##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K







| |   |                                                     
| | - | ----------------------------------------------------
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT of 1934


For the Fiscal Year Ended October 31, 2005


OR




| |   |                                                             
| | - | ------------------------------------------------------------
| | o | 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, Suite 500


Waltham, MA 02451


(Address of principal executive offices including zip
code)


(781) 464-8000


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Common Stock, par value $.10 per share


(Title of Class)


Preferred Share Purchase Rights


(Title of Class)


x o


o x


x o


Regulation S-K Form 10-K Form 10-K. o




Rule 12b-2 x o


Rule 12b-2 o x




DOCUMENTS INCORPORATED BY REFERENCE


Form 10-K










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##### 










NOVELL, INC.


TABLE OF CONTENTS


|              |  |                                                                                                                       |  |      |     | 
|------------- |  | --------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|              |  |                                                                                                                       |  | Page |    
|              |  |                                                                                                                       |  |      |    
|PART I       
|Item 1.       |  | Business                                                                                                              |  |      | 1   | 
|Item 1A.      |  | Risk Factors                                                                                                          |  |      | 14  | 
|Item 1B.      |  | Unresolved Staff Comments                                                                                             |  |      | 19  | 
|Item 2.       |  | Properties                                                                                                            |  |      | 20  | 
|Item 3.       |  | Legal Proceedings                                                                                                     |  |      | 20  | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                               |  |      | 22  | 
|PART II      
|Item 5.       |  | Market for Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities |  |      | 23  | 
|Item 6.       |  | Selected Financial Data                                                                                               |  |      | 24  | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                             |  |      | 25  | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                        |  |      | 48  | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                       |  |      | 50  | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                              |  |      | 108 | 
|Item 9A.      |  | Controls and Procedures                                                                                               |  |      | 108 | 
|Item 9B.      |  | Other Information                                                                                                     |  |      | 109 | 
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                                |  |      | 109 | 
|Item 11.      |  | Executive Compensation                                                                                                |  |      | 109 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                    |  |      | 109 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                    |  |      | 109 | 
|Item 14.      |  | Principal Accountants Fees and
    Services                                                                          |  |      | 109 | 
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                        |  |      | 110 | 
|EXHIBIT 10.18
|EXHIBIT 10.21
|EXHIBIT 10.22
|EXHIBIT 10.23
|EXHIBIT 12.1 
|EXHIBIT 21   
|EXHIBIT 23.1 
|EXHIBIT 23.2 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



i



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NOVELL, INC.


FORM 10-K


In addition to historical information, this Annual Report on
Form 10-K contains
certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities 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 and objectives constitute forward looking
statements. The words may, will,
expect, plan, anticipate,
believe, estimates,
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 the date hereof, and are subject to certain risks
and uncertainties. We assume no obligation, except as required
by law, to update or revise and forward-looking statements
contained or incorporated by reference herein to reflect any
change or 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 as a result of
a number of factors, which include, but are not limited to,
those set forth below in the section titled Risk
Factors. Readers should carefully review the risk factors
described in this document and in other documents that Novell
files from time to time with the Securities and Exchange
Commission.





PART I







|        |         
|------- | --------
|Item 1. | Business

The Company


best-of ®




Identity-driven computing solutions.




| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | resource management capabilities for both desktop and server
    environments;
|
| |  | provisioning and de-provisioning capabilities; and                            
|
| |  | secure authentication and authorization services.                             





|                          |  
|------------------------- | -
|Novell annual report 2005 | 1









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Linux and platform services solutions. ® ® ® tm ®








|  |                          
|- | -------------------------
|2 | Novell annual report 2005









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##### Table of Contents





Global services and support.




on-site e-mail,


Celerant consulting.


(781) 464-8000. (801) 861-7000.


(800) 317-3195


Components of Information Solutions Categories






Identity-driven computing solutions.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Identity Manager is a powerful data-sharing and synchronization
    solution, often referred to as a meta-directory solution, which
    automatically distributes new and updated information across
    every designated application and directory on a network. This
    ensures that trusted customers, partners, and suppliers are
    accessing consistent information, regardless of the applications
    and directories to which they have access.



|                          |  
|------------------------- | -
|Novell annual report 2005 | 3









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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | ZENworks®
    management products protect the integrity of networks by
    centralizing, automating, and simplifying every aspect of
    network management, from distributing vital information across
    the enterprise to maintaining consistent policies on desktops,
    servers, and devices on Linux, NetWare, and Windows environments.                                                                                   
|
| |  | eDirectorytm
    is a full-service, platform-independent directory that
    significantly simplifies the complexities of managing users and
    resources in a mixed Linux, NetWare, UNIX, and Windows
    environment. It is a secure, scalable, directory service that
    allows organizations to centrally store and manage information
    across all networks and operating systems and leverage existing
    IT investments.
|
| |  | BorderManager®
    is a suite of network services used to connect a network
    securely to the Internet or any other network, allowing outside
    access to intranets and user access to the Internet.                                                                                                                                                                                                                           
|
| |  | SecureLogin is a directory-integrated authentication solution
    that delivers reliable, single sign-on access across
    multi-platform networks, simplifying password management by
    eliminating the need for users to remember more than one
    password.                                                                                                                                                                  
|
| |  | iChain®
    is an identity-based security solution that controls access
    across technical and organizational boundaries to applications,
    the web, and network resources. iChain separates security from
    individual applications and web servers, enabling single-point,
    policy-based management of authentication and access privileges
    throughout the Internet.                                                

Linux and platform services solutions.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Open Enterprise Server (OES) is a secure, highly
    available suite of services that provides proven networking,
    communication, collaboration and application services in an
    open, easy-to-deploy
    environment. OES provides customers the choice of deploying on
    either NetWare or SUSE Linux Enterprise Server and provides
    common management tools, identity-based services and support
    backed by Novell.
|
| |  | SUSE Linux Enterprise Server is an enterprise-class, open source
    server operating system for professional deployment in
    heterogeneous IT environments of all sizes and sectors. This
    operating system integrates all server services relevant in
    Linux and constitutes a stable and secure platform for the
    cost-efficient operation of IT environments.                                                          
|
| |  | NetWare is our proprietary operating system platform that offers
    secure continuous access to core network resources such as
    files, printers, directories,
    e-mail and databases
    seamlessly across all types of networks, storage platforms and
    client desktops.                                                                                                                                                    
|
| |  | GroupWise collaboration products offer traditional and mobile
    users solutions for communication over intranets, extranets and
    the Internet.                                                                                                                                                                                                                                                                                   
|
| |  | SUSE Linux, formerly SUSE Linux Professional, is an open source
    product that combines a fast, secure operating system with over
    1,000 open source applications. It is ideal for new Linux users
    as well as technical enthusiasts, and it is available for
    download at OpenSUSE.org or available through the retail channel.                                                                                           
|
| |  | Novell Linux Desktop is a business desktop product that brings
    together the Linux operating environment with a complete set of
    office applications. Among the more significant business
    applications, it includes OpenOffice (an office productivity
    suite), Mozillas Firefox browser, and Novell
    Evolutiontm,
    a collaboration client for Linux.                                                             

Global services and support.




| |   |                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Consulting services: We provide technical expertise to deliver
    world-class solutions, based on an innovative approach focused
    on solving our customers business problems. We deliver
    services ranging from discovery workshops to strategy projects
    to solution implementations, all using a consistent, well-



|  |                          
|- | -------------------------
|4 | Novell annual report 2005









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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | defined methodology. Our consulting approach is based on a
    strong commitment to open standards, interoperability, and the
    right blend of technology from Novell and other leading vendors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Technical Support: We provide phone-based, web-based, and onsite
    technical support for our proprietary and open source products
    through our Premium Service program. Premium Service provides
    customers with the flexibility to select the appropriate level
    of technical support services, which may include stated response
    times, around-the-clock
    support, service account management, and dedicated resources,
    such as Novells most experienced engineers. The Dedicated
    Support Engineer, Primary Support Engineer, Advantage Support
    Engineer, and Account Management programs allow customers to
    build an ongoing support relationship with Novell at an
    appropriate level for their needs. We have committed a
    significant amount of technical support resources to the Linux
    open source platform. We also offer a full array of remote
    monitoring services and managed services. These services help
    customers increase system uptime, leveraging our experts to
    monitor and maintain the technologies our customers have
    employed.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Technical Support Alliance (TSANet): TSANet
    is an industry organization that enables worldwide seamless
    collaborative support for multi-vendor support issues. TSANet
    was originally organized in 1993, with Novell being instrumental
    in the formation and charter of the organization. Membership
    today consists of more than one hundred software and hardware
    companies, including industry leaders such as EMC Corporation
    (EMC), Hewlett-Packard Company (HP),
    International Business Machines Corporation (IBM),
    Microsoft Corporation (Microsoft), Novell, Sun
    Microsystems, Inc. (Sun), and Unisys Corporation. We
    are an active member of TSANet worldwide, with representation on
    both the North American Board of Trustees and the European Board
    of Directors. We were also a major supporter in the creation of
    the TSANet Linux Community and are a sponsor member of that
    community when it was announced in August 2004.



| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Training Services: We accelerate the adoption and enable the
    effective use of our products and solutions through the delivery
    of timely and relevant instructor-led and technology-based
    training courses, assessments and performance consulting
    services.





| |   |                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Certified Novell
    Engineersm(CNE) Program: Through the long-standing
    CNE®
    program, we are strengthening the networking industrys
    self-support capability. CNE certificate holders are individuals
    who have received in-depth training and information and passed a
    comprehensive test validating their ability to proficiently
    administer both Novell and other networks.
|
| |  | Certified Linux Professional (CLP) Program:
    The CLP program represents the cornerstone of our commitment to
    providing training and certification options for our clients and
    partners who require credentials and validation of competency on
    our SUSE Linux Enterprise Server platform.                                                                                             
|
| |  | Certified Linux Engineer (CLE) Program: The
    CLE program represents the IT industrys most advanced
    Linux engineering certification. Our Practicum testing
    technology allows us to validate a student or IT
    professionals competencies versus the classic IT
    certification approach of testing book knowledge.                                                                   

Strategy






|                          |  
|------------------------- | -
|Novell annual report 2005 | 5









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| |   |                                          
| | - | -----------------------------------------
| |  | our products and services;               
|
| |  | our professional services;               
|
| |  | our alliances and partnerships;          
|
| |  | our multi-channel go to market model; and
|
| |  | our personnel development.               

Products and Services Strategy






Professional Services Strategy






Alliances and Partnership Strategy




Multi-channel Go to Market Strategy






|  |                          
|- | -------------------------
|6 | Novell annual report 2005









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Personnel Development Strategy






Strategic Relationships






®


Segment and Geographic Information








| |   |                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | North America  this geographic segment includes the
    United States and Canada.                                                                                               
|
| |  | EMEA  this geographic segment includes Eastern and
    Western Europe, the Middle East and Africa.                                                                              
|
| |  | Asia Pacific  this geographic segment includes China,
    Southeast Asia, Australia, New Zealand and India.                                                                     
|
| |  | Latin America  this geographic segment includes
    Mexico, Central America, South America and the Caribbean.                                                                   
|
| |  | Japan  this geographic segment is a majority-owned
    joint venture between Novell and several other companies.                                                                
|
| |  | Celerant consulting  this segment provides
    operational strategy and implementation consulting services to a
    variety of customers mainly in Europe and the United States.



|                          |  
|------------------------- | -
|Novell annual report 2005 | 7









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##### Table of Contents







Acquisitions








Product Development








Sales and Marketing






|  |                          
|- | -------------------------
|8 | Novell annual report 2005









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Distributors.


VARs and Systems Integrators.


OEMs/Independent Hardware Vendors (IHVs)/
Independent Software Vendors (ISVs).


End-User Customers.


Marketing Strategy.


Marketing Initiatives. tm ®


International Revenue.




|                          |  
|------------------------- | -
|Novell annual report 2005 | 9









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##### Table of Contents





Major Customers




Manufacturing Suppliers




Backlog




Competition


Geographic segments






| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ability to preserve our traditional customer base;                                                                                                       
|
| |  | our ability to sell an overall solution comprised of our product
    with services from us or our partners;                                                  
|
| |  | the timing and market acceptance of new solutions developed by
    us and our competitors;                                                                   
|
| |  | brand and product awareness;                                                                                                                                 
|
| |  | the ability of Linux and open source solutions to provide a
    lower total cost of ownership;                                                               
|
| |  | the completeness of our suite of product and solutions offerings
    to solve customer problems;                                                             
|
| |  | our ability to establish and maintain key strategic
    relationships with distributors, resellers, independent software
    vendors, and other partners; and
|
| |  | the pricing of our products and services and the pricing
    strategies of our competitors.                                                                  







|   |                          
|-- | -------------------------
|10 | Novell annual report 2005









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Celerant consulting segment




Copyright, Licenses, Patents, and Trademarks












|                          |   
|------------------------- | --
|Novell annual report 2005 | 11









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Seasonality




Employees






Executive Officers




|                        |  |     |    |  |          |                                                      
|----------------------- |  | --- | -- |  | -------- | -----------------------------------------------------
|Name                    |  | Age |    |  | Position
|                        |  |     |    |  |         
|Jack L. Messman         |  |     | 65 |  |          | Chairman of the Board and Chief Executive Officer    
|Ronald W. Hovsepian     |  |     | 44 |  |          | President and Chief Operating Officer                
|Dr. Jeffrey Jaffe       |  |     | 51 |  |          | Executive Vice President and Chief Technology Officer
|Joseph S. Tibbetts, Jr. |  |     | 53 |  |          | Senior Vice President and Chief Financial Officer    
|Alan J. Friedman        |  |     | 58 |  |          | Senior Vice President, People                        
|Joseph A. LaSala, Jr.   |  |     | 51 |  |          | Senior Vice President, General Counsel and Secretary 
|Susan Heystee           |  |     | 43 |  |          | President, Novell Americas                           
|Tom Francese            |  |     | 55 |  |          | Senior Vice President, and President, EMEA Operations



| |                
| | ---------------
| | Jack L. Messman





|   |                          
|-- | -------------------------
|12 | Novell annual report 2005









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| |                    
| | -------------------
| | Ronald W. Hovsepian

17-year




| |                  
| | -----------------
| | Dr. Jeffrey Jaffe





| |                        
| | -----------------------
| | Joseph S. Tibbetts, Jr.





| |                 
| | ----------------
| | Alan J. Friedman





| |                      
| | ---------------------
| | Joseph A. LaSala, Jr.





|                          |   
|------------------------- | --
|Novell annual report 2005 | 13









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| |              
| | -------------
| | Susan Heystee





| |             
| | ------------
| | Tom Francese

30-year







|         |             
|-------- | ------------
|Item 1A. | Risk Factors



| |                                                     
| | ----------------------------------------------------
| | Our NetWare revenue stream continues to deteriorate.





| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our identity-driven computing solutions and Linux and
    platform services solutions do not grow at the rate we
    anticipate, our growth will be negatively impacted.





| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | the growth of these markets;                                                                                                  
|
| |  | our development of key product solutions and upgrades;                                                                        
|
| |  | the acceptance of our solutions by clients, particularly
    enterprise companies, large industry partners and major accounts;
|
| |  | enticing customers to upgrade from older versions of our
    products to newer versions; and                                  
|
| |  | successfully selling technical support and other Novell
    solutions along with our products.                                



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | We may not be able to successfully compete in a challenging
    market for computer software and consulting services.





|   |                          
|-- | -------------------------
|14 | Novell annual report 2005









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##### Table of Contents







| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | the pricing of our products and services and the pricing
    strategies of our competitors;                                   
|
| |  | the timing and market acceptance of new solutions developed by
    us and our competitors;                                    
|
| |  | brand and product awareness;                                                                                                  
|
| |  | the performance, reliability and security of our products;                                                                    
|
| |  | the ability to preserve our legacy customer base;                                                                             
|
| |  | our ability to establish and maintain key strategic
    relationships with distributors, resellers and other
    partners; and
|
| |  | our ability to attract and retain highly qualified development,
    consulting and managerial personnel.                      



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





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





|                          |   
|------------------------- | --
|Novell annual report 2005 | 15









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##### Table of Contents



Legal actions being taken by SCO could adversely affect our
revenue and business plan if these legal actions cause a
reduction in demand for our SUSE Linux and
Ximian®
products.




A lawsuit filed against us by SCO could result in a
substantial judgment against us and adversely affect our revenue
and business plan if they are successful.




We have experienced delays in the introduction of new
products due to various factors, resulting in lost revenue.




We benefit from the open source contributions of third-party
programmers and corporations, and if they cease to make these
contributions, our product strategy could be adversely
affected.






|   |                          
|-- | -------------------------
|16 | Novell annual report 2005









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##### Table of Contents





We may not be able to attract and retain qualified personnel
because of the intense competition for qualified personnel in
the computer and consulting industries.




If our relationships with other IT services organizations
become impaired we could lose business.




The success of our acquisitions is dependent on our ability
to integrate personnel, operations and technology, and if we are
not successful, our revenue will not grow at the rate we
anticipate.






| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | obtaining synergies from the companies organizations;                                                                                                          
|
| |  | obtaining synergies from the companies service and product
    offerings effectively and quickly;                                                              
|
| |  | bringing together marketing efforts so that the market receives
    useful information about the combined companies and their
    products;                     
|
| |  | coordinating sales efforts so that customers can do business
    easily with the combined companies;                                                            
|
| |  | integrating product offerings, technology, back office, human
    resources, accounting and financial systems;                                                  
|
| |  | assimilating employees who come from diverse corporate cultural
    backgrounds into a common business culture revolving around our
    solutions offerings; and
|
| |  | retaining key officers and employees who possess the necessary
    skills and experience to quickly and effectively transition and
    integrate the businesses.





|                          |   
|------------------------- | --
|Novell annual report 2005 | 17









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##### Table of Contents



Our financial and operating results may vary and may fall
below analysts estimates, which may cause the price of our
common stock to decline.






| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | timing of orders from customers and shipments to customers;                                           
|
| |  | impact of foreign currency exchange rates on the price of our
    products in international locations;
|
| |  | inability to respond to the decline in revenue through the
    distribution channel;                  
|
| |  | inability to deliver solutions as expected by our customers and
    systems integration partners.     



quarter-to


We face increased risks in conducting a global business.






| |   |                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------
| |  | costs and difficulties in staffing and managing international
    operations;                                                         
|
| |  | unexpected changes in regulatory requirements;                                                                                        
|
| |  | tariffs and other trade barriers;                                                                                                     
|
| |  | difficulties in enforcing contractual and intellectual property
    rights;                                                           
|
| |  | longer payment cycles;                                                                                                                
|
| |  | local political and economic conditions;                                                                                              
|
| |  | potentially adverse tax consequences, including restrictions on
    repatriating earnings and the threat of double
    taxation; and
|
| |  | fluctuations in currency exchange rates, which can affect demand
    and increase our costs.                                          

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






|   |                          
|-- | -------------------------
|18 | Novell annual report 2005









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##### Table of Contents



Some of our short-term, long-term, and venture capital fund
investments have become impaired and additional investments
could become impaired.




Our consulting services contracts contain pricing risks and,
if our estimates prove inaccurate, we could lose money.




Our IT and Celerant consulting clients may cancel or reduce
the scope of their engagements with us on short notice.




Conversion of the Debentures into shares of our common stock
will dilute the ownership interests of existing stockholders.









|         |                          
|-------- | -------------------------
|Item 1B. | Unresolved Staff Comments





|                          |   
|------------------------- | --
|Novell annual report 2005 | 19









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|        |           
|------- | ----------
|Item 2. | Properties







month-to







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings





|   |                          
|-- | -------------------------
|20 | Novell annual report 2005









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|                          |   
|------------------------- | --
|Novell annual report 2005 | 21









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





|   |                          
|-- | -------------------------
|22 | Novell annual report 2005









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##### Table of Contents






PART II







|        |                                                                                                                         
|------- | ------------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters, and Issuer Purchases of Equity
    Securities



|            |      |         |   |       |         |  |   |         |  |  |         |       |  |  |   |      | 
|----------- | ---- | ------- | - | ----- | ------- |  | - | ------- |  |  | ------- | ----- |  |  | - | ---- | 
|            |      | First   |   |       | Second  |  |   | Third   |  |  | Fourth  |      
|            |      | Quarter |   |       | Quarter |  |   | Quarter |  |  | Quarter |      
|            |      |         |   |       |         |  |   |         |  |  |         |      
|Fiscal 2005 |      |         |   |       |         |  |   |         |  |  |         |       |  |  |   |     
|            | High |         | $ | 7.70  |         |  | $ | 6.23    |  |  | $       | 6.69  |  |  | $ | 7.77 | 
|            | Low  |         | $ | 5.49  |         |  | $ | 4.94    |  |  | $       | 5.68  |  |  | $ | 5.80 | 
|Fiscal 2004 |      |         |   |       |         |  |   |         |  |  |         |       |  |  |   |     
|            | High |         | $ | 12.93 |         |  | $ | 14.24   |  |  | $       | 10.98 |  |  | $ | 7.45 | 
|            | Low  |         | $ | 5.64  |         |  | $ | 9.31    |  |  | $       | 6.32  |  |  | $ | 5.62 | 



Repurchases of Common Stock






|                          |   
|------------------------- | --
|Novell annual report 2005 | 23









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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

|                                                            |  |                                       |           |  |             |   |           |             |  |   |             |   |  |             |           |   |  |   |           |  
|----------------------------------------------------------- |  | ------------------------------------- | --------- |  | ----------- | - | --------- | ----------- |  | - | ----------- | - |  | ----------- | --------- | - |  | - | --------- | -
|                                                            |  | Fiscal Year Ended                     |          
|                                                            |  |                                       |          
|                                                            |  | October 31,                           |           |  | October 31, |   |           | October 31, |  |   | October 31, |   |  | October 31, |          
|                                                            |  | 2005                                  |           |  | 2004        |   |           | 2003        |  |   | 2002        |   |  | 2001        |          
|                                                            |  |                                       |           |  |             |   |           |             |  |   |             |   |  |             |          
|                                                            |  | (In thousands, except per share data) |          
|Statement of operations                                     |  |                                       |           |  |             |   |           |             |  |   |             |   |  |             |           |   |  |   |           |  
|Net revenue                                                 |  | $                                     | 1,197,696 |  |             | $ | 1,165,917 |             |  | $ | 1,105,496   |   |  | $           | 1,134,320 |   |  | $ | 1,050,796 |  
|Gross profit                                                |  |                                       | 754,577   |  |             |   | 750,238   |             |  |   | 666,778     |   |  |             | 684,902   |   |  |   | 712,162   |  
|Income (loss) from operations(b)                            |  |                                       | 432,638   |  |             |   | 65,692    |             |  |   | (27,822     | ) |  |             | (68,125   | ) |  |   | (120,813  | )
|Income (loss) before taxes                                  |  |                                       | 466,142   |  |             |   | 74,974    |             |  |   | (55,010     | ) |  |             | (92,225   | ) |  |   | (276,766  | )
|Income tax expense (benefit)                                |  |                                       | 89,420    |  |             |   | 17,786    |             |  |   | 106,894     |   |  |             | 10,896    |   |  |   | (14,944   | )
|Net income (loss) before accounting change                  |  |                                       | 376,722   |  |             |   | 57,188    |             |  |   | (161,904    | ) |  |             | (103,121  | ) |  |   | (261,822  | )
|Cumulative effect of accounting change, net of tax(a)       |  |                                       |          |  |             |   |          |             |  |   |            |   |  |             | (143,702  | ) |  |   | (11,048   | )
|Net income (loss)                                           |  |                                       | 376,722   |  |             |   | 57,188    |             |  |   | (161,904    | ) |  |             | (246,823  | ) |  |   | (272,870  | )
|Net income (loss) available to common stockholders, diluted |  | $                                     | 378,159   |  |             | $ | 30,818    |             |  | $ | (161,904    | ) |  | $           | (246,823  | ) |  | $ | (272,870  | )
|Net income (loss) per common share, diluted                 |  | $                                     | 0.86      |  |             | $ | 0.08      |             |  | $ | (0.44       | ) |  | $           | (0.68     | ) |  | $ | (0.82     | )
|Balance sheet                                               |  |                                       |           |  |             |   |           |             |  |   |             |   |  |             |           |   |  |   |           |  
|Cash, cash equivalents and short-term investments           |  | $                                     | 1,654,904 |  |             | $ | 1,211,467 |             |  | $ | 751,852     |   |  | $           | 635,858   |   |  | $ | 705,243   |  
|Working capital                                             |  |                                       | 1,256,123 |  |             |   | 843,930   |             |  |   | 406,014     |   |  |             | 330,232   |   |  |   | 419,458   |  
|Total assets                                                |  |                                       | 2,761,858 |  |             |   | 2,293,358 |             |  |   | 1,569,572   |   |  |             | 1,667,266 |   |  |   | 1,907,001 |  
|Senior convertible debentures                               |  |                                       | 600,000   |  |             |   | 600,000   |             |  |   |            |   |  |             |          |   |  |   |          |  
|Series B Preferred Stock                                    |  |                                       | 9,350     |  |             |   | 25,000    |             |  |   |            |   |  |             |          |   |  |   |          |  
|Total stockholders equity                                  |  | $                                     | 1,386,486 |  |             | $ | 963,364   |             |  | $ | 934,470     |   |  | $           | 1,065,542 |   |  | $ | 1,270,667 |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | In fiscal 2001, we changed our method of accounting for revenue
    related to retail channel product sales to distribution channel
    partners from recognizing the revenue upon shipment to the
    distribution partner to recognizing such revenue upon sale to
    the end customer. In fiscal 2002, we adopted Statement of
    Financial Accounting Standards No. 142, Goodwill and
    Other Intangible Assets, resulting in a transitional
    goodwill impairment loss.
|   
|(b) | In the first quarter of fiscal 2005, we recognized a gain on a
    litigation settlement with Microsoft to settle potential
    anti-trust litigation of $447.6 million.                                                                                                                                                                                                                                                                                                            





|   |                          
|-- | -------------------------
|24 | Novell annual report 2005









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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

Overview










| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| |  | increasing revenue from our Linux and Open Source product
    offerings;           
|
| |  | increasing revenue from our Identity and Resource Management
    product offerings;
|
| |  | reducing reliance on our traditional product offerings, such as
    NetWare, and;  
|
| |  | expanding our global reach with a strong, directed go to market
    plan.          





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | One of our most important strategies is to embrace the open
    source movement and to develop a competitive position in the
    Linux market. As part of the effort to build our competitive
    position, we offer a full range of enterprise solutions on the
    Linux platform, from the desktop, to the server, to the
    mainframe. Our strategy is to help grow the market for Linux
    products and services beyond the growth rate for traditional,
    proprietary solutions. With an increasing market for such open
    source products and services, we believe that we will have the
    opportunity to improve our market share position as well as sell
    additional products and services to our installed base. Linux
    enterprise customer successes throughout 2005 include: ADP, AMD,
    Bear Stearns, Circuit City, Citigroup, Department of Energy,
    Deutsche Bank, Freddie Mac, Fannie Mae, Kmart, Lowes,
    Marriott, National Institutes of Health, Ritz Camera, Safeway,
    Time Warner Cable, U.S. Postal Service and Verizon. In the
    North America segment, we have been largely successful when
    competitively bidding for large deployments of Linux in
    enterprises running mission critical applications. Large
    enterprises choose Novell for their mission critical deployments
    of Linux for several reasons: our expertise in enterprise Linux
    integration, our
    20-year experience in
    delivering enterprise-class support, and the breadth of our
    integrated, Linux ready solutions. In 2006, we must continue
    further to develop and deliver migration tools, education and
    training in order to facilitate customers implementing open
    source technologies.
|
| |  | We intend to grow our position in the Identity and Resource
    Management market by offering the most comprehensive suite of
    products that address customer problems in the areas of
    security, compliance, risk mitigation and systems management.
    This requires enterprises to cost-effectively secure and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



|                          |   
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|Novell annual report 2005 | 25









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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | protect business assets without compromising new business
    opportunities or reducing operational effectiveness.
    Organizations must also manage their heterogeneous IT
    environments in a cost effective manner while ensuring
    compliance with business and IT management processes.
    Novells unique
    role-based,
    policy-driven approach
    has been well received and our business in this area continues
    to grow at or above industry rates. Our proven track record of
    successful implementations, experience and technology, and our
    partners expertise provide the most comprehensive
    identity-driven
    computing solutions in the industry today. Our planned release
    of additional identity and resource management products in
    fiscal 2006, should provide additional strength to this product
    line. Adoption of Novells Identity solutions requires
    specialized expertise at the customer to deploy and maintain the
    Novell product set. Acquisition of these skills is not seen as a
    deterrent to purchase, however it may delay some purchasing
    decisions as customers fully evaluate the total cost of
    ownership over less integrated alternatives.
|
| |  | Novell must stabilize the decline of its revenue from
    traditional products, such as NetWare. Novells traditional
    revenue base is an important source of cash flow, and a
    potential opportunity for us to sell more products and services.
    With the release of our Open Enterprise Server
    (OES) product in March 2005, we have taken steps to help
    maintain that installed base and address revenue declines of
    these products. OES is a package of network services, such as
    network file and print services, deployable on either NetWare or
    SUSE Linux operating systems. OES offers customers a clear
    migration path to our Linux products, including migrating from
    competitive platforms. In 2006, we will continue to work with
    our customers to help them migrate from NetWare to OES with
    tools, training and education and to clearly articulate the
    return on investment of upgrading to Linux versus proprietary
    platforms.                                                                                                                                                                                                                                         
|
| |  | We have re-architected our go to market plans, selecting key
    geographies in which to deploy our resources and clearly
    defining our partner and channel strategy. In addition, we have
    restructured our sales incentive plans to motivate our direct
    sales and channel partners to focus on key product areas
    globally. We have also created a new positioning for the field
    and customers, centered on the concept of Software for the
    Open Enterprise, with solutions in five key technology
    areas: data center, security and identity management, resource
    management, desktop, and workgroup. Our field resources have
    been trained and are now helping customers solve problems in
    these five key areas. Our go to market plans face risk primarily
    from larger competitors who may outspend our sales and marketing
    efforts in key geographic areas.                                                                                                                                                                                                                                                                                                                             





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In November 2005, we undertook a significant restructuring
    action as part of our ongoing transition to Linux and identity
    management and 2006 fiscal year planning. We are concentrating
    our resources on key growth opportunities in the Linux, open
    source, identity and resource management markets to better align
    our costs with our revenue opportunities and our overall
    business strategy. To achieve greater operational efficiencies
    in the business, we are also focused on eliminating non-core
    assets.
|
| |  | In connection with our restructuring, we streamlined our field
    operations, segmenting our markets into what we consider to be
    primary markets  large, established markets where
    Novell has a significant customer presence and the ability to
    deliver the range of Novell products directly to the
    customer  and emerging markets, where we will look
    more to partners in our go to market and delivery. We believe
    this reorganization will also help us to leverage our direct
    sales force more effectively.   
|
| |  | Cash flow from operations is our principal source of liquidity.
    We received a $448 million net cash infusion from the
    settlement of certain NetWare-related claims with Microsoft in
    November 2004.                                                                                                                                                                                                                                                                                                                                    
|
| |  | The restructuring involved the elimination or cutback of certain
    product and service offerings. We expect that the annualized run
    rate cost savings to be realized as a result of this
    restructuring will be approximately $110 million. Some of
    these cuts are expected to negatively impact revenue in fiscal                                                                                                                                                                                                                    



|   |                          
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|26 | Novell annual report 2005









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| |   |                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | year 2006. This negative impact does not include continued
    expected declines in our traditional business revenue, which was
    also a significant factor in our restructuring decision.
|
| |  | Our strong working capital will help facilitate the
    implementation of our transition, as well to quickly respond to
    market developments and business opportunities that may arise.  

Critical Accounting Policies




Revenue Recognition and Related Reserves. 90-day


Position (SOP) 97-2,




| |   |                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Persuasive evidence of an arrangement exists  We
    require evidence of an agreement with a customer specifying the
    terms and conditions of the products or services to be delivered
    typically in the form of a signed contract or statement of work
    accompanied by a purchase order.                                         
|
| |  | Delivery has occurred  For software licenses,
    delivery takes place when the customer is given access to the
    software programs via access to a web site or shipped medium.
    For services, delivery takes place as the services are provided.                                                                                     
|
| |  | The fee is fixed or determinable  Fees are fixed or
    determinable if they are not subject to a refund or cancellation
    and do not have payment terms that exceed our standard payment
    terms. Typical payment terms are net 30 days.                                                                                              
|
| |  | Collection is probable  We perform a credit review of
    all customers with significant transactions to determine whether
    a customer is credit worthy and collection is probable. Prior
    Novell established credit history, credit reports, financial
    statements, and bank references are used to assess credit
    worthiness.



|                          |   
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|Novell annual report 2005 | 27









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##### Table of Contents







| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Software license fees for our SUSE Linux product are recognized
    when the product is sold through to an end customer;                         
|
| |  | Software license fees for sales through OEMs are recognized upon
    receipt of license activity or royalty reports;                             
|
| |  | All other software license fees are recognized upon delivery of
    the software;                                                                
|
| |  | Software maintenance, upgrade protection, technical support, and
    subscriptions of SLES are recognized ratably over the contract
    term; and
|
| |  | Consulting, training and other similar services are recognized
    as the services are performed.                                                









|   |                          
|-- | -------------------------
|28 | Novell annual report 2005









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##### Table of Contents









Long-lived Assets.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property, Plant, and Equipment. We periodically review
    our property, plant, and equipment for impairment in accordance
    with Statement of Financial Accounting Standards
    (SFAS) No. 144, Accounting for the
    Impairment or Disposal of Long-Lived Assets whenever
    events or changes in circumstances indicate that the carrying
    value may not be recoverable. Factors that could indicate an
    impairment include significant underperformance of the asset as
    compared to historical or projected future operating results,
    significant changes in the actual or intended use of the asset,
    or significant negative industry or economic trends. When we
    determine that the carrying value of an asset may not be
    recoverable, the related estimated future undiscounted cash
    flows expected to result from the use and eventual disposition
    of the asset are compared to the carrying value of the asset. If
    the sum of the estimated future cash flows is less than the
    carrying amount, we record an impairment charge based on the
    difference between the carrying value of the asset and its fair
    value, which we estimate based on discounted expected future
    cash flows. In determining whether an asset is impaired, we must
    make assumptions regarding recoverability of costs, estimated
    future cash flows from the asset, intended use of the asset and
    other related factors. If these estimates or their related
    assumptions change, we may be required to record impairment
    charges for these assets.
|
| | Long-term Investments. The fair value of the long-term
    investments is dependent on the actual financial performance of
    the companies or venture funds in which we have invested, the
    investees market value, and the volatility inherent in the
    external markets for these investments. In assessing potential
    impairment for these private equity investments, we consider
    these factors as well as the historical and forecasted financial
    performance of our investees, the volatility inherent in the
    external market for these investments, and estimated potential
    for investment recovery based on all these factors. If any of
    these factors indicate that the investment has become
    other-than-temporarily impaired, we may have to record                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



|                          |   
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|Novell annual report 2005 | 29









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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | additional impairment charges not previously recognized. During
    fiscal 2005, 2004, and 2003 we recognized $3.4 million,
    $5.4 million, and $34.7 million of impairment losses
    related to our long-term investments, respectively. If general
    market conditions do not improve, or if any of the companies or
    venture funds included in long-term investments do not meet
    performance goals, our investments could become
    other-than-temporarily impaired as their values decline, causing
    us to record further investment impairment charges. As of
    October 31, 2005, we have commitments to contribute an
    additional $21.6 million to certain of these ventures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Goodwill and Intangible Assets. We evaluate the
    recoverability of goodwill and indefinite-lived intangible
    assets annually as of August 1, or more frequently if
    events or changes in circumstances warrant, such as a material
    adverse change in the business. Goodwill is considered to be
    impaired when the carrying value of a reporting unit exceeds its
    estimated fair value. Indefinite-lived intangible assets are
    considered impaired if their carrying value exceeds their
    estimated fair value. Fair values are estimated using a
    discounted cash flow methodology. In assessing the
    recoverability of our goodwill and other intangible assets, we
    must make assumptions regarding estimated future cash flows and
    other factors to determine the fair value of the respective
    assets. This process requires subjective judgment at many points
    throughout the analysis. Changes to the estimates used in the
    analyses, including estimated future cash flows, could cause one
    or more of the reporting units or indefinite-lived intangibles
    to be valued differently in future periods. Future analysis
    could potentially result in a non-cash goodwill impairment
    charge of up to $395.5 million, the full amount of our
    goodwill, depending on the estimated value of the reporting
    units and the value of the net assets attributable to those
    reporting units at that time.
|
| | During the fourth quarters of fiscal 2005, 2004, and 2003, we
    completed our annual goodwill impairment reviews based on
    August 1, 2005, 2004, and 2003 balances, respectively, and
    determined that there was no goodwill impairment as of those
    dates. These assessments are made at the reporting unit level,
    and therefore we could be subject to an impairment charge to
    goodwill or intangible assets if any one of the geographic
    segments or Celerant does not perform in line with forecasts in
    the future. In addition, changes in the assumptions used in the
    analyses could have changed the resulting outcomes. For example,
    to estimate the fair value of our reporting units at
    August 1, 2005, we made estimates and judgments about
    future cash flows based on our fiscal 2006 forecast and current
    long-range plans used to manage the business. These long-range
    estimates could change in the future depending on internal
    changes in our company as well as external factors. Future
    changes in estimates could possibly result in a non-cash
    impairment charge that could have a material adverse impact on
    our results of operations.                                                                                                                                                                                                                                                   
|
| | Developed technology and customer/ contractual relationships are
    amortized over three years as a cost of revenue. Patents are
    amortized over their estimated useful lives, generally ten
    years, as a cost of revenue. Customer/ contractual relationships
    are amortized over one to three years as a sales expense. Most
    of our trademarks/trade names have indefinite lives and
    therefore are not amortized but are reviewed for impairment at
    least annually. We review our finite-lived intangible assets
    periodically for indicators of impairment in accordance with
    SFAS No. 144 as described above. During fiscal 2005,
    we recorded a $1.5 million impairment charge for certain
    intangible assets we acquired as a part of the SilverStream and
    SUSE acquisitions. In fiscal 2003, we recorded a
    $23.6 million impairment charge for certain intangible
    assets we acquired as a part of the SilverStream acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

Deferred Tax Assets.




|   |                          
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|30 | Novell annual report 2005









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##### Table of Contents







Loss Contingency Accruals and Restructurings.


Results of Operations


Acquisitions




| |                    
| | -------------------
| | Tally Systems Corp.





| |              
| | -------------
| | Immunix, Inc.





|                          |   
|------------------------- | --
|Novell annual report 2005 | 31









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##### Table of Contents







| |            
| | -----------
| | Salmon Ltd.







| |              
| | -------------
| | SUSE LINUX AG





| |             
| | ------------
| | Ximian, Inc.





| |        
| | -------
| | Revenue



|                         |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |    |    |   |  |     |    |  
|------------------------ | ----------------- | ----------------------------- | ------- | --------- | ------------------- | - | ------- | --------- |  | - | ------- | --------- |  | ---- | -- | -- | - |  | --- | -- | -
|                         |                   | Fiscal Year Ended October 31, |         |           |                     |   |        
|                         |                   |                               |         |           | 2005 vs             |   |         | 2004 vs   | 
|                         |                   | 2005                          |         |           | 2004                |   |         | 2003      |  |   | 2004    |           |  | 2003 |   
|                         |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   
|                         |                   | (In thousands)                |         |           | (Percentage change) |  
|Software licenses        |                   | $                             | 213,803 |           |                     | $ | 234,037 |           |  | $ | 265,256 |           |  |      | (9 | )% |   |  | (12 | )%
|Maintenance and services |                   |                               | 983,893 |           |                     |   | 931,880 |           |  |   | 840,240 |           |  |      | 6  | %  |   |  | 11  | % 
|                         |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   
|                         | Total net revenue |                               | $       | 1,197,696 |                     |   | $       | 1,165,917 |  |   | $       | 1,105,496 |  |      |    | 3  | % |  |     | 5  | %
|                         |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   







|   |                          
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|32 | Novell annual report 2005









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| |   |                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Identity-driven computing solutions  solutions that
    help customers with their identity management, resource
    management and security issues. Products include Identity
    Manager, ZENworks, eDirectory, BorderManager, SecureLogin, and
    iChain.                                                                                                      
|
| |  | Linux and platform services solutions  solutions that
    offer an effective, open cross-platform approach to networking
    and collaboration services, including file, print, messaging,
    scheduling, and workspace. Products include Open Enterprise
    Server, SUSE Linux Enterprise Server, NetWare, GroupWise, SUSE
    Linux, and Novell Linux Desktop.
|
| |  | Global services and support  comprehensive IT
    consulting, training, and technical support services that apply
    business solutions to our customers business situations,
    providing the business knowledge and technical expertise to help
    our customers implement our identity management, web services,
    and Linux and platform services.      

|                                      |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |    |    |   |  |    |   |  
|------------------------------------- | ----------------- | ----------------------------- | ------- | --------- | ------------------- | - | ------- | --------- |  | - | ------- | --------- |  | ---- | -- | -- | - |  | -- | - | -
|                                      |                   | Fiscal Year Ended October 31, |         |           |                     |   |        
|                                      |                   |                               |         |           | 2005 vs             |   |         | 2004 vs   | 
|                                      |                   | 2005                          |         |           | 2004                |   |         | 2003      |  |   | 2004    |           |  | 2003 |   
|                                      |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   
|                                      |                   | (In thousands)                |         |           | (Percentage change) |  
|Identity-driven computing solutions   |                   | $                             | 257,949 |           |                     | $ | 225,868 |           |  | $ | 210,582 |           |  |      | 14 | %  |   |  | 7  | %
|Linux and platform services solutions |                   |                               | 445,146 |           |                     |   | 473,138 |           |  |   | 456,252 |           |  |      | (6 | )% |   |  | 4  | %
|Global services and support           |                   |                               | 336,129 |           |                     |   | 304,848 |           |  |   | 299,333 |           |  |      | 10 | %  |   |  | 2  | %
|Celerant                              |                   |                               | 158,472 |           |                     |   | 162,063 |           |  |   | 139,329 |           |  |      | (2 | )% |   |  | 16 | %
|                                      |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   
|                                      | Total net revenue |                               | $       | 1,197,696 |                     |   | $       | 1,165,917 |  |   | $       | 1,105,496 |  |      |    | 3  | % |  |    | 5 | %
|                                      |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   





|                          |   
|------------------------- | --
|Novell annual report 2005 | 33









---



##### Table of Contents











|              |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |    |    |   |  |     |    |  
|------------- | ----------------- | ----------------------------- | ------- | --------- | ------------------- | - | ------- | --------- |  | - | ------- | --------- |  | ---- | -- | -- | - |  | --- | -- | -
|              |                   | Fiscal Year Ended October 31, |         |           |                     |   |        
|              |                   |                               |         |           | 2005 vs             |   |         | 2004 vs   | 
|              |                   | 2005                          |         |           | 2004                |   |         | 2003      |  |   | 2004    |           |  | 2003 |   
|              |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   
|              |                   | (In thousands)                |         |           | (Percentage change) |  
|North America |                   | $                             | 513,498 |           |                     | $ | 514,481 |           |  | $ | 507,526 |           |  |      |   | %  |   |  | 1   | % 
|EMEA          |                   |                               | 407,998 |           |                     |   | 378,269 |           |  |   | 348,099 |           |  |      | 8  | %  |   |  | 9   | % 
|Asia Pacific  |                   |                               | 61,430  |           |                     |   | 61,775  |           |  |   | 60,146  |           |  |      | (1 | )% |   |  | 3   | % 
|Latin America |                   |                               | 23,700  |           |                     |   | 21,026  |           |  |   | 24,037  |           |  |      | 13 | %  |   |  | (13 | )%
|Japan         |                   |                               | 32,598  |           |                     |   | 28,303  |           |  |   | 26,359  |           |  |      | 15 | %  |   |  | 7   | % 
|Celerant      |                   |                               | 158,472 |           |                     |   | 162,063 |           |  |   | 139,329 |           |  |      | (2 | )% |   |  | 16  | % 
|              |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   
|              | Total net revenue |                               | $       | 1,197,696 |                     |   | $       | 1,165,917 |  |   | $       | 1,105,496 |  |      |    | 3  | % |  |     | 5  | %
|              |                   |                               |         |           |                     |   |         |           |  |   |         |           |  |      |   



|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |    |    |   |  |    |    |  
|------------------------------------- | ----------------- | ----------------------------- | ------- | ------- | ------------------- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | -- | -- | - |  | -- | -- | -
|                                      |                   | Fiscal Year Ended October 31, |         |         |                     |   |        
|                                      |                   |                               |         |         | 2005 vs             |   |         | 2004 vs | 
|                                      |                   | 2005                          |         |         | 2004                |   |         | 2003    |  |   | 2004    |         |  | 2003 |   
|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |   
|                                      |                   | (In thousands)                |         |         | (Percentage change) |  
|Identity-driven computing solutions   |                   | $                             | 128,548 |         |                     | $ | 116,267 |         |  | $ | 108,239 |         |  |      | 11 | %  |   |  | 7  | % 
|Linux and platform services solutions |                   |                               | 229,471 |         |                     |   | 251,625 |         |  |   | 248,965 |         |  |      | (9 | )% |   |  | 1  | % 
|Global services and support           |                   |                               | 155,479 |         |                     |   | 146,589 |         |  |   | 150,322 |         |  |      | 6  | %  |   |  | (2 | )%
|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |   
|                                      | Total net revenue |                               | $       | 513,498 |                     |   | $       | 514,481 |  |   | $       | 507,526 |  |      |    |   | % |  |    | 1  | %
|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |   





|   |                          
|-- | -------------------------
|34 | Novell annual report 2005









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##### Table of Contents







|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |    |    |   |  |    |   |  
|------------------------------------- | ----------------- | ----------------------------- | ------- | ------- | ------------------- | - | ------- | ------- |  | - | ------- | ------- |  | ---- | -- | -- | - |  | -- | - | -
|                                      |                   | Fiscal Year Ended October 31, |         |         |                     |   |        
|                                      |                   |                               |         |         | 2005 vs             |   |         | 2004 vs | 
|                                      |                   | 2005                          |         |         | 2004                |   |         | 2003    |  |   | 2004    |         |  | 2003 |   
|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |   
|                                      |                   | (In thousands)                |         |         | (Percentage change) |  
|Identity-driven computing solutions   |                   | $                             | 106,213 |         |                     | $ | 88,409  |         |  | $ | 83,421  |         |  |      | 20 | %  |   |  | 6  | %
|Linux and platform services solutions |                   |                               | 165,478 |         |                     |   | 168,600 |         |  |   | 152,285 |         |  |      | (2 | )% |   |  | 11 | %
|Global services and support           |                   |                               | 136,307 |         |                     |   | 121,260 |         |  |   | 112,393 |         |  |      | 12 | %  |   |  | 8  | %
|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |   
|                                      | Total net revenue |                               | $       | 407,998 |                     |   | $       | 378,269 |  |   | $       | 348,099 |  |      |    | 8  | % |  |    | 9 | %
|                                      |                   |                               |         |         |                     |   |         |         |  |   |         |         |  |      |   









|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |     |    |    |  |     |    |  
|------------------------------------- | ----------------- | ----------------------------- | ------ | ------ | ------------------- | - | ------ | ------- |  | - | ------ | ------ |  | ---- | --- | -- | -- |  | --- | -- | -
|                                      |                   | Fiscal Year Ended October 31, |        |        |                     |   |       
|                                      |                   |                               |        |        | 2005 vs             |   |        | 2004 vs | 
|                                      |                   | 2005                          |        |        | 2004                |   |        | 2003    |  |   | 2004   |        |  | 2003 |    
|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |    
|                                      |                   | (In thousands)                |        |        | (Percentage change) |  
|Identity-driven computing solutions   |                   | $                             | 15,987 |        |                     | $ | 15,515 |         |  | $ | 13,173 |        |  |      | 3   | %  |    |  | 18  | % 
|Linux and platform services solutions |                   |                               | 21,152 |        |                     |   | 26,504 |         |  |   | 30,369 |        |  |      | (20 | )% |    |  | (13 | )%
|Global services and support           |                   |                               | 24,291 |        |                     |   | 19,756 |         |  |   | 16,604 |        |  |      | 23  | %  |    |  | 19  | % 
|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |    
|                                      | Total net revenue |                               | $      | 61,430 |                     |   | $      | 61,775  |  |   | $      | 60,146 |  |      |     | (1 | )% |  |     | 3  | %
|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |    





|                          |   
|------------------------- | --
|Novell annual report 2005 | 35









---



##### Table of Contents







|                                      |                   |                               |       |        |                     |   |       |         |  |   |       |        |  |      |    |    |   |  |     |     |   
|------------------------------------- | ----------------- | ----------------------------- | ----- | ------ | ------------------- | - | ----- | ------- |  | - | ----- | ------ |  | ---- | -- | -- | - |  | --- | --- | --
|                                      |                   | Fiscal Year Ended October 31, |       |        |                     |   |      
|                                      |                   |                               |       |        | 2005 vs             |   |       | 2004 vs | 
|                                      |                   | 2005                          |       |        | 2004                |   |       | 2003    |  |   | 2004  |        |  | 2003 |   
|                                      |                   |                               |       |        |                     |   |       |         |  |   |       |        |  |      |   
|                                      |                   | (In thousands)                |       |        | (Percentage change) |  
|Identity-driven computing solutions   |                   | $                             | 5,418 |        |                     | $ | 3,995 |         |  | $ | 4,280 |        |  |      | 36 | %  |   |  | (7  | )% 
|Linux and platform services solutions |                   |                               | 8,893 |        |                     |   | 8,128 |         |  |   | 9,917 |        |  |      | 9  | %  |   |  | (18 | )% 
|Global services and support           |                   |                               | 9,389 |        |                     |   | 8,903 |         |  |   | 9,840 |        |  |      | 5  | %  |   |  | (10 | )% 
|                                      |                   |                               |       |        |                     |   |       |         |  |   |       |        |  |      |   
|                                      | Total net revenue |                               | $     | 23,700 |                     |   | $     | 21,026  |  |   | $     | 24,037 |  |      |    | 13 | % |  |     | (13 | )%
|                                      |                   |                               |       |        |                     |   |       |         |  |   |       |        |  |      |   







|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |    |    |   |  |     |    |  
|------------------------------------- | ----------------- | ----------------------------- | ------ | ------ | ------------------- | - | ------ | ------- |  | - | ------ | ------ |  | ---- | -- | -- | - |  | --- | -- | -
|                                      |                   | Fiscal Year Ended October 31, |        |        |                     |   |       
|                                      |                   |                               |        |        | 2005 vs             |   |        | 2004 vs | 
|                                      |                   | 2005                          |        |        | 2004                |   |        | 2003    |  |   | 2004   |        |  | 2003 |   
|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |   
|                                      |                   | (In thousands)                |        |        | (Percentage change) |  
|Identity-driven computing solutions   |                   | $                             | 1,776  |        |                     | $ | 1,684  |         |  | $ | 1,468  |        |  |      | 5  | %  |   |  | 15  | % 
|Linux and platform services solutions |                   |                               | 20,121 |        |                     |   | 18,280 |         |  |   | 14,715 |        |  |      | 10 | %  |   |  | 24  | % 
|Global services and support           |                   |                               | 10,701 |        |                     |   | 8,339  |         |  |   | 10,176 |        |  |      | 28 | %  |   |  | (18 | )%
|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |   
|                                      | Total net revenue |                               | $      | 32,598 |                     |   | $      | 28,303  |  |   | $      | 26,359 |  |      |    | 15 | % |  |     | 7  | %
|                                      |                   |                               |        |        |                     |   |        |         |  |   |        |        |  |      |   







| |                 
| | ----------------
| | Deferred revenue





|   |                          
|-- | -------------------------
|36 | Novell annual report 2005









---



##### Table of Contents





| |                               
| | ------------------------------
| | Forward-looking revenue trends









| |             
| | ------------
| | Gross profit

|                         |                                                  |                               |         |    |                     |   |         |         |   |   |         |    |   |      |    |    |  |  |     |    | 
|------------------------ | ------------------------------------------------ | ----------------------------- | ------- | -- | ------------------- | - | ------- | ------- | - | - | ------- | -- | - | ---- | -- | -- |  |  | --- | -- | 
|                         |                                                  | Fiscal Year Ended October 31, |         |    |                     |   |        
|                         |                                                  |                               |         |    | 2005 vs             |   |         | 2004 vs |  
|                         |                                                  | 2005                          |         |    | 2004                |   |         | 2003    |   |   | 2004    |    |   | 2003 |   
|                         |                                                  |                               |         |    |                     |   |         |         |   |   |         |    |   |      |   
|                         |                                                  | ($ in thousands)              |         |    | (Percentage change) |  
|Software licenses        |                                                  | $                             | 192,203 |    |                     | $ | 210,559 |         |   | $ | 233,483 |    |   |      | (9 | )% |  |  | (10 | )%
|                         | As a percent of software license revenue         |                               |         | 90 | %                   |   |         | 90      | % |   |         | 88 | % |      |    |    |  |  |     |    | 
|Maintenance and services |                                                  | $                             | 562,374 |    |                     | $ | 539,679 |         |   | $ | 433,295 |    |   |      | 4  | %  |  |  | 25  | % 
|                         | As a percent of maintenance and services revenue |                               |         | 57 | %                   |   |         | 58      | % |   |         | 52 | % |      |    |    |  |  |     |    | 
|Total gross profit       |                                                  | $                             | 754,577 |    |                     | $ | 750,238 |         |   | $ | 666,778 |    |   |      | 1  | %  |  |  | 13  | % 
|                         | As a percent of net revenue                      |                               |         | 63 | %                   |   |         | 64      | % |   |         | 60 | % |      |    |    |  |  |     |    | 











|                          |   
|------------------------- | --
|Novell annual report 2005 | 37









---



##### Table of Contents





| |                                    
| | -----------------------------------
| | Forward-looking gross margin trends



Operating expenses


|                                              |                             |                               |          |    |                     |   |         |         |   |   |         |    |    |      |     |    |  |  |     |    | 
|--------------------------------------------- | --------------------------- | ----------------------------- | -------- | -- | ------------------- | - | ------- | ------- | - | - | ------- | -- | -- | ---- | --- | -- |  |  | --- | -- | 
|                                              |                             | Fiscal Year Ended October 31, |          |    |                     |   |        
|                                              |                             |                               |          |    | 2005 vs             |   |         | 2004 vs |  
|                                              |                             | 2005                          |          |    | 2004                |   |         | 2003    |   |   | 2004    |    |    | 2003 |    
|                                              |                             |                               |          |    |                     |   |         |         |   |   |         |    |    |      |    
|                                              |                             | ($ in thousands)              |          |    | (Percentage change) |  
|Sales and marketing                           |                             | $                             | 388,846  |    |                     | $ | 365,319 |         |   | $ | 383,742 |    |    |      | 6   | %  |  |  | (5  | )%
|                                              | as a percent of net revenue |                               |          | 32 | %                   |   |         | 31      | % |   |         | 35 | %  |      |     |    |  |  |     |    | 
|Product development                           |                             | $                             | 200,630  |    |                     | $ | 195,864 |         |   | $ | 180,842 |    |    |      | 2   | %  |  |  | 8   | % 
|                                              | as a percent of net revenue |                               |          | 17 | %                   |   |         | 17      | % |   |         | 16 | %  |      |     |    |  |  |     |    | 
|General and administrative                    |                             | $                             | 122,026  |    |                     | $ | 102,437 |         |   | $ | 110,963 |    |    |      | 19  | %  |  |  | (8  | )%
|                                              | as a percent of net revenue |                               |          | 10 | %                   |   |         | 9       | % |   |         | 10 | %  |      |     |    |  |  |     |    | 
|Restructuring expenses                        |                             | $                             | 59,106   |    |                     | $ | 22,903  |         |   | $ | 43,067  |    |    |      | 158 | %  |  |  | (47 | )%
|                                              | as a percent of net revenue |                               |          | 5  | %                   |   |         | 2       | % |   |         | 4  | %  |      |     |    |  |  |     |    | 
|Purchased in-process research and development |                             | $                             | 480      |    |                     | $ |        |         |   | $ | 920     |    |    |      |    | %  |  |  |    |   
|                                              | as a percent of net revenue |                               |          |   | %                   |   |         |        | % |   |         |   | %  |      |     |    |  |  |     |    | 
|Gains on real property                        |                             | $                             | (1,589   | )  |                     | $ | (1,977  | )       |   | $ | (24,934 | )  |    |      | (20 | )% |  |  | (92 | )%
|                                              | as a percent of net revenue |                               |          |   | %                   |   |         |        | % |   |         | (2 | )% |      |     |    |  |  |     |    | 
|Gain on settlement of potential litigation    |                             | $                             | (447,560 | )  |                     | $ |        |         |   | $ |        |    |    |      |    | %  |  |  |    | % 
|                                              | as a percent of net revenue |                               |          | 37 | %                   |   |         |        | % |   |         |   | %  |      |     |    |  |  |     |    | 
|Total operating expenses                      |                             | $                             | 321,939  |    |                     | $ | 684,546 |         |   | $ | 694,600 |    |    |      | (53 | )% |  |  | (1  | )%
|                                              | as a percent of net revenue |                               |          | 27 | %                   |   |         | 59      | % |   |         | 63 | %  |      |     |    |  |  |     |    | 











|   |                          
|-- | -------------------------
|38 | Novell annual report 2005









---



##### Table of Contents

















| |                                         
| | ----------------------------------------
| | Forward-looking operating expense trends





| |                       
| | ----------------------
| | Restructuring Expenses



| |            
| | -----------
| | Fiscal 2005





|                          |   
|------------------------- | --
|Novell annual report 2005 | 39









---



##### Table of Contents







|                 |                             |                |         |        |            |       |       |                |  |   |       |     |  |   |         |        | 
|---------------- | --------------------------- | -------------- | ------- | ------ | ---------- | ----- | ----- | -------------- |  | - | ----- | --- |  | - | ------- | ------ | 
|                 |                             |                |         |        |            | Other |       |                | 
|                 |                             | Severance and  |         |        | Excess     |       |       | Restructuring- |  |   |      
|                 |                             | Benefits       |         |        | Facilities |       |       | Related Costs  |  |   | Total |    
|                 |                             |                |         |        |            |       |       |                |  |   |       |    
|                 |                             | (In thousands) |        
|Original reserve |                             | $              | 47,116  |        |            | $     | 7,364 |                |  | $ | 477   |     |  | $ | 54,957  |       
|Cash payments    |                             |                | (18,624 | )      |            |       | (913  | )              |  |   | (218  | )   |  |   | (19,755 | )     
|                 |                             |                |         |        |            |       |       |                |  |   |       |    
|                 | Balance at October 31, 2005 |                | $       | 28,492 |            |       | $     | 6,451          |  |   | $     | 259 |  |   | $       | 35,202 | 
|                 |                             |                |         |        |            |       |       |                |  |   |       |    





| |            
| | -----------
| | Fiscal 2004





|                     |                             |                |        |             |              |   |        |       |  |   |         |       | 
|-------------------- | --------------------------- | -------------- | ------ | ----------- | ------------ | - | ------ | ----- |  | - | ------- | ----- | 
|                     |                             |                |        | Excess      |              |   |       
|                     |                             |                |        | Facilities, |              |   |       
|                     |                             | Severance and  |        |             | Property and |   |        |      
|                     |                             | Benefits       |        |             | Equipment    |   |        | Total | 
|                     |                             |                |        |             |              |   |        |       | 
|                     |                             | (In thousands) |       
|Original reserve     |                             | $              | 12,910 |             |              | $ | 6,152  |       |  | $ | 19,062  |      
|Cash payments        |                             |                | (8,252 | )           |              |   | (3,645 | )     |  |   | (11,897 | )    
|                     |                             |                |        |             |              |   |        |       | 
|                     | Balance at October 31, 2004 |                |        | 4,658       |              |   |        | 2,507 |  |   |         | 7,165 | 
|Cash payments        |                             |                | (2,716 | )           |              |   | (1,109 | )     |  |   | (3,825  | )    
|Non-cash adjustments |                             |                | (699   | )           |              |   | 59     |       |  |   | (640    | )    
|                     |                             |                |        |             |              |   |        |       | 
|                     | Balance at October 31, 2005 |                | $      | 1,243       |              |   | $      | 1,457 |  |   | $       | 2,700 | 
|                     |                             |                |        |             |              |   |        |       | 





|   |                          
|-- | -------------------------
|40 | Novell annual report 2005









---



##### Table of Contents









| |            
| | -----------
| | Fiscal 2003







|                     |                             |                |         |             |              |   |        |                |  |   |        |       |  |   |         |        | 
|-------------------- | --------------------------- | -------------- | ------- | ----------- | ------------ | - | ------ | -------------- |  | - | ------ | ----- |  | - | ------- | ------ | 
|                     |                             |                |         | Excess      |              |   |        |                | 
|                     |                             |                |         | Facilities, |              |   | Other  |                |  |  
|                     |                             | Severance and  |         |             | Property and |   |        | Restructuring- |  |   |       
|                     |                             | Benefits       |         |             | Equipment    |   |        | Related Costs  |  |   | Total  |      
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     |                             | (In thousands) |        
|Original reserve     |                             | $              | 20,287  |             |              | $ | 5,778  |                |  | $ | 1,729  |       |  | $ | 27,794  |       
|Cash payments        |                             |                | (17,163 | )           |              |   | (3,079 | )              |  |   | (423   | )     |  |   | (20,665 | )     
|Non-cash adjustments |                             |                | 3,755   |             |              |   | 5,735  |                |  |   | 536    |       |  |   | 10,026  |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2003 |                |         | 6,879       |              |   |        | 8,434          |  |   |        | 1,842 |  |   |         | 17,155 | 
|Cash payments        |                             |                | (7,462  | )           |              |   | (5,911 | )              |  |   |       |       |  |   | (13,373 | )     
|Non-cash adjustments |                             |                | 876     |             |              |   |       |                |  |   |       |       |  |   | 876     |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2004 |                |         | 293         |              |   |        | 2,523          |  |   |        | 1,842 |  |   |         | 4,658  | 
|Cash payments        |                             |                | (75     | )           |              |   | (1,458 | )              |  |   | (6     | )     |  |   | (1,539  | )     
|Non-cash adjustments |                             |                | (218    | )           |              |   | 2,056  |                |  |   | (1,826 | )     |  |   | 12      |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2005 |                | $       |            |              |   | $      | 3,121          |  |   | $      | 10    |  |   | $       | 3,131  | 
|                     |                             |                |         |             |              |   |        |                |  |   |        |      





|                          |   
|------------------------- | --
|Novell annual report 2005 | 41









---



##### Table of Contents









| |                            
| | ---------------------------
| | Other income (expense), net

|                                         |                             |                               |        |    |                     |   |        |         |    |   |         |    |    |      |     |    |  |  |     |    | 
|---------------------------------------- | --------------------------- | ----------------------------- | ------ | -- | ------------------- | - | ------ | ------- | -- | - | ------- | -- | -- | ---- | --- | -- |  |  | --- | -- | 
|                                         |                             | Fiscal Year Ended October 31, |        |    |                     |   |       
|                                         |                             |                               |        |    | 2005 vs             |   |        | 2004 vs |   
|                                         |                             | 2005                          |        |    | 2004                |   |        | 2003    |    |   | 2004    |    |    | 2003 |    
|                                         |                             |                               |        |    |                     |   |        |         |    |   |         |    |    |      |    
|                                         |                             | ($ in thousands)              |        |    | (Percentage change) |  
|Impairment of investments                |                             | $                             | (3,387 | )  |                     | $ | (5,415 | )       |    | $ | (34,735 | )  |    |      | (37 | )% |  |  | (84 | )%
|                                         | as a percent of net revenue |                               |        |   | %                   |   |        |        | %  |   |         | (3 | )% |      |     |    |  |  |     |    | 
|Investment income                        |                             | $                             | 46,522 |    |                     | $ | 23,401 |         |    | $ | 13,033  |    |    |      | 99  | %  |  |  | 80  | % 
|                                         | as a percent of net revenue |                               |        | 4  | %                   |   |        | 2       | %  |   |         | 1  | %  |      |     |    |  |  |     |    | 
|Interest expense and other expenses, net |                             | $                             | (9,631 | )  |                     | $ | (8,704 | )       |    | $ | (5,486  | )  |    |      | 11  | %  |  |  | 59  | % 
|                                         | as a percent of net revenue |                               |        | (1 | )%                  |   |        | (1      | )% |   |         |   | %  |      |     |    |  |  |     |    | 
|Total other income (expense), net        |                             | $                             | 33,504 |    |                     | $ | 9,282  |         |    | $ | (27,188 | )  |    |      | 261 | %  |  |  | 134 | % 
|                                         | as a percent of net revenue |                               |        | 3  | %                   |   |        | 1       | %  |   |         | (2 | )% |      |     |    |  |  |     |    | 













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|-- | -------------------------
|42 | Novell annual report 2005









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| |                   
| | ------------------
| | Income tax expense

|                   |                         |                               |        |   |                     |   |        |         |   |   |         |    |   |      |     |   |  |  |     |    | 
|------------------ | ----------------------- | ----------------------------- | ------ | - | ------------------- | - | ------ | ------- | - | - | ------- | -- | - | ---- | --- | - |  |  | --- | -- | 
|                   |                         | Fiscal Year Ended October 31, |        |   |                     |   |       
|                   |                         |                               |        |   | 2005 vs             |   |        | 2004 vs |  
|                   |                         | 2005                          |        |   | 2004                |   |        | 2003    |   |   | 2004    |    |   | 2003 |    
|                   |                         |                               |        |   |                     |   |        |         |   |   |         |    |   |      |    
|                   |                         | ($ in thousands)              |        |   | (Percentage change) |  
|Income tax expense |                         | $                             | 89,420 |   |                     | $ | 17,786 |         |   | $ | 106,894 |    |   |      | 403 | % |  |  | (83 | )%
|                   | As a percent of revenue |                               |        | 7 | %                   |   |        | 2       | % |   |         | 10 | % |      |     |   |  |  |     |    | 
|Effective tax rate |                         |                               | 19     | % |                     |   | 24     | %       |   |   | 194     | %  |   |      |     |   |  |  |     |   











| |                                      
| | -------------------------------------
| | Dividends on Series B Preferred Stock

|                                                                                         |  |                               |      |   |      |   |         |      |  |   |   | 
|---------------------------------------------------------------------------------------- |  | ----------------------------- | ---- | - | ---- | - | ------- | ---- |  | - | - | 
|                                                                                         |  | Fiscal Year Ended October 31,
|                                                                                         |  |                              
|                                                                                         |  | 2005                          |      |   | 2004 |   |         | 2003
|                                                                                         |  |                               |      |   |      |   |         |     
|                                                                                         |  | (In thousands)               
|Non-cash deemed dividend related to beneficial conversion
    feature of Preferred Stock |  | $                             |     |   |      | $ | (25,680 | )    |  | $ |  | 
|Preferred Stock cash dividends                                                           |  | $                             | (466 | ) |      | $ | (416    | )    |  | $ |  | 









|                          |   
|------------------------- | --
|Novell annual report 2005 | 43









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| |                                                   
| | --------------------------------------------------
| | Net income (loss) available to common stockholders

|                                                            |  |                               |         |  |      |   |        |      |  |   |          |  
|----------------------------------------------------------- |  | ----------------------------- | ------- |  | ---- | - | ------ | ---- |  | - | -------- | -
|                                                            |  | Fiscal Year Ended October 31, |        
|                                                            |  |                               |        
|                                                            |  | 2005                          |         |  | 2004 |   |        | 2003 | 
|                                                            |  |                               |         |  |      |   |        |      | 
|                                                            |  | (In thousands)                |        
|Net income (loss)                                           |  | $                             | 376,722 |  |      | $ | 57,188 |      |  | $ | (161,904 | )
|Net income (loss) available to common stockholders, basic   |  | $                             | 372,589 |  |      | $ | 30,818 |      |  | $ | (161,904 | )
|Net income (loss) available to common stockholders, diluted |  | $                             | 378,159 |  |      | $ | 30,818 |      |  | $ | (161,904 | )







Liquidity and Capital Resources


|                                                   |  |                  |           |   |             |   |           |            |  |  |    |  
|-------------------------------------------------- |  | ---------------- | --------- | - | ----------- | - | --------- | ---------- |  |  | -- | -
|                                                   |  | October 31,      |           |   | October 31, |   |           | Percentage | 
|                                                   |  | 2005             |           |   | 2004        |   |           | Change     | 
|                                                   |  |                  |           |   |             |   |           |            | 
|                                                   |  | ($ in thousands) |          
|Cash, cash equivalents, and short-term investments |  | $                | 1,654,904 |   |             | $ | 1,211,467 |            |  |  | 37 | %
|Percentage of total assets                         |  |                  | 60        | % |             |   | 53        | %          |  |  |    |  



|                                                           |  |                |         |   |             |   |          |             |  |   |         |  
|---------------------------------------------------------- |  | -------------- | ------- | - | ----------- | - | -------- | ----------- |  | - | ------- | -
|                                                           |  | Fiscal 2005    |         |   | Fiscal 2004 |   |          | Fiscal 2003 | 
|                                                           |  |                |         |   |             |   |          |             | 
|                                                           |  | (In thousands) |        
|Cash provided by operating activities                      |  | $              | 500,414 |   |             | $ | 117,413  |             |  | $ | 55,288  |  
|Issuance of common stock, net                              |  | $              | 22,108  |   |             | $ | 58,162   |             |  | $ | 20,130  |  
|Expenditures for property, plant and equipment             |  | $              | (30,781 | ) |             | $ | (26,997  | )           |  | $ | (39,468 | )
|Proceeds from sales of property, plant and equipment       |  | $              | 10,421  |   |             | $ | 4,951    |             |  | $ | 125,000 |  
|Net cash paid for acquisitions                             |  | $              | (33,829 | ) |             | $ | (205,620 | )           |  | $ | (41,096 | )
|Cash paid for patents                                      |  | $              | (15,500 | ) |             |   |         |             |  |   |        |  
|Restricted cash for acquisition of India minority interest |  | $              | (7,500  | ) |             |   |         |             |  |   |        |  
|Issuance of Debentures, net of issuance costs              |  |                |        |   |             | $ | 585,150  |             |  |   |        |  
|Issuance of Series B Preferred Stock                       |  |                |        |   |             | $ | 50,000   |             |  |   |        |  
|Repurchase of common stock  held in treasury              |  |                |        |   |             | $ | (125,000 | )           |  |   |        |  



|   |                          
|-- | -------------------------
|44 | Novell annual report 2005









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|------------------------- | --
|Novell annual report 2005 | 45









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Contractual Obligations as of October 31, 2005


|                                     |                                       |                        |       |           |        |   |           |             |           |           |             |      |         |               |      |      |  |   |       |       |  
|------------------------------------ | ------------------------------------- | ---------------------- | ----- | --------- | ------ | - | --------- | ----------- | --------- | --------- | ----------- | ---- | ------- | ------------- | ---- | ---- |  | - | ----- | ----- | -
|                                     |                                       | Payments Due by Period |      
|                                     |                                       |                        |      
|                                     |                                       |                        |       | Less Than |        |   |           |             | More Than |          
|                                     |                                       |                        |       | 1 Year    |        |   | 1-3 Years |             |           | 3-5 Years |             |      | 5 Years |              
|                                     |                                       | Total                  |       |           | (2006) |   |           | (2007-2008) |           |           | (2009-2010) |      |         | (Beyond 2010) |     
|                                     |                                       |                        |       |           |        |   |           |             |           |           |             |      |         |               |     
|                                     |                                       | (In millions)          |      
|Commitments to venture capital funds |                                       | $                      | 21.6  |           |        | $ | 16.0      |             |           | $         | 5.6         |      |         | $             |     |      |  | $ |      |      
|Debentures                           |                                       |                        | 600.0 |           |        |   |          |             |           |           |            |      |         |               |     |      |  |   | 600.0 |      
|Interest on Debentures(a)            |                                       |                        | 56.0  |           |        |   | 3.0       |             |           |           | 6.0         |      |         |               | 6.0  |      |  |   | 41.0  |      
|Purchase commitments(b)              |                                       |                        | 4.5   |           |        |   | 3.1       |             |           |           | 0.9         |      |         |               | 0.4  |      |  |   | 0.1   |      
|Operating lease obligations          |                                       |                        | 138.6 |           |        |   | 30.5      |             |           |           | 47.3        |      |         |               | 24.2 |      |  |   | 36.6  |      
|Letters of credit                    |                                       |                        | 17.7  |           |        |   | 17.7      |             |           |           |            |      |         |               |     |      |  |   |      |      
|                                     |                                       |                        |       |           |        |   |           |             |           |           |             |      |         |               |     
|                                     | Total                                 |                        | $     | 838.4     |        |   | $         | 70.3        |           |           | $           | 59.8 |         |               | $    | 30.6 |  |   | $     | 677.7 |  
|                                     |                                       |                        |       |           |        |   |           |             |           |           |             |      |         |               |     
|Other contractual obligations:       |                                       |                        |       |           |        |   |           |             |           |           |             |      |         |               |      |      |  |   |       |      
|                                     | Dividends on Series B Preferred Stock |                        |       | (c        | )      |   | $         | 0.2         |           |           | $           | 0.4  |         |               | $    | 0.4  |  |   |       | (c    | )






|    |  |                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Interest on the Debentures assumes no conversions.                                                                                                                                                                           
|   
|(b) |  | Purchase obligations represent future contracted payments under
    normal take or pay arrangements entered into as a part of the
    normal course of business that are not recorded as liabilities
    at October 31, 2005.
|   
|(c) |  | Dividend payments are indefinite and are $0.2 million per
    year, assuming no conversions.                                                                                                                                 







|   |                          
|-- | -------------------------
|46 | Novell annual report 2005









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Recent Pronouncements












|                          |   
|------------------------- | --
|Novell annual report 2005 | 47









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Subsequent Events











|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



Interest Rate Risk




Market Risk






Foreign Currency Risk






|   |                          
|-- | -------------------------
|48 | Novell annual report 2005









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|                          |   
|------------------------- | --
|Novell annual report 2005 | 49









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|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data

Novell, Inc.


|                                                                                        |  |      |     | 
|--------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                        |  | Page |    
|                                                                                        |  |      |    
|Consolidated Statements of Operations                                                   |  |      | 51  | 
|Consolidated Balance Sheets                                                             |  |      | 52  | 
|Consolidated Statements of
    Stockholders Equity                                     |  |      | 53  | 
|Consolidated Statements of Cash Flows                                                   |  |      | 54  | 
|Notes to Consolidated Financial
    Statements                                          |  |      | 55  | 
|Report of PricewaterhouseCoopers LLP,
    Independent Registered Public Accounting Firm |  |      | 104 | 
|Report of Ernst & Young LLP,
    Independent Registered Public Accounting Firm          |  |      | 106 | 
|Selected Consolidated Quarterly Financial
    Data  Unaudited                          |  |      | 107 | 



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|50 | Novell annual report 2005









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NOVELL, INC.





CONSOLIDATED STATEMENTS OF OPERATIONS


(Amounts in thousands, except per share data)


|                                                            |                                               |                             |           |          |             |   |           |             |         |   |           |         |         |  
|----------------------------------------------------------- | --------------------------------------------- | --------------------------- | --------- | -------- | ----------- | - | --------- | ----------- | ------- | - | --------- | ------- | ------- | -
|                                                            |                                               | Fiscal Year Ended           |          
|                                                            |                                               |                             |          
|                                                            |                                               | October 31,                 |           |          | October 31, |   |           | October 31, |        
|                                                            |                                               | 2005                        |           |          | 2004        |   |           | 2003        |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Net revenue:                                                |                                               |                             |           |          |             |   |           |             |         |   |           |        
|                                                            | Software licenses                             |                             | $         | 213,803  |             |   | $         | 234,037     |         |   | $         | 265,256 |        
|                                                            | Maintenance and services                      |                             |           | 983,893  |             |   |           | 931,880     |         |   |           | 840,240 |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Total net revenue                                           |                                               |                             | 1,197,696 |          |             |   | 1,165,917 |             |         |   | 1,105,496 |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Cost of revenue:                                            |                                               |                             |           |          |             |   |           |             |         |   |           |        
|                                                            | Software licenses                             |                             |           | 21,600   |             |   |           | 23,478      |         |   |           | 31,773  |        
|                                                            | Maintenance and services                      |                             |           | 421,519  |             |   |           | 392,201     |         |   |           | 406,945 |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Total cost of revenue                                       |                                               |                             | 443,119   |          |             |   | 415,679   |             |         |   | 438,718   |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Gross profit                                                |                                               |                             | 754,577   |          |             |   | 750,238   |             |         |   | 666,778   |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Operating expenses:                                         |                                               |                             |           |          |             |   |           |             |         |   |           |        
|                                                            | Sales and marketing                           |                             |           | 388,846  |             |   |           | 365,319     |         |   |           | 383,742 |        
|                                                            | Product development                           |                             |           | 200,630  |             |   |           | 195,864     |         |   |           | 180,842 |        
|                                                            | General and administrative                    |                             |           | 122,026  |             |   |           | 102,437     |         |   |           | 110,963 |        
|                                                            | Restructuring expenses                        |                             |           | 59,106   |             |   |           | 22,903      |         |   |           | 43,067  |        
|                                                            | Purchased in-process research and development |                             |           | 480      |             |   |           |            |         |   |           | 920     |        
|                                                            | Gain on sale of property, plant and equipment |                             |           | (1,589   | )           |   |           | (1,977      | )       |   |           | (24,934 | )      
|                                                            | Gain on settlement of potential litigation    |                             |           | (447,560 | )           |   |           |            |         |   |           |        |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|                                                            |                                               | Total operating expenses    |           |          | 321,939     |   |           |             | 684,546 |   |           |         | 694,600 |  
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Income (loss) from operations                               |                                               |                             | 432,638   |          |             |   | 65,692    |             |         |   | (27,822   | )      
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Other income (expense):                                     |                                               |                             |           |          |             |   |           |             |         |   |           |        
|                                                            | Investment income                             |                             |           | 46,522   |             |   |           | 23,401      |         |   |           | 13,033  |        
|                                                            | Impairment of investments                     |                             |           | (3,387   | )           |   |           | (5,415      | )       |   |           | (34,735 | )      
|                                                            | Interest expense and other, net               |                             |           | (9,631   | )           |   |           | (8,704      | )       |   |           | (5,486  | )      
|                                                            |                                               |                             |           |          |             |   |           |             |        
|                                                            |                                               | Other income (expense), net |           |          | 33,504      |   |           |             | 9,282   |   |           |         | (27,188 | )
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Income (loss) before taxes                                  |                                               |                             | 466,142   |          |             |   | 74,974    |             |         |   | (55,010   | )      
|Income tax expense                                          |                                               |                             | 89,420    |          |             |   | 17,786    |             |         |   | 106,894   |        
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Net income (loss)                                           |                                               | $                           | 376,722   |          |             | $ | 57,188    |             |         | $ | (161,904  | )      
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Net income (loss) available to common stockholders, basic   |                                               | $                           | 372,589   |          |             | $ | 30,818    |             |         | $ | (161,904  | )      
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Net income (loss) available to common stockholders, diluted |                                               | $                           | 378,159   |          |             | $ | 30,818    |             |         | $ | (161,904  | )      
|                                                            |                                               |                             |           |          |             |   |           |             |        
|Weighted-average shares outstanding:                        |                                               |                             |           |          |             |   |           |             |         |   |           |        
|                                                            | Basic                                         |                             |           | 379,499  |             |   |           | 381,100     |         |   |           | 370,545 |        
|                                                            | Diluted                                       |                             |           | 440,585  |             |   |           | 390,879     |         |   |           | 370,545 |        
|Net income (loss) per common share:                         |                                               |                             |           |          |             |   |           |             |         |   |           |        
|                                                            | Basic                                         |                             | $         | 0.98     |             |   | $         | 0.08        |         |   | $         | (0.44   | )      
|                                                            |                                               |                             |           |          |             |   |           |             |        
|                                                            | Diluted                                       |                             | $         | 0.86     |             |   | $         | 0.08        |         |   | $         | (0.44   | )      
|                                                            |                                               |                             |           |          |             |   |           |             |        





|                          |   
|------------------------- | --
|Novell annual report 2005 | 51









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NOVELL, INC.





CONSOLIDATED BALANCE SHEETS


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


|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |           |         |          |        |           | 
|----------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | -------- | ----------- | --------- | ------- | -------- | ------ | --------- | 
|                                                            |                                                                                                                                                                                        | October 31,                                                                                                                                                                                     |                                                                       |          | October 31, |          
|                                                            |                                                                                                                                                                                        | 2005                                                                                                                                                                                            |                                                                       |          | 2004        |          
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|ASSETS                                                     
|Current assets:                                             |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |           |         |         
|                                                            | Cash and cash equivalents                                                                                                                                                              |                                                                                                                                                                                                 | $                                                                     | 811,238  |             |           | $       | 434,404  |       
|                                                            | Short-term investments                                                                                                                                                                 |                                                                                                                                                                                                 |                                                                       | 843,666  |             |           |         | 777,063  |       
|                                                            | Receivables (net of allowances of $16,638 and $24,396 at
    October 31, 2005 and 2004, respectively)                                                                                  |                                                                                                                                                                                                 |                                                                       | 293,627  |             |           |         | 269,431  |       
|                                                            | Prepaid expenses                                                                                                                                                                       |                                                                                                                                                                                                 |                                                                       | 30,777   |             |           |         | 27,000   |       
|                                                            | Other current assets                                                                                                                                                                   |                                                                                                                                                                                                 |                                                                       | 29,745   |             |           |         | 28,846   |       
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 | Total current assets                                                  |          |             | 2,009,053 |         |          |        | 1,536,744 | 
|Property, plant and equipment, net                          |                                                                                                                                                                                        |                                                                                                                                                                                                 | 212,377                                                               |          |             |           | 231,468 |         
|Long-term investments                                       |                                                                                                                                                                                        |                                                                                                                                                                                                 | 54,340                                                                |          |             |           | 55,986  |         
|Goodwill                                                    |                                                                                                                                                                                        |                                                                                                                                                                                                 | 395,509                                                               |          |             |           | 391,088 |         
|Intangible assets, net                                      |                                                                                                                                                                                        |                                                                                                                                                                                                 | 56,421                                                                |          |             |           | 48,616  |         
|Deferred income taxes                                       |                                                                                                                                                                                        |                                                                                                                                                                                                 | 1,384                                                                 |          |             |           |        |         
|Other assets                                                |                                                                                                                                                                                        |                                                                                                                                                                                                 | 32,774                                                                |          |             |           | 29,456  |         
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 | Total assets                                                          |          | $           | 2,761,858 |         |          | $      | 2,293,358 | 
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                                        |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |           |         |         
|                                                            | Accounts payable                                                                                                                                                                       |                                                                                                                                                                                                 | $                                                                     | 45,445   |             |           | $       | 55,956   |       
|                                                            | Accrued compensation                                                                                                                                                                   |                                                                                                                                                                                                 |                                                                       | 113,760  |             |           |         | 126,612  |       
|                                                            | Other accrued liabilities                                                                                                                                                              |                                                                                                                                                                                                 |                                                                       | 131,105  |             |           |         | 98,983   |       
|                                                            | Income taxes payable                                                                                                                                                                   |                                                                                                                                                                                                 |                                                                       | 56,869   |             |           |         | 37,077   |       
|                                                            | Deferred revenue                                                                                                                                                                       |                                                                                                                                                                                                 |                                                                       | 405,751  |             |           |         | 374,186  |       
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 | Total current liabilities                                             |          |             | 752,930   |         |          |        | 692,814   | 
|Deferred income taxes                                       |                                                                                                                                                                                        |                                                                                                                                                                                                 | 4,537                                                                 |          |             |           | 3,855   |         
|Senior convertible debentures                               |                                                                                                                                                                                        |                                                                                                                                                                                                 | 600,000                                                               |          |             |           | 600,000 |         
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 | Total liabilities                                                     |          |             | 1,357,467 |         |          |        | 1,296,669 | 
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|Minority interests                                          |                                                                                                                                                                                        |                                                                                                                                                                                                 | 8,555                                                                 |          |             |           | 8,325   |         
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|Redeemable securities:                                      |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |           |         |         
|                                                            | Series B Preferred Stock, $.10 par value,
    Authorized  1,000 shares;
    Outstanding  187 and 500 shares at
    October 31, 2005 and 2004, respectively (at redemption
    value) |                                                                                                                                                                                                 |                                                                       | 9,350    |             |           |         | 25,000   |       
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|Stockholders equity:                                       |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |           |         |         
|                                                            | Series A preferred stock, $.10 par value,                                                                                                                                              |                                                                                                                                                                                                 |                                                                       |          |             |           |         |          |       
|                                                            | Authorized  499,000 shares; no shares issued                                                                                                                                          |                                                                                                                                                                                                 |                                                                       |         |             |           |         |         |       
|                                                            | Common stock, par value $.10 per share,
    Authorized  600,000,000 shares;                                                                                                           |                                                                                                                                                                                                 |                                                                       |          |             |           |         |          |       
|                                                            |                                                                                                                                                                                        | Issued  400,993,898 and 393,061,385 shares at
    October 31, 2005 and 2004, respectively,
    Outstanding  385,820,699 and 377,874,351 shares
    at October 31, 2005 and 2004, respectively |                                                                       |          | 40,099      |           |         |          | 39,306 |          
|                                                            | Additional paid-in capital                                                                                                                                                             |                                                                                                                                                                                                 |                                                                       | 483,157  |             |           |         | 431,102  |       
|                                                            | Treasury stock, at cost  15,173,199 and
    15,187,034 shares at October 31, 2005 and 2004,
    respectively                                                                          |                                                                                                                                                                                                 |                                                                       | (124,875 | )           |           |         | (124,989 | )     
|                                                            | Retained earnings                                                                                                                                                                      |                                                                                                                                                                                                 |                                                                       | 984,107  |             |           |         | 607,851  |       
|                                                            | Accumulated other comprehensive income                                                                                                                                                 |                                                                                                                                                                                                 |                                                                       | 7,444    |             |           |         | 16,180   |       
|                                                            | Unearned compensation and other                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       | (3,446   | )           |           |         | (6,086   | )     
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 | Total stockholders equity                                            |          |             | 1,386,486 |         |          |        | 963,364   | 
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 | Total liabilities, redeemable securities and stockholders
    equity |          | $           | 2,761,858 |         |          | $      | 2,293,358 | 
|                                                            |                                                                                                                                                                                        |                                                                                                                                                                                                 |                                                                       |          |             |          





|   |                          
|-- | -------------------------
|52 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.





CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


(Amounts in thousands)


|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |        |   |  |   |        |   |  |   |           |  
|------------------------------------------------------- |  | ------ | ------- | - | ------ | - | ------ | -------- |  |  | -------- | - |  | ----------- | -------- | - | -------- | - | ------- | ------------- |  | -------- | ------------ | - |  | ----- | ------ | - |  | - | ------ | - |  | - | --------- | -
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  | Accumulated |          |   |          |   |        
|                                                        |  | Common |         |   | Common |   |        | Treasury |  |  | Treasury |   |  | Additional  |          |   |          |   | Other   |               |  | Unearned |              |   | 
|                                                        |  | Stock  |         |   | Stock  |   |        | Stock    |  |  | Stock    |   |  | Paid-In     |          |   | Retained |   |         | Comprehensive |  |          | Compensation |   |  |      
|                                                        |  | Shares |         |   | Amount |   |        | Shares   |  |  | Amount   |   |  | Capital     |          |   | Earnings |   |         | Income        |  |          | and Other    |   |  | Total |       
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       
|Balance at October 31, 2002                             |  |        | 367,538 |   |        | $ | 36,753 |          |  |  |         |   |  | $           |         |   |          | $ | 297,139 |               |  | $        | 738,663      |   |  | $     | 57     |   |  | $ | (7,070 | ) |  | $ | 1,065,542 |  
|Stock issued from stock plans                           |  |        | 9,008   |   |        |   | 902    |          |  |  |         |   |  |             |         |   |          |   | 22,499  |               |  |          |             |   |  |       |       |   |  |   | (2,872 | ) |  |   | 20,529    |  
|Shares cancelled                                        |  |        | (86     | ) |        |   | (9     | )        |  |  |         |   |  |             |         |   |          |   | (622    | )             |  |          |             |   |  |       |       |   |  |   | 232    |   |  |   | (399      | )
|Amortization of unearned stock compensation             |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       |       |   |  |   | 3,691  |   |  |   | 3,691     |  
|Change in unrealized gain on investments                |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       | (705   | ) |  |   |       |   |  |   | (705      | )
|Cumulative translation adjustment                       |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       | 7,716  |   |  |   |       |   |  |   | 7,716     |  
|Net loss                                                |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          | (161,904     | ) |  |       |       |   |  |   |       |   |  |   | (161,904  | )
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       
|Comprehensive loss                                      |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       |       |   |  |   |       |   |  |   | (154,893  | )
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       
|Balance at October 31, 2003                             |  |        | 376,460 |   |        |   | 37,646 |          |  |  |         |   |  |             |         |   |          |   | 319,016 |               |  |          | 576,759      |   |  |       | 7,068  |   |  |   | (6,019 | ) |  |   | 934,470   |  
|Stock issued from stock plans                           |  |        | 12,757  |   |        |   | 1,276  |          |  |  | 1        |   |  |             | 11       |   |          |   | 63,101  |               |  |          |             |   |  |       |       |   |  |   | (5,452 | ) |  |   | 58,936    |  
|Stock issued for conversion of Series B Preferred Stock |  |        | 4,000   |   |        |   | 400    |          |  |  |         |   |  |             |         |   |          |   | 24,600  |               |  |          |             |   |  |       |       |   |  |   |       |   |  |   | 25,000    |  
|Shares repurchased                                      |  |        |        |   |        |   |       |          |  |  | (15,188  | ) |  |             | (125,000 | ) |          |   |        |               |  |          |             |   |  |       |       |   |  |   |       |   |  |   | (125,000  | )
|Shares cancelled                                        |  |        | (156    | ) |        |   | (16    | )        |  |  |         |   |  |             |         |   |          |   | (1,295  | )             |  |          |             |   |  |       |       |   |  |   | 537    |   |  |   | (774      | )
|Amortization of unearned stock compensation             |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       |       |   |  |   | 4,848  |   |  |   | 4,848     |  
|Beneficial conversion feature                           |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   | 25,680  |               |  |          | (25,680      | ) |  |       |       |   |  |   |       |   |  |   |          |  
|Dividends on Series B Preferred Stock                   |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          | (416         | ) |  |       |       |   |  |   |       |   |  |   | (416      | )
|Change in unrealized gain on investments                |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       | (1,352 | ) |  |   |       |   |  |   | (1,352    | )
|Cumulative translation adjustment                       |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       | 11,720 |   |  |   |       |   |  |   | 11,720    |  
|Change in minimum pension liability                     |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       | (1,256 | ) |  |   |       |   |  |   | (1,256    | )
|Net income                                              |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          | 57,188       |   |  |       |       |   |  |   |       |   |  |   | 57,188    |  
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       
|Comprehensive income                                    |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       |       |   |  |   |       |   |  |   | 66,301    |  
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       
|Balance at October 31, 2004                             |  |        | 393,061 |   |        |   | 39,306 |          |  |  | (15,187  | ) |  |             | (124,989 | ) |          |   | 431,102 |               |  |          | 607,851      |   |  |       | 16,180 |   |  |   | (6,086 | ) |  |   | 963,364   |  
|Stock issued from stock plans                           |  |        | 5,678   |   |        |   | 567    |          |  |  | 14       |   |  |             | 114      |   |          |   | 26,843  |               |  |          |             |   |  |       |       |   |  |   | (1,998 | ) |  |   | 25,526    |  
|Stock plans income tax benefit                          |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   | 13,799  |               |  |          |             |   |  |       |       |   |  |   |       |   |  |   | 13,799    |  
|Stock issued for conversion of Series B Preferred Stock |  |        | 2,504   |   |        |   | 250    |          |  |  |         |   |  |             |         |   |          |   | 15,400  |               |  |          |             |   |  |       |       |   |  |   |       |   |  |   | 15,650    |  
|Shares cancelled                                        |  |        | (249    | ) |        |   | (24    | )        |  |  |         |   |  |             |         |   |          |   | (4,043  | )             |  |          |             |   |  |       |       |   |  |   | 3,325  |   |  |   | (742      | )
|Amortization of unearned stock compensation             |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       |       |   |  |   | 1,313  |   |  |   | 1,313     |  
|Dividends on Series B Preferred Stock                   |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          | (466         | ) |  |       |       |   |  |   |       |   |  |   | (466      | )
|Change in unrealized gain on investments                |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   | 56      |               |  |          |             |   |  |       | (7,767 | ) |  |   |       |   |  |   | (7,711    | )
|Cumulative translation adjustment                       |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       | (1,592 | ) |  |   |       |   |  |   | (1,592    | )
|Change in minimum pension liability                     |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       | 623    |   |  |   |       |   |  |   | 623       |  
|Net income                                              |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          | 376,722      |   |  |       |       |   |  |   |       |   |  |   | 376,722   |  
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       
|Comprehensive income                                    |  |        |        |   |        |   |       |          |  |  |         |   |  |             |         |   |          |   |        |               |  |          |             |   |  |       |       |   |  |   |       |   |  |   | 368,042   |  
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       
|Balance at October 31, 2005                             |  |        | 400,994 |   |        | $ | 40,099 |          |  |  | (15,173  | ) |  | $           | (124,875 | ) |          | $ | 483,157 |               |  | $        | 984,107      |   |  | $     | 7,444  |   |  | $ | (3,446 | ) |  | $ | 1,386,486 |  
|                                                        |  |        |         |   |        |   |        |          |  |  |          |   |  |             |          |   |          |   |         |               |  |          |              |   |  |       |       





|                          |   
|------------------------- | --
|Novell annual report 2005 | 53









---



##### Table of Contents



NOVELL, INC.





CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts in thousands)


|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |         |          |          |          |        |          |  
|-------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | -------------------- | ----------------------------------------- | ---------- | ----------- | -------- | ------- | ----------- | ------- | -------- | -------- | -------- | ------ | -------- | -
|                                                                                             |                                                                                      | Fiscal Year Ended    |                                          
|                                                                                             |                                                                                      |                      |                                          
|                                                                                             |                                                                                      | October 31,          |                                           |            | October 31, |          |         | October 31, |        
|                                                                                             |                                                                                      | 2005                 |                                           |            | 2004        |          |         | 2003        |        
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|Cash flows from operating activities                                                         |                                                                                      |                      |                                           |            |             |          |         |             |         |          |          |         
|Net income (loss)                                                                            |                                                                                      | $                    | 376,722                                   |            |             | $        | 57,188  |             |         | $        | (161,904 | )       
|Adjustments to reconcile net income (loss) to net cash provided
    by operating activities: |                                                                                      |                      |                                           |            |             |          |         |             |         |          |          |         
|                                                                                             | Depreciation and amortization                                                        |                      |                                           | 56,261     |             |          |         | 53,482      |         |          |          | 61,058   |       
|                                                                                             | Decrease in accounts receivable allowances                                           |                      |                                           | (7,838     | )           |          |         | (4,923      | )       |          |          | (12,824  | )     
|                                                                                             | Tax benefit from stock plans                                                         |                      |                                           | 13,799     |             |          |         |            |         |          |          |         |       
|                                                                                             | Utilization of previously reserved acquired net operating losses                     |                      |                                           | 29,600     |             |          |         |            |         |          |          |         |       
|                                                                                             | Deferred income taxes                                                                |                      |                                           | (702       | )           |          |         | 870         |         |          |          | 105,277  |       
|                                                                                             | Net gain on sale of property, plant and equipment                                    |                      |                                           | (1,589     | )           |          |         | (1,639      | )       |          |          | (25,299  | )     
|                                                                                             | Net loss on long-term investments                                                    |                      |                                           | 1,300      |             |          |         | 2,055       |         |          |          | 34,735   |       
|                                                                                             | Impairment of goodwill and intangible assets                                         |                      |                                           | 1,521      |             |          |         |            |         |          |          | 13,935   |       
|                                                                                             | Purchased in-process research and development                                        |                      |                                           | 480        |             |          |         |            |         |          |          | 920      |       
|                                                                                             | Changes in current assets and liabilities, excluding the effect
    of acquisitions: |                      |                                           |            |             |          |         |             |         |          |          |          |       
|                                                                                             |                                                                                      | Receivables          |                                           |            | (15,087     | )        |         |             | (20,327 | )        |          |          | (4,391 | )       
|                                                                                             |                                                                                      | Prepaid expenses     |                                           |            | (3,777      | )        |         |             | (1,358  | )        |          |          | 1,417  |         
|                                                                                             |                                                                                      | Other current assets |                                           |            | (777        | )        |         |             | (3,069  | )        |          |          | 368    |         
|                                                                                             |                                                                                      | Accounts payable     |                                           |            | (10,935     | )        |         |             | 2,492   |          |          |          | (7,213 | )       
|                                                                                             |                                                                                      | Accrued liabilities  |                                           |            | 30,290      |          |         |             | (10,619 | )        |          |          | 2,014  |         
|                                                                                             |                                                                                      | Deferred revenue     |                                           |            | 31,146      |          |         |             | 43,261  |          |          |          | 47,195 |         
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|                                                                                             |                                                                                      |                      | Net cash provided by operating activities |            |             | 500,414  |         |             |         | 117,413  |          |          |        | 55,288   |  
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|Cash flows from financing activities                                                         |                                                                                      |                      |                                           |            |             |          |         |             |         |          |          |         
|                                                                                             | Issuance of common stock, net                                                        |                      |                                           | 22,108     |             |          |         | 58,162      |         |          |          | 20,130   |       
|                                                                                             | Payment of cash dividends on Series B Preferred Stock                                |                      |                                           | (591       | )           |          |         | (292        | )       |          |          |         |       
|                                                                                             | Issuance of Series B Preferred Stock                                                 |                      |                                           |           |             |          |         | 50,000      |         |          |          |         |       
|                                                                                             | Issuance of senior convertible debentures                                            |                      |                                           |           |             |          |         | 600,000     |         |          |          |         |       
|                                                                                             | Payment of issuance costs on senior convertible debentures                           |                      |                                           |           |             |          |         | (14,850     | )       |          |          |         |       
|                                                                                             | Repurchases of common stock, held in treasury                                        |                      |                                           |           |             |          |         | (125,000    | )       |          |          |         |       
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|                                                                                             |                                                                                      |                      | Net cash provided by financing activities |            |             | 21,517   |         |             |         | 568,020  |          |          |        | 20,130   |  
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|Cash flows from investing activities                                                         |                                                                                      |                      |                                           |            |             |          |         |             |         |          |          |         
|                                                                                             | Purchases of property, plant and equipment                                           |                      |                                           | (30,781    | )           |          |         | (26,997     | )       |          |          | (39,468  | )     
|                                                                                             | Proceeds from the sale of property, plant and equipment                              |                      |                                           | 10,421     |             |          |         | 4,951       |         |          |          | 125,000  |       
|                                                                                             | Purchases of short-term investments                                                  |                      |                                           | (1,286,499 | )           |          |         | (999,078    | )       |          |          | (727,817 | )     
|                                                                                             | Maturities of short-term investments                                                 |                      |                                           | 348,156    |             |          |         | 160,611     |         |          |          | 117,485  |       
|                                                                                             | Sales of short-term investments                                                      |                      |                                           | 863,973    |             |          |         | 444,972     |         |          |          | 396,462  |       
|                                                                                             | Purchases of long-term investments                                                   |                      |                                           | (11,407    | )           |          |         | (20,505     | )       |          |          | (15,924  | )     
|                                                                                             | Proceeds from sales of and distributions from long-term
    investments              |                      |                                           | 11,688     |             |          |         | 12,899      |         |          |          | 3,708    |       
|                                                                                             | Cash paid for acquisition of Tally, net of cash acquired                             |                      |                                           | (16,530    | )           |          |         |            |         |          |          |         |       
|                                                                                             | Cash paid for acquisition of Immunix, net of cash acquired                           |                      |                                           | (17,299    | )           |          |         |            |         |          |          |         |       
|                                                                                             | Cash paid for acquisition of Salmon, net of cash acquired                            |                      |                                           |           |             |          |         | (5,322      | )       |          |          |         |       
|                                                                                             | Cash paid for acquisition of SUSE, net of cash acquired                              |                      |                                           |           |             |          |         | (200,298    | )       |          |          |         |       
|                                                                                             | Cash paid for acquisition of Ximian, net of cash acquired                            |                      |                                           |           |             |          |         |            |         |          |          | (40,046  | )     
|                                                                                             | Cash paid for acquisition of Volera minority interest                                |                      |                                           |           |             |          |         |            |         |          |          | (1,050   | )     
|                                                                                             | Purchase of intangible assets                                                        |                      |                                           | (15,500    | )           |          |         |            |         |          |          |         |       
|                                                                                             | Restricted cash for acquisition of India joint venture                               |                      |                                           | (7,500     | )           |          |         |            |         |          |          |         |       
|                                                                                             | Other                                                                                |                      |                                           | 6,181      |             |          |         | 10,806      |         |          |          | 9,177    |       
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|                                                                                             |                                                                                      |                      | Net cash used in investing activities     |            |             | (145,097 | )       |             |         | (617,961 | )        |          |        | (172,473 | )
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|Total increase (decrease) in cash and cash equivalents                                       |                                                                                      |                      | 376,834                                   |            |             |          | 67,472  |             |         |          | (97,055  | )       
|Cash and cash equivalents  beginning of period                                              |                                                                                      |                      | 434,404                                   |            |             |          | 366,932 |             |         |          | 463,987  |         
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|Cash and cash equivalents  end of period                                                    |                                                                                      | $                    | 811,238                                   |            |             | $        | 434,404 |             |         | $        | 366,932  |         
|                                                                                             |                                                                                      |                      |                                           |            |             |          |         |             |        
|Supplemental disclosures of cash and non-cash financing and
    investing activities:        |                                                                                      |                      |                                           |            |             |          |         |             |         |          |          |         
|Conversion of Series B Preferred Stock                                                       |                                                                                      | $                    | 15,650                                    |            |             | $        | 25,000  |             |         | $        |         |         
|Deemed dividend related to beneficial conversion feature of
    Series B Preferred Stock     |                                                                                      |                      |                                          |            |             | $        | 25,680  |             |         |          |         |         
|Issuance of notes receivable for sale of property, plant and
    equipment                   |                                                                                      |                      |                                          |            |             | $        | 9,935   |             |         |          |         |         





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|54 | Novell annual report 2005









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##### Table of Contents



NOVELL, INC.





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                               
|-- | ------------------------------
|A. | Summary of Business Operations

best-of




Identity-driven computing solutions.




| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | resource management capabilities for both desktop and server
    environments;
|
| |  | provisioning and de-provisioning capabilities; and                            
|
| |  | secure authentication and authorization services.                             







|                          |   
|------------------------- | --
|Novell annual report 2005 | 55









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Linux and platform services solutions.






Global services and support.






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|56 | Novell annual report 2005









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


on-site e-mail,


Celerant Consulting.






|   |                                           
|-- | ------------------------------------------
|B. | Summary of Significant Accounting Policies





| |                            
| | ---------------------------
| | Principles of Consolidation



| |                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying consolidated financial statements include the
    accounts of Novell, Inc., its wholly-owned and majority-owned
    subsidiaries and majority-owned joint ventures. All material
    inter-company accounts and transactions have been eliminated in
    consolidation.



| |                                         
| | ----------------------------------------
| | Managements Estimates and Uncertainties



| |                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The preparation of financial statements in conformity with
    accounting principles generally accepted in the
    U.S. requires management to make estimates and assumptions
    that affect the amounts reported and related disclosure of
    contingent assets and liabilities in the financial statements
    and accompanying notes. Actual results could differ materially
    from those estimates.



| |                  
| | -----------------
| | Reclassifications



| |                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain amounts reported in prior years have been reclassified
    from what was previously reported to conform to the current
    years presentation. These reclassifications did not have
    an impact on net income (loss) in any period.



| |                             
| | ----------------------------
| | Foreign Currency Translation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The functional currency of all of our international
    subsidiaries, except for our Irish subsidiaries and a German
    holding company, is the local currency. These subsidiaries
    generate and expend cash primarily in their respective local
    currencies. The assets and liabilities of these subsidiaries are
    translated at current month-end exchange rates. Revenue and
    expenses are translated monthly at the average monthly exchange
    rate. Translation adjustments are recorded in accumulated other
    comprehensive income. With respect to our Irish subsidiaries and
    German holding company, the functional currency is the
    U.S. dollar for which translation gains and losses are
    included in other income and expense. All transaction gains and
    losses are reported in other income (expense). Foreign exchange
    resulted in a loss of $3.4 million, $5.0 million and
    $3.0 million, respectively, during fiscal 2005, 2004 and
    2003.



|                          |   
|------------------------- | --
|Novell annual report 2005 | 57









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                  
| | -------------------------------------------------
| | 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, primarily
    consisting of investment grade securities that either mature
    within the next 12 months or have other characteristics of
    short-term investments, such as auction dates within at least
    six months of the prior auction date or being available to be
    used for current operations even if some maturities may extend
    beyond one year. All auction rate securities are classified as
    short-term investments.                                                                                                                                                                                                                                                 
|
| | All marketable debt and equity securities that are included in
    cash and short-term investments are considered
    available-for-sale and are carried at fair value. The unrealized
    gains and losses related to these securities are included in
    accumulated other comprehensive income (see Note U). Fair
    values are based on quoted market prices where available. If
    quoted market prices are not available, we use third-party
    pricing services to assist in determining fair value. In many
    instances, these services examine the pricing of similar
    instruments to estimate fair value. 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 investment income in the consolidated
    statements of operations.



| |                              
| | -----------------------------
| | Concentrations of Credit Risk



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Financial instruments that subject us to credit risk primarily
    consist of cash equivalents, short-term investments, accounts
    receivable, notes receivable, and amounts due under subleases.
    Our credit risk is managed by investing cash and cash
    equivalents primarily in high-quality money market instruments
    and securities of the U.S. government and its agencies.
    Accounts receivable include amounts owed by geographically
    dispersed end users, distributors, resellers, and original
    equipment manufacturer (OEM) customers. No
    collateral is required. Accounts receivable are not sold or
    factored. At October 31, 2005, we had outstanding
    receivables from one customer, which accounted for 13% of our
    outstanding receivables. This receivable balance was collected
    in full in the first quarter of fiscal 2006. There were no
    customers with outstanding receivable balances greater than 10%
    of total accounts receivable at October 31, 2004. We
    generally have not experienced any material losses related to
    receivables from individual customers or groups of customers.
    Due to these factors, no significant additional credit risk,
    beyond amounts provided for, is believed by management to be
    inherent in our accounts receivable. Our long-term notes
    receivable in the amount of $9.1 million is collateralized
    by a building and land. Our subleases are with many different
    parties and thus no concentration of credit risk exists at
    October 31, 2005.
|
| | During the years ended October 31, 2005, 2004 and 2003,
    there were no customers who accounted for more than 10% of total
    net revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



| |                              
| | -----------------------------
| | Property, Plant and Equipment



| |                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Property, plant and equipment are carried at cost less
    accumulated depreciation and amortization. Depreciation and
    amortization is computed on the straight-line method over the
    estimated useful lives of the assets, or lease term, if shorter.
    Such lives are as follows:

|                                 |  |              |               | 
|-------------------------------- |  | ------------ | ------------- | 
|Asset classification             |  | Useful Lives |              
|                                 |  |              |              
|Buildings                        |  |              | 30 years      | 
|Furniture and equipment          |  |              | 2  7  years  | 
|Leasehold improvements and other |  |              | 3  10  years | 



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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We review our property, plant and equipment annually for
    indicators of impairment in accordance with Statement of
    Financial Accounting Standards (SFAS) No. 144,
    Accounting for the Impairment or Disposal of Long-Lived
    Assets and whenever events or changes in circumstances
    indicate that the carrying value may not be recoverable. Factors
    that could indicate an impairment include significant
    underperformance of the asset as compared to historical or
    projected future operating results, significant changes in the
    actual or intended use of the asset, or significant negative
    industry or economic trends. When we determine that the carrying
    value of an asset may not be recoverable, the related estimated
    future undiscounted cash flows expected to result from the use
    and eventual disposition of the asset are compared to the
    carrying value of the asset. If the sum of the estimated future
    cash flows is less than the carrying amount, we record an
    impairment charge based on the difference between the carrying
    value of the asset and its fair value, which we estimate based
    on discounted expected future cash flows. For fiscal year 2005,
    we have not identified or recorded any impairment of our
    property, plant and equipment.



| |                               
| | ------------------------------
| | Goodwill and Intangible Assets



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We review our goodwill annually for indicators of impairment in
    accordance with SFAS No. 142, Goodwill and Other
    Intangible Assets. We evaluate the recoverability of
    goodwill and indefinite-lived intangible assets annually as of
    August 1, or more frequently if events or changes in
    circumstances warrant, such as a material adverse change in the
    business. Goodwill is considered to be impaired when the
    carrying value of a reporting unit exceeds its estimated fair
    value. Fair values are estimated using a discounted cash flow
    methodology.                                                                                                                                                                                                                                                                    
|
| | In accordance with SFAS No. 142, we do not amortize
    goodwill or intangibles with indefinite lives resulting from
    acquisitions. We review these assets periodically for potential
    impairment issues. Separable intangible assets that are not
    deemed to have an indefinite life are amortized over their
    estimated useful lives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | We review our finite-lived intangibles assets for indicators of
    impairment in accordance with SFAS No. 144,
    Accounting for the Impairment or Disposal of Long-Lived
    Assets, whenever events or changes in circumstances
    indicate that the carrying value may not be recoverable. When we
    determine that the carrying value of an asset may not be
    recoverable, the related estimated future undiscounted cash
    flows expected to result from the use and eventual disposition
    of the asset are compared to the carrying value of the asset. If
    the sum of the estimated future cash flows is less than the
    carrying amount, we record an impairment charge based on the
    difference between the carrying value of the asset and its fair
    value, which we estimate based on discounted expected future
    cash flows.



| |                                                  
| | -------------------------------------------------
| | Disclosure of Fair Value of Financial Instruments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our financial instruments mainly consist of cash and cash
    equivalents, short-term investments, accounts receivable, notes
    receivable, long-term investments, accounts payable, accrued
    expenses, Series B Preferred Stock, and the Debentures. The
    carrying amounts of our cash equivalents and short-term
    investments, accounts receivable, accounts payable and accrued
    expenses approximate fair value due to the short-term nature of
    these instruments. We periodically review the realizability of
    each short-term and long-term investment when impairment
    indicators exist with respect to the investment. If an
    other-than-temporary impairment of the value of the investments
    is deemed to exist, the carrying value of the investment is
    written down to its estimated fair value. We consider an
    impairment to be other than temporary when market evidence or
    issuer-specific knowledge does not reflect long-term growth to
    support current carrying values. The carrying amount for the
    Series B Preferred Stock and Debentures approximate fair
    value. As of October 31, 2005 and 2004, we did not hold any
    publicly-traded long-term



|                          |   
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|Novell annual report 2005 | 59









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | equity securities. Our long-term notes receivable and the
    Debentures have interest rates that approximate current market
    rates; therefore, the carrying value approximates fair value.



| |                                          
| | -----------------------------------------
| | Revenue Recognition and Related Reserves.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our revenue is derived primarily from the sale of software
    licenses, software maintenance, upgrade protection,
    subscriptions of SUSE Linux Enterprise Server
    (SLES), technical support, training, and consulting
    services. Our customers include: distributors, who sell our
    products to resellers, dealers, and VARs; OEMs, who integrate
    our products with their products or solutions; VARs, who provide
    solutions across multiple vertical market segments which usually
    includes services; and end users, who may purchase our products
    and services directly from Novell or from other partners or
    resellers. Except for our SUSE Linux product, distributors do
    not order to stock and only order products when they have an end
    customer order, which they present to us. With respect to our
    SUSE Linux product, distributors place orders and the product is
    then sold through to end customers principally through the
    retail channel. OEMs report the number of copies duplicated and
    sold via an activity or royalty report. Software maintenance,
    upgrade protection, technical support, and subscriptions of SLES
    typically involve one to three year contract terms. Our
    standard contracts offer a 90-day right of return.
|
| | Revenue is recognized in accordance with Statement of Position
    (SOP) 97-2, Software Revenue
    Recognition, and Staff Accounting Bulletin No. 104,
    Revenue Recognition, and related interpretations.
    When an arrangement does not require significant production,
    modification or customization of software or does not contain
    services considered to be essential to the functionality of the
    software, revenue is recognized when the following four criteria
    are met:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



| |   |                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Persuasive evidence of an arrangement exists  We
    require evidence of an agreement with a customer specifying the
    terms and conditions of the products or services to be delivered
    typically in the form of a signed contract or statement of work
    accompanied by a purchase order.                                         
|
| |  | Delivery has occurred  For software licenses,
    delivery takes place when the customer is given access to the
    software programs via access to a web site or shipped medium.
    For services, delivery takes place as the services are provided.                                                                                     
|
| |  | The fee is fixed or determinable  Fees are fixed or
    determinable if they are not subject to a refund or cancellation
    and do not have payment terms that exceed our standard payment
    terms. Typical payment terms are net 30 days.                                                                                              
|
| |  | Collection is probable  We perform a credit review of
    all customers with significant transactions to determine whether
    a customer is credit worthy and collection is probable. Prior
    Novell established credit history, credit reports, financial
    statements, and bank references are used to assess credit
    worthiness.



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In general, revenue for transactions that do not involve
    software customization or services considered essential to the
    functionality of the software is recognized as follows:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | Software license fees for our SUSE Linux product are recognized
    when the product is sold through to an end customer;
|
| |  | Software license fees for sales through OEMs are recognized upon
    receipt of license activity or royalty reports;    
|
| |  | All other software license fees are recognized upon delivery of
    the software;                                       



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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Software maintenance, upgrade protection, technical support, and
    subscriptions of SLES are recognized ratably over the contract
    term; and
|
| |  | Consulting, training and other similar services are recognized
    as the services are performed.                                                



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the fee due from the customer is not fixed or determinable,
    revenue is recognized as payments become due from the customer.
    If collection is not considered probable, revenue is recognized
    when the fee is collected. We record provisions against revenue
    for estimated sales returns and allowances on product and
    service-related sales in the same period as the related revenue
    is recorded. We also record a provision to operating expenses
    for bad debts resulting from customers inability to pay
    for the products or services they have received. These estimates
    are based on historical sales returns and bad debt expense,
    analyses of credit memo data, and other known factors, such as
    bankruptcy. If the historical data we use to calculate these
    estimates do not accurately reflect future returns or bad debts,
    adjustments to these reserves may be required that would
    increase or decrease revenue or net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Many of our software arrangements include multiple elements.
    Such elements typically include any or all of the following:
    software licenses, rights to additional software products,
    software maintenance, upgrade protection, technical support
    services, training and consulting services. For multiple-element
    arrangements that do not involve significant modification or
    customization of the software and do not involve services that
    are considered essential to the functionality of the software,
    we allocate value to each element based on its relative fair
    value, if sufficient Novell-specific objective evidence of fair
    value exists for each element of the arrangement.
    Novell-specific objective evidence of fair value is determined
    based on the price charged when each element is sold separately.
    If sufficient Novell-specific objective evidence exists for all
    undelivered elements, but does not exist for the delivered
    element, typically the software, then the residual method is
    used to allocate value to each element. Under the residual
    method, each undelivered element is allocated value based on
    Novell-specific objective evidence of fair value for that
    element, as described above, and the remainder of the total
    arrangement fee is allocated to the delivered element, typically
    the software. If sufficient Novell-specific objective evidence
    does not exist for all undelivered elements and the arrangement
    involves rights to unspecified additional software products, all
    revenue is recognized ratably over the term of the arrangement.
    If the arrangement does not involve rights to unspecified
    additional software products, all revenue is initially deferred
    until typically the only remaining undelivered element is
    software maintenance or technical support, at which time the
    entire fee is recognized ratably over the remaining maintenance
    or support term.
|
| | In the case of multiple-element arrangements that involve
    significant modification or customization of the software or
    involve services that are considered essential to the
    functionality of the software, contract accounting is applied.
    When Novell-specific objective evidence exists for software
    maintenance or technical support in arrangements requiring
    contract accounting, the consulting and license fees are
    combined and revenue is recognized on the percentage of
    completion basis. The percentage of completion is generally
    calculated using estimated hours incurred to date relative to
    the total expected hours for the entire project. The cumulative
    impact of any revision in estimates to complete or recognition
    of losses on contracts is reflected in the period in which the
    changes or losses become known. The maintenance or support fee
    is unbundled from the other elements and revenue is recognized
    ratably over the maintenance or support term. When
    Novell-specific objective evidence does not exist for software
    maintenance or support, then all revenue is deferred until
    completion of the consulting services, at which time the entire
    fee is recognized ratably over the remaining maintenance or
    support period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Consulting project contracts are either time-and-materials or
    fixed-price contracts. Revenue from time-and-materials contracts
    is recognized as the services are performed. Revenue from
    fixed-price contracts is                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



|                          |   
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|Novell annual report 2005 | 61









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | recognized based on the proportional performance method,
    generally using estimated time to complete to measure the
    completed effort. The cumulative impact of any revision in
    estimates to complete or recognition of losses on contracts is
    reflected in the period in which the changes or losses become
    known. Consulting revenue includes reimbursable expenses charged
    to our clients.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Celerant recognizes consulting revenue on base fees, milestone
    fees and success fees. Base fees are the element of total fees
    that are recognized based on expected efforts to be expended on
    a project. Milestone fees are the element of total fees for the
    project that are not billed in accordance with the resources
    used, but are linked directly to the achievement of specified
    criteria, which release the milestone payments. Success fees are
    incremental fees based on results that exceed base deliverables
    on the project. Revenue derived from the achievement of criteria
    relating to project milestones or project results is recognized
    only when they have been accepted and approved by the customer.
    Base fees are recognized according to the proportional
    performance to date, which is measured by applying the completed
    effort to date to the total fees (less project milestones and
    success fees) of each project. The completed effort date to is
    calculated as the proportion of man-weeks incurred to date
    relative to the total expected man-weeks for the entire project.
    The cumulative impact of any revision in estimates to complete
    or the recognition of losses on contracts is reflected in the
    period in which the changes or losses become known. Celerant
    consulting revenue includes reimbursable expenses charged to our
    clients.



| |                
| | ---------------
| | Cost of Revenue



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cost of revenue includes the amortization of intangible assets
    related to products or services sold, royalty costs and cost
    associated with personnel providing consulting services.



| |         
| | --------
| | Expenses



| |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Product development costs are expensed as incurred. Due to the
    use of the working model approach under SFAS No. 86,
    Accounting for the Costs of Computer Software to Be Sold,
    Leased, or Otherwise Marketed, costs incurred subsequent
    to the establishment of technological feasibility but prior to
    the general release of the product, have not been significant
    and therefore have not been capitalized.
|
| | Advertising costs are expensed as incurred. Advertising expenses
    totaled $6.0 million, $10.6 million, and
    $37.5 million in fiscal 2005, 2004, and 2003, respectively.                                                                                                                                                                                                                                                         



| |                         
| | ------------------------
| | Stock-Based Compensation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We account for our stock-based compensation plans under the
    intrinsic value method of accounting as defined by Accounting
    Principles Board (APB) Opinion No. 25,
    Accounting for Stock Issued to Employees, and
    related interpretations. We apply the disclosure provisions of
    SFAS No. 123, Accounting for Stock-Based
    Compensation, as amended by SFAS No. 148,
    Accounting for Stock-Based Compensation 
    Transition and Disclosure. We account for stock-based
    awards issued to non-employees using the fair value model in
    accordance with SFAS No. 123 and Emerging Issues Task
    Force (EITF) Issue
    No. 96-18,
    Accounting for Equity Instruments that are Issued to Other
    than Employees for Acquiring or in Conjunction with Selling
    Goods or Services.
|
| | At October 31, 2005, we had authorized several stock-based
    compensation plans which are more fully described in
    Note R. Under these plans, options to purchase shares of
    our common stock could be granted to employees, consultants, and
    outside directors. Under the intrinsic value method,
    compensation expense is calculated based on the difference
    between the fair market value of our common stock and the option
    exercise price at the date of grant. We generally grant employee
    stock options with an exercise                                                                                                                                                                                                                                                                         



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|62 | Novell annual report 2005









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | price equal to the fair market value of our common stock. If
    compensation expense for our stock-based compensation had been
    determined based on the fair value of the stock grants, our net
    income (loss) and net income (loss) per share would have been
    the pro forma amounts indicated below:

|                                    |                                                                                                                                          |                                          |   |         |             |  |   |             |   |  |   |          |  
|----------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | - | ------- | ----------- |  | - | ----------- | - |  | - | -------- | -
|                                    |                                                                                                                                          | Fiscal Year Ended                        |  
|                                    |                                                                                                                                          |                                          |  
|                                    |                                                                                                                                          | October 31,                              |   |         | October 31, |  |   | October 31, |  
|                                    |                                                                                                                                          | 2005                                     |   |         | 2004        |  |   | 2003        |  
|                                    |                                                                                                                                          |                                          |   |         |             |  |   |             |  
|                                    |                                                                                                                                          | (In thousands, except per share amounts) |  
|Net income (loss):                  |                                                                                                                                          |                                          |   |         |             |  |   |             |   |  |   |         
|                                    | As reported                                                                                                                              |                                          | $ | 376,722 |             |  | $ | 57,188      |   |  | $ | (161,904 | )
|                                    | Less: total stock-based compensation expense determined under
    fair value-based method for all awards, net of related tax
    effects |                                          |   | (50,420 | )           |  |   | (51,436     | ) |  |   | (28,753  | )
|                                    | Add: total stock-based compensation expense recorded in the
    statement of operations                                                  |                                          |   | 2,653   |             |  |   | 4,940       |   |  |   | 3,445    |  
|                                    |                                                                                                                                          |                                          |   |         |             |  |   |             |  
|                                    | Pro forma                                                                                                                                |                                          | $ | 328,955 |             |  | $ | 10,692      |   |  | $ | (187,212 | )
|                                    |                                                                                                                                          |                                          |   |         |             |  |   |             |  
|Net income (loss) per common share: |                                                                                                                                          |                                          |   |         |             |  |   |             |   |  |   |         
|                                    | As reported basic                                                                                                                        |                                          | $ | 0.98    |             |  | $ | 0.08        |   |  | $ | (0.44    | )
|                                    | Pro forma basic                                                                                                                          |                                          | $ | 0.86    |             |  | $ | (0.04       | ) |  | $ | (0.51    | )
|                                    | As reported diluted                                                                                                                      |                                          | $ | 0.86    |             |  | $ | 0.08        |   |  | $ | (0.44    | )
|                                    | Pro forma diluted                                                                                                                        |                                          | $ | 0.75    |             |  | $ | (0.04       | ) |  | $ | (0.51    | )



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the purpose of the above table, the fair value of each
    option grant is estimated as of the date of grant using the
    Black-Scholes option-pricing model with the following
    weighted-average assumptions used for grants in fiscal 2005,
    2004, and 2003: a risk-free interest rate of approximately 3.8%
    for fiscal 2005 and 2.8% for fiscal 2004 and 2003; a dividend
    yield of 0.0% for all years; a weighted-average expected life of
    4.4 years for fiscal 2005, 3.75 years for fiscal 2004,
    and 5.0 years for fiscal 2003; and a volatility factor of
    the expected market price of our common stock of 0.55 for fiscal
    2005, 0.77 for fiscal 2004, and 0.85 for fiscal 2003. The
    weighted-average fair value of options granted in fiscal 2005,
    2004, and 2003 was $3.17, $5.63, and $2.38, respectively.                                                                                      
|
| | We do not recognize compensation expense related to employee
    purchase rights under the Novell, Inc. 1989 Employee Stock
    Purchase Plan. Pro forma compensation expense is estimated for
    the fair value of the employees purchase rights using the
    Black-Scholes model with the following assumptions for the
    rights granted in fiscal 2005, 2004, and 2003: a dividend yield
    of 0.0% for all years; an expected life of six months for all
    years; an expected volatility factor of 0.74 for fiscal 2005,
    0.77 for fiscal 2004, and 0.85 for fiscal 2003; and a risk-free
    interest rate of approximately 1.7% for fiscal 2005, 1.2% for
    fiscal 2004, and 1.1% for fiscal 2003. The weighted-average fair
    value of the purchase rights granted on October 18, 2004,
    April 19, 2004, October 20, 2003, May 7, 2003,
    October 21, 2002, was $2.50, $4.19, $2.19, $1.07, and
    $0.93, respectively.
|
| | As discussed below, beginning in fiscal 2006, we will adopt SFAS
    No. 123(R),
    Share-Based
    Payment, which requires us to measure compensation costs
    for all share-based
    payments, including stock options, at fair value and expense
    such payments to the statement of operations over the related
    employee service period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



|                          |   
|------------------------- | --
|Novell annual report 2005 | 63









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                            
| | ---------------------------
| | Net Income (Loss) Per Share



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Basic and diluted net income per share available to common
    stockholders is presented in conformity with
    SFAS No. 128, Earnings per Share, and the
    related interpretation in EITF Issue
    No. 03-06,
    Participating Securities and the Two-Class Method under
    FASB Statement No. 128. Basic net income per share
    available to common stockholders is computed by dividing net
    income available to common stockholders by the actual
    weighted-average number of common shares outstanding during the
    period. Net income available to common stockholders reflects net
    income (loss) after deducting accumulated preferred stock
    dividends and earnings allocated to participating preferred
    stockholders. Diluted net income available to common
    stockholders is based on the basic calculation but also excludes
    the minority interest share of net income on a diluted basis and
    assumes the conversion of the Series B Preferred Stock and
    Debentures using the if converted method, if
    dilutive, and includes the dilutive effect of potential common
    shares under the treasury stock method. Potential common shares
    include stock options, unvested restricted stock and, in certain
    circumstances, convertible securities such as the Debentures and
    Series B Preferred Stock.
|
| | In November 2004, the EITF reached a final conclusion on
    Issue 04-8,
    Accounting Issues Related to Certain Features of
    Contingently Convertible Debt and the Effect on Diluted Earnings
    per Share. This issue addresses when the dilutive effect
    of contingently convertible debt with a market price trigger
    should be included in diluted earnings per share calculations.
    The EITFs conclusion is that the market price trigger
    should be ignored and that these securities should be treated as
    convertible securities and included in diluted earnings per
    share regardless of whether the conversion contingencies have
    been met. Because our Debentures are contingently convertible
    debt with a market price trigger, we were required to comply
    with EITF
    Issue 04-8
    beginning in the first quarter of fiscal 2005. All earnings per
    share amounts presented have been revised to conform to the
    requirements of EITF Issue
    No. 04-8.                                                                                                                                                                                                                                                                                                                                                      



| |                       
| | ----------------------
| | Derivative Instruments



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A large portion of our revenue, expense, and capital purchasing
    activities are transacted in U.S. dollars. However, we
    enter into transactions in other currencies, primarily the Euro,
    the British Pound Sterling, and certain other European, Latin
    American and Asian currencies. To protect against reductions in
    value caused by changes in foreign exchange rates, we have
    established balance sheet and inter-company hedging programs. We
    hedge currency risks of some assets and liabilities denominated
    in foreign currencies through the use of 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 at the end of
    the following month. Due to the short period of time between
    entering into the forward contracts and the year-end, the fair
    value of the derivatives as of October 31, 2005 and 2004 is
    insignificant. Gains and losses recognized during the year on
    these foreign currency contracts are recorded as other income or
    expense and would generally be offset by corresponding losses or
    gains on the related hedged items, resulting in negligible net
    exposure to our financial statements.                                                                                                  



| |                      
| | ---------------------
| | Recent Pronouncements



| |                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In December 2004, the Financial Accounting Standards Board
    (FASB) issued its final standard on accounting for
    share-based payments, SFAS No. 123(R),
    Share-Based Payment, which replaces
    SFAS No. 123 and supersedes APB No. 25.
    SFAS No. 123(R) requires all companies to measure
    compensation costs for all share-based payments, including stock
    options, at fair value and expense such



|   |                          
|-- | -------------------------
|64 | Novell annual report 2005









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | payments to the statement of operations over the related
    employee service period. SFAS No. 123(R) will be
    effective for us beginning with our first quarter of fiscal 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | As permitted by SFAS No. 123, we currently account for
    share-based payments to employees using the APB No. 25
    intrinsic value method and, therefore we generally recognize no
    compensation cost for employee stock options. The adoption of
    SFAS No. 123(R) will have a significant impact on our
    results of operations, although it is not expected to have any
    impact on our overall financial position. The precise impact of
    the adoption of SFAS No. 123(R) cannot be predicted at
    this time as it will depend in part on levels of share-based
    payments granted in the future. However, had
    SFAS No. 123(R) been adopted in prior periods, the
    impact would have approximated the impact of
    SFAS No. 123, which is described above.
    SFAS No. 123(R) also requires the benefits of tax
    deductions in excess of recognized compensation cost to be
    reported as a financing cash flow, rather than as an operating
    cash flow as required under the current literature. This
    requirement will reduce net operating cash flows and increase
    net financing cash flows in periods after the adoption. We
    cannot estimate what those amounts will be in the future because
    they depend on, among other things, when employees exercise
    stock options.
|
| | SFAS No. 123(R) allows companies to choose one of three
    transition methods; the modified prospective transition method
    without restatement, modified prospective transition method with
    restatement, or modified retroactive transition method. We have
    chosen to use the modified prospective transition methodology
    without restatement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | In June 2005, the FASB issued SFAS No. 154,
    Accounting Changes and Error Corrections, which
    replaces APB Opinion No. 20, Accounting
    Changes, and SFAS No. 3, Reporting
    Accounting Changes in Interim Financial Statements.
    SFAS No. 154 changes the requirements for the
    accounting for and reporting of a change in accounting
    principle. Previously, most voluntary changes in accounting
    principles required recognition of a cumulative effect
    adjustment within net income of the period of the change.
    SFAS No. 154 requires retrospective application to
    prior periods financial statements, unless it is
    impracticable to determine either the period-specific effects or
    the cumulative effect of the change. SFAS No. 154 is
    effective for accounting changes made in fiscal years beginning
    after December 15, 2005; however, SFAS No. 154
    does not change the transition provisions of any existing
    accounting pronouncements. We do not believe adoption of
    SFAS No. 154 will have an immediate material effect on
    our consolidated financial position, results of operations or
    cash flows.                                                                                                                                       



|   |             
|-- | ------------
|C. | Acquisitions



| |                    
| | -------------------
| | Tally Systems Corp.







|                          |   
|------------------------- | --
|Novell annual report 2005 | 65









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |                           |                           |        |       |             |  |            |         |  | 
|------------------------------------------ | ------------------------- | ------------------------- | ------ | ----- | ----------- |  | ---------- | ------- |  | 
|                                           |                           | Estimated                 |        |       | Estimated   | 
|                                           |                           | Fair Value                |        |       | Useful Life | 
|                                           |                           |                           |        |       |             | 
|                                           |                           | (In thousands)            |       
|Fair value of net tangible assets acquired |                           | $                         | 587    |       |             |  | N/A        |        
|Identifiable intangible assets:            |                           |                           |        |       |             |  |            |        
|                                           | Developed technology      |                           |        | 3,200 |             |  |            | 4 years | 
|                                           | Contractual relationships |                           |        | 1,700 |             |  |            | 3 years | 
|                                           | Customer relationships    |                           |        | 280   |             |  |            | 3 years | 
|                                           | Internal use software     |                           |        | 90    |             |  |            | 3 years | 
|Goodwill                                   |                           |                           | 16,308 |       |             |  | Indefinite |        
|                                           |                           |                           |        |       |             | 
|                                           |                           | Total net assets acquired |        | $     | 22,165      |  |            |         |  | 
|                                           |                           |                           |        |       |             | 













| |              
| | -------------
| | Immunix, Inc.





|   |                          
|-- | -------------------------
|66 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                               |                        |                           |        |       |             |  |            |         |  | 
|---------------------------------------------- | ---------------------- | ------------------------- | ------ | ----- | ----------- |  | ---------- | ------- |  | 
|                                               |                        | Estimated                 |        |       | Estimated   | 
|                                               |                        | Fair Value                |        |       | Useful Life | 
|                                               |                        |                           |        |       |             | 
|                                               |                        | (In thousands)            |       
|Fair value of net tangible liabilities assumed |                        | $                         | (112   | )     |             |  | N/A        |        
|In-process research and development            |                        |                           | 480    |       |             |  | N/A        |        
|Identifiable intangible assets:                |                        |                           |        |       |             |  |            |        
|                                               | Developed technology   |                           |        | 2,400 |             |  |            | 3 years | 
|                                               | Trademarks/trade names |                           |        | 120   |             |  |            | 3 years | 
|                                               | Customer relationships |                           |        | 80    |             |  |            | 1 year  | 
|                                               | Internal use software  |                           |        | 10    |             |  |            | 3 years | 
|Goodwill                                       |                        |                           | 14,676 |       |             |  | Indefinite |        
|                                               |                        |                           |        |       |             | 
|                                               |                        | Total net assets acquired |        | $     | 17,654      |  |            |         |  | 
|                                               |                        |                           |        |       |             | 













|                          |   
|------------------------- | --
|Novell annual report 2005 | 67









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                    |  |                           |           |  |             |   |           | 
|------------------------------------------------------------------- |  | ------------------------- | --------- |  | ----------- | - | --------- | 
|                                                                    |  | Fiscal Year Ended         |          
|                                                                    |  |                           |          
|                                                                    |  | October 31,               |           |  | October 31, |  
|                                                                    |  | 2005                      |           |  | 2004        |  
|                                                                    |  |                           |           |  |             |  
|                                                                    |  | (In thousands, except per |          
|                                                                    |  | share amounts)            |          
|Revenue                                                             |  | $                         | 1,200,762 |  |             | $ | 1,173,055 | 
|Net income available to common stockholders  diluted               |  | $                         | 376,049   |  |             | $ | 28,268    | 
|Net income per share available to common
    stockholders  diluted |  | $                         | 0.86      |  |             | $ | 0.07      | 



| |            
| | -----------
| | Salmon Ltd.







|                                           |                        |                        |       |       |            |  |            |         |  | 
|------------------------------------------ | ---------------------- | ---------------------- | ----- | ----- | ---------- |  | ---------- | ------- |  | 
|                                           |                        | Estimated              |       |       |           
|                                           |                        | Acquisition Cost       |       |       | Asset Life | 
|                                           |                        |                        |       |       |            | 
|                                           |                        | (In thousands)         |       |       |           
|Fair value of net tangible assets acquired |                        | $                      | 3,007 |       |            |  | N/A        |        
|Identifiable intangible assets:            |                        |                        |       |       |            |  |            |        
|                                           | Customer relationships |                        |       | 3,417 |            |  |            | 3 years | 
|                                           | Non-compete agreement  |                        |       | 422   |            |  |            | 3 years | 
|Goodwill                                   |                        |                        | 6,146 |       |            |  | Indefinite |        
|                                           |                        |                        |       |       |            | 
|                                           |                        | Total acquisition cost |       | $     | 12,992     |  |            |         |  | 
|                                           |                        |                        |       |       |            | 









|   |                          
|-- | -------------------------
|68 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|                                                                              |  |                            |           |  |          |   |           |  
|----------------------------------------------------------------------------- |  | -------------------------- | --------- |  | -------- | - | --------- | -
|                                                                              |  | Fiscal Year Ended          |          
|                                                                              |  |                            |          
|                                                                              |  | Oct. 31,                   |           |  | Oct. 31, |  
|                                                                              |  | 2004                       |           |  | 2003     |  
|                                                                              |  |                            |           |  |          |  
|                                                                              |  | (In thousands, except per- |          
|                                                                              |  | share amounts)             |          
|Net revenue                                                                   |  | $                          | 1,181,514 |  |          | $ | 1,123,969 |  
|Net income (loss) attributable to common stockholders                         |  | $                          | 29,184    |  |          | $ | (160,061  | )
|Net income (loss) per share attributable to common
    stockholders  basic   |  | $                          | 0.08      |  |          | $ | (0.43     | )
|Net income (loss) per share attributable to common
    stockholders  diluted |  | $                          | 0.07      |  |          | $ | (0.43     | )



| |              
| | -------------
| | SUSE LINUX AG







|                          |   
|------------------------- | --
|Novell annual report 2005 | 69









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                           |                        |                         |         |        |            |  |            |            |  | 
|------------------------------------------ | ---------------------- | ----------------------- | ------- | ------ | ---------- |  | ---------- | ---------- |  | 
|                                           |                        | Estimated               |         |        |           
|                                           |                        | Acquisition Cost        |         |        | Asset Life | 
|                                           |                        |                         |         |        |            | 
|                                           |                        | (In thousands)          |         |        |           
|Fair value of net tangible assets acquired |                        | $                       | 1,599   |        |            |  | N/A        |           
|Identifiable intangible assets:            |                        |                         |         |        |            |  |            |           
|                                           | Customer relationships |                         |         | 13,385 |            |  |            | 3 years    | 
|                                           | Internal use software  |                         |         | 5,864  |            |  |            | 3 years    | 
|                                           | Trademarks/trade names |                         |         | 24,221 |            |  |            | Indefinite | 
|Goodwill                                   |                        |                         | 176,963 |        |            |  | Indefinite |           
|                                           |                        |                         |         |        |            | 
|                                           |                        | Total acquisition costs |         | $      | 222,032    |  |            |            |  | 
|                                           |                        |                         |         |        |            | 











| |   |                              
| | - | -----------------------------
| |  | product maintenance services;
|
| |  | business support services;   
|
| |  | partner memberships;         
|
| |  | alliances; and               
|
| |  | customer backlog.            







|   |                          
|-- | -------------------------
|70 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                                                                        |  |                           |           |  |          |   |           |  
|--------------------------------------------------------------------------------------- |  | ------------------------- | --------- |  | -------- | - | --------- | -
|                                                                                        |  | Fiscal Year Ended         |          
|                                                                                        |  |                           |          
|                                                                                        |  | Oct. 31,                  |           |  | Oct. 31, |  
|                                                                                        |  | 2004                      |           |  | 2003     |  
|                                                                                        |  |                           |           |  |          |  
|                                                                                        |  | (In thousands, except per |          
|                                                                                        |  | share amounts)            |          
|Net revenue                                                                             |  | $                         | 1,173,890 |  |          | $ | 1,140,201 |  
|Net income (loss) attributable to common stockholders                                   |  | $                         | 30,135    |  |          | $ | (177,170  | )
|Net income (loss) per share attributable to common
    stockholders  basic and diluted |  | $                         | 0.08      |  |          | $ | (0.48     | )



| |             
| | ------------
| | Ximian, Inc.





|                                           |                                               |                  |        |       |            |  |            |                         | 
|------------------------------------------ | --------------------------------------------- | ---------------- | ------ | ----- | ---------- |  | ---------- | ----------------------- | 
|                                           |                                               | Estimated        |        |       |           
|                                           |                                               | Acquisition Cost |        |       | Asset Life | 
|                                           |                                               |                  |        |       |            | 
|                                           |                                               | (In thousands)   |        |       |           
|Fair value of net tangible assets acquired |                                               | $                | 161    |       |            |  | N/A        |                        
|Intangible assets:                         |                                               |                  |        |       |            |  |            |                        
|                                           | Purchased in-process research and development |                  |        | 920   |            |  |            | Expensed in fiscal 2003 | 
|                                           | Developed technology                          |                  |        | 3,532 |            |  |            | 3 years                 | 
|                                           | Customer relationships                        |                  |        | 307   |            |  |            | 3 years                 | 
|                                           | Trademarks/trade names                        |                  |        | 755   |            |  |            | Indefinite              | 
|Goodwill                                   |                                               |                  | 34,854 |       |            |  | Indefinite |                        
|                                           |                                               |                  |        |       |            | 
|                                           |                                               | $                | 40,529 |       |            |  |            |                        
|                                           |                                               |                  |        |       |            | 





|                          |   
|------------------------- | --
|Novell annual report 2005 | 71









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










®




|   |                                
|-- | -------------------------------
|D. | Cash and Short-Term Investments



|                        |                                       |                              |   |         |            |  |   |            |     |  |             |        |        |   |   |         |         | 
|----------------------- | ------------------------------------- | ---------------------------- | - | ------- | ---------- |  | - | ---------- | --- |  | ----------- | ------ | ------ | - | - | ------- | ------- | 
|                        |                                       |                              |   |         |            |  |   | Fair       |    
|                        |                                       |                              |   |         |            |  |   | Market     |    
|                        |                                       | Cost at                      |   |         | Gross      |  |   | Gross      |     |  | Value at    |       
|                        |                                       | October 31,                  |   |         | Unrealized |  |   | Unrealized |     |  | October 31, |       
|                        |                                       | 2005                         |   |         | Gains      |  |   | Losses     |     |  | 2005        |       
|                        |                                       |                              |   |         |            |  |   |            |     |  |             |       
|                        |                                       | (In thousands)               |  
|Short-term investments: |                                       |                              |   |         |            |  |   |            |     |  |             |        |        |   |   |        
|                        | Auction market securities             |                              | $ | 117,702 |            |  | $ |           |     |  | $           |       |        |   | $ | 117,702 |        
|                        | U.S. government and agency securities |                              |   | 405,934 |            |  |   | 1          |     |  |             | (4,604 | )      |   |   | 401,331 |        
|                        | Corporate notes and bonds             |                              |   | 237,872 |            |  |   | 15         |     |  |             | (2,631 | )      |   |   | 235,256 |        
|                        | Asset and mortgage-backed securities  |                              |   | 84,398  |            |  |   | 3          |     |  |             | (829   | )      |   |   | 83,572  |        
|                        | Equity securities                     |                              |   | 5,380   |            |  |   | 425        |     |  |             |       |        |   |   | 5,805   |        
|                        |                                       |                              |   |         |            |  |   |            |     |  |             |       
|                        |                                       | Total short-term investments |   | $       | 851,286    |  |   | $          | 444 |  |             | $      | (8,064 | ) |   | $       | 843,666 | 
|                        |                                       |                              |   |         |            |  |   |            |     |  |             |       



|   |                          
|-- | -------------------------
|72 | Novell annual report 2005









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                        |                                       |                              |   |         |            |  |   |            |       |  |             |      |      |   |   |         |         | 
|----------------------- | ------------------------------------- | ---------------------------- | - | ------- | ---------- |  | - | ---------- | ----- |  | ----------- | ---- | ---- | - | - | ------- | ------- | 
|                        |                                       |                              |   |         |            |  |   | Fair       |      
|                        |                                       |                              |   |         |            |  |   | Market     |      
|                        |                                       | Cost at                      |   |         | Gross      |  |   | Gross      |       |  | Value at    |     
|                        |                                       | October 31,                  |   |         | Unrealized |  |   | Unrealized |       |  | October 31, |     
|                        |                                       | 2004                         |   |         | Gains      |  |   | Losses     |       |  | 2004        |     
|                        |                                       |                              |   |         |            |  |   |            |       |  |             |     
|                        |                                       | (In thousands)               |  
|Short-term investments: |                                       |                              |   |         |            |  |   |            |       |  |             |      |      |   |   |        
|                        | Auction market securities             |                              | $ | 358,200 |            |  | $ | 5          |       |  | $           |     |      |   | $ | 358,205 |        
|                        | U.S. government and agency securities |                              |   | 200,415 |            |  |   | 216        |       |  |             | (416 | )    |   |   | 200,215 |        
|                        | Corporate notes and bonds             |                              |   | 171,461 |            |  |   | 284        |       |  |             | (407 | )    |   |   | 171,338 |        
|                        | Asset and mortgage-backed securities  |                              |   | 42,552  |            |  |   | 7          |       |  |             | (157 | )    |   |   | 42,402  |        
|                        | Equity securities                     |                              |   | 4,288   |            |  |   | 615        |       |  |             |     |      |   |   | 4,903   |        
|                        |                                       |                              |   |         |            |  |   |            |       |  |             |     
|                        |                                       | Total short-term investments |   | $       | 776,916    |  |   | $          | 1,127 |  |             | $    | (980 | ) |   | $       | 777,063 | 
|                        |                                       |                              |   |         |            |  |   |            |       |  |             |     





|                             |                              |                |         |         |                   |   |         |         | 
|---------------------------- | ---------------------------- | -------------- | ------- | ------- | ----------------- | - | ------- | ------- | 
|                             |                              | Cost           |         |         | Fair Market Value |  
|                             |                              |                |         |         |                   |  
|                             |                              | (In thousands) |        
|Less than one year           |                              | $              | 131,080 |         |                   | $ | 131,044 |        
|Due in one to two years      |                              |                | 181,726 |         |                   |   | 180,754 |        
|Due in two to three years    |                              |                | 276,593 |         |                   |   | 272,675 |        
|Due in more than three years |                              |                | 256,507 |         |                   |   | 253,388 |        
|No contractual maturity      |                              |                | 5,380   |         |                   |   | 5,805   |        
|                             |                              |                |         |         |                   |  
|                             | Total short-term investments |                | $       | 851,286 |                   |   | $       | 843,666 | 
|                             |                              |                |         |         |                   |  





|   |                 
|-- | ----------------
|E. | Notes Receivable





|                          |   
|------------------------- | --
|Novell annual report 2005 | 73









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                      
|-- | ---------------------
|F. | Long-Term Investments









|   |                              
|-- | -----------------------------
|G. | Property, Plant and Equipment



|                                        |                                        |                |          |         |             |   |          |         | 
|--------------------------------------- | -------------------------------------- | -------------- | -------- | ------- | ----------- | - | -------- | ------- | 
|                                        |                                        | October 31,    |          |         | October 31, |  
|                                        |                                        | 2005           |          |         | 2004        |  
|                                        |                                        |                |          |         |             |  
|                                        |                                        | (In thousands) |         
|Buildings and land                      |                                        | $              | 191,956  |         |             | $ | 210,453  |        
|Furniture and equipment                 |                                        |                | 219,097  |         |             |   | 214,429  |        
|Leasehold improvements and other        |                                        |                | 58,265   |         |             |   | 86,580   |        
|Corporate aviation assets held for sale |                                        |                | 18,849   |         |             |   |         |        
|                                        |                                        |                |          |         |             |  
|                                        | Property, plant and equipment, at cost |                |          | 488,167 |             |   |          | 511,462 | 
|Accumulated depreciation                |                                        |                | (275,790 | )       |             |   | (279,994 | )      
|                                        |                                        |                |          |         |             |  
|                                        | Property, plant and equipment, net     |                | $        | 212,377 |             |   | $        | 231,468 | 
|                                        |                                        |                |          |         |             |  









|   |                          
|-- | -------------------------
|74 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                               
|-- | ------------------------------
|H. | Goodwill and Intangible Assets



| |         
| | --------
| | Goodwill



|                              |                |                |         |         |             |   |         |         | 
|----------------------------- | -------------- | -------------- | ------- | ------- | ----------- | - | ------- | ------- | 
|                              |                | October 31,    |         |         | October 31, |  
|                              |                | 2005           |         |         | 2004        |  
|                              |                |                |         |         |             |  
|                              |                | (In thousands) |        
|SUSE                          |                | $              | 176,963 |         |             | $ | 176,963 |        
|SilverStream                  |                |                | 112,622 |         |             |   | 124,622 |        
|Ximian                        |                |                | 33,852  |         |             |   | 34,854  |        
|Cambridge Technology Partners |                |                | 25,903  |         |             |   | 42,500  |        
|Tally                         |                |                | 16,308  |         |             |   |        |        
|Immunix                       |                |                | 14,676  |         |             |   |        |        
|Salmon                        |                |                | 6,146   |         |             |   | 3,109   |        
|Other technology companies    |                |                | 9,039   |         |             |   | 9,040   |        
|                              |                |                |         |         |             |  
|                              | Total goodwill |                | $       | 395,509 |             |   | $       | 391,088 | 
|                              |                |                |         |         |             |  



|                               |                                |                |         |         |      |   |         |         |  |       |         |        |  |       |          |       |            |   |       |       |  |   |         |        |  |   |         |         | 
|------------------------------ | ------------------------------ | -------------- | ------- | ------- | ---- | - | ------- | ------- |  | ----- | ------- | ------ |  | ----- | -------- | ----- | ---------- | - | ----- | ----- |  | - | ------- | ------ |  | - | ------- | ------- | 
|                               |                                | North          |         |         |      |   | Asia    |         |  | Latin |         |        |  |       | Celerant |       |            |  
|                               |                                | America        |         |         | EMEA |   |         | Pacific |  |       | America |        |  | Japan |          |       | Consulting |   |       | Total | 
|                               |                                |                |         |         |      |   |         |         |  |       |         |        |  |       |          |       |            |   |       |       | 
|                               |                                | (In thousands) |        
|Balance as of October 31, 2004 |                                | $              | 175,548 |         |      | $ | 141,380 |         |  | $     | 20,524  |        |  | $     | 5,268    |       |            | $ | 5,868 |       |  | $ | 42,500  |        |  | $ | 391,088 |        
|Acquisition of Tally           |                                |                | 8,857   |         |      |   | 6,196   |         |  |       | 959     |        |  |       | 265      |       |            |   | 31    |       |  |   |        |        |  |   | 16,308  |        
|Acquisition of Immunix         |                                |                | 7,789   |         |      |   | 5,680   |         |  |       | 876     |        |  |       | 275      |       |            |   | 56    |       |  |   |        |        |  |   | 14,676  |        
|Adjustments                    |                                |                | (6,407  | )       |      |   | (2,769  | )       |  |       | (644    | )      |  |       | (97      | )     |            |   | (49   | )     |  |   | (16,597 | )      |  |   | (26,563 | )      
|                               |                                |                |         |         |      |   |         |         |  |       |         |        |  |       |          |       |            |   |       |       | 
|                               | Balance as of October 31, 2005 |                | $       | 185,787 |      |   | $       | 150,487 |  |       | $       | 21,715 |  |       | $        | 5,711 |            |   | $     | 5,906 |  |   | $       | 25,903 |  |   | $       | 395,509 | 
|                               |                                |                |         |         |      |   |         |         |  |       |         |        |  |       |          |       |            |   |       |       | 





|                          |   
|------------------------- | --
|Novell annual report 2005 | 75









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Intangible Assets



|                                   |                         |                  |        |        |                  |   |         |          |   |   |        |        |  |              |        |        |          |   |         |             |   |   |        |        |  |  |            |  | 
|---------------------------------- | ----------------------- | ---------------- | ------ | ------ | ---------------- | - | ------- | -------- | - | - | ------ | ------ |  | ------------ | ------ | ------ | -------- | - | ------- | ----------- | - | - | ------ | ------ |  |  | ---------- |  | 
|                                   |                         | October 31, 2005 |        |        | October 31, 2004 |   |         |         
|                                   |                         |                  |        |        |                  |   |         |         
|                                   |                         | Gross            |        |        | Accumulated      |   |         | Net Book |   |   | Gross  |        |  | Accumulated  |        |        | Net Book |   |         |            
|                                   |                         | Amount           |        |        | Amortization     |   |         | Value    |   |   | Amount |        |  | Amortization |        |        | Value    |   |         | Asset Lives |  
|                                   |                         |                  |        |        |                  |   |         |          |   |   |        |        |  |              |        |        |          |   |         |             |  
|                                   |                         | (In thousands)   |       
|Trademarks and trade names         |                         | $                | 25,571 |        |                  | $ | (20     | )        |   | $ | 25,551 |        |  | $            | 26,121 |        |          | $ |        |             |   | $ | 26,121 |        |  |  | Indefinite | 
|Patents                            |                         |                  | 15,500 |        |                  |   | (1,392  | )        |   |   | 14,108 |        |  |              |       |        |          |   |        |             |   |   |       |        |  |  | 10 years   | 
|Customer/contractual relationships |                         |                  | 19,362 |        |                  |   | (10,454 | )        |   |   | 8,908  |        |  |              | 17,302 |        |          |   | (3,732  | )           |   |   | 13,570 |        |  |  | 3 years    | 
|Developed technology               |                         |                  | 22,850 |        |                  |   | (16,718 | )        |   |   | 6,132  |        |  |              | 20,707 |        |          |   | (16,504 | )           |   |   | 4,203  |        |  |  | 3-4 years  | 
|Internal use software              |                         |                  | 5,193  |        |                  |   | (3,700  | )        |   |   | 1,493  |        |  |              | 5,944  |        |          |   | (1,604  | )           |   |   | 4,340  |        |  |  | 3 years    | 
|Non-compete agreement              |                         |                  | 422    |        |                  |   | (193    | )        |   |   | 229    |        |  |              | 422    |        |          |   | (40     | )           |   |   | 382    |        |  |  | 3 years    | 
|                                   |                         |                  |        |        |                  |   |         |          |   |   |        |        |  |              |        |        |          |   |         |             |  
|                                   | Total intangible assets |                  | $      | 88,898 |                  |   | $       | (32,477  | ) |   | $      | 56,421 |  |              | $      | 70,496 |          |   | $       | (21,880     | ) |   | $      | 48,616 |  |  |            |  | 
|                                   |                         |                  |        |        |                  |   |         |          |   |   |        |        |  |              |        |        |          |   |         |             |  









|   |                          
|-- | -------------------------
|76 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |             
|-- | ------------
|I. | Income Taxes



|                   |           |                   |                                             |   |             |        |   |             |        |        |   |   |        |         | 
|------------------ | --------- | ----------------- | ------------------------------------------- | - | ----------- | ------ | - | ----------- | ------ | ------ | - | - | ------ | ------- | 
|                   |           | Fiscal Year Ended |                                            
|                   |           |                   |                                            
|                   |           | October 31,       |                                             |   | October 31, |        |   | October 31, |       
|                   |           | 2005              |                                             |   | 2004        |        |   | 2003        |       
|                   |           |                   |                                             |   |             |        |   |             |       
|                   |           | (In thousands)    |                                            
|Income tax expense |           |                   |                                             |   |             |        |   |             |        |        |   |  
|                   | Current:  |                   |                                             |   |             |        |   |             |        |        |   |   |       
|                   |           | Federal           |                                             | $ | 52,439      |        |   | $           | (5,819 | )      |   | $ |       |        
|                   |           | State             |                                             |   | 3,200       |        |   |             | 500    |        |   |   | 800    |        
|                   |           | Foreign           |                                             |   | 34,483      |        |   |             | 23,826 |        |   |   | 23,512 |        
|                   |           |                   |                                             |   |             |        |   |             |       
|                   |           |                   | Total current income tax expense            |   |             | 90,122 |   |             |        | 18,507 |   |   |        | 24,312  | 
|                   |           |                   |                                             |   |             |        |   |             |       
|                   | Deferred: |                   |                                             |   |             |        |   |             |        |        |   |   |       
|                   |           | Federal           |                                             |   | 475         |        |   |             |       |        |   |   | 88,747 |        
|                   |           | State             |                                             |   |            |        |   |             |       |        |   |   | (4,222 | )      
|                   |           | Foreign           |                                             |   | (1,177      | )      |   |             | (721   | )      |   |   | (1,943 | )      
|                   |           |                   |                                             |   |             |        |   |             |       
|                   |           |                   | Total deferred income tax expense (benefit) |   |             | (702   | ) |             |        | (721   | ) |   |        | 82,582  | 
|                   |           |                   |                                             |   |             |        |   |             |       
|                   |           |                   | Total income tax expense                    |   | $           | 89,420 |   |             | $      | 17,786 |   |   | $      | 106,894 | 
|                   |           |                   |                                             |   |             |        |   |             |       



|                          |   
|------------------------- | --
|Novell annual report 2005 | 77









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                     |                    |                   |       |      |             |  |      |             |   |  |       |       |  
|-------------------------------------------------------------------- | ------------------ | ----------------- | ----- | ---- | ----------- |  | ---- | ----------- | - |  | ----- | ----- | -
|                                                                     |                    | Fiscal Year Ended |      
|                                                                     |                    |                   |      
|                                                                     |                    | October 31,       |       |      | October 31, |  |      | October 31, |  
|                                                                     |                    | 2005              |       |      | 2004        |  |      | 2003        |  
|                                                                     |                    |                   |       |      |             |  |      |             |  
|U.S. statutory rate                                                  |                    |                   | 35.0  | %    |             |  | 35.0 | %           |   |  | (35.0 | )%   
|State income taxes, net of federal tax effect                        |                    |                   | 3.8   |      |             |  |     |             |   |  | (4.0  | )    
|Research and development tax credits                                 |                    |                   | (1.0  | )    |             |  | (3.7 | )           |   |  | (6.7  | )    
|Foreign income taxed at different rates than U.S. statutory
    rate |                    |                   | 6.5   |      |             |  |     |             |   |  | (9.8  | )    
|Valuation allowances                                                 |                    |                   | (25.7 | )    |             |  | (3.0 | )           |   |  | 209.2 |      
|Reversal of permanently invested earnings                            |                    |                   |      |      |             |  |     |             |   |  | 32.9  |      
|Non-recurring tax benefit                                            |                    |                   |      |      |             |  | (7.8 | )           |   |  |      |      
|Other, net                                                           |                    |                   | 0.6   |      |             |  | 3.2  |             |   |  | 7.7   |      
|                                                                     |                    |                   |       |      |             |  |      |             |  
|                                                                     | Effective tax rate |                   |       | 19.2 | %           |  |      | 23.7        | % |  |       | 194.3 | %
|                                                                     |                    |                   |       |      |             |  |      |             |  



|                           |                                  |                   |         |         |             |   |        |             |  |   |          |         |  
|-------------------------- | -------------------------------- | ----------------- | ------- | ------- | ----------- | - | ------ | ----------- |  | - | -------- | ------- | -
|                           |                                  | Fiscal Year Ended |        
|                           |                                  |                   |        
|                           |                                  | October 31,       |         |         | October 31, |   |        | October 31, | 
|                           |                                  | 2005              |         |         | 2004        |   |        | 2003        | 
|                           |                                  |                   |         |         |             |   |        |             | 
|                           |                                  | (In thousands)    |        
|Domestic                   |                                  | $                 | 450,491 |         |             | $ | 36,651 |             |  | $ | (129,395 | )      
|Foreign                    |                                  |                   | 15,651  |         |             |   | 38,323 |             |  |   | 74,385   |        
|                           |                                  |                   |         |         |             |   |        |             | 
|                           | Total income (loss) before taxes |                   | $       | 466,142 |             |   | $      | 74,974      |  |   | $        | (55,010 | )
|                           |                                  |                   |         |         |             |   |        |             | 
|Cash paid for income taxes |                                  | $                 | 20,872  |         |             | $ | 11,212 |             |  | $ | 17,806   |        
|                           |                                  |                   |         |         |             |   |        |             | 



|   |                          
|-- | -------------------------
|78 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                       |                           |                                  |                           |                                       |             |          |         |   |         |          |         |  
|---------------------- | ------------------------- | -------------------------------- | ------------------------- | ------------------------------------- | ----------- | -------- | ------- | - | ------- | -------- | ------- | -
|                       |                           | October 31,                      |                           |                                       | October 31, |         
|                       |                           | 2005                             |                           |                                       | 2004        |         
|                       |                           |                                  |                           |                                       |             |         
|                       |                           | (Amounts in thousands)           |                          
|Deferred income taxes: |                           |                                  |                           |                                       |             |          |         |  
|                       | Deferred tax assets:      |                                  |                           |                                       |             |          |         |   |        
|                       |                           | Accruals                         |                           | $                                     | 23,593      |          |         | $ | 19,105  |         
|                       |                           | Capital loss carryforward        |                           |                                       | 53,192      |          |         |   | 48,288  |         
|                       |                           | Credit carryforwards             |                           |                                       | 155,195     |          |         |   | 131,037 |         
|                       |                           | Net operating loss carryforwards |                           |                                       | 114,308     |          |         |   | 263,494 |         
|                       |                           | Investment impairments           |                           |                                       | 32,096      |          |         |   | 47,303  |         
|                       |                           | Receivable valuation accounts    |                           |                                       | 3,249       |          |         |   | 4,774   |         
|                       |                           | Other items                      |                           |                                       | 12,896      |          |         |   | 738     |         
|                       |                           |                                  |                           |                                       |             |         
|                       |                           |                                  | Gross deferred tax assets |                                       |             | 394,529  |         |   |         | 514,739  |        
|                       |                           |                                  | Valuation allowance       |                                       |             | (317,367 | )       |   |         | (456,516 | )      
|                       |                           |                                  |                           |                                       |             |         
|                       |                           |                                  |                           | Total deferred tax assets             |             |          | 77,162  |   |         |          | 58,223  |  
|                       |                           |                                  |                           |                                       |             |         
|                       | Deferred tax liabilities: |                                  |                           |                                       |             |          |         |   |        
|                       |                           | Depreciation                     |                           |                                       | (11,664     | )        |         |   | (11,827 | )       
|                       |                           | Foreign earnings                 |                           |                                       | (63,952     | )        |         |   | (46,396 | )       
|                       |                           | Intangibles from acquisitions    |                           |                                       | (4,699      | )        |         |   | (3,855  | )       
|                       |                           |                                  |                           |                                       |             |         
|                       |                           |                                  |                           | Total deferred tax liabilities        |             |          | (80,315 | ) |         |          | (62,078 | )
|                       |                           |                                  |                           |                                       |             |         
|                       |                           |                                  |                           | Net deferred tax assets (liabilities) |             | $        | (3,153  | ) |         | $        | (3,855  | )
|                       |                           |                                  |                           |                                       |             |         









|                          |   
|------------------------- | --
|Novell annual report 2005 | 79









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




paid-in


2009-2013,










|   |                          
|-- | -------------------------
|80 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                          
|-- | -------------------------
|J. | Other Accrued Liabilities



|                                 |                                 |                |        |         |             |   |        |        | 
|-------------------------------- | ------------------------------- | -------------- | ------ | ------- | ----------- | - | ------ | ------ | 
|                                 |                                 | October 31,    |        |         | October 31, |  
|                                 |                                 | 2005           |        |         | 2004        |  
|                                 |                                 |                |        |         |             |  
|                                 |                                 | (In thousands) |       
|Restructuring reserves           |                                 | $              | 45,331 |         |             | $ | 18,459 |       
|Accrued property and other taxes |                                 |                | 26,940 |         |             |   | 17,451 |       
|Other accrued expenses           |                                 |                | 26,640 |         |             |   | 35,509 |       
|Merger liabilities               |                                 |                | 17,851 |         |             |   | 13,314 |       
|Accrued marketing expenses       |                                 |                | 7,492  |         |             |   | 8,032  |       
|Accrued royalties                |                                 |                | 5,966  |         |             |   | 5,101  |       
|Accrued interest and dividends   |                                 |                | 885    |         |             |   | 1,117  |       
|                                 |                                 |                |        |         |             |  
|                                 | Total other accrued liabilities |                | $      | 131,105 |             |   | $      | 98,983 | 
|                                 |                                 |                |        |         |             |  



|   |                       
|-- | ----------------------
|K. | Restructuring Expenses



| |            
| | -----------
| | Fiscal 2005





|                 |                             |                |         |        |            |       |       |                |  |   |       |     |  |   |         |        | 
|---------------- | --------------------------- | -------------- | ------- | ------ | ---------- | ----- | ----- | -------------- |  | - | ----- | --- |  | - | ------- | ------ | 
|                 |                             |                |         |        |            | Other |       |                | 
|                 |                             | Severance and  |         |        | Excess     |       |       | Restructuring- |  |   |      
|                 |                             | Benefits       |         |        | Facilities |       |       | Related Costs  |  |   | Total |    
|                 |                             |                |         |        |            |       |       |                |  |   |       |    
|                 |                             | (In thousands) |        
|Original reserve |                             | $              | 47,116  |        |            | $     | 7,364 |                |  | $ | 477   |     |  | $ | 54,957  |       
|Cash payments    |                             |                | (18,624 | )      |            |       | (913  | )              |  |   | (218  | )   |  |   | (19,755 | )     
|                 |                             |                |         |        |            |       |       |                |  |   |       |    
|                 | Balance at October 31, 2005 |                | $       | 28,492 |            |       | $     | 6,451          |  |   | $     | 259 |  |   | $       | 35,202 | 
|                 |                             |                |         |        |            |       |       |                |  |   |       |    





|                          |   
|------------------------- | --
|Novell annual report 2005 | 81









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |            
| | -----------
| | Fiscal 2004





|                     |                             |                |        |             |              |   |        |       |  |   |         |       | 
|-------------------- | --------------------------- | -------------- | ------ | ----------- | ------------ | - | ------ | ----- |  | - | ------- | ----- | 
|                     |                             |                |        | Excess      |              |   |       
|                     |                             |                |        | Facilities, |              |   |       
|                     |                             | Severance and  |        |             | Property and |   |        |      
|                     |                             | Benefits       |        |             | Equipment    |   |        | Total | 
|                     |                             |                |        |             |              |   |        |       | 
|                     |                             | (In thousands) |       
|Original reserve     |                             | $              | 12,910 |             |              | $ | 6,152  |       |  | $ | 19,062  |      
|Cash payments        |                             |                | (8,252 | )           |              |   | (3,645 | )     |  |   | (11,897 | )    
|                     |                             |                |        |             |              |   |        |       | 
|                     | Balance at October 31, 2004 |                |        | 4,658       |              |   |        | 2,507 |  |   |         | 7,165 | 
|Cash payments        |                             |                | (2,716 | )           |              |   | (1,109 | )     |  |   | (3,825  | )    
|Non-cash adjustments |                             |                | (699   | )           |              |   | 59     |       |  |   | (640    | )    
|                     |                             |                |        |             |              |   |        |       | 
|                     | Balance at October 31, 2005 |                | $      | 1,243       |              |   | $      | 1,457 |  |   | $       | 2,700 | 
|                     |                             |                |        |             |              |   |        |       | 







|   |                          
|-- | -------------------------
|82 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Fiscal 2003







|                     |                             |                |         |             |              |   |        |                |  |   |        |       |  |   |         |        | 
|-------------------- | --------------------------- | -------------- | ------- | ----------- | ------------ | - | ------ | -------------- |  | - | ------ | ----- |  | - | ------- | ------ | 
|                     |                             |                |         | Excess      |              |   |        |                | 
|                     |                             |                |         | Facilities, |              |   | Other  |                |  |  
|                     |                             | Severance and  |         |             | Property and |   |        | Restructuring- |  |   |       
|                     |                             | Benefits       |         |             | Equipment    |   |        | Related Costs  |  |   | Total  |      
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     |                             | (In thousands) |        
|Original reserve     |                             | $              | 20,287  |             |              | $ | 5,778  |                |  | $ | 1,729  |       |  | $ | 27,794  |       
|Cash payments        |                             |                | (17,163 | )           |              |   | (3,079 | )              |  |   | (423   | )     |  |   | (20,665 | )     
|Non-cash adjustments |                             |                | 3,755   |             |              |   | 5,735  |                |  |   | 536    |       |  |   | 10,026  |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2003 |                |         | 6,879       |              |   |        | 8,434          |  |   |        | 1,842 |  |   |         | 17,155 | 
|Cash payments        |                             |                | (7,462  | )           |              |   | (5,911 | )              |  |   |       |       |  |   | (13,373 | )     
|Non-cash adjustments |                             |                | 876     |             |              |   |       |                |  |   |       |       |  |   | 876     |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2004 |                |         | 293         |              |   |        | 2,523          |  |   |        | 1,842 |  |   |         | 4,658  | 
|Cash payments        |                             |                | (75     | )           |              |   | (1,458 | )              |  |   | (6     | )     |  |   | (1,539  | )     
|Non-cash adjustments |                             |                | (218    | )           |              |   | 2,056  |                |  |   | (1,826 | )     |  |   | 12      |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2005 |                | $       |            |              |   | $      | 3,121          |  |   | $      | 10    |  |   | $       | 3,131  | 
|                     |                             |                |         |             |              |   |        |                |  |   |        |      









|                          |   
|------------------------- | --
|Novell annual report 2005 | 83









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |            
| | -----------
| | Fiscal 2002



|                     |                             |                |        |             |              |   |        |                |  |   |       |       |  |   |         |       | 
|-------------------- | --------------------------- | -------------- | ------ | ----------- | ------------ | - | ------ | -------------- |  | - | ----- | ----- |  | - | ------- | ----- | 
|                     |                             |                |        | Excess      |              |   |        |                | 
|                     |                             |                |        | Facilities, |              |   | Other  |                |  |  
|                     |                             | Severance and  |        |             | Property and |   |        | Restructuring- |  |   |      
|                     |                             | Benefits       |        |             | Equipment    |   |        | Related Costs  |  |   | Total |      
|                     |                             |                |        |             |              |   |        |                |  |   |       |      
|                     |                             | (In thousands) |       
|Original reserve     |                             | $              | 14,748 |             |              | $ | 5,146  |                |  | $ | 492   |       |  | $ | 20,386  |      
|Cash payments        |                             |                | (9,172 | )           |              |   | (925   | )              |  |   | (42   | )     |  |   | (10,139 | )    
|Non-cash adjustments |                             |                | (1,318 | )           |              |   |       |                |  |   | (150  | )     |  |   | (1,468  | )    
|                     |                             |                |        |             |              |   |        |                |  |   |       |      
|                     | Balance at October 31, 2002 |                |        | 4,258       |              |   |        | 4,221          |  |   |       | 300   |  |   |         | 8,779 | 
|Cash payments        |                             |                | (3,152 | )           |              |   | (4,460 | )              |  |   |      |       |  |   | (7,612  | )    
|Non-cash adjustments |                             |                | (100   | )           |              |   | 4,381  |                |  |   |      |       |  |   | 4,281   |      
|                     |                             |                |        |             |              |   |        |                |  |   |       |      
|                     | Balance at October 31, 2003 |                |        | 1,006       |              |   |        | 4,142          |  |   |       | 300   |  |   |         | 5,448 | 
|Cash payments        |                             |                | (1,006 | )           |              |   | (2,216 | )              |  |   | (41   | )     |  |   | (3,263  | )    
|Non-cash adjustments |                             |                |       |             |              |   | 1,597  |                |  |   | 817   |       |  |   | 2,414   |      
|                     |                             |                |        |             |              |   |        |                |  |   |       |      
|                     | Balance at October 31, 2004 |                |        |            |              |   |        | 3,523          |  |   |       | 1,076 |  |   |         | 4,599 | 
|Cash payments        |                             |                |       |             |              |   | (1,261 | )              |  |   | (262  | )     |  |   | (1,523  | )    
|Non-cash adjustments |                             |                |       |             |              |   | 1,398  |                |  |   | (777  | )     |  |   | 621     |      
|                     |                             |                |        |             |              |   |        |                |  |   |       |      
|                     | Balance at October 31, 2005 |                | $      |            |              |   | $      | 3,660          |  |   | $     | 37    |  |   | $       | 3,697 | 
|                     |                             |                |        |             |              |   |        |                |  |   |       |      







| |                              
| | -----------------------------
| | Fourth quarter of fiscal 2001





|   |                          
|-- | -------------------------
|84 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                     |                             |                |         |             |              |   |        |                |  |   |        |     |  |   |         |        | 
|-------------------- | --------------------------- | -------------- | ------- | ----------- | ------------ | - | ------ | -------------- |  | - | ------ | --- |  | - | ------- | ------ | 
|                     |                             |                |         | Excess      |              |   |        |                | 
|                     |                             |                |         | Facilities, |              |   | Other  |                |  |  
|                     |                             | Severance and  |         |             | Property and |   |        | Restructuring- |  |   |       
|                     |                             | Benefits       |         |             | Equipment    |   |        | Related Costs  |  |   | Total  |    
|                     |                             |                |         |             |              |   |        |                |  |   |        |    
|                     |                             | (In thousands) |        
|Original reserve     |                             | $              | 32,793  |             |              | $ | 10,896 |                |  | $ | 6,973  |     |  | $ | 50,662  |       
|Cash payments        |                             |                |        |             |              |   |       |                |  |   | (11    | )   |  |   | (11     | )     
|Non-cash adjustments |                             |                |        |             |              |   |       |                |  |   | (6,051 | )   |  |   | (6,051  | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |    
|                     | Balance at October 31, 2001 |                |         | 32,793      |              |   |        | 10,896         |  |   |        | 911 |  |   |         | 44,600 | 
|Cash payments        |                             |                | (27,676 | )           |              |   | (8,215 | )              |  |   | (287   | )   |  |   | (36,178 | )     
|Non-cash adjustments |                             |                | (4,000  | )           |              |   | 1,970  |                |  |   |       |     |  |   | (2,030  | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |    
|                     | Balance at October 31, 2002 |                |         | 1,117       |              |   |        | 4,651          |  |   |        | 624 |  |   |         | 6,392  | 
|Cash payments        |                             |                | (1,013  | )           |              |   | (2,181 | )              |  |   | (439   | )   |  |   | (3,633  | )     
|Non-cash adjustments |                             |                |        |             |              |   | 262    |                |  |   |       |     |  |   | 262     |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |    
|                     | Balance at October 31, 2003 |                |         | 104         |              |   |        | 2,732          |  |   |        | 185 |  |   |         | 3,021  | 
|Cash payments        |                             |                | (104    | )           |              |   | (862   | )              |  |   |       |     |  |   | (966    | )     
|Non-cash adjustments |                             |                |        |             |              |   | (333   | )              |  |   | 95     |     |  |   | (238    | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |    
|                     | Balance at October 31, 2004 |                |         |            |              |   |        | 1,537          |  |   |        | 280 |  |   |         | 1,817  | 
|Cash payments        |                             |                |        |             |              |   | (880   | )              |  |   | (6     | )   |  |   | (886    | )     
|Non-cash adjustments |                             |                |        |             |              |   | (330   | )              |  |   |       |     |  |   | (330    | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |    
|                     | Balance at October 31, 2005 |                | $       |            |              |   | $      | 327            |  |   | $      | 274 |  |   | $       | 601    | 
|                     |                             |                |         |             |              |   |        |                |  |   |        |    





| |                             
| | ----------------------------
| | Third quarter of fiscal 2001







|                          |   
|------------------------- | --
|Novell annual report 2005 | 85









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                     |                             |                |         |             |              |   |        |                |  |   |        |       |  |   |         |        | 
|-------------------- | --------------------------- | -------------- | ------- | ----------- | ------------ | - | ------ | -------------- |  | - | ------ | ----- |  | - | ------- | ------ | 
|                     |                             |                |         | Excess      |              |   |        |                | 
|                     |                             |                |         | Facilities, |              |   | Other  |                |  |  
|                     |                             | Severance and  |         |             | Property and |   |        | Restructuring- |  |   |       
|                     |                             | Benefits       |         |             | Equipment    |   |        | Related Costs  |  |   | Total  |      
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     |                             | (In thousands) |        
|Original reserve     |                             | $              | 15,978  |             |              | $ | 10,740 |                |  | $ | 3,675  |       |  | $ | 30,393  |       
|Cash payments        |                             |                | (12,601 | )           |              |   | (360   | )              |  |   | (1,806 | )     |  |   | (14,767 | )     
|Non-cash adjustments |                             |                |        |             |              |   | (644   | )              |  |   | (645   | )     |  |   | (1,289  | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2001 |                |         | 3,377       |              |   |        | 9,736          |  |   |        | 1,224 |  |   |         | 14,337 | 
|Cash payments        |                             |                | (3,377  | )           |              |   | (5,847 | )              |  |   | (1,087 | )     |  |   | (10,311 | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2002 |                |         |            |              |   |        | 3,889          |  |   |        | 137   |  |   |         | 4,026  | 
|Cash payments        |                             |                |        |             |              |   | (1,914 | )              |  |   | (137   | )     |  |   | (2,051  | )     
|Non-cash adjustments |                             |                |        |             |              |   | 678    |                |  |   |       |       |  |   | 678     |       
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2003 |                |         |            |              |   |        | 2,653          |  |   |        |      |  |   |         | 2,653  | 
|Cash payments        |                             |                |        |             |              |   | (422   | )              |  |   |       |       |  |   | (422    | )     
|Non-cash adjustments |                             |                |        |             |              |   | (2,011 | )              |  |   |       |       |  |   | (2,011  | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2004 |                |         |            |              |   |        | 220            |  |   |        |      |  |   |         | 220    | 
|Cash payments        |                             |                |        |             |              |   | (142   | )              |  |   |       |       |  |   | (142    | )     
|Non-cash adjustments |                             |                |        |             |              |   | (78    | )              |  |   |       |       |  |   | (78     | )     
|                     |                             |                |         |             |              |   |        |                |  |   |        |      
|                     | Balance at October 31, 2005 |                | $       |            |              |   | $      |               |  |   | $      |      |  |   | $       |       | 
|                     |                             |                |         |             |              |   |        |                |  |   |        |      



|                   |                          |                |        |        |                |   |       |            |  |   |             |       |  |             |        |        |   |   |        |        | 
|------------------ | ------------------------ | -------------- | ------ | ------ | -------------- | - | ----- | ---------- |  | - | ----------- | ----- |  | ----------- | ------ | ------ | - | - | ------ | ------ | 
|                   |                          | Balance at     |        |        |                |   |       |            |  |   | Balance at  |      
|                   |                          | October 31,    |        |        | Additions from |   |       | Additional |  |   | Payments/   |       |  | October 31, |       
|                   |                          | 2004           |        |        | Acquisitions   |   |       | Expense    |  |   | Adjustments |       |  | 2005        |       
|                   |                          |                |        |        |                |   |       |            |  |   |             |       |  |             |       
|                   |                          | (In thousands) |       
|Facilities related |                          | $              | 13,314 |        |                | $ | 4,372 |            |  | $ | 5,300       |       |  | $           | (5,380 | )      |   | $ | 17,606 |       
|Employee related   |                          |                |       |        |                |   | 363   |            |  |   |            |       |  |             | (194   | )      |   |   | 169    |       
|Other              |                          |                |       |        |                |   | 444   |            |  |   |            |       |  |             | (368   | )      |   |   | 76     |       
|                   |                          |                |        |        |                |   |       |            |  |   |             |       |  |             |       
|                   | Total merger liabilities |                | $      | 13,314 |                |   | $     | 5,179      |  |   | $           | 5,300 |  |             | $      | (5,942 | ) |   | $      | 17,851 | 
|                   |                          |                |        |        |                |   |       |            |  |   |             |       |  |             |       



|   |               
|-- | --------------
|L. | Line of Credit





|   |                          
|-- | -------------------------
|86 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                              
|-- | -----------------------------
|M. | Senior Convertible Debentures



00-19,






|   |           
|-- | ----------
|N. | Guarantees





|                          |   
|------------------------- | --
|Novell annual report 2005 | 87









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |                              
|-- | -----------------------------
|O. | Commitments and Contingencies





month-to




|   |                  
|-- | -----------------
|P. | Legal Proceedings







|   |                          
|-- | -------------------------
|88 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|                          |   
|------------------------- | --
|Novell annual report 2005 | 89









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)










|   |                           
|-- | --------------------------
|Q. | Redeemable Preferred Stock



No. 98-5,






|   |                          
|-- | -------------------------
|90 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|   |                     
|-- | --------------------
|R. | Stockholders Equity



| |                                 
| | --------------------------------
| | Preferred Share Rights Agreement





| |                 
| | ----------------
| | Stock Repurchase







| |                   
| | ------------------
| | Stock Option Plans





| |                                            
| | -------------------------------------------
| | The 2000 Stock Plan and the 1991 Stock Plan





|                          |   
|------------------------- | --
|Novell annual report 2005 | 91









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                        
| | ---------------------------------------
| | The 2000 Nonqualified Stock Option Plan





| |                                                
| | -----------------------------------------------
| | The Novell/ SilverStream 1997 Stock Option Plan





|   |                          
|-- | -------------------------
|92 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                                                
| | -----------------------------------------------
| | The Novell/ SilverStream 2001 Stock Option Plan





| |                                                 
| | ------------------------------------------------
| | The Stock Option Plan for Non-Employee Directors





| |                              
| | -----------------------------
| | Additional Stock Option Plans







|                          |   
|------------------------- | --
|Novell annual report 2005 | 93









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                 |                                  |                                  |        |           |                |   |      |             |           |  |                |        |   |           |      |      |                |  |        |         |   |   |      |       | 
|-------------------------------- | -------------------------------- | -------------------------------- | ------ | --------- | -------------- | - | ---- | ----------- | --------- |  | -------------- | ------ | - | --------- | ---- | ---- | -------------- |  | ------ | ------- | - | - | ---- | ----- | 
|                                 |                                  | Fiscal 2005                      |        |           | Fiscal 2004    |   |      | Fiscal 2003 |          
|                                 |                                  |                                  |        |           |                |   |      |             |          
|                                 |                                  |                                  |        | Weighted- |                |   |      |             | Weighted- |  |                |        |   | Weighted- |     
|                                 |                                  | Number of                        |        |           | Average        |   |      | Number of   |           |  | Average        |        |   | Number of |      |      | Average        | 
|                                 |                                  | Options                          |        |           | Exercise Price |   |      | Options     |           |  | Exercise Price |        |   | Options   |      |      | Exercise Price | 
|                                 |                                  |                                  |        |           |                |   |      |             |           |  |                |        |   |           |      |      |                | 
|                                 |                                  | (Number of options in thousands) |       
|Outstanding at beginning of year |                                  |                                  | 46,126 |           |                | $ | 6.76 |             |           |  | 41,875         |        |   | $         | 5.21 |      |                |  | 75,814 |         |   | $ | 7.75 |      
|Granted:                         |                                  |                                  |        |           |                |   |      |             |           |  |                |        |   |           |      |      |                |  |        |         |   |   |      |      
|                                 | Price at fair value              |                                  |        | 13,053    |                |   |      | 5.98        |           |  |                | 17,893 |   |           |      | 9.58 |                |  |        | 6,387   |   |   |      | 3.27  | 
|                                 | Price at greater than fair value |                                  |        |          |                |   |      |            |           |  |                |       |   |           |      |     |                |  |        |        |   |   |      |      | 
|                                 | Price at less than fair value    |                                  |        | 520       |                |   |      | 0.10        |           |  |                | 486    |   |           |      | 0.10 |                |  |        | 820     |   |   |      | 0.10  | 
|Exercised                        |                                  |                                  | (4,431 | )         |                |   | 3.31 |             |           |  | (10,530        | )      |   |           | 4.41 |      |                |  | (4,725 | )       |   |   | 2.38 |      
|Cancelled:                       |                                  |                                  |        |           |                |   |      |             |           |  |                |        |   |           |      |      |                |  |        |         |   |   |      |      
|                                 | Forfeited                        |                                  |        | (5,625    | )              |   |      | 7.37        |           |  |                | (3,593 | ) |           |      | 8.59 |                |  |        | (35,051 | ) |   |      | 10.49 | 
|                                 | Expired                          |                                  |        | (113      | )              |   |      | 6.92        |           |  |                | (5     | ) |           |      | 5.62 |                |  |        | (1,370  | ) |   |      | 8.40  | 
|                                 |                                  |                                  |        |           |                |   |      |             |           |  |                |        |   |           |      |      |                | 
|Outstanding at end of year       |                                  |                                  | 49,530 |           |                | $ | 6.72 |             |           |  | 46,126         |        |   | $         | 6.76 |      |                |  | 41,875 |         |   | $ | 5.21 |      
|                                 |                                  |                                  |        |           |                |   |      |             |           |  |                |        |   |           |      |      |                | 
|Exercisable at end of year       |                                  |                                  | 28,560 |           |                | $ | 6.51 |             |           |  | 23,247         |        |   | $         | 5.73 |      |                |  | 26,887 |         |   | $ | 6.04 |      
|                                 |                                  |                                  |        |           |                |   |      |             |           |  |                |        |   |           |      |      |                | 



|                         |  |                                  |        |                     |                  |  |                     |                |  |   |             |  |  |                |        |  |  |   |       | 
|------------------------ |  | -------------------------------- | ------ | ------------------- | ---------------- |  | ------------------- | -------------- |  | - | ----------- |  |  | -------------- | ------ |  |  | - | ----- | 
|                         |  |                                  |        | Options Outstanding |                  |  |                    
|                         |  |                                  |        |                     |                  |  | Options Exercisable |               
|                         |  |                                  |        | Weighted-           |                  |  |                     |                |  |  
|                         |  | Number of                        |        |                     | Average          |  |                     | Weighted-      |  |   | Number of   |  |  | Weighted-      |       
|                         |  | Options                          |        |                     | Remaining        |  |                     | Average        |  |   | Options     |  |  | Average        |       
|Range of Exercise Prices |  | Outstanding                      |        |                     | Contractual Life |  |                     | Exercise Price |  |   | Exercisable |  |  | Exercise Price |       
|                         |  |                                  |        |                     |                  |  |                     |                |  |   |             |  |  |                |       
|                         |  | (Number of options in thousands) |       
|$0.00  $3.93            |  |                                  | 8,347  |                     |                  |  | 5.57                |                |  | $ | 3.06        |  |  |                | 6,739  |  |  | $ | 3.13  | 
|$3.94  $5.02            |  |                                  | 8,878  |                     |                  |  | 5.73                |                |  |   | 4.83        |  |  |                | 8,863  |  |  |   | 4.83  | 
|$5.03  $6.11            |  |                                  | 8,714  |                     |                  |  | 7.16                |                |  |   | 5.57        |  |  |                | 865    |  |  |   | 5.33  | 
|$6.12  $9.06            |  |                                  | 6,520  |                     |                  |  | 5.79                |                |  |   | 7.04        |  |  |                | 2,154  |  |  |   | 7.57  | 
|$9.07  $9.38            |  |                                  | 8,939  |                     |                  |  | 2.56                |                |  |   | 9.15        |  |  |                | 5,318  |  |  |   | 9.16  | 
|$9.39  $38.88           |  |                                  | 8,132  |                     |                  |  | 5.48                |                |  |   | 10.86       |  |  |                | 4,621  |  |  |   | 11.33 | 
|                         |  |                                  |        |                     |                  |  |                     |                |  |   |             |  |  |                |       
|$0.00  $38.88           |  |                                  | 49,530 |                     |                  |  | 5.35                |                |  | $ | 6.72        |  |  |                | 28,560 |  |  | $ | 6.51  | 
|                         |  |                                  |        |                     |                  |  |                     |                |  |   |             |  |  |                |       

|                                                                                |  |                       |         |   |             |  |         |  
|------------------------------------------------------------------------------- |  | --------------------- | ------- | - | ----------- |  | ------- | -
|                                                                                |  | Fiscal 2005           |         |   | Fiscal 2004 | 
|                                                                                |  |                       |         |   |             | 
|                                                                                |  | (Number of shares and |        
|                                                                                |  | options in thousands) |        
|Options available for future grants                                             |  |                       | 38,241  |   |             |  | 45,908  |  
|Shares of common stock outstanding at year end                                  |  |                       | 385,821 |   |             |  | 377,874 |  
|Options granted during the year as a percentage of outstanding
    common stock |  |                       | 4       | % |             |  | 5       | %



|   |                          
|-- | -------------------------
|94 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                             
| | ----------------------------
| | Employee Stock Purchase Plan







| |                                    
| | -----------------------------------
| | Shares Reserved for Future Issuance





| |                     
| | --------------------
| | Celerant Stock Plans







| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | when their options become vested and exercisable in line with
    the dates set in individual option agreements;
|
| |  | in the case of an exit event, such as a purchase or spin
    off; or                                            
|
| |  | upon leaving Celerant under certain circumstances.                                                              






|                          |   
|------------------------- | --
|Novell annual report 2005 | 95









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                                      
|-- | -------------------------------------
|S. | Employee Savings and Retirement Plans

12-month




|                                               |                      |                                          |         |        |             |   |        |        |       | 
|---------------------------------------------- | -------------------- | ---------------------------------------- | ------- | ------ | ----------- | - | ------ | ------ | ----- | 
|                                               |                      | Fiscal 2005                              |         |        | Fiscal 2004 |  
|                                               |                      |                                          |         |        |             |  
|                                               |                      | (In thousands)                           |        
|Change in benefit obligation                   |                      |                                          |         |        |             |   |        |       
|Benefit obligation at beginning of fiscal year |                      | $                                        | 9,076   |        |             | $ | 7,574  |       
|Service cost                                   |                      |                                          | 751     |        |             |   | 697    |       
|Interest cost                                  |                      |                                          | 473     |        |             |   | 440    |       
|Actuarial (gain) loss                          |                      |                                          | 2,318   |        |             |   | (406   | )     
|Benefits paid                                  |                      |                                          | (7      | )      |             |   | (7     | )     
|Foreign exchange                               |                      |                                          | (394    | )      |             |   | 778    |       
|                                               |                      |                                          |         |        |             |  
|                                               |                      | Benefit obligation at end of fiscal year |         | $      | 12,217      |   |        | $      | 9,076 | 
|                                               |                      |                                          |         |        |             |  
|Funded status (benefit obligation)             |                      | $                                        | (12,217 | )      |             | $ | (9,076 | )     
|Unrecognized net actuarial (gain) loss         |                      |                                          | 1,917   |        |             |   | (415   | )     
|Unrecognized net obligation                    |                      |                                          | 729     |        |             |   | 840    |       
|                                               |                      |                                          |         |        |             |  
|                                               | Accrued benefit cost |                                          | $       | (9,571 | )           |   | $      | (8,651 | )    
|                                               |                      |                                          |         |        |             |  

|                                  |  |                        |       |   |                  |   |       |  
|--------------------------------- |  | ---------------------- | ----- | - | ---------------- | - | ----- | -
|                                  |  | October 31, 2005       |       |   | October 31, 2004 |  
|                                  |  |                        |       |   |                  |  
|                                  |  | (Dollars in thousands) |      
|Weighted-average assumptions      |  |                        |       |   |                  |   |       |  
|Discount rate                     |  |                        | 4.3   | % |                  |   | 5.5   | %
|Rate of salary increase           |  |                        | 3.0   | % |                  |   | 3.0   | %
|Post-retirement pension increases |  |                        | 2.0   | % |                  |   | 2.0   | %
|Net periodic pension cost         |  | $                      | 1,304 |   |                  | $ | 1,259 |  





|   |                          
|-- | -------------------------
|96 | Novell annual report 2005









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##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                          |   
|------------------------- | --
|Novell annual report 2005 | 97









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                                                    
|-- | -------------------------------------------------------------------
|T. | Net Income (Loss) Per Share Attributable to Common
    Stockholders



|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |         |      |   |          |          |       |  
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------- | ----------- | ---- | - | ----------- | ------- | ---- | - | -------- | -------- | ----- | -
|                                                 |                                                                                                                                          | Fiscal Year Ended                                                                   |                                                                          
|                                                 |                                                                                                                                          |                                                                                     |                                                                          
|                                                 |                                                                                                                                          | October 31,                                                                         |                                                                           |         | October 31, |      |   | October 31, |        
|                                                 |                                                                                                                                          | 2005                                                                                |                                                                           |         | 2004        |      |   | 2003        |        
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 |                                                                                                                                          | (In thousands, except per share data)                                               |                                                                          
|Basic net income (loss) per share computation:   |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |         |      |   |         
|                                                 | Net income (loss)                                                                                                                        |                                                                                     | $                                                                         | 376,722 |             |      | $ | 57,188      |         |      | $ | (161,904 | )       
|                                                 | Dividends on Series B Preferred Stock                                                                                                    |                                                                                     |                                                                           | (466    | )           |      |   | (416        | )       |      |   |         |         
|                                                 | Allocation of earnings to stockholders of Series B
    Preferred Stock                                                                   |                                                                                     |                                                                           | (3,667  | )           |      |   | (274        | )       |      |   |         |         
|                                                 | Deemed dividend related to beneficial conversion feature of
    Series B Preferred Stock                                                 |                                                                                     |                                                                           |        |             |      |   | (25,680     | )       |      |   |         |         
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 |                                                                                                                                          | Net income (loss) attributable to common stockholders                               |                                                                           | $       | 372,589     |      |   | $           | 30,818  |      |   | $        | (161,904 | )    
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 |                                                                                                                                          | Weighted-average common shares outstanding, excluding unvested
    restricted stock |                                                                           |         | 379,499     |      |   |             | 381,100 |      |   |          | 370,545  |      
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 |                                                                                                                                          |                                                                                     | Basic net income (loss) per share attributable to common
    stockholders |         | $           | 0.98 |   |             | $       | 0.08 |   |          | $        | (0.44 | )
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|Diluted net income (loss) per share computation: |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |         |      |   |         
|                                                 | Net income (loss)                                                                                                                        |                                                                                     | $                                                                         | 376,722 |             |      | $ | 57,188      |         |      | $ | (161,904 | )       
|                                                 | Dividends on Series B Preferred Stock                                                                                                    |                                                                                     |                                                                           | (466    | )           |      |   | (416        | )       |      |   |         |         
|                                                 | Allocation of earnings to the holders of Series B Preferred
    Stock                                                                    |                                                                                     |                                                                           | (3,667  | )           |      |   | (274        | )       |      |   |         |         
|                                                 | Deemed dividend related to beneficial conversion feature of
    Series B Preferred Stock                                                 |                                                                                     |                                                                           |        |             |      |   | (25,680     | )       |      |   |         |         
|                                                 | Minority interest in diluted net income                                                                                                  |                                                                                     |                                                                           | (402    | )           |      |   |            |         |      |   |         |         
|                                                 | Interest expense on the Debentures                                                                                                       |                                                                                     |                                                                           | 5,972   |             |      |   |            |         |      |   |         |         
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 |                                                                                                                                          | Diluted net income (loss) attributable to common stockholders                       |                                                                           | $       | 378,159     |      |   | $           | 30,818  |      |   | $        | (161,904 | )    
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 | Weighted-average common shares outstanding                                                                                               |                                                                                     |                                                                           | 379,499 |             |      |   | 381,100     |         |      |   | 370,545  |         
|                                                 | Incremental shares attributable to the assumed exercise of
    outstanding options, unvested restricted stock, and other stock
    plans |                                                                                     |                                                                           | 9,012   |             |      |   | 9,779       |         |      |   |         |         
|                                                 | Incremental shares attributable to the assumed conversion of the
    Debentures                                                          |                                                                                     |                                                                           | 52,074  |             |      |   |            |         |      |   |         |         
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 |                                                                                                                                          | Total adjusted weighted average common shares                                       |                                                                           |         | 440,585     |      |   |             | 390,879 |      |   |          | 370,545  |      
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        
|                                                 |                                                                                                                                          | Diluted net income (loss) per share attributable to common
    stockholders         |                                                                           | $       | 0.86        |      |   | $           | 0.08    |      |   | $        | (0.44    | )    
|                                                 |                                                                                                                                          |                                                                                     |                                                                           |         |             |      |   |             |        



|   |                          
|-- | -------------------------
|98 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                     
|-- | --------------------
|U. | Comprehensive Income



|                                          |                                  |                   |        |       |             |   |        |        | 
|----------------------------------------- | -------------------------------- | ----------------- | ------ | ----- | ----------- | - | ------ | ------ | 
|                                          |                                  | Fiscal Year Ended |       
|                                          |                                  |                   |       
|                                          |                                  | October 31,       |        |       | October 31, |  
|                                          |                                  | 2005              |        |       | 2004        |  
|                                          |                                  |                   |        |       |             |  
|                                          |                                  | (In thousands)    |       
|Net unrealized (loss) gain on investments |                                  | $                 | (7,620 | )     |             | $ | 147    |       
|Minimum pension liability                 |                                  |                   | (633   | )     |             |   | (1,256 | )     
|Cumulative translation adjustment         |                                  |                   | 15,697 |       |             |   | 17,289 |       
|                                          |                                  |                   |        |       |             |  
|                                          | Total other comprehensive income |                   | $      | 7,444 |             |   | $      | 16,180 | 
|                                          |                                  |                   |        |       |             |  



|                                                                                   |                                    |                   |        |        |             |   |        |             |   |   |        |       |  
|---------------------------------------------------------------------------------- | ---------------------------------- | ----------------- | ------ | ------ | ----------- | - | ------ | ----------- | - | - | ------ | ----- | -
|                                                                                   |                                    | Fiscal Year Ended |       
|                                                                                   |                                    |                   |       
|                                                                                   |                                    | October 31,       |        |        | October 31, |   |        | October 31, |  
|                                                                                   |                                    | 2005              |        |        | 2004        |   |        | 2003        |  
|                                                                                   |                                    |                   |        |        |             |   |        |             |  
|                                                                                   |                                    | (In thousands)    |       
|Total change in gross unrealized loss on investments during the
    year           |                                    | $                 | (8,550 | )      |             | $ | (4,251 | )           |   | $ | (1,503 | )    
|Adjustment for net realized gains on investments included in net
    income (loss) |                                    |                   | 783    |        |             |   | 2,899  |             |   |   | 798    |      
|                                                                                   |                                    |                   |        |        |             |   |        |             |  
|                                                                                   | Net unrealized loss on investments |                   |        | (7,767 | )           |   |        | (1,352      | ) |   |        | (705  | )
|Minimum pension liability                                                          |                                    |                   | 623    |        |             |   | (1,256 | )           |   |   |       |      
|Cumulative translation adjustments                                                 |                                    |                   | (1,592 | )      |             |   | 11,720 |             |   |   | 7,716  |      
|                                                                                   |                                    |                   |        |        |             |   |        |             |  
|                                                                                   | Other comprehensive income (loss)  |                   | $      | (8,736 | )           |   | $      | 9,112       |   |   | $      | 7,011 |  
|                                                                                   |                                    |                   |        |        |             |   |        |             |  





|   |                           
|-- | --------------------------
|V. | Related Party Transactions





|                          |   
|------------------------- | --
|Novell annual report 2005 | 99









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                    
|-- | -------------------
|W. | Segment Information







| |   |                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------
| |  | North America  includes the United States and Canada                                                           
|
| |  | EMEA  includes Eastern and Western Europe, Middle
    East, and Africa                                         
|
| |  | Asia Pacific  includes China, Southeast Asia,
    Australia, New Zealand, and India                            
|
| |  | Latin America  includes Mexico, Central America,
    South America and the Caribbean                           
|
| |  | Japan  this geographic segment is a majority-owned
    joint venture between Novell and several other companies





|                                                                                                                                              |                                    |                |           |           |               |   |         |             |           |   |               |         |  |             |         |          |               |   |           |         |  |   |         |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- | -------------- | --------- | --------- | ------------- | - | ------- | ----------- | --------- | - | ------------- | ------- |  | ----------- | ------- | -------- | ------------- | - | --------- | ------- |  | - | ------- | -------- | -
|                                                                                                                                              |                                    | Fiscal 2005    |           |           | Fiscal 2004   |   |         | Fiscal 2003 |          
|                                                                                                                                              |                                    |                |           |           |               |   |         |             |          
|                                                                                                                                              |                                    |                |           | Operating |               |   |         |             | Operating |   |               |         |  | Operating   |        
|                                                                                                                                              |                                    | Net Revenue    |           |           | Income (Loss) |   |         | Net Revenue |           |   | Income (Loss) |         |  | Net Revenue |         |          | Income (Loss) |  
|                                                                                                                                              |                                    |                |           |           |               |   |         |             |           |   |               |         |  |             |         |          |               |  
|                                                                                                                                              |                                    | (In thousands) |          
|                                                                                                                                              | North America                      |                | $         | 513,498   |               |   | $       | 261,861     |           |   | $             | 514,481 |  |             | $       | 282,616  |               |   | $         | 507,526 |  |   | $       | 225,471  |  
|                                                                                                                                              | EMEA                               |                |           | 407,998   |               |   |         | 132,820     |           |   |               | 378,269 |  |             |         | 122,157  |               |   |           | 348,099 |  |   |         | 122,892  |  
|                                                                                                                                              | Asia Pacific                       |                |           | 61,430    |               |   |         | 9,517       |           |   |               | 61,775  |  |             |         | 20,116   |               |   |           | 60,146  |  |   |         | 13,234   |  
|                                                                                                                                              | Latin America                      |                |           | 23,700    |               |   |         | 3,073       |           |   |               | 21,026  |  |             |         | 1,685    |               |   |           | 24,037  |  |   |         | 4,750    |  
|                                                                                                                                              | Japan                              |                |           | 32,598    |               |   |         | 12,678      |           |   |               | 28,303  |  |             |         | 7,089    |               |   |           | 26,359  |  |   |         | 4,055    |  
|                                                                                                                                              | Common unallocated operating costs |                |           |          |               |   |         | (387,583    | )         |   |               |        |  |             |         | (364,304 | )             |   |           |        |  |   |         | (381,414 | )
|                                                                                                                                              |                                    |                |           |           |               |   |         |             |           |   |               |         |  |             |         |          |               |  
|Total geographic segments                                                                                                                     |                                    |                | 1,039,224 |           |               |   | 32,366  |             |           |   | 1,003,854     |         |  |             | 69,359  |          |               |   | 966,167   |         |  |   | (11,012 | )       
|Celerant consulting                                                                                                                           |                                    |                | 158,472   |           |               |   | 10,229  |             |           |   | 162,063       |         |  |             | 17,631  |          |               |   | 139,329   |         |  |   | 5,115   |         
|Unallocated integration, impairment, gain on sale of property,
    plant and equipment, gain on legal settlement, and restructuring
    costs |                                    |                |          |           |               |   | 390,043 |             |           |   |              |         |  |             | (21,298 | )        |               |   |          |         |  |   | (21,925 | )       
|                                                                                                                                              |                                    |                |           |           |               |   |         |             |           |   |               |         |  |             |         |          |               |  
|Total                                                                                                                                         |                                    | $              | 1,197,696 |           |               | $ | 432,638 |             |           | $ | 1,165,917     |         |  | $           | 65,692  |          |               | $ | 1,105,496 |         |  | $ | (27,822 | )       
|                                                                                                                                              |                                    |                |           |           |               |   |         |             |           |   |               |         |  |             |         |          |               |  



|    |                          
|--- | -------------------------
|100 | Novell annual report 2005









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








| |   |                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Identity-driven computing solutions  solutions that
    help customers with their identity management, resource
    management and security issues. Products include Identity
    Manager, ZENworks, eDirectory, BorderManager, SecureLogin, and
    iChain.                                                                                                      
|
| |  | Linux and platform services solutions  solutions that
    offer an effective, open cross-platform approach to networking
    and collaboration services, including file, print, messaging,
    scheduling, and workspace. Products include Open Enterprise
    Server, SUSE Linux Enterprise Server, NetWare, GroupWise, SUSE
    Linux, and Novell Linux Desktop.
|
| |  | Global services and support  comprehensive IT
    consulting, training, and support services that apply business
    solutions to our customers business situations, providing
    the business knowledge and technical expertise to help our
    customers implement our identity management, web services, and
    Linux and platform services.                
|
| |  | Celerant consulting  operational strategy and
    implementation consulting services offered to a wide range of
    customers across various sectors, worldwide.                                                                                                                                                                                                  

Revenue by Solution Category


|                                        |                                       |                    |           |         |             |   |           |             |  |   |           |         | 
|--------------------------------------- | ------------------------------------- | ------------------ | --------- | ------- | ----------- | - | --------- | ----------- |  | - | --------- | ------- | 
|                                        |                                       | Fiscal Years Ended |          
|                                        |                                       |                    |          
|                                        |                                       | October 31,        |           |         | October 31, |   |           | October 31, | 
|                                        |                                       | 2005               |           |         | 2004        |   |           | 2003        | 
|                                        |                                       |                    |           |         |             |   |           |             | 
|                                        |                                       | (In thousands)     |          
|                                        | Identity-driven computing solutions   |                    | $         | 257,949 |             |   | $         | 225,868     |  |   | $         | 210,582 | 
|                                        | Linux and platform services solutions |                    |           | 445,146 |             |   |           | 473,138     |  |   |           | 456,252 | 
|                                        |                                       |                    |           |         |             |   |           |             | 
|Total software licenses and maintenance |                                       |                    | 703,095   |         |             |   | 699,006   |             |  |   | 666,834   |        
|Global services and support             |                                       |                    | 336,129   |         |             |   | 304,848   |             |  |   | 299,333   |        
|                                        |                                       |                    |           |         |             |   |           |             | 
|Total IT software and solutions         |                                       |                    | 1,039,224 |         |             |   | 1,003,854 |             |  |   | 966,167   |        
|Celerant consulting                     |                                       |                    | 158,472   |         |             |   | 162,063   |             |  |   | 139,329   |        
|                                        |                                       |                    |           |         |             |   |           |             | 
|Total net revenue                       |                                       | $                  | 1,197,696 |         |             | $ | 1,165,917 |             |  | $ | 1,105,496 |        
|                                        |                                       |                    |           |         |             |   |           |             | 

Geographic Information






|                          |    
|------------------------- | ---
|Novell annual report 2005 | 101









---



##### Table of Contents



NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                               |                                |                                     |   |          |             |  |   |             |           |  |   |          |           | 
|------------------------------ | ------------------------------ | ----------------------------------- | - | -------- | ----------- |  | - | ----------- | --------- |  | - | -------- | --------- | 
|                               |                                | Fiscal Year Ended                   |  
|                               |                                |                                     |  
|                               |                                | October 31,                         |   |          | October 31, |  |   | October 31, |          
|                               |                                | 2005                                |   |          | 2004        |  |   | 2003        |          
|                               |                                |                                     |   |          |             |  |   |             |          
|                               |                                | (In thousands)                      |  
|Revenue:                       |                                |                                     |   |          |             |  |   |             |           |  |   |         
|                               | U.S. operations                |                                     | $ | 606,600  |             |  | $ | 587,710     |           |  | $ | 682,909  |          
|                               | Irish operations               |                                     |   | 349,959  |             |  |   | 320,624     |           |  |   | 305,697  |          
|                               | Other international operations |                                     |   | 320,163  |             |  |   | 311,799     |           |  |   | 216,364  |          
|                               | Eliminations                   |                                     |   | (79,026  | )           |  |   | (54,216     | )         |  |   | (99,474  | )        
|                               |                                |                                     |   |          |             |  |   |             |          
|                               |                                | Total revenue                       |   | $        | 1,197,696   |  |   | $           | 1,165,917 |  |   | $        | 1,105,496 | 
|                               |                                |                                     |   |          |             |  |   |             |          
|Long-lived assets at year end: |                                |                                     |   |          |             |  |   |             |           |  |   |         
|                               | U.S. operations                |                                     | $ | 715,192  |             |  | $ | 715,005     |           |  | $ | 753,712  |          
|                               | Irish operations               |                                     |   | 295,708  |             |  |   | 291,168     |           |  |   | 108,709  |          
|                               | Other international operations |                                     |   | 329,579  |             |  |   | 326,033     |           |  |   | 94,528   |          
|                               | Eliminations                   |                                     |   | (621,832 | )           |  |   | (605,048    | )         |  |   | (426,438 | )        
|                               |                                |                                     |   |          |             |  |   |             |          
|                               |                                | Total long-lived assets at year end |   | $        | 718,647     |  |   | $           | 727,158   |  |   | $        | 530,511   | 
|                               |                                |                                     |   |          |             |  |   |             |          



|                       |              |                |           |           |             |   |           |             |  |   |           |           | 
|---------------------- | ------------ | -------------- | --------- | --------- | ----------- | - | --------- | ----------- |  | - | --------- | --------- | 
|                       |              | October 31,    |           |           | October 31, |   |           | October 31, | 
|                       |              | 2005           |           |           | 2004        |   |           | 2003        | 
|                       |              |                |           |           |             |   |           |             | 
|                       |              | (In thousands) |          
|Long-lived assets      |              | $              | 718,647   |           |             | $ | 727,158   |             |  | $ | 530,574   |          
|Other long-term assets |              |                | 34,158    |           |             |   | 29,456    |             |  |   | 6,526     |          
|Current assets         |              |                | 2,009,053 |           |             |   | 1,536,744 |             |  |   | 1,030,553 |          
|                       |              |                |           |           |             |   |           |             | 
|                       | Total assets |                | $         | 2,761,858 |             |   | $         | 2,293,358   |  |   | $         | 1,567,653 | 
|                       |              |                |           |           |             |   |           |             | 





|   |                  
|-- | -----------------
|X. | Subsequent Events





|    |                          
|--- | -------------------------
|102 | Novell annual report 2005









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NOVELL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                          |    
|------------------------- | ---
|Novell annual report 2005 | 103









---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






Consolidated financial statements and financial statement
schedule




Internal control over financial reporting


Internal Control  Integrated
Framework Internal Control  Integrated
Framework






|    |                          
|--- | -------------------------
|104 | Novell annual report 2005









---



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| |                                   
| | ----------------------------------
| | /s/ PricewaterhouseCoopers
    LLP







|                          |    
|------------------------- | ---
|Novell annual report 2005 | 105









---



##### Table of Contents






REPORT OF ERNST & YOUNG LLP,


INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM












| |                          
| | -------------------------
| | /s/ Ernst & Young
    LLP







|    |                          
|--- | -------------------------
|106 | Novell annual report 2005









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##### Table of Contents



NOVELL, INC.





SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA


Unaudited


|                                                            |  |                                       |         |   |         |   |         |         |  |   |         |   |  |             |          |   |  |   |           |  
|----------------------------------------------------------- |  | ------------------------------------- | ------- | - | ------- | - | ------- | ------- |  | - | ------- | - |  | ----------- | -------- | - |  | - | --------- | -
|                                                            |  | First                                 |         |   | Second  |   |         | Third   |  |   | Fourth  |   |  |            
|                                                            |  | Quarter                               |         |   | Quarter |   |         | Quarter |  |   | Quarter |   |  | Fiscal Year |         
|                                                            |  |                                       |         |   |         |   |         |         |  |   |         |   |  |             |         
|                                                            |  | (In thousands, except per share data) |        
|Fiscal Year Ended October 31, 2005                          |  |                                       |         |   |         |   |         |         |  |   |         |   |  |             |          |   |  |   |           |  
|Net revenue                                                 |  | $                                     | 290,128 |   |         | $ | 297,051 |         |  | $ | 290,214 |   |  | $           | 320,303  |   |  | $ | 1,197,696 |  
|Gross profit                                                |  |                                       | 178,077 |   |         |   | 179,710 |         |  |   | 184,205 |   |  |             | 212,585  |   |  |   | 754,577   |  
|Income before taxes                                         |  |                                       | 454,600 |   |         |   | 1,053   |         |  |   | 10,181  |   |  |             | 308      |   |  |   | 466,142   |  
|Net income (loss)                                           |  |                                       | 395,161 |   |         |   | (15,627 | )       |  |   | 2,140   |   |  |             | (4,952   | ) |  |   | 376,722   |  
|Net income (loss) available to common stockholders, diluted |  | $                                     | 392,384 |   |         | $ | (15,752 | )       |  | $ | 1,910   |   |  | $           | (5,043   | ) |  | $ | 378,159   |  
|Net income (loss) per common share, basic                   |  | $                                     | 1.04    |   |         | $ | (0.04   | )       |  | $ | 0.01    |   |  | $           | (0.01    | ) |  | $ | 0.98      |  
|Net income (loss) per common share, diluted                 |  | $                                     | 0.90    |   |         | $ | (0.04   | )       |  | $ | 0.00    |   |  | $           | (0.01    | ) |  | $ | 0.86      |  
|Fiscal Year Ended October 31, 2004                          |  |                                       |         |   |         |   |         |         |  |   |         |   |  |             |          |   |  |   |           |  
|Net revenue                                                 |  | $                                     | 267,107 |   |         | $ | 293,556 |         |  | $ | 304,597 |   |  | $           | 300,657  |   |  | $ | 1,165,917 |  
|Gross profit                                                |  |                                       | 172,231 |   |         |   | 187,114 |         |  |   | 200,641 |   |  |             | 190,252  |   |  |   | 750,238   |  
|Income before taxes                                         |  |                                       | 16,483  |   |         |   | 14,837  |         |  |   | 28,794  |   |  |             | 14,860   |   |  |   | 74,974    |  
|Net income                                                  |  |                                       | 10,135  |   |         |   | 10,383  |         |  |   | 23,405  |   |  |             | 13,265   |   |  |   | 57,188    |  
|Net income (loss) available to common stockholders, diluted |  | $                                     | 10,135  |   |         | $ | (15,399 | )       |  | $ | 23,886  |   |  | $           | 14,758   |   |  | $ | 30,818    |  
|Net income (loss) per common share, basic and diluted       |  | $                                     | 0.03    |   |         | $ | (0.04   | )       |  | $ | 0.06    |   |  | $           | 0.03     |   |  | $ | 0.08      |  
|Fiscal Year Ended October 31, 2003                          |  |                                       |         |   |         |   |         |         |  |   |         |   |  |             |          |   |  |   |           |  
|Net revenue                                                 |  | $                                     | 259,971 |   |         | $ | 275,967 |         |  | $ | 282,809 |   |  | $           | 286,749  |   |  | $ | 1,105,496 |  
|Gross profit                                                |  |                                       | 162,407 |   |         |   | 167,196 |         |  |   | 151,763 | * |  |             | 185,412  |   |  |   | 666,778   |  
|Income (loss) before taxes                                  |  |                                       | (12,354 | ) |         |   | (34,984 | )       |  |   | (23,762 | ) |  |             | 16,090   |   |  |   | (55,010   | )
|Net loss                                                    |  |                                       | (11,888 | ) |         |   | (28,612 | )       |  |   | (12,400 | ) |  |             | (109,004 | ) |  |   | (161,904  | )
|Net loss available to common stockholders, diluted          |  | $                                     | (11,888 | ) |         | $ | (28,612 | )       |  | $ | (12,400 | ) |  | $           | (109,004 | ) |  | $ | (161,904  | )
|Net income (loss) per common share, basic and diluted       |  | $                                     | (0.03   | ) |         | $ | (0.08   | )       |  | $ | (0.03   | ) |  | $           | (0.29    | ) |  | $ | (0.44     | )






|  |                                                                                                                                                                                                                                   
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Reflects the reclassification of an intangible asset impairment
    loss of $23.6 million to cost of revenue from other income
    (expense) as previously recorded in our
    Form 10-Q for the
    third quarter of fiscal 2003.



|                          |    
|------------------------- | ---
|Novell annual report 2005 | 107









---



##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



| |                                                         
| | --------------------------------------------------------
| | Effectiveness of Disclosure Controls and
    Procedures.





| |                                                                             
| | ----------------------------------------------------------------------------
| | Managements Annual Report on Internal Control over
    Financial Reporting.

Rules 13a-15(f) 15d-15(f)




| |   |                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect transactions of our assets;                                                                                                                                                                                                            
|
| |  | provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that our receipts and expenditures are being made only in
    accordance with authorizations of our management and
    directors; and
|
| |  | provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of our
    assets that could have a material effect on the financial
    statements.                                                                                                                           







|    |                          
|--- | -------------------------
|108 | Novell annual report 2005









---



##### Table of Contents





| |                                                          
| | ---------------------------------------------------------
| | Changes in Internal Control Over Financial
    Reporting.








|         |                  
|-------- | -----------------
|Item 9B. | Other Information

None





PART III







|         |                                               
|-------- | ----------------------------------------------
|Item 10. | Directors and Executive Officers of Registrant

e-mailing









|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Form 10-K







|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters

Form 10-K







|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions

Form 10-K Change-in







|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services

Form 10-K




|                          |    
|------------------------- | ---
|Novell annual report 2005 | 109









---



##### Table of Contents






PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules

Financial
Statements:


Form 10-K
















Financial Statement Schedules:


Form 10-K:






| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedules other than that listed above are omitted because they
    are not required, not applicable or because the required
    information is shown in the consolidated financial statements or
    notes thereto.

Exhibits:




| |                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A list of the exhibits required to be filed as part of this
    report is set forth in the Exhibit Index on page 114
    of this Form 10-K,
    which immediately precedes such exhibits, and is incorporated
    herein by reference.



| |     |         
| | --- | --------
| | (b) | Exhibits





|    |                              
|--- | -----------------------------
|(c) | Financial Statement Schedules





|    |                          
|--- | -------------------------
|110 | Novell annual report 2005









---



##### Table of Contents



SIGNATURES






| |             
| | ------------
| | Novell, Inc.
| | (Registrant)



| |     |                    
| | --- | -------------------
| | By: | /s/ Jack L. Messman

| |                            
| | ---------------------------
| |                            
| | Jack L. Messman,           
| | Chairman of the Board      
| | and Chief Executive Officer



|                          |    
|------------------------- | ---
|Novell annual report 2005 | 111









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##### Table of Contents



SIGNATURES




|                                                             |  |                                                                                                 |  |                
|------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------- |  | ---------------
|Name                                                         |  | Title                                                                                           |  | Date           
|                                                             |  |                                                                                                 |  |                
|                                                            
|/s/ Jack L. Messman(Jack
    L. Messman)                     |  | Chairman of the Board, Chief Executive Officer and Director
    (Principal Executive Officer)   |  | January 9, 2006
|                                                            
|/s/ Joseph S.
    Tibbetts, Jr.(Joseph
    S. Tibbetts, Jr.) |  | Senior Vice President, Chief Financial Officer (Principal
    Financial and Accounting Officer) |  | January 9, 2006
|                                                            
|/s/ Albert Aiello(Albert
    Aiello)                         |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ Fred Corrado(Fred
    Corrado)                           |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ Richard L. Crandall(Richard
    L. Crandall)             |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ Claudine B. Malone(Claudine
    B. Malone)               |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ Richard L. Nolan(Richard
    L. Nolan)                   |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ Thomas G. Plaskett(Thomas
    G. Plaskett)               |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ John W.
    Poduska, Sr.(John
    W. Poduska, Sr.)       |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ James D.
    Robinson, III(James
    D. Robinson, III)   |  | Director                                                                                        |  | January 9, 2006
|                                                            
|/s/ Kathy Brittain
    White(Kathy
    Brittain White)       |  | Director                                                                                        |  | January 9, 2006



|    |                          
|--- | -------------------------
|112 | Novell annual report 2005









---



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NOVELL, INC.


SCHEDULE II  VALUATION AND QUALIFYING
ACCOUNTS


Accounts Receivable Allowance


|                  |                  |                |   |           |            |  |           |            |  |  |             |            |  |            |            |       |            |  |   |           |  |  |   |       |  |  |   |        | 
|----------------- | ---------------- | -------------- | - | --------- | ---------- |  | --------- | ---------- |  |  | ----------- | ---------- |  | ---------- | ---------- | ----- | ---------- |  | - | --------- |  |  | - | ----- |  |  | - | ------ | 
|                  |                  |                |   | Additions |            |  | Additions |            |  |  |             | Deductions |  |            | Deductions |       |            | 
|                  |                  | Balance at     |   |           | Charged to |  |           | Charged to |  |  | Additions   |            |  | from       |            |       | from Bad   |  |   | Balance   | 
|                  |                  | Beginning      |   |           | Return     |  |           | Bad Debt   |  |  | from        |            |  | Return     |            |       | Debt       |  |   | at End    | 
|                  |                  | of Period      |   |           | Allowances |  |           | Allowances |  |  | Acquisition |            |  | Allowances |            |       | Allowances |  |   | of Period | 
|                  |                  |                |   |           |            |  |           |            |  |  |             |            |  |            |            |       |            |  |   |           | 
|                  |                  | (In thousands) |  
|Fiscal year ended |                  |                |   |           |            |  |           |            |  |  |             |            |  |            |            |       |            |  |   |           |  |  |   |       |  |  |   |       
|                  | October 31, 2003 |                | $ | 39,676    |            |  | $         | 9,838      |  |  | $           | 2,134      |  |            | $          |      |            |  | $ | 20,527    |  |  | $ | 4,269 |  |  | $ | 26,852 | 
|                  | October 31, 2004 |                | $ | 26,852    |            |  | $         | 30,301     |  |  | $           | 763        |  |            | $          | 2,468 |            |  | $ | 32,855    |  |  | $ | 3,133 |  |  | $ | 24,396 | 
|                  | October 31, 2005 |                | $ | 24,396    |            |  | $         | 6,466      |  |  | $           | 329        |  |            | $          | 12    |            |  | $ | 9,983     |  |  | $ | 4,582 |  |  | $ | 16,638 | 



|                          |    
|------------------------- | ---
|Novell annual report 2005 | 113









---



##### Table of Contents



EXHIBIT INDEX


|        |    |             |  |                                                                                                                                                                                                                               
|------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 2  | .1          |  | Amendment No. 1 to Agreement and Plan of Reorganization,
    dated as of May 24, 2001, by and among Novell, Inc., Ceres
    Neptune Acquisition Corp. and Cambridge Technology Partners
    (Massachusetts), Inc.(1) (Annex A)
|        | 2  | .2          |  | Agreement and Plan of Merger, dated as of June 9, 2002 by
    and among Novell, Inc., Delaware Planet, Inc. and Silver Stream
    Software, Inc.(2) (Exhibit 2.1)                                                             
|        | 3  | .1          |  | Certificate of Incorporation.(3) (Exhibit 3.1)                                                                                                                                                                                
|        | 3  | .2          |  | By-Laws, as amended and restated December 13, 2005.(4)
    (Exhibit 3.2)                                                                                                                                                      
|        | 4  | .1          |  | Reference is made to Exhibit 3.1                                                                                                                                                                                              
|        | 4  | .2          |  | Form of certificate representing the shares of Novell common
    stock.(5) (Exhibit 4.3)                                                                                                                                      
|        | 4  | .3          |  | Preferred Shares Rights Agreement, dated as of December 7,
    1988, as amended and restated effective September 20, 1999,
    by and between Novell, Inc. and Chase Mellon Shareholder
    Services, L.L.C.(6) (Exhibit 1)   
|        | 4  | .4          |  | Indenture dated as of July 2, 2004 between the Registrant
    and Wells Fargo Bank, National Association, as Trustee.(7)
    (Exhibit 4.1)                                                                                    
|        | 10 | .1          |  | Registration Rights Agreement dated July 2, 2004 between
    the Registrant and Citigroup Global Markets Inc., for itself and
    on behalf of certain purchasers.(7) (Exhibit 10.1)                                          
|        | 10 | .2*         |  | Novell, Inc. 1989 Employee Stock Purchase Plan.(8)
    (Exhibit 4.1)                                                                                                                                                          
|        | 10 | .3*         |  | Novell, Inc. 1991 Stock Plan.(9) (Exhibit 4.1)                                                                                                                                                                                
|        | 10 | .4*         |  | Novell, Inc. 2000 Stock Plan. (10) (Exhibit 4.2)                                                                                                                                                                              
|        | 10 | .5*         |  | Novell, Inc. 2000 Stock Option Plan. (10) (Exhibit 4.1)                                                                                                                                                                       
|        | 10 | .6*         |  | UNIX System Laboratories, Inc. Stock Option Plan. (11)
    (Exhibit 4.3)                                                                                                                                                      
|        | 10 | .7*         |  | Novell, Inc. Stock Option Plan for Non-Employee Directors. (12)
    (Exhibit 4.1)                                                                                                                                             
|        | 10 | .8*         |  | Novell, Inc./ SilverStream Software, Inc. 1997 Stock Incentive
    Plan. (13) (Exhibit 4.2)                                                                                                                                   
|        | 10 | .9*         |  | Novell, Inc./ SilverStream Software, Inc. 2001 Stock Incentive
    Plan. (13) (Exhibit 4.3)                                                                                                                                   
|        | 10 | .10*        |  | Novell, Inc./ SilverStream Software, Inc./eObject, Inc. 2000
    Stock Plan. (13) (Exhibit 4.4)                                                                                                                               
|        | 10 | .11*        |  | Novell, Inc./ SilverStream Software, Inc./ Bondi Software, Inc.
    Employee Stock Option Plan. (13) (Exhibit 4.5)                                                                                                            
|        | 10 | .12*        |  | Novell, Inc. Stock Based Deferred Compensation Plan. (14)
    (Appendix E)                                                                                                                                                    
|        | 10 | .13*        |  | Novell, Inc. Stock-Based Deferred Compensation Plan 
    Stock Purchase Assistance Subplan. (15) (Exhibit 10.13)                                                                                                             
|        | 10 | .14*        |  | Key Employment Agreement dated as of May 22, 2001 between
    the Registrant and Jack L. Messman.(1) (Exhibit C to
    Annex A)                                                                                               
|        | 10 | .15*        |  | Severance Agreement dated as of January 7, 2005 between the
    Registrant and Jack L. Messman. (15) (Exhibit 10.15)                                                                                                          
|        | 10 | .16*        |  | Severance Agreement dated as of March 25, 2003 between the
    Registrant and Alan J. Friedman. (16) (Exhibit 10.16)                                                                                                          
|        | 10 | .17*        |  | Severance Agreement dated as of May 29, 2003 between the
    Registrant and Ronald W. Hovsepian. (16) (Exhibit 10.17)                                                                                                         
|        | 10 | .18*        |  | Amendment 2005-1 to Severance Agreement dated as of
    October 31, 2005 between the Registrant and Ronald W.
    Hovsepian. (17)                                                                                             
|        | 10 | .19*        |  | Severance Agreement dated as of March 25, 2003 between the
    Registrant and Joseph A. LaSala, Jr. (16)
    (Exhibit 10.18)                                                                                                  



|    |                          
|--- | -------------------------
|114 | Novell annual report 2005









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|        |    |             |  |                                                                                                                            |                                                                                                                        |     
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ----
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .20*        |  | Severance Agreement dated as of February 10, 2003 between the Registrant and Joseph S. Tibbetts, Jr. (16) (Exhibit  10.20)
|        | 10 | .21*        |  | Severance Agreement dated as of September 7, 2005 between the Registrant and Susan Heystee. (17)                          
|        | 10 | .22*        |  | Severance Agreement dated as of October 3, 2005 between the Registrant and Thomas Francese. (17)                          
|        | 10 | .23*        |  | Severance Agreement dated as of November 28, 2005 between the Registrant and Jeffrey M. Jaffe. (17)                       
|        | 10 | .24*        |  | Letter Agreement dated December 15, 1995 between Novell, Inc. and RRE Advisors, LLC. (18) (Exhibit 10.2)                  
|        | 10 | .25*        |  | Novell, Inc. Non-employee Director Compensation Summary. (15)                                                             
|        | 10 | .26*        |  | Novell, Inc. Deferred Compensation Plan. (15)                                                                             
|        | 12 | .1          |  | Ratio of Earnings to Fixed Charges (17)                                                                                   
|        | 21 |             |  | Subsidiaries of the Registrant. (17)                                                                                      
|        | 23 | .1          |  | Consent of PricewaterhouseCoopers, LLP, Independent Registered Public Accounting Firm. (17)                               
|        | 23 | .2          |  | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. (17)                                         
|        | 31 | .1          |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(17)
|        | 31 | .2          |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(17)
|        | 32 | .1          |  |                                                                                                                            | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | (17)
|        | 32 | .2          |  |                                                                                                                            | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | (17)






| |   |                                                     
| | - | ----------------------------------------------------
| | * | Indicates management contracts or compensatory plans



| |     |                                                                                                                                                                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the Annex or Exhibit identified in
    parentheses, filed as an annex or exhibit to the Proxy
    Statement-Prospectus forming a part of the Registration
    Statement on
    Form S-4 (Reg.
    No. 333-59326) of
    the Registrant, filed April 20, 2001 and amended
    May 25, 2001.
|
| | (2) | Incorporated by reference to the Exhibit identified in the
    parentheses, filed as an exhibit to the Registrants Report
    on Form 8-K, filed
    June 10, 2002 (File No. 0-13351).                                                                                                                                
|
| | (3) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Quarterly Report on
    Form 10-Q, filed
    for the fiscal quarter ended April 30, 2004 (File
    No. 0-13351).                                                                                   
|
| | (4) | Incorporated by reference to the Exhibit identified in the
    parentheses, filed as an exhibit to the Registrants Report
    on Form 8-K, filed
    December 19, 2005 (File
    No. 0-13351).                                                                                                                        
|
| | (5) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Registration Statement on
    Form S-1, filed
    November 30, 1984, and amendments thereto (File
    No. 2-94613).                                                                                
|
| | (6) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants Report
    on Form 8-A, dated
    December 13, 1999 (File No. 0-13351).                                                                                                                                
|
| | (7) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Quarterly Report on
    Form 10-Q, filed
    for the fiscal quarter ended July 31, 2004 (File
    No. 0-13351).                                                                                    
|
| | (8) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Registration Statement on
    Form S-8, filed
    October 12, 2001 (File
    No. 333-62087).                                                                                                       
|
| | (9) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Registration Statement on
    Form S-8, filed
    May 29, 1996 (File
    No. 333-04775).                                                                                                           



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##### Table of Contents





|     |                                                                                                                                                                                                                                 
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Registration Statement on
    Form S-8, filed
    July 1, 2000 (File
    No. 333-41328).                    
|    
|(11) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Registration Statement on
    Form S-8, filed
    July 2, 1993 (File
    No. 33-65440).                     
|    
|(12) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Registration Statement on
    Form S-8, filed
    May 30, 1996 (File
    No. 333-04823).                    
|    
|(13) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Registration Statement on
    Form S-8, filed
    August 6, 2002 (File
    No. 333-97713).                  
|    
|(14) | Incorporated by reference to the Appendix identified in
    parentheses, filed as an exhibit to the Proxy Statement of the
    Registrant filed March 17, 2003.                                                                 
|    
|(15) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants Annual
    Report on
    Form 10-K, filed
    for the fiscal year ended October 31, 2004 (File
    No. 0-13351).
|    
|(16) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants Annual
    Report on
    Form 10-K, filed
    for the fiscal year ended October 31, 2003 (File
    No. 0-13351).
|    
|(17) | Filed herewith.                                                                                                                                                                                                                 
|    
|(18) | Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants Annual
    Report on
    Form 10-K, filed
    for the fiscal year ended October 31, 2001 (File
    No. 0-13351).



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|116 | Novell annual report 2005