Novell reports second fiscal quarter 2002 results

Novell, Inc. (NASDAQ:NOVL) today reported revenue of $274 million for its second fiscal quarter ended April 30, 2002, and a loss of $0.48 per share, reflecting $190 million in pre-tax charges largely from the write-down of goodwill, impaired investments and restructuring. Excluding the impact of these charges on second quarter results, the company posted earnings of $0.03 per share for its second fiscal quarter 2002.

Novell® revenue was consistent with the upper range of expected revenue for the second quarter as announced by the company with its last quarterly results. Earnings, excluding the charges for write-downs, exceeded the company's expectation that it would be approximately break-even.

"We slowed the sharp quarterly decline in consulting revenue that Novell has seen for the last three quarters," said Novell chairman and chief executive officer Jack L. Messman. "With revenue from both software and consulting relatively flat to the first quarter of this year, our plan is to achieve trending improvement in revenue through the second half of fiscal 2002. We're making solid progress in improving Novell to fully capture the significant market opportunity of internet business solutions."

The results for the second fiscal quarter compare to revenue of $241 million, and a loss per share of $0.48 in the same period a year ago, which also included charges for impaired investments. When these impairment charges were excluded, the loss for the second fiscal quarter 2001 was $0.03 per share.

For the first six months of fiscal 2002, Novell reported revenue of $552 million and a net loss of $165 million. Excluding the goodwill write-down, restructuring charge and impaired asset charges in the second quarter, net earnings for the first six months of 2002 were $17 million. For the first six months of fiscal 2001, the company reported revenue of $486 million and a net loss of $159 million.

Review of Q2 Performance
>>> Revenue allocated by business segment: Novell's software product segment accounted for $197 million, or 72 percent of total revenue. Within this segment, Net Management Services revenue was $152 million. Net Directory Services revenue was $11 million. Customer service and education revenue was approximately $34 million. Novell's consulting segment contributed $75 million, or approximately 28 percent of revenue. The Volera segment, providing content delivery network software, accounted for an additional $1.4 million.

>>> Revenue allocated by business category: Large network site-licenses led with $163 million, or 60 percent of revenue. Packaged software license sales for smaller networks totaled $25 million, or nine percent of total Novell revenue. Consulting services, product support and education revenue, not included in site-licenses, was $80 million, for 29 percent of total revenue. OEM royalties contributed 2 percent of total revenue.

>>> Revenue by geography: During the second fiscal quarter 2002, revenue from the United States was $143 million. The Europe, Middle East and Africa region contributed $92 million in revenue, Asia Pacific $20 million, and Canada and the Americas $19 million.

>>> Expenses: Operating expenses were up $16 million from the first quarter to $175 million due to $19 million in restructuring charges in the second quarter. Setting aside the impact of restructuring, ongoing operating expenses were down $3 million from the prior quarter to $156 million.

>>> Other income (loss), net contributed a loss of $18 million, due to a $26 million write-down, primarily of impaired venture capital and Internet investments, that more than fully offset interest and other income.

On the balance sheet, cash and short-term investments declined by $22 million to $683 million at the end of the quarter, compared with $705 million at the October 2001 fiscal year-end. Cash flow from operations for the quarter was a negative $39 million. Novell wrote-off $144 million of goodwill associated with the Cambridge Technology Partners® IT services business that it acquired in July 2001. Days sales outstanding (DSO) were up sequentially by five days from the quarter before to 58 days. Deferred revenue was $212 million.

Business outlook
Novell anticipates being able to maintain its business at current levels as the company transitions from a product-centric to solutions-centric business model. The company now expects that in its third fiscal quarter ending July 30, 2002, revenue will be approximately flat from the $274 million in the just reported second fiscal quarter. Revenue at this level should allow the company to be slightly profitable in its third quarter. The company's ability to achieve sequential improvements in revenue and earnings is dependent on success from its new solutions selling effort, with continued improved performance from its IT services business.

Conference call notification and Web access detail
A live Webcast of a Novell conference call to discuss the second fiscal quarter results with financial analysts will be broadcast at 5 PM EDT May 23 on the Quarterly Results page at Novell's Investor Relations Web page: http://www.novell.com/company/ir/qresults/

Through midnight, May 30, an audio replay of the call will be available on the Quarterly Results page of Novell's Investor Relations Web page at: http://www.novell.com/company/ir/qresults/ A telephone replay of the conference call will be available after 7:30 PM EDT May 23, through midnight, May 30. To access the playback dial: 888-566-0787

Forward looking statements
This press release contains forward-looking statements that involve a number of risks and uncertainties, as well as assumptions about changes in Novell's organization and business processes, the status of current business, changing markets and market conditions, market opportunities, marketing efforts, near and long-term operating performance and business objectives, potential new business strategies, new solutions focus, the effectiveness of Novell's sales organization, Net services, anticipated demand for new offerings from markets that Novell is entering, future business performance and outlook. These forward-looking statements are neither promises nor guarantees and involve a number of risks and uncertainties that could cause actual results to differ materially. The risks and uncertainties include, but are not limited to, the following: business conditions and the general economy; changes in distribution choices and channel partners; competitive factors; sales and marketing execution; shifts in technologies or market demand; the successful integration of Novell and Cambridge Technology Partners and other risks identified in the company's SEC filings, including information under the heading "forward looking statements" its quarterly Form 10-Qs and Form 10-K for the fiscal year 2001.