##### 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, 2009
| |  | ---------------------------------------------

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 filer         |  |  ̈
|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 29, 2009, there were 345,189,726
shares of the registrants common stock outstanding.









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##### Table of Contents

NOVEL, INC.

TABLE OF CONTENTS



|                                                                                                              |  |   
|------------------------------------------------------------------------------------------------------------- |  | --
|Part I  Financial Information:                                                                               |  | 3 
|Item 1: Financial Statements                                                                                  |  | 3 
|Consolidated Balance Sheets at April 30, 2009 (unaudited) and October 31,
2008                                |  | 3 
|Consolidated Statements of Operations for the three and six months ended April 
30, 2009 and 2008 (unaudited) |  | 4 
|Consolidated Statements of Cash Flows for the six months ended April 30, 2009 and 2008
(unaudited)            |  | 6 
|Notes to Unaudited Consolidated Financial Statements                                                          |  | 7 
|Item 2: Managements Discussion and Analysis of Financial Condition and Results of
Operations                 |  | 26
|Item 3: Quantitative and Qualitative Disclosures about Market Risk                                            |  | 41
|Item 4: Controls and Procedures                                                                               |  | 41
|Part II  Other Information:                                                                                  |  | 42
|Item 1: Legal Proceedings                                                                                     |  | 42
|Item 1A: Risk Factors                                                                                         |  | 42
|Item 2: Unregistered Sales of Equity Securities and Use of Proceeds                                           |  | 42
|Item 4: Submission of Matters to a Vote of Security Holders                                                   |  | 43
|Item 5: Other Information                                                                                     |  | 43
|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 30,2009 |           |   | October 31,2008 |  
|                                                                                                                                                                                                                                                                                  |  | (unaudited)   |           |   |                 |  
|ASSETS                                                                                                                                                                                                                                                                            | 
|                                                                                                                                                                                                                                                                                  |  |              
|Current assets:                                                                                                                                                                                                                                                                   |  |               |           |   |                 |   |           |  
|Cash and cash equivalents                                                                                                                                                                                                                                                         |  | $             | 619,948   |   |                 | $ | 680,034   |  
|Short-term investments                                                                                                                                                                                                                                                            |  |               | 384,818   |   |                 |   | 387,813   |  
|Restricted cash                                                                                                                                                                                                                                                                   |  |               | 52,961    |   |                 |   | 52,701    |  
|Receivables (net of allowances of $3,960 and $3,679 at April 30, 2009 and October 31, 2008,
respectively)                                                                                                                                                                         |  |               | 136,190   |   |                 |   | 193,088   |  
|Prepaid expenses                                                                                                                                                                                                                                                                  |  |               | 32,363    |   |                 |   | 34,365    |  
|Current deferred tax assets                                                                                                                                                                                                                                                       |  |               | 4,662     |   |                 |   | 5,685     |  
|Other current assets                                                                                                                                                                                                                                                              |  |               | 24,423    |   |                 |   | 32,006    |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|Total current assets                                                                                                                                                                                                                                                              |  |               | 1,255,365 |   |                 |   | 1,385,692 |  
|Property, plant and equipment, net                                                                                                                                                                                                                                                |  |               | 164,852   |   |                 |   | 174,978   |  
|Long-term investments                                                                                                                                                                                                                                                             |  |               | 10,140    |   |                 |   | 14,972    |  
|Goodwill                                                                                                                                                                                                                                                                          |  |               | 619,744   |   |                 |   | 582,117   |  
|Intangible assets, net                                                                                                                                                                                                                                                            |  |               | 54,392    |   |                 |   | 53,320    |  
|Deferred income taxes                                                                                                                                                                                                                                                             |  |               | 30,073    |   |                 |   | 36,244    |  
|Other assets                                                                                                                                                                                                                                                                      |  |               | 20,892    |   |                 |   | 22,026    |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|Total assets                                                                                                                                                                                                                                                                      |  | $             | 2,155,458 |   |                 | $ | 2,269,349 |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|                                                                                                                                                                                                                                                                                 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                                                                              | 
|                                                                                                                                                                                                                                                                                  |  |              
|Current liabilities:                                                                                                                                                                                                                                                              |  |               |           |   |                 |   |           |  
|Accounts payable                                                                                                                                                                                                                                                                  |  | $             | 25,588    |   |                 | $ | 36,982    |  
|Accrued compensation                                                                                                                                                                                                                                                              |  |               | 77,619    |   |                 |   | 102,317   |  
|Other accrued liabilities                                                                                                                                                                                                                                                         |  |               | 88,879    |   |                 |   | 108,929   |  
|Senior convertible debentures                                                                                                                                                                                                                                                     |  |               | 121,668   |   |                 |   | 125,668   |  
|Income taxes payable                                                                                                                                                                                                                                                              |  |               | 3,317     |   |                 |   | 22,563    |  
|Deferred revenue                                                                                                                                                                                                                                                                  |  |               | 449,275   |   |                 |   | 503,174   |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|Total current liabilities                                                                                                                                                                                                                                                         |  |               | 766,346   |   |                 |   | 899,633   |  
|Deferred income taxes                                                                                                                                                                                                                                                             |  |               | 13,515    |   |                 |   | 11,725    |  
|Long-term deferred revenue                                                                                                                                                                                                                                                        |  |               | 210,140   |   |                 |   | 226,876   |  
|Other long-term liabilities                                                                                                                                                                                                                                                       |  |               | 39,787    |   |                 |   | 43,587    |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|Total liabilities                                                                                                                                                                                                                                                                 |  |               | 1,029,788 |   |                 |   | 1,181,821 |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|                                                                                                                                                                                                                                                                                  |  |              
|Stockholders equity:                                                                                                                                                                                                                                                             |  |               |           |   |                 |   |           |  
|Common stock, par value $0.10 per share, Authorized  600,000,000 shares; Issued  360,248,593 and 358,526,217 shares at April 30, 2009 and October 31, 2008, respectively; Outstanding  345,130,272 and 343,407,896 shares at April 30, 2009 and October 31, 2008,
respectively |  |               | 36,025    |   |                 |   | 35,853    |  
|Additional paid-in capital                                                                                                                                                                                                                                                        |  |               | 430,123   |   |                 |   | 420,669   |  
|Treasury stock, at cost  15,118,321 shares at April 30, 2009 and October 31, 2008                                                                                                                                                                                                |  |               | (124,424  | ) |                 |   | (124,424  | )
|Retained earnings                                                                                                                                                                                                                                                                 |  |               | 798,853   |   |                 |   | 772,559   |  
|Accumulated other comprehensive loss                                                                                                                                                                                                                                              |  |               | (14,907   | ) |                 |   | (17,129   | )
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|Total stockholders equity                                                                                                                                                                                                                                                        |  |               | 1,125,670 |   |                 |   | 1,087,528 |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  
|Total liabilities and stockholders equity                                                                                                                                                                                                                                        |  | $             | 2,155,458 |   |                 | $ | 2,269,349 |  
|                                                                                                                                                                                                                                                                                  |  |               |           |   |                 |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



3



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##### Table of Contents

NOVELL, INC.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)



|                                               |  |                    |         |   |               |   |         |  
|---------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                                               |  | Three months ended |        
|                                               |  | April 30,2009      |         |   | April 30,2008 |  
|                                               |  | (unaudited)        |        
|Net revenue:                                   |  |                    |         |   |               |   |         |  
|Software licenses                              |  | $                  | 30,250  |   |               | $ | 44,416  |  
|Maintenance and subscriptions                  |  |                    | 158,329 |   |               |   | 150,872 |  
|Services                                       |  |                    | 27,016  |   |               |   | 40,378  |  
|                                               |  |                    |         |   |               |   |         |  
|Total net revenue                              |  |                    | 215,595 |   |               |   | 235,666 |  
|                                               |  |                    |         |   |               |   |         |  
|Cost of revenue:                               |  |                    |         |   |               |   |         |  
|Software licenses                              |  |                    | 2,380   |   |               |   | 4,028   |  
|Maintenance and subscriptions                  |  |                    | 12,345  |   |               |   | 12,007  |  
|Services                                       |  |                    | 30,557  |   |               |   | 44,432  |  
|                                               |  |                    |         |   |               |   |         |  
|Total cost of revenue                          |  |                    | 45,282  |   |               |   | 60,467  |  
|                                               |  |                    |         |   |               |   |         |  
|Gross profit                                   |  |                    | 170,313 |   |               |   | 175,199 |  
|                                               |  |                    |         |   |               |   |         |  
|Operating expenses:                            |  |                    |         |   |               |   |         |  
|Sales and marketing                            |  |                    | 75,697  |   |               |   | 93,906  |  
|Product development                            |  |                    | 44,552  |   |               |   | 46,275  |  
|General and administrative                     |  |                    | 25,032  |   |               |   | 30,259  |  
|Restructuring expenses                         |  |                    | 7,224   |   |               |   | 392     |  
|Purchased in-process research and development  |  |                    |        |   |               |   | 2,700   |  
|Loss on sale of subsidiaries                   |  |                    | 184     |   |               |   |        |  
|                                               |  |                    |         |   |               |   |         |  
|Total operating expenses                       |  |                    | 152,689 |   |               |   | 173,532 |  
|                                               |  |                    |         |   |               |   |         |  
|Income from operations                         |  |                    | 17,624  |   |               |   | 1,667   |  
|                                               |  |                    |         |   |               |   |         |  
|Other income (expense):                        |  |                    |         |   |               |   |         |  
|Investment income                              |  |                    | 5,390   |   |               |   | 24,871  |  
|Impairment of investments                      |  |                    | (1,419  | ) |               |   |        |  
|Interest expense and other, net                |  |                    | (3,767  | ) |               |   | (7,019  | )
|                                               |  |                    |         |   |               |   |         |  
|Total other income, net                        |  |                    | 204     |   |               |   | 17,852  |  
|                                               |  |                    |         |   |               |   |         |  
|Income from continuing operations before taxes |  |                    | 17,828  |   |               |   | 19,519  |  
|Income tax expense                             |  |                    | 2,777   |   |               |   | 13,653  |  
|                                               |  |                    |         |   |               |   |         |  
|Income from continuing operations              |  |                    | 15,051  |   |               |   | 5,866   |  
|                                               |  |                    |         |   |               |   |         |  
|Income from discontinued operations            |  |                    | 566     |   |               |   |        |  
|                                               |  |                    |         |   |               |   |         |  
|Net income                                     |  | $                  | 15,617  |   |               | $ | 5,866   |  
|                                               |  |                    |         |   |               |   |         |  
|                                               |  |                   
|Basic earnings per share:                      |  |                    |         |   |               |   |         |  
|Income from continuing operations              |  | $                  | 0.04    |   |               | $ | 0.02    |  
|                                               |  |                    |         |   |               |   |         |  
|Net income per share                           |  | $                  | 0.05    |   |               | $ | 0.02    |  
|                                               |  |                    |         |   |               |   |         |  
|Diluted earnings per share:                    |  |                    |         |   |               |   |         |  
|Income from continuing operations              |  | $                  | 0.04    |   |               | $ | 0.02    |  
|                                               |  |                    |         |   |               |   |         |  
|Net income per share                           |  | $                  | 0.05    |   |               | $ | 0.02    |  
|                                               |  |                    |         |   |               |   |         |  
|                                               |  |                   
|Weighted-average shares outstanding  basic    |  |                    | 344,881 |   |               |   | 352,785 |  
|Weighted-average shares outstanding  diluted  |  |                    | 345,839 |   |               |   | 354,287 |  

The accompanying notes are an integral part of these consolidated financial statements.



4



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##### Table of Contents

NOVELL, INC.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)



|                                                 |  |                  |         |   |               |   |         |  
|------------------------------------------------ |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                 |  | Six months ended |        
|                                                 |  | April 30,2009    |         |   | April 30,2008 |  
|                                                 |  | (unaudited)      |        
|Net revenue:                                     |  |                  |         |   |               |   |         |  
|Software licenses                                |  | $                | 58,517  |   |               | $ | 84,618  |  
|Maintenance and subscriptions                    |  |                  | 317,144 |   |               |   | 300,939 |  
|Services                                         |  |                  | 54,805  |   |               |   | 81,035  |  
|                                                 |  |                  |         |   |               |   |         |  
|Total net revenue                                |  |                  | 430,466 |   |               |   | 466,592 |  
|                                                 |  |                  |         |   |               |   |         |  
|Cost of revenue:                                 |  |                  |         |   |               |   |         |  
|Software licenses                                |  |                  | 4,906   |   |               |   | 7,127   |  
|Maintenance and subscriptions                    |  |                  | 25,244  |   |               |   | 22,948  |  
|Services                                         |  |                  | 62,029  |   |               |   | 88,333  |  
|                                                 |  |                  |         |   |               |   |         |  
|Total cost of revenue                            |  |                  | 92,179  |   |               |   | 118,408 |  
|                                                 |  |                  |         |   |               |   |         |  
|Gross profit                                     |  |                  | 338,287 |   |               |   | 348,184 |  
|                                                 |  |                  |         |   |               |   |         |  
|Operating expenses:                              |  |                  |         |   |               |   |         |  
|Sales and marketing                              |  |                  | 152,591 |   |               |   | 181,911 |  
|Product development                              |  |                  | 89,944  |   |               |   | 91,010  |  
|General and administrative                       |  |                  | 49,227  |   |               |   | 57,656  |  
|Restructuring expenses                           |  |                  | 15,273  |   |               |   | 4,759   |  
|Purchased in-process research and development    |  |                  |        |   |               |   | 2,700   |  
|Gain on sale of subsidiaries                     |  |                  | (16     | ) |               |   |        |  
|                                                 |  |                  |         |   |               |   |         |  
|Total operating expenses                         |  |                  | 307,019 |   |               |   | 338,036 |  
|                                                 |  |                  |         |   |               |   |         |  
|Income from operations                           |  |                  | 31,268  |   |               |   | 10,148  |  
|                                                 |  |                  |         |   |               |   |         |  
|Other income (expense):                          |  |                  |         |   |               |   |         |  
|Investment income                                |  |                  | 12,566  |   |               |   | 47,777  |  
|Impairment of investments                        |  |                  | (3,096  | ) |               |   |        |  
|Interest expense and other, net                  |  |                  | (6,902  | ) |               |   | (12,769 | )
|                                                 |  |                  |         |   |               |   |         |  
|Total other income, net                          |  |                  | 2,568   |   |               |   | 35,008  |  
|                                                 |  |                  |         |   |               |   |         |  
|Income from continuing operations before taxes   |  |                  | 33,836  |   |               |   | 45,156  |  
|Income tax expense                               |  |                  | 9,144   |   |               |   | 24,606  |  
|                                                 |  |                  |         |   |               |   |         |  
|Income from continuing operations                |  |                  | 24,692  |   |               |   | 20,550  |  
|                                                 |  |                  |         |   |               |   |         |  
|Income from discontinued operations before taxes |  |                  | 1,602   |   |               |   | 1,285   |  
|Income tax benefit on discontinued operations    |  |                  |        |   |               |   | (836    | )
|                                                 |  |                  |         |   |               |   |         |  
|Income from discontinued operations              |  |                  | 1,602   |   |               |   | 2,121   |  
|                                                 |  |                  |         |   |               |   |         |  
|Net income                                       |  | $                | 26,294  |   |               | $ | 22,671  |  
|                                                 |  |                  |         |   |               |   |         |  
|                                                 |  |                 
|Basic earnings per share:                        |  |                  |         |   |               |   |         |  
|Income from continuing operations                |  | $                | 0.07    |   |               | $ | 0.06    |  
|                                                 |  |                  |         |   |               |   |         |  
|Net income per share                             |  | $                | 0.08    |   |               | $ | 0.06    |  
|                                                 |  |                  |         |   |               |   |         |  
|Diluted earnings per share:                      |  |                  |         |   |               |   |         |  
|Income from continuing operations                |  | $                | 0.07    |   |               | $ | 0.06    |  
|                                                 |  |                  |         |   |               |   |         |  
|Net income per share                             |  | $                | 0.08    |   |               | $ | 0.06    |  
|                                                 |  |                  |         |   |               |   |         |  
|                                                 |  |                 
|Weighted-average shares outstanding  basic      |  |                  | 344,429 |   |               |   | 351,957 |  
|Weighted-average shares outstanding  diluted    |  |                  | 345,543 |   |               |   | 353,660 |  

The accompanying notes are an integral part of these consolidated financial statements.



5



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##### Table of Contents

NOVELL, INC.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)



|                                                                                                  |  |                  |          |   |               |   |           |  
|------------------------------------------------------------------------------------------------- |  | ---------------- | -------- | - | ------------- | - | --------- | -
|                                                                                                  |  | Six months ended |         
|                                                                                                  |  | April 30,2009    |          |   | April 30,2008 |  
|                                                                                                  |  | (unaudited)      |         
|Cash flows from operating activities                                                              |  |                  |          |   |               |   |           |  
|Net income                                                                                        |  | $                | 26,294   |   |               | $ | 22,671    |  
|Adjustments to reconcile net income to net cash used in operating activities:                     |  |                  |          |   |               |   |           |  
|Stock-based compensation expense                                                                  |  |                  | 13,722   |   |               |   | 17,777    |  
|Depreciation and amortization                                                                     |  |                  | 21,473   |   |               |   | 18,847    |  
|Change in accounts receivable allowances                                                          |  |                  | 341      |   |               |   | 671       |  
|Utilization of previously reserved acquired net operating losses                                  |  |                  |         |   |               |   | 5,025     |  
|Gain on discontinued operations, before taxes                                                     |  |                  | (1,602   | ) |               |   | (1,180    | )
|Gain on sale of subsidiaries                                                                      |  |                  | (16      | ) |               |   |          |  
|Impairment of investments                                                                         |  |                  | 3,096    |   |               |   |          |  
|Gain on sale of previously impaired long-term investments                                         |  |                  |         |   |               |   | (250      | )
|Gain on debenture repurchases                                                                     |  |                  | (68      | ) |               |   | (405      | )
|Purchased in-process research and development                                                     |  |                  |         |   |               |   | 2,700     |  
|Changes in current assets and liabilities, excluding the effect of acquisitions and dispositions: |  |                  |          |   |               |   |           |  
|Receivables                                                                                       |  |                  | 63,319   |   |               |   | 33,983    |  
|Prepaid expenses                                                                                  |  |                  | 2,338    |   |               |   | (2,055    | )
|Other current assets                                                                              |  |                  | 7,436    |   |               |   | 4,846     |  
|Deferred income taxes                                                                             |  |                  | 8,984    |   |               |   | (12,326   | )
|Accounts payable                                                                                  |  |                  | (11,780  | ) |               |   | (5,874    | )
|Accrued liabilities                                                                               |  |                  | (73,357  | ) |               |   | (57,137   | )
|Deferred revenue                                                                                  |  |                  | (73,635  | ) |               |   | (74,734   | )
|                                                                                                  |  |                  |          |   |               |   |           |  
|Net cash used in operating activities                                                             |  |                  | (13,455  | ) |               |   | (47,441   | )
|                                                                                                  |  |                  |          |   |               |   |           |  
|Cash flows from investing activities                                                              |  |                  |          |   |               |   |           |  
|Purchases of property, plant and equipment                                                        |  |                  | (6,582   | ) |               |   | (16,322   | )
|Purchases of short-term investments                                                               |  |                  | (147,849 | ) |               |   | (282,003  | )
|Maturities of short-term investments                                                              |  |                  | 25,507   |   |               |   | 99,274    |  
|Sales of short-term investments                                                                   |  |                  | 132,762  |   |               |   | 508,169   |  
|Proceeds from sales of and distributions from long-term investments                               |  |                  | 1,736    |   |               |   | 14,523    |  
|Cash paid for acquisitions, net of cash acquired                                                  |  |                  | (48,472  | ) |               |   | (220,473  | )
|Net cash proceeds (distributions) from sale of discontinued operations                            |  |                  | 1,036    |   |               |   | (909      | )
|Change in restricted cash                                                                         |  |                  | (260     | ) |               |   | (52,124   | )
|Other                                                                                             |  |                  | 1,374    |   |               |   | 2,227     |  
|                                                                                                  |  |                  |          |   |               |   |           |  
|Net cash (used in) provided by investing activities                                               |  |                  | (40,748  | ) |               |   | 52,362    |  
|                                                                                                  |  |                  |          |   |               |   |           |  
|Cash flows from financing activities                                                              |  |                  |          |   |               |   |           |  
|Issuances of common stock                                                                         |  |                  | 1,152    |   |               |   | 10,252    |  
|Debenture repurchases                                                                             |  |                  | (3,869   | ) |               |   | (115,589  | )
|Debt repayment                                                                                    |  |                  | (378     | ) |               |   |          |  
|Excess tax benefits from stock-based compensation                                                 |  |                  | (2,788   | ) |               |   | 23,995    |  
|                                                                                                  |  |                  |          |   |               |   |           |  
|Net cash used in financing activities                                                             |  |                  | (5,883   | ) |               |   | (81,342   | )
|                                                                                                  |  |                  |          |   |               |   |           |  
|Decrease in cash and cash equivalents                                                             |  |                  | (60,086  | ) |               |   | (76,421   | )
|Cash and cash equivalents  beginning of period                                                   |  |                  | 680,034  |   |               |   | 1,079,819 |  
|                                                                                                  |  |                  |          |   |               |   |           |  
|Cash and cash equivalents  end of period                                                         |  | $                | 619,948  |   |               | $ | 1,003,398 |  
|                                                                                                  |  |                  |          |   |               |   |           |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

A. Quarterly Financial
Statements

The interim consolidated financial statements as of April 30, 2009 and for the three and six months ended
April 30, 2009 and 2008 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, 2008. 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

Certain 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 net income.

Revenue Recognition

Historically,
we sold software licenses individually as well as combined with other products (multi-element arrangements), allowing us to determine vendor-specific objective evidence (VSOE) of fair value for substantially all software license
products. Accordingly, when we sold multi-element arrangements we used the relative fair value, or proportional, revenue accounting method to allocate the value of multi-element arrangements proportionally to the software license and other
components.

At the start of fiscal 2009, we made a sales program change requiring all customers to initially purchase maintenance with
licenses, which is common industry practice. As a result of eliminating stand-alone software license sales, VSOE of fair value for software licenses no longer exists. Accordingly, beginning in the first quarter of fiscal 2009, the residual method
under Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9 Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions, is now used to allocate
the value of multi-element arrangements to the various components, which is also common industry practice. Under the residual method, each undelivered element (typically maintenance) is allocated value based on Novell-specific objective evidence of
fair value for that element and the remainder of the total arrangement fee is allocated to the delivered element, typically the software. This method results in discounts being allocated to the software license rather than spread proportionately
over all elements. Therefore, when a discount exists, less revenue is recognized at the time of sale under the residual method than under the relative fair value method, which we used prior to fiscal 2009. We believe that the change to the residual
method did not materially impact revenue in either the second quarter or the first six months of fiscal 2009.

B. Acquisitions

Fortefi

On
February 10, 2009, we acquired certain assets of Fortefi Ltd., a United Kingdom-based company, and Fortefi Corporation, a Delaware corporation (collectively referred to as Fortefi). Fortefi is a supplier of an identity management
solution that controls super user access rights. Fortefi was a small operation whose revenues, net operating results, assets and liabilities were immaterial to us. The purchase price consisted of $3.0 million in cash, plus merger and
transaction costs of $0.1 million. Of the $3.1 million purchase price, $2.2 million was allocated to goodwill, $0.7 million was allocated to developed technology and $0.2 million was allocated to customer relationships.

Goodwill from the acquisition resulted from our belief that the products developed by Fortefi that control super user access rights are a
valuable addition to our Identity and Security Management offerings. We believe these products will help us remain competitive in the Identity and Security Management market and increase our Identity and Security Management revenue. The goodwill
from the Fortefi acquisition was allocated to our Identity and Security Management product business unit segment and is tax-deductible.



7



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

B. Acquisitions
(Continued)



Managed Objects

On November 13, 2008, we acquired 100% of the outstanding stock of Managed Object Solutions, Inc. (Managed Objects), a supplier of business service management solutions, through a merger of Managed
Objects into a wholly-owned subsidiary of Novell. The purchase price, consisting of $46.3 million in cash, plus merger and transaction costs of $1.1 million, was allocated as follows:



|                                |  |                     |        |                      |           
|------------------------------- |  | ------------------- | ------ | -------------------- | ----------
|(In thousands)                  |  | EstimatedFair Value |        | EstimatedUseful Life
|Net tangible assets acquired    |  | $                   | 3,410  |                      | N/A       
|Identifiable intangible assets: |  |                     |        |                      |           
|Developed technology            |  |                     | 5,800  |                      | 3 years   
|Customer relationships          |  |                     | 3,000  |                      | 3 years   
|Goodwill                        |  |                     | 35,176 |                      | Indefinite
|                                |  |                     |        |                      |           
|Total net assets acquired       |  | $                   | 47,386 |                      |           
|                                |  |                     |        |                      |           

The acquired net tangible assets of Managed Objects consisted primarily of cash and cash
equivalents, accounts receivable, prepaid expenses and fixed assets, partially offset by accounts payable, and other current liabilities that we assumed.

Developed technology relates to Managed Objects products that were commercially available and could be combined with our products and services. Discounted expected future cash flows attributable to the products were
used to determine the fair value of developed technology. This resulted in a valuation of $5.8 million related to developed technology that has reached technological feasibility.

Customer relationships of $3.0 million relate primarily to customers under maintenance agreements. The fair value of these relationships was determined based on discounted expected future cash
flows to be received as a result of the agreements and assumptions about their renewal rates.

Goodwill from the acquisition resulted from
our belief that the business service management products developed by Managed Objects are a valuable addition to our Systems and Resource Management offerings. We believe they will help us remain competitive in the Systems and Resource Management
market and increase our Systems and Resource Management revenue. The goodwill from the Managed Objects acquisition was allocated to our Systems and Resource Management product business unit segment and is not tax-deductible.

If the Managed Objects acquisition had occurred on November 1, 2008 and on November 1, 2007, our unaudited pro forma results of operations
would have been as follows:



|                                      |  |                    |         |                  |   |               |  |               |         |  |   |        
|------------------------------------- |  | ------------------ | ------- | ---------------- | - | ------------- |  | ------------- | ------- |  | - | -------
|                                      |  | Three months ended |         | Six months ended
|(In thousands, except per share data) |  | April 30,2009      |         | April 30,2008    |   | April 30,2009 |  | April 30,2008
|Net revenue                           |  | $                  | 215,595 |                  | $ | 241,107       |  | $             | 430,915 |  | $ | 478,584
|Net income                            |  |                    | 15,617  |                  |   | 4,264         |  |               | 25,435  |  |   | 19,840 
|Net income per diluted share          |  | $                  | 0.05    |                  | $ | 0.01          |  | $             | 0.07    |  | $ | 0.06   

C. Divestitures

Discontinued Operations

Our discontinued operations include the divestitures
of our Cambridge Technology Partners (Switzerland) SA (CTP Switzerland) subsidiary in fiscal 2008, and our Salmon Ltd. (Salmon) subsidiary in fiscal 2007.

CTP Switzerland

On October 31, 2007, we signed an agreement to
sell our CTP Switzerland subsidiary to a management-led buyout group for $0.8 million ($0.5 million was received at close on January 31, 2008, and an additional contingent payment of $0.3 million was received during the fourth quarter
of fiscal 2008). No further payments are due from the CTP Switzerland buyout group.



8



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

C. Divestitures
(Continued)



Salmon

On March 12, 2007, we sold our shares in our wholly-owned Salmon subsidiary to Okam Limited, a U.K. Limited Holding Company, for $4.9 million, which has been received, plus an additional contingent payment of
£2.0 million (approximately $3.1 million) to be received if Salmon meets certain cumulative future revenue targets by the end of our fiscal 2009. Of the $4.9 million initial sales proceeds, $2.9 million was received at the time of sale
and the remaining $2.0 million was received during the second quarter of fiscal 2008. With respect to the approximate $3.1 million contingent payments, during fiscal 2008, we received $1.2 million of the contingent amount and during the first
quarter of fiscal 2009, we received an additional contingent cash payment of $1.0 million. In the second quarter of fiscal 2009, we earned another $0.6 million which will be paid to us in December 2009, leaving approximately $0.3 million of the
contingent amount which we could earn in the future.

The cumulative recognized gain on the sale of Salmon is as follows:



|                                                                     |  |   |      
|-------------------------------------------------------------------- |  | - | -----
|(In thousands)                                                       |  |  
|Gain before income taxes recognized in fiscal 2007                   |  | $ | 628  
|Contingent cash payment received in fiscal 2008                      |  |   | 1,223
|Contingent cash payment received in the first quarter of fiscal 2009 |  |   | 1,036
|Contingent payment earned in the second quarter of fiscal 2009       |  |   | 566  
|                                                                     |  |   |      
|Total gain recognized to date                                        |  | $ | 3,453
|                                                                     |  |   |      

The results of discontinued operations (CTP Switzerland and Salmon) are as follows:



|                                                 |  |                    |     |                  |   |               |  |               |       |  |   |       |  
|------------------------------------------------ |  | ------------------ | --- | ---------------- | - | ------------- |  | ------------- | ----- |  | - | ----- | -
|                                                 |  | Three months ended |     | Six months ended |  
|(In thousands)                                   |  | April 30,2009      |     | April 30,2008    |   | April 30,2009 |  | April 30,2008 |      
|CTP Switzerland net revenue                      |  | $                  |    |                  | $ |              |  | $             |      |  | $ | 6,566 |  
|                                                 |  |                    |     |                  |   |               |  |               |       |  |   |       |  
|CTP Switzerland income before taxes              |  | $                  |    |                  | $ |              |  | $             |      |  | $ | 105   |  
|CTP Switzerland gain on sale                     |  |                    |    |                  |   |              |  |               |      |  |   | 1,180 |  
|Gain on Salmon contingent payment                |  |                    | 566 |                  |   |              |  |               | 1,602 |  |   |      |  
|                                                 |  |                    |     |                  |   |               |  |               |       |  |   |       |  
|Income from discontinued operations before taxes |  |                    | 566 |                  |   |              |  |               | 1,602 |  |   | 1,285 |  
|Income tax benefit on discontinued operations    |  |                    |    |                  |   |              |  |               |      |  |   | (836  | )
|                                                 |  |                    |     |                  |   |               |  |               |       |  |   |       |  
|Income from discontinued operations              |  | $                  | 566 |                  | $ |              |  | $             | 1,602 |  | $ | 2,121 |  
|                                                 |  |                    |     |                  |   |               |  |               |       |  |   |       |  

The net cash proceeds (distributions) from the sale of discontinued operations (CTP Switzerland
and Salmon) are as follows:



|                                                                       |  |                  |       |               |   |        |  
|---------------------------------------------------------------------- |  | ---------------- | ----- | ------------- | - | ------ | -
|                                                                       |  | Six months ended |      
|(In thousands)                                                         |  | April 30,2009    |       | April, 302008 |  
|CTP Switzerland net cash distribution on sale                          |  | $                |      |               | $ | (2,917 | )
|Receipt of Salmon receivable                                           |  |                  |      |               |   | 2,008  |  
|Salmon contingent cash receipt                                         |  |                  | 1,036 |               |   |       |  
|                                                                       |  |                  |       |               |   |        |  
|Net cash proceeds (distributions) from sale of discontinued operations |  | $                | 1,036 |               | $ | (909   | )
|                                                                       |  |                  |       |               |   |        |  

Sale of Subsidiaries

Our sale of subsidiaries includes the divestitures of our Chile subsidiary in fiscal 2009 and our Mexico subsidiary and our Argentina subsidiary in fiscal 2008.



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NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

C. Divestitures
(Continued)



Chile subsidiary

During the second quarter of fiscal 2009, we sold our Chile subsidiary to the same Latin American distribution partner that purchased our Mexico and Argentina subsidiaries. Our Chile subsidiary
was a very small operation with an immaterial net book value, and was sold for an insubstantial amount. The loss recorded on this sale was $0.1 million and is shown as a component of the line item Gain (loss) on sale of subsidiaries on
our consolidated statements of operations. We will continue to sell products to customers in Chile through the distribution partner. Accordingly, we will have continuing cash flows from this business and have not presented Chile as a discontinued
operation in our consolidated statements of operations.

Mexico and Argentina subsidiaries

During fiscal 2008, we sold our Mexico and our Argentina subsidiaries to one of our Latin American distribution partners. During the first quarter of
fiscal 2009, we reached final settlement related to working capital adjustments on the sale of the Mexico subsidiary. This resulted in a non-cash gain of $0.2 million. During the second quarter of fiscal 2009, we reached final settlement related to
working capital adjustments on the sale of the Argentina subsidiary. This resulted in a non-cash loss of $0.1 million. These gains and losses are shown as a component of the line item Gain (loss) on sale of subsidiaries on our
consolidated statements of operations.

The cumulative recognized loss on the sale of our subsidiaries is as follows:



|                                                          |  |        |        |   |           |   |      |       |  |   |       |   |  |   |        |  
|--------------------------------------------------------- |  | ------ | ------ | - | --------- | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|(In thousands)                                            |  | Mexico |        |   | Argentina |   |      | Chile |  |   | Total |  
|Loss before income taxes recognized in fiscal 2008        |  | $      | (3,065 | ) |           | $ | (629 | )     |  | $ |      |   |  | $ | (3,694 | )
|Gain (loss) before income taxes recognized in fiscal 2009 |  |        | 200    |   |           |   | (72  | )     |  |   | (112  | ) |  |   | 16     |  
|                                                          |  |        |        |   |           |   |      |       |  |   |       |   |  |   |        |  
|Total loss recognized to date                             |  | $      | (2,865 | ) |           | $ | (701 | )     |  | $ | (112  | ) |  | $ | (3,678 | )
|                                                          |  |        |        |   |           |   |      |       |  |   |       |   |  |   |        |  

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

We consider all investments with an initial term to maturity of three months or less at the date of purchase to be cash equivalents. Short-term
investments are diversified and: 1) mature greater than 3 months but within the next 12 months; 2) have characteristics of short-term investments; or 3) are available to be used for current operating activities, even if some maturities may extend
beyond one year.

All marketable debt and equity securities that are included in short-term investments are considered available-for-sale
and are carried at fair value. We have only acquired investment grade securities. Temporary increases or decreases in fair value are recorded as unrealized gains or losses in the Accumulated other comprehensive loss line item in our
consolidated balance sheets. Other-than-temporary declines in fair value are recorded in the Impairment of investments line item in the consolidated statements of operations. Fair values are based on quoted market prices.

As of April 30, 2009, $6.1 million of our short-term investments are invested in equity securities designated for deferred compensation payments.
These funds are paid out as requested by participants in the Novell, Inc. Deferred Compensation Plan upon termination of such participants.

As of April 30, 2009, contractual maturities of our short-term investments were:



|                             |  |      |         |           |   |        
|---------------------------- |  | ---- | ------- | --------- | - | -------
|(In thousands)               |  | Cost |         | FairValue
|Less than one year           |  | $    | 56,628  |           | $ | 57,457 
|Due in one to two years      |  |      | 154,800 |           |   | 157,975
|Due in two to three years    |  |      | 97,837  |           |   | 99,498 
|Due in more than three years |  |      | 49,278  |           |   | 50,373 
|No contractual maturity      |  |      | 21,634  |           |   | 19,515 
|                             |  |      |         |           |   |        
|Total short-term investments |  | $    | 380,177 |           | $ | 384,818
|                             |  |      |         |           |   |        



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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



When securities are sold, their cost is determined based on the first-in first-out method. The
realized gains and losses related to these securities are included in the Investment income line item in the consolidated statements of operations. Realized gains and losses on short-term investments were as follows:



|                |  |                    |       |                  |   |               |  |               |       |  |   |       
|--------------- |  | ------------------ | ----- | ---------------- | - | ------------- |  | ------------- | ----- |  | - | ------
|                |  | Three months ended |       | Six months ended
|(In thousands)  |  | April 30,2009      |       | April 30,2008    |   | April 30,2009 |  | April 30,2008
|Realized gains  |  | $                  | 1,039 |                  | $ | 9,373         |  | $             | 2,081 |  | $ | 10,504
|Realized losses |  | $                  | 264   |                  | $ | 193           |  | $             | 1,277 |  | $ | 307   

Our net unrealized gains and losses related to our short-term investments were as follows:



|                              |  |               |        |   |                 |   |        |  
|----------------------------- |  | ------------- | ------ | - | --------------- | - | ------ | -
|(In thousands)                |  | April 30,2009 |        |   | October 31,2008 |  
|Gross unrealized gains        |  | $             | 7,214  |   |                 | $ | 3,255  |  
|Gross unrealized losses       |  |               | (2,573 | ) |                 |   | (6,039 | )
|                              |  |               |        |   |                 |   |        |  
|Net unrealized gains (losses) |  | $             | 4,641  |   |                 | $ | (2,784 | )
|                              |  |               |        |   |                 |   |        |  

We did not record any impairment losses on short-term investments during the first six months of
fiscal 2009 and 2008, as we considered the unrealized losses to be temporary. We have the ability and intent to hold these investments until a recovery of fair value, which may be at maturity.

E. Long-Term Investments

At April 30, 2009 and October 31, 2008,
all of our auction-rate securities (ARSs) are classified as long-term investments on our consolidated balance sheets. Contractual maturities for these ARSs are greater than 15 years with an interest reset date every 28 to 90 days. With
the liquidity issues experienced in the global credit and capital markets, our ARSs have experienced multiple failed auctions.

We
estimated the fair value of these ARSs using a discounted cash flow analysis that considered the following key inputs: (i) the underlying structure of each security; (ii) the present value of the expected future principal and interest
payments discounted at rates considered to reflect current market conditions and the relevant risk associated with each security; and (iii) consideration of the time horizon for the market value of each security to return to its original cost.
We estimated that the fair market value of these securities at April 30, 2009 and October 31, 2008 was $8.0 million and $11.1 million, respectively. Prior to the other-than-temporary impairment charges, the original cost of these ARSs was
$39.8 million.

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. We also reversed $0.2 million in unrealized gains initially recorded in the first quarter of fiscal 2009. The other-than-temporary impairment charges are based on our assessment that it is likely that the
continuing decline in fair value of our ARSs will not fully recover in the foreseeable future, given a combination of factors, including the duration, severity and continued declining trend of the fair value of these securities as well as a
deterioration in some of the securities credit ratings. The other-than-temporary impairment charge of $3.1 million recorded during the first six months of fiscal 2009 is in addition to the $28.7 million of other-than-temporary impairment
charges that were recorded during fiscal 2008.

The fair value of the ARSs could change in the future and we may be required to record
additional other-than-temporary impairment charges if there are further reductions in fair value in future periods.

During fiscal 2008,
our holdings in an enhanced liquidity fund were frozen due to liquidity issues. We believe that the underlying securities are not impaired if held to maturity. As the underlying securities mature, the fund manager is distributing the cash on a pro
rata basis to the funds shareholders. No distributions were received during the second quarter of fiscal 2009. During the first six months of fiscal 2009, we received $6.7 million. As of April 30, 2009, the balance of this investment is
$15.6 million. As of April 30, 2009, we anticipate that $13.4 million of this balance will be distributed during the next twelve months. The remaining $2.2 million is anticipated to be distributed after April 30, 2010 and is classified as
a long-term investment on our consolidated balance sheets. The



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

E. Long-Term Investments
(Continued)



fund continues to accrue and pay interest income and, as there are no other-than-temporary impairment or valuation issues with these securities, no
impairment charges were recorded in connection with this investment. The fair value of the fund was estimated by using the quoted prices of the underlying securities.

Based on our ability to access our cash, cash equivalents, and short-term investments, our expected operating cash flows, and our other potential sources of cash, we do not anticipate that the lack of liquidity on the
enhanced liquidity fund and our ARSs will affect our ability to operate our business as usual during the next twelve months.

F. Fair
Value Measurements

Effective November 1, 2008, we adopted Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements (SFAS No. 157). In February 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. SFAS 157-2, Effective Date of
FASB Statement No. 157 (FSP No. SFAS 157-2), which provides a one-year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed
in the financial statements at fair value at least annually. Accordingly, we have currently adopted the provisions of SFAS No. 157 only with respect to our financial assets and financial liabilities. This adoption of SFAS No. 157 did not
impact our results of operations, but rather provided us with a framework for measuring fair value and enhanced our disclosures about fair value measurements. Likewise, our planned adoption in fiscal 2010 of the portions of SFAS No. 157
deferred by FSP No. SFAS 157-2 is not anticipated to impact our results of operations but will enhance our disclosures about fair value measurements for non-financial assets and non-financial liabilities, except those that are recognized or
disclosed in the financial statements at fair value at least annually.

Under SFAS No. 157, fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants on the measurement date.
Valuation techniques used to measure fair value under SFAS No. 157 should maximize the use of observable inputs and minimize the use of unobservable inputs. SFAS No. 157 describes a fair value hierarchy based on three levels of market
inputs (Levels 1, 2 & 3), of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

Our Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. Level 2 financial instruments are valued using quoted prices for identical instruments in less active markets or using other
observable market inputs for comparable instruments. Level 3 financial instruments are valued using unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Our
Level 3 assets consist of our ARSs.

The following table summarizes the composition and fair value hierarchy of our financial assets as of
April 30, 2009:



|                       |  |                          |                                                            |                               |                                           |         |                                        |   |        |  |   |      
|---------------------- |  | ------------------------ | ---------------------------------------------------------- | ----------------------------- | ----------------------------------------- | ------- | -------------------------------------- | - | ------ |  | - | -----
|                       |  | Total as ofApril 30,2009 |                                                            | Fair Value Measurements Using
|(In thousands)         |  |                          | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |                               | SignificantOtherObservableInputs(Level 2) |         | SignificantUnobservableInputs(Level 3)
|Short-term investments |  | $                        | 384,818                                                    |                               | $                                         | 371,387 |                                        | $ | 13,431 |  | $ |     
|Long-term investments  |  |                          | 10,140                                                     |                               |                                           |        |                                        |   | 2,173  |  |   | 7,967
|                       |  |                          |                                                            |                               |                                           |         |                                        |   |        |  |   |      
|Total                  |  | $                        | 394,958                                                    |                               | $                                         | 371,387 |                                        | $ | 15,604 |  | $ | 7,967
|                       |  |                          |                                                            |                               |                                           |         |                                        |   |        |  |   |      



12



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

F. Fair Value
Measurements (Continued)



The following table summarizes the composition and fair value hierarchy of our financial assets as of
October 31, 2008:



|                       |  |                            |                                                            |                               |                                           |         |                                        |   |        |  |   |       
|---------------------- |  | -------------------------- | ---------------------------------------------------------- | ----------------------------- | ----------------------------------------- | ------- | -------------------------------------- | - | ------ |  | - | ------
|                       |  | Total as ofOctober 31,2008 |                                                            | Fair Value Measurements Using
|(In thousands)         |  |                            | Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) |                               | SignificantOtherObservableInputs(Level 2) |         | SignificantUnobservableInputs(Level 3)
|Short-term investments |  | $                          | 387,813                                                    |                               | $                                         | 369,417 |                                        | $ | 18,396 |  | $ |      
|Long-term investments  |  |                            | 14,972                                                     |                               |                                           |        |                                        |   | 3,909  |  |   | 11,063
|                       |  |                            |                                                            |                               |                                           |         |                                        |   |        |  |   |       
|Total                  |  | $                          | 402,785                                                    |                               | $                                         | 369,417 |                                        | $ | 22,305 |  | $ | 11,063
|                       |  |                            |                                                            |                               |                                           |         |                                        |   |        |  |   |       

The following table summarizes the change in composition and fair value hierarchy of our Level 3
financial assets for the first six months of fiscal 2009:



|                                         |  |                                                                         |  |                  |  | 
|---------------------------------------- |  | ----------------------------------------------------------------------- |  | ---------------- |  | 
|                                         |  | Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|(In thousands)                           |  | Long-term Investments                                                  
|Beginning balance as of October 31, 2008 |  |                                                                         |  | $        11,063  |  | 
|Total loss included in earnings          |  |                                                                         |  | (3,096)          |  | 
|                                         |  |                                                                         |  |                  |  | 
|Ending balance as of April 30, 2009      |  |                                                                         |  | $          7,967 |  | 
|                                         |  |                                                                         |  |                  |  | 

G. Derivative Instruments and Hedging Activities

To protect against reductions in value caused by changes in foreign currency exchange rates, we have an existing hedging program where we hedge currency
risks of some of our assets and liabilities denominated in foreign currencies. We do this by entering into one-month foreign currency forward contracts. We do not currently hedge currency risks related to revenue or expenses denominated in foreign
currencies.

We enter into these one-month hedging contracts two business days before the end of each month and settle them two business
days before the end of the following month. We do not account for any derivatives as hedging instruments under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, rather, we record the impact of any gains or
losses on our hedging program in the consolidated statements of operations.

The net notional amount of foreign currency exchange contracts
hedging foreign currency transactions was $57.3 million and $33.7 million at April 30, 2009 and October 31, 2008, respectively. The fair values of these contracts were immaterial at both April 30, 2009 and October 31, 2008.

The following table shows the gains and losses recognized during the second quarter and first six months of fiscal 2009 related to our
derivative contracts. This table does not take into consideration the corresponding gain (loss) from the hedged balance sheet items:



|                                    |  |                                                                           |                                  |                                            |                                |  |   |        
|----------------------------------- |  | ------------------------------------------------------------------------- | -------------------------------- | ------------------------------------------ | ------------------------------ |  | - | -------
|                                    |  | Location of gain (loss)recognized in consolidatedstatements of operations |                                  | Amount of gain (loss) recognized in income
|(In thousands)                      |  |                                                                           | Three months endedApril 30, 2009 |                                            | Six months endedApril 30,
2009
|Foreign currency exchange contracts |  | Interest expense and other, net                                           |                                  | $                                          | 2,408                          |  | $ | (1,880)



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



H. Goodwill and Intangible Assets

Goodwill

Goodwill allocated to our business unit segments as of
April 30, 2009 is as follows:



|                                       |  |                        |        |                                |   |                               |  |           |         |       |   |         |  |   |        
|-------------------------------------- |  | ---------------------- | ------ | ------------------------------ | - | ----------------------------- |  | --------- | ------- | ----- | - | ------- |  | - | -------
|(In thousands)                         |  | Open PlatformSolutions |        | Identity andSecurityManagement |   | Systems andResourceManagement |  | Workgroup |         | Total
|Balance as of October 31, 2008         |  | $                      | 69,258 |                                | $ | 79,766                        |  | $         | 283,435 |       | $ | 149,658 |  | $ | 582,117
|Managed Objects acquisition            |  |                        |       |                                |   |                              |  |           | 35,176  |       |   |        |  |   | 35,176 
|Fortefi acquisition                    |  |                        |       |                                |   | 2,222                         |  |           |        |       |   |        |  |   | 2,222  
|Impact of foreign currency translation |  |                        |       |                                |   |                              |  |           | 229     |       |   |        |  |   | 229    
|                                       |  |                        |        |                                |   |                               |  |           |         |       |   |         |  |   |        
|Balance as of April 30, 2009           |  | $                      | 69,258 |                                | $ | 81,988                        |  | $         | 318,840 |       | $ | 149,658 |  | $ | 619,744
|                                       |  |                        |        |                                |   |                               |  |           |         |       |   |         |  |   |        

Intangible Assets

The following is a summary of intangible assets:



|                        |  |                |         |                         |   |            |               |  |             |        |                         |   |         |               |   |         |   |  |   |        |  |                     
|----------------------- |  | -------------- | ------- | ----------------------- | - | ---------- | ------------- |  | ----------- | ------ | ----------------------- | - | ------- | ------------- | - | ------- | - |  | - | ------ |  | --------------------
|                        |  | April 30, 2009 |         | October 31, 2008        |   | AssetLives
|(In thousands)          |  | GrossAmount    |         | AccumulatedAmortization |   |            | Net BookValue |  | GrossAmount |        | AccumulatedAmortization |   |         | Net BookValue |  
|Developed technology    |  | $              | 59,210  |                         | $ | (40,901    | )             |  | $           | 18,309 |                         | $ | 52,769  |               | $ | (35,410 | ) |  | $ | 17,359 |  | 3 years             
|Trademarks/trade names  |  |                | 25,631  |                         |   | (835       | )             |  |             | 24,796 |                         |   | 25,631  |               |   | (666    | ) |  |   | 24,965 |  | 3 years orIndefinite
|Customer relationships  |  |                | 35,142  |                         |   | (23,855    | )             |  |             | 11,287 |                         |   | 31,911  |               |   | (20,915 | ) |  |   | 10,996 |  | 3 years             
|Internal use software   |  |                | 5,057   |                         |   | (5,057     | )             |  |             |       |                         |   | 5,057   |               |   | (5,057  | ) |  |   |       |  | 3 years             
|                        |  |                |         |                         |   |            |               |  |             |        |                         |   |         |               |   |         |   |  |   |        |  |                     
|Total intangible assets |  | $              | 125,040 |                         | $ | (70,648    | )             |  | $           | 54,392 |                         | $ | 115,368 |               | $ | (62,048 | ) |  | $ | 53,320 |  |                     
|                        |  |                |         |                         |   |            |               |  |             |        |                         |   |         |               |   |         |   |  |   |        |  |                     

Amortization of intangible assets for the second quarters of fiscal 2009 and 2008 was $4.3 million
and $2.4 million, respectively. Amortization of intangible assets for the first six months of fiscal 2009 and 2008 was $8.6 million and $3.9 million, respectively. Amortization of existing intangibles is estimated to be approximately $7.7 million
for the remainder of fiscal 2009, $14.2 million in fiscal 2010, $7.7 million in fiscal 2011, and $0.6 million in fiscal 2012, with nothing thereafter. See Note B, Acquisitions, for details about the increase in intangible assets from our
Managed Objects and Fortefi acquisitions during the first six months of fiscal 2009.

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.

I. 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 2009, we provided $2.8 million and $9.1
million, respectively, for income tax expense on continuing operations. 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). Due to the utilization of a significant amount of our net operating loss carryforwards in previous years, the majority of future benefit received from our remaining net operating loss carryforwards used to
offset U.S. taxable income will be credited to goodwill and not to income tax expense. In addition, the windfall tax benefits associated with stock-based compensation will be credited to additional paid-in capital. In connection with our adoption of
SFAS No. 123(R), Share-Based Payment (SFAS No. 123(R)), in fiscal 2006, we elected to follow the tax ordering laws to determine the sequence in which deductions, net operating loss carryforwards, and tax credits are
utilized. There were no significant adjustments to additional paid-in capital as a result of tax benefits relating to stock options for current year exercises. During the second quarter of fiscal 2009, a tax benefit of $2.8 million was recorded
related to the resolution of prior year tax filings.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

I. Income Taxes
(Continued)



Income Tax Expense

The effective tax rate for the second quarter and first six months of fiscal 2009 differs from the federal statutory rate of 35% primarily due to the effects of foreign taxes, stock-based
compensation plans, differences between the book and tax treatment of certain income items on which a valuation allowance has been recorded, and the jurisdictional mix of the earnings. The effective tax rate on continuing operations for the second
quarter of fiscal 2009 was 16% compared to an effective tax rate of 70% for the prior year period. The effective tax rate on continuing operations for the first six months of fiscal 2009 was 27% compared to an effective tax rate of 54% for the prior
year period. The decrease in the effective tax rate on continuing operations for the second quarter and first six months of fiscal 2009 compared to the respective prior year periods relates primarily to differences between book and tax income that
increased fiscal 2008 tax income and necessitated in fiscal 2008 the use of acquired and equity compensation-based net operating losses, which reduced goodwill and additional paid-in capital on the balance sheet rather than reducing income tax
expense.

Valuation Allowance

In accordance with determinations made pursuant to the applicable accounting standards, we continue to believe, based on all available evidence, that it is more likely than not that most of our remaining U.S. net deferred tax assets will
not be realized. As a result, we have provided a valuation allowance on those U.S. 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 current 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, goodwill or additional paid-in capital. It is reasonably possible that we could reduce a significant portion of our valuation allowance in the near-term.

Income Tax Reserves

As of
April 30, 2009, we had reserves for unrecognized tax benefits totaling $35.7 million, excluding interest, of which $28.3 million would favorably impact the effective tax rate if recognized. As of October 31, 2008, we had reserves for
unrecognized tax benefits totaling $49.9 million. The $14.2 million decrease in reserves for unrecognized tax benefits during the first six months of fiscal 2009 relates primarily to the release of reserves which were effectively settled during the
fiscal quarter.

During the second quarter of fiscal 2009, we accrued approximately $0.4 million in interest related to unrecognized tax
benefits. During the first six months of fiscal 2009, we accrued approximately $1.0 million in interest related to unrecognized tax benefits. We had $8.4 million and $7.4 million accrued for the payment of interest related to unrecognized tax
benefits as of April 30, 2009 and October 31, 2008, respectively.

As of April 30, 2009, we have recorded a $35.6 million
liability for unrecognized tax benefits and related interest in the line item Other long-term liabilities on our consolidated balance sheet. We have also recorded $1.1 million of unrecognized tax benefits in the line item Income
taxes payable on our consolidated balance sheet.

The difference between the total unrecognized tax benefits and those affecting the
effective tax rate is due to certain unrecognized tax benefits that would have a full valuation allowance if recognized. As of April 30, 2009, we believe it is reasonably possible that $1.1 million of unrecognized tax benefits plus accrued
interest will decrease within the next 12 months as the result of statutes of limitations expiring in various jurisdictions. We do not believe that the favorable $1.1 million decrease in unrecognized tax benefits would significantly impact the
effective tax rate in any single period.

We conduct business globally and, as a result, one or more of our subsidiaries file income tax
returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities throughout the world. During January 2008, the U.S. Internal Revenue Service
opened an examination for fiscal 2005 and 2006. In addition, we are at various stages in examinations in some 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 1998 or non-U.S. income tax examinations for years prior to fiscal 2004.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



J. Restructuring and Merger Liabilities

Restructuring Liabilities

During
the first six months of fiscal 2009, we recorded net restructuring expenses of $15.3 million. This was comprised of $14.4 million for fiscal 2009 restructuring actions and $0.9 million in additions to accruals for changes in estimates related to
prior period restructuring activities. During the second quarter of fiscal 2009, we recorded net restructuring expenses of $7.2 million.

The restructuring actions undertaken during the second quarter and first six months of fiscal 2009 are primarily a completion of the restructuring plan that we began during the fourth quarter of fiscal 2006. The restructuring plan is
related to our strategy to implement a comprehensive transformation of our business and to achieve competitive operating margins. During the second quarter of fiscal 2009, we reduced our headcount by an additional 87 employees, bringing our total
headcount reductions from restructuring activities to 150 employees for the first six months of fiscal 2009. The 150 headcount reductions during the first six months of fiscal 2009 were comprised of: 68 product development employees, 36 technical
support employees, 13 general and administrative employees, 18 sales and marketing employees, 11 consulting employees and four operations employees. At April 30, 2009, our total headcount was approximately 3,900. We also vacated several
facilities and recorded charges for lease exit costs.

Our restructuring activities in prior periods are disclosed in detail in our Annual
Report on Form 10-K for fiscal 2008. The following table summarizes the restructuring reserve balance as of April 30, 2009 and activity during the first six months of fiscal 2009:



|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|----------------------------------------- |  | ----------- | ------ | - | ----------- | - | ------- | ----------- |  | - | ------------------- | - |  | ----- | ------ | - |  | - | ------- | -
|(In thousands)                            |  | Fiscal 2009 |        |   | Fiscal 2008 |   |         | Fiscal 2007 |  |   | Prior toFiscal 2006 |   |  | Total |       
|Balance as of October 31, 2008:           |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Workforce reductions                      |  | $           |       |   |             | $ | 14,727  |             |  | $ | 147                 |   |  | $     | 17     |   |  | $ | 14,891  |  
|Excess facilities, property and equipment |  |             |       |   |             |   | 1,238   |             |  |   | 1,199               |   |  |       | 3,013  |   |  |   | 5,450   |  
|Other restructuring-related costs         |  |             |       |   |             |   | 229     |             |  |   |                    |   |  |       |       |   |  |   | 229     |  
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Total restructuring reserve balance       |  |             |       |   |             |   | 16,194  |             |  |   | 1,346               |   |  |       | 3,030  |   |  |   | 20,570  |  
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Original charge/adjustments:              |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Workforce reductions                      |  |             | 10,118 |   |             |   | 467     |             |  |   | (106                | ) |  |       | (17    | ) |  |   | 10,462  |  
|Excess facilities, property and equipment |  |             | 4,274  |   |             |   | 310     |             |  |   | 192                 |   |  |       | 47     |   |  |   | 4,823   |  
|Other restructuring-related costs         |  |             |       |   |             |   | (12     | )           |  |   |                    |   |  |       |       |   |  |   | (12     | )
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Total original charge/adjustments         |  |             | 14,392 |   |             |   | 765     |             |  |   | 86                  |   |  |       | 30     |   |  |   | 15,273  |  
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Payments:                                 |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Workforce reductions                      |  |             | (4,768 | ) |             |   | (13,506 | )           |  |   | (41                 | ) |  |       |       |   |  |   | (18,315 | )
|Excess facilities, property and equipment |  |             | (1,406 | ) |             |   | (585    | )           |  |   | (442                | ) |  |       | (1,326 | ) |  |   | (3,759  | )
|Other restructuring-related costs         |  |             |       |   |             |   | (217    | )           |  |   |                    |   |  |       |       |   |  |   | (217    | )
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Total payments                            |  |             | (6,174 | ) |             |   | (14,308 | )           |  |   | (483                | ) |  |       | (1,326 | ) |  |   | (22,291 | )
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Balance as of April 30, 2009:             |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Workforce reductions                      |  |             | 5,350  |   |             |   | 1,688   |             |  |   |                    |   |  |       |       |   |  |   | 7,038   |  
|Excess facilities, property and equipment |  |             | 2,868  |   |             |   | 963     |             |  |   | 949                 |   |  |       | 1,734  |   |  |   | 6,514   |  
|Other restructuring-related costs         |  |             |       |   |             |   |        |             |  |   |                    |   |  |       |       |   |  |   |        |  
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  
|Total restructuring reserve balance       |  | $           | 8,218  |   |             | $ | 2,651   |             |  | $ | 949                 |   |  | $     | 1,734  |   |  | $ | 13,552  |  
|                                          |  |             |        |   |             |   |         |             |  |   |                     |   |  |       |        |   |  |   |         |  

The net adjustments increasing the restructuring reserves during the first six months of fiscal
2009 by $0.9 million related to changes in prior fiscal year estimates for various severance and related benefits and facility reserves. These adjustments are reflected in the table above for the respective fiscal year.

As of April 30, 2009, the remaining unpaid restructuring balances include accrued liabilities related to severance and other benefits, which will
primarily be paid over the next twelve months, and lease costs for redundant facilities, which will be paid over the respective remaining contract terms, the longest of which extends to 2014.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

J. Restructuring and
Merger Liabilities (Continued)



Merger Liabilities

The following table summarizes the merger liabilities balance and activity associated with our acquisitions, including transaction costs, during the first six months of fiscal 2009:



|                         |  |                            |        |                            |   |                      |  |   |                          |   |  |   |      
|------------------------ |  | -------------------------- | ------ | -------------------------- | - | -------------------- |  | - | ------------------------ | - |  | - | -----
|(In thousands)           |  | Balance atOctober 31, 2008 |        | Additions fromAcquisitions |   | Payments/Adjustments |  |   | Balance atApril 30, 2009
|Facilities related       |  | $                          | 10,355 |                            | $ | 145                  |  | $ | (1,149                   | ) |  | $ | 9,351
|Employee related         |  |                            | 170    |                            |   |                     |  |   | (170                     | ) |  |   |     
|Other                    |  |                            | 93     |                            |   | 988                  |  |   | (899                     | ) |  |   | 182  
|                         |  |                            |        |                            |   |                      |  |   |                          |   |  |   |      
|Total merger liabilities |  | $                          | 10,618 |                            | $ | 1,133                |  | $ | (2,218                   | ) |  | $ | 9,533
|                         |  |                            |        |                            |   |                      |  |   |                          |   |  |   |      

The additions from acquisitions relate to the Managed Objects and Fortefi acquisitions (See Note
B, Acquisitions). As of April 30, 2009, the remaining unpaid merger liability balances include accrued liabilities related to lease costs for redundant facilities, which will be paid over the respective remaining contract terms, the
longest of which extends to 2025, and professional fees, which will be paid over the next twelve months.

K. Senior Convertible
Debentures

During the first six months of fiscal 2009, we made total cash payments for interest of $0.3 million related to the 0.5%
senior convertible debentures due 2024 (Debentures). During the second quarters of fiscal 2009 and 2008, we incurred interest expense, including the amortization of deferred financing costs related to the Debentures, of $1.1 million and
$5.5 million, respectively. During the first six months of fiscal 2009 and 2008, we incurred interest expense, including the amortization of deferred financing costs related to the Debentures, of $2.3 million and $11.1 million, respectively.

During fiscal 2008, we received authorization from our Board of Directors to repurchase, from time to time, up to $600 million face value
of the Debentures in such quantities, at such prices, and in such manner as may be directed by our management. During the first six months of fiscal 2009, we purchased and retired $4.0 million face value of the Debentures for total cash
consideration of $3.9 million, including less than $0.1 million of accrued interest. The portions of the unamortized debt issuance costs and prepaid interest related to the Debentures that were repurchased were written off resulting in a gain of
$0.1 million during the first six months of fiscal 2009. This gain is shown as a component of the line item Interest expense and other, net in our consolidated statements of operations.

Holders of the Debentures may require us to repurchase all or a portion of their Debentures on July 15, 2009. As a result, the outstanding balance
of the Debentures and related deferred financing costs are classified as a current liability and asset, respectively, on our consolidated balance sheets.

L. 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, the various parties are pursuing settlement discussions that, if successful, would resolve all claims, including
the ones against SilverStream and its former directors and officers. Any settlement agreement must receive final approval from the court and efforts to pursue the same are ongoing. 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.



17



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

L. Legal Proceedings
(Continued)



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 in January 2007, the jury returned a verdict in favor of the various plaintiffs on certain contract claims and in favor of us on various
remaining claims. As a result of the verdict, a judgment was entered against us on August 27, 2007 in the amount of $19.0 million plus an additional $4.5 million in prejudgment interest. In addition, the court has awarded plaintiffs
attorneys fees and costs related to the litigation. We have filed Notices of Appeal of the judgment and the related orders to the California Court of Appeals. We believe we have strong legal arguments that could result in reversal of the
judgment and the lower courts orders; however, we believe settlement is also a possibility. We accrued $27.0 million in prior fiscal periods for this matter. During the first quarter of fiscal 2008, we posted a $51.5 million bond in
conjunction with our appeal of this judgment. 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. 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 and on May 6, 2009, the case was argued before the Court of Appeals. We are currently awaiting a decision from the Court of Appeals. Of the total judgment amount, $0.6
million will be treated as constructive trust funds and placed in an escrow account pending the outcome of SCOs appeal from the final judgment, while the remaining $2.9 million is a disputed unsecured claim in the SCO bankruptcy case. As for
the SUSE arbitration proceeding, hearings before the International Court have been stayed by the court in the SCO bankruptcy case. Although there can be no assurance as to the ultimate disposition of the suit, we do not believe that the resolution
of this litigation 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



18



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

L. Legal Proceedings
(Continued)



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 are now
proceeding with the remaining claims against Microsoft, with an anticipated trial date in 2010.

Between September and November of 2006,
seven separate derivative complaints were filed in Massachusetts state and federal courts against us and many of our current and former officers and directors asserting various claims related to alleged options backdating. We are also named as a
nominal defendant in these complaints, although the actions are derivative in nature and purportedly asserted on our behalf. These actions arose out of our announcement of a voluntary review of our historical stock-based compensation practices. The
complaints essentially allege that, since 1999, we materially understated our compensation expenses and, as a result, overstated actual income. The five actions filed in federal court were consolidated, and a stipulation was reached that the
defendants answer or motion to dismiss would be due 45 days after the filing of any amended complaint. Although this stipulation was filed with the court in February 2007, to date, no amended complaints have been filed in the federal
court cases. The two state court cases were consolidated before the Business Litigation Session of the Massachusetts Suffolk County Superior Court. After we filed a motion to dismiss the state court complaints, plaintiffs counsel informed us
that they did not intend to file a reply to the motion and would stipulate to the dismissal of the state court complaints. We believe there are strong defenses to the remaining consolidated cases pending in the federal court if or when any amended
complaint is filed. 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.

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. Our initial evaluation of the patent claims asserted by the plaintiff indicates that we have strong defenses to the claims. Although we are
preparing to defend against the claims, we have also had settlement discussions with IP Innovations that we are hopeful may lead to a settlement without the need for protracted litigation. In prior periods, we accrued $1.3 million for this matter.
While there can be no assurance as to the ultimate disposition of the litigation or negotiations, we do not believe that its resolution will have a material adverse effect on our financial position, results of operations or cash flows.

On September 29, 2008, we received a demand letter from Bank of Montreals legal counsel demanding that we refund certain license fees and
costs incurred by Bank of Montreal in connection with a consulting services agreement between the bank and Senforce Technologies Inc. (Senforce), a company that we acquired in fiscal 2007. As a result of the Banks demands and
pursuant to the terms of the Senforce acquisition agreement, we asserted a claim against certain escrowed funds. We accrued $0.6 million for this matter. During the second quarter of fiscal 2009, we reached final settlement with the Bank and the
former Senforce shareholders who were to receive the escrow payments, and distributions were made for the amounts accrued.

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 account for
legal reserves under SFAS No. 5 Accounting for Contingencies, which requires us to 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.



19



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



M. 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 2009 and 2008:



|                                                                                                                                |  |                    |         |               |   |        
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------- | - | -------
|                                                                                                                                |  | Three months ended
|(In thousands, except per share data)                                                                                           |  | April 30,2009      |         | April 30,2008
|Basic income per share from continuing operations computation:                                                                  |  |                    |         |               |   |        
|Income from continuing operations                                                                                               |  | $                  | 15,051  |               | $ | 5,866  
|                                                                                                                                |  |                    |         |               |   |        
|                                                                                                                                |  |                   
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                 |  |                    | 344,881 |               |   | 352,785
|                                                                                                                                |  |                    |         |               |   |        
|                                                                                                                                |  |                   
|Basic income per share from continuing operations                                                                               |  | $                  | 0.04    |               | $ | 0.02   
|                                                                                                                                |  |                    |         |               |   |        
|                                                                                                                                |  |                   
|Diluted income per share from continuing operations computation:                                                                |  |                    |         |               |   |        
|Income from continuing operations                                                                                               |  | $                  | 15,051  |               | $ | 5,866  
|                                                                                                                                |  |                    |         |               |   |        
|                                                                                                                                |  |                   
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                 |  |                    | 344,881 |               |   | 352,785
|Incremental shares attributable to the assumed exercise of outstanding options, unvestedrestricted stock, and other stock
plans |  |                    | 958     |               |   | 1,502  
|                                                                                                                                |  |                    |         |               |   |        
|Total adjusted weighted-average common shares                                                                                   |  |                    | 345,839 |               |   | 354,287
|                                                                                                                                |  |                    |         |               |   |        
|                                                                                                                                |  |                   
|Diluted income per share from continuing operations                                                                             |  | $                  | 0.04    |               | $ | 0.02   
|                                                                                                                                |  |                    |         |               |   |        

In the calculation of diluted earnings per share for the second quarters of fiscal 2009 and 2008,
10.6 million and 50.8 million shares, respectively, of common stock attributable to the assumed conversion of the Debentures were excluded as their effect would have been anti-dilutive.

Incremental shares attributable to options with exercise prices that were at or greater than the average market price (out-of-the-money) were
also excluded from the calculation of diluted earnings per share for the second quarters of fiscal 2009 and 2008 as their effect would have been anti-dilutive. Out-of-the-money options for the second quarters of fiscal 2009 and 2008 totaled
24.1 million shares and 15.3 million shares, respectively.



|                                                                                                                                |  |                  |         |               |   |        
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | ------------- | - | -------
|                                                                                                                                |  | Six months ended
|(In thousands, except per share data)                                                                                           |  | April 30,2009    |         | April 30,2008
|Basic income per share from continuing operations computation:                                                                  |  |                  |         |               |   |        
|Income from continuing operations                                                                                               |  | $                | 24,692  |               | $ | 20,550 
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                 |  |                  | 344,429 |               |   | 351,957
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Basic income per share from continuing operations                                                                               |  | $                | 0.07    |               | $ | 0.06   
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Diluted income per share from continuing operations computation:                                                                |  |                  |         |               |   |        
|Income from continuing operations                                                                                               |  | $                | 24,692  |               | $ | 20,550 
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Weighted-average common shares outstanding, excluding unvested restricted stock                                                 |  |                  | 344,429 |               |   | 351,957
|Incremental shares attributable to the assumed exercise of outstanding options, unvestedrestricted stock, and other stock
plans |  |                  | 1,114   |               |   | 1,703  
|                                                                                                                                |  |                  |         |               |   |        
|Total adjusted weighted-average common shares                                                                                   |  |                  | 345,543 |               |   | 353,660
|                                                                                                                                |  |                  |         |               |   |        
|                                                                                                                                |  |                 
|Diluted income per share from continuing operations                                                                             |  | $                | 0.07    |               | $ | 0.06   
|                                                                                                                                |  |                  |         |               |   |        

In the calculation of diluted earnings per share for the first six months of fiscal 2009 and 2008,
10.7 million and 51.4 million shares, respectively, of common stock attributable to the assumed conversion of the Debentures were excluded as their effect would have been anti-dilutive.



20



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

M. Income Per Share From
Continuing Operations (Continued)



Incremental shares attributable to options with exercise prices that were at or greater than the
average market price (out-of-the-money) were also excluded from the calculation of diluted earnings per share for the first six months of fiscal 2009 and 2008 as their effect would have been anti-dilutive. Out-of-the-money options for
the first six months of fiscal 2009 and 2008 totaled 23.3 million shares and 16.2 million shares, respectively.

N.
Comprehensive Income

The components of comprehensive income (loss) are as follows:



|                                                    |  |                    |        |               |                  |         |               |  |   |               |   |  |   |        |  
|--------------------------------------------------- |  | ------------------ | ------ | ------------- | ---------------- | ------- | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                                    |  | Three months ended |        |               | Six months ended |        
|(In thousands)                                      |  | April 30,2009      |        | April 30,2008 |                  |         | April 30,2009 |  |   | April 30,2008 |  
|Net income                                          |  | $                  | 15,617 |               | $                | 5,866   |               |  | $ | 26,294        |   |  | $ | 22,671 |  
|Change in net unrealized gain (loss) on investments |  |                    | 1,130  |               |                  | (12,826 | )             |  |   | 7,425         |   |  |   | (5,999 | )
|Change in cumulative translation adjustments        |  |                    | 2,011  |               |                  | 4,025   |               |  |   | (5,383        | ) |  |   | (960   | )
|Change in unrecognized pension costs                |  |                    | 110    |               |                  | 85      |               |  |   | 180           |   |  |   | 120    |  
|                                                    |  |                    |        |               |                  |         |               |  |   |               |   |  |   |        |  
|Comprehensive income (loss)                         |  | $                  | 18,868 |               | $                | (2,850  | )             |  | $ | 28,516        |   |  | $ | 15,832 |  
|                                                    |  |                    |        |               |                  |         |               |  |   |               |   |  |   |        |  

Our accumulated other comprehensive loss is comprised of the following:



|                                           |  |               |         |   |                 |   |         |  
|------------------------------------------ |  | ------------- | ------- | - | --------------- | - | ------- | -
|(In thousands)                             |  | April 30,2009 |         |   | October 31,2008 |  
|Net unrealized gain (loss) on investments  |  | $             | 4,641   |   |                 | $ | (2,784  | )
|Unrecognized pension costs                 |  |               | 3,823   |   |                 |   | 3,643   |  
|Cumulative translation adjustment          |  |               | (23,371 | ) |                 |   | (17,988 | )
|                                           |  |               |         |   |                 |   |         |  
|Total accumulated other comprehensive loss |  | $             | (14,907 | ) |                 | $ | (17,129 | )
|                                           |  |               |         |   |                 |   |         |  

O. Stock-Based Compensation

At the annual stockholders meeting on April 6, 2009, our stockholders approved the Novell, Inc. 2009 Omnibus Incentive Plan (2009 Plan). All prior plans have been suspended
and no new awards can be granted under those plans; however, we continue to manage outstanding awards under those plans. Those prior plans are discussed in more detail in our fiscal 2008 Annual Report on Form 10-K (See Note T,
Stockholders Equity).

The 2009 Plan, with an aggregate of 45.0 million shares of common stock initially reserved
for issuance, provides for the grant of stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares and performance units, and other cash-based and stock-based awards. It also provides for the issuance
of common stock equivalents (CSEs). For details of this plan, see Appendix A of our Definitive Proxy Statement on Schedule 14A, filed with the SEC on February 25, 2009.

It is anticipated that under the 2009 Plan we will continue the same stock-based compensation practices followed under prior plans. We generally grant nonqualified stock options and restricted
stock units. Stock options are granted at the fair market value of our common stock on the date of grant (defined in the plan as the closing price on the day prior to the grant date), generally vest over 48 months, are exercisable upon vesting and
expire eight years from the date of grant. Restricted stock units generally vest annually over three or four years, have an exercise price of $0.00 and are payable in common stock. CSEs may be issued to non-employee members of our Board of Directors
who elect to have all or a portion of their board retainer deferred through the purchase of CSEs. The purchase price for CSEs is equal to the fair market value of our common stock on the date of purchase (defined in the plan as the closing price on
the day prior to the grant date). Participating board members who defer compensation into the award of CSEs specify the future date such CSEs will be converted into shares of our common stock.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

O. Stock-Based
Compensation (Continued)



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 2009 and 2008:



|                             |  |                  |  |              
|---------------------------- |  | ---------------- |  | -------------
|                             |  | Six months ended
|(In thousands)               |  | April 30,2009    |  | April 30,2008
|Stock options:               |  |                  |  |              
|Performance-based            |  | 1,882            |  | 1,583        
|Time-based                   |  | 2,118            |  | 1,514        
|                             |  |                  |  |              
|Total stock options          |  | 4,000            |  | 3,097        
|                             |  |                  |  |              
|Restricted stock units:      |  |                  |  |              
|Performance-based            |  | 827              |  | 626          
|Time-based                   |  | 1,716            |  | 1,385        
|                             |  |                  |  |              
|Total restricted stock units |  | 2,543            |  | 2,011        
|                             |  |                  |  |              

Stock Options

Performance-based:In the first six months of fiscal 2009 and 2008, 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. Generally, if the targets are not met, the stock options will expire unvested.

Time-based:In the first six months of fiscal 2009 and 2008, we granted time-based stock options to executive and non-executive employees. Vesting of the options occurs over four years as follows: 25% of the grant vests on the first
anniversary of the grant date; the remaining 75% of the grant vests monthly thereafter. The options expire eight years after the grant date.

Restricted Stock Units

Performance-based: In the first six months of fiscal 2009 and 2008, 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. Generally, if the targets are not met, the restricted stock units will expire and will not
be released.

Time-based:In the first six months of fiscal 2009 and 2008, we granted time-based restricted stock units to executive
and non-executive employees. Units vest proportionally on each grant date anniversary over 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 30,2009      |       | April 30,2008    |   | April 30,2009 |  | April 30,2008
|Cost of revenue                        |  | $                  | 671   |                  | $ | 527           |  | $             | 1,583  |  | $ | 1,824 
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       
|                                       |  |                    |       |                 
|Sales and marketing                    |  |                    | 1,550 |                  |   | 2,030         |  |               | 4,113  |  |   | 5,447 
|Product development                    |  |                    | 2,289 |                  |   | 2,353         |  |               | 4,794  |  |   | 5,357 
|General and administrative             |  |                    | 1,181 |                  |   | 2,100         |  |               | 3,232  |  |   | 5,149 
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       
|Operating expenses                     |  |                    | 5,020 |                  |   | 6,483         |  |               | 12,139 |  |   | 15,953
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       
|Total stock-based compensation expense |  | $                  | 5,691 |                  | $ | 7,010         |  | $             | 13,722 |  | $ | 17,777
|                                       |  |                    |       |                  |   |               |  |               |        |  |   |       

Total unrecognized stock-based compensation expense expected to be recognized over an estimated
weighted-average amortization period of 2.3 years was $64.8 million at April 30, 2009.



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

O. Stock-Based
Compensation (Continued)



Employee Stock Purchase Plan

Our Employee Stock Purchase Plan (ESPP) is considered non-compensatory under SFAS No. 123(R) and, accordingly, no compensation expense has been recorded for issuances under the
ESPP. Issuances of stock under the ESPP during the first six months of fiscal 2009 and 2008 totaled 0.1 million shares in each period. This plan will expire in July 2009 and will not be renewed.

P. Segment Information

We operate
and report our financial results in four business unit segments based on information technology solution categories. Our business unit segments are Open Platform Solutions, Identity and Security Management, Systems and Resource Management, and
Workgroup.

Our performance is evaluated by our Chief Executive Officer and our other chief decision makers based on reviewing revenue and
operating income (loss) information for each 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 dealers and end
users. Operating results by business unit segment are as follows:



|                                   |  |                    |         |             |                |         |                        |  |   |             |   |             |   |         |                        |   |         |   |  |   |          |  
|---------------------------------- |  | ------------------ | ------- | ----------- | -------------- | ------- | ---------------------- |  | - | ----------- | - | ----------- | - | ------- | ---------------------- | - | ------- | - |  | - | -------- | -
|                                   |  | Three months ended |        
|                                   |  | April 30, 2009     |         |             | April 30, 2008 |        
|(In thousands)                     |  | Net revenue        |         | Grossprofit |                |         | Operatingincome (loss) |  |   | Net revenue |   | Grossprofit |   |         | Operatingincome (loss) |  
|Open Platform Solutions            |  | $                  | 44,112  |             | $              | 34,756  |                        |  | $ | 21,451      |   |             | $ | 37,516  |                        | $ | 26,702  |   |  | $ | 12,191   |  
|Identity and Security Management   |  |                    | 38,846  |             |                | 27,559  |                        |  |   | 18,306      |   |             |   | 46,299  |                        |   | 24,226  |   |  |   | 12,920   |  
|Systems and Resource Management    |  |                    | 45,354  |             |                | 37,522  |                        |  |   | 26,562      |   |             |   | 46,769  |                        |   | 39,356  |   |  |   | 30,503   |  
|Workgroup                          |  |                    | 87,283  |             |                | 73,882  |                        |  |   | 65,137      |   |             |   | 105,082 |                        |   | 87,101  |   |  |   | 77,849   |  
|Common unallocated operating costs |  |                    |        |             |                | (3,406  | )                      |  |   | (113,832    | ) |             |   |        |                        |   | (2,186  | ) |  |   | (131,796 | )
|                                   |  |                    |         |             |                |         |                        |  |   |             |   |             |   |         |                        |   |         |   |  |   |          |  
|Total per statements of operations |  | $                  | 215,595 |             | $              | 170,313 |                        |  | $ | 17,624      |   |             | $ | 235,666 |                        | $ | 175,199 |   |  | $ | 1,667    |  
|                                   |  |                    |         |             |                |         |                        |  |   |             |   |             |   |         |                        |   |         |   |  |   |          |  
|                                   | 
|                                   |  | Six months ended   |        
|                                   |  | April 30, 2009     |         |             | April 30, 2008 |        
|(In thousands)                     |  | Net revenue        |         | Grossprofit |                |         | Operatingincome (loss) |  |   | Net revenue |   | Grossprofit |   |         | Operatingincome (loss) |  
|Open Platform Solutions            |  | $                  | 85,574  |             | $              | 68,525  |                        |  | $ | 40,921      |   |             | $ | 74,315  |                        | $ | 52,491  |   |  | $ | 24,059   |  
|Identity and Security Management   |  |                    | 76,832  |             |                | 52,951  |                        |  |   | 35,362      |   |             |   | 93,329  |                        |   | 52,081  |   |  |   | 29,316   |  
|Systems and Resource Management    |  |                    | 90,757  |             |                | 74,789  |                        |  |   | 52,490      |   |             |   | 90,108  |                        |   | 74,847  |   |  |   | 58,176   |  
|Workgroup                          |  |                    | 177,303 |             |                | 149,093 |                        |  |   | 131,435     |   |             |   | 208,840 |                        |   | 173,440 |   |  |   | 155,655  |  
|Common unallocated operating costs |  |                    |        |             |                | (7,071  | )                      |  |   | (228,940    | ) |             |   |        |                        |   | (4,675  | ) |  |   | (257,058 | )
|                                   |  |                    |         |             |                |         |                        |  |   |             |   |             |   |         |                        |   |         |   |  |   |          |  
|Total per statements of operations |  | $                  | 430,466 |             | $              | 338,287 |                        |  | $ | 31,268      |   |             | $ | 466,592 |                        | $ | 348,184 |   |  | $ | 10,148   |  
|                                   |  |                    |         |             |                |         |                        |  |   |             |   |             |   |         |                        |   |         |   |  |   |          |  

Segment operating income is comprised of business unit segment gross profit, less research and
development expenses attributable to each business unit segment. Common unallocated operating costs include corporate services common to all segments such as sales and marketing, general and administrative costs, stock-based compensation,
acquisition-related intangible asset amortization, restructuring expenses, impairments, and certain litigation settlement expenses or income. Our chief decision makers monitor all common unallocated operating costs closely but not in the context of
our business unit segment reporting.

Geographic Information

For the second quarters of fiscal 2009 and 2008, revenue in the United States was $108.1 million and $114.0 million, respectively. The lower revenue in the United States in the second quarter of
fiscal 2009 compared to the prior year period was due to lower services revenue. Revenue from customers outside the United States was $107.5 million and $121.7 million in the second quarters of fiscal 2009 and 2008, respectively. The lower revenue
outside the United States in the second quarter of fiscal 2009 compared to the prior year period was due to lower services revenue and unfavorable foreign currency exchange rates. For the second quarters of fiscal 2009 and 2008, 70% and 68%,
respectively, of our revenue outside the United States was in the Europe, Middle East and Africa region. During the second quarter of fiscal 2009, revenue in Germany accounted for 10% of our net revenue. No other country outside of the United States
accounted for 10% or more of our net revenue for the second quarters of fiscal 2009 or 2008. No single customer accounted for 10% or more of our total revenue for either period presented.



23



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##### Table of Contents

NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

P. Segment Information
(Continued)



For the first six months of fiscal 2009 and 2008, revenue in the United States was $213.3 million and
$223.2 million, respectively. The lower revenue in the United States in the first six months of fiscal 2009 compared to the prior year period was due to lower services revenue. Revenue from customers outside the United States was $217.2 million and
$243.4 million in the first six months of fiscal 2009 and 2008, respectively. The lower revenue outside the United States in the first six months of fiscal 2009 compared to the prior year period was due to lower services revenue and unfavorable
foreign currency exchange rates. For the first six months of fiscal 2009 and 2008, 70% of our revenue outside the United States was in the Europe, Middle East and Africa region. During the first six months of fiscal 2009, Germany accounted for 10%
of our net revenue. No other country outside of the United States accounted for 10% or more of our net revenue for the first six months of fiscal 2009 or 2008. No single customer accounted for 10% or more of our total revenue for either period
presented.

Q. 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 quarter or first six months of fiscal 2009. As of April 30, 2009, $33.2 million remains to be repurchased under the current Board authorization.

R. Recent Pronouncements

In December 2007, the FASB issued
SFAS No. 141(R), Business Combinations (SFAS No. 141(R)). This statement replaces SFAS No. 141, Business Combinations. SFAS No. 141(R) establishes principles and requirements for
how an acquiring company: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; 2) recognizes and measures the goodwill acquired
in the business combination or a gain from a bargain purchase; and 3) discloses information to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is
effective for business combinations occurring on or after the beginning of the fiscal year beginning on or after December 15, 2008 (our fiscal 2010). For acquisitions that close after November 1, 2009 or for any acquisition-related tax
adjustments that occur after November 1, 2009, this pronouncement will impact our financial position and results of operations.

In
April 2009, the FASB issued Staff Position No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies (FSP No. 141(R)-1). FSP No. 141(R)-1 was
issued in response to various application issues raised in adopting SFAS No. 141(R) with respect to the measurement, accounting, and disclosures of assets and liabilities arising from contingencies in a business combination. FSP
No. 141(R)-1 provides guidance and clarification in measuring, accounting, and disclosing acquired contingent assets and liabilities. FSP No. 141(R)-1 is effective for business combinations occurring on or after the beginning of the fiscal
year beginning on or after December 15, 2008 (our fiscal 2010). For acquisitions that close after November 1, 2009 that have contingent assets or liabilities, this pronouncement will impact our financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements 
an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160 requires the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, but separate from the parents equity. It also requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified
and presented on the face of the consolidated statement of income. SFAS No. 160 is effective for fiscal years and fiscal quarters beginning on or after December 15, 2008 (our fiscal 2010). The impact of this pronouncement on our
financial position and results of operations is anticipated to be immaterial.

In April 2008, the FASB issued Staff Position
No. 142-3, Determination of the Useful Life of Intangible Assets (FSP No. 142-3). FSP No. 142-3 amends the guidance in FASB Statement No. 142, Goodwill and Other Intangible Assets, for
estimating useful lives of recognized intangible assets and requires additional disclosures related to renewing or extending the terms of a recognized intangible asset. In estimating the useful life of a recognized intangible asset, FSP
No. 142-3 requires companies to consider their



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NOVELL, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

R. Recent Pronouncements
(Continued)



historical experience in renewing or extending similar arrangements together with the assets intended use, regardless of whether the arrangements have
explicit renewal or extension provisions. FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008 (our fiscal 2010), and is to be applied prospectively to intangible assets acquired after the effective date. The
disclosure requirements are to be applied prospectively to all intangible assets. For intangible assets acquired after November 1, 2009, this pronouncement may impact our financial position and results of operations.

In April 2009, the FASB issued Staff Position FAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial
Instruments (FSP No. 107-1). FSP No. 107-1 requires disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. Similar
disclosures about the fair value of our financial instruments and their related carrying value that are currently found in our annual report on Form 10-K, will now be required in our quarterly reports on Form 10-Q. FSP No. 107-1 is effective
for interim and fiscal periods ending after June 15, 2009 (our third quarter of fiscal 2009). As this pronouncement is only disclosure related, it will not have an impact on our financial position and results of operations.

In April 2009, the FASB issued FSP No. 115-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP
No. 115-2). FSP No. 115-2 establishes a new method of recognizing and reporting other-than-temporary impairments of debt securities. FSP No. 115-2 also contains additional disclosure requirements related to debt and equity
securities. Under FSP No. 115-2, impairment is now considered to be other-than-temporary if the present value of cash flows expected to be collected from the debt security is less than the amortized cost basis of the security. FSP
No. 115-2 also requires the separation of the total impairment into the portion due to credit loss and the portion related to all other factors, typically considered market risks. The portion related to credit loss is recognized in earnings,
while the portion related to other factors is recognized in other comprehensive income, provided there is no intention to sell the security, and recovery to amortized cost basis is more-likely-than-not prior to any sale of the security. FSP
No. 115-2 is effective for interim and fiscal periods ending after June 15, 2009 (our third quarter of fiscal 2009). We are currently evaluating the impact of adoption on our financial position and results of operations.

In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP No. 157-4). FSP No. 157-4 provides additional guidance to determine when a market for a financial asset or liability is no longer active and
whether a transaction is not considered orderly. If the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability,
further analysis of the transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. FSP No. 157-4 is effective for interim and fiscal periods ending after
June 15, 2009 (our third quarter of fiscal 2009). This pronouncement may impact our financial position and results of operations for any of our investments that may be in an inactive or disorderly market.

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 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.

S. Subsequent Event

On May 28, 2009, we announced a strategic partnership with Affiliated Computer Services, Inc. (ACS) to expand our collective core
technical capabilities and suite of services. As part of the strategic partnership, we will outsource the majority of our internal IT operations to ACS as part of a $135 million, five-year contract. Under the outsourcing agreement, approximately 156
of our employees will transition to ACS. ACS will also collaborate with us to enhance ACS global data center operations and ACS has committed to purchase at least $30 million of our products and services during the first three years of the
strategic partnership.



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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 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, estimated revenue, projected costs, projected savings, prospects, plans, 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, some of which may be similar to those of other companies of similar size in our industry, including the impact of the current economic environment, pre-tax losses, rapid technological
changes, competition, limited number of suppliers, customer concentration, failure to successfully integrate acquisitions, adverse government regulations and changes to laws to which we are subject, failure to manage international activities,
inability to control indirect sales activities, dependence on relationships with significant strategic partners, and loss of key individuals. Risks that may affect our operating results include, but are not limited to, those discussed in the
Risk Factors section in our Annual Report on Form 10-K for fiscal 2008 filed with the Securities and Exchange Commission (SEC) on December 23, 2008. Readers should carefully review the risk factors described in the
Annual Report on Form 10-K for fiscal 2008.

Overview

We develop, sell and install enterprise-quality software that is positioned in the operating systems and infrastructure software layers of the information technology (IT) industry. We
develop and deliver Linux operating system software for the full range of computers from desktops to servers. In addition, we provide a portfolio of integrated IT management software for systems, identity and security management for both Linux and
mixed-platform environments. Our 26 years of experience serving the full range of enterprise sizes, combined with the quality and flexibility of our open-platform software technology, offers customers an IT infrastructure that is responsive to the
cost pressures and the expanding IT initiatives that are characteristic of todays business environment.

In addition to our
technology offerings, within each of our business unit segments we offer a worldwide network of service personnel to help our customers and third-party partners best utilize our software. We also have partnerships with application providers,
hardware and software vendors, and consultants and systems integrators. In this way we can offer a full solution to our customers.

We are
organized into four business unit segments, which are Open Platform Solutions, Identity and Security Management, Systems and Resource Management, and Workgroup. Below is a brief update on the revenue results for the second quarter and first six
months of fiscal 2009 for each of our business unit segments:



| |  |  | Within our Open Platform Solutions business unit segment, Linux and open source products remain an important growth business. We are using our Open Platform
Solutions business segment as a platform for acquiring new customers to which we can sell our other complementary cross-platform identity and management products and services. Revenue from our Linux Platform Products category within our Open
Platform Solutions business unit segment increased 25% in the second quarter of fiscal 2009 compared to the prior year period. This product revenue increase was partially offset by lower services revenue of 11%, such that total revenue from our Open
Platform Solutions business unit segment increased 18% in the second quarter of fiscal 2009 compared to the prior year period.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue from our Linux Platform Products category within our Open Platform Solutions business unit segment increased 24% in the first six months of fiscal 2009 compared to the prior year period. This product revenue
increase was partially offset by lower services revenue of 17%, such that total revenue from our Open Platform Solutions business unit segment increased 15% in the first six months of fiscal 2009 compared to the prior year period.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
(Continued)

Overview (Continued)



| |  |  | Our Identity and Security Management business unit segment offers products that we believe deliver a complete, integrated solution in the areas of security,
compliance, and governance issues. Within this segment, revenue from our Identity, Access and Compliance Management products increased 2% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower
by 45%, such that total revenue from our Identity and Security Management business unit segment decreased 16% in the second quarter of fiscal 2009 compared to the prior year period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue from our Identity, Access and Compliance Management products decreased 3% in the first six months of fiscal 2009 compared to the
prior year period. In addition, services revenue was lower by 40%, such that total revenue from our Identity and Security Management business unit segment decreased 18% in the first six months of fiscal 2009 compared to the prior year period.



| |  |  | Our Systems and Resource Management business unit segment strategy is to provide a complete desktop to data center offering, with virtualization for
both Linux and mixed-source environments. Systems and Resource Management product revenue decreased 2% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 10%, such that total revenue
from our Systems and Resource Management business unit segment decreased 3% in the second quarter of fiscal 2009 compared to the prior year period. In the second quarter of fiscal 2009, total business unit segment revenue was higher by 8%, compared
to the prior year period, as a result of our acquisitions of Managed Object Solutions, Inc. (Managed Objects) which we acquired on November 13, 2008 and PlateSpin Ltd. (PlateSpin) which we acquired on March 26,
2008.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Systems and Resource Management product revenue increased 3% in the first six months of fiscal
2009 compared to the prior year period. The total product revenue increase was partially offset by lower services revenue of 14% in the first six months of fiscal 2009 compared to the prior year period. Total revenue from our Systems and Resource
Management business unit segment increased 1% in the first six months of fiscal 2009 compared to the prior year period. In the first six months of fiscal 2009 total business unit segment revenue was higher by 12% compared to the prior year period as
a result of our Managed Objects and PlateSpin acquisitions.



| |  |  | Our Workgroup business unit segment is an important source of cash flow and provides us with the potential opportunity to sell additional products and services.
Our revenue from Workgroup products decreased 14% in the second quarter of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 39%, such that total revenue from our Workgroup business unit segment decreased 17%
in the second quarter of fiscal 2009 compared to the prior year period.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our revenue from Workgroup
products decreased 12% in the first six months of fiscal 2009 compared to the prior year period. In addition, services revenue was lower by 39%, such that total revenue from our Workgroup business unit segment decreased 15% in the first six months
of fiscal 2009 compared to the prior year period.

Our services offerings are focused on supporting product sales, not generating
stand-alone revenue or profits, which is in line with our strategic initiative of focusing our services business on driving more profitable product revenue while leveraging our services capabilities internally and through third-party partners. Our
prior strategy positioned our services offerings less as an enablement of software sales, and more as an independent and unrelated direct revenue initiative. We shifted our services strategy and positioning in fiscal 2008, with gradual
implementation. As a result of this, we have seen a general decline in our services revenue. Total product revenue was down 3% and services revenue was down 33%, resulting in a net decrease in total revenue of 9% in the second quarter of fiscal 2009
compared to the prior year period. Foreign currency exchange rate fluctuations unfavorably impacted revenue by 3% during the second quarter of fiscal 2009 compared to the prior year period. Our Managed Objects and PlateSpin acquisitions resulted in
higher revenue of 2% in the second quarter of fiscal 2009 compared to the prior year period.

In the first six months of fiscal 2009, total
product revenue was down 3% and services revenue was down 32%, resulting in a net decrease in total revenue of 8% compared to the prior year period. Foreign currency exchange rate fluctuations unfavorably impacted revenue by 2% in the first six
months of fiscal 2009 compared to the prior year period. Our Managed Objects and PlateSpin acquisitions resulted in higher revenue of 2% in the first six months of fiscal 2009 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. Overall invoicing was lower in all of our business unit segments, except for the Open Platform Solutions business unit segment, for the second quarter of fiscal 2009 and lower in all of our



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
(Continued)

Overview (Continued)



business unit segments for the first six months of fiscal 2009, compared to the respective prior year periods, largely as a result of the weak economy as
customers focused on capital conservation and expense management. These factors have led to smaller or delayed projects and extended sales cycles for our customers. While we expect these trends to continue in the near term, the fundamental markets
that we serve and the value we bring to those markets remain attractive. We believe that the current customer focus on reducing cost, complexity and risk is aligned with our overall value proposition. Additionally, the recent financial turmoil
demands stricter requirements for regulation and audit, creating the potential for expanded opportunities for certain of our products.

During the second quarter and first six months of fiscal 2009, we recorded net restructuring expenses of $7.2 million and $15.3 million, respectively, which were primarily a completion of our restructuring plan that began in the fourth
quarter of fiscal 2006. That plan was related to our strategy to implement a comprehensive transformation of our business and to achieve competitive operating margins through four main initiatives: 1) improving our sales model and sales staff
specialization; 2) integrating our product development approach and balancing between on and offshore development locations; 3) improving our administrative and support functions; and 4) transforming our services business to be more efficient and
product focused.

Results of Operations

Reclassifications

Certain 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 net income.

Revenue

We sell our software and services primarily to corporations, 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, Linux subscriptions and upgrade protection contracts. Services revenue includes
professional services, technical support, and training.



|                              |  |                    |         |               |   |                  |               |        |               |   |         |  |   |         |  |      
|----------------------------- |  | ------------------ | ------- | ------------- | - | ---------------- | ------------- | ------ | ------------- | - | ------- |  | - | ------- |  | -----
|                              |  | Three months ended |         | Change        |   | Six months ended |               | Change
|(Dollars in thousands)        |  | April 30,2009      |         | April 30,2008 |   |                  | April 30,2009 |        | April 30,2008 |  
|Software licenses             |  | $                  | 30,250  |               | $ | 44,416           |               | (32)%  |               | $ | 58,517  |  | $ | 84,618  |  | (31)%
|Maintenance and subscriptions |  |                    | 158,329 |               |   | 150,872          |               | 5%     |               |   | 317,144 |  |   | 300,939 |  | 5%   
|Services                      |  |                    | 27,016  |               |   | 40,378           |               | (33)%  |               |   | 54,805  |  |   | 81,035  |  | (32)%
|                              |  |                    |         |               |   |                  |               |        |               |   |         |  |   |         |  |      
|Total net revenue             |  | $                  | 215,595 |               | $ | 235,666          |               | (9)%   |               | $ | 430,466 |  | $ | 466,592 |  | (8)% 
|                              |  |                    |         |               |   |                  |               |        |               |   |         |  |   |         |  |      

Revenue in our software licenses category decreased during the second quarter and first six months
of fiscal 2009 compared to the prior year periods primarily due to the impact of the slowing economy as new business declined across all segments. This decrease was partially offset by $1.7 million and $6.4 million of additional revenue during the
second quarter and first six months of fiscal 2009, respectively, from our PlateSpin and Managed Objects acquisitions.

Revenue from
maintenance and subscriptions increased in the second quarter and first six months of fiscal 2009 compared to the prior year periods primarily due to increased revenue from Linux Platform Products, which increased $7.4 million, or 25%, over the
second quarter of fiscal 2008, and $14.1 million, or 24%, over the first six months of fiscal 2008. Revenue from maintenance and subscriptions also benefited from our acquisitions of PlateSpin and Managed Objects, which contributed an additional
$2.1 million and $4.3 million in the second quarter and first six months of fiscal 2009, respectively. In general, despite challenges posed by the current economic climate, maintenance and subscriptions revenue continued at relatively steady rates
due primarily to consistent renewal rates with respect to existing software deployments.

While our services offerings are focused
increasingly on supporting product sales, not generating stand-alone revenue or profits, the decline in services revenue in the second quarter and first six months of fiscal 2009 compared to the prior year periods was greater than anticipated as
customers lowered their discretionary spending in response to current economic conditions.



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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)



Foreign currency exchange rate fluctuations, as measured by using prior period foreign currency
exchange rates on non-U.S. dollar denominated revenue, negatively impacted total net revenue by $6.3 million, or 3%, and $9.0 million, or 2%, during the second quarter and first six months of fiscal 2009, respectively.

Net revenue in the Open Platform Solutions segment was as follows:



|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      
|----------------------------- |  | ------------------ | ------ | ------------- | - | ---------------- | ------------- | ------ | ------------- | - | ------ |  | - | ------ |  | -----
|                              |  | Three months ended |        | Change        |   | Six months ended |               | Change
|(Dollars in thousands)        |  | April 30,2009      |        | April 30,2008 |   |                  | April 30,2009 |        | April 30,2008 |  
|Software licenses             |  | $                  | 31     |               | $ | 164              |               | (81)%  |               | $ | 31     |  | $ | 164    |  | (81)%
|Maintenance and subscriptions |  |                    | 38,785 |               |   | 31,419           |               | 23%    |               |   | 75,896 |  |   | 62,555 |  | 21%  
|Services                      |  |                    | 5,296  |               |   | 5,933            |               | (11)%  |               |   | 9,647  |  |   | 11,596 |  | (17)%
|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      
|Total net revenue             |  | $                  | 44,112 |               | $ | 37,516           |               | 18%    |               | $ | 85,574 |  | $ | 74,315 |  | 15%  
|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      

Revenue from our Open Platform Solutions segment increased in the second quarter of fiscal 2009
compared to the prior year period primarily due to Linux Platform Products, which increased by $7.4 million, or 25%. Invoicing for Linux Platform Products in the second quarter of fiscal 2009 increased 2% compared to the prior year period.

Revenue from our Open Platform Solutions segment increased in the first six months of fiscal 2009 compared to the prior year period
primarily due to Linux Platform Products, which increased by $14.1 million, or 24%. Invoicing for Linux Platform Products in the first six months of fiscal 2009 decreased 20% compared to the prior year period. Because our Linux business is dependent
on large deals, we experience fluctuations in our quarterly invoicing. The invoicing decrease in the first six months of 2009 reflects the results of the first quarter of fiscal 2009 when we did not sign any large deals, many of which have
historically been fulfilled by SUSE Linux Enterprise Server (SLES) certificates delivered through Microsoft.

Net revenue in
the Identity and Security Management segment was as follows:



|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      
|----------------------------- |  | ------------------ | ------ | ------------- | - | ---------------- | ------------- | ------ | ------------- | - | ------ |  | - | ------ |  | -----
|                              |  | Three months ended |        | Change        |   | Six months ended |               | Change
|(Dollars in thousands)        |  | April 30,2009      |        | April 30,2008 |   |                  | April 30,2009 |        | April 30,2008 |  
|Software licenses             |  | $                  | 9,191  |               | $ | 11,388           |               | (19)%  |               | $ | 15,158 |  | $ | 24,014 |  | (37)%
|Maintenance and subscriptions |  |                    | 21,135 |               |   | 19,312           |               | 9%     |               |   | 43,454 |  |   | 39,028 |  | 11%  
|Services                      |  |                    | 8,520  |               |   | 15,599           |               | (45)%  |               |   | 18,220 |  |   | 30,287 |  | (40)%
|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      
|Total net revenue             |  | $                  | 38,846 |               | $ | 46,299           |               | (16)%  |               | $ | 76,832 |  | $ | 93,329 |  | (18)%
|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      

Revenue from our Identity and Security Management segment decreased in the second quarter of
fiscal 2009 compared to the prior year period. This decrease resulted primarily from lower software licenses revenue as well as lower services revenue, reflecting the impact of current economic conditions. Identity, Access and Compliance Management
product revenue increased $0.5 million, or 2%, compared to the second quarter of fiscal 2008. Invoicing for Identity, Access and Compliance Management products decreased 7% in the second quarter of fiscal 2009 compared to the prior year period, in
response to global economic declines.

Revenue from our Identity and Security Management segment decreased in the first six months of
fiscal 2009 compared to the prior year period, primarily due to declining general economic conditions. Identity, Access and Compliance Management product revenue decreased $1.9 million, or 3%, compared to the first six months of fiscal 2008.
Invoicing for Identity, Access and Compliance Management products decreased 12% in the first six months of fiscal 2009 compared to the prior year period.

Net revenue in the Systems and Resource Management segment was as follows:



|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      
|----------------------------- |  | ------------------ | ------ | ------------- | - | ---------------- | ------------- | ------ | ------------- | - | ------ |  | - | ------ |  | -----
|                              |  | Three months ended |        | Change        |   | Six months ended |               | Change
|(Dollars in thousands)        |  | April 30,2009      |        | April 30,2008 |   |                  | April 30,2009 |        | April 30,2008 |  
|Software licenses             |  | $                  | 8,520  |               | $ | 11,092           |               | (23)%  |               | $ | 17,656 |  | $ | 19,037 |  | (7)% 
|Maintenance and subscriptions |  |                    | 31,566 |               |   | 29,806           |               | 6%     |               |   | 62,682 |  |   | 58,902 |  | 6%   
|Services                      |  |                    | 5,268  |               |   | 5,871            |               | (10)%  |               |   | 10,419 |  |   | 12,169 |  | (14)%
|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      
|Total net revenue             |  | $                  | 45,354 |               | $ | 46,769           |               | (3)%   |               | $ | 90,757 |  | $ | 90,108 |  | 1%   
|                              |  |                    |        |               |   |                  |               |        |               |   |        |  |   |        |  |      



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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)



Revenue from our Systems and Resource Management segment decreased in the second quarter of fiscal
2009 compared to the prior year period primarily from lower revenue from our ZENworks products. This decrease was partially offset by $3.8 million of additional revenue from our PlateSpin and Managed Objects acquisitions. Invoicing for Systems and
Resource Management products decreased 13% in the second quarter of fiscal 2009 compared to the prior year period, primarily due to lower invoicing from our ZENworks products, reflecting the impact of current economic conditions. PlateSpin and
Managed Objects products accounted for 21% of total Systems and Resource Management invoicing in the second quarter of fiscal 2009.

Revenue from our Systems and Resource Management segment increased in the first six months of fiscal 2009 compared to the prior year period primarily from $10.7 million of additional revenue from our PlateSpin and Managed Objects
acquisitions. This increase was partially offset by lower revenue from our ZENworks products for the first six months of fiscal 2009 compared to the prior year period. Invoicing for Systems and Resource Management products decreased 2% in the first
six months of fiscal 2009 compared to the prior year period, primarily due to lower invoicing from our ZENworks products. PlateSpin and Managed Objects products accounted for 26% of total Systems and Resource Management invoicing in the first six
months of fiscal 2009.

Net revenue in the Workgroup segment was as follows:



|                              |  |                    |        |               |   |                  |               |        |               |   |         |  |   |         |  |      
|----------------------------- |  | ------------------ | ------ | ------------- | - | ---------------- | ------------- | ------ | ------------- | - | ------- |  | - | ------- |  | -----
|                              |  | Three months ended |        | Change        |   | Six months ended |               | Change
|(Dollars in thousands)        |  | April 30,2009      |        | April 30,2008 |   |                  | April 30,2009 |        | April 30,2008 |  
|Software licenses             |  | $                  | 12,508 |               | $ | 21,772           |               | (43)%  |               | $ | 25,672  |  | $ | 41,403  |  | (38)%
|Maintenance and subscriptions |  |                    | 66,843 |               |   | 70,335           |               | (5)%   |               |   | 135,112 |  |   | 140,454 |  | (4)% 
|Services                      |  |                    | 7,932  |               |   | 12,975           |               | (39)%  |               |   | 16,519  |  |   | 26,983  |  | (39)%
|                              |  |                    |        |               |   |                  |               |        |               |   |         |  |   |         |  |      
|Total net revenue             |  | $                  | 87,283 |               | $ | 105,082          |               | (17)%  |               | $ | 177,303 |  | $ | 208,840 |  | (15)%
|                              |  |                    |        |               |   |                  |               |        |               |   |         |  |   |         |  |      

Revenue from our Workgroup segment decreased in the second quarter of fiscal 2009 compared to the
prior year period primarily from lower combined OES and NetWare-related product revenue of $6.4 million, lower services revenue of $5.0 million and lower Collaboration product revenue of $3.9 million. Invoicing for the combined OES and
NetWare-related products decreased 28% in the second quarter of fiscal 2009 compared to the prior year period. Product invoicing for the Workgroup segment decreased 24% in the second quarter of fiscal 2009 compared to the prior year period.

Revenue from our Workgroup segment decreased in the first six months of fiscal 2009 compared to the prior year period primarily from lower
combined OES and NetWare-related revenue of $13.7 million, lower services revenue of $10.5 million and lower Collaboration product revenue of $6.3 million. Invoicing for the combined OES and NetWare-related products decreased 25% in the first six
months of fiscal 2009 compared to the prior year period. Product invoicing for the Workgroup segment decreased 21% in the first six months of fiscal 2009 compared to the prior year period.

Deferred Revenue

We had total deferred revenue of $659.4 million as of
April 30, 2009 compared to $701.6 million and $730.1 million at April 30, 2008 and October 31, 2008, respectively. Deferred revenue represents revenue that is expected to be recognized in future periods 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 $70.7 million compared to October 31, 2008 is primarily attributable to lower invoicing during the first six months of fiscal 2009, partially offset by the receipt of $25.0 million from
Microsoft for the first payment under an August 2008 agreement with Microsoft to purchase additional SLES certificates (See the subsection entitled, Microsoft AgreementsRelated Revenue of Note B, Summary of Significant
Accounting Policies in our fiscal 2008 Annual Report on Form 10-K for more details on the 2006 Microsoft agreement).



30



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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)



Gross Profit



|                              |  |                    |         |    |               |   |                  |    |               |        |  |               |         |    |  |   |         |    |  |      
|----------------------------- |  | ------------------ | ------- | -- | ------------- | - | ---------------- | -- | ------------- | ------ |  | ------------- | ------- | -- |  | - | ------- | -- |  | -----
|                              |  | Three months ended |         |    | Change        |   | Six months ended |    |               | Change
|(Dollars in thousands)        |  | April 30,2009      |         |    | April 30,2008 |   |                  |    | April 30,2009 |        |  | April 30,2008 |         |   
|Software licenses             |  | $                  | 27,870  |    |               | $ | 40,388           |    |               | (31)%  |  | $             | 53,611  |    |  | $ | 77,491  |    |  | (31)%
|percentage of related revenue |  |                    | 92      | %  |               |   | 91               | %  |               |        |  |               | 92      | %  |  |   | 92      | %  |  |      
|Maintenance and subscriptions |  | $                  | 145,984 |    |               | $ | 138,865          |    |               | 5%     |  | $             | 291,900 |    |  | $ | 277,991 |    |  | 5%   
|percentage of related revenue |  |                    | 92      | %  |               |   | 92               | %  |               |        |  |               | 92      | %  |  |   | 92      | %  |  |      
|Services                      |  | $                  | (3,541  | )  |               | $ | (4,054           | )  |               | 13%    |  | $             | (7,224  | )  |  | $ | (7,298  | )  |  | 1%   
|percentage of related revenue |  |                    | (13     | )% |               |   | (10              | )% |               |        |  |               | (13     | )% |  |   | (9      | )% |  |      
|Total gross profit            |  | $                  | 170,313 |    |               | $ | 175,199          |    |               | (3)%   |  | $             | 338,287 |    |  | $ | 348,184 |    |  | (3)% 
|percentage of revenue         |  |                    | 79      | %  |               |   | 74               | %  |               |        |  |               | 79      | %  |  |   | 75      | %  |  |      

The increase in gross profit percentage of revenue during the second quarter and first six months
of fiscal 2009 compared to the prior year periods reflected the benefits of our cost reduction initiatives, including our prior restructuring actions, and the benefits of realigning our services business to be more efficient and product focused,
resulting in a change in revenue mix from negative-margin services revenue to higher-margin product revenue. Our services offerings are increasingly focused on supporting product sales, not generating stand-alone revenue or profits, in line with our
strategic initiatives.

Total gross profit was lower for the second quarter of fiscal 2009 compared to the prior year period primarily due
to the 9% decrease in total net revenue. Foreign currency exchange rate fluctuations during the second quarter of fiscal 2009, compared to the prior year period, unfavorably impacted gross profit by $3.4 million.

Total gross profit was lower for the first six months of fiscal 2009 compared to the prior year period primarily due to the 8% decrease in total net
revenue. Foreign currency exchange rate fluctuations during the first six months of fiscal 2009, compared to the prior year period, unfavorably impacted gross profit by $3.9 million.

Gross profit by business unit segment was as follows:



|                                   |  |                    |         |   |               |   |                  |   |               |        |  |               |         |   |  |   |         |   |  |      
|---------------------------------- |  | ------------------ | ------- | - | ------------- | - | ---------------- | - | ------------- | ------ |  | ------------- | ------- | - |  | - | ------- | - |  | -----
|                                   |  | Three months ended |         |   | Change        |   | Six months ended |   |               | Change
|(Dollars in thousands)             |  | April 30,2009      |         |   | April 30,2008 |   |                  |   | April 30,2009 |        |  | April 30,2008 |         |  
|Open Platform Solutions            |  | $                  | 34,756  |   |               | $ | 26,702           |   |               | 30%    |  | $             | 68,525  |   |  | $ | 52,491  |   |  | 31%  
|percentage of related revenue      |  |                    | 79      | % |               |   | 71               | % |               |        |  |               | 80      | % |  |   | 71      | % |  |      
|Identity and Security Management   |  | $                  | 27,559  |   |               | $ | 24,226           |   |               | 14%    |  | $             | 52,951  |   |  | $ | 52,081  |   |  | 2%   
|percentage of related revenue      |  |                    | 71      | % |               |   | 52               | % |               |        |  |               | 69      | % |  |   | 56      | % |  |      
|Systems and Resource Management    |  | $                  | 37,522  |   |               | $ | 39,356           |   |               | (5)%   |  | $             | 74,789  |   |  | $ | 74,847  |   |  | %   
|percentage of related revenue      |  |                    | 83      | % |               |   | 84               | % |               |        |  |               | 82      | % |  |   | 83      | % |  |      
|Workgroup                          |  | $                  | 73,882  |   |               | $ | 87,101           |   |               | (15)%  |  | $             | 149,093 |   |  | $ | 173,440 |   |  | (14)%
|percentage of related revenue      |  |                    | 85      | % |               |   | 83               | % |               |        |  |               | 84      | % |  |   | 83      | % |  |      
|Common unallocated operating costs |  | $                  | (3,406  | ) |               | $ | (2,186           | ) |               | (56)%  |  | $             | (7,071  | ) |  | $ | (4,675  | ) |  | (51)%
|Total gross profit                 |  | $                  | 170,313 |   |               | $ | 175,199          |   |               | (3)%   |  | $             | 338,287 |   |  | $ | 348,184 |   |  | (3)% 
|percentage of revenue              |  |                    | 79      | % |               |   | 74               | % |               |        |  |               | 79      | % |  |   | 75      | % |  |      

The changes in gross profit in each of our business unit segments in the second quarter of fiscal
2009 compared to the prior year period can be characterized as follows:



| |  |  | Open Platform Solutions  increased as a percentage of revenue and in total primarily from higher revenues and cost containment efforts.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Identity and Security Management  increased as a percentage of revenue and in total primarily due to a more favorable mix of higher-margin product revenue
and cost containment efforts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Systems and Resource Management  decreased as a percentage of revenue and in total primarily due to lower overall revenues and from lower gross profit
percentages related to higher royalties related to PlateSpin.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Workgroup  increased as a percentage of revenue primarily due to a more favorable mix of higher-margin product revenue and cost containment efforts. The
total decrease in gross profit reflects the 17% revenue decrease.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 changes in gross profit in each of our business unit segments in the first six months of fiscal
2009 compared to the prior year period can be characterized as follows:



| |  |  | Open Platform Solutions  increased as a percentage of revenue and in total primarily from higher revenues and cost containment efforts.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Identity and Security Management  increased as a percentage of revenue and in total primarily due to a more favorable mix of higher-margin product revenue
and cost containment efforts.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Systems and Resource Management  decreased as a percentage of revenue and was relatively flat in total primarily due to lower gross profit percentages
related to higher royalties related to PlateSpin.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Workgroup  increased as a percentage of revenue primarily due to cost containment efforts. The total decrease in gross profit reflects the 15% revenue
decrease.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

Operating Expenses



|                                              |  |                    |         |   |               |   |                  |   |               |        |  |               |         |   |  |   |         |   |  |      
|--------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ---------------- | - | ------------- | ------ |  | ------------- | ------- | - |  | - | ------- | - |  | -----
|                                              |  | Three months ended |         |   | Change        |   | Six months ended |   |               | Change
|(Dollars in thousands)                        |  | April 30,2009      |         |   | April 30,2008 |   |                  |   | April 30,2009 |        |  | April 30,2008 |         |  
|Sales and marketing                           |  | $                  | 75,697  |   |               | $ | 93,906           |   |               | (19)%  |  | $             | 152,591 |   |  | $ | 181,911 |   |  | (16)%
|percentage of revenue                         |  |                    | 35      | % |               |   | 40               | % |               |        |  |               | 35      | % |  |   | 39      | % |  |      
|Product development                           |  | $                  | 44,552  |   |               | $ | 46,275           |   |               | (4)%   |  | $             | 89,944  |   |  | $ | 91,010  |   |  | (1)% 
|percentage of revenue                         |  |                    | 21      | % |               |   | 20               | % |               |        |  |               | 21      | % |  |   | 20      | % |  |      
|General and administrative                    |  | $                  | 25,032  |   |               | $ | 30,259           |   |               | (17)%  |  | $             | 49,227  |   |  | $ | 57,656  |   |  | (15)%
|percentage of revenue                         |  |                    | 12      | % |               |   | 13               | % |               |        |  |               | 11      | % |  |   | 12      | % |  |      
|Restructuring expenses                        |  | $                  | 7,224   |   |               | $ | 392              |   |               | 1,743% |  | $             | 15,273  |   |  | $ | 4,759   |   |  | 221% 
|percentage of revenue                         |  |                    | 3       | % |               |   |                 | % |               |        |  |               | 4       | % |  |   | 1       | % |  |      
|Purchased in-process research and development |  | $                  |        |   |               | $ | 2,700            |   |               | %     |  | $             |        |   |  | $ | 2,700   |   |  | %   
|percentage of revenue                         |  |                    |        | % |               |   | 1                | % |               |        |  |               |        | % |  |   | 1       | % |  |      
|Loss (gain) on sale of subsidiaries           |  | $                  | 184     |   |               | $ |                 |   |               | %     |  | $             | (16     | ) |  | $ |        |   |  | %   
|percentage of revenue                         |  |                    |        | % |               |   |                 | % |               |        |  |               |        | % |  |   |        | % |  |      
|Total operating expenses                      |  | $                  | 152,689 |   |               | $ | 173,532          |   |               | (12)%  |  | $             | 307,019 |   |  | $ | 338,036 |   |  | (9)% 
|percentage of revenue                         |  |                    | 71      | % |               |   | 74               | % |               |        |  |               | 71      | % |  |   | 72      | % |  |      

Sales and marketing expenses decreased in the second quarter of fiscal 2009 compared to the prior
year period primarily from cost reduction initiatives, including our prior restructuring actions, lower program spending and outside service costs, and favorable foreign currency exchange rate fluctuations of $6.1 million, partially offset by higher
incremental sales and marketing expenses of $4.8 million from our acquisitions of PlateSpin and Managed Objects. Sales and marketing headcount was lower by 47 employees, or 4%, at the end of the second quarter of fiscal 2009 compared to the prior
year period.

Sales and marketing expenses decreased in the first six months of fiscal 2009 compared to the prior year period primarily
from the cost reduction initiatives described above, and favorable foreign currency exchange rate fluctuations of $11.3 million, partially offset by higher incremental sales and marketing expenses of $12.1 million from our acquisitions of PlateSpin
and Managed Objects.

Product development expenses in the second quarter of fiscal 2009 decreased compared to the prior year period
primarily from cost reduction initiatives, including our prior restructuring actions, and favorable foreign currency exchange rate fluctuations of $2.9 million, partially offset by higher incremental product development expenses of $2.3 million from
our acquisitions of PlateSpin and Managed Objects. Product development headcount decreased by 23 employees, or 2%, at the end of the second quarter of fiscal 2009 compared to the prior year period.

Product development expenses in the first six months of fiscal 2009 decreased compared to the prior year period primarily from cost reduction
initiatives, including our prior restructuring actions, and favorable foreign currency exchange rate fluctuations of $5.3 million, partially offset by higher incremental product development expenses of $6.6 million from our acquisitions of PlateSpin
and Managed Objects.



32



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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)



General and administrative expenses decreased in the second quarter of fiscal 2009 compared to the
prior year period primarily from cost reduction initiatives, including our prior restructuring actions, favorable foreign currency exchange rate fluctuations of $1.0 million, and a decrease in stock-based compensation expense of $0.9 million.
General and administrative headcount was lower by 47 employees, or 8%, at the end of the second quarter of fiscal 2009 compared to the prior year period.

General and administrative expenses decreased in the first six months of fiscal 2009 compared to the prior year period primarily from cost reduction initiatives, including our prior restructuring actions, a decrease
in stock-based compensation expense of $1.9 million and favorable foreign currency exchange rate fluctuations of $1.8 million. These decreases were partially offset by higher incremental general and administrative expenses of $1.8 million related to
the PlateSpin and Managed Objects acquisitions in the first six months of fiscal 2009 compared to the prior year period.

During the second
quarter and first six months of fiscal 2009, we recorded net restructuring expenses of $7.2 million and $15.3 million, respectively, which were primarily a completion of our restructuring plan that began in the fourth quarter of fiscal 2006.

Foreign currency exchange rate fluctuations during the second quarter of fiscal 2009, compared to the prior year period, unfavorably
impacted revenue by $6.3 million, favorably impacted operating expenses by $12.8 million and favorably impacted income from operations by $6.5 million. Foreign currency exchange rate fluctuations during the first six months of fiscal 2009, compared
to the prior year period, unfavorably impacted revenue by $9.0 million, favorably impacted operating expenses by $23.6 million and favorably impacted income from operations by $14.6 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. It is not anticipated that the favorable impact to operating income realized during the second quarter and first six months of fiscal 2009
compared to the prior year periods will be as significant in the second half of fiscal 2009 due to the unfavorable impact of foreign currency exchange rate changes on revenue being recognized in future periods.

Other Income (Expense)



|                                |  |                    |        |    |               |   |                  |    |               |        |  |               |        |    |  |   |         |    |  |      
|------------------------------- |  | ------------------ | ------ | -- | ------------- | - | ---------------- | -- | ------------- | ------ |  | ------------- | ------ | -- |  | - | ------- | -- |  | -----
|                                |  | Three months ended |        |    | Change        |   | Six months ended |    |               | Change
|(Dollars in thousands)          |  | April 30,2009      |        |    | April 30,2008 |   |                  |    | April 30,2009 |        |  | April 30,2008 |        |   
|Investment income               |  | $                  | 5,390  |    |               | $ | 24,871           |    |               | (78)%  |  | $             | 12,566 |    |  | $ | 47,777  |    |  | (74)%
|percentage of revenue           |  |                    | 3      | %  |               |   | 11               | %  |               |        |  |               | 3      | %  |  |   | 10      | %  |  |      
|Impairment of investments       |  | $                  | (1,419 | )  |               | $ |                 |    |               | %     |  | $             | (3,096 | )  |  | $ |        |    |  | %   
|percentage of revenue           |  |                    | (1     | )% |               |   |                 | %  |               |        |  |               | (1     | )% |  |   |        | %  |  |      
|Interest expense and other, net |  | $                  | (3,767 | )  |               | $ | (7,019           | )  |               | 46%    |  | $             | (6,902 | )  |  | $ | (12,769 | )  |  | 46%  
|percentage of revenue           |  |                    | (2     | )% |               |   | (3               | )% |               |        |  |               | (2     | )% |  |   | (3      | )% |  |      
|Total other income, net         |  | $                  | 204    |    |               | $ | 17,852           |    |               | (99)%  |  | $             | 2,568  |    |  | $ | 35,008  |    |  | (93)%
|percentage of revenue           |  |                    |       | %  |               |   | 8                | %  |               |        |  |               | 1      | %  |  |   | 8       | %  |  |      

Investment income includes income from short-term and long-term investments. Investment income for
the second quarter and first six months of fiscal 2009 decreased compared to the prior year periods due primarily to lower interest rates and to a decrease in cash, cash equivalents and short-term investments resulting from cash expended for
acquisitions, repurchases of our 0.5% senior convertible debentures due 2024 (Debentures) and stock repurchases.

During the
second quarter and first six months of fiscal 2009, we recorded an other-than-temporary impairment charge of $1.4 million and $3.1 million, respectively, related to our auction-rate securities (ARSs). For further information, see the
Liquidity and Capital Resources section below.

Interest expense and other, net for the second quarter and first six months of
fiscal 2009 decreased compared to the prior year periods due primarily to the Debenture repurchases, which resulted in lower interest expense.



33



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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)



Income Tax Expense on Income from Continuing Operations



|                       |  |                    |       |   |               |   |                  |   |               |        |  |               |       |   |  |   |        |   |  |      
|---------------------- |  | ------------------ | ----- | - | ------------- | - | ---------------- | - | ------------- | ------ |  | ------------- | ----- | - |  | - | ------ | - |  | -----
|                       |  | Three months ended |       |   | Change        |   | Six months ended |   |               | Change
|(Dollars in thousands) |  | April 30,2009      |       |   | April 30,2008 |   |                  |   | April 30,2009 |        |  | April 30,2008 |       |  
|Income tax expense     |  | $                  | 2,777 |   |               | $ | 13,653           |   |               | (80)%  |  | $             | 9,144 |   |  | $ | 24,606 |   |  | (63)%
|Effective tax rate     |  |                    | 16    | % |               |   | 70               | % |               |        |  |               | 27    | % |  |   | 54     | % |  |      

The effective tax rate for the second quarter and first six months of fiscal 2009 differs from the
federal statutory rate of 35% primarily due to the effects of foreign taxes, stock-based compensation plans, differences between the book and tax treatment of certain income items on which a valuation allowance has been recorded, and the
jurisdictional mix of the earnings. The effective tax rate on continuing operations for the second quarter of fiscal 2009 was 16% compared to an effective tax rate of 70% for the prior year period. The effective tax rate on continuing operations for
the first six months of fiscal 2009 was 27% compared to an effective tax rate of 54% for the prior year period. The decrease in the effective tax rate on continuing operations for the second quarter and first six months of fiscal 2009 compared to
the respective prior year periods relates primarily to differences between book and tax income that increased fiscal 2008 tax income and necessitated in fiscal 2008 the use of acquired and equity compensation-based net operating losses, which
reduced goodwill and additional paid-in capital on the balance sheet rather than reducing income tax expense.

Net Income Components



|                                                |  |                    |        |                  |   |               |  |               |        |  |   |       
|----------------------------------------------- |  | ------------------ | ------ | ---------------- | - | ------------- |  | ------------- | ------ |  | - | ------
|                                                |  | Three months ended |        | Six months ended
|(In thousands)                                  |  | April 30,2009      |        | April 30,2008    |   | April 30,2009 |  | April 30,2008
|Income from continuing operations               |  | $                  | 15,051 |                  | $ | 5,866         |  | $             | 24,692 |  | $ | 20,550
|Income from discontinued operations, net of tax |  |                    | 566    |                  |   |              |  |               | 1,602  |  |   | 2,121 
|                                                |  |                    |        |                  |   |               |  |               |        |  |   |       
|Net income                                      |  | $                  | 15,617 |                  | $ | 5,866         |  | $             | 26,294 |  | $ | 22,671
|                                                |  |                    |        |                  |   |               |  |               |        |  |   |       

Discontinued operations for the second quarter and first six months of fiscal 2009 relates to the
Salmon Ltd. (Salmon) subsidiary gain earned during the respective periods as Salmon met certain cumulative revenue targets. Discontinued operations for the first six months of fiscal 2008 relates to the disposition of our Cambridge
Technology Partners (Switzerland) SA (CTP Switzerland) subsidiary discussed in the Divestitures section, below.

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-lived 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
2008. During the first quarter of fiscal 2009, we made a sales program change that necessitated a change in our revenue recognition policy. That policy change is discussed below:

Revenue Recognition

Historically, we sold software licenses individually as
well as combined with other products (multi-element arrangements), allowing us to determine vendor-specific objective evidence (VSOE) of fair value for substantially all software license products. Accordingly, when we sold multi-element
arrangements we used the relative fair value, or proportional, revenue accounting method to allocate the value of multi-element arrangements proportionally to the software license and other components.

At the start of fiscal 2009, we made a sales program change requiring all customers to initially purchase maintenance with licenses, which is common
industry practice. As a result of eliminating stand-alone software license sales, VSOE of fair value for software licenses no longer exists. Accordingly, beginning in the first quarter of fiscal 2009, the residual method under Statement of Position
(SOP) 97-2, Software Revenue Recognition, as amended by SOP 98-9 Modification of SOP 97-2, Software Revenue



34



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
(Continued)

Critical Accounting Policies (Continued)



Recognition, with Respect to Certain Transactions, is now used to allocate the value of multi-element arrangements to the various components, which is
also common industry practice. Under the residual method, each undelivered element (typically maintenance) is allocated value based on Novell-specific objective evidence of fair value for that element and the remainder of the total arrangement fee
is allocated to the delivered element, typically the software. This method results in discounts being allocated to the software license rather than spread proportionately over all elements. Therefore, when a discount exists, less revenue is
recognized at the time of sale under the residual method than under the relative fair value method, which we used prior to fiscal 2009. We believe that the change to the residual method did not materially impact revenue in either the second quarter
or the first six months of fiscal 2009.

Acquisitions

Our goal is to facilitate revenue growth both organically and, potentially, through accretive strategic acquisitions that complement existing growth business unit segments. In the first six months of fiscal 2009, we
completed two acquisitions.

Fortefi

On February 10, 2009, we acquired certain assets of Fortefi Ltd., a United Kingdom-based company, and Fortefi Corporation, a Delaware corporation (collectively referred to as Fortefi). Fortefi is a
supplier of an identity management solution that controls super user access rights. Fortefi was a small operation whose revenues, net operating results, assets and liabilities were immaterial to us. The purchase price consisted of $3.0
million in cash, plus merger and transaction costs of $0.1 million.

Managed Objects

On November 13, 2008, we acquired 100% of the outstanding stock of Managed Objects, a supplier of business service management solutions, through a
merger of Managed Objects into a wholly-owned subsidiary of Novell. The purchase price, consisted of $46.3 million in cash, plus merger and transaction costs of $1.1 million.

Divestitures

Discontinued Operations

Our discontinued operations include the divestitures of our CTP Switzerland subsidiary in fiscal 2008, and our Salmon subsidiary in fiscal 2007.

CTP Switzerland

On October 31, 2007, we signed an agreement to sell our CTP Switzerland subsidiary to a management-led buyout group for $0.8 million ($0.5 million was received at close on January 31, 2008, and an additional contingent
payment of $0.3 million was received during the fourth quarter of fiscal 2008). No further payments are due from the CTP Switzerland buyout group.

Salmon

On March 12, 2007, we sold our shares in our wholly-owned Salmon subsidiary to
Okam Limited, a U.K. Limited Holding Company, for $4.9 million, which has been received, plus an additional contingent payment of £2.0 million (approximately $3.1 million) to be received if Salmon meets certain cumulative future revenue
targets by the end of our fiscal 2009. Of the $4.9 million initial sales proceeds, $2.9 million was received at the time of sale and the remaining $2.0 million was received during the second quarter of fiscal 2008. With respect to the approximate
$3.1 million contingent payments, during fiscal 2008, we received $1.2 million of the contingent amount and during the first quarter of fiscal 2009, we received an additional contingent cash payment of $1.0 million. In the second quarter of fiscal
2009, we earned another $0.6 million which will be paid to us in December 2009, leaving approximately $0.3 million of the contingent amount which we could earn in the future.



35



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
(Continued)

Divestitures (Continued)



Sale of Subsidiaries

Our sale of subsidiaries includes the divestitures of our Chile subsidiary in fiscal 2009 and our Mexico subsidiary and our Argentina subsidiary in fiscal 2008.

Chile subsidiary

During the
second quarter of fiscal 2009, we sold our Chile subsidiary to the same Latin American distribution partner that purchased our Mexico and Argentina subsidiaries. Our Chile subsidiary was a very small operation with an immaterial net book value, and
was sold for an insubstantial amount. The loss recorded on this sale was $0.1 million and is shown as a component of the line item Gain (loss) on sale of subsidiaries on our consolidated statements of operations. We will continue to sell
products to customers in Chile through the distribution partner. Accordingly, we will have continuing cash flows from this business and have not presented Chile as a discontinued operation in our consolidated statements of operations.

Mexico and Argentina subsidiaries

During fiscal 2008, we sold our Mexico and our Argentina subsidiaries to one of our Latin American distribution partners. During the first quarter of fiscal 2009, we reached final settlement related to working capital adjustments on the
sale of the Mexico subsidiary. This resulted in a non-cash gain of $0.2 million. During the second quarter of fiscal 2009, we reached final settlement related to working capital adjustments on the sale of the Argentina subsidiary. This resulted in a
non-cash loss of $0.1 million. These gains and losses are shown as a component of the line item Gain (loss) on sale of subsidiaries on our consolidated statements of operations.

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 30,2009 |           |   | October 31,2008 |   |           | Change
|Cash, cash equivalents, and short-term investments |  | $             | 1,004,766 |   |                 | $ | 1,067,847 |        |  | (6)%
|Percent of total assets                            |  |               | 47        | % |                 |   | 47        | %      |  |     

An overview of the significant cash flow activities for the first six months of fiscal 2009 and
2008 is as follows:



|                                                                       |  |                    |   |  |                    |  
|---------------------------------------------------------------------- |  | ------------------ | - |  | ------------------ | -
|                                                                       |  | Six months ended   |  
|(In thousands)                                                         |  | April 30,2009      |   |  | April 30,2008      |  
|Net cash used in operating activities                                  |  | $          (13,455 | ) |  | $          (47,441 | )
|Purchases of property, plant and equipment                             |  | (6,582             | ) |  | (16,322            | )
|Cash paid for acquisitions, net of cash acquired                       |  | (48,472            | ) |  | (220,473           | )
|Net cash proceeds (distributions) from sale of discontinued operations |  | 1,036              |   |  | (909               | )
|Change in restricted cash                                              |  | (260               | ) |  | (52,124            | )
|Issuances of common stock                                              |  | 1,152              |   |  | 10,252             |  
|Debenture repurchases                                                  |  | (3,869             | ) |  | (115,589           | )

Cash used in operating activities during the first six months of fiscal 2009 was $13.5 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. Cash used in operating activities during the first six months of fiscal 2008 included the final
$13.9 million of special interest payments required under the consent solicitation for the Debentures (For more information on the special interest payments, see Note P, Senior Convertible Debentures in our fiscal 2008 Annual Report on
Form 10-K).



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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 (Continued)



As of April 30, 2009, we had cash, cash equivalents, and short-term investments of approximately
$401.3 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, 2009, $6.1 million of our short-term investments are designated to fund deferred compensation payments, which are paid out as requested by participants in the Novell, Inc. Deferred Compensation Plan upon termination of such
participants. As of April 30, 2009, our short-term investment portfolio includes gross unrealized gains and losses of $7.2 million and $2.6 million, respectively. We monitor our investments and record losses when a decline in the
investments market value is determined to be other-than-temporary.

At April 30, 2009 and October 31, 2008, all of our ARSs
are classified as long-term investments on our consolidated balance sheets. Contractual maturities for these ARSs are greater than 15 years with an interest reset date every 28 to 90 days. With the liquidity issues experienced in the global credit
and capital markets, our ARSs have experienced multiple failed auctions.

We estimated the fair value of these ARSs using a discounted cash
flow analysis that considered the following key inputs: (i) the underlying structure of each security; (ii) the present value of the expected future principal and interest payments discounted at rates considered to reflect current market
conditions and the relevant risk associated with each security; and (iii) consideration of the time horizon for the market value of each security to return to its original cost. We estimated that the fair market value of these securities at
April 30, 2009 and October 31, 2008 was $8.0 million and $11.1 million, respectively. Prior to the other-than-temporary impairment charges, the original cost of these ARSs was $39.8 million.

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. We also reversed $0.2 million in unrealized gains initially recorded in the first quarter of fiscal 2009. The other-than-temporary impairment charges are based on our assessment that it is likely that the continuing decline in fair
value of our ARSs will not fully recover in the foreseeable future, given a combination of factors, including the duration, severity and continued declining trend of the fair value of these securities as well as a deterioration in some of the
securities credit ratings. The other-than-temporary impairment charge of $3.1 million recorded during the first six months of fiscal 2009 is in addition to the $28.7 million of other-than-temporary impairment charges that were recorded during
fiscal 2008.

The fair value of the ARSs could change in the future and we may be required to record additional other-than-temporary
impairment charges if there are further reductions in fair value in future periods.

During fiscal 2008, our holdings in an enhanced
liquidity fund were frozen due to liquidity issues. We believe that the underlying securities are not impaired if held to maturity. As the underlying securities mature, the fund manager is distributing the cash on a pro rata basis to the funds
shareholders. No distributions were received during the second quarter of fiscal 2009. During the first six months of fiscal 2009, we received $6.7 million. As of April 30, 2009, the balance of this investment is $15.6 million. As of
April 30, 2009, we anticipate that $13.4 million of this balance will be distributed during the next twelve months. The remaining $2.2 million is anticipated to be distributed after April 30, 2010 and is classified as a long-term
investment on our consolidated balance sheets. The fund continues to accrue and pay interest income and, as there are no other-than-temporary impairment or valuation issues with these securities, no impairment charges were recorded in connection
with this investment. The fair value of the fund was estimated by using the quoted prices of the underlying securities. On May 20, 2009, we received a distribution for the remaining $15.6 million balance.

Based on our ability to access our cash, cash equivalents, and short-term investments, our expected operating cash flows, and our other potential sources
of cash, we do not anticipate that the lack of liquidity on the enhanced liquidity fund and our ARSs will affect our ability to operate our business as usual during the next twelve months.

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 L, 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 on
our consolidated balance sheets. The restriction will continue until the resolution of this legal matter. The bond earned $0.3 million of interest during the first six months of fiscal 2009, increasing restricted cash to $53.0 million at
April 30, 2009.



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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 (Continued)



According to the terms of the Open Invention Network, LLC (OIN) 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 the first six months of fiscal 2009, we made total cash payments for interest of $0.3 million related to the Debentures. During the second quarters of fiscal 2009 and 2008, we incurred
interest expense, including the amortization of deferred financing costs related to the Debentures, of $1.1 million and $5.5 million, respectively. During the first six months of fiscal 2009 and 2008, we incurred interest expense, including the
amortization of deferred financing costs related to the Debentures, of $2.3 million and $11.1 million, respectively.

During fiscal 2008,
we received authorization from our Board of Directors to repurchase, from time to time, up to $600 million face value of the Debentures in such quantities, at such prices, and in such manner as may be directed by our management. During the first six
months of fiscal 2009, we purchased and retired $4.0 million face value of the Debentures for total cash consideration of $3.9 million, including less than $0.1 million of accrued interest. The portions of the unamortized debt issuance costs and
prepaid interest related to the Debentures that were repurchased were written off resulting in a gain of $0.1 million during the first six months of fiscal 2009. This gain is shown as a component of the line item Interest expense and other,
net in our consolidated statements of operations.

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 quarter or first six months of fiscal 2009. As of April 30, 2009, $33.2
million remains to be repurchased under the current Board authorization.

There have been no significant changes to our contractual
obligations as disclosed in our fiscal 2008 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 financing of fixed assets, repurchases of common stock under our share repurchase plan, payments under our
restructuring plans, product development investments, maintaining flexibility in a dynamic and competitive operating environment, including pursuing potential acquisition and investment opportunities, interest payments on the Debentures, any
repurchases we may make of the Debentures, and the possible redemption of our Debentures, which the holders can first require us to repurchase on July 15, 2009.

Barring unforeseen consequences, 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. We believe that offerings of equity or debt securities are possible for expenditures beyond the next twelve months, if the need arises, although such offerings may not be available to us on acceptable
terms and are dependent on market conditions at such time.

Off-Balance Sheet Arrangements

At April 30, 2009, we had no off-balance sheet arrangements as defined by applicable SEC rules.

Recent Pronouncements

In December
2007, the FASB issued SFAS No. 141(R), Business Combinations (SFAS No. 141(R)). This statement replaces SFAS No. 141, Business Combinations. SFAS No. 141(R) establishes
principles and requirements for how an acquiring company: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; 2) recognizes and
measures the goodwill acquired in the business combination or a gain from a bargain purchase; and 3) discloses information to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
SFAS No. 141(R) is effective for business combinations occurring on or after the beginning of the fiscal year beginning on or after December 15, 2008 (our fiscal 2010). For acquisitions that close after November 1, 2009 or for
any acquisition-related tax adjustments that occur after November 1, 2009, this pronouncement will impact our financial position and results of operations.



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NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
(Continued)

Recent Pronouncements (Continued)



In April 2009, the FASB issued Staff Position No. 141(R)-1, Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination that Arise from Contingencies (FSP No. 141(R)-1). FSP No. 141(R)-1 was issued in response to various application issues raised in adopting SFAS No. 141(R) with
respect to the measurement, accounting, and disclosures of assets and liabilities arising from contingencies in a business combination. FSP No. 141(R)-1 provides guidance and clarification in measuring, accounting, and disclosing acquired
contingent assets and liabilities. FSP No. 141(R)-1 is effective for business combinations occurring on or after the beginning of the fiscal year beginning on or after December 15, 2008 (our fiscal 2010). For acquisitions that close after
November 1, 2009 that have contingent assets or liabilities, this pronouncement will impact our financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements  an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 160
requires the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parents equity. It
also requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. SFAS No. 160 is effective for
fiscal years and fiscal quarters beginning on or after December 15, 2008 (our fiscal 2010). The impact of this pronouncement on our financial position and results of operations is anticipated to be immaterial.

In April 2008, the FASB issued Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (FSP
No. 142-3). FSP No. 142-3 amends the guidance in FASB Statement No. 142, Goodwill and Other Intangible Assets, for estimating useful lives of recognized intangible assets and requires additional disclosures related
to renewing or extending the terms of a recognized intangible asset. In estimating the useful life of a recognized intangible asset, FSP No. 142-3 requires companies to consider their historical experience in renewing or extending similar
arrangements together with the assets intended use, regardless of whether the arrangements have explicit renewal or extension provisions. FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008 (our fiscal
2010), and is to be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements are to be applied prospectively to all intangible assets. For intangible assets acquired after November 1, 2009, this
pronouncement may impact our financial position and results of operations.

In April 2009, the FASB issued Staff Position FAS
No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP No. 107-1). FSP No. 107-1 requires disclosures about the fair value of financial instruments for interim
reporting periods of publicly traded companies as well as in annual financial statements. Similar disclosures about the fair value of our financial instruments and their related carrying value that are currently found in our annual report on Form
10-K, will now be required in our quarterly reports on Form 10-Q. FSP No. 107-1 is effective for interim and fiscal periods ending after June 15, 2009 (our third quarter of fiscal 2009). As this pronouncement is only disclosure related, it
will not have an impact on our financial position and results of operations.

In April 2009, the FASB issued FSP No. 115-2,
Recognition and Presentation of Other-Than-Temporary Impairments (FSP No. 115-2). FSP No. 115-2 establishes a new method of recognizing and reporting other-than-temporary impairments of debt securities. FSP
No. 115-2 also contains additional disclosure requirements related to debt and equity securities. Under FSP No. 115-2, impairment is now considered to be other-than-temporary if the present value of cash flows expected to be collected from
the debt security is less than the amortized cost basis of the security. FSP No. 115-2 also requires the separation of the total impairment into the portion due to credit loss and the portion related to all other factors, typically considered
market risks. The portion related to credit loss is recognized in earnings, while the portion related to other factors is recognized in other comprehensive income, provided there is no intention to sell the security, and recovery to amortized cost
basis is more-likely-than-not prior to any sale of the security. FSP No. 115-2 is effective for interim and fiscal periods ending after June 15, 2009 (our third quarter of fiscal 2009). We are currently evaluating the impact of adoption on
our financial position and results of operations.

In April 2009, the FASB issued FSP No. 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP No. 157-4). FSP No. 157-4 provides additional guidance to determine when a market
for a financial asset or liability is no longer active and whether a transaction is not considered orderly. If the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability in
relation to normal market activity for the asset or liability, further analysis of the transactions or quoted prices is needed, and a significant adjustment to the transactions or quoted prices may be necessary to estimate fair value. FSP
No. 157-4 is effective for interim and fiscal periods ending after June 15, 2009 (our third quarter of fiscal 2009). This pronouncement may impact our financial position and results of operations for any of our investments that may be in
an inactive or disorderly market.



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##### Table of Contents

NOVELL, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
(Continued)

Recent Pronouncements (Continued)



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 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.

Subsequent Event

On May 28, 2009, we announced a strategic partnership with Affiliated Computer Services, Inc.
(ACS) to expand our collective core technical capabilities and suite of services. As part of the strategic partnership, we will outsource the majority of our internal IT operations to ACS as part of a $135 million, five-year contract.
Under the outsourcing agreement, approximately 156 of our employees will transition to ACS. ACS will also collaborate with us to enhance ACS global data center operations and ACS has committed to purchase at least $30 million of our products
and services during the first three years of the strategic partnership.



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##### Table of Contents

NOVELL, INC.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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. For further information, see the Liquidity and Capital Resources section in Managements Discussion and Analysis of Financial Condition and Results of Operations above.

Foreign currency exchange rate fluctuations during the second quarter of fiscal 2009, compared to the prior year period, unfavorably impacted revenue by
$6.3 million, favorably impacted operating expenses by $12.8 million and favorably impacted income from operations by $6.5 million. Foreign currency exchange rate fluctuations during the first six months of fiscal 2009, compared to the prior year
period, unfavorably impacted revenue by $9.0 million, favorably impacted operating expenses by $23.6 million and favorably impacted income from operations by $14.6 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.

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 and first six months of fiscal 2009 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, 2008.

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 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.



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##### Table of Contents

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 L of our financial statements contained in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Part 1, Item 1A of our Form 10-K for the fiscal year ended October 31, 2008.

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 2009.



|                                                 |  |                                |  |                            |      |                                                                              |   |                                                                                |   |       
|------------------------------------------------ |  | ------------------------------ |  | -------------------------- | ---- | ---------------------------------------------------------------------------- | - | ------------------------------------------------------------------------------ | - | ------
|(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, 2009 through February 28, 2009       |  | 2                              |  | $                          | 3.47 |                                                                              |  |                                                                                | $ | 33,180
|March 1, 2009 through March 31, 2009             |  | 229                            |  |                            | 3.08 |                                                                              |  |                                                                                |   | 33,180
|April 1, 2009 through April 30, 2009             |  | 13                             |  |                            | 3.14 |                                                                              |  |                                                                                |   | 33,180
|                                                 |  |                                |  |                            |      |                                                                              |   |                                                                                |   |       
|Total                                            |  | 244                            |  | $                          | 3.09 |                                                                              |  |                                                                                |   | 33,180
|                                                 |  |                                |  |                            |      |                                                                              |   |                                                                                |   |       

The total number of shares purchased includes shares surrendered to us to satisfy tax withholding
obligations in connection with the vesting of restricted stock units and restricted stock rights totaling 0.2 million shares in the months of February, March and April of fiscal 2009.

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 quarter or first six months of fiscal 2009. As of April 30, 2009, $33.2 million remains to be repurchased under the current Board authorization.



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##### Table of Contents

NOVELL, INC.

PART II. OTHER INFORMATION  (Continued)

Item 4. Submission
of Matters to a Vote of Security Holders

2009 Annual Meeting of Stockholders

Our 2009 Annual Meeting of Stockholders was held on April 6, 2009, at 404 Wyman Street, Waltham, Massachusetts. Of the 344,388,980 shares of common
stock that were outstanding and entitled to vote at the meeting as of February 13, 2009 (the record date), a total of 259,257,876 shares were present in person or by proxy at the meeting, representing 75.3% of the outstanding shares. Following
are the voting results for the items considered by the stockholders:

I. Election of Directors

Each of the twelve nominees for Director was elected, by the votes set forth below, to hold office until the next annual meeting of stockholders and
until his or her successor is elected and qualified, except in the event of his or her earlier death, resignation, or removal.



|                     |  |             |  |               |  |                 
|-------------------- |  | ----------- |  | ------------- |  | ----------------
|Nominee              |  | Votes For   |  | Votes Against |  | Votes Abstaining
|Albert Aiello        |  | 251,189,492 |  | 7,537,694     |  | 530,690         
|Fred Corrado         |  | 250,808,468 |  | 7,970,756     |  | 478,652         
|Richard L. Crandall  |  | 250,944,160 |  | 7,788,231     |  | 525,485         
|Gary G. Greenfield   |  | 249,511,591 |  | 9,254,824     |  | 491,461         
|Judith H. Hamilton   |  | 251,002,760 |  | 7,770,838     |  | 484,278         
|Ronald W. Hovsepian  |  | 251,412,439 |  | 7,360,396     |  | 485,041         
|Patrick S. Jones     |  | 251,213,958 |  | 7,538,242     |  | 505,676         
|Claudine B. Malone   |  | 231,652,824 |  | 27,097,770    |  | 507,282         
|Richard L. Nolan     |  | 250,341,912 |  | 8,483,825     |  | 432,139         
|Thomas G. Plaskett   |  | 230,847,170 |  | 27,823,879    |  | 586,827         
|John W. Poduska, Sr. |  | 230,545,134 |  | 28,215,010    |  | 497,732         
|Kathy Brittain White |  | 231,832,873 |  | 26,983,379    |  | 441,624         

II. Approval of the Novell, Inc. 2009 Omnibus Incentive Plan

The Novell, Inc. 2009 Omnibus Incentive Plan was approved by the following vote:



|            |  |               |  |                  |  |                
|----------- |  | ------------- |  | ---------------- |  | ---------------
|Votes For   |  | Votes Against |  | Votes Abstaining |  | Broker No Votes
|139,874,994 |  | 38,855,876    |  | 182,144          |  | 80,344,862     

III. Ratification of Independent Public Accounting Firm

Ratification of the appointment of our independent registered public accounting firm for the fiscal year ending October 31, 2009 was passed by the
following vote:



|                           |  |             |  |               |  |                 
|-------------------------- |  | ----------- |  | ------------- |  | ----------------
|                           |  | Votes For   |  | Votes Against |  | Votes Abstaining
|PricewaterhouseCoopers LLP |  | 257,011,030 |  | 1,462,621     |  | 784,224         

Item 5. Other Information

Amendment to By-Laws

On
June 9, 2009, our Board of Directors approved amended and restated by-laws (the Amended By-laws) of Novell, to be effective immediately. The Amended By-laws were adopted to revise certain provisions in light of changes to state law,
recent case law and developments in corporate governance practice. The Amended By-laws are attached hereto as Exhibit 3.2 and are incorporated by reference herein. The Amended By-Laws, among other things:



| |  |  | eliminate a default date for the annual meeting of stockholders;
| | - |  | ----------------------------------------------------------------

| |  |  | clarify procedures governing stockholders meetings and the powers of the chairman of the meeting to preside at and adjourn such meeting;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------

| |  |  | revise procedures relating to submissions of nominations of director elections and other proposals by stockholders
for consideration by expanding the information required to be submitted and revising the timing for when any nomination or any other business to be brought before the annual meeting shall be considered timely to be no earlier than the
150thday and not later than the 120thday
prior to the anniversary date of the preceding annual meeting of stockholders;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | provide that shareholders seeking to call a special meeting of stockholders or take action in lieu of a stockholders meeting must provide the information
required by the advance notice provisions of the Amended By-laws;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

NOVELL, INC.

PART II. OTHER INFORMATION  (Continued)

Item 5. Other Information (Continued)



| |  |  | revise procedures relating to inspectors of election;
| | - |  | -----------------------------------------------------

| |  |  | provide that the Chairman of the Board may call a special meeting of the Board of Directors;
| | - |  | --------------------------------------------------------------------------------------------

| |  |  | provide that the Board of Directors may take written action in the form of electronic submissions;
| | - |  | --------------------------------------------------------------------------------------------------

| |  |  | conform the Amended By-laws to comply with Section 141(c)(2) of the Delaware General Corporation Law; and
| | - |  | ---------------------------------------------------------------------------------------------------------

| |  |  | eliminate unnecessary provisions such as those relating to the Organizational Meeting, officer bonds and salaries, a Vice-Chairman, an annual statement of the
Board of Directors and the procedures relating to the depositing of Novell funds.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The foregoing is qualified in its
entirety by reference to the text of the Amended By-laws.

Director and Executive Officer Indemnification Agreements

On June 9, 2009, our Board of Directors, upon the recommendation of its Corporate Governance Committee, authorized Novell to enter into
indemnification agreements with all of our directors currently serving on the Board and with certain executive officers including the named executive officers identified in our definitive Proxy Statement filed with the SEC on February 25, 2009
(Indemnitees). A copy of the Form of Indemnification Agreement (the Indemnification Agreement) is attached as Exhibit 10.3 to this quarterly report. The following description is qualified in its entirety by
reference to the Indemnification Agreement.

The Indemnification Agreement provides that, to the fullest extent permitted by Delaware law
but subject to certain exclusions, Novell shall indemnify an Indemnitee who was, is or becomes a party to, or was or is threatened to be made a party to, or was or is otherwise involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the Indemnitee is or was a director or officer of Novell or of an enterprise at which the Indemnitee was or is serving at the request of
Novell. The indemnification covers expenses, including attorneys fees, incurred in connection with prosecuting, defending, appealing, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise
participating in a proceeding, or in connection with seeking indemnification under the Indemnification Agreement, and any losses, as well as any resulting taxes paid or incurred by the Indemnitee in connection with the proceeding.

If the Indemnitee is not wholly successful in a proceeding, but is successful as to one or more but fewer than all claims, Novell will indemnify the
Indemnitee against expenses paid or incurred by the Indemnitee in connection with each successfully resolved claim. The Indemnification Agreement also provides for contribution under certain circumstances when indemnification is not available,
and governs various procedural matters related to indemnification and insurance claims.

Amendment to Severance Agreement

On June 9, 2009, our Board of Directors, upon the recommendation of its Compensation Committee, authorized Novell to amend the
Severance Agreements currently in effect between Novell and certain executive officers including the named executive officers identified in our definitive Proxy Statement filed with the SEC on February 25, 2009. A copy of the Form of Amendment
to Severance Agreement (the Amendment) is attached as Exhibit 10.4 to this quarterly report. The following description is qualified in its entirety by reference to the Amendment.

The purpose of the Amendment is to clarify the extent to which severance benefits related to continued equity vesting include performance-based equity awards, in addition to time-based equity
awards. The Amendment will ensure that for a twelve-month period following termination of employment by Novell unrelated to a change in control (and for reasons other than cause), the executive officers equity compensation grants
that by their terms vest with reference to applicable performance terms and conditions will continue to be eligible to become fully earned (or fully vested) during the one-year period following the termination date if and to the extent the relevant
performance terms and conditions are met during that period. The Amendment resolves an ambiguity and clarifies that performance-based equity grants will be treated in a manner comparable to time-based equity grants (which contain a similar one-year
provision), consistent with the principles behind our equity grant and severance agreements, except that the performance-based grants will only vest if the applicable performance measures are met during the one-year period.

Item 6. Exhibits

The exhibits listed on the Exhibit Index filed as a part of this Quarterly Report on Form 10-Q are 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 9, 2009 |  |  |  | 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                                               
| |  |               
| |  | 3.2            |  | By-Laws, as amended and restated June 9, 2009.            
| |  |               
| |  | 10.1*          |  | Novell, Inc. 2009 Omnibus Incentive Plan. (1)             
| |  |               
| |  | 10.2*          |  | Novell, Inc. 2009 Annual Bonus Program for Executives. (2)
| |  |               
| |  | 10.3*          |  | Form of Indemnification Agreement.                        
| |  |               
| |  | 10.4*          |  | Form of Amendment to Severance Agreement.                 
| |  |               
| |  | 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.  (1)  Incorporated by reference to Appendix A of the Registrants Definitive Proxy Statement on
Schedule 14A, filed February 25, 2009 (File No. 000-13351).  (2)  Incorporated by reference to the Registrants Current Report on Form 8-K, filed April 13, 2009 (File No. 000-13351).



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