19,532		65,692		(27,822)
Other income (expense), net		248		(3,442)		9,282		(27,188)
Income (loss) before taxes		14,860		16,090		74,974		(55,010)
Income tax expense		1,595		125,094		17,786		106,894
Net income (loss)		13,265		(109,004)		57,188		(161,904)
Deemed dividend related to beneficial conversion feature of preferred stock		-		-		(25,680)		-
Preferred stock dividends		(125)		-		(416)		-
Net income (loss) available to common stockholders		$     13,140		$    (109,004)		$      31,092		$    (161,904)
Net income (loss) per common share:
	Basic	$          0.03		$         (0.29)		$           0.08		$           (0.44)
	Diluted	$       0.03		$      (0.29)		$        0.08		$        (0.44)
Weighted average shares:
	Basic	376,367		373,876		381,100		370,545
	Diluted	386,243		373,876		394,268		370,545
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. Consolidated Unaudited Condensed Balance Sheets (In thousands)
ASSETS			Oct 31, 2004		Oct 31, 2003
Current assets
	Cash, cash equivalents and short-term investments		$     1,211,467		$       751,852
	Receivables, net		269,431		232,492
	Prepaid expenses		25,190		23,005
	Other current assets		28,846		23,204
Total current assets			1,534,934		1,030,553
Property, plant and equipment, net			231,468		255,526
Long-term investments			55,986		50,948
Goodwill			391,088		213,300
Intangible assets, net			48,616		10,800
Other assets			29,456		6,526
Total assets			$     2,291,548		$    1,567,653
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable		$           55,956		$          50,258
	Accrued compensation		126,612		101,164
	Other accrued liabilities		98,983		117,073
	Income taxes payable		37,077		35,493
	Deferred revenue		374,186		322,470
Total current liabilities			692,814		626,458
Deferred income taxes			3,855		-
Long-term debt			600,000		-
Total liabilities			1,296,669		626,458
Minority interests			6,515		6,725
Preferred stock			25,000		-
Stockholders' equity			963,364		934,470
Total liabilities and stockholders' equity			$     2,291,548		$    1,567,653
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. Consolidated Unaudited Condensed Statements of Cash Flows (In thousands)
		Fiscal Quarter Ended				Fiscal Year Ended
		Oct 31, 2004		Oct 31, 2003		Oct 31, 2004		Oct 31, 2003
Cash flows from operating activities:
	Net income (loss)	$          13,265		$    (109,004)		$          57,188		$    (161,904)
	Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	(Gain) loss on sale of property, plant and equipment	328		-		(1,639)		(25,299)
	Gain on sale of long-term investments	(1,567)		-		(1,567)		-
	Depreciation and amortization	14,536		11,884		53,482		61,058
	Non-cash restructuring charges	7,788		8,042		16,979		31,268
	Intangible asset impairments, net of tax	-		-		-		13,935
	Long-term investment impairments	2,967		2,172		5,415		34,735
	In-process R&D expense	-		920		-		920
	Changes in assets and liabilities	14,186		138,982		(10,761)		100,293
	Net cash provided by operating activities	51,503		52,996		119,097		55,006
Cash flows from financing activities:
	Issuance of common stock, net	10,178		12,276		58,162		20,081
	Issuance of preferred stock	-		-		50,000		-
	Issuance of long-term debt	-		-		600,000		-
	Payment of issuance costs on long-term debt	-		-		(14,850)		-
	Payment of preferred stock dividend	-		-		(292)		-
	Repurchase of common stock - held in treasury	-		-		(125,000)		-
	Net cash provided by financing activities	10,178		12,276		568,020		20,081
Cash flows from investing activities:
	Expenditures for property, plant and equipment	(7,473)		(8,863)		(26,997)		(39,468)
	Proceeds from the sale of property, plant and equipment	2,811		-		4,951		125,000
	Proceeds from the sale of long-term investments	1,567		-		1,567		-
	Short-term investment activity	(199,667)		(96,630)		(393,181)		(213,870)
	Cash paid for Ximian	-		(40,205)		-		(40,205)
	Cash paid for SUSE Linux	-		-		(211,468)		-
	Cash received from SUSE Linux	-		-		11,170		-
	Cash paid for Salmon	-		-		(8,470)		-
	Cash received from Salmon	-		-		3,148		-
	Other	2,161		(3,319)		(51)		(3,599)
	Net cash used by investing activities	(200,601)		(149,017)		(619,331)		(172,142)
Increase (decrease) in cash and cash equivalents		(138,920)		(83,745)		67,786		(97,055)
Cash and cash equivalents – beginning of period		573,638		450,677		366,932		463,987
Cash and cash equivalents – end of period		434,718		366,932		434,718		366,932
Short-term investments – end of period		776,749		384,920		776,749		384,920
Cash and short-term investments – end of period		$ 1,211,467		$   751,852		$ 1,211,467		$   751,852
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)
	GAAP As Reported	Adjustments	Non-GAAP Adjusted
Fiscal year ended Oct 31, 2004
Net revenue	$   1,165,917	$  (13,500) (a)	$ 1,152,417
Gross profit	750,238	(13,500) (a)	736,738
Income (loss) from operations	65,692	7,775 (b)	73,467
Income (loss) before taxes	74,974	6,580 (c)	81,554
Net income (loss)	57,188	5,417 (d)	62,605
Net income (loss) available to common stockholders	31,092	31,097 (e)	62,189
Diluted net income (loss) per common share	$            0.08	$      (0.08) (e)	$          0.16
Fiscal quarter ended October 31, 2004
Net revenue	$      300,657	$          -	$    300,657
Gross profit	190,252	-	190,252
Income (loss) from operations	14,612	8,916 (f)	23,528
Income (loss) before taxes	14,860	10,317 (g)	25,177
Net income (loss)	13,265	10,317 (h)	23,582
Net income (loss) available to common stockholders	13,140	10,317 (h)	23,457
Diluted net income (loss) per common share	$            0.03	$         0.03 (h)	$          0.06
Fiscal quarter ended July 31, 2004
Net revenue	$      304,597	$  (13,500) (a)	$    291,097
Gross profit	200,641	(13,500) (a)	187,141
Income (loss) from operations	22,612	(4,070) (i)	18,542
Income (loss) before taxes	28,794	(8,561) (j)	20,233
Net income (loss)	23,405	(9,453) (k)	13,952
Net income (loss) available to common stockholders	23,216	(9,453) (k)	13,763
Diluted net income (loss) per common share	$            0.06	$       (0.02) (k)	$          0.04
Fiscal quarter ended October 31, 2003
Net revenue	$      286,749	$          -	$    286,749
Gross profit	185,412	-	185,412
Income (loss) from operations	19,532	8,962 (l)	28,494
Income (loss) before taxes	16,090	11,134 (m)	27,224
Net income (loss)	(109,004)	128,062 (n)	19,058
Net income (loss) available to common stockholders	(109,004)	128,062 (n)	19,058
Diluted net income (loss) per common share	$          (0.29)	$          0.34 (n)	$          0.05
Footnotes related to adjustments: Reflects satisfaction of judgment against The Canopy Group, Inc. recorded as revenue of $13.5 million. Reflects the item in footnote (a), restructuring charges of $23 million, a gain on the sale of property, plant and equipment of $2 million and integration costs related to SUSE of $0.4 million. Reflects the items in footnotes (a) and (b), satisfaction of judgment against The Canopy Group, Inc. recorded as interest income of $5 million and net long-term investment impairments of $4 million. Reflects the items in footnotes (a), (b) and (c) and the necessary related tax adjustments. Reflects the items in footnotes (a), (b), (c) and (d) and a beneficial conversion feature of $25.7 million. Reflects restructuring reserves of $8.9 million. Reflects the item in footnote (f) and net long-term investment impairments of $1.4 million. Reflects the items in footnotes (f) and (g), for which there were no tax adjustments. Reflects the item in footnote (a), restructuring charges of $9.3 million and integration costs related to SUSE of $0.2 million. Reflects the items in footnotes (h) and (i), satisfaction of judgment against The Canopy Group, Inc. recorded as interest income of $5 million and long-term investment impairments of $0.6 million. Reflects the items in footnotes (a), (i) and (j) and the necessary related tax adjustments. Reflects restructuring reserves of $8.0 million and in-process R&D expense of $0.9 million. Reflects the items in footnote (l) and investment impairments of $2.2 million. Reflects the items in footnotes (l) and (m), the necessary related tax adjustments and a write down of deferred tax assets of $119 million. 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.