##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-Q





(Mark One)

| | þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ---------------------------------------------------------------------------------------

| |  | For the Quarterly Period Ended April 30, 2010
| |  | ---------------------------------------------

or



| |  ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| | - | ----------------------------------------------------------------------------------------

| |  | For the transition period from  to
| |  | ----------------------------------

Commission File Number: 0-13351





NOVELL, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 87-0393339                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

404 Wyman Street, Waltham, MA 02451

(Address of principal executive offices and zip code)

(781) 464-8000

(Registrants telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ No  ̈

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ̈ No  ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                                                                       |  |                           |  |  
|---------------------------------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer  þ                                             |  | Accelerated file          |  |  ̈
|Non-accelerated filer     ̈ (Do not check if smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
 ̈ No þ

As of May 28,
2010, there were 349,868,167 shares of the registrants common stock outstanding.









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##### Table of Contents

NOVELL, INC.

TABLE OF CONTENTS



|                                                                                                              |  |   
|------------------------------------------------------------------------------------------------------------- |  | --
|Part I  Financial Information:                                                                               |  | 3 
|Item 1: Financial Statements                                                                                  |  | 3 
|Consolidated Balance Sheets at April 30, 2010 (unaudited) and October 31, 2009                                |  | 3 
|Consolidated Statements of Operations for the three and six months ended April 
30, 2010 and 2009 (unaudited) |  | 4 
|Consolidated Statements of Cash Flows for the six months ended April 
30, 2010 and 2009 (unaudited)           |  | 6 
|Notes to Unaudited Consolidated Financial Statements                                                          |  | 7 
|Item 
2: Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 23
|Item 3: Quantitative and Qualitative Disclosures about Market Risk                                            |  | 33
|Item 4: Controls and Procedures                                                                               |  | 33
|Part II  Other Information:                                                                                  |  | 34
|Item 1: Legal Proceedings                                                                                     |  | 34
|Item 1A: Risk Factors                                                                                         |  | 34
|Item 2: Unregistered Sales of Equity Securities and Use of Proceeds                                           |  | 44
|Item 6: Exhibits                                                                                              |  | 44



2



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##### Table of Contents

Part I.  Financial Information

Item 1. Financial Statements

NOVELL, INC.

FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share and per share data)



|                                                                                                          |  |               |           |   |                 |   |           |  
|--------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | --------------- | - | --------- | -
|                                                                                                          |  | April 30,2010 |           |   | October 31,2009 |  
|                                                                                                          |  | (unaudited)   |           |   |                 |  
|ASSETS                                                                                                    | 
|Current assets:                                                                                           |  |               |           |   |                 |   |           |  
|Cash and cash equivalents                                                                                 |  | $             | 581,425   |   |                 | $ | 591,656   |  
|Short-term investments                                                                                    |  |               | 398,161   |   |                 |   | 391,809   |  
|Restricted cash                                                                                           |  |               | 53,052    |   |                 |   | 53,033    |  
|Receivables (net of allowances of $3,524 and $4,085 at April 30, 2010 and October 31, 2009,
respectively) |  |               | 131,864   |   |                 |   | 177,898   |  
|Prepaid expenses                                                                                          |  |               | 20,300    |   |                 |   | 17,708    |  
|Current deferred tax assets                                                                               |  |               | 4,624     |   |                 |   | 5,521     |  
|Other current assets                                                                                      |  |               | 22,648    |   |                 |   | 26,747    |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|Total current assets                                                                                      |  |               | 1,212,074 |   |                 |   | 1,264,372 |  
|Property, plant and equipment, net                                                                        |  |               | 163,420   |   |                 |   | 170,459   |  
|Long-term investments                                                                                     |  |               |          |   |                 |   | 10,303    |  
|Goodwill                                                                                                  |  |               | 353,734   |   |                 |   | 356,033   |  
|Intangible assets, net                                                                                    |  |               | 32,488    |   |                 |   | 36,621    |  
|Deferred income taxes                                                                                     |  |               | 19,009    |   |                 |   | 26,717    |  
|Other assets                                                                                              |  |               | 34,033    |   |                 |   | 38,403    |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|Total assets                                                                                              |  | $             | 1,814,758 |   |                 | $ | 1,902,908 |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|                                                                                                         
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                      | 
|                                                                                                          |  |              
|Current liabilities:                                                                                      |  |               |           |   |                 |   |           |  
|Accounts payable                                                                                          |  | $             | 31,682    |   |                 | $ | 37,628    |  
|Accrued compensation                                                                                      |  |               | 58,628    |   |                 |   | 87,928    |  
|Other accrued liabilities                                                                                 |  |               | 79,308    |   |                 |   | 97,154    |  
|Income taxes payable                                                                                      |  |               | 1,059     |   |                 |   |          |  
|Deferred revenue                                                                                          |  |               | 441,866   |   |                 |   | 495,245   |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|Total current liabilities                                                                                 |  |               | 612,543   |   |                 |   | 717,955   |  
|Deferred income taxes                                                                                     |  |               | 8,314     |   |                 |   | 8,403     |  
|Long-term deferred revenue                                                                                |  |               | 173,170   |   |                 |   | 193,526   |  
|Other long-term liabilities                                                                               |  |               | 46,943    |   |                 |   | 48,502    |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|Total liabilities                                                                                         |  |               | 840,970   |   |                 |   | 968,386   |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|                                                                                                          |  |              
|Stockholders equity:                                                                                     |  |               |           |   |                 |   |           |  
|Common stock, par value $0.10 per share, Authorized  600,000,000 shares;                                 |  |               |           |   |                 |   |           |  
|Issued  364,950,122 and 362,175,921 shares at April 30, 2010 and October 31, 2009, respectively;         |  |               |           |   |                 |   |           |  
|Outstanding  349,846,963 and 347,072,762 shares at April 30, 2010 and October 31, 2009, respectively     |  |               | 36,495    |   |                 |   | 36,218    |  
|Additional paid-in capital                                                                                |  |               | 459,072   |   |                 |   | 441,798   |  
|Treasury stock, at cost  15,103,159 shares at April 30, 2010 and October 31, 2009                        |  |               | (124,299  | ) |                 |   | (124,299  | )
|Retained earnings                                                                                         |  |               | 599,924   |   |                 |   | 559,823   |  
|Accumulated other comprehensive income                                                                    |  |               | 2,596     |   |                 |   | 20,982    |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|Total stockholders equity                                                                                |  |               | 973,788   |   |                 |   | 934,522   |  
|                                                                                                          |  |               |           |   |                 |   |           |  
|Total liabilities and stockholders equity                                                                |  | $             | 1,814,758 |   |                 | $ | 1,902,908 |  
|                                                                                                          |  |               |           |   |                 |   |           |  

See notes to consolidated financial statements.



3



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NOVELL, INC.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)



|                                                     |  |                    |         |   |               |   |         |  
|---------------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                                                     |  | Three months ended |        
|                                                     |  | April 30,2010      |         |   | April 30,2009 |  
|                                                     |  | (unaudited)        |        
|Net revenue:                                         |  |                    |         |   |               |   |         |  
|Software licenses                                    |  | $                  | 27,691  |   |               | $ | 30,250  |  
|Maintenance and subscriptions                        |  |                    | 153,855 |   |               |   | 158,329 |  
|Services                                             |  |                    | 22,468  |   |               |   | 27,016  |  
|                                                     |  |                    |         |   |               |   |         |  
|Total net revenue                                    |  |                    | 204,014 |   |               |   | 215,595 |  
|                                                     |  |                    |         |   |               |   |         |  
|Cost of revenue:                                     |  |                    |         |   |               |   |         |  
|Software licenses                                    |  |                    | 1,925   |   |               |   | 1,856   |  
|Maintenance and subscriptions                        |  |                    | 20,825  |   |               |   | 21,958  |  
|Services                                             |  |                    | 18,562  |   |               |   | 21,468  |  
|                                                     |  |                    |         |   |               |   |         |  
|Total cost of revenue                                |  |                    | 41,312  |   |               |   | 45,282  |  
|                                                     |  |                    |         |   |               |   |         |  
|Gross profit                                         |  |                    | 162,702 |   |               |   | 170,313 |  
|                                                     |  |                    |         |   |               |   |         |  
|Operating expenses:                                  |  |                    |         |   |               |   |         |  
|Sales and marketing                                  |  |                    | 74,853  |   |               |   | 75,697  |  
|Product development                                  |  |                    | 39,368  |   |               |   | 44,552  |  
|General and administrative                           |  |                    | 28,578  |   |               |   | 25,032  |  
|Restructuring expenses                               |  |                    |        |   |               |   | 7,224   |  
|Loss on sale of subsidiaries                         |  |                    |        |   |               |   | 184     |  
|                                                     |  |                    |         |   |               |   |         |  
|Total operating expenses                             |  |                    | 142,799 |   |               |   | 152,689 |  
|                                                     |  |                    |         |   |               |   |         |  
|Income from operations                               |  |                    | 19,903  |   |               |   | 17,624  |  
|                                                     |  |                    |         |   |               |   |         |  
|Other income (expense):                              |  |                    |         |   |               |   |         |  
|Investment income                                    |  |                    | 3,262   |   |               |   | 5,390   |  
|Gain on sale of previously impaired investments, net |  |                    | 1,967   |   |               |   |        |  
|Impairment of long-term investments                  |  |                    |        |   |               |   | (1,419  | )
|Interest expense and other, net                      |  |                    | (43     | ) |               |   | (3,767  | )
|                                                     |  |                    |         |   |               |   |         |  
|Total other income, net                              |  |                    | 5,186   |   |               |   | 204     |  
|                                                     |  |                    |         |   |               |   |         |  
|Income from continuing operations before taxes       |  |                    | 25,089  |   |               |   | 17,828  |  
|Income tax expense                                   |  |                    | 5,177   |   |               |   | 2,777   |  
|                                                     |  |                    |         |   |               |   |         |  
|Income from continuing operations                    |  |                    | 19,912  |   |               |   | 15,051  |  
|Income from discontinued operations                  |  |                    |        |   |               |   | 566     |  
|                                                     |  |                    |         |   |               |   |         |  
|Net income                                           |  | $                  | 19,912  |   |               | $ | 15,617  |  
|                                                     |  |                    |         |   |               |   |         |  
|                                                     |  |                   
|Basic earnings per share:                            |  |                    |         |   |               |   |         |  
|Income from continuing operations                    |  | $                  | 0.06    |   |               | $ | 0.04    |  
|                                                     |  |                    |         |   |               |   |         |  
|Net income per share                                 |  | $                  | 0.06    |   |               | $ | 0.05    |  
|                                                     |  |                    |         |   |               |   |         |  
|Diluted earnings per share:                          |  |                    |         |   |               |   |         |  
|Income from continuing operations                    |  | $                  | 0.06    |   |               | $ | 0.04    |  
|                                                     |  |                    |         |   |               |   |         |  
|Net income per share                                 |  | $                  | 0.06    |   |               | $ | 0.05    |  
|                                                     |  |                    |         |   |               |   |         |  
|                                                     |  |                   
|Weighted-average shares outstanding  basic          |  |                    | 349,204 |   |               |   | 344,881 |  
|Weighted-average shares outstanding  diluted        |  |                    | 352,008 |   |               |   | 345,839 |  

See notes to
consolidated financial statements.



4



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NOVELL, INC.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)



|                                                     |  |                  |         |   |               |   |         |  
|---------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                     |  | Six months ended |        
|                                                     |  | April 30,2010    |         |   | April 30,2009 |  
|                                                     |  | (unaudited)      |        
|Net revenue:                                         |  |                  |         |   |               |   |         |  
|Software licenses                                    |  | $                | 48,884  |   |               | $ | 58,517  |  
|Maintenance and subscriptions                        |  |                  | 312,806 |   |               |   | 317,144 |  
|Services                                             |  |                  | 44,690  |   |               |   | 54,805  |  
|                                                     |  |                  |         |   |               |   |         |  
|Total net revenue                                    |  |                  | 406,380 |   |               |   | 430,466 |  
|                                                     |  |                  |         |   |               |   |         |  
|Cost of revenue:                                     |  |                  |         |   |               |   |         |  
|Software licenses                                    |  |                  | 3,613   |   |               |   | 3,892   |  
|Maintenance and subscriptions                        |  |                  | 43,397  |   |               |   | 44,660  |  
|Services                                             |  |                  | 38,020  |   |               |   | 43,627  |  
|                                                     |  |                  |         |   |               |   |         |  
|Total cost of revenue                                |  |                  | 85,030  |   |               |   | 92,179  |  
|                                                     |  |                  |         |   |               |   |         |  
|Gross profit                                         |  |                  | 321,350 |   |               |   | 338,287 |  
|                                                     |  |                  |         |   |               |   |         |  
|Operating expenses:                                  |  |                  |         |   |               |   |         |  
|Sales and marketing                                  |  |                  | 143,769 |   |               |   | 152,591 |  
|Product development                                  |  |                  | 79,070  |   |               |   | 89,944  |  
|General and administrative                           |  |                  | 54,405  |   |               |   | 49,227  |  
|Restructuring expenses                               |  |                  | 2,774   |   |               |   | 15,273  |  
|Gain on sale of subsidiaries                         |  |                  |        |   |               |   | (16     | )
|                                                     |  |                  |         |   |               |   |         |  
|Total operating expenses                             |  |                  | 280,018 |   |               |   | 307,019 |  
|                                                     |  |                  |         |   |               |   |         |  
|Income from operations                               |  |                  | 41,332  |   |               |   | 31,268  |  
|                                                     |  |                  |         |   |               |   |         |  
|Other income (expense):                              |  |                  |         |   |               |   |         |  
|Investment income                                    |  |                  | 6,530   |   |               |   | 12,566  |  
|Gain on sale of previously impaired investments, net |  |                  | 7,195   |   |               |   |        |  
|Impairment of long-term investments                  |  |                  |        |   |               |   | (3,096  | )
|Interest expense and other, net                      |  |                  | (1,873  | ) |               |   | (6,902  | )
|                                                     |  |                  |         |   |               |   |         |  
|Total other income, net                              |  |                  | 11,852  |   |               |   | 2,568   |  
|                                                     |  |                  |         |   |               |   |         |  
|Income from continuing operations before taxes       |  |                  | 53,184  |   |               |   | 33,836  |  
|Income tax expense                                   |  |                  | 13,083  |   |               |   | 9,144   |  
|                                                     |  |                  |         |   |               |   |         |  
|Income from continuing operations                    |  |                  | 40,101  |   |               |   | 24,692  |  
|Income from discontinued operations                  |  |                  |        |   |               |   | 1,602   |  
|                                                     |  |                  |         |   |               |   |         |  
|Net income                                           |  | $                | 40,101  |   |               | $ | 26,294  |  
|                                                     |  |                  |         |   |               |   |         |  
|                                                     |  |                 
|Basic earnings per share:                            |  |                  |         |   |               |   |         |  
|Income from continuing operations                    |  | $                | 0.12    |   |               | $ | 0.07    |  
|                                                     |  |                  |         |   |               |   |         |  
|Net income per share                                 |  | $                | 0.12    |   |               | $ | 0.08    |  
|                                                     |  |                  |         |   |               |   |         |  
|Diluted earnings per share:                          |  |                  |         |   |               |   |         |  
|Income from continuing operations                    |  | $                | 0.11    |   |               | $ | 0.07    |  
|                                                     |  |                  |         |   |               |   |         |  
|Net income per share                                 |  | $                | 0.11    |   |               | $ | 0.08    |  
|                                                     |  |                  |         |   |               |   |         |  
|                                                     |  |                 
|Weighted-average shares outstanding  basic          |  |                  | 348,447 |   |               |   | 344,429 |  
|Weighted-average shares outstanding  diluted        |  |                  | 350,136 |   |               |   | 345,543 |  

See notes to
consolidated financial statements.



5



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NOVELL, INC.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)



|                                                                              |  |                  |          |   |               |   |          |  
|----------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | -------- | -
|                                                                              |  | Six months ended |         
|                                                                              |  | April 30,2010    |          |   | April 30,2009 |  
|                                                                              |  | (unaudited)      |         
|Cash flows from operating activities                                          |  |                  |          |   |               |   |          |  
|Net income                                                                    |  | $                | 40,101   |   |               | $ | 26,294   |  
|Adjustments to reconcile net income to net cash used in operating activities: |  |                  |          |   |               |   |          |  
|Stock-based compensation expense                                              |  |                  | 14,742   |   |               |   | 13,722   |  
|Depreciation and amortization                                                 |  |                  | 14,655   |   |               |   | 21,473   |  
|Change in accounts receivable allowances                                      |  |                  | (571     | ) |               |   | 336      |  
|Income from discontinued operations                                           |  |                  |         |   |               |   | (1,602   | )
|Gain on sale of subsidiaries                                                  |  |                  |         |   |               |   | (16      | )
|Impairment of long-term investments                                           |  |                  |         |   |               |   | 3,096    |  
|Gain on sale of previously impaired investments                               |  |                  | (8,009   | ) |               |   |         |  
|Loss on sale of previously impaired investments                               |  |                  | 814      |   |               |   |         |  
|Gain on debenture repurchases                                                 |  |                  |         |   |               |   | (68      | )
|Changes in assets and liabilities, excluding acquisitions and dispositions:   |  |                  |          |   |               |   |          |  
|Receivables                                                                   |  |                  | 46,872   |   |               |   | 63,214   |  
|Prepaid expenses                                                              |  |                  | (3,451   | ) |               |   | 2,575    |  
|Other current assets                                                          |  |                  | 3,413    |   |               |   | 7,377    |  
|Deferred income taxes                                                         |  |                  | 7,406    |   |               |   | 9,303    |  
|Accounts payable                                                              |  |                  | 71       |   |               |   | (11,552  | )
|Accrued liabilities                                                           |  |                  | (43,260  | ) |               |   | (73,501  | )
|Deferred revenue                                                              |  |                  | (74,981  | ) |               |   | (73,748  | )
|                                                                              |  |                  |          |   |               |   |          |  
|Net cash used in operating activities                                         |  |                  | (2,198   | ) |               |   | (13,097  | )
|                                                                              |  |                  |          |   |               |   |          |  
|Cash flows from investing activities                                          |  |                  |          |   |               |   |          |  
|Purchases of property, plant and equipment                                    |  |                  | (13,432  | ) |               |   | (6,582   | )
|Purchases of short-term investments                                           |  |                  | (131,552 | ) |               |   | (147,849 | )
|Maturities of short-term investments                                          |  |                  | 27,981   |   |               |   | 25,507   |  
|Sales of short-term investments                                               |  |                  | 100,688  |   |               |   | 132,762  |  
|Proceeds from sales of and distributions from long-term investments           |  |                  | 8,629    |   |               |   | 1,736    |  
|Net cash paid for acquisitions                                                |  |                  |         |   |               |   | (48,472  | )
|Cash proceeds from sale of discontinued operations                            |  |                  | 471      |   |               |   | 1,036    |  
|Change in restricted cash                                                     |  |                  | (19      | ) |               |   | (260     | )
|Other                                                                         |  |                  | 527      |   |               |   | 1,473    |  
|                                                                              |  |                  |          |   |               |   |          |  
|Net cash used in investing activities                                         |  |                  | (6,707   | ) |               |   | (40,649  | )
|                                                                              |  |                  |          |   |               |   |          |  
|Cash flows from financing activities                                          |  |                  |          |   |               |   |          |  
|Issuances of common stock                                                     |  |                  | 5,536    |   |               |   | 1,152    |  
|Debenture repurchases                                                         |  |                  |         |   |               |   | (3,869   | )
|Debt repayment                                                                |  |                  |         |   |               |   | (378     | )
|Excess tax benefits from stock-based compensation                             |  |                  | 1        |   |               |   | (2,788   | )
|                                                                              |  |                  |          |   |               |   |          |  
|Net cash provided by (used in) financing activities                           |  |                  | 5,537    |   |               |   | (5,883   | )
|                                                                              |  |                  |          |   |               |   |          |  
|Effect of exchange rate changes on cash                                       |  |                  | (6,863   | ) |               |   | (457     | )
|                                                                              |  |                  |          |   |               |   |          |  
|Decrease in cash and cash equivalents                                         |  |                  | (10,231  | ) |               |   | (60,086  | )
|Cash and cash equivalents  beginning of period                               |  |                  | 591,656  |   |               |   | 680,034  |  
|                                                                              |  |                  |          |   |               |   |          |  
|Cash and cash equivalents  end of period                                     |  | $                | 581,425  |   |               | $ | 619,948  |  
|                                                                              |  |                  |          |   |               |   |          |  

See notes to consolidated financial statements.



6



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NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

A. Quarterly Financial Statements

The interim consolidated financial statements as of April 30, 2010 and for the three and six months ended April 30, 2010 and
2009 were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates. The accompanying
unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q but do not include all of the information and notes required by accounting principles generally accepted in the United States and should,
therefore, be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended October 31, 2009. The accompanying financial statements are unaudited and include all normal recurring adjustments that we believe are necessary for
a fair statement of our financial condition and results of operations as of and for the interim periods presented. The interim operating results are not necessarily indicative of the results for a full year.

Reclassifications

As more fully described in Note M, Segment Information, during the first quarter of fiscal 2010, we reorganized our business
unit segment structure and management resulting in a change to our reportable business unit segments. In connection with this reorganization, we evaluated our internal cost structure to ensure the resulting business unit segment gross profit and
operating income were reflective of our business unit segment management structure. As a result of this evaluation, we determined the allocation and assignment of costs between maintenance and subscriptions and services within cost of revenue should
be adjusted to be reflective of the new business unit segment management structure for the second quarter and first six months of fiscal 2010 and 2009. For the second quarter and first six months of fiscal 2009, in our consolidated statements of
operations, $9.1 million and $18.4 million of costs, respectively, were moved from the services cost of revenue line item to the maintenance and subscriptions cost of revenue line item. This change impacted only the components of cost of revenue and
had no impact on revenue, total cost of revenue or total gross profit.

Certain other amounts reported in prior periods have
been reclassified from what was previously reported to conform to the current years presentation. These reclassifications did not have any impact on the statements of operations.

B. Cash, Cash Equivalents, and Short-Term Investments

The following is a summary of our short-term available-for-sale investments at April 30, 2010 and October 31, 2009:



|                                      |  |                        |         |                      |   |                       |  |   |                                    |   |  |   |        
|------------------------------------- |  | ---------------------- | ------- | -------------------- | - | --------------------- |  | - | ---------------------------------- | - |  | - | -------
|(In thousands)                        |  | Cost
atApril 30,2010   |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair MarketValue
atApril 30,2010  
|Short-term investments:               |  |                        |         |                      |   |                       |  |   |                                    |   |  |   |        
|U.S. government and agency securities |  | $                      | 180,963 |                      | $ | 2,211                 |  | $ | (32                                | ) |  | $ | 183,142
|Corporate notes and bonds             |  |                        | 181,676 |                      |   | 3,485                 |  |   | (20                                | ) |  |   | 185,141
|Asset-backed securities               |  |                        | 21,573  |                      |   | 240                   |  |   | (27                                | ) |  |   | 21,786 
|Equity securities                     |  |                        | 8,331   |                      |   |                      |  |   | (239                               | ) |  |   | 8,092  
|                                      |  |                        |         |                      |   |                       |  |   |                                    |   |  |   |        
|Total short-term investments          |  | $                      | 392,543 |                      | $ | 5,936                 |  | $ | (318                               | ) |  | $ | 398,161
|                                      |  |                        |         |                      |   |                       |  |   |                                    |   |  |   |        
|                                      |  |                        |         |                     
|(In thousands)                        |  | Cost
atOctober 31,2009 |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair MarketValue
atOctober 31,2009
|Short-term investments:               |  |                        |         |                      |   |                       |  |   |                                    |   |  |   |        
|U.S. government and agency securities |  | $                      | 183,062 |                      | $ | 2,633                 |  | $ |                                   |   |  | $ | 185,695
|Corporate notes and bonds             |  |                        | 169,685 |                      |   | 4,269                 |  |   | (12                                | ) |  |   | 173,942
|Asset-backed securities               |  |                        | 24,828  |                      |   | 439                   |  |   |                                   |   |  |   | 25,267 
|Equity securities                     |  |                        | 7,923   |                      |   |                      |  |   | (1,018                             | ) |  |   | 6,905  
|                                      |  |                        |         |                      |   |                       |  |   |                                    |   |  |   |        
|Total short-term investments          |  | $                      | 385,498 |                      | $ | 7,341                 |  | $ | (1,030                             | ) |  | $ | 391,809
|                                      |  |                        |         |                      |   |                       |  |   |                                    |   |  |   |        



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

B. Cash, Cash Equivalents, and Short-Term Investments (Continued)



As of April 30, 2010, $8.1 million market value of our equity securities are
designated for deferred compensation payments, which are paid out as requested by participants of the plan upon termination.

As of April 30, 2010, contractual maturities of our short-term investments were:



|                             |  |      |         |           |   |        
|---------------------------- |  | ---- | ------- | --------- | - | -------
|(In thousands)               |  | Cost |         | FairValue
|Less than one year           |  | $    | 69,522  |           | $ | 70,312 
|Due in one to two years      |  |      | 144,061 |           |   | 146,505
|Due in two to three years    |  |      | 121,385 |           |   | 122,927
|Due in more than three years |  |      | 49,244  |           |   | 50,325 
|No contractual maturity      |  |      | 8,331   |           |   | 8,092  
|                             |  |      |         |           |   |        
|Total short-term investments |  | $    | 392,543 |           | $ | 398,161
|                             |  |      |         |           |   |        

We had net unrealized gains related to short-term
investments of $5.6 million and $6.3 million at April 30, 2010 and October 31, 2009, respectively.

Realized gains
and losses related to our short-term investments were as follows:



|                |  |                    |       |                  |   |               |  |               |       |  |   |      
|--------------- |  | ------------------ | ----- | ---------------- | - | ------------- |  | ------------- | ----- |  | - | -----
|                |  | Three months ended |       | Six months ended
|(In thousands)  |  | April 30,2010      |       | April 30,2009    |   | April 30,2010 |  | April 30,2009
|Realized gains  |  | $                  | 3,228 |                  | $ | 1,039         |  | $             | 3,609 |  | $ | 2,081
|Realized losses |  | $                  | 47    |                  | $ | 264           |  | $             | 108   |  | $ | 1,277

With the exception of
our short-term auction-rate securities (ARSs), the realized gains and losses on our short-term investments are included in the Investment income line item in the consolidated statements of operations.

During the second quarter of fiscal 2010, ARSs classified as short-term investments, with a book value of $1.8 million, were sold for
$4.2 million, resulting in a gain of $2.4 million. This gain is a component of the line item Gain on sale of previously impaired investments, net in our consolidated statements of operations. We reversed $2.4 million in unrealized gains
associated with these securities that were recorded in the Accumulated other comprehensive income line item in our consolidated balance sheets in prior periods.

We did not record any impairment losses on short-term investments during the second quarters or first six months of fiscal 2010 and 2009,
as we considered the unrealized losses to be temporary. With respect to our debt securities that are in an unrealized loss position, we expect to recover the entire cost basis of these securities before we sell them, therefore they are not
considered to be other-than-temporarily impaired. We do not consider our equity securities that are in an unrealized loss position to be impaired as we have the ability and intent to hold these investments until a recovery of fair value.

During the first six months of fiscal 2010 and 2009, the U.S. dollar value of our foreign-denominated cash and cash equivalent holdings
decreased by a net $6.9 million and $0.5 million, respectively. The decrease in fiscal 2010 resulted from the strengthening of the U.S. dollar against certain foreign currencies, primarily the Euro. As foreign currency exchange rates continue to
fluctuate, especially the Euro, we may see further changes in the U.S. dollar value of our foreign-denominated cash and cash equivalent holdings.

C. Long-Term Investments

As of April 30, 2010, we do not have any investments classified as long-term. At October 31, 2009, $10.3 million of our ARSs
were classified as long-term investments in our consolidated balance sheets, and were our only long-term investments. At April 30, 2010, we no longer hold any ARSs.



8



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

C. Long-Term Investments (Continued)



During the first quarter of fiscal 2010, ARSs with an estimated fair value of $4.2
million were reclassified from long-term investments to short-term investments in our consolidated balance sheet. These securities were sold during the second quarter of fiscal 2010 (See Note B Cash, Cash Equivalents, and Short-Term
Investments).

During the second quarter of fiscal 2010, ARSs classified as long-term investments, with a book value of
$1.7 million, were sold for $0.9 million, resulting in a loss on sale of $0.8 million. This loss is a component of the line item Gain on sale of previously impaired investments, net in our consolidated statements of operations. We
reversed $0.3 million in unrealized gains associated with these securities that were recorded in the Accumulated other comprehensive income line item in our consolidated balance sheets in prior periods.

During the first six months of fiscal 2010, ARSs classified as long-term investments, with a book value of $3.8 million, were sold for
$8.0 million, resulting in a net gain on sale of $4.2 million. This net gain is a component of the line item Gain on sale of previously impaired investments, net in our consolidated statements of operations. We reversed $3.0 million in
unrealized gains associated with these securities that were recorded in the Accumulated other comprehensive income line item in our consolidated balance sheets in prior periods.

During the second quarter and first six months of fiscal 2010, we also recognized a gain of $0.4 million and $0.6 million, respectively,
related to the sales of direct investments that we had previously fully impaired. These gains are shown as a component of the line item Gain on sale of previously impaired investments, net in our consolidated statements of operations.

D. Fair Value Measurements

The following table summarizes the composition and fair value hierarchy of our financial assets as of April 30, 2010. Our level 1
financial instruments are valued using quoted prices in active markets for identical instruments. We did not have any level 2 or level 3 financial instruments at April 30, 2010.



|                                      |  |                                                               |        
|------------------------------------- |  | ------------------------------------------------------------- | -------
|(In thousands)                        |  | Fair Value ofLevel 1
FinancialInstruments as ofApril 30, 2010
|Short-term investments:               |  |                                                               |        
|U.S. government and agency securities |  | $                                                             | 183,142
|Corporate notes and bonds             |  |                                                               | 185,141
|Asset-backed securities               |  |                                                               | 21,786 
|Equity securities                     |  |                                                               | 8,092  
|                                      |  |                                                               |        
|Total                                 |  | $                                                             | 398,161
|                                      |  |                                                               |        



9



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

D. Fair Value Measurements (Continued)



The following table summarizes the composition and fair value hierarchy of our financial
assets as of October 31, 2009. We did not have any level 2 financial instruments at October 31, 2009. Our ARSs were our only level 3 financial assets at October 31, 2009 and were valued using unobservable inputs that were supported by
little or no market activity and that were significant to the fair value of the investments.



|                                      |  |                             |         |                                                            |   |                                         |  |   |       
|------------------------------------- |  | --------------------------- | ------- | ---------------------------------------------------------- | - | --------------------------------------- |  | - | ------
|                                      |  |                             |         | Fair Value Measurements Using                             
|(In thousands)                        |  | Total as ofOctober 31, 2009 |         | Quoted Prices inActive Marketsfor
IdenticalAssets(Level 1) |   | SignificantUnobservableInputs(Level
 3)
|Short-term investments:               |  |                             |         |                                                            |   |                                         |  |   |       
|U.S. government and agency securities |  | $                           | 185,695 |                                                            | $ | 185,695                                 |  | $ |      
|Corporate notes and bonds             |  |                             | 173,942 |                                                            |   | 173,942                                 |  |   |      
|Asset-backed securities               |  |                             | 25,267  |                                                            |   | 25,267                                  |  |   |      
|Equity securities                     |  |                             | 6,905   |                                                            |   | 6,905                                   |  |   |      
|                                      |  |                             |         |                                                            |   |                                         |  |   |       
|Total short-term investments          |  |                             | 391,809 |                                                            |   | 391,809                                 |  |   |      
|Long-term investments                 |  |                             | 10,303  |                                                            |   |                                        |  |   | 10,303
|                                      |  |                             |         |                                                            |   |                                         |  |   |       
|Total                                 |  | $                           | 402,112 |                                                            | $ | 391,809                                 |  | $ | 10,303
|                                      |  |                             |         |                                                            |   |                                         |  |   |       

The following table summarizes the change in
composition and fair value hierarchy of our level 3 financial assets, which were comprised entirely of our ARSs, for the second quarters of fiscal 2010 and 2009:



|                                                    |  |                                                                                                   |        |   |                |   |        |  
|--------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | ------ | - | -------------- | - | ------ | -
|                                                    |  | Fair Value Measurements Using 
SignificantUnobservable Inputs (Level 3)for the three months ended |       
|(In thousands)                                      |  | April 30, 2010                                                                                    |        |   | April 30, 2009 |  
|Beginning balance                                   |  | $                                                                                                 | 6,232  |   |                | $ | 9,617  |  
|Total gains or (losses):                            |  |                                                                                                   |        |   |                |   |        |  
|Impairment included in earnings                     |  |                                                                                                   |       |   |                |   | (1,419 | )
|Book value of assets sold                           |  |                                                                                                   | (3,521 | ) |                |   |       |  
|Removed from accumulated other comprehensive income |  |                                                                                                   | (2,711 | ) |                |   | (231   | )
|                                                    |  |                                                                                                   |        |   |                |   |        |  
|Ending balance                                      |  | $                                                                                                 |       |   |                | $ | 7,967  |  
|                                                    |  |                                                                                                   |        |   |                |   |        |  

The following table summarizes the change in composition and fair value hierarchy of our level 3 financial
assets, which were comprised entirely of our ARSs, for the first six months of fiscal 2010 and 2009:



|                                                    |  |                                                                                                |        |   |                |   |        |  
|--------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- | ------ | - | -------------- | - | ------ | -
|                                                    |  | Fair Value Measurements Using
SignificantUnobservable Inputs (Level 3)for the six months ended |       
|(In thousands)                                      |  | April 30, 2010                                                                                 |        |   | April 30, 2009 |  
|Beginning balance                                   |  | $                                                                                              | 10,303 |   |                | $ | 11,063 |  
|Total gains or (losses):                            |  |                                                                                                |        |   |                |   |        |  
|Impairment included in earnings                     |  |                                                                                                |       |   |                |   | (3,096 | )
|Book value of assets sold                           |  |                                                                                                | (5,597 | ) |                |   |       |  
|Removed from accumulated other comprehensive income |  |                                                                                                | (4,706 | ) |                |   |       |  
|                                                    |  |                                                                                                |        |   |                |   |        |  
|Ending balance                                      |  | $                                                                                              |       |   |                | $ | 7,967  |  
|                                                    |  |                                                                                                |        |   |                |   |        |  

See Note B, Cash, Cash Equivalents, and Short-Term Investments for more information on the sale
of the $1.8 million book value of ARSs classified as short-term investments that occurred in the second quarter of fiscal 2010. See Note C, Long-Term Investments for more information on the sales of the $1.7 million and $3.8 million book
value of ARSs classified as long-term investments that occurred during the second quarter and first six months of fiscal 2010, respectively.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



E. Derivative Instruments and Hedging Activities

The net notional amount of foreign currency exchange contracts hedging foreign currency transactions was $11.3 million and $27.0 million
at April 30, 2010 and October 31, 2009, respectively. The fair value of these contracts was immaterial at both April 30, 2010 and October 31, 2009.

During the second quarters of fiscal 2010 and 2009, we recognized gains of $0.8 million and $2.4 million, respectively, on our foreign
currency exchange contracts. During the first six months of fiscal 2010 and fiscal 2009, we recognized a gain of $0.6 million and a loss of $1.9 million, respectively, on our foreign currency exchange contracts. These gains and losses are shown as a
component of the line item Interest expense and other, net in our consolidated statements of operations.

F.
Goodwill and Intangible Assets

Goodwill

During the first quarter of fiscal 2010, our former Open Platform Solutions, Identity and Security Management and Systems and Resource
Management business unit segments were consolidated to form the new Security, Management and Operating Platforms business unit segment (SMOP) (See Note M, Segment Information, for more information on our business unit segment
structural and management reorganization). The three components of SMOP will continue to be considered reporting units for goodwill impairment testing purposes. As there were no changes to the reporting units, no interim goodwill impairment tests
were required. Our former Workgroup business unit segment was renamed Collaboration Solutions (CS).

Goodwill
allocated to our business unit segments as of April 30, 2010 is as follows:



|                                                     |  |      |          |   |    |   |         |       |  |   |          |  
|---------------------------------------------------- |  | ---- | -------- | - | -- | - | ------- | ----- |  | - | -------- | -
|(In thousands)                                       |  | SMOP |          |   | CS |   |         | Total | 
|Balance as of October 31, 2009:                      |  |      |          |   |    |   |         |       |  |   |          |  
|Goodwill                                             |  | $    | 477,048  |   |    | $ | 149,029 |       |  | $ | 626,077  |  
|Accumulated impairment                               |  |      | (270,044 | ) |    |   |        |       |  |   | (270,044 | )
|                                                     |  |      |          |   |    |   |         |       |  |   |          |  
|Net goodwill                                         |  |      | 207,004  |   |    |   | 149,029 |       |  |   | 356,033  |  
|                                                     |  |      |         
|Activity during the six months ended April 30, 2010: |  |      |          |   |    |   |         |       |  |   |          |  
|Release of merger liability                          |  |      | (1,782   | ) |    |   | (1,413  | )     |  |   | (3,195   | )
|Impact of foreign currency exchange translation      |  |      | 896      |   |    |   |        |       |  |   | 896      |  
|                                                     |  |      |         
|Balance as of April 30, 2010:                        |  |      |          |   |    |   |         |       |  |   |          |  
|Goodwill                                             |  |      | 476,162  |   |    |   | 147,616 |       |  |   | 623,778  |  
|Accumulated impairment                               |  |      | (270,044 | ) |    |   |        |       |  |   | (270,044 | )
|                                                     |  |      |          |   |    |   |         |       |  |   |          |  
|Net goodwill                                         |  | $    | 206,118  |   |    | $ | 147,616 |       |  | $ | 353,734  |  
|                                                     |  |      |          |   |    |   |         |       |  |   |          |  

During the second quarter of fiscal 2010, we assigned to a subtenant a facility lease related to our April
2005 acquisition of Tally Systems Corp. At the time of the acquisition, this lease had a nine-year term and therefore a merger liability was established as part of the acquisition purchase price allocation. Because the cost of exiting this lease was
less than the estimated merger liability, we released this excess, reducing the cost of the acquired company. This adjustment to the purchase price resulted in a $3.2 million reduction to total goodwill, comprised of goodwill reductions in our SMOP
and CS business unit segments of $1.8 million and $1.4 million, respectively.

Also, a $0.9 million increase in goodwill
during the first six months of fiscal 2010 was due to the impact of foreign currency exchange translation related to the portion of our goodwill that is denominated in Canadian dollars.



11



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

F. Goodwill and Intangible Assets (Continued)



Intangible Assets

The following is a summary of intangible assets:



|                        |  |                |        |                         |   |         |               |  |             |        |                         |   |        |               |   |            |   |  |   |        |  |                     
|----------------------- |  | -------------- | ------ | ----------------------- | - | ------- | ------------- |  | ----------- | ------ | ----------------------- | - | ------ | ------------- | - | ---------- | - |  | - | ------ |  | --------------------
|                        |  | April 30, 2010 |        | October 31, 2009        |   |        
|(In thousands)          |  | GrossAmount    |        | AccumulatedAmortization |   |         | Net BookValue |  | GrossAmount |        | AccumulatedAmortization |   |        | Net BookValue |   | AssetLives
|Developed technology    |  | $              | 30,765 |                         | $ | (25,319 | )             |  | $           | 5,446  |                         | $ | 30,765 |               | $ | (22,546    | ) |  | $ | 8,219  |  | 3 or 4 years        
|Trademarks/trade names  |  |                | 25,511 |                         |   | (1,015  | )             |  |             | 24,496 |                         |   | 25,511 |               |   | (865       | ) |  |   | 24,646 |  | 3 years orIndefinite
|Customer relationships  |  |                | 15,701 |                         |   | (13,155 | )             |  |             | 2,546  |                         |   | 15,701 |               |   | (11,945    | ) |  |   | 3,756  |  | 3 years             
|                        |  |                |        |                         |   |         |               |  |             |        |                         |   |        |               |   |            |   |  |   |        |  |                     
|Total intangible assets |  | $              | 71,977 |                         | $ | (39,489 | )             |  | $           | 32,488 |                         | $ | 71,977 |               | $ | (35,356    | ) |  | $ | 36,621 |  |                     
|                        |  |                |        |                         |   |         |               |  |             |        |                         |   |        |               |   |            |   |  |   |        |  |                     

Amortization of intangible assets for the second quarters of fiscal 2010 and 2009 was $2.0 million
and $4.3 million, respectively. Amortization of intangible assets for the first six months of fiscal 2010 and 2009 was $4.1 million and $8.6 million, respectively. Amortization of existing intangibles is estimated to be approximately $3.8 million
for the remainder of fiscal 2010, $4.0 million in fiscal 2011, and $0.5 million in fiscal 2012, with nothing thereafter.

We
evaluate the recoverability of goodwill and indefinite-lived intangible assets annually as of August 1. In addition, we evaluate the recoverability of our goodwill and all our intangible assets if events or changes in circumstances warrant,
such as a material adverse change in the business.

G. Income Taxes

We are subject to income taxes in numerous jurisdictions and the use of estimates is required in determining our provision for income
taxes. For the second quarter and first six months of fiscal 2010, we provided $5.2 million and $13.1 million for income tax expense, respectively. Income tax expense was recorded based on the estimated annual effective tax rate for the year applied
to ordinary income (pre-tax income excluding unusual or infrequently occurring discrete items).

Income Tax
Expense

The effective tax rate for the second quarter of fiscal 2010 was 21%, compared to an effective tax rate of 16%
for the prior year period primarily due to a benefit from discrete tax items in the prior year period and a shift in jurisdictional earnings. The effective tax rate for the first six months of fiscal 2010 was 25%, compared to an effective tax rate
of 27% for the prior year period primarily due to a shift in jurisdictional earnings.

The effective tax rates for the second
quarter and first six months of fiscal 2010 differ from the federal statutory rate of 35% primarily due to the effects of stock-based compensation, differences between the book and tax treatment of certain income items on which a valuation allowance
has been recorded, and the jurisdictional mix of earnings.

Valuation Allowance

We continue to believe, based on all available evidence, that it is more likely than not that most of our net deferred tax assets will
not be realized. As a result, we have provided a valuation allowance on our U.S. and selected international net deferred tax assets. In reaching this determination, we evaluated our three-year cumulative results, pre-tax losses in recent quarters,
as well as the impacts that economic conditions may have on our future results. As deferred tax assets or liabilities increase or decrease in the future, or if a portion or all of the valuation allowance is no longer deemed to be necessary, the
adjustments to the valuation allowance will increase or decrease future income tax provisions or additional paid-in capital. It is reasonably possible that we could reduce a significant portion of our valuation allowance in the near-term. The amount
of this potential reduction is not reasonably determinable at this time.



12



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

G. Income Taxes (Continued)



Income Tax Reserves

As of April 30, 2010, we had unrecognized tax benefits totaling $36.2 million, excluding interest, of which $25.0 million would
favorably impact the effective tax rate if recognized. As of October 31, 2009, we had unrecognized tax benefits totaling $37.3 million, excluding interest. The $1.1 million decrease in unrecognized tax benefits relates primarily to benefits
recognized as a result of the lapse of statutes of limitations.

During the second quarter of fiscal 2010, we accrued $0.3
million in interest related to unrecognized tax benefits. During the first six months of fiscal 2010, we accrued $0.5 million in interest related to unrecognized tax benefits. We had $9.8 million and $9.3 million accrued for the payment of interest
related to unrecognized tax benefits as of April 30, 2010 and October 31, 2009, respectively.

As of April 30,
2010, we have recorded a $34.8 million liability for unrecognized tax benefits and related interest in the line item Other long-term liabilities in our consolidated balance sheet.

As of April 30, 2010, we believe it is reasonably possible that $23.5 million of unrecognized tax benefits and accrued interest will
decrease within the next 12 months as the result of statutes of limitations expiring in various jurisdictions. We believe that this favorable decrease in unrecognized tax benefits may significantly impact the effective tax rate.

We conduct business globally. As a result, we file income tax returns and are subject to examination by taxing authorities in various
jurisdictions throughout the world. In the U.S. we are currently in appeals with the Internal Revenue Service regarding two issues related to its examination of tax years 2005 and 2006. We do not anticipate that the settlement of the two outstanding
issues will have a material impact on our financial position or results of operations. In addition, we are at various stages in examinations in some state and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal,
state and local income tax examinations for years prior to fiscal 2002 or non-U.S. income tax examinations for years prior to fiscal 2005.

H. Restructuring and Merger Liabilities

Restructuring Liabilities

During the first quarter of fiscal 2010, we recorded net restructuring expenses of $2.8 million. This was comprised of $2.9 million
primarily for termination benefits for five employees as part of our business unit segment structural and management reorganization, partially offset by $0.1 million in reductions to accruals for changes in estimates related to prior period
restructuring activities. During the second quarter of fiscal 2010, there were no restructuring expenses.



13



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

H. Restructuring and Merger Liabilities (Continued)



Our restructuring activities in prior periods are disclosed in detail in our Annual
Report on Form 10-K for fiscal 2009. The following table summarizes the restructuring reserve balance as of April 30, 2010 and activity during the first six months of fiscal 2010:



|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|----------------------------------------- |  | ------------------------------ | ----- | - | ----------- | - | ------ | ----------- |  | - | ------------------- | - |  | ----- | ----- | - |  | - | ------ | -
|                                          |  | Restructuring Action Taken In: |      
|(In thousands)                            |  | Fiscal 2010                    |       |   | Fiscal 2009 |   |        | Fiscal 2008 |  |   | Prior toFiscal 2008 |   |  | Total |      
|Balance as of October 31, 2009:           |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Workforce reductions                      |  | $                              |      |   |             | $ | 6,606  |             |  | $ | 622                 |   |  | $     |      |   |  | $ | 7,228  |  
|Excess facilities, property and equipment |  |                                |      |   |             |   | 3,450  |             |  |   | 835                 |   |  |       | 1,330 |   |  |   | 5,615  |  
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Total restructuring reserve balance       |  |                                |      |   |             |   | 10,056 |             |  |   | 1,457               |   |  |       | 1,330 |   |  |   | 12,843 |  
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Original charge/adjustments:              |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Workforce reductions                      |  |                                | 2,876 |   |             |   | (84    | )           |  |   | 104                 |   |  |       |      |   |  |   | 2,896  |  
|Excess facilities, property and equipment |  |                                |      |   |             |   | (163   | )           |  |   | 63                  |   |  |       | (22   | ) |  |   | (122   | )
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Total original charge/adjustments         |  |                                | 2,876 |   |             |   | (247   | )           |  |   | 167                 |   |  |       | (22   | ) |  |   | 2,774  |  
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Payments:                                 |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Workforce reductions                      |  |                                | (428  | ) |             |   | (6,097 | )           |  |   | (173                | ) |  |       |      |   |  |   | (6,698 | )
|Excess facilities, property and equipment |  |                                |      |   |             |   | (927   | )           |  |   | (358                | ) |  |       | (638  | ) |  |   | (1,923 | )
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Total payments                            |  |                                | (428  | ) |             |   | (7,024 | )           |  |   | (531                | ) |  |       | (638  | ) |  |   | (8,621 | )
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Balance as of April 30, 2010:             |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Workforce reductions                      |  |                                | 2,448 |   |             |   | 425    |             |  |   | 553                 |   |  |       |      |   |  |   | 3,426  |  
|Excess facilities, property and equipment |  |                                |      |   |             |   | 2,360  |             |  |   | 540                 |   |  |       | 670   |   |  |   | 3,570  |  
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  
|Total restructuring reserve balance       |  | $                              | 2,448 |   |             | $ | 2,785  |             |  | $ | 1,093               |   |  | $     | 670   |   |  | $ | 6,996  |  
|                                          |  |                                |       |   |             |   |        |             |  |   |                     |   |  |       |       |   |  |   |        |  

The net adjustments decreasing the restructuring reserves during the first six months of fiscal 2010 by $0.1
million resulted from changes in prior fiscal year estimates for various severance-related benefits and facility reserves. These adjustments are reflected in the table above for the respective fiscal year.

As of April 30, 2010, the remaining unpaid restructuring balances include accrued liabilities related to severance and other
benefits, the majority of which we expect to be paid by February 2011, and lease costs for redundant facilities, which we expect to be paid over the respective remaining contract terms, the longest of which extends to 2018. These liabilities are
partially reduced by sublease income for several of the redundant facilities.

Merger Liabilities

The following table summarizes the merger liabilities balance as of April 30, 2010, and activity associated with our acquisitions,
including transaction costs, during the first six months of fiscal 2010:



|                         |  |                            |        |                      |   |        |                          |  |   |      
|------------------------ |  | -------------------------- | ------ | -------------------- | - | ------ | ------------------------ |  | - | -----
|(In thousands)           |  | Balance atOctober 31, 2009 |        | Payments/Adjustments |   |        | Balance atApril 30,
2010
|Facilities related       |  | $                          | 9,971  |                      | $ | (4,008 | )                        |  | $ | 5,963
|Other                    |  |                            | 127    |                      |   | (127   | )                        |  |   |     
|                         |  |                            |        |                      |   |        |                          |  |   |      
|Total merger liabilities |  | $                          | 10,098 |                      | $ | (4,135 | )                        |  | $ | 5,963
|                         |  |                            |        |                      |   |        |                          |  |   |      

During the second quarter of fiscal 2010, we assigned
a facility lease to a subtenant, and as a result released $3.2 million of merger liabilities (See Note F, Goodwill and Intangible Assets).

As of April 30, 2010, the remaining unpaid merger liabilities balance relates to lease costs for redundant facilities, which we
expect to be paid over the respective remaining contract terms, the longest of which extends to 2025.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



I. Legal Proceedings

SilverStream, which we acquired in July 2002, and several of its former officers and directors, as well as the underwriters who handled
SilverStreams two public offerings, were named as defendants in several class action complaints that were filed on behalf of certain former stockholders of SilverStream who purchased shares of SilverStream common stock between August 16,
1999 and December 6, 2000. These complaints are closely related to several hundred other complaints that the same plaintiffs have brought against other issuers and underwriters. These complaints all allege violations of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended. In particular, they allege, among other things, that there was undisclosed compensation received by the underwriters of the public offerings of all of the issuers, including
SilverStream. A Consolidated Amended Complaint with respect to all of these complaints was filed in the U.S. District Court, Southern District of New York, on April 19, 2002. While we believe that SilverStream and its former officers and
directors have meritorious defenses to the claims, various parties participated in settlement discussions and reached a proposed settlement agreement. After notice to the plaintiff class, the settlement agreement received final approval from the
Court on September 10, 2009. Certain parties have filed Notices of Appeal from the Courts decision. We believe it is probable that any settlement payment will be covered by our insurance carrier. Thus, we do not believe that resolution of
this litigation will have a material adverse effect on our financial position, results of operations or cash flows.

On
July 12, 2002, Amer Jneid and other related plaintiffs filed a complaint in the Superior Court of California, Orange County, alleging claims for breach of contract, fraud in the inducement, misrepresentation, infliction of emotional distress,
rescission, slander and other claims against us in connection with our purchase of so-called DeFrame technology from the plaintiffs and two affiliated corporations (TriPole Corporation and Novetrix), and employment agreements that we
entered into with the plaintiffs in connection with the purchase. The complaint sought unspecified damages, including punitive damages. The dispute (resulting in these claims) arises out of the plaintiffs assertion that we failed to properly
account for license distributions which the plaintiffs claim would have entitled them to certain bonus payouts under the purchase and employment agreements. After a lengthy jury trial, the jury returned a verdict in favor of the various plaintiffs
on certain contract claims and in favor of us on various remaining claims. We then pursued an appeal of the judgment and the related orders to the California Court of Appeals. We accrued $27.0 million in prior fiscal periods for this matter. As part
of the appeal process and during the first quarter of fiscal 2008, we posted a $51.5 million bond in conjunction with our appeal of this judgment. On December 17, 2009, the California Court of Appeals reversed the judgment against us and
remanded the case for a new trial. The Court of Appeals also awarded attorneys fees and costs to the plaintiffs and such amount will be determined by the trial court. In May 2010, $35.3 million of the bond amount was returned to us and we
anticipate that the remaining amount of the bond will be released by the trial court. We are evaluating all of our options with respect to settling this case or taking the matter back to trial. While there can be no assurance as to the ultimate
disposition of the litigation, we do not believe that its resolution will have a material adverse effect on our financial position or results of operations.

On January 20, 2004, the SCO Group, Inc. (SCO) filed suit against us in the Third Judicial District Court of Salt Lake
County, State of Utah. Upon our motion, the action was removed to the U.S. District Court, District of Utah. SCOs original complaint alleged that our public statements and filings regarding the ownership of the copyrights in UNIX and
UnixWare harmed SCOs business reputation and affected its efforts to protect its ownership interest in UNIX and UnixWare. Our answer set forth numerous affirmative defenses and counterclaims alleging slander of title and breach of contract,
and seeking declaratory actions and actual, special and punitive damages in an amount to be proven at trial. On February 3, 2006, SCO filed a Second Amended Complaint alleging that we had violated supposed non-competition provisions of the
agreement under which we sold certain UNIX-related assets to SCO, that we infringed SCOs copyrights, and that we are engaging in unfair competition by attempting to deprive SCO of the value of the UNIX technology. SCO sought to require us to
assign all copyrights that we have registered in UNIX and UnixWare to SCO, to prevent us from representing that we have any ownership interest in the UNIX and UnixWare copyrights, to require us to withdraw all representations we have made regarding
our ownership of the UNIX and UnixWare copyrights, and to cause us to pay actual, special and punitive damages in an amount to be proven at trial. As a result of SCOs Second Amended Complaint, our wholly-owned subsidiary, SUSE Linux AG
(SUSE), filed a demand for arbitration before the International Court of Arbitration in Zurich, Switzerland, pursuant to a UnitedLinux Agreement in which SCO and SUSE were parties. On August 10, 2007, the
U.S. District Court Judge issued a Memorandum Decision and Order that granted us summary judgment against SCO on significant issues in the litigation. The District Court determined that we own the UNIX copyrights and dismissed certain of
SCOs claims against us. On September 14, 2007, SCO filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code. On July 16, 2008, the U.S. District Court issued Findings of Fact and Conclusions of Law wherein the
Court determined that SCO did not have authority to enter into the 2003 Sun Microsystems, Inc. agreement and owed us $2.5 million plus prejudgment interest. The Court further concluded that SCOs licenses to Microsoft and other SCOsource
licensees included an incidental license to Unix SVRX code and therefore we were not entitled to any proceeds from such licenses. On November 20, 2008, the U.S. District Court entered Final Judgment dismissing SCOs
remaining claims against us and awarded us $3.5 million. On November 25, 2008, SCO filed a Notice of Appeal from that decision to the Tenth Circuit Court of Appeals. On August 24, 2009, a three Judge Panel from the Tenth Circuit Court of
Appeals issued an



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

I. Legal Proceedings (Continued)



opinion that reversed in part and affirmed in part the District Courts decision. The Circuit Court affirmed the award to us of $3.5 million but remanded the remainder of the case back to
the District Court for trial on the issue of whether the UNIX copyrights had been or should be transferred to SCO. On August 25, 2009, the U.S. Bankruptcy Court entered an Order appointing an independent Chapter 11 Trustee to manage the SCO
bankruptcy estate. On March 30, 2010, the U.S. District Court jury returned a verdict in our favor and determined that under the asset purchase agreement as amended, we retained the UNIX and UnixWare copyrights. The District Court has yet to
rule on certain remaining claims by SCO, including whether SCO is entitled to an immediate transfer of certain UNIX copyrights. While there can be no assurance as to the ultimate disposition of the litigation, we do not believe that its resolution
will have a material adverse effect on our financial position, results of operations or cash flows.

On November 12,
2004, we filed suit against Microsoft in the U.S. District Court, District of Utah. We are seeking treble and other damages under the Clayton Act, based on claims that Microsoft eliminated competition in the office productivity software market
during the time that we owned the WordPerfect word-processing application and the Quattro Pro spreadsheet application. Among other claims, we allege that Microsoft withheld certain critical technical information about the Windows operating system
(Windows) from us, thereby impairing our ability to develop new versions of WordPerfect and other office productivity applications, and that Microsoft integrated certain technologies into Windows designed to exclude WordPerfect and other
applications owned by us from relevant markets. In addition, we allege that Microsoft used its monopoly power to prevent original equipment manufacturers from offering WordPerfect and other applications to customers. On June 10, 2005,
Microsofts motion to dismiss the complaint was granted in part and denied in part. On October 15, 2007, the U.S. Fourth Circuit Court of Appeals affirmed the District Courts ruling. On March 18, 2008, the United States
Supreme Court rejected Microsofts Petition for a Writ of Certiorari seeking to appeal the Fourth Circuits Decision. As a result of these rulings, we elected to proceed with the remaining claims against Microsoft. On March 29, 2010,
the Federal District Court ruled that our underlying claims against Microsoft had been assigned to Caldera, Inc., in connection with the transfer of the DR DOS business by us in approximately 1996. Accordingly, the court dismissed our complaint
against Microsoft. We have filed a notice of appeal to the U.S. Fourth Circuit Court of Appeals and intend to seek review of the District Courts decision dismissing the complaint.

On June 15, 2009, our Board of Directors received a letter from four stockholders who had previously filed lawsuits against us for
alleged options backdating, demanding that the Board of Directors investigate certain issues relating to our historical stock option grant practices, as well as our Audit Committees findings concerning those practices announced in our
May 23, 2007 press release. The Board of Directors constituted a Special Litigation Committee to investigate the allegations in the demand letter. On August 28, 2009, these stockholders filed a complaint in the Massachusetts Middlesex
County Superior Court against many of our current and former officers and directors asserting various claims related to alleged option backdating. We were also named as a nominal defendant in this complaint, although the action is derivative in
nature and purportedly asserted on our behalf. On May 17, 2010, the Board responded to the demand letter, notifying the plaintiffs counsel that the demanded lawsuit would not serve the best interests of the Company and further demanding
that the plaintiffs dismiss the derivative complaints previously filed. While there can be no assurance as to the ultimate disposition of this stockholder complaint, we do not believe that its resolution will have a material adverse effect on our
financial position, results of operations or cash flows.

In November 2007, we were served with a complaint by IP Innovations
(a patent litigation company), alleging that the distribution of Linux-based products by both Red Hat, Inc. (a co-defendant in the case) and us violates certain U.S. Patents. In prior periods, we accrued $1.3 million for this matter. On
April 30, 2010, a U.S. District Court jury returned a verdict in our favor ruling that we did not infringe the patents in suit and, in addition, concluding that the patents were invalid on multiple grounds. As a result of this ruling, we
released our accrual related to this matter during the second quarter of fiscal 2010. Although the plaintiffs have filed post-trial motions seeking to set aside the jury verdict, we do not believe that the resolution of this matter will have a
material adverse effect on our financial position, results of operations or cash flows.

We are aware of two purported class
action lawsuits, captioned Waldon v. Hovsepian and Fitzgerald v. Hovsepian, filed on or about March 5, 2010 in Massachusetts Superior Court, Middlesex County. The complaints name our Board of Directors as defendants, and allege
breaches of fiduciary duties in connection with the unsolicited, conditional proposal from Elliott Associates, L.P. (Elliott) to acquire us for $5.75 per share in cash. The complaints do not define a putative class period. The plaintiffs
seek to enjoin further alleged breaches of fiduciary duty and costs and attorneys fees. While there can be no assurance as to the ultimate disposition of these two lawsuits, we do not believe that the resolution of these claims will have a
material adverse effect, individually or in the aggregate, on our financial position, results of operations or cash flows.



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NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

I. Legal Proceedings (Continued)



In addition to the matters discussed above, we are currently party to various legal
proceedings and claims involving former employees, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any of
these claims will have a material adverse effect, individually or in the aggregate, on our consolidated financial position, results of operations or cash flows.

We accrue for losses that we believe are probable and can be reasonably estimated. We evaluate the adequacy of our legal reserves based
on our assessment of many factors, including our interpretations of the law and our assumptions about the future outcome of each case based on current information. It is reasonably possible that our legal reserves could be increased or decreased in
the near term based on our assessment of these factors.

J. Income Per Share From Continuing Operations

The following tables reconcile the numerators and denominators of the income per share from continuing operations calculation for the
second quarters and first six months of fiscal 2010 and 2009:



|                                                                                                                                 |  |                    |         |               |   |        
|-------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------- | - | -------
|                                                                                                                                 |  | Three months ended
|(In thousands, except per share data)                                                                                            |  | April 30,2010      |         | April 30,2009
|Basic income per share from continuing operations computation:                                                                   |  |                    |         |               |   |        
|Income from continuing operations                                                                                                |  | $                  | 19,912  |               | $ | 15,051 
|                                                                                                                                 |  |                    |         |               |   |        
|                                                                                                                                 |  |                   
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                  |  |                    | 349,204 |               |   | 344,881
|                                                                                                                                 |  |                    |         |               |   |        
|                                                                                                                                 |  |                   
|Basic income per share from continuing operations                                                                                |  | $                  | 0.06    |               | $ | 0.04   
|                                                                                                                                 |  |                    |         |               |   |        
|                                                                                                                                 |  |                   
|Diluted income per share from continuing operations computation:                                                                 |  |                    |         |               |   |        
|Income from continuing operations                                                                                                |  | $                  | 19,912  |               | $ | 15,051 
|                                                                                                                                 |  |                    |         |               |   |        
|                                                                                                                                 |  |                   
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                  |  |                    | 349,204 |               |   | 344,881
|Incremental shares attributable to the assumed exercise of outstanding options, unvested restricted stock, and
other stock plans |  |                    | 2,804   |               |   | 958    
|                                                                                                                                 |  |                    |         |               |   |        
|Total adjusted weighted-average common shares                                                                                    |  |                    | 352,008 |               |   | 345,839
|                                                                                                                                 |  |                    |         |               |   |        
|                                                                                                                                 |  |                   
|Diluted income per share from continuing operations                                                                              |  | $                  | 0.06    |               | $ | 0.04   
|                                                                                                                                 |  |                    |         |               |   |        

Incremental shares attributable to options with
exercise prices that were at or greater than the average market price for the respective period (out-of-the-money) were excluded from the calculation of diluted income per share for the second quarters of fiscal 2010 and 2009 as their
effect would have been anti-dilutive. Out-of-the-money options for the second quarters of fiscal 2010 and 2009 totaled 16.3 million shares and 24.1 million shares, respectively.



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NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

J. Income Per Share From Continuing Operations (Continued)



|                                                                                                                                |  |                  |         |               |   |        
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------- | - | -------
|                                                                                                                                |  | Six months ended
|(In thousands, except per share data)                                                                                           |  | April 30,2010    |         | April 30,2009
|Basic income per share from continuing operations computation:                                                                  |  |                  |         |               |   |        
|Income from continuing operations                                                                                               |  | $                | 40,101  |               | $ | 24,692 
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                 |  |                  | 348,447 |               |   | 344,429
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Basic income per share from continuing operations                                                                               |  | $                | 0.12    |               | $ | 0.07   
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Diluted income per share from continuing operations computation:                                                                |  |                  |         |               |   |        
|Income from continuing operations                                                                                               |  | $                | 40,101  |               | $ | 24,692 
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                 |  |                  | 348,447 |               |   | 344,429
|Incremental shares attributable to the assumed exercise of outstanding options,unvested restricted stock, and
other stock plans |  |                  | 1,689   |               |   | 1,114  
|                                                                                                                                |  |                  |         |               |   |        
|Total adjusted weighted-average common shares                                                                                   |  |                  | 350,136 |               |   | 345,543
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Diluted income per share from continuing operations                                                                             |  | $                | 0.11    |               | $ | 0.07   
|                                                                                                                                |  |                  |         |               |   |        

Incremental shares attributable to options with
exercise prices that were at or greater than the average market price for the respective period (out-of-the-money) were excluded from the calculation of diluted income per share for the first six months of fiscal 2010 and 2009 as their
effect would have been anti-dilutive. Out-of-the-money options for the first six months of fiscal 2010 and 2009 totaled 20.2 million shares and 23.3 million shares, respectively.

K. Comprehensive Income

The components of comprehensive income are as follows:



|                                                                              |  |                    |        |                  |               |   |               |  |   |               |   |  |   |        |  
|----------------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- | ------------- | - | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                                                              |  | Three months ended |        | Six months ended |              
|(In thousands)                                                                |  | April 30,2010      |        |                  | April 30,2009 |   | April 30,2010 |  |   | April 30,2009 |  
|Net income                                                                    |  | $                  | 19,912 |                  |               | $ | 15,617        |  | $ | 40,101        |   |  | $ | 26,294 |  
|Change in net unrealized gain on investments                                  |  |                    | (962   | )                |               |   | 1,130         |  |   | (37           | ) |  |   | 7,425  |  
|Adjustment for previously recorded unrealized gainsrelated to sale of
ARSs(1) |  |                    | (2,711 | )                |               |   |              |  |   | (5,363        | ) |  |   |       |  
|Change in cumulative translation adjustments                                  |  |                    | (7,187 | )                |               |   | 2,011         |  |   | (12,500       | ) |  |   | (5,383 | )
|Change in unrecognized pension costs                                          |  |                    | (269   | )                |               |   | 110           |  |   | (486          | ) |  |   | 180    |  
|                                                                              |  |                    |        |                  |               |   |               |  |   |               |   |  |   |        |  
|Comprehensive income                                                          |  | $                  | 8,783  |                  |               | $ | 18,868        |  | $ | 21,715        |   |  | $ | 28,516 |  
|                                                                              |  |                    |        |                  |               |   |               |  |   |               |   |  |   |        |  

(1) We reversed the unrealized gains associated with the sale of our ARSs that were recorded in the prior
period in the Accumulated other comprehensive income line item in our consolidated balance sheet. These reversals are part of the $2.0 million and $7.2 million gain in the Gain on sale of previously impaired investments, net
line item in our consolidated statements of operations for the second quarter and first six months of fiscal 2010, respectively.



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NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

K. Comprehensive Income (Continued)



Our accumulated other comprehensive income is comprised of the following:



|                                                                   |  |               |        |   |                  |   |       
|------------------------------------------------------------------ |  | ------------- | ------ | - | ---------------- | - | ------
|(In thousands)                                                     |  | April 30,2010 |        |   | October 
31,2009
|Net unrealized gain on investments                                 |  | $             | 5,618  |   |                  | $ | 11,018
|Unrecognized pension actuarial gain and transition obligation, net |  |               | 3,912  |   |                  |   | 4,398 
|Cumulative translation adjustment                                  |  |               | (6,934 | ) |                  |   | 5,566 
|                                                                   |  |               |        |   |                  |   |       
|Total accumulated other comprehensive income                       |  | $             | 2,596  |   |                  | $ | 20,982
|                                                                   |  |               |        |   |                  |   |       

L. Stock-Based Compensation

Equity-Based Awards

We made stock option and restricted stock unit grants for the following number of shares during the first six months of fiscal 2010 and
2009:



|                             |  |                  |  |              
|---------------------------- |  | ---------------- |  | -------------
|                             |  | Six months ended
|(In thousands of shares)     |  | April 30,2010    |  | April 30,2009
|Stock options:               |  |                  |  |              
|Performance-based            |  |                 |  | 1,882        
|Time-based                   |  | 5,110            |  | 2,118        
|                             |  |                  |  |              
|Total stock options          |  | 5,110            |  | 4,000        
|                             |  |                  |  |              
|Restricted stock units:      |  |                  |  |              
|Market-based                 |  | 1,230            |  |             
|Performance-based            |  |                 |  | 827          
|Time-based                   |  | 3,075            |  | 1,716        
|                             |  |                  |  |              
|Total restricted stock units |  | 4,305            |  | 2,543        
|                             |  |                  |  |              

Stock Options

Performance-based:During the first six months of fiscal 2009, we granted stock options to executives that will vest based on the
achievement of certain revenue targets set in each applicable fiscal year beginning in the year of grant. If the targets are not met, the stock options will expire unvested.

Time-based:During the first six months of fiscal 2010 and 2009, we granted time-based stock options to executive and
non-executive employees. The weighted-average grant-date fair value of time-based stock options granted during the first six months of fiscal 2010 was $1.70. Vesting of the options occurs over four years in accordance with the following schedule:
either 1) 25% of the grant vests on the first anniversary of the grant date and the remaining 75% of the grant vests monthly thereafter; or 2) 25% of the grant vests on each grant date anniversary. The options expire eight years after the grant
date.

Restricted Stock Units

Market-based: During the first quarter of fiscal 2010, we granted restricted stock units to executives that will vest based on the
achievement of certain stock price targets. The stock-based compensation cost and derived service periods for these restricted stock units were estimated using the Monte Carlo simulation method utilizing a volatility of 46.4% and a risk-free rate of
2.9%. The weighted-average fair value of these awards is $3.25 and the derived service periods range from approximately one year to approximately two and one-third years. During the second quarter of fiscal 2010, one-third of the market award vested
due to the achievement of the target applicable to that portion of the award. This resulted in the recognition of $1.4 million in stock-based compensation during the first six months of fiscal 2010 related to that portion of the award. If the
remaining targets are not met, the restricted stock units will expire on the seventh anniversary of the grant date and will not convert into shares of common stock.



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NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

L. Stock-Based Compensation (Continued)



Performance-based: During the first six months of fiscal 2009, we granted
restricted stock units to executives that will vest based on the achievement of certain profit targets set in each applicable fiscal year beginning in the year of grant. If the targets are not met, the restricted stock units will expire and will not
convert into shares of common stock.

Time-based:During the first six months of fiscal 2010, we granted time-based
restricted stock units to non-executive employees primarily as part of our annual grant program. The weighted-average grant-date fair value of time-based restricted stock units granted during the first six months of fiscal 2010 was $4.60. During the
first six months of fiscal 2009, we granted time-based restricted stock units to executive and non-executive employees. Units vest proportionally on each grant date anniversary over either three or four years.

Stock-Based Compensation Expense

Our consolidated statements of operations include the following amounts of stock-based compensation expense in the respective captions:



|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       
|-------------------------------------- |  | ------------------ | ----- | ---------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|                                       |  | Three months ended |       | Six months ended
|(In thousands)                         |  | April 30,2010      |       | April 30,2009    |   | April 30,2010 |  | April 30,2009
|Cost of revenue                        |  | $                  | 772   |                  | $ | 671           |  | $             | 1,331  |  | $ | 1,583 
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       
|                                       |  |                    |       |                 
|Sales and marketing                    |  |                    | 2,349 |                  |   | 1,550         |  |               | 4,189  |  |   | 4,113 
|Product development                    |  |                    | 2,075 |                  |   | 2,289         |  |               | 4,139  |  |   | 4,794 
|General and administrative             |  |                    | 3,096 |                  |   | 1,181         |  |               | 5,083  |  |   | 3,232 
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       
|Operating expenses                     |  |                    | 7,520 |                  |   | 5,020         |  |               | 13,411 |  |   | 12,139
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       
|Total stock-based compensation expense |  | $                  | 8,292 |                  | $ | 5,691         |  | $             | 14,742 |  | $ | 13,722
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       

Total unrecognized stock-based compensation expense
expected to be recognized over an estimated weighted-average amortization period of 2.1 years was $43.0 million at April 30, 2010.

M. Segment Information

In December 2009, we announced our business unit segment structural and management reorganization to better align our business with our
strategic objective of becoming an industry leader in the emerging Intelligent Workload Management market, while continuing to develop collaboration solutions. As part of this reorganization, we consolidated our reportable business unit segments
from four to two. Our former Open Platform Solutions, Identity and Security Management and Systems and Resource Management business unit segments were consolidated to form the new Security, Management and Operating Platforms business unit segment
(SMOP). Our former Workgroup business unit segment was renamed Collaboration Solutions (CS) to promote and highlight our recent areas of innovation.

Our performance is evaluated by our chief executive officer and our other chief decision makers based on reviewing revenue and operating
income information for each business unit segment. Our software and services are sold both directly by our business unit segments and indirectly through original equipment manufacturers, resellers, and distributors who sell to end users.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

M. Segment Information (Continued)



Operating results by business unit segment are as follows:



|                                   |  |                    |         |             |                |         |                         |  |   |             |   |             |   |         |                         |   |         |   |  |   |         |  
|---------------------------------- |  | ------------------ | ------- | ----------- | -------------- | ------- | ----------------------- |  | - | ----------- | - | ----------- | - | ------- | ----------------------- | - | ------- | - |  | - | ------- | -
|                                   |  | Three months ended |        
|                                   |  | April 30, 2010     |         |             | April 30, 2009 |        
|(In thousands)                     |  | Net revenue        |         | Grossprofit |                |         | Operatingincome 
(loss) |  |   | Net revenue |   | Grossprofit |   |         | Operatingincome 
(loss) |  
|SMOP                               |  | $                  | 125,546 |             | $              | 97,924  |                         |  | $ | (5,870      | ) |             | $ | 128,312 |                         | $ | 99,837  |   |  | $ | (5,707  | )
|CS                                 |  |                    | 78,468  |             |                | 66,914  |                         |  |   | 36,344      |   |             |   | 87,283  |                         |   | 73,882  |   |  |   | 40,727  |  
|Common unallocated operating costs |  |                    |        |             |                | (2,136  | )                       |  |   | (10,571     | ) |             |   |        |                         |   | (3,406  | ) |  |   | (17,396 | )
|                                   |  |                    |         |             |                |         |                         |  |   |             |   |             |   |         |                         |   |         |   |  |   |         |  
|Total per statements of operations |  | $                  | 204,014 |             | $              | 162,702 |                         |  | $ | 19,903      |   |             | $ | 215,595 |                         | $ | 170,313 |   |  | $ | 17,624  |  
|                                   |  |                    |         |             |                |         |                         |  |   |             |   |             |   |         |                         |   |         |   |  |   |         |  
|                                   | 
|                                   |  | Six months ended   |        
|                                   |  | April 30, 2010     |         |             | April 30, 2009 |        
|(In thousands)                     |  | Net revenue        |         | Grossprofit |                |         | Operatingincome (loss)  |  |   | Net revenue |   | Grossprofit |   |         | Operatingincome (loss)  |  
|SMOP                               |  | $                  | 250,200 |             | $              | 192,750 |                         |  | $ | (9,795      | ) |             | $ | 253,163 |                         | $ | 196,265 |   |  | $ | (14,112 | )
|CS                                 |  |                    | 156,180 |             |                | 132,385 |                         |  |   | 73,020      |   |             |   | 177,303 |                         |   | 149,093 |   |  |   | 82,959  |  
|Common unallocated operating costs |  |                    |        |             |                | (3,785  | )                       |  |   | (21,893     | ) |             |   |        |                         |   | (7,071  | ) |  |   | (37,579 | )
|                                   |  |                    |         |             |                |         |                         |  |   |             |   |             |   |         |                         |   |         |   |  |   |         |  
|Total per statements of operations |  | $                  | 406,380 |             | $              | 321,350 |                         |  | $ | 41,332      |   |             | $ | 430,466 |                         | $ | 338,287 |   |  | $ | 31,268  |  
|                                   |  |                    |         |             |                |         |                         |  |   |             |   |             |   |         |                         |   |         |   |  |   |         |  

Segment operating income (loss) is comprised of business unit segment gross profit, less operating expenses
attributable to each business unit segment. Beginning in fiscal 2010, operating expenses, including sales and marketing, product development, and general and administrative expenses, have been allocated to the business unit segments. All prior
period amounts have been reclassified to conform to the current years presentation. Common unallocated operating costs include items such as stock-based compensation, acquisition-related intangible asset amortization, restructuring, certain
litigation related activity and other unusual items that are not considered part of our ongoing, ordinary business.

Geographic Information

The table below shows our net revenue from the U.S. and from international locations:



|                  |  |                    |         |                  |   |               |  |               |         |  |   |        
|----------------- |  | ------------------ | ------- | ---------------- | - | ------------- |  | ------------- | ------- |  | - | -------
|                  |  | Three months ended |         | Six months ended
|(In thousands)    |  | April 30,2010      |         | April 30,2009    |   | April 30,2010 |  | April 30,2009
|Net revenue:      |  |                    |         |                  |   |               |  |               |         |  |   |        
|U.S.              |  | $                  | 97,693  |                  | $ | 108,144       |  | $             | 195,675 |  | $ | 213,251
|International     |  |                    | 106,321 |                  |   | 107,451       |  |               | 210,705 |  |   | 217,215
|                  |  |                    |         |                  |   |               |  |               |         |  |   |        
|Total net revenue |  | $                  | 204,014 |                  | $ | 215,595       |  | $             | 406,380 |  | $ | 430,466
|                  |  |                    |         |                  |   |               |  |               |         |  |   |        

During the second quarters and first six months of
fiscal 2010 and 2009, revenue in Germany accounted for 10% of our net revenue. No other country outside of the U.S. accounted for 10% or more of our net revenue for the second quarters or first six months of fiscal 2010 or 2009. No single customer
accounted for 10% or more of our total revenue for any period presented.

For the second quarters of fiscal 2010 and 2009, 68%
and 70%, respectively, of our revenue outside the U.S. was in the Europe, Middle East and Africa region. For the first six months of fiscal 2010 and 2009, 69% and 70%, respectively, of our revenue outside the U.S. was in the Europe, Middle East and
Africa region.

N. Share Repurchase Program

During fiscal 2008, our Board of Directors authorized the repurchase of up to $100 million of our outstanding common stock. There is no
fixed termination date for the repurchase program. There were no repurchases under the program during the second quarters or first six months of fiscal 2010 or 2009. As of April 30, 2010, $33.2 million remains available to be used for
repurchasing common stock under the current Board authorization.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



O. Recent Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance to replace the quantitative-based risks and
rewards calculation for initially determining which enterprise, if any, has a controlling financial interest in, and will be required to consolidate, a variable interest entity. A variable interest entity is defined as an entity that will need
additional funding to operate. Companies are now required to follow a more qualitative approach, focused on identifying which enterprise has the power to direct the activities of the variable interest entity that most significantly impacts the
variable interest entitys economic performance. Companies are also required to perform ongoing assessments of which enterprise, if any, will have to consolidate the variable interest entity. Additional disclosures are also required. This
guidance is effective for fiscal years beginning after November 15, 2009 (our fiscal 2011). Currently, the impact of this pronouncement on our financial position and results of operations is anticipated to be immaterial.

In January 2010, the FASB issued updated guidance to improve disclosures regarding fair value measurements. This update requires entities
to 1) disclose separately the amounts of significant transfers in and out of level 1 and level 2 fair value measurements and describe the reasons for the transfers and 2) present separately (i.e. on a gross basis rather than as a net amount),
information about purchases, sales, issuances, and settlements in the roll forward of changes in level 3 fair value measurements. The update requires fair value disclosures by class of assets and liabilities rather than by major category or line
item in the statement of financial position. Disclosures regarding the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for assets and liabilities in both level 2 and level 3 are
also required. For all portions of the update except the gross presentation of activity in the level 3 roll forward, this standard is effective for interim and annual reporting periods beginning after December 15, 2009 (the second quarter of
our fiscal 2010, which is when we implemented this standard). For the gross presentation of activity in the level 3 roll forward, this guidance is effective for fiscal years beginning after December 15, 2010 (our fiscal 2012). As this guidance
is only disclosure-related, and we currently do not have any level 3 fair value measurements, it is presently anticipated that this guidance will not have an impact on our financial position and results of operations.

In January 2009, the SEC issued its final rules requiring public companies to provide their financial statements and financial statement
schedules to the SEC and on their corporate websites in interactive data format using eXtensible Business Reporting Language (XBRL). XBRL is a standardized, machine-readable language designed to enhance the electronic communication of
business information and should make business information more accessible. These rules will not change the SECs existing requirement to provide financial statements in the traditional format. Under these rules, we will be required to file our
financial statements for the third quarter of fiscal 2010 using XBRL, in addition to our traditional filing format.

P.
Recent Company Developments

On March 2, 2010, we announced the receipt of an unsolicited, conditional proposal from
Elliott to acquire us for $5.75 per share in cash. On March 20, 2010, we announced that our Board of Directors concluded, after careful consideration, including a review of the proposal with our independent financial and legal advisors, that
the Elliott proposal was inadequate and that it undervalued our franchise and growth prospects. We also announced that our Board authorized a thorough review of various alternatives to enhance stockholder value that include, but are not limited to,
a return of capital to stockholders through a stock repurchase or cash dividend, strategic partnerships and alliances, joint ventures, a recapitalization and a sale of the company.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

This Managements Discussion and Analysis of Financial Condition and Results of Operations and
other parts of this Quarterly Report on Form 10-Q contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical fact, regarding our strategy; future operations; financial position and results; liquidity; future opportunities; growth of business unit segments; the macroeconomic environment; market evolution
and opportunities; company trends; market outlook; customer priorities; timing of realization of projections; functionality, characteristics, quality and performance capabilities of our products and technology; results achievable and benefits
attainable through deployment of our products and provision of services; expanded opportunities for our products; release of funds in the Amer Jneid legal matter; funding of liquidity needs; foreign currency exchange rate fluctuations and impact on
the value of our foreign-denominated cash and cash equivalent holdings; reduction of our valuation allowance on net deferred tax assets; decrease of unrecognized tax benefits and accrued interest; opportunities; beliefs; and objectives constitute
forward-looking statements. The words may, will, expect, plan, anticipate, believe, estimate, potential, or continue and similar
types of expressions identify such statements, although not all forward-looking statements contain these identifying words. These statements are based upon information that is currently available to us and/or managements current expectations,
speak only as of the date hereof, and are subject to risks and uncertainties. We expressly disclaim any obligation, except as required by federal securities laws, or undertaking to update or revise any forward-looking statements contained herein to
reflect any change of expectations with regard thereto or to reflect any change in events, conditions, or circumstances on which any such forward-looking statement is based, in whole or in part. Our actual results may differ materially from the
results discussed in or implied by such forward-looking statements. We are subject to a number of risks, including, among others, risks relating to: uncertainty introduced by the review of various alternatives to enhance stockholder value authorized
by our Board; indirect sales, growth rates of our business units, renewal of SUSE® Linux Enterprise Server
(SLES) subscriptions with customers who have received certificates from Microsoft, decline rates of Open Enterprise Server (OES) and
NetWare® revenue, development of products and services, the Intelligent Workload Management market, software
vulnerabilities, delays in product releases, reliance on open source software, adequacy of renewal rates, uncertain economic conditions, competition, rapid technological changes, failure to expand brand awareness, adequacy of technical support,
pricing pressures, system failures, integration of acquisitions, industry consolidation, challenges resulting from a global business, foreign research and development operations, loss of key employees, intellectual property infringement, litigation
matters, unpredictable financial results, impairments, the timing of revenue recognition, our investments, and effective use of our cash. Risks that may affect our operating results include, but are not limited to, those discussed in the Risk
Factors section in Part II Item 1A, titled Risk Factors. Readers should carefully review the risk factors described in this document and in other documents that we file from time to time with the Securities and Exchange
Commission.

Overview

In December 2009, we announced our business unit segment structural and management reorganization to better align our business with our
strategic objective of becoming an industry leader in the emerging Intelligent Workload Management market, while continuing to develop collaboration solutions. As part of this reorganization, we consolidated our reportable business unit segments
from four to two. Our former Open Platform Solutions, Identity and Security Management and Systems and Resource Management business unit segments were consolidated to form the new Security, Management and Operating Platforms business unit segment
(SMOP). Our former Workgroup business unit segment was renamed Collaboration Solutions (CS) to promote and highlight our recent areas of innovation.

On March 2, 2010, we announced the receipt of an unsolicited, conditional proposal from Elliott Associates, L.P.
(Elliott) to acquire us for $5.75 per share in cash. On March 20, 2010, we announced that our Board of Directors concluded, after careful consideration, including a review of the proposal with our independent financial and legal
advisors, that the Elliott proposal was inadequate and that it undervalued our franchise and growth prospects. We also announced that our Board authorized a thorough review of various alternatives to enhance stockholder value that include, but are
not limited to, a return of capital to stockholders through a stock repurchase or cash dividend, strategic partnerships and alliances, joint ventures, a recapitalization and a sale of the company. We believe that the uncertainty associated with
recent company developments has negatively impacted revenue during the second quarter of fiscal 2010, particularly in our Identity and Security Management business.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)

Overview (Continued)



In the second quarter of fiscal 2010, total revenue decreased 5% compared to the prior
year period. Product and services revenues were lower by 4% and 17%, respectively, in the second quarter of fiscal 2010 compared to the prior year period. We believe that the lower product revenue primarily resulted from the uncertainty associated
with recent company developments as well as weakness in our legacy products. The lower services revenue was due primarily to lower discretionary spending availability from our consulting services customers and lower renewals on technical support
contracts. Foreign currency exchange rate fluctuations, as measured using the prior year period foreign currency exchange rates on non-U.S. dollar denominated revenue and expenses, favorably impacted revenue by $2.0 million, or 1%, in the second
quarter of fiscal 2010, compared to the prior year period.

In the first six months of fiscal 2010, total revenue decreased 6%
compared to the prior year period. Product and services revenues were lower by 4% and 18%, respectively, in the first six months of fiscal 2010 compared to the prior year period. We believe that the lower product revenue primarily resulted from the
uncertainty associated with recent company developments as well as weakness in our legacy products. The lower services revenue was due primarily to lower discretionary spending availability from our consulting services customers and lower renewals
on technical support contracts. Foreign currency exchange rate fluctuations, as measured using the prior year period foreign currency exchange rates on non-U.S. dollar denominated revenue and expenses, favorably impacted revenue by $2.9 million, or
1%, in the first six months of fiscal 2010, compared to the prior year period.

Below is a brief summary of the revenue
results for our two business unit segments:



| |  |  | Total revenue from SMOP for the second quarter of fiscal 2010 decreased $2.8 million, or 2%, compared to the prior year period. Total revenue from
SMOP for the first six months of fiscal 2010 decreased $3.0 million, or 1%, compared to the prior year period.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total revenue from CS for the second quarter of fiscal 2010 decreased $8.8 million, or 10%, compared to the prior year period. Total revenue from CS
for the first six months of fiscal 2010 decreased $21.1 million, or 12%, compared to the prior year period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because much of the revenue we invoice is deferred and recognized over time, we consider invoicing, or bookings, to be a key indicator of
current sales performance and future revenue performance. Total invoicing was lower for the second quarter of fiscal 2010 compared to the prior year period due primarily to lower SMOP and CS product invoicing.

Total invoicing was flat for the first six months of fiscal 2010 compared to the prior year period largely as a result of higher SMOP
product invoicing that was offset by lower CS product invoicing and lower services invoicing. We believe that the current customer focus on reducing cost, complexity and risk is aligned with our overall value proposition.

Total gross profit was 80% and 79% for the second quarter and first six months of fiscal 2010, respectively, compared to 79% for both of
the prior year periods.

Despite lower revenue, our operating margins continue to improve, reflecting the positive impacts of
recent restructuring and other cost-cutting initiatives. For the second quarter of fiscal 2010, we reported operating margins of 10%, which compares to 8% for the prior year period. Foreign currency exchange rate fluctuations, as measured using the
prior year period foreign currency exchange rates on non-U.S. dollar denominated revenue and expenses, unfavorably impacted income from operations by $3.6 million, or 15%, in the second quarter of fiscal 2010 compared to the prior year period.

For the first six months of fiscal 2010, we reported operating margins of 10%, which compares to 7% for the prior year
period. The first six months of fiscal 2010 included a $4.6 million change in accounting estimate related to fiscal 2009 sales compensation expense that increased profitability in the period. Foreign currency exchange rate fluctuations, as measured
using the prior year period foreign currency exchange rates on non-U.S. dollar denominated revenue and expenses, unfavorably impacted income from operations by $9.4 million, or 19%, in the first six months of fiscal 2010 compared to the prior year
period.

In the first quarter of fiscal 2010, we recorded net restructuring expenses of $2.8 million related primarily to
termination benefits for certain executive employees as part of our business unit segment structural and management reorganization discussed above. We did not record any restructuring charges in the second quarter of fiscal 2010.



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NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)



Critical Accounting Policies

An accounting policy is deemed to be critical if it requires us to make an accounting estimate based on assumptions about matters that
are uncertain at the time an accounting estimate is made, and if different estimates that reasonably could have been used or changes in the accounting estimate that are reasonably likely to occur periodically could materially change the financial
statements. We consider accounting policies related to revenue recognition and related reserves, impairment of long-term assets, valuation of deferred tax assets, loss contingency accruals and share-based payments to be critical accounting policies
due to the judgments and estimation processes involved in each. For a more detailed explanation of the judgments included in these areas, refer to our Annual Report on Form 10-K for fiscal 2009.

Results of Operations

Reclassifications

As more fully described in Note M, Segment Information, during the first quarter of fiscal 2010, we reorganized our business
unit segment structure and management resulting in a change to our reportable business unit segments. In connection with this reorganization, we evaluated our internal cost structure to ensure the resulting business unit segment gross profit and
operating income were reflective of our business unit segment management structure. As a result of this evaluation, we determined the allocation and assignment of costs between maintenance and subscriptions and services within cost of revenue should
be adjusted to be reflective of the new business unit segment management structure for the second quarter and first six months of fiscal 2010 and 2009. For the second quarter and first six months of fiscal 2009, in our consolidated statements of
operations, $9.1 million and $18.4 million of costs, respectively, were moved from the services cost of revenue line item to the maintenance and subscriptions cost of revenue line item. This change impacted only the components of cost of revenue and
had no impact on revenue, total cost of revenue or total gross profit.

Certain other amounts reported in prior periods have
been reclassified from what was previously reported to conform to the current years presentation. These reclassifications did not have any impact on the statements of operations.

Revenue

We sell our software and services primarily to businesses, government entities, educational institutions, independent hardware and
software vendors, resellers, and distributors both domestically and internationally. In our consolidated statements of operations, we categorize revenue as software licenses, maintenance and subscriptions, and services. Software licenses revenue
includes sales of proprietary licenses and certain royalties. Maintenance and subscriptions revenue includes product maintenance agreements and Linux subscriptions. Services revenue includes professional services, stand-alone technical support, and
training.

Total net revenue was as follows:



|                              |  |                    |         |               |   |                  |  |               |  |               |         |        |   |         |  |      
|----------------------------- |  | ------------------ | ------- | ------------- | - | ---------------- |  | ------------- |  | ------------- | ------- | ------ | - | ------- |  | -----
|                              |  | Three months ended |         |               |   | Six months ended |  |              
|(Dollars in thousands)        |  | April 30,2010      |         | April 30,2009 |   | Change           |  | April 30,2010 |  | April 30,2009 |         | Change
|Software licenses             |  | $                  | 27,691  |               | $ | 30,250           |  | (8)%          |  | $             | 48,884  |        | $ | 58,517  |  | (16)%
|Maintenance and subscriptions |  |                    | 153,855 |               |   | 158,329          |  | (3)%          |  |               | 312,806 |        |   | 317,144 |  | (1)% 
|Services                      |  |                    | 22,468  |               |   | 27,016           |  | (17)%         |  |               | 44,690  |        |   | 54,805  |  | (18)%
|                              |  |                    |         |               |   |                  |  |               |  |               |         |        |   |         |  |      
|Total net revenue             |  | $                  | 204,014 |               | $ | 215,595          |  | (5)%          |  | $             | 406,380 |        | $ | 430,466 |  | (6)% 
|                              |  |                    |         |               |   |                  |  |               |  |               |         |        |   |         |  |      

Revenue in our software licenses category decreased during the second quarter and first six months
of fiscal 2010 compared to the prior year periods as software licenses revenue declined across both business unit segments. The lower software licenses revenue reflected the continued weakness in our legacy products.

Revenue from maintenance and subscriptions decreased in the second quarter and first six months of fiscal 2010 compared to the prior year
periods. Maintenance and subscriptions revenue from SMOP was relatively flat in the second quarter of fiscal 2010 compared to the prior year period, and increased $4.8 million, or 3%, in the first six months of fiscal 2010, compared to the prior
year period. Maintenance and subscriptions revenue from CS declined $4.7 million, or 7%, in the second quarter of fiscal 2010, and $9.2 million, or 7%, in the first six months of fiscal 2010, compared to the prior year periods.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)

Results of Operations (Continued)



The lower services revenue in the second quarter and first six months of fiscal 2010
compared to the prior year periods is due primarily to lower discretionary spending availability from our consulting services customers and lower renewals on technical support contracts.

Foreign currency exchange rate fluctuations, as measured using prior period foreign currency exchange rates on non-U.S. dollar
denominated revenue, favorably impacted total net revenue by $2.0 million, or 1%, and $2.9 million, or 1%, during the second quarter and first six months of fiscal 2010, respectively.

Net revenue in SMOP was as follows:



|                              |  |                    |         |               |   |                  |  |               |  |               |         |        |   |         |  |      
|----------------------------- |  | ------------------ | ------- | ------------- | - | ---------------- |  | ------------- |  | ------------- | ------- | ------ | - | ------- |  | -----
|                              |  | Three months ended |         |               |   | Six months ended |  |              
|(Dollars in thousands)        |  | April 30,2010      |         | April 30,2009 |   | Change           |  | April 30,2010 |  | April 30,2009 |         | Change
|Software licenses             |  | $                  | 17,388  |               | $ | 17,742           |  | (2)%          |  | $             | 30,848  |        | $ | 32,845  |  | (6)% 
|Maintenance and subscriptions |  |                    | 91,666  |               |   | 91,486           |  | %            |  |               | 186,871 |        |   | 182,032 |  | 3%   
|Services                      |  |                    | 16,492  |               |   | 19,084           |  | (14)%         |  |               | 32,481  |        |   | 38,286  |  | (15)%
|                              |  |                    |         |               |   |                  |  |               |  |               |         |        |   |         |  |      
|Total net revenue             |  | $                  | 125,546 |               | $ | 128,312          |  | (2)%          |  | $             | 250,200 |        | $ | 253,163 |  | (1)% 
|                              |  |                    |         |               |   |                  |  |               |  |               |         |        |   |         |  |      

Revenue from SMOP decreased in the second quarter of fiscal 2010 compared to the prior year
period. Revenue associated with our Linux Platform Products decreased by $1.5 million, or 4%, and SMOP services revenue declined $2.6 million, or 14%, compared to the prior year period. These revenue decreases were offset by higher revenue from
Identity, Access and Compliance Management products, which increased by $2.5 million, or 9%, compared to the prior year period. Revenue from Systems and Resource Management products was relatively flat compared to the prior year period. Overall,
product invoicing for SMOP decreased 3% compared to the prior year period, due primarily to a decrease in invoicing for our Identity, Access and Compliance Management products, partially offset by stronger invoicing for our Systems and Resource
Management products. Identity, Access and Compliance Management invoicing decreased due in part to a reduction in contract length compared to the prior year period reflecting, we believe, the uncertainty associated with recent company developments.

Renewals of Microsoft SLES certificates began in early fiscal 2010, and as anticipated, the renewals have been invoiced at
much lower amounts than under the original agreement. The lower invoicing associated with the Microsoft SLES certificates was partially offset by significant growth in our non-Microsoft invoicing of Linux Platform Products. (See the subsection
entitled, Microsoft AgreementsRelated Revenue of Note B, Summary of Significant Accounting Policies in our fiscal 2009 Annual Report on Form 10-K for more details on the Microsoft SLES certificates and related
agreements.)

Revenue from SMOP decreased in the first six months of fiscal 2010 compared to the prior year period. Revenue
associated with our Systems and Resource Management products decreased by $2.0 million, or 2%, and SMOP services revenue declined $5.8 million, or 15%, compared to the prior year period. These revenue decreases were offset by higher revenue from
Identity, Access and Compliance Management products, which increased by $5.9 million, or 11%, and Linux Platform Products, which increased by $0.7 million, or 1%, compared to the prior year period. Overall, product invoicing for SMOP increased 10%
compared to the prior year period, due primarily to stronger invoicing for our Linux Platform Products and Identity, Access and Compliance Management products, partially offset by a decline in invoicing for our Systems and Resource Management
products. The higher invoicing for our Linux Platform Products resulted from significant growth in our non-Microsoft invoicing, partially offset by lower invoicing associated with the Microsoft SLES certificates. Identity, Access and Compliance
Management revenue and invoicing increased due in part to several large deals in the first quarter of fiscal 2010. However, we believe this positive momentum was negatively impacted in the second quarter of fiscal 2010, by the uncertainty associated
with recent company developments. The revenue and invoicing declines for Systems and Resource Management products were primarily due to challenges gaining traction in this market segment.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)

Results of Operations (Continued)



Net revenue in CS was as follows:



|                              |  |                    |        |               |   |                  |  |               |  |               |         |        |   |         |  |      
|----------------------------- |  | ------------------ | ------ | ------------- | - | ---------------- |  | ------------- |  | ------------- | ------- | ------ | - | ------- |  | -----
|                              |  | Three months ended |        |               |   | Six months ended |  |              
|(Dollars in thousands)        |  | April 30,2010      |        | April 30,2009 |   | Change           |  | April 30,2010 |  | April 30,2009 |         | Change
|Software licenses             |  | $                  | 10,303 |               | $ | 12,508           |  | (18)%         |  | $             | 18,036  |        | $ | 25,672  |  | (30)%
|Maintenance and subscriptions |  |                    | 62,189 |               |   | 66,843           |  | (7)%          |  |               | 125,935 |        |   | 135,112 |  | (7)% 
|Services                      |  |                    | 5,976  |               |   | 7,932            |  | (25)%         |  |               | 12,209  |        |   | 16,519  |  | (26)%
|                              |  |                    |        |               |   |                  |  |               |  |               |         |        |   |         |  |      
|Total net revenue             |  | $                  | 78,468 |               | $ | 87,283           |  | (10)%         |  | $             | 156,180 |        | $ | 177,303 |  | (12)%
|                              |  |                    |        |               |   |                  |  |               |  |               |         |        |   |         |  |      

Revenue from CS decreased in the second quarter of fiscal 2010 compared to the prior year period
primarily from lower combined OES and NetWare-related product revenue of $2.9 million, or 6%, lower Collaboration product revenue of $2.2 million, or 9%, and lower services revenue of $2.0 million, or 25%. Overall, product invoicing for CS decreased
8% in the second quarter of fiscal 2010 compared to the prior year period. Invoicing for Collaboration products and combined OES and NetWare-related products decreased 12% and 2%, respectively, in the second quarter of fiscal 2010 compared to the
prior year period. These declines were primarily due to the mature lifecycle stage of our CS products.

Revenue from CS
decreased in the first six months of fiscal 2010 compared to the prior year period primarily from lower Collaboration product revenue of $5.6 million, or 11%, lower combined OES and NetWare-related product revenue of $5.4 million, or 6%, and lower
services revenue of $4.3 million, or 26%. Overall, product invoicing for CS decreased 12% in the first six months of fiscal 2010 compared to the prior year period. Invoicing for Collaboration products and combined OES and NetWare-related products
decreased 9% and 5%, respectively, in the first six months of fiscal 2010 compared to the prior year period. These declines were primarily due to the mature lifecycle stage of our CS products.

Deferred Revenue

We had total deferred revenue of $615.0 million as of April 30, 2010 compared to $659.4 million and $688.8 million at April 30,
2009 and October 31, 2009, respectively. Deferred revenue represents revenue that is expected to be recognized in future periods primarily under maintenance contracts and subscriptions that are recognized ratably over the related contract
periods, typically one to three years. Deferred revenue related to our agreements with Microsoft is recognized ratably over various related service periods, which can extend up to five years. The decrease in total deferred revenue of $73.8 million
compared to October 31, 2009 is primarily attributable to seasonably lower invoicing in the first six months of the fiscal year and from the recognition of deferred revenue related to our agreement with Microsoft to purchase SLES certificates.

Gross Profit



|                              |  |                    |         |   |               |   |                  |        |  |               |  |   |               |   |  |        |         |   |  |      
|----------------------------- |  | ------------------ | ------- | - | ------------- | - | ---------------- | ------ |  | ------------- |  | - | ------------- | - |  | ------ | ------- | - |  | -----
|                              |  | Three months ended |         |   |               |   | Six months ended |        |  |              
|(Dollars in thousands)        |  | April 30,2010      |         |   | April 30,2009 |   |                  | Change |  | April 30,2010 |  |   | April 30,2009 |   |  | Change
|Software licenses             |  | $                  | 25,766  |   |               | $ | 28,394           |        |  | (9)%          |  | $ | 45,271        |   |  | $      | 54,625  |   |  | (17)%
|percentage of related revenue |  |                    | 93      | % |               |   | 94               | %      |  |               |  |   | 93            | % |  |        | 93      | % |  |      
|Maintenance and subscriptions |  | $                  | 133,030 |   |               | $ | 136,371          |        |  | (2)%          |  | $ | 269,409       |   |  | $      | 272,484 |   |  | (1)% 
|percentage of related revenue |  |                    | 86      | % |               |   | 86               | %      |  |               |  |   | 86            | % |  |        | 86      | % |  |      
|Services                      |  | $                  | 3,906   |   |               | $ | 5,548            |        |  | (30)%         |  | $ | 6,670         |   |  | $      | 11,178  |   |  | (40)%
|percentage of related revenue |  |                    | 17      | % |               |   | 21               | %      |  |               |  |   | 15            | % |  |        | 20      | % |  |      
|Total gross profit            |  | $                  | 162,702 |   |               | $ | 170,313          |        |  | (4)%          |  | $ | 321,350       |   |  | $      | 338,287 |   |  | (5)% 
|percentage of revenue         |  |                    | 80      | % |               |   | 79               | %      |  |               |  |   | 79            | % |  |        | 79      | % |  |      

Software licenses, maintenance and subscriptions, and services gross profit all decreased in the
second quarter and first six months of fiscal 2010 compared to the respective prior year periods primarily from lower revenue. Services gross margins decreased as a percentage of sales as we entered into several low margin service engagements that
drove product sales during the second quarter and first six months of fiscal 2010. Our services offerings are focused on supporting product sales, not generating stand-alone revenue or profits, in line with our strategic initiatives.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)

Results of Operations (Continued)



Total gross profit was lower for the second quarter of fiscal 2010 compared to the prior
year period primarily due to the 5% decrease in total net revenue. Foreign currency exchange rate fluctuations, as measured using the prior year period foreign currency exchange rates on non-U.S. dollar denominated revenue and expenses, positively
impacted gross profit $0.9 million in the second quarter of fiscal 2010 compared to the prior year period.

Total gross profit
was lower for the first six months of fiscal 2010 compared to the prior year period primarily due to the 6% decrease in total net revenue. Foreign currency exchange rate fluctuations, as measured using the prior year period foreign currency exchange
rates on non-U.S. dollar denominated revenue and expenses, positively impacted gross profit $0.3 million in the first six months of fiscal 2010 compared to the prior year period.

Gross profit by business unit segment was as follows:



|                                   |  |                    |         |   |               |   |                  |        |  |               |  |   |               |   |  |        |         |   |  |      
|---------------------------------- |  | ------------------ | ------- | - | ------------- | - | ---------------- | ------ |  | ------------- |  | - | ------------- | - |  | ------ | ------- | - |  | -----
|                                   |  | Three months ended |         |   |               |   | Six months ended |        |  |              
|(Dollars in thousands)             |  | April 30,2010      |         |   | April 30,2009 |   |                  | Change |  | April 30,2010 |  |   | April 30,2009 |   |  | Change
|SMOP                               |  | $                  | 97,924  |   |               | $ | 99,837           |        |  | (2)%          |  | $ | 192,750       |   |  | $      | 196,265 |   |  | (2)% 
|percentage of related revenue      |  |                    | 78      | % |               |   | 78               | %      |  |               |  |   | 77            | % |  |        | 78      | % |  |      
|CS                                 |  | $                  | 66,914  |   |               | $ | 73,882           |        |  | (9)%          |  | $ | 132,385       |   |  | $      | 149,093 |   |  | (11)%
|percentage of related revenue      |  |                    | 85      | % |               |   | 85               | %      |  |               |  |   | 85            | % |  |        | 84      | % |  |      
|Common unallocated operating costs |  | $                  | (2,136  | ) |               | $ | (3,406           | )      |  | 37%           |  | $ | (3,785        | ) |  | $      | (7,071  | ) |  | 46%  
|Total gross profit                 |  | $                  | 162,702 |   |               | $ | 170,313          |        |  | (4)%          |  | $ | 321,350       |   |  | $      | 338,287 |   |  | (5)% 
|percentage of revenue              |  |                    | 80      | % |               |   | 79               | %      |  |               |  |   | 79            | % |  |        | 79      | % |  |      

Gross profit was lower in both SMOP and CS for the second quarter and first six months of fiscal
2010 compared to the prior year periods primarily due to lower revenues. Gross profit as a percentage of revenue was essentially flat for both business unit segments for the second quarter and first six months of fiscal 2010 compared to the
respective prior year periods.

Operating Expenses



|                                    |  |                    |         |   |               |   |                  |        |  |               |  |   |               |   |  |        |         |   |  |      
|----------------------------------- |  | ------------------ | ------- | - | ------------- | - | ---------------- | ------ |  | ------------- |  | - | ------------- | - |  | ------ | ------- | - |  | -----
|                                    |  | Three months ended |         |   |               |   | Six months ended |        |  |              
|(Dollars in thousands)              |  | April 30,2010      |         |   | April 30,2009 |   |                  | Change |  | April 30,2010 |  |   | April 30,2009 |   |  | Change
|Sales and marketing                 |  | $                  | 74,853  |   |               | $ | 75,697           |        |  | (1)%          |  | $ | 143,769       |   |  | $      | 152,591 |   |  | (6)% 
|percentage of revenue               |  |                    | 37      | % |               |   | 35               | %      |  |               |  |   | 35            | % |  |        | 35      | % |  |      
|Product development                 |  | $                  | 39,368  |   |               | $ | 44,552           |        |  | (12)%         |  | $ | 79,070        |   |  | $      | 89,944  |   |  | (12)%
|percentage of revenue               |  |                    | 19      | % |               |   | 21               | %      |  |               |  |   | 19            | % |  |        | 21      | % |  |      
|General and administrative          |  | $                  | 28,578  |   |               | $ | 25,032           |        |  | 14%           |  | $ | 54,405        |   |  | $      | 49,227  |   |  | 11%  
|percentage of revenue               |  |                    | 14      | % |               |   | 12               | %      |  |               |  |   | 13            | % |  |        | 11      | % |  |      
|Restructuring expenses              |  | $                  |        |   |               | $ | 7,224            |        |  | %            |  | $ | 2,774         |   |  | $      | 15,273  |   |  | (82)%
|percentage of revenue               |  |                    |        | % |               |   | 3                | %      |  |               |  |   | 1             | % |  |        | 4       | % |  |      
|Loss (gain) on sale of subsidiaries |  | $                  |        |   |               | $ | 184              |        |  | %            |  | $ |              |   |  | $      | (16     | ) |  | %   
|percentage of revenue               |  |                    |        | % |               |   |                 | %      |  |               |  |   |              | % |  |        |        | % |  |      
|Total operating expenses            |  | $                  | 142,799 |   |               | $ | 152,689          |        |  | (6)%          |  | $ | 280,018       |   |  | $      | 307,019 |   |  | (9)% 
|percentage of revenue               |  |                    | 70      | % |               |   | 71               | %      |  |               |  |   | 69            | % |  |        | 71      | % |  |      

Sales and marketing expenses decreased slightly in the second quarter of fiscal 2010 compared to
the prior year period primarily from the benefits of our prior cost reduction initiatives, including our prior restructuring actions, partially offset by unfavorable foreign currency exchange rate fluctuations of $2.7 million. Sales and marketing
headcount was lower by 20 employees, or 2%, at the end of the second quarter of fiscal 2010 compared to the prior year period.

Sales and marketing expenses decreased in the first six months of fiscal 2010 compared to the prior year period primarily from a $4.6
million change in accounting estimate related to fiscal 2009 sales compensation expense that reduced expenses in the first quarter of fiscal 2010 and the cost reduction initiatives described above, partially offset by unfavorable foreign currency
exchange rate fluctuations of $5.8 million.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)

Results of Operations (Continued)



Product development expenses in the second quarter of fiscal 2010 decreased compared to
the prior year period primarily from cost reduction initiatives, including our prior restructuring actions, partially offset by unfavorable foreign currency exchange rate fluctuations of $1.0 million. Product development headcount decreased by 130
employees, or 10%, at the end of the second quarter of fiscal 2010 compared to the prior year period.

Product development
expenses in the first six months of fiscal 2010 decreased compared to the prior year period primarily from cost reduction initiatives, including our prior restructuring actions, partially offset by unfavorable foreign currency exchange rate
fluctuations of $2.1 million.

General and administrative expenses increased in the second quarter of fiscal 2010 compared to
the prior year period primarily from higher legal and outside consulting service costs as well as unfavorable foreign currency exchange rate fluctuations of $0.8 million, partially offset by cost reduction initiatives, including our prior
restructuring actions. General and administrative headcount was lower by 160 employees, or 28%, at the end of the second quarter of fiscal 2010 compared to the prior year period, reflecting the outsourcing of the majority of our IT support functions
to Affiliated Computer Services, Inc. in the third quarter of fiscal 2009. This decrease in headcount-related expenses was offset by an increase in outside service costs as a result of the IT outsourcing.

General and administrative expenses increased in the first six months of fiscal 2010 compared to the prior year period primarily from
higher legal and outside consulting service costs as well as unfavorable foreign currency exchange rate fluctuations of $1.8 million, partially offset by cost reduction initiatives, including our prior restructuring actions.

During the first quarter of fiscal 2010, we recorded net restructuring expenses of $2.8 million. This was comprised of $2.9 million
primarily for termination benefits for certain executive employees as part of our business unit segment structural and management reorganization, partially offset by $0.1 million in reductions to accruals for changes in estimates related to prior
period restructuring activities. During the second quarter of fiscal 2010, there were no restructuring expenses.

Foreign
currency exchange rate fluctuations during the second quarter of fiscal 2010, compared to the prior year period, as measured using the prior year period foreign currency exchange rates on non-U.S. dollar denominated revenue and expenses, favorably
impacted revenue by $2.0 million, unfavorably impacted operating expenses by $5.6 million and unfavorably impacted income from operations by $3.6 million. Foreign currency exchange rate fluctuations during the first six months of fiscal 2010,
compared to the prior year period, favorably impacted revenue by $2.9 million, unfavorably impacted operating expenses by $12.3 million and unfavorably impacted income from operations by $9.4 million. Since a large portion of our recognized revenue
is deferred revenue that was recorded at different foreign currency exchange rates, the impact to revenue of changes in foreign currency exchange rates is recognized over time, whereas the impact to expenses is more immediate, as expenses are
recognized at the current foreign currency exchange rate in effect at the time the expense is incurred.

Other Income
(Expense)



|                                                     |  |                    |       |   |               |   |                  |        |  |               |  |   |               |   |  |        |        |    |  |      
|---------------------------------------------------- |  | ------------------ | ----- | - | ------------- | - | ---------------- | ------ |  | ------------- |  | - | ------------- | - |  | ------ | ------ | -- |  | -----
|                                                     |  | Three months ended |       |   |               |   | Six months ended |        |  |              
|(Dollars in thousands)                               |  | April 30,2010      |       |   | April 30,2009 |   |                  | Change |  | April 30,2010 |  |   | April 30,2009 |   |  | Change
|Investment income                                    |  | $                  | 3,262 |   |               | $ | 5,390            |        |  | (39)%         |  | $ | 6,530         |   |  | $      | 12,566 |    |  | (48)%
|percentage of revenue                                |  |                    | 2     | % |               |   | 3                | %      |  |               |  |   | 2             | % |  |        | 3      | %  |  |      
|Gain on sale of previously impaired investments, net |  | $                  | 1,967 |   |               | $ |                 |        |  | %            |  | $ | 7,195         |   |  | $      |       |    |  | %   
|percentage of revenue                                |  |                    | 1     | % |               |   |                 | %      |  |               |  |   | 2             | % |  |        |       | %  |  |      
|Impairment of long-term investments                  |  | $                  |      |   |               | $ | (1,419           | )      |  | %            |  | $ |              |   |  | $      | (3,096 | )  |  | %   
|percentage of revenue                                |  |                    |      | % |               |   | (1               | )%     |  |               |  |   |              | % |  |        | (1     | )% |  |      
|Interest expense and other, net                      |  | $                  | (43   | ) |               | $ | (3,767           | )      |  | 99%           |  | $ | (1,873        | ) |  | $      | (6,902 | )  |  | 73%  
|percentage of revenue                                |  |                    |      | % |               |   | (2               | )%     |  |               |  |   |              | % |  |        | (2     | )% |  |      
|Total other income, net                              |  | $                  | 5,186 |   |               | $ | 204              |        |  | %            |  | $ | 11,852        |   |  | $      | 2,568  |    |  | 362% 
|percentage of revenue                                |  |                    | 3     | % |               |   |                 | %      |  |               |  |   | 3             | % |  |        | 1      | %  |  |      

Investment income includes income from short-term and long-term investments. Investment income for
the second quarter and first six months of fiscal 2010 decreased compared to the prior year periods due primarily to lower interest rates and to a decrease in cash,



29



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)

Results of Operations (Continued)



cash equivalents and short-term investments resulting primarily from cash expended for repurchasing the remainder of our 0.5% senior convertible debentures due 2024 (Debentures) in
fiscal 2009.

During the second quarter of fiscal 2010, auction-rate securities (ARSs) classified as short-term
investments, with a book value of $1.8 million, were sold for $4.2 million, resulting in a gain of $2.4 million. During the second quarter of fiscal 2010, we sold our remaining ARS that was classified as long-term, with a book value of $1.7 million
for $0.9 million, resulting in a loss on sale of $0.8 million. The net gain recognized during the second quarter of fiscal 2010 from the sale of our remaining short-term and long-term ARSs was $1.6 million. During the second quarter of fiscal 2010,
we also recognized a gain of $0.4 million related to the sale of a direct investment that was previously fully impaired.

During the first six months of fiscal 2010, we sold our remaining ARSs with a book value of $5.6 million for $12.2 million, resulting in
a gain of $6.6 million. During the first six months of fiscal 2010, we also recognized a gain of $0.6 million related to the sales of direct investments that were previously fully impaired.

During the second quarter and first six months of fiscal 2009, we recorded other-than-temporary impairment charges of $1.4 million and
$3.1 million, respectively, related to our ARSs.

Interest expense and other, net for the second quarter and first six months
of fiscal 2010 decreased compared to the respective prior year periods due primarily to the Debenture repurchase in fiscal 2009, which resulted in lower interest expense. In the first six months of fiscal 2010, interest expense and other, net was
comprised primarily of losses associated with our equity investment in Open Invention Network, LLC (OIN).

Income Tax Expense



|                       |  |                    |       |   |               |   |                  |        |  |               |  |   |               |   |  |        |       |   |  |    
|---------------------- |  | ------------------ | ----- | - | ------------- | - | ---------------- | ------ |  | ------------- |  | - | ------------- | - |  | ------ | ----- | - |  | ---
|                       |  | Three months ended |       |   |               |   | Six months ended |        |  |              
|(Dollars in thousands) |  | April 30,2010      |       |   | April 30,2009 |   |                  | Change |  | April 30,2010 |  |   | April 30,2009 |   |  | Change
|Income tax expense     |  | $                  | 5,177 |   |               | $ | 2,777            |        |  | 86%           |  | $ | 13,083        |   |  | $      | 9,144 |   |  | 43%
|Effective tax rate     |  |                    | 21    | % |               |   | 16               | %      |  |               |  |   | 25            | % |  |        | 27    | % |  |    

The effective tax rate for the second quarter of fiscal 2010 was 21%, compared to an effective tax
rate of 16% for the prior year period primarily due to a benefit from discrete tax items in the prior year period and a shift in jurisdictional earnings. The effective tax rate for the first six months of fiscal 2010 was 25%, compared to an
effective tax rate of 27% for the prior year period primarily due to a shift in jurisdictional earnings.

The effective tax
rates for the second quarter and first six months of fiscal 2010 differ from the federal statutory rate of 35% primarily due to the effects of stock-based compensation, differences between the book and tax treatment of certain income items on which
a valuation allowance has been recorded, and the jurisdictional mix of earnings.

Net Income Components



|                                    |  |                     |        |                   |   |               |  |               |        |  |   |       
|----------------------------------- |  | ------------------- | ------ | ----------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|                                    |  | Three months 
ended |        | Six months 
ended
|(In thousands)                      |  | April 30,2010       |        | April 30,2009     |   | April 30,2010 |  | April 30,2009
|Income from continuing operations   |  | $                   | 19,912 |                   | $ | 15,051        |  | $             | 40,101 |  | $ | 24,692
|Income from discontinued operations |  |                     |       |                   |   | 566           |  |               |       |  |   | 1,602 
|                                    |  |                     |        |                   |   |               |  |               |        |  |   |       
|Net income                          |  | $                   | 19,912 |                   | $ | 15,617        |  | $             | 40,101 |  | $ | 26,294
|                                    |  |                     |        |                   |   |               |  |               |        |  |   |       

Discontinued operations for the second quarter and
first six months of fiscal 2009 relates to the gains from the sale in March 2007 of our Salmon Ltd. subsidiary as they met certain cumulative revenue targets. No further gains are anticipated from this sale.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)



Liquidity and Capital Resources

The balance in cash, cash equivalents, and short-term investments and the balance as a percent of total assets are as follows:



|                                                   |  |               |         |   |                 |   |         |        |  |   
|-------------------------------------------------- |  | ------------- | ------- | - | --------------- | - | ------- | ------ |  | --
|(Dollars in thousands)                             |  | April 30,2010 |         |   | October 31,2009 |   |         | Change
|Cash, cash equivalents, and short-term investments |  | $             | 979,586 |   |                 | $ | 983,465 |        |  | %
|Percent of total assets                            |  |               | 54      | % |                 |   | 52      | %      |  |   

An overview of the significant cash flow activities for the first six months of fiscal 2010 and
2009 is as follows:



|                                                                    |  |                   |         |   |               |   |         |  
|------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------- | - | ------- | -
|                                                                    |  | Six months 
ended |        
|(In thousands)                                                      |  | April 30,2010     |         |   | April 30,2009 |  
|Net cash used in operating activities                               |  | $                 | (2,198  | ) |               | $ | (13,097 | )
|Purchases of property, plant and equipment                          |  |                   | (13,432 | ) |               |   | (6,582  | )
|Proceeds from sales of and distributions from long-term investments |  |                   | 8,629   |   |               |   | 1,736   |  
|Net cash paid for acquisitions                                      |  |                   |        |   |               |   | (48,472 | )

Cash used in operating
activities during the first six months of fiscal 2010 was $2.2 million. Cash used in operating activities during the first six months of fiscal 2009 was $13.1 million and included the receipt of $25.0 million from Microsoft for the first payment
under the August 2008 agreement to purchase additional SLES certificates.

As of April 30, 2010, we had cash, cash
equivalents, and short-term investments of $445.7 million held in accounts outside the United States, which would largely be subject to taxation if repatriated. Our short-term investment portfolio is diversified among security types, industry
groups, and individual issuers. As of April 30, 2010, our short-term investment portfolio includes gross unrealized gains and losses of $5.9 million and $0.3 million, respectively.

During the first six months of fiscal 2010 and 2009, the U.S. dollar value of our foreign-denominated cash and cash equivalent holdings
decreased by a net $6.9 million and $0.5 million, respectively. The decrease in fiscal 2010 resulted from the strengthening of the U.S. dollar against certain foreign currencies, primarily the Euro. As foreign currency exchange rates continue to
fluctuate, especially the Euro, we may see further changes in the U.S. dollar value of our foreign-denominated cash and cash equivalent holdings.

Purchases of property, plant and equipment increased in the first six months of fiscal 2010 compared to the prior year period primarily
as a result of our SAP customer relationship management software implementation, which was completed in the second quarter of fiscal 2010. This software implementation is for internal use only.

During the first six months of fiscal 2010, we sold our remaining ARSs with a book value of $5.6 million for $12.2 million, resulting in
a gain of $6.6 million. During the first six months of fiscal 2010, we also recognized a gain of $0.6 million related to the sales of direct investments that were previously fully impaired. These gains are shown as a component of the line item
Gain on sale of previously impaired investments, net in our consolidated statements of operations.

In relation to
the appeal we filed in the Amer Jneid legal matter, we were required by the court to post a $51.5 million bond during fiscal 2008 (See Note I, Legal Proceedings). The amount of the bond was determined by statutory regulations and has no
connection to the amount we believe may ultimately be paid in this matter. The bond is held in an interest-bearing account in our name, but is restricted and classified as such in our consolidated balance sheets. As of April 30, 2010, our
restricted cash balance was $53.1 million. In May 2010, $35.3 million of the bond amount was returned to us and we anticipate that the remaining amount of the bond will be released by the trial court.

According to the terms of the agreement under which we have a $20.0 million or 17% interest in OIN, we could be required to make future
cash contributions, which we would fund with cash from operating activities and cash on hand.

During fiscal 2008, our Board
of Directors authorized the repurchase of up to $100 million of our outstanding common stock. There is no fixed termination date for the repurchase program. There were no repurchases under the program during the second quarters or first six months
of fiscal 2010 or 2009. As of April 30, 2010, $33.2 million remains available to be used for repurchasing common stock under the current Board authorization.



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NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)

Liquidity and Capital Resources (Continued)



There have been no significant changes to our contractual obligations as disclosed in
our fiscal 2009 Annual Report on Form 10-K.

Our principal sources of liquidity continue to be from operating activities, cash
on hand, and short-term investments. Our liquidity needs for the next twelve months and beyond are principally for the financing of fixed assets, repurchases of common stock under our share repurchase plan, payments under prior restructuring plans,
product development investments, and maintaining flexibility in a dynamic and competitive operating environment.

Barring
unforeseen circumstances, we anticipate being able to fund these liquidity needs for the next twelve months with existing cash, cash equivalents, and short-term investments together with cash generated from operating activities and investment
income.

Off-Balance Sheet Arrangements

At April 30, 2010, we had no off-balance sheet arrangements as defined by applicable SEC rules.

Recent Pronouncements

In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance to replace the quantitative-based risks and
rewards calculation for initially determining which enterprise, if any, has a controlling financial interest in, and will be required to consolidate, a variable interest entity. A variable interest entity is defined as an entity that will need
additional funding to operate. Companies are now required to follow a more qualitative approach, focused on identifying which enterprise has the power to direct the activities of the variable interest entity that most significantly impacts the
variable interest entitys economic performance. Companies are also required to perform ongoing assessments of which enterprise, if any, will have to consolidate the variable interest entity. Additional disclosures are also required. This
guidance is effective for fiscal years beginning after November 15, 2009 (our fiscal 2011). Currently, the impact of this pronouncement on our financial position and results of operations is anticipated to be immaterial.

In January 2010, the FASB issued updated guidance to improve disclosures regarding fair value measurements. This update requires entities
to 1) disclose separately the amounts of significant transfers in and out of level 1 and level 2 fair value measurements and describe the reasons for the transfers and 2) present separately (i.e. on a gross basis rather than as a net amount),
information about purchases, sales, issuances, and settlements in the roll forward of changes in level 3 fair value measurements. The update requires fair value disclosures by class of assets and liabilities rather than by major category or line
item in the statement of financial position. Disclosures regarding the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements for assets and liabilities in both level 2 and level 3 are
also required. For all portions of the update except the gross presentation of activity in the level 3 roll forward, this standard is effective for interim and annual reporting periods beginning after December 15, 2009 (the second quarter of
our fiscal 2010, which is when we implemented this standard). For the gross presentation of activity in the level 3 roll forward, this guidance is effective for fiscal years beginning after December 15, 2010 (our fiscal 2012). As this guidance
is only disclosure-related, and we currently do not have any level 3 fair value measurements, it is presently anticipated that this guidance will not have an impact on our financial position and results of operations.

In January 2009, the SEC issued its final rules requiring public companies to provide their financial statements and financial statement
schedules to the SEC and on their corporate websites in interactive data format using eXtensible Business Reporting Language (XBRL). XBRL is a standardized, machine-readable language designed to enhance the electronic communication of
business information and should make business information more accessible. These rules will not change the SECs existing requirement to provide financial statements in the traditional format. Under these rules, we will be required to file our
financial statements for the third quarter of fiscal 2010 using XBRL, in addition to our traditional filing format.



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NOVELL, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign currency exchange rate fluctuations, as measured using prior period foreign currency exchange rates on non-U.S. dollar
denominated revenue, favorably impacted revenue by $2.0 million, unfavorably impacted operating expenses by $5.6 million and unfavorably impacted income from operations by $3.6 million during the second quarter of fiscal 2010. Foreign currency
exchange rate fluctuations favorably impacted revenue by $2.9 million, unfavorably impacted operating expenses by $12.3 million and unfavorably impacted income from operations by $9.4 million during the first six months of fiscal 2010.

During the first six months of fiscal 2010 and 2009, the U.S. dollar value of our foreign-denominated cash and cash equivalent holdings
decreased by a net $6.9 million and $0.5 million, respectively. The decrease in fiscal 2010 resulted from the strengthening of the U.S. dollar against certain foreign currencies, primarily the Euro. As foreign currency exchange rates continue to
fluctuate, especially the Euro, we may see further changes in the U.S. dollar value of our foreign-denominated cash and cash equivalent holdings.

Since a large portion of our recognized revenue is deferred revenue that was recorded at different foreign currency exchange rates, the
impact to revenue of changes in foreign currency exchange rates is recognized over time, whereas the impact to expenses is more immediate, as expenses are recognized at the current foreign currency exchange rate in effect at the time the expense is
incurred.

Apart from the above, there have been no significant changes in our interest rate risk and market risk exposures
and procedures or in our foreign currency hedging procedures during the second quarter or first six months of fiscal 2010 as compared to the respective risk exposures and procedures disclosed in Managements Discussion and Analysis of Financial
Condition and Results of Operations, set forth in Part II Item 7A, in our Annual Report on Form 10-K for the fiscal year ended October 31, 2009.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the
period covered by this report, (i) were appropriately designed to provide reasonable assurance of achieving their objectives and (ii) were effective and provided reasonable assurance that the information required to be disclosed by us in
reports filed under the Securities Exchange Act of 1934, as amended, is (a) recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and (b) accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our second quarter of fiscal 2010 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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NOVELL, INC.

PART II  OTHER INFORMATION

Part II.  Other Information

Except as listed below, other items in Part II are omitted because the items are inapplicable or require no response.

Item 1. Legal Proceedings

The information required by this item is incorporated herein by reference from Note I of our financial statements contained in Part I,
Item 1 of this Form 10-Q.

Item 1A. Risk Factors

Our Board of Directors has authorized a thorough review of various alternatives to enhance stockholder value. As a result of the
uncertainty associated with these recent company developments, our business may be negatively impacted.

On March 2,
2010, we announced the receipt of an unsolicited, conditional proposal from Elliott Associates, L.P. (Elliott) to acquire us for $5.75 per share in cash. On March 20, 2010, we announced that our Board of Directors concluded, after
careful consideration, including a review of the proposal with our independent financial and legal advisors, that the Elliott proposal was inadequate and that it undervalued our franchise and growth prospects. We also announced that our Board
authorized a thorough review of various alternatives to enhance stockholder value that include, but are not limited to, a return of capital to stockholders through a stock repurchase or cash dividend, strategic partnerships and alliances, joint
ventures, a recapitalization and a sale of the company.

There can be no assurances as to the outcome of the review undertaken
by our Board. In the event that the Board determines to engage in a particular course of action, the result and success of that course of action cannot be assured and could negatively affect our stock price. Our stock price may also fluctuate as a
result of actual or speculated developments with respect to the review process. The review process may become a distraction for our management and employees and may require the expenditure of significant time and financial resources. The resulting
uncertainty may adversely affect our ability to hire new talent, retain key employees, and grow and enhance our business. We believe that the uncertainty associated with these recent company developments negatively affected operating results in the
second quarter of fiscal 2010 and may continue to adversely affect operating results. These consequences, alone or in combination, may harm our business and have a material adverse effect on our financial condition and the results of our operations.

We may not be able to attract and retain new customers through indirect sales, which may result in decreased or
fluctuating revenue. In addition, our reliance on an indirect sales channel for the distribution of our products could adversely affect the sales of our products.

Our ability to attract and retain new customers and achieve significant revenue growth in the future will depend in large part on our
ability to continue to establish and maintain strategic distribution and other collaborative relationships with industry-leading hardware manufacturers, distributors, software vendors and enterprise solutions providers such as Microsoft, SAP, ACS,
Dell, HP, IBM, Cap Gemini, Atos Origin, Accenture, Verizon Business and other third parties that are willing to recommend, design and implement solutions that include our products. These relationships create the potential to distribute our products
to a much larger customer base than we would otherwise be able to reach through our direct sales and marketing efforts. We are currently investing, and plan to continue to invest, significant resources to maintain and further develop these
distribution relationships.

The reliance and the distribution of our products through indirect channel partners presents a
number of special risks, including but not limited to:



| |  |  | our ability to retain or attract a sufficient number of existing or future distribution partners;
| | - |  | -------------------------------------------------------------------------------------------------

| |  |  | our lack of control over the delivery of our products to end-users;
| | - |  | -------------------------------------------------------------------

| |  |  | the ability of resellers and distributors to terminate their relationships with us on short notice;
| | - |  | ---------------------------------------------------------------------------------------------------

| |  |  | the failure of our indirect channel partners to recommend, or continue to recommend, or support our products effectively or to release their
products in which our products are embedded in a timely manner;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | our inability to effectively manage conflicts between our indirect channel partners and the end-users of our products;
| | - |  | ----------------------------------------------------------------------------------------------------------------------

| |  |  | the impact of economic conditions or industry demand on our indirect channel partners; and
| | - |  | ------------------------------------------------------------------------------------------

| |  |  | the failure of indirect channel partners to devote sufficient resources to marketing and supporting our products.
| | - |  | -----------------------------------------------------------------------------------------------------------------



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NOVELL, INC.

RISK FACTORS (Continued)



Our inability to establish or maintain successful relationships with distribution
partners could have a material adverse effect on our business, financial condition, and operating results. In addition, revenues derived from indirect channel partners may fluctuate significantly, which could have a material adverse effect on our
business, financial condition, and operating results.

If our Security, Management and Operating Platforms business unit
segment does not grow at the rate we anticipate, or if the growth rate declines, our financial results, including cash flow, will be negatively impacted.

Our near-term growth strategy focuses on our Security, Management and Operating Platforms business unit segment, which serves the
Intelligent Workload Management (IWM) market. We have focused on this business because we believe that it represents the best current opportunity for us to profitably grow our revenue. Our ability to achieve success with this strategy is
dependent on a number of factors including, but not limited to, the following:



| |  |  | the growth of this market;
| | - |  | --------------------------

| |  |  | our development of key products and upgrades;
| | - |  | ---------------------------------------------

| |  |  | delivery of product milestones in a timely manner;
| | - |  | --------------------------------------------------

| |  |  | the acceptance of our products particularly by enterprise companies, large industry partners and major accounts;
| | - |  | ----------------------------------------------------------------------------------------------------------------

| |  |  | the decisions by customers to upgrade from older versions of our products to newer versions; and
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | the attractiveness of our products to current and future distribution partners.
| | - |  | -------------------------------------------------------------------------------

If this business unit segment does not grow at the rates we anticipate or declines, our business, financial condition, and operating
results could be adversely affected.

Our inability to renew SLES subscriptions with those customers who have received SLES
certificates from Microsoft, or renewals of such subscriptions at deeply discounted rates, or failure to maintain our channel partnership with Microsoft at historical levels, could adversely affect our future sales and profitability.

The Microsoft Agreements have been a significant contributor to our product revenue and the increase in our gross and operating margins
over the past few years. Most of the Microsoft SLES certificate sales have been three-year arrangements that began to expire in the first quarter of fiscal 2010. Accordingly, the ongoing financial benefit of the Microsoft Agreements will depend on
our ability to renew SLES subscriptions with those customers who received SLES certificates from Microsoft and the pricing we are able to obtain in connection with such renewals. If we are unable to renew the SLES subscriptions as they expire, or if
renewed subscriptions are at a lower price than Microsoft paid us for the SLES certificates, our financial results could be adversely affected. In addition, if Microsoft does not acquire additional SLES certificates, ceases to distribute SLES
certificates, diminishes its marketing efforts in relation to SLES certificates, or significantly discounts SLES certificates upon distribution, our financial results could be adversely affected. There can be no assurance that Microsoft will
continue to operate as a distribution partner for us after our agreement with Microsoft expires or terminates, or that the channel partnership will be maintained at historical levels.

Microsoft also provides funding for development to enable interoperability between our respective platforms. There can be no assurance
that Microsoft will continue to fund development efforts after our agreement with Microsoft expires or terminates. If funding were reduced or terminated, the rate of interoperability development could be affected, which could adversely affect SLES
revenues and our financial results.

Our OES and NetWare-related revenue stream may decline at accelerated rates which
would adversely affect our business, operating results and cash flow.

Sales of our OES and NetWare-related products have
been declining for many years and declines at accelerated rates could offset or out-pace any growth in sales of our other products. We terminated general support of our NetWare products beginning in March 2010. While customers are eligible to
receive extended support for NetWare, some NetWare customers may migrate to a competing platform which would negatively impact our revenue. Our strategy is to stabilize these sales declines to the extent practicable with new product releases and
other efforts; however, combined OES and NetWare-related product revenue declined by $5.4 million, or 6%, in the first six months of fiscal 2010, compared to the prior year period. If our strategy is unsuccessful, our combined OES and
NetWare-related revenue stream may decline more rapidly than any growth of other revenue streams from our other products, which could have a material adverse effect on our business, financial condition, and operating results.



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NOVELL, INC.

RISK FACTORS (Continued)



If we are unable to develop new and enhanced products and services that achieve
widespread market acceptance, or if we are unable to continually improve the performance, features, and reliability of our existing products and services or adapt our business model to keep pace with industry trends, our business and operating
results would be adversely affected.

Our success depends on our ability to respond to the rapidly changing needs of our
customers by developing or introducing new products, product upgrades, and services on a timely basis. We have in the past incurred, and will continue to incur, significant research and development expenses as we strive to remain competitive. New
product development and introduction involves a significant commitment of time and resources and is subject to a number of risks and challenges including:



| |  |  | managing the length of the development cycle for new products and product enhancements, which has frequently been longer than we originally
estimated;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | adapting to emerging and evolving industry standards and to technological developments by our competitors and customers;
| | - |  | ------------------------------------------------------------------------------------------------------------------------

| |  |  | entering into new or unproven markets with which we have limited experience;
| | - |  | ----------------------------------------------------------------------------

| |  |  | shifting our skill set to new strategic areas;
| | - |  | ----------------------------------------------

| |  |  | managing new product and service strategies;
| | - |  | --------------------------------------------

| |  |  | incorporating acquired products and technologies; and
| | - |  | -----------------------------------------------------

| |  |  | developing or expanding efficient sales channels.
| | - |  | -------------------------------------------------

If we are not successful in managing these risks and challenges, or if our new products, product upgrades, and services are not
technologically competitive or do not achieve market acceptance, our business and operating results would be adversely affected.

The success of our Intelligent Workload Management strategy is contingent upon the realization and development of the IWM market.

Our IWM strategy is intended to enable computing resources to be managed and optimized in a policy-driven, secure, and
compliant manner across physical, virtual, and cloud environments. Although we have encountered interest in IWM-oriented products, the IWM market is nascent and developing. It is difficult to accurately predict the scale of the IWM market,
the timing of development of the IWM market, and our ability to penetrate the IWM market. While we anticipate differentiable solutions that will be attractive to many customers within the IWM market, we are investing at an early stage and
success in the IWM market, if achieved, would require time and resources. It is uncertain whether or when the IWM market will realize its potential, as well as the extent and timing of our impact within the IWM market. We also expect other
enterprise software vendors to enter the IWM market with solutions that will directly compete with our offerings. Our ability to capture market share will depend on the relative timing of product offerings; capabilities, design and functionality of
our products relative to products of our competitors; and strategic fit of our products within the IWM market.

Our
software may have vulnerabilities, defects and errors, which may lead to a loss of revenue or product liability claims.

Software products are internally complex and occasionally contain defects or errors, especially when first introduced or when new
versions or enhancements are released. Despite extensive testing, we may not detect defects or errors in our new products, platforms or product enhancements until after we have commenced commercial shipments. If defects or errors, including security
flaws or incompatibilities, are discovered in our existing or acquired products, platforms or product enhancements, then potential customers may delay or forego purchases; our reputation in the marketplace may be damaged; we may incur additional
service and warranty costs; and we may have to divert additional development resources to correct the defects or errors. If any or all of the foregoing occur, we may lose revenues or incur higher operating expenses and lose market share, any of
which could severely harm our financial condition and operating results.



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NOVELL, INC.

RISK FACTORS (Continued)



We have experienced, and may continue to experience, delays in the introduction of
new products due to various factors, which result in lost revenue.

In the past, we have experienced delays in the
introduction of new products due to a number of factors including: the complexity of software products, the need for extensive testing of software to ensure compatibility of new releases with a wide variety of application software and hardware
devices, the need to ensure quality of products prior to extensive distribution, and with regard to our open source products, our continuing reliance on the work of third parties not employed by us. Our open source offerings depend to a large extent
on the efforts of developers not employed by us for the creation and modification of open source technologies. For example, Linus Torvalds, the original developer of the Linux kernel, and a small group of engineers, many of whom are not employed by
us, are primarily responsible for the development and evolution of the Linux kernel that is a key component of our OES and SUSE Linux Enterprise offerings. The timing and nature of new releases of the Linux kernel are controlled by these third
parties. Delays in developing, completing, or shipping new or enhanced products could continue to result in delayed or reduced revenue for those products and could adversely impact customer acceptance of those offerings.

Our inability to rely on software licensed from third parties, including open source contributions of third-party programmers and
corporations, would adversely affect our business and operating results.

We use various types of software licensed from
unaffiliated third parties. Our open source offerings, for example, are primarily comprised of open source components developed by independent third parties over whom we exercise no control. The collective licenses to third-party technologies are
critical to our business. If we are unable to maintain licenses to third-party materials, our distribution of relevant offerings may be delayed until we are able to develop, license, or acquire replacement technologies. Such a delay could have a
material adverse impact on our business.

If key developers or a significant percentage of developers or corporations decide
to cease development of the Linux kernel or other open source software, or if we are unable to maintain licenses to proprietary software or such software is no longer available to us on commercially reasonable terms, we would have to either rely on
another party (or parties) to develop these technologies, develop them ourselves, or adapt our product strategy accordingly. This could increase our development expenses, delay our product releases and upgrades, and adversely impact customer
acceptance of our relevant offerings.

In addition, we may be unable to predict the future course of open source technology
development, which could impact the market appeal of our products as well as our reputation.

Because of the
characteristics of open source software, there are few technology barriers to entry in the open source market by new competitors and it may be relatively easy for new competitors with greater resources than we have to enter our markets and compete
with us.

One of the characteristics of open source software is that any open source licensee can modify the existing
software or develop new software that competes with existing open source software. Such competition can develop without the degree of overhead and lead time required by traditional proprietary software companies. It is possible for new competitors
with greater resources than ours to develop their own open source solutions, potentially reducing the demand for, and putting price pressure on, our solutions. In addition, some competitors make their open source software available for free download
and use, or may position their open source software as a loss leader. We cannot guarantee that we will be able to compete successfully against current and future competitors or that competitive pressure and/or the availability of open source
software will not result in price reductions, reduced operating margins and loss of market share, any one of which could seriously harm our business.

If our customers do not renew their maintenance and subscription agreements with us, our operating results may be adversely impacted.

Our customers may elect not to renew their maintenance and subscriptions for our service after expiration of their
agreements. In addition, our customers may opt for a lower priced service option. Our customers renewal rates may decline or fluctuate as a result of a number of factors, including their level of satisfaction with our services and their
ability to continue their operations and spending levels. Renewal rates may also decline as a result of elections by customers to use our products on an unsupported basis. If we experience a decline in the renewal rates for our customers or they opt
for a lower priced service option or fewer subscriptions, our operating results may be adversely impacted.



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NOVELL, INC.

RISK FACTORS (Continued)



Uncertain economic conditions and reductions in IT spending could adversely affect
our business, financial condition, and operating results.

In the past, unfavorable or uncertain economic conditions have
resulted in reduced global IT spending rates that have adversely affected the markets in which we do business. While the economy has shown signs of improvement, there has been renewed concern about the strength and sustainability of a recovery,
particularly given recent events in Europe, which has been impacted by the risk of sovereign debt defaults in certain European Union countries. Accordingly, current and/or future weakness in the United States economy and/or in the economies of the
other geographic regions in which we operate could have a negative impact on our revenues and operating results. For example, in fiscal 2009, as a result of company trends and economic uncertainty, management reduced its long-range revenue growth
plans, resulting in the impairment of $270.0 million of goodwill related to our Systems and Resource Management reporting unit. While we are unable to accurately predict changes in general economic conditions and how the current global financial and
market conditions will affect global IT spending rates, we believe that there is always the potential for a slowdown in global IT spending. This could result in reductions in sales of our products, longer sales cycles, slower adoption of new
technologies, and increased price competition. Any of these events would likely harm our business, financial condition, and operating results.

We may not be able to successfully compete in a challenging market for infrastructure software services.

The industries in which we compete are highly competitive, and customer requirements evolve rapidly. We expect competition to continue to
increase both from existing competitors and from new market entrants. Our competitors of the Security, Management and Operating Platforms business unit segment include, but are not limited to, Microsoft, IBM, Oracle, Sun, HP, Symantec, BMC Software,
Inc., VMware, Inc., Computer Associates, Arcsight, Citrix, and Red Hat. Our primary competitors for the Collaboration Solutions business unit segment include, but are not limited to, Microsoft, IBM, and Google. Many of our competitors have greater
financial, technical and marketing resources than we have. We believe that competitive factors common to both of our segments include:



| |  |  | the pricing of products and services as well as pricing strategies;
| | - |  | -------------------------------------------------------------------

| |  |  | the availability of open source or free-ware alternatives;
| | - |  | ----------------------------------------------------------

| |  |  | the timing and market acceptance of new products;
| | - |  | -------------------------------------------------

| |  |  | brand and product awareness;
| | - |  | ----------------------------

| |  |  | the performance, reliability and security of products;
| | - |  | ------------------------------------------------------

| |  |  | the ability to preserve an existing customer base;
| | - |  | --------------------------------------------------

| |  |  | the impact of current macroeconomic conditions;
| | - |  | -----------------------------------------------

| |  |  | the ability to establish and maintain key strategic relationships with distributors, resellers, and other partners; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------

| |  |  | the ability to attract and retain highly qualified development, services, and managerial personnel.
| | - |  | ---------------------------------------------------------------------------------------------------

Our inability to maintain a strong brand could impact our future success.

We believe that the future success of our business depends on our ability to maintain and enhance our brand, and expand brand awareness
into emerging strategic markets. If we fail to promote and maintain our brand, we may not be able to expand our customer base or attract talented employees, and our business, financial condition, and operating results could be materially and
adversely affected.

Our inability to meet customer demand for technical support services could adversely affect our
customer relationships.

We offer technical support services with many of our products. There may be situations where we
are unable to respond adequately to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors.
Any failure to maintain adequate customer support could cause customer dissatisfaction, result in reduced sales of products and reductions in the renewals of software maintenance and support agreements, and, accordingly, have a material adverse
affect on our business, financial condition, and operating results.



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NOVELL, INC.

RISK FACTORS (Continued)



Our professional services clients may cancel or reduce the scope of their engagements
with us on short notice.

If our clients cancel or reduce the scope of a professional services engagement, we may be
unable to reassign our professionals to new engagements without delay. Because these expenses are relatively fixed, and because we establish the levels of these expenses well in advance of any particular quarter, cancellations or reductions in the
scope of client engagements could result in the under-utilization of our professional services employees, leading to reduced profitability.

We are vulnerable to system failures, which could harm our reputation and business.

Although we have outsourced much of our internal IT services, we are still vulnerable to system failures. We rely on our technology
infrastructure and outsourcing partner, among other functions, to sell our products and services, support our partners, fulfill orders and bill, collect and make payments. Our systems are vulnerable to damage or interruption from natural disasters,
power loss, telecommunication failures, terrorist attacks, computer intrusions and viruses, computer denial-of-service attacks and other events. A significant number of our systems are not redundant, and our disaster recovery planning is not
sufficient to address every eventuality. Our systems are also subject to break-ins, sabotage and intentional acts of vandalism by internal employees, contractors and third-parties. Despite any precautions we may take, such problems could result in,
among other consequences, interruptions in our services, which could harm our reputation, business and financial condition. We do not carry business interruption insurance sufficient to protect us from all losses that may result from interruptions
in our services as a result of system failures or to cover all contingencies.

The success of our acquisitions is dependent
on our ability to integrate personnel, operations, and technology, and if we are not successful, our financial and operating results may be adversely affected.

Achieving the benefits of acquisitions depends on the successful integration of personnel, operations and technology. The integration of
acquisitions is subject to risks and requires significant expenditure of time and resources. During fiscal 2009, we made two acquisitions. The most recent acquisition was completed in February 2009. The challenges involved in integrating
acquisitions include the following:



| |  |  | obtaining synergies from the companies organizations and service and product offerings effectively and quickly;
| | - |  | ----------------------------------------------------------------------------------------------------------------

| |  |  | bringing together marketing efforts so that the market receives useful information about the combined companies and their products;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

| |  |  | coordinating sales efforts so that customers can do business easily with the combined companies;
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | integrating product offerings, technology, back office, human resources, and accounting and financial systems;
| | - |  | --------------------------------------------------------------------------------------------------------------

| |  |  | assimilating employees with diverse corporate cultural backgrounds into a common business culture revolving around our corporate strategy; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | retaining key officers and employees who possess the necessary skills and experience to quickly and effectively transition and integrate the
businesses.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------

Failure to effectively and timely complete the integration of acquisitions could materially
harm the business and operating results of the combined companies. Furthermore, we may assume significant liabilities in connection with acquisitions and/or incur substantial accounting charges for restructuring and related expenses, the write-off
of purchased in-process research and development, impairment of goodwill and intangible assets, and stock-based compensation expense. Using our cash for acquisitions may prevent us from pursuing other business opportunities. For example, during
fiscal 2009 it was determined that $270.0 million of our goodwill, and $5.7 million of PlateSpins and $3.4 million of Managed Objects developed technology and customer relationship intangible assets were impaired.

The consolidation of our industry may adversely affect our acquisition program.

We believe that the software industry will continue to undergo considerable consolidation and changes during the next several years. This
consolidation could increase the competition we face to acquire businesses and increase the prices we must pay for the businesses that we acquire. In response to this consolidation, we consider from time to time additional strategies to enhance
stockholder value. In considering various strategies, we evaluate the consequences, including, among other things, the implications to our liquidity and capital structure, tax effects and accounting consequences, any of which could have a material
adverse impact on our financial condition.



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NOVELL, INC.

RISK FACTORS (Continued)



The risks associated with conducting a global business could adversely affect our
results.

We are a global corporation with subsidiaries, offices and employees around the world and, as such, we face
certain risks in doing business abroad that we do not face domestically. Risks inherent in transacting business internationally could negatively impact our operating results, including:



| |  |  | costs and difficulties in staffing and managing international operations;
| | - |  | -------------------------------------------------------------------------

| |  |  | unexpected changes in regulatory requirements;
| | - |  | ----------------------------------------------

| |  |  | tariffs and other trade barriers;
| | - |  | ---------------------------------

| |  |  | difficulties in enforcing contractual and intellectual property rights;
| | - |  | -----------------------------------------------------------------------

| |  |  | longer payment cycles;
| | - |  | ----------------------

| |  |  | local political and economic conditions;
| | - |  | ----------------------------------------

| |  |  | potentially adverse tax consequences, including restrictions on repatriating earnings and the threat of double taxation; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

| |  |  | fluctuations in foreign currency exchange rates, which can affect demand, increase our costs and affect our net income.
| | - |  | -----------------------------------------------------------------------------------------------------------------------

Increasing our foreign research and development operations exposes us to risks that are beyond our
control and could affect our ability to operate successfully.

In order to enhance the cost-effectiveness of our
operations, we have shifted portions of our research and development operations to jurisdictions outside of the United States. The transition of even a portion of our research and development operations to a foreign country involves a number of
logistical and technical challenges that could result in product development delays and operational interruptions, which could reduce our revenues and adversely affect our business. We may encounter complications associated with the set-up,
migration and operation of business systems and equipment in expanded or new facilities. This could result in delays in our research and development efforts and otherwise disrupt our operations. If such delays or disruptions occur, they could damage
our reputation and otherwise adversely affect our business, financial condition, and operating results.

We cannot be certain
that any shifts in our operations to offshore jurisdictions will ultimately produce sustained cost savings. We cannot predict the extent of government support, availability of qualified workers, future labor rates, or monetary and economic
conditions in any offshore location where we may operate.

The relocation of labor resources may have a negative impact on our
existing employees, which could negatively impact our operations. In addition, we will likely be faced with competition in these offshore markets for qualified personnel, including skilled design and technical personnel, and we expect this
competition to increase as other companies expand their operations offshore. If the supply of qualified personnel becomes limited due to increased competition or otherwise, it could increase our costs and employee turnover rates.

We may not be able to attract and retain qualified personnel because of the intense competition for qualified personnel in the
software industry. Furthermore, the loss of certain key individuals could adversely affect our performance and could have a material adverse affect on our business, financial condition, and operating results.

Our ability to maintain and enhance our competitive technological position depends, in large part, on our ability to attract and retain
highly qualified development, services, and managerial personnel. Furthermore, our future success depends on the services and effectiveness of a number of key officers and employees, including our CEO. Competition for personnel of the highest
caliber is intense in the software industry. The loss of the technical knowledge and industry expertise of certain key individuals could seriously impede our success. Moreover, the loss of these individuals, particularly to a competitor, some of
which may be in a position to offer greater compensation, and any resulting loss of customers or market confidence could reduce our market share, diminish our brand and adversely affect our business. The uncertainty associated with our Boards
review of various alternatives to enhance stockholder value may enhance attrition and impact our ability to attract qualified replacement candidates. If we do not succeed in retaining and motivating our key employees, and attracting new key
personnel, our business, its financial performance and our stock price may decline.



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NOVELL, INC.

RISK FACTORS (Continued)



If third parties claim that we infringed their intellectual property, our ability to
use some technologies and products could be limited and we may incur significant costs to resolve these claims.

Litigation regarding intellectual property rights is common in the software industry. We have from time to time received letters or been
the subject of claims suggesting that we are infringing the intellectual property rights of others. In addition, we have faced and expect to continue to face from time to time disputes over rights and obligations concerning intellectual property,
including with respect to third party proprietary and open source components. The cost and time of defending ourselves can be significant. If an infringement claim is successful, we and our customers may be required to obtain one or more licenses
from third parties, and we may be obligated to pay or reimburse our customers for monetary damages. In such instances, we or our customers may not be able to obtain necessary licenses from third parties at a reasonable cost or at all, and may face
delays in product shipment while developing or arranging for alternative technologies, which could adversely affect our operating results.

In the event claims for indemnification are brought for intellectual property infringement, we could incur significant expenses,
thereby adversely affecting our operating results.

We indemnify customers against certain claims that our products,
including open source components thereof, infringe the intellectual property rights of others. Although indemnification programs for proprietary software are common in our industry, indemnification programs that cover open source software are
less so. In the event that we are required to indemnify our customers against claims for intellectual property infringement, we could incur significant expense reimbursing customers for their legal costs and, in the event those claims are
successful, for damages.

Legal actions taken by claimants alleging intellectual property infringement
could adversely affect our revenue and business plan if these legal actions cause a reduction in demand for our SUSE Linux and
Ximian® products.

In January 2004, The SCO Group, Inc. (SCO) filed suit against us in Utah State Court and the case was later removed to the
U.S. District Court in Utah (See Part I, Item 1, Note I, Legal Proceedings, in the consolidated financial statements). SCOs complaint asserted ownership of UNIX copyrights and further alleged that our public statements and
filings regarding the ownership of the copyrights in UNIX have harmed SCOs business reputation and affected its efforts to protect its ownership interest in UNIX and UnixWare. In August 2007, the U.S. District Court granted us summary judgment
against SCO, concluding that we retained ownership of the UNIX copyrights, and dismissed SCOs claims against us. In August 2009, the Tenth Circuit Court of Appeals issued an opinion that reversed in part and affirmed in part the Trial
Courts decision. In March 2010, we received a favorable jury verdict concluding that we had not transferred the UNIX copyrights and, therefore, defeated SCOs damage claims against us. Although the jury verdict is a significant win for
us, SCOs remaining claims, including whether SCO is entitled to an immediate transfer of certain UNIX copyrights, must still be determined by the U.S. District Court. If SCO is able to succeed on such remaining claims, our future revenue and
business plans associated with our SUSE Linux and Ximian products could be adversely affected.

We may not be able to
protect our confidential information, and this could adversely affect our business.

We generally enter into contractual
relationships with our employees and third parties to protect our confidential information. The misappropriation of our trade secrets or other proprietary information could harm our business. In addition, we may not be able to timely detect
unauthorized use of our intellectual property and take appropriate steps to enforce our rights. In the event we are unable to enforce these contractual obligations and our intellectual property rights, our business could be adversely affected.

Litigation matters related to or arising out of our historical stock-based compensation practices could have a material
adverse effect on our business, financial condition, operating results and cash flows.

As discussed in Part I,
Item 1, Note I, Legal Proceedings, of this report, derivative actions were filed against us and our current and former officers and directors relating to our historical stock-based compensation practices. In addition, two separate
lawsuits have been filed against our current Board of Directors in connection with the Elliott proposal. No assurance can be given regarding the outcome of these litigation matters or any possible government actions relating to our historical
stock-based compensation practices. The resolution of such matters may be time consuming and expensive, and may distract management from the conduct of our business. Furthermore, if we are subject to adverse findings in litigation actions, we could
be required to pay damages or penalties or have other remedies imposed, which could harm our business, financial condition, operating results and cash flows.



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NOVELL, INC.

RISK FACTORS (Continued)



Failure to maintain effective internal controls over financial reporting could have a
material adverse effect on our business, operating results and stock price.

We must continue to document and test our
internal controls over financial reporting in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404), which requires an annual management assessment of the effectiveness of our internal
controls over financial reporting and a report by our independent registered public accounting firm addressing this assessment. During the course of our documentation and testing we may identify deficiencies that we may not be able to remediate in
time to meet the deadlines imposed by Section 404 for continuing compliance with the requirements of Section 404. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from
time to time, we and/or our independent registered public accounting firm may not be able to conclude at each fiscal year-end that we have effective internal controls over financial reporting in accordance with Section 404. In addition, we may
incur increased costs in order to address the requirements of Section 404. The extent and timing of incurrence of any such costs is difficult to predict. Moreover, effective internal controls, particularly those related to revenue recognition,
are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If, in any year, we and/or our independent registered public accounting firm cannot attest that we have effective internal controls over
financial reporting in accordance with Section 404, our business and operating results could be harmed and result in a negative market reaction.

Our financial and operating results may fluctuate from quarter to quarter, which may cause the price of our common stock to decline.

Our financial and operating results may fluctuate from quarter to quarter due to a variety of factors including, but not
limited to:



| |  |  | the timing of orders from customers and shipments to customers;
| | - |  | ---------------------------------------------------------------

| |  |  | the decisions of our current and future customers not to renew their subscription agreements with us;
| | - |  | -----------------------------------------------------------------------------------------------------

| |  |  | the impact of foreign currency exchange rates on the price of our products in international locations;
| | - |  | ------------------------------------------------------------------------------------------------------

| |  |  | the inability to respond to the decline in revenue through the distribution channel; and
| | - |  | ----------------------------------------------------------------------------------------

| |  |  | the inability to deliver products that are satisfactory to our customers and distribution partners.
| | - |  | ---------------------------------------------------------------------------------------------------

In addition, we often experience a higher volume of revenue at the end of each quarter. Because of this, fixed costs that are not
appropriate for prevailing revenue levels may not be detected until late in any given quarter and operating results could be adversely affected. Due to these factors or other unanticipated events, our financial and operating results in any one
quarter may not be a reliable indicator of our future performance.

During fiscal 2009 we recorded goodwill impairment
charges of $270.0 million. If our goodwill or intangible assets become further impaired, we may be required to record a significant charge to earnings.

Under generally accepted accounting principles, we review our intangible assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill is tested for impairment at least annually. In determining whether an asset is impaired, we must make assumptions regarding recoverability of costs, estimated future cash flows from the
asset, intended use of the asset and other related factors. Fair values are estimated using the combination of a discounted cash flow methodology and a market analysis and weighting the results. Factors that may be considered a change in
circumstances, indicating that the carrying value of our goodwill or amortizable intangible assets may not be recoverable, include a decline in stock price and market capitalization, reduced future cash flow estimates, and slower growth rates in our
industry. We may be required to record a significant charge in our financial statements during the period in which any impairment of our goodwill or amortizable intangible assets is determined, negatively impacting our operating results. For more
information on our goodwill impairment charge of $270.0 million recorded in fiscal 2009, see Part II, Item 8, Note K, Goodwill and Intangible Assets in the consolidated financial statements of our Annual Report on Form 10-K for the
fiscal year ended October 31, 2009.

Changes to the estimates used in the analysis, including estimated future cash
flows, could cause either of our business unit segments or our indefinite-lived intangibles to be valued differently in future periods. It is at least reasonably possible that future analyses could result in additional material non-cash goodwill
impairment charges.



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NOVELL, INC.

RISK FACTORS (Continued)



Because we recognize revenue from maintenance and subscriptions over the term of the
agreements, downturns or upturns in sales may not be immediately reflected in our operating results.

We recognize
maintenance and subscription revenue from customers ratably over the term of their agreements, which are generally one to three years. As a result, much of the revenue we report in each quarter is deferred revenue from maintenance and subscription
agreements entered into during previous quarters. Consequently, a decline in maintenance and/or subscriptions sales in any one quarter will not necessarily be fully reflected in the revenue in that quarter and will negatively affect our revenue in
future quarters. In addition, we may be unable to adjust our cost structure to reflect this reduced revenue. Accordingly, the effect of significant downturns in sales and market acceptance of our products may not be fully reflected in our operating
results until future periods. Our maintenance and subscription model also makes it difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the term of the
applicable agreement.

If we do not make effective use of our substantial cash resources, our financial results could
suffer and the value of our common stock could decline.

Our ability to increase stockholder value is dependent, in part,
on the effective use of our cash balance. We may use these funds to continue to operate our business, finance strategic acquisitions, execute corporate transactions, or repurchase shares of our common stock. We cannot ensure that any of these
measures will be executed, or that such measures will improve our financial results or increase stockholder value.

We may
experience risks in our investments due to changes in the market, which could adversely affect the value or liquidity of our investments.

At April 30, 2010, we had $979.6 million in cash, cash equivalents and short-term investments. We maintain a portfolio of cash
equivalents and short-term and long-term investments in a variety of securities that may include commercial paper, certificates of deposit, money market funds and government debt securities. These available-for-sale investments are subject to
interest rate risk, credit risk, general market risk, and currency risk and may decline in value.

Our investments are subject
to general credit, liquidity, market, currency and interest rate risks. As a result, we may experience reductions in value or loss of liquidity of our investments. In addition, should any investment cease paying or reduce the amount of interest paid
to us, our interest income would suffer. These market risks associated with our investment portfolio could have a material adverse effect on our business, financial condition, and operating results.

We have real estate lease commitments for unoccupied space and restoration obligations, and if we are unable to sublet this space on
acceptable terms our operating results and financial condition could be adversely affected.

We are party to real estate
leases worldwide for a total of approximately 634,000 square feet. At October 31, 2009, we actively utilized approximately 95% of this space, or 602,000 square feet. We own 995,000 square feet of office space. At October 31, 2009,
approximately 19%, or 213,000 square feet of our owned space is currently unoccupied. Approximately 17% or 165,000 square feet of the owned space is sublet to a third party.

Our stock price may be volatile in the future, and the stock price may decline.

The market price of our common stock has experienced significant fluctuations in the past and may continue to fluctuate in the future.
The market price of our common stock may be affected by a number of factors, including:



| |  |  | announcements of quarterly operating results and revenue and earnings forecasts by us that fail to meet or be consistent with our earlier
projections or the expectations of our investors or securities analysts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | announcements by either our competitors or our customers that fail to meet or be consistent with their earlier projections or the expectations of
our investors or securities analysts;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | rumors, announcements, or press articles regarding our, or our competitors operations, management, organization, financial condition, or
financial statements;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | changes in revenue and earnings estimates by us, our investors, or securities analysts;
| | - |  | ---------------------------------------------------------------------------------------

| |  |  | accounting charges, including charges relating to the impairment of goodwill, intangible assets or other assets;
| | - |  | ----------------------------------------------------------------------------------------------------------------

| |  |  | announcements of planned acquisitions or dispositions by us or by our competitors;
| | - |  | ----------------------------------------------------------------------------------

| |  |  | announcements of new or planned products by us, our competitors, or our customers;
| | - |  | ----------------------------------------------------------------------------------



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NOVELL, INC.

RISK FACTORS (Continued)



| |  |  | gain or loss of a significant customer or partner;
| | - |  | --------------------------------------------------

| |  |  | the inception of, or material developments in relation to, litigation initiated by us or brought against us;
| | - |  | ------------------------------------------------------------------------------------------------------------

| |  |  | inquiries by the SEC, NASDAQ, law enforcement, or other regulatory bodies;
| | - |  | --------------------------------------------------------------------------

| |  |  | acts of terrorism, the threat of war, and other crises or emergency situations;
| | - |  | -------------------------------------------------------------------------------

| |  |  | economic slowdowns or the perception of an oncoming economic slowdown in any of the major markets in which we operate; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------

| |  |  | uncertainty associated with our Boards review of various alternatives to enhance stockholder value.
| | - |  | ----------------------------------------------------------------------------------------------------

The stock market in general, and the market prices of stocks of technology companies in particular, have experienced extreme price
volatility that has adversely affected, and may continue to adversely affect, the market price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table presents information
regarding purchases of shares of our common stock pursuant to our share repurchase program and for our stock-based compensation plans during the second quarter of fiscal 2010.



|                                                 |  |                                |  |                            |      |                                                                              |   |                                                                                |   |       
|------------------------------------------------ |  | ------------------------------ |  | -------------------------- | ---- | ---------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------ | - | ------
|(In thousands, except per share amounts)

Period |  | Total numberof
sharespurchased |  | Average pricepaid
pershare |      | Total number ofshares purchasedas part of publiclyannounced
plansor programs |   | Maximumdollar value ofshares thatmay yet
bepurchasedunder the plansor programs
|February 1, 2010 through February 28, 2010       |  | 10                             |  | $                          | 4.75 |                                                                              |  |                                                                                | $ | 33,180
|March 1, 2010 through March 31, 2010             |  | 136                            |  |                            | 5.82 |                                                                              |  |                                                                                |   | 33,180
|April 1, 2010 through April 30, 2010             |  | 13                             |  |                            | 5.85 |                                                                              |  |                                                                                |   | 33,180
|                                                 |  |                                |  |                            |      |                                                                              |   |                                                                                |   |       
|Total                                            |  | 159                            |  | $                          | 5.75 |                                                                              |  |                                                                                |   | 33,180
|                                                 |  |                                |  |                            |      |                                                                              |   |                                                                                |   |       

The total number of shares purchased was for shares surrendered to us to satisfy tax withholding
obligations in connection with our equity plans.

During fiscal 2008, our Board of Directors authorized the repurchase of up
to $100 million of our outstanding common stock. There is no fixed termination date for the repurchase program. There were no repurchases under the program during the second quarters or first six months of fiscal 2010 or 2009. As of April 30,
2010, $33.2 million remains available to be used for repurchasing common stock under the current Board authorization.

Item 6. Exhibits

The list of exhibits set forth on the Exhibit Index filed as a part of this Quarterly Report on
Form 10-Q is incorporated herein by reference.



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NOVELL, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



|                     |  |  |  |                           |  |                                                                |  | 
|-------------------- |  |  |  | ------------------------- |  | -------------------------------------------------------------- |  | 
|                     |  |  |  | Novell, Inc. (Registrant)
|                     |  |  | 
|Date:   June 8, 2010 |  |  |  | By:                       |  | /s/ DANA C.
RUSSELL                                           
|                     |  |  |  |                           |  | Dana C. Russell                                               
|                     |  |  |  |                           |  | Senior Vice President and Chief Financial Officer             
|                     |  |  |  |                           |  | (Principal Financial Officer and Principal Accounting Officer)



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NOVELL, INC.

EXHIBIT INDEX

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:



|               |  |                                                                                                                                                                                                                                                  
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
Number |  | Description                                                                                                                                                                                                                                      
|               | 
|10.1*          |  | Form of Restricted Stock Unit Agreement.                                                                                                                                                                                                         
|               | 
|10.2*          |  | Form of Restricted Stock Agreement.                                                                                                                                                                                                              
|               | 
|10.3*          |  | Form of Nonqualified Stock Option Grant Agreement (for Directors).                                                                                                                                                                               
|               | 
|10.4*          |  | Form of Restricted Stock Unit Agreement (for Directors).                                                                                                                                                                                         
|               | 
|10.5*          |  | Form of 2010 Restricted Stock Unit Agreement.                                                                                                                                                                                                    
|               | 
|10.6*          |  | One-time incremental retainer to Chairman.                                                                                                                                                                                                       
|               | 
|10.7*          |  | Non-Employee Director Remuneration and Expense Reimbursement Summary.                                                                                                                                                                            
|               | 
|10.8*          |  | Letter agreement with Mr. Plaskett to amend (1) a Restricted Stock Unit Agreement datedApril 7, 2009, (2) a Nonqualified Stock Option Agreement
 dated April 7, 2009, and (3) a StockOption Agreement Outside Directors Grant dated June 3, 2008.
|               | 
|10.9*          |  | Letter agreement with Ms. White to amend (1) a Restricted Stock Unit Agreement datedApril 7, 2009, (2) a Nonqualified Stock Option Agreement
 dated April 7, 2009, and (3) a StockOption Agreement Outside Directors Grant dated June 3, 2008.   
|               | 
|31.1           |  | Rule 13a-14(a) Certification.                                                                                                                                                                                                                    
|               | 
|31.2           |  | Rule 13a-14(a) Certification.                                                                                                                                                                                                                    
|               | 
|32.1           |  | 18 U.S.C. Section 1350 Certification.                                                                                                                                                                                                            
|               | 
|32.2           |  | 18 U.S.C. Section 1350 Certification.                                                                                                                                                                                                            





* Indicates management contracts or compensatory plans.



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