##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C. 20549
    Form 10-K
    þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    October 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For 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:
  Title of Each Class

Name of Each Exchange on Which
    RegisteredCommon Stock, par value
    $.10 per share

The NASDAQ Stock Market LLC
    (NASDAQ Global Select
    Market)   Securities registered pursuant to Section 12(g) of the
    Act: None
  o þ
  o þ
  o þ
  Regulation S-K Form 10-K Form 10-K. o
    Rule 12b-2
  þ o o
  Rule 12b-2 o þ




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##### 



NOVELL,
    INC.
  TABLE OF
    CONTENTS
  PageExplanatory
    Note


iiPART IItem 1.

Business


1Item 1A.

Risk
    Factors


14Item 1B.

Unresolved Staff
    Comments


21Item 2.

Properties


21Item 3.

Legal
    Proceedings


22Item 4.

Submission of
    Matters to a Vote of Security Holders


24PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters,
    and Issuer Purchases of Equity Securities


25Item 6.

Selected Financial
    Data


26Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


27Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


56Item 8.

Financial
    Statements and Supplementary Data


58Item 9.

Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


124Item 9A.

Controls and
    Procedures


124Item 9B.

Other
    Information


125PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


126Item 11.

Executive
    Compensation


134Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


140Item 13.

Certain
    Relationships and Related Transactions and Director
    Independence


142Item 14.

Principal
    Accountant Fees and Services


142PART IVItem 15.

Exhibits and
    Financial Statement Schedules


144EXHIBIT 10.28EXHIBIT 10.29EXHIBIT 10.30EXHIBIT 10.31EXHIBIT 10.32EXHIBIT 10.33EXHIBIT 10.34EXHIBIT 10.35EXHIBIT 10.36EXHIBIT 21EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2   i




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EXPLANATORY
    NOTE  Form 10-Q Form 10-K
       ii




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NOVELL,
    INC.
  FORM 10-K
  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 Exchange Act of 1934, as
    amended. All statements, other than statements of historical
    fact, regarding our strategy, future operations, financial
    position, estimated revenue, projected costs, projected savings,
    prospects, plans, opportunities and objectives constitute
    forward-looking statements. The words
    may, will, expect,
    plan, anticipate, believe,
    estimate, potential, or
    continue and similar types of expressions identify
    forward-looking statements, although not all such statements
    contain these identifying words. These forward-looking
    statements are based upon information that is currently
    available to us
    and/or
    managements current expectations, speak only as of the
    date hereof, and are subject to risks and uncertainties. We
    expressly disclaim any obligation, except as required by law, or
    undertaking to update or revise any 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. We are subject
    to a number of risks, some of which may be similar to those of
    other companies of similar size in our industry, including
    pre-tax losses, rapid technological changes, competition,
    limited number of suppliers, customer concentration, failure to
    successfully integrate acquisitions, adverse government
    regulations, failure to manage international activities, and
    loss of key individuals. Risks that may affect our operating
    results include, but are not limited to, those discussed in
    Part I Item 1A, titled Risk Factors.
    Readers should carefully review the risk factors described in
    this document and in other documents that we file from time to
    time with the Securities and Exchange Commission.
 PART I  Item 1.
    Business  The
    Company
    24-year ® ®
         Novell
    annual report 2006
    1




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Systems, Security and Identity Management. ®
  
    Automate the management of IT assets, including servers,
    desktops, laptops and hand-held devices, through their entire
    lifecycle with device location tracking, utilization reporting
    and routing administrative tasks.
    Lower the total cost of ownership of desktops and laptops
    through automated machine configuration and software patch
    management across the enterprise.
    Reduce the complexity and costs of managing users and their
    access to systems through instant provisioning of new employees,
    streamlined authentication and authorization, and centrally
    managed access policies.
    Secure enterprise information from unauthorized use through the
    instant revocation of access rights, the creation of a
    consistent enterprise-wide security model, and by gaining full
    visibility into how information, services and resources are
    being used.      Open Platform Solutions.
         2
    Novell
    annual report 2006




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
    SUSE Linux Enterprise Server, which handles a variety of server
    workloads including edge and infrastructure computing,
    enterprise database deployment,
    line-of-business
    applications, and mission-critical software applications.
    SUSE Linux Enterprise Desktop, which offers a general-purpose
    desktop computing environment with high usability, a broad range
    of productivity applications including a full office suite, and
    advanced graphic capabilities.        Workspace solutions. ® tm ®
  Global services and support.
       Novell
    annual report 2006
    3




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sm sm
  on-site e-mail,
  Recent Developments.
  
    open platform solutions;
    systems and resource management;
    identity and security management; and
    workgroup.    ® tm tm tm
      Components
    of our Solutions Categories
  when-and-if when-and-if
     4
    Novell
    annual report 2006




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##### Table of Contents



Systems,
    security, and identity management
  
    Resource management products  
    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.  
    Identity and access management products  
    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.
    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.
    Sentinel automates the monitoring of IT for effectiveness
    allowing users to detect and resolve threats in real-time.
    Sentinel also provides documented evidence needed by some users
    to comply with regulatory and industry compliance requirements.  
    Other systems, security, and identity management  
    Novell eDirectory 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.  Open
    platform solutions.
  
    Linux platform products  
    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.
    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.  
    Other open platform products  
    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
    annual report 2006
    5




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Workspace
    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.
    NetWare and NetWare-related  
    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.
    Novell Cluster Services is a scalable, highly available Storage
    Area Network resource management tool that reduces
    administrative costs and complexity of delivering uninterrupted
    access to information and resources.  
    Collaboration  
    GroupWise collaboration products offer traditional and mobile
    users solutions for communication over intranets, extranets and
    the Internet.  
    Other workspace  
    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.
    Novell
    iFolder®
    is a product that allows users to access, organize, and manage
    computer files from any computer at any time, while ensuring the
    information is safe and
    up-to-date.  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-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
    Servicesm
    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 Dell Inc., EMC
    Corporation, Hewlett-Packard Company, International Business
    Machines Corporation, Microsoft Corporation, Novell, Inc., Red
    Hat Inc., Sun Microsystems, Inc., Symantec Corp., 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.     6
    Novell
    annual report 2006




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
    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
      Product
    Strategy
           Novell
    annual report 2006
    7




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Professional
    Services Strategy
    Alliances
    and Partnership Strategy
      ®
  Multi-channel
    Sales Strategy
    Personnel
    Development Strategy
         8
    Novell
    annual report 2006




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Recent
    Developments.
    
    A technical collaboration agreement primarily in the areas of
    virtualization, web services management, directory
    interoperability, and document format compatibility;
    A business collaboration agreement around joint sales and
    marketing activities; and
    A patent cooperation agreement.    Acquisitions
    and Dispositions
  e-Security, e-Securitys sub-category.
    Segment
    and Geographic Information
        
    Americas  includes the United States, Canada and
    Latin America
    EMEA  includes Eastern and Western Europe, Middle
    East, and Africa
    Asia Pacific  includes China, Southeast Asia,
    Australia, New Zealand, Japan, and India         Novell
    annual report 2006
    9




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Segment
    Changes
    
    Open Platform Solutions, which will focus on the unique growth
    opportunities around open source technologies. This business
    unit includes SUSE Linux Enterprise, SUSE Linux Enterprise
    Desktop, and other Linux-based solutions.
    Systems and Resource Management, which will focus on meeting the
    growing infrastructure management needs of our customers for
    desktops, networks and servers. This business unit includes the
    ZENworks product family.
    Identity and Security Management, which will continue to provide
    advanced, identity-driven solutions to the enterprise market.
    This business unit includes Sentinel, Identity Manager, Access
    Manager, Secure Login, eDirectory, and Novell Audit.
    Workgroup, which will focus on bringing our new technologies for
    collaboration to both existing and new customers. This business
    unit includes Open Enterprise Server, NetWare, GroupWise and
    BorderManager.
    Business consulting, which conducts general consulting
    activities and is comprised primarily of our Salmon and Swiss
    consulting units.    Product
    Development
        Sales and
    Marketing
       10
    Novell
    annual report 2006




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Distributors.
  VARs and Systems Integrators.
  OEMs/Independent Hardware Vendors
    (IHVs)/Independent Software Vendors
    (ISVs). and/or
  End-User Customers.
  Marketing Strategy.
  Marketing Initiatives.
  International Revenue.
  Major
    Customers
    Manufacturing
    Suppliers
       Novell
    annual report 2006
    11




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Backlog
      Competition
    
    our ability to preserve our traditional customer base;
    our ability to sell overall solutions comprised of products and
    services provided by us and 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.      Copyright,
    Licenses, Patents, and Trademarks
         12
    Novell
    annual report 2006




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Seasonality
    Corporate
    Information
  (781) 464-8000. (801) 861-7000. www.novell.com
  (800) 317-3195 irmail@novell.com
     Novell
    annual report 2006
    13




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Form 10-K
  Employees
      Item 1A.
    Risk
    Factors  Matters
    related to or arising out of our historical stock-based
    compensation practices, including government actions, litigation
    matters, NASDAQ listing and downgrades in our credit ratings,
    could have a material adverse effect on the Company.
  Form 10-K,
  Form 10-K
  Form 10-Q Form 10-K
     14
    Novell
    annual report 2006




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Form 10-Q Form 10-K
  Form 10-K
  We may
    experience difficulties, delays or unexpected costs in
    completing our cost reduction and sales growth strategic
    initiatives and may not achieve the anticipated benefits of
    these initiatives.
    Our shift
    to a sales strategy more focused on indirect sales may result in
    decreased or fluctuating revenue.
      Increasing
    our foreign research and development operations exposes us to
    risks that are beyond our control and could affect our ability
    to operate successfully.
       Novell
    annual report 2006
    15




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set-up,
      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.
       16
    Novell
    annual report 2006




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
    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.
    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.
       Novell
    annual report 2006
    17




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A lawsuit
    filed against us by SCO could result in a substantial judgment
    against us and adversely affect our revenue and business plan if
    SCO is successful.
    If the
    Free Software Foundation releases a new version of the GNU
    General Public License with certain currently proposed terms,
    our business may suffer harm.
             18
    Novell
    annual report 2006




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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.
    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;     Novell
    annual report 2006
    19




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
    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.    Our
    financial and operating results 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; and
    inability to deliver solutions as expected by our customers and
    systems integration partners.    quarter-to-quarter
  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.     20
    Novell
    annual report 2006




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We may
    not be able to protect our confidential information, and this
    could adversely affect our business.
    Our
    consulting services contracts contain pricing risks and, if our
    estimates prove inaccurate, we could lose money.
    Our IT
    consulting clients may cancel or reduce the scope of their
    engagements with us on short notice.
    Conversion
    of our Debentures into shares of our common stock will dilute
    the ownership interests of existing stockholders.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  and/or
     Novell
    annual report 2006
    21




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month-to-month
  Item 3.
    Legal
    Proceedings           22
    Novell
    annual report 2006




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Novell
    annual report 2006
    23




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Item 4.
    Submission
    of Matters to a Vote of Security Holders       24
    Novell
    annual report 2006




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PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters, and Issuer Purchases of Equity Securities    First


Second


Third


FourthQuarter


Quarter


Quarter


QuarterFiscal 2006High

$
9.81


$
9.83


$
8.56


$
6.98Low

$
7.17


$
7.00


$
5.73


$
5.75Fiscal 2005High

$
7.70


$
6.23


$
6.69


$
7.77Low

$
5.49


$
4.94


$
5.68


$
5.80     Issuances
    of Unregistered Common Stock
    Repurchases
    of Common Stock
       Novell
    annual report 2006
    25




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Item 6.
    Selected
    Financial Data    Fiscal Year EndedOctober 31,


October 31,


October 31,


October 31,


October 31,2006(a)


2005(b)


2004


2003


2002(In thousands, except per share data)Statement of
    operationsNet revenue

$
967,277


$
1,039,223


$
1,003,854


$
966,167


$
1,009,088Gross profit


647,192



687,157



681,976



618,079



642,533Income (loss) from operations(c)


(38,685
)


423,958



48,061



(32,938
)


(73,291
)Income (loss) from continuing
    operations before taxes


30,856



457,951



57,931



(59,083
)


(96,699
)Income tax expense


23,231



86,660



11,335



102,882



8,880Income (loss) from continuing
    operations


7,625



371,291



46,596



(161,965
)


(105,579
)Income from discontinued
    operations, net of taxes


11,928



5,431



10,592



61



2,458Net income (loss) before
    accounting change


19,553



376,722



57,188



(161,904
)


(103,121
)Cumulative effect of accounting
    change, net of tax(d)


(897
)














(143,702
)Net income (loss)


18,656



376,722



57,188



(161,904
)


(246,823
)Net income (loss) from continuing
    operations, diluted

$
7,406


$
373,183


$
20,319


$
(161,965
)

$
(105,579
)Net income (loss) available to
    common stockholders, diluted

$
18,220


$
378,159


$
30,818


$
(161,904
)

$
(246,823
)Net income (loss) from continuing
    operations per common share, diluted

$
0.02


$
0.85


$
0.05


$
(0.44
)

$
(0.29
)Net income (loss) per common
    share, diluted

$
0.05


$
0.86


$
0.08


$
(0.44
)

$
(0.68
)Balance sheetCash, cash equivalents and
    short-term investments

$
1,466,287


$
1,654,904


$
1,211,467


$
751,852


$
635,858Working capital


1,075,580



1,284,901



843,930



406,014



330,232Total assets


2,449,723



2,761,858



2,293,358



1,569,572



1,667,266Senior convertible debentures


600,000



600,000



600,000







Series B Preferred Stock


9,350



9,350



25,000







Total stockholders equity(e)

$
1,104,650


$
1,386,486


$
963,364


$
934,470


$
1,065,542     (a)
    
    In the first quarter of fiscal 2006, we adopted FASB Statement
    No. 123(R), which required us to record compensation
    expenses related to stock awards. For fiscal 2006, compensation
    expense totaled $35.2 million. Prior years were not
    restated to include such expense.(b)
    
    In the first quarter of fiscal 2005, we recognized a gain of
    $447.6 million on a litigation settlement with Microsoft to
    settle potential anti-trust litigation.     26
    Novell
    annual report 2006




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##### Table of Contents



(c)
    
    Income (loss) from operations for all periods presented excludes
    the results of Celerant, which have been classified as
    discontinued operations.(d)
    
    In May 2006, we adopted Financial Interpretation No. 47,
    Accounting for Conditional Asset Retirement
    Obligations (FIN 47), which required us
    to recognize the cumulative effect of initially applying
    FIN 47 as a change in accounting principle. In fiscal 2002,
    we adopted Statement of Financial Accounting Standards
    No. 142, Goodwill and Other Intangible Assets,
    resulting in a transitional goodwill impairment loss.(e)
    
    As discussed in Note C to the consolidated financial
    statements contained in this report, in accordance with the
    provisions of SAB 108, we decreased beginning retained
    earnings at November 1, 2005 by approximately
    $19.2 million, from $984.1 million to
    $964.9 million with the offset to additional paid-in
    capital to record a cumulative after-tax stock-based
    compensation expense that should have been recognized in the
    consolidated financial statements during the period 1997 through
    2005. Had the stock-based compensation expense been recognized
    during that period, net income would have been reduced by the
    following amounts: $2.3 million in fiscal 2002,
    $2.9 million in fiscal 2003, $0.7 million in fiscal
    2004, and $0.2 million in fiscal 2005.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
          
    Linux and Open Source products remain an important growth
    business. Revenues from our Linux platform products increased
    26% year over year in fiscal 2006. A major fiscal
    2006 milestone was the delivery of SUSE Linux
    Enterprise 10, the platform for the Open Enterprise. SUSE
    Linux Enterprise 10 offers a complete open source platform for
    the mission-critical applications that drive customers
    businesses. It includes SUSE Linux Enterprise Server and SUSE
    Linux Enterprise Desktop, providing an array of enterprise-class
    computing solutions that we believe is unmatched in the industry.
    We continue to grow our positions in the systems, security and
    identity management market by offering the most comprehensive
    products that address customer problems in the areas of
    security, compliance, risk mitigation and systems management.
    Our unique role-based, policy-driven approach has been well
    received, and we continue to experience strong invoicing growth
    in this category and a number of large enterprise deals. In
    fiscal year 2006, we introduced a number of new product releases
    including Novell Identity Manager 3, Novell Secure Login 6
    and Novell Access Manager 3. Our
    e-Security
    Sentinel product acquisition provides a comprehensive compliance
    solution to integrate people, systems and processes. We expect
    strong revenue and performance momentum in fiscal 2007 from our
    new products.
    We continued efforts to stabilize the decline of our revenue
    from our legacy products, such as OES and NetWare and
    NetWare-related products. Our legacy 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 OES
    product in March 2005, we have taken steps to help maintain that
    installed base and address revenue declines of these products.
    Nevertheless, our combined NetWare and OES business declined by
    18% during fiscal 2006 compared to fiscal 2005. We continue to
    work with our customers to help them migrate from NetWare and
    other platforms     Novell
    annual report 2006
    27




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##### Table of Contents



of our competitors to OES and SUSE Linux using tools, training
    and education emphasizing the return on investment of upgrading
    Linux versus proprietary platforms.      
    redesigning our sales model;
    realigning our research and development processes; and
    implementing changes in our administrative and support functions.    
    We intend to improve our sales model by investing in and
    aligning it to address our unique markets and opportunities. We
    are undertaking a major shift from direct to indirect sales
    coverage and capabilities. Specifically, we are building out a
    world class infrastructure for web- and tele-sales that will be
    focused on our renewal activities, thus enabling our direct
    sales force to focus on new customer acquisition. Additionally,
    we are investing in new, dedicated sales force training and
    specialization roles, which we believe will result in improved
    customer conversations regarding the benefits of our products.
    Finally, we are increasing our targeted set of global strategic
    partners with whom we go to market with in our strategic product
    categories. In November 2006, we announced that one such partner
    was Microsoft.
    We intend to restructure our research and development processes
    to reduce costs and improve productivity by evaluating the
    appropriate balance between on and offshore research and
    development locations. As a result, we are investing in
    overlapping, offshore research and development teams to
    eventually assume functions once handled in more expensive
    environments. Additionally, we believe our investments in an
    improved product life-cycle management process will help
    facilitate this activity while assuring our products are
    addressing the needs of the market.
    We plan to implement changes to our administrative and support
    functions in the near future with the goal of increasing
    efficiency and reducing costs. We are currently reviewing
    recommendations made by an external specialty consulting firm
    that we hired to study our administrative support functions and
    cost structure as the first step toward implementing this
    initiative.  Critical
    Accounting Policies
    Revenue Recognition and Related Reserves.
     28
    Novell
    annual report 2006




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##### Table of Contents



90-day
  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 creditworthy and collection is probable. Prior
    Novell established credit history, credit reports, financial
    statements, and bank references are used to assess
    creditworthiness.    
    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.         Novell
    annual report 2006
    29




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##### Table of Contents



time-and-materials time-and-materials
  Long-lived Assets.
         30
    Novell
    annual report 2006




---



##### Table of Contents



Deferred Tax Assets.
  Loss Contingency Accruals and
    Restructurings.
     Novell
    annual report 2006
    31




---



##### Table of Contents



Share-based Payments.
             32
    Novell
    annual report 2006




---



##### Table of Contents



SAB 108
          Historical
    Stock-Based Compensation Practices
        Administrative Corrections
     Novell
    annual report 2006
    33




---



##### Table of Contents



Number of Shares Approved Not Specified
  Authorization Incomplete or Received Late
        (Amounts in 000s)Cumulative prior to fiscal 2004

$
18,291Fiscal 2004


698Fiscal 2005


201Total adjustment at
    November 1, 2005

$
19,190   Acquisitions
    and Equity Investments
  e-Security
  e-Security, e-Security e-Securitys sub-category. e-Securitys
  Open
    Invention Network, LLC
  Open Invention Network, LLC
     34
    Novell
    annual report 2006




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##### Table of Contents



Onward
    Novell
    Tally
    Systems Corp.
    Immunix,
    Inc.
    Salmon
    Ltd.
        SUSE
    LINUX AG
       Novell
    annual report 2006
    35




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##### Table of Contents



Divestitures
  Celerant
      Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands)Celerant net revenue

$
83,341


$
158,472


$
162,063Celerant income before taxes

$
1,783


$
8,191


$
17,043Gain on sale of Celerant


11,117







Income tax expense


972



2,760



6,451Income from discontinued operations

$
11,928


$
5,431


$
10,592   Japan
    Consulting Group
  12-month
    Results
    of Operations
  Revenue
        36
    Novell
    annual report 2006




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##### Table of Contents



Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004(In thousands)


(Percentage change)Software licenses

$
173,678


$
213,803


$
234,037



(19
)%


(9
)%Maintenance, subscriptions, and
    services


793,599



825,420



769,817



(4
)%


7
%Total net revenue

$
967,277


$
1,039,223


$
1,003,854



(7
)%


4
%             
    Systems, security, and identity management (formerly
    Identity-driven computing solutions).
    Sub-categories
    include:  
    Resource management  major products include ZENworks
    Identity and access management  major products
    include Identity Manager, Secure Login, iChain and Sentinel
    Other systems, security, and identity management
    products  major products include eDirectory and web
    services  
    Open platform
    solutions.Sub-categories
    include:  
    Linux platform products  major products include SUSE
    LINUX Enterprise Server and our Linux desktop products
    Other open platform products  major products include
    SUSE LINUX Professional  
    Workspace
    solutions.Sub-categories
    include:  
    Open Enterprise Server (OES)    Novell
    annual report 2006
    37




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##### Table of Contents




    NetWare and other NetWare-related  major products
    include NetWare and Cluster Services
    Collaboration  major products include GroupWise
    Other workspace  major products include BorderManager
    and Novell iFolder  
    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 technology.    Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004(In thousands)


(Percentage change)Resource management

$
134,579


$
144,358


$
124,338Identity and access management


97,721



74,936



61,324Other systems, security, and
    identity management products


17,975



21,022



21,353Systems, security and identity
    management


250,275



240,316



207,015



4
%


16
%Linux platform products


45,296



35,836



19,309Other open platform products


8,146



17,761



14,678Open platform solutions


53,442



53,597



33,987




%


58
%Open Enterprise Server


181,695



85,331



NetWare and other NetWare-related


47,779



193,549



301,441Collaboration


96,176



99,422



103,556Other workspace products


23,594



30,842



50,093Workspace solutions


349,244



409,144



455,090



(15
)%


(10
)%Total software licenses and
    maintenance


652,961



703,057



696,092Global services and support


314,316



336,166



307,762



(6
)%


9
%Total net revenue

$
967,277


$
1,039,223


$
1,003,854



(7
)%


4
%   year-over-year.
           38
    Novell
    annual report 2006




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##### Table of Contents



Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004(In thousands)


(Percentage change)Americas

$
536,813


$
537,198


$
535,507




%



%EMEA


345,597



407,998



378,269



(15
)%


8
%Asia Pacific


84,867



94,027



90,078



(10
)%


4
%Total net revenue

$
967,277


$
1,039,223


$
1,003,854



(7
)%


4
%     Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004(In thousands)


(Percentage change)Resource management

$
77,785


$
75,412


$
69,300Identity and access management


55,105



37,742



30,418Other systems, security, and
    identity management products


10,806



12,578



11,230Systems, security and identity
    management


143,696



125,732



110,948



14
%


13
%Linux platform products


21,292



16,854



7,026Other open platform products


4,431



6,213



4,758Open platform solutions


25,723



23,067



11,784



12
%


96
%Open Enterprise Server


110,396



46,351



NetWare and other NetWare-related


16,944



103,728



162,172Collaboration


61,349



61,213



64,583Other workspace products


10,267



12,234



30,481Workspace solutions


198,956



223,526



257,236



(11
)%


(13
)%Total software licenses and
    maintenance


368,375



372,325



379,968Global services and support


168,438



164,873



155,539



2
%


6
%Total net revenue

$
536,813


$
537,198


$
535,507




%



%      Novell
    annual report 2006
    39




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##### Table of Contents



Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004(In thousands)


(Percentage change)Resource management

$
48,279


$
61,153


$
47,308Identity and access management


33,875



30,109



25,553Other systems, security, and
    identity management products


5,850



6,720



7,507Systems, security and identity
    management


88,004



97,982



80,368



(10
)%


22
%Linux platform products


19,642



16,524



9,507Other open platform products


2,934



11,302



12,053Open platform solutions


22,576



27,826



21,560



(19
)%


29
%Open Enterprise Server


60,893



34,294



NetWare and other NetWare-related


18,895



68,787



108,802Collaboration


30,589



33,362



33,284Other workspace products


5,297



9,442



10,370Workspace solutions


115,674



145,885



152,456



(21
)%


(4
)%Total software licenses and
    maintenance


226,254



271,693



254,384Global services and support


119,343



136,305



123,885



(12
)%


10
%Total net revenue

$
345,597


$
407,998


$
378,269



(15
)%


8
%          40
    Novell
    annual report 2006




---



##### Table of Contents



Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004(In thousands)


(Percentage change)Resource management

$
8,515


$
7,792


$
7,729Identity and access management


8,741



7,086



5,354Other systems, security, and
    identity management products


1,318



1,724



2,615Systems, security and identity
    management


18,574



16,602



15,698



12
%


6
%Linux platform products


4,363



2,459



454Other open platform products


781



246



189Open platform solutions


5,144



2,705



643



90
%


321
%Open Enterprise Server


10,405



4,686



NetWare and other NetWare-related


11,940



21,034



30,466Collaboration


4,239



4,847



5,689Other workspace products


8,030



9,166



9,244Workspace solutions


34,614



39,733



45,399



(13
)%


(12
)%Total software licenses and
    maintenance


58,332



59,040



61,740Global services and support


26,535



34,987



28,338



(24
)%


23
%Total net revenue

$
84,867


$
94,027


$
90,078



(10
)%


4
%       Deferred
    revenue
       Novell
    annual report 2006
    41




---



##### Table of Contents



Gross
    profit
  Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004($ in thousands)


(Percentage change)Software licenses

$
155,517


$
192,203


$
210,559



(19
)%


(9
)%As a percent of software
    license revenue


90
%


90
%


90
%Maintenance, subscriptions, and
    services

$
491,675


$
494,954


$
471,417



(1
)%


5
%As a percent of maintenance,
    subscriptions and services revenue


62
%


60
%


61
%Total gross profit

$
647,192


$
687,157


$
681,976



(6
)%


1
%As a percent of net
    revenue


67
%


66
%


68
%            42
    Novell
    annual report 2006




---



##### Table of Contents



Operating
    expenses
  Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004($ in thousands)


(Percentage change)Sales and marketing

$
357,116


$
359,991


$
337,624



(1
)%


7
%as a percent of net
    revenue


37
%


35
%


34
%Product development

$
180,380


$
199,971


$
194,607



(10
)%


3
%as a percent of net
    revenue


19
%


19
%


20
%General and administrative

$
128,922


$
92,632


$
80,758



39
%


15
%as a percent of net
    revenue


13
%


9
%


8
%Restructuring expenses

$
4,405


$
57,753


$
22,903



(92
)%


152
%as a percent of net
    revenue



%


6
%


2
%Purchased in-process research and
    development

$
2,110


$
480


$




340
%



%as a percent of net
    revenue



%



%



%Gains on sale of property,
    plant & equipment

$
(5,968
)

$
(1,589
)

$
(1,977
)


276
%


(20
)%as a percent of net
    revenue


(1
)%



%



%Gain on settlement of potential
    litigation

$



$
(447,560
)

$





%



%as a percent of net
    revenue



%


43
%



%Impairment of intangible assets

$
1,230


$
1,521


$




(19
)%



%as a percent of net
    revenue



%



%



%Loss on sale of Japan consulting
    group

$
8,273


$



$





%



%as a percent of net
    revenue


1
%



%



%Executive termination benefits

$
9,409


$



$





%



%as a percent of net
    revenue


1
%



%



%Total operating expenses

$
685,877


$
263,199


$
633,915



161
%


(58
)%As a percent of net
    revenue


71
%


25
%


63
%   e-Security
           Novell
    annual report 2006
    43




---



##### Table of Contents



e-Security e-Security e-Security
               44
    Novell
    annual report 2006




---



##### Table of Contents



Restructuring
    Expenses
  Fiscal
    2006
        OtherSeverance and


Excess


Restructuring-Benefits


Facilities


Related Costs


Total(In thousands)Original reserve

$
3,420


$
606


$
163


$
4,189Cash payments


(323
)


(591
)


(35
)


(949
)Balance at October 31, 2006

$
3,097


$
15


$
128


$
3,240     Fiscal
    2005
       Novell
    annual report 2006
    45




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##### Table of Contents



OtherSeverance and


Excess


Restructuring-Benefits


Facilities


Related Costs


Total(In thousands)Original reserve

$
45,763


$
7,364


$
477


$
53,604Cash payments


(17,271
)


(913
)


(218
)


(18,402
)Balance at October 31, 2005


28,492



6,451



259



35,202Cash payments


(25,438
)


(4,022
)


(202
)


(29,662
)Non-cash adjustments


(1,721
)


1,437







(284
)Balance at October 31, 2006

$
1,333


$
3,866


$
57


$
5,256     Fiscal
    2004
      Severance and


ExcessBenefits


Facilities


Total(In thousands)Original reserve

$
12,910


$
6,152


$
19,062Cash payments


(8,252
)


(3,645
)


(11,897
)Balance at October 31, 2004


4,658



2,507



7,165Cash payments


(2,716
)


(1,109
)


(3,825
)Non-cash adjustments


(699
)


59



(640
)Balance at October 31, 2005


1,243



1,457



2,700Cash payments


(1,012
)


(1,067
)


(2,079
)Non-cash adjustments


(231
)


487



256Balance at October 31, 2006

$



$
877


$
877        46
    Novell
    annual report 2006




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##### Table of Contents



Other
    income (expense), net
  Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004($ in thousands)


(Percentage change)Impairment of investments

$
(1,470
)

$
(3,387
)

$
(5,415
)


(57
)%


(37
)%as a percent of net
    revenue



%



%


(1
)%Investment income

$
61,076


$
46,045


$
23,401



33
%


97
%as a percent of net
    revenue


6
%


4
%


2
%Gain on sale of venture capital
    funds

$
17,953


$



$





%



%as a percent of net
    revenue


2
%



%



%Interest expense and other
    expenses, net

$
(8,018
)

$
(8,665
)

$
(8,116
)


(7
)%


7
%as a percent of net
    revenue


(1
)%


(1
)%


(1
)%Total other income (expense), net

$
69,541


$
33,993


$
9,870



105
%


244
%as a percent of net
    revenue


7
%


3
%


1
%           .
       Novell
    annual report 2006
    47




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##### Table of Contents



Income
    tax (benefit) expense on income from continuing
    operations
  Fiscal Year Ended October 31,


2006 vs


2005 vs2006


2005


2004


2005


2004($ in thousands)


(Percentage change)Income tax expense

$
23,231


$
86,660


$
11,335



(73
)%


665
%As a percent of
    revenue


2
%


8
%


1
%Effective tax rate


75
%


19
%


20
%                48
    Novell
    annual report 2006




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##### Table of Contents



Dividends
    on Series B Preferred Stock
  Fiscal Year Ended October 31,2006


2005


2004(In thousands)Non-cash deemed dividend related
    to beneficial conversion feature of Preferred Stock

$



$



$
(25,680
)Preferred Stock cash dividends

$
(187
)

$
(466
)

$
(416
)            Novell
    annual report 2006
    49




---



##### Table of Contents



Net
    income (loss) components
  Fiscal Year Ended October 31,2006


2005


2004(In thousands)Income from continuing operations

$
7,625


$
371,291


$
46,596Discontinued operations, net of tax


11,928



5,431



10,592Cumulative effect of a change in
    accounting principle


(897
)






Net income

$
18,656


$
376,722


$
57,188       and/or
  Forward-looking
    information
           50
    Novell
    annual report 2006




---



##### Table of Contents



Liquidity
    and Capital Resources
  October 31,


October 31,


Percentage2006


2005


Change($ in thousands)Cash, cash equivalents, and
    short-term investments

$
1,466,287


$
1,654,904



(11
)%Percentage of total
    assets


60
%


60
%     Fiscal 2006


Fiscal 2005


Fiscal 2004(In thousands)Cash provided by operating
    activities

$
99,006


$
500,414


$
117,413Issuance of common stock, net

$
40,131


$
22,108


$
58,162Repurchase of common stock, 2006
    retired, 2004 held in treasury

$
(400,000
)

$



$
(125,000
)Expenditures for property, plant
    and equipment

$
(26,668
)

$
(30,781
)

$
(26,997
)Proceeds from sales of property,
    plant and equipment

$
24,992


$
10,421


$
4,951Proceeds from the sale of Venture
    Capital fund investments

$
71,298


$



$
Proceeds from the payoff of a note
    receivable

$
9,092


$



$
Proceeds from the sale of Celerant
    and the Japan consulting group, net of cash divested

$
39,372


$



$
Net cash paid for acquisitions

$
(71,550
)

$
(33,829
)

$
(205,620
)Cash paid for intangible assets

$
(1,159
)

$
(15,500
)

$
Cash paid for equity share of OIN

$
(4,225
)

$



$
Restricted cash for acquisition of
    India joint venture

$



$
(7,500
)

$
Issuance of Debentures, net of
    issuance costs

$



$



$
585,150Issuance of Series B
    Preferred Stock

$



$



$
50,000              Novell
    annual report 2006
    51




---



##### Table of Contents



Form 10-Q Form 10-Q EITF 96-19, (EITF 96-19),
         52
    Novell
    annual report 2006




---



##### Table of Contents



Contractual
    Obligations as of October 31, 2006
  Payments Due by PeriodLess Than








More Than1 Year


1-3 Years


3-5 Years


5 YearsTotal


(2007)


(2008-2009)


(2010-2011)


(Beyond 2011)(In millions)Debentures

$
600.0


$



$



$



$
600.0Interest on Debentures(a)


97.1



33.1



19.9



6.0



38.1Purchase commitments(b)


1.4



1.0



0.4







Operating lease obligations


119.0



27.0



40.2



18.7



33.1Letters of credit


14.9



14.9











Total

$
832.4


$
76.0


$
60.5


$
24.7


$
671.2Other contractual obligations:Dividends on Series B
    Preferred Stock


(c
)


(c
)


(c
)


(c
)


(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, 2006.(c)
    
    During November 2006, the Series B Preferred Stock was
    converted into 1.5 million common shares, which eliminated
    the obligation to pay dividends beyond the conversion date.      Recent
    Pronouncements
       Novell
    annual report 2006
    53




---



##### Table of Contents



06-10, 06-10). 06-10 06-10 06-10
     54
    Novell
    annual report 2006




---



##### Table of Contents



Subsequent
    Events
  Sale of
    Venture Capital Funds
    Conversion
    of Redeemable Preferred Stock
    Microsoft
    Agreements
        
    Development of technologies to optimize each of SLES and Windows
    running as guests in a virtualized setting on the other
    operating system;
    Development of management tools for managing heterogeneous
    virtualization environments, to enable each partys
    management tools to command, control and configure the other
    partys operating system in a virtual machine environment;
    Development of translators to improve interoperability between
    Microsoft Office and OpenOffice document formats; and
    Collaboration on improving directory and identity
    interoperability and identity management between Microsoft
    Active Directory software and Novell eDirectory software.         Novell
    annual report 2006
    55




---



##### Table of Contents



RedMojo
    Acquisition
    Sale of
    Salmon Subsidiary
    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Interest
    Rate Risk
  available-for-sale
  Market
    Risk
  available-for-sale
  Foreign
    Currency Risk
       56
    Novell
    annual report 2006




---



##### Table of Contents



Novell
    annual report 2006
    57




---



##### 



Item 8.
    Financial
    Statements and Supplementary Data  Novell,
    Inc.
  
  PageConsolidated
    Statements of Operations


59Consolidated
    Balance Sheets


60Consolidated
    Statements of Stockholders Equity


61Consolidated
    Statements of Cash Flows


62Notes to
    Consolidated Financial Statements


63Report of
    PricewaterhouseCoopers LLP, Independent Registered Public
    Accounting Firm


121Report of
    Ernst & Young LLP, Independent Registered Public
    Accounting Firm


123Selected
    Consolidated Quarterly Financial Data 
    Unaudited


124       58
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.



CONSOLIDATED
    STATEMENTS OF OPERATIONS
    (Amounts in thousands, except per share data)  Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004Net revenue:Software licenses

$
173,678


$
213,803


$
234,037Maintenance, subscriptions, and
    services


793,599



825,420



769,817Total net revenue


967,277



1,039,223



1,003,854Cost of revenue:Software licenses


18,161



21,600



23,478Maintenance, subscriptions, and
    services


301,924



330,466



298,400Total cost of revenue


320,085



352,066



321,878Gross profit


647,192



687,157



681,976Operating expenses (income):Sales and marketing


357,116



359,991



337,624Product development


180,380



199,971



194,607General and administrative


128,922



92,632



80,758Restructuring expenses


4,405



57,753



22,903Purchased in-process research and
    development


2,110



480



Gain on sale of property, plant and
    equipment


(5,968
)


(1,589
)


(1,977
)Gain on settlement of potential
    litigation






(447,560
)


Impairment of intangible assets


1,230



1,521



Loss on sale of Japan consulting
    group


8,273







Executive termination benefits


9,409







Total operating expenses


685,877



263,199



633,915Income (loss) from operations


(38,685
)


423,958



48,061Other income (expense):Investment income


61,076



46,045



23,401Gain on sale of venture capital
    funds


17,953







Impairment of investments


(1,470
)


(3,387
)


(5,415
)Interest expense and other, net


(8,018
)


(8,665
)


(8,116
)Other income, net


69,541



33,993



9,870Income from continuing operations
    before taxes


30,856



457,951



57,931Income tax expense


23,231



86,660



11,335Income from continuing operations


7,625



371,291



46,596Income from discontinued operations
    before taxes (including gain on disposal of $11,117 in fiscal
    2006)


12,900



8,191



17,043Income tax expense on discontinued
    operations


972



2,760



6,451Income from discontinued operations


11,928



5,431



10,592Income before cumulative effect of
    change in accounting principle


19,553



376,722



57,188Cumulative effect of change in
    accounting principle


(897
)






Net income

$
18,656


$
376,722


$
57,188Basic earnings per share:Income from continuing operations

$
0.02


$
0.97


$
0.05Discontinued operations


0.03



0.01



0.03Cumulative effect of change in
    accounting principle










Net income per share available to
    common stockholders

$
0.05


$
0.98


$
0.08Diluted earnings per share:Income from continuing operations

$
0.02


$
0.85


$
0.05Discontinued operations


0.03



0.01



0.03Cumulative effect of change in
    accounting principle










Net income per share available to
    common stockholders

$
0.05


$
0.86


$
0.08Weighted-average shares outstanding:Basic


361,174



379,499



381,100Diluted


365,659



440,585



390,879        Novell
    annual report 2006
    59




---



##### Table of Contents



NOVELL,
    INC.
 CONSOLIDATED
    BALANCE SHEETS

(Amounts in thousands, except share and per share data)  October 31,


October 31,2006


2005ASSETSCurrent assets:Cash and cash equivalents

$
675,787


$
811,238Short-term investments


790,500



843,666Receivables (net of allowances of
    $5,574 and $16,638 at October 31, 2006 and 2005,
    respectively)


233,986



293,627Prepaid expenses


32,328



30,777Other current assets


28,524



29,745Total current assets


1,761,125



2,009,053Property, plant and equipment, net


184,084



212,377Long-term investments


2,263



54,340Goodwill


424,701



395,509Intangible assets, net


40,404



56,421Deferred income taxes


4,770



1,384Other assets


32,376



32,774Total assets

$
2,449,723


$
2,761,858LIABILITIES, REDEEMABLE SECURITIES
    AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
44,419


$
45,445Accrued compensation


103,710



113,760Other accrued liabilities


106,837



131,105Income taxes payable


49,600



56,869Deferred revenue


380,979



376,973Total current liabilities


685,545



724,152Deferred income taxes


4,186



4,537Long-term deferred revenue


45,992



28,778Senior convertible debentures


600,000



600,000Total liabilities


1,335,723



1,357,467Minority interests






8,555Redeemable securities:Series B Preferred Stock,
    $.10 par value, Authorized  1,000 shares;Outstanding 
    187 shares at October 31, 2006 and 2005 (at redemption
    value)


9,350



9,350Stockholders 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  358,512,471 and
    400,993,898 shares at October 31, 2006 and 2005,
    respectively, Outstanding  343,362,534 and
    385,820,699 shares at October 31, 2006 and 2005,
    respectively


35,851



40,099Additional paid-in capital


338,954



483,157Treasury stock, at
    cost  15,149,937 and 15,173,199 shares at
    October 31, 2006 and 2005, respectively


(124,684
)


(124,875
)Retained earnings


840,449



984,107Accumulated other comprehensive
    income


14,080



7,444Unearned compensation and other






(3,446
)Total stockholders equity


1,104,650



1,386,486Total liabilities, redeemable
    securities and stockholders equity

$
2,449,723


$
2,761,858        60
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.



CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
    (Amounts in thousands)  AccumulatedCommon


Common


Treasury


Treasury


Additional





Other


UnearnedStock


Stock


Stock


Stock


Paid-In


Retained


Comprehensive


CompensationShares


Amount


Shares


Amount


Capital


Earnings


Income


and Other


TotalBalance at October 31, 2003


376,460


$
37,646






$



$
319,016


$
576,759


$
7,068


$
(6,019
)

$
934,470Stock issued from stock plans


12,757



1,276



1



11



63,101











(5,452
)


58,936Stock issued for conversion of
    Series B Preferred Stock


4,000



400











24,600















25,000Shares repurchased










(15,188
)


(125,000
)


















(125,000
)Shares cancelled


(156
)


(16
)










(1,295
)










537



(774
)Amortization of unearned stock
    compensation






























4,848



4,848Beneficial 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







11,720Change in minimum pension liability


























(1,256
)






(1,256
)Net income






















57,188











57,188Comprehensive income


































66,301Balance at October 31, 2004


393,061



39,306



(15,187
)


(124,989
)


431,102



607,851



16,180



(6,086
)


963,364Stock issued from stock plans


5,678



567



14



114



26,843











(1,998
)


25,526Stock plans income tax benefit


















13,799















13,799Stock issued for conversion of
    Series B Preferred Stock


2,504



250











15,400















15,650Shares cancelled


(249
)


(24
)










(4,043
)










3,325



(742
)Amortization of unearned stock
    compensation






























1,313



1,313Dividends 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







623Net income






















376,722











376,722Comprehensive income


































368,042Balance at October 31, 2005


400,994



40,099



(15,173
)


(124,875
)


483,157



984,107



7,444



(3,446
)


1,386,486Cumulative effect of adoption of
    SAB 108


















19,190



(19,190
)










Revised balance at November 1,
    2005


400,994



40,099



(15,173
)


(124,875
)


502,347



964,917



7,444



(3,446
)


1,386,486Stock issued from stock plans


9,549



955



23



191



40,482















41,628Stock compensation expense


















35,265















35,265Compensation expense related to
    executive termination benefits


















2,739















2,739Cumulative effect of adoption of
    SFAS No. 123R


















(3,446
)










3,446



Stock plans income tax benefit


















15,263















15,263Shares repurchased and retired


(51,515
)


(5,152
)










(251,911
)


(142,937
)










(400,000
)Shares cancelled


(516
)


(51
)










(1,804
)














(1,855
)Dividends on Series B
    Preferred Stock






















(187
)










(187
)Change in unrealized gain on
    investments


















19







4,053







4,072Cumulative translation adjustment


























1,950







1,950Change in minimum pension liability


























633







633Net income






















18,656











18,656Comprehensive income


































25,311Balance at October 31, 2006


358,512


$
35,851



(15,150
)

$
(124,684
)

$
338,954


$
840,449


$
14,080


$



$
1,104,650        Novell
    annual report 2006
    61




---



##### Table of Contents



NOVELL,
    INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS
    (Amounts in thousands)  Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004Cash flows from operating
    activitiesNet income

$
18,656


$
376,722


$
57,188Adjustments to reconcile net income
    to net cash provided by operating activities:Stock-based compensation expense


35,265



1,748



4,940Tax effects of stock-based
    compensation plans


15,263



13,799



Excess tax benefits from
    stock-based compensation


(15,263
)






Depreciation and amortization


46,976



54,513



48,542Decrease in accounts receivable
    allowances


(6,888
)


(7,838
)


(4,923
)Utilization of previously reserved
    acquired net operating losses


6,585



29,600



Purchased in-process research and
    development


2,110



480



Deferred income taxes


(4,317
)


(702
)


870Net gain on sale of property, plant
    and equipment


(5,968
)


(1,589
)


(1,639
)Loss on Japan consulting group


8,273







Executive termination benefits,
    non-cash


9,409







Gain on sale of previously impaired
    long-term investments


(2,226
)


(2,087
)


(3,360
)Loss on impaired long-term
    investments


1,481



3,387



5,415Impairment of intangible assets


1,230



1,521



Gain on sale of Celerant,
    discontinued operations, before taxes


(11,117
)






Gain on sale of venture capital
    funds


(17,953
)






Cumulative effect of change in
    accounting principle


897







Changes in current assets and
    liabilities, excluding acquisitions and dispositions:Receivables


33,276



(15,087
)


(20,327
)Prepaid expenses


(4,102
)


(3,777
)


(1,358
)Other current assets


(88
)


(777
)


(3,069
)Accounts payable


(1,235
)


(10,935
)


2,492Accrued liabilities


(32,731
)


30,290



(10,619
)Deferred revenue


21,505



31,146



43,261Net cash provided by operating
    activities


99,038



500,414



117,413Cash flows from financing
    activitiesIssuance of common stock, net


40,131



22,108



58,162Excess tax benefits from
    stock-based compensation


15,263







Payment of cash dividends on
    Series B Preferred Stock


(187
)


(591
)


(292
)Issuance of Series B Preferred
    Stock










50,000Issuance of senior convertible
    debentures










600,000Payment of issuance costs on senior
    convertible debentures










(14,850
)Repurchases of common stock (2006
    retired, 2004 held in treasury)


(400,000
)






(125,000
)Net cash (used in) provided by
    financing activities


(344,793
)


21,517



568,020Cash flows from investing
    activitiesPurchases of property, plant and
    equipment


(26,668
)


(30,781
)


(26,997
)Proceeds from the sale of property,
    plant and equipment


24,992



10,421



4,951Proceeds from payoff of note
    receivable


9,092







Proceeds from sale of venture
    capital funds


71,298







Purchases of short-term investments


(503,584
)


(1,286,499
)


(999,078
)Maturities of short-term investments


131,088



348,156



160,611Sales of short-term investments


429,715



863,973



444,972Purchases of long-term investments


(9,499
)


(11,407
)


(20,505
)Proceeds from sales of and
    distributions from long-term investments


10,972



11,688



12,899Proceeds from the sale of Celerant,
    net of cash divested of $37,345


37,922







Proceeds from the sale of Japan
    consulting group, net of cash divested of $1,450


1,450







Cash paid for acquisition of
    e-Security,
    net of cash acquired


(71,550
)






Cash paid for equity share of OIN


(4,225
)






Cash paid for acquisition of Tally
    and Immunix, net of cash acquired






(33,829
)


Cash paid for acquisition of SUSE
    and Salmon, net of cash acquired










(205,620
)Purchase of intangible assets


(1,159
)


(15,500
)


Restricted cash for the acquisition
    of India joint venture






(7,500
)


Other


10,460



6,181



10,806Net cash provided by (used in)
    investing activities


110,304



(145,097
)


(617,961
)Total increase (decrease) in cash
    and cash equivalents


(135,451
)


376,834



67,472Cash and cash
    equivalents  beginning of period


811,238



434,404



366,932Cash and cash
    equivalents  end of period

$
675,787


$
811,238


$
434,404Supplemental disclosures of cash
    and non-cash financing and investing activities:Contribution of patents to Open
    Invention Network, LLC

$
14,383


$



$
Release of restricted cash for the
    acquisition of India joint venture


7,500Conversion of Series B
    Preferred Stock






15,650



25,000Deemed dividend related to
    beneficial conversion feature of Series B Preferred Stock










25,680Issuance of notes receivable for
    sale of property, plant and equipment










9,935        62
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  A.
    Summary
    of Business Operations    24-year
        Systems, Security and Identity Management.
  
    Automate the management of IT assets, including servers,
    desktops, laptops and hand-held devices, through their entire
    lifecycle with device location tracking, utilization reporting
    and routing administrative tasks.
    Lower the total cost of ownership of desktops and laptops
    through automated machine configuration and software patch
    management across the enterprise.
    Reduce the complexity and costs of managing users and their
    access to systems through instant provisioning of new employees,
    streamlined authentication and authorization, and centrally
    managed access policies.
    Secure enterprise information from unauthorized use through the
    instant revocation of access rights, the creation of a
    consistent enterprise-wide security model, and by gaining full
    visibility into how information, services and resources are
    being used.       Novell
    annual report 2006
    63




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Open Platform Solutions.
      
    SUSE Linux Enterprise Server, which handles a variety of server
    workloads including edge and infrastructure computing,
    enterprise database deployment,
    line-of-business
    applications, and mission-critical software applications.
    SUSE Linux Enterprise Desktop, which offers a general-purpose
    desktop computing environment with high usability, a broad range
    of productivity applications including a full office suite, and
    advanced graphic capabilities.           64
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Workspace solutions.
  Global services and support.
    on-site e-mail,
    B.
    Summary
    of Significant Accounting Policies    Principles
    of Consolidation
    Managements
    Estimates and Uncertainties
       Novell
    annual report 2006
    65




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Reclassifications
    Foreign
    Currency Translation
    Cash,
    Cash Equivalents and Short-Term Investments
    available-for-sale first-in
  Concentrations
    of Credit Risk
       66
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Equity
    Investments
    Property,
    Plant and Equipment
    Asset Classification

Useful LivesBuildings


30 yearsFurniture and equipment


2  7 yearsLeasehold improvements and other


3  10 years     Goodwill
    and Intangible Assets
         Novell
    annual report 2006
    67




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Disclosure
    of Fair Value of Financial Instruments
  other-than-temporary other-than-temporary
  Revenue
    Recognition and Related Reserves.
  90-day
  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.     68
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   
    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 creditworthy and collection is probable. Prior
    Novell established credit history, credit reports, financial
    statements, and bank references are used to assess
    creditworthiness.    
    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.         Novell
    annual report 2006
    69




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      time-and-materials time-and-materials
  Cost of
    Revenue
    Expenses
      Share-based
    Payments
       70
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
           Net
    Income (Loss) Per Share
  No. 03-06,
     Novell
    annual report 2006
    71




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    04-8, 04-8 04-8.
  Derivative
    Instruments
      Recent
    Pronouncements
         72
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        06-10, 06-10). 06-10 06-10 06-10
  C.
    Staff
    Accounting Bulletin No. 108         Novell
    annual report 2006
    73




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        Historical
    Stock-Based Compensation Practices
        Administrative Corrections
  Number of Shares Approved Not Specified
  Authorization Incomplete or Received Late
       74
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        (Amounts in 000s)Cumulative prior to fiscal 2004

$
18,291Fiscal 2004


698Fiscal 2005


201Total adjustment at
    November 1, 2005

$
19,190   D.
    Acquisitions
    and Equity Investments  e-Security
  e-Security, e-Security e-Securitys sub-category. e-Securitys
    Estimated


EstimatedFair Value


Useful Life(In thousands)Fair value of net tangible
    liabilities assumed

$
(1,135
)


N/AIn-process research and development


2,110



N/AIdentifiable intangible assets:Developed technology


6,920



3 yearsCustomer relationships


3,640



3 yearsTrademarks/trade names


390



3 yearsGoodwill


60,908



IndefiniteTotal net assets acquired

$
72,833      Novell
    annual report 2006
    75




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    e-Security
  e-Security e-Security
  e-Security
    e-Security e-Security
  e-Security
  Fiscal Year Ended2006


2005(Amounts in thousands)Net revenue

$
971,773


$
1,050,387Net income available to common
    stockholders  diluted

$
13,261


$
372,201Net income per share available to
    common stockholders  diluted

$
0.04


$
0.84   Open
    Invention Network LLC
       76
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Onward
    Novell
    Tally
    Systems Corp.
        Estimated


EstimatedFair Value


Useful Life(In thousands)Fair value of net tangible assets
    acquired

$
587



N/AIdentifiable intangible assets:Developed technology


3,200



4 yearsContractual relationships


1,700



3 yearsCustomer relationships


280



3 yearsInternal use software


90



3 yearsGoodwill


16,308



IndefiniteTotal net assets acquired

$
22,165        Novell
    annual report 2006
    77




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
           Immunix,
    Inc.
        Estimated


EstimatedFair Value


Useful Life(In thousands)Fair value of net tangible
    liabilities assumed

$
(112
)


N/AIn-process research and development


480



N/AIdentifiable intangible assets:Developed technology


2,400



3 yearsTrademarks/trade names


120



3 yearsCustomer relationships


80



1 yearInternal use software


10



3 yearsGoodwill


14,676



IndefiniteTotal net assets acquired

$
17,654        78
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     tm
        Fiscal Year EndedOctober 31,


October 31,2005


2004(In thousands, except pershare amounts)Revenue

$
1,200,762


$
1,173,055Net income available to common
    stockholders  diluted

$
376,049


$
28,268Net income per share available to
    common stockholders  diluted

$
0.86


$
0.07   Salmon
    Ltd.
         Novell
    annual report 2006
    79




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    EstimatedAcquisition Cost


Asset Life(In thousands)Fair value of net tangible assets
    acquired

$
3,007



N/AIdentifiable intangible assets:Customer relationships


3,417



3 yearsNon-compete agreement


422



3 yearsGoodwill


6,146



IndefiniteTotal acquisition cost

$
12,992                 Fiscal Year EndedOct. 31, 2004(In thousands, exceptper-share amounts)Net revenue

$
1,181,514Net income attributable to common
    stockholders

$
29,184Net income per share attributable
    to common stockholders  basic

$
0.08Net income per share attributable
    to common stockholders  diluted

$
0.07   SUSE
    LINUX AG
       80
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
        EstimatedAcquisition Cost


Asset Life(In thousands)Fair value of net tangible assets
    acquired

$
1,599



N/AIdentifiable intangible assets:Customer relationships


13,385



3 yearsInternal use software


5,864



3 yearsTrademarks/trade names


24,221



IndefiniteGoodwill


176,963



IndefiniteTotal acquisition costs

$
222,032           
    product maintenance services;
    business support services;
    partner memberships;
    alliances; and
    customer backlog.       Novell
    annual report 2006
    81




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
          Fiscal Year EndedOct. 31, 2004(In thousands, except pershare amounts)Net revenue

$
1,173,890Net income attributable to common
    stockholders

$
30,135Net income per share attributable
    to common stockholders  basic and diluted

$
0.08   E.
    Divestitures  Celerant
      Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands)Celerant net revenue

$
83,341


$
158,472


$
162,063Celerant income before taxes

$
1,783


$
8,191


$
17,043Gain on sale of Celerant


11,117







Income tax expense


972



2,760



6,451Income from discontinued operations

$
11,928


$
5,431


$
10,592      82
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    (In thousands)Sales price

$
77,014Costs to sell


(3,248
)73,766Net book value of Celerant:Cash


37,344Accounts receivable, net


35,185Other current assets


2,418Goodwill


24,452Other long-term assets


1,978Current liabilities


(26,878
)Minority interest


(2,993
)Foreign exchange and other


(8,857
)62,649Gain on sale of Celerant before
    income taxes

$
11,117   Japan
    Consulting Group
    (In thousands)Fair value of JCG (non-contingent
    selling price)

$
2,800Costs to sell


(393
)2,407Net book value of JCG:Current assets


2,935Goodwill


7,106Current liabilities


(619
)Foreign exchange and other


1,25810,680Loss on sale of JCG before income
    taxes

$
8,273        Novell
    annual report 2006
    83




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   F.
    Cash and
    Short-Term Investments  available-for-sale
  FairMarketCost at


Gross


Gross


Value atOctober 31,


Unrealized


Unrealized


October 31,2006


Gains


Losses


2006(In thousands)Short-term investments:Auction market securities

$
86,577


$
26


$



$
86,603U.S. government and agency
    securities


335,761



424



(2,709
)


333,476Corporate notes and bonds


262,706



176



(1,533
)


261,349Asset and mortgage-backed
    securities


102,718



113



(575
)


102,256Equity securities


6,305



511







6,816Total short-term investments

$
794,067


$
1,250


$
(4,817
)

$
790,500   FairMarketCost at


Gross


Gross


Value atOctober 31,


Unrealized


Unrealized


October 31,2005


Gains


Losses


2005(In thousands)Short-term investments:Auction market securities

$
117,702


$



$



$
117,702U.S. government and agency
    securities


405,934



1



(4,604
)


401,331Corporate notes and bonds


237,872



15



(2,631
)


235,256Asset and mortgage-backed
    securities


84,398



3



(829
)


83,572Equity securities


5,380



425







5,805Total short-term investments

$
851,286


$
444


$
(8,064
)

$
843,666       Cost


Fair Market Value(In thousands)Less than one year

$
199,846


$
198,310Due in one to two years


230,696



228,279Due in two to three years


103,315



103,114Due in more than three years


168,832



168,908No contractual maturity


91,378



91,889Total short-term investments

$
794,067


$
790,500        84
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  other-than-temporarily
  G.
    Notes Receivable    H.
    Long-Term
    Investments           Novell
    annual report 2006
    85




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  I.
    Property,
    Plant and Equipment    October 31,


October 31,2006


2005(In thousands)Buildings and land

$
193,648


$
191,956Furniture and equipment


214,167



219,097Leasehold improvements and other


48,360



58,265Corporate aviation assets held for
    sale






18,849Property, plant and equipment, at
    cost


456,175



488,167Accumulated depreciation


(272,091
)


(275,790
)Property, plant and equipment, net

$
184,084


$
212,377         J.
    Goodwill
    and Intangible Assets  Goodwill
    October 31,


October 31,2006


2005(In thousands)SUSE

$
172,086


$
176,963SilverStream


108,253



112,622e-Security


59,699



Ximian


32,605



33,852Tally


14,909



16,308Immunix


14,227



14,676Salmon


11,906



6,146Onward Novell


2,010



Cambridge Technology Partners






25,903Other technology companies


9,006



9,039Total goodwill

$
424,701


$
395,509        86
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Asia


CelerantAmericas


EMEA


Pacific


Consulting


Total(In thousands)Balance as of October 31, 2005

$
191,498


$
150,487


$
27,621


$
25,903


$
395,509Onward Novell minority interest
    acquisition










2,010







2,010e-Security
    acquisition


38,986



16,450



5,472







60,908Celerant consulting divestiture














(24,452
)


(24,452
)Loss on Japan consulting group
    held for sale










(7,106
)






(7,106
)Adjustments


(3,345
)


2,987



(359
)


(1,451
)


(2,168
)Balance as of October 31, 2006

$
227,139


$
169,924


$
27,638


$



$
424,701   e-Security
       Novell
    annual report 2006
    87




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Intangible
    Assets
    October 31, 2006


October 31, 2005Gross


Accumulated


Net Book


Gross


Accumulated


Net BookAmount


Amortization


Value


Amount


Amortization


Value


Asset Lives(In thousands)Developed technology

$
30,929


$
(21,128
)

$
9,801


$
22,850


$
(16,718
)

$
6,132


3-4 yearsTrademarks and trade names


24,731



(131
)


24,600



25,571



(20
)


25,551


IndefinitePatents














15,500



(1,392
)


14,108


10 yearsCustomer/contractual relationships


23,002



(17,381
)


5,621



19,362



(10,454
)


8,908


3 yearsInternal use software


5,193



(4,921
)


272



5,193



(3,700
)


1,493


3 yearsNon-compete agreement


422



(312
)


110



422



(193
)


229


3 yearsTotal intangible assets

$
84,277


$
(43,873
)

$
40,404


$
88,898


$
(32,477
)

$
56,421   e-Security.
  e-Security, e-Security e-Security, e-Security.
         88
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      K.
    Income
    Taxes      Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands)Income tax expenseCurrent:Federal

$
14,846


$
52,439


$
(5,819
)State


1,612



3,200



500Foreign


11,470



30,764



17,375Total current income tax expense


27,928



86,403



12,056Deferred:Federal


133



475



State










Foreign


(4,830
)


(218
)


(721
)Total deferred income tax expense
    (benefit)


(4,697
)


257



(721
)Total income tax expense from
    continuing operations

$
23,231


$
86,660


$
11,335      Novell
    annual report 2006
    89




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004U.S. statutory rate


35.0
%


35.0
%


35.0
%State income taxes, net of federal
    tax effect


0.8



3.8



Research and development tax
    credits


(4.3
)


(1.0
)


(4.9
)Foreign income taxed at different
    rates than U.S. statutory rate


(10.9
)


6.6



Valuation allowances


51.7



(26.1
)


(4.5
)Stock-based compensation


10.4







Adjustments to prior year tax
    provisions


(5.7
)






Loss on sale of foreign
    subsidiaries


8.1







Non-recurring tax benefit


(13.6
)






(10.2
)Other, net


3.8



0.6



4.2Effective tax rate on continuing
    operations


75.3
%


18.9
%


19.6
%     Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands)Domestic

$
6,098


$
450,491


$
31,939Foreign


24,758



7,460



25,992Total income from continuing
    operations, before taxes

$
30,856


$
457,951


$
57,931Cash paid for income taxes

$
17,374


$
20,872


$
17,806      90
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    October 31,


October 31,2006


2005(Amounts in thousands)Deferred income taxes:Deferred tax assets:Accruals

$
26,631


$
23,593Capital loss carryforward


54,526



53,192Credit carryforwards


149,718



155,195Net operating loss carryforwards


162,047



114,308Investment impairments


23,035



32,096Receivable valuation accounts


1,478



3,249Stock-based compensation expense


9,872Other items


9,015



12,896Gross deferred tax assets


436,322



394,529Valuation allowance


(391,998
)


(317,367
)Total deferred tax assets


44,324



77,162Deferred tax liabilities:Depreciation


(4,037
)


(11,664
)Foreign earnings


(36,125
)


(63,952
)Intangibles from acquisitions


(3,578
)


(4,699
)Total deferred tax liabilities


(43,740
)


(80,315
)Net deferred tax assets
    (liabilities)

$
584


$
(3,153
)            Novell
    annual report 2006
    91




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
             92
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   L.
    Other
    Accrued Liabilities    October 31,


October 31,2006


2005(In thousands)Restructuring reserves

$
13,821


$
45,331Accrued property and other taxes


14,920



26,940Other accrued expenses


50,440



26,640Merger liabilities


14,644



17,851Accrued marketing expenses


6,348



7,492Accrued royalties


5,781



5,966Accrued interest and dividends


883



885Total other accrued liabilities

$
106,837


$
131,105   M.
    Restructuring
    Expenses  Fiscal
    2006
        OtherSeverance and


Excess


Restructuring-Benefits


Facilities


Related Costs


Total(In thousands)Original reserve

$
3,420


$
606


$
163


$
4,189Cash payments


(323
)


(591
)


(35
)


(949
)Balance at October 31, 2006

$
3,097


$
15


$
128


$
3,240        Novell
    annual report 2006
    93




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Fiscal
    2005
      OtherSeverance and


Excess


Restructuring-Benefits


Facilities


Related Costs


Total(In thousands)Original reserve

$
45,763


$
7,364


$
477


$
53,604Cash payments


(17,271
)


(913
)


(218
)


(18,402
)Balance at October 31, 2005


28,492



6,451



259



35,202Cash payments


(25,438
)


(4,022
)


(202
)


(29,662
)Non-cash adjustments


(1,721
)


1,437







(284
)Balance at October 31, 2006

$
1,333


$
3,866


$
57


$
5,256     Fiscal
    2004
       94
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Severance and


ExcessBenefits


Facilities


Total(In thousands)Original reserve

$
12,910


$
6,152


$
19,062Cash payments


(8,252
)


(3,645
)


(11,897
)Balance at October 31, 2004


4,658



2,507



7,165Cash payments


(2,716
)


(1,109
)


(3,825
)Non-cash adjustments


(699
)


59



(640
)Balance at October 31, 2005


1,243



1,457



2,700Cash payments


(1,012
)


(1,067
)


(2,079
)Non-cash adjustments


(231
)


487



256Balance at October 31, 2006

$



$
877


$
877       Fiscal
    2003
         Novell
    annual report 2006
    95




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     ExcessFacilities,


OtherSeverance and


Property and


Restructuring-Benefits


Equipment


Related Costs


Total(In thousands)Original reserve

$
20,287


$
5,778


$
1,729


$
27,794Cash payments


(17,163
)


(3,079
)


(423
)


(20,665
)Non-cash adjustments


3,755



5,735



536



10,026Balance at October 31, 2003


6,879



8,434



1,842



17,155Cash payments


(7,462
)


(5,911
)






(13,373
)Non-cash adjustments


876











876Balance at October 31, 2004


293



2,523



1,842



4,658Cash payments


(75
)


(1,458
)


(6
)


(1,539
)Non-cash adjustments


(218
)


2,056



(1,826
)


12Balance at October 31, 2005






3,121



10



3,131Cash payments






(1,343
)


(10
)


(1,353
)Non-cash adjustments






434







434Balance at October 31, 2006

$



$
2,212


$



$
2,212         Fiscal
    2002
       96
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     ExcessFacilities,


OtherSeverance and


Property and


Restructuring-Benefits


Equipment


Related Costs


Total(In thousands)Original reserve

$
14,748


$
5,146


$
492


$
20,386Cash 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



8,779Cash payments


(3,152
)


(4,460
)






(7,612
)Non-cash adjustments


(100
)


4,381







4,281Balance at October 31, 2003


1,006



4,142



300



5,448Cash payments


(1,006
)


(2,216
)


(41
)


(3,263
)Non-cash adjustments






1,597



817



2,414Balance at October 31, 2004






3,523



1,076



4,599Cash payments






(1,261
)


(262
)


(1,523
)Non-cash adjustments






1,398



(777
)


621Balance at October 31, 2005






3,660



37



3,697Cash payments






(1,424
)


(37
)


(1,461
)Non-cash adjustments














Balance at October 31, 2006

$



$
2,236


$



$
2,236       Fourth
    quarter of fiscal 2001
         Novell
    annual report 2006
    97




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     ExcessFacilities,


OtherSeverance and


Property and


Restructuring-Benefits


Equipment


Related Costs


Total(In thousands)Original reserve

$
32,793


$
10,896


$
6,973


$
50,662Cash payments










(11
)


(11
)Non-cash adjustments










(6,051
)


(6,051
)Balance at October 31, 2001


32,793



10,896



911



44,600Cash 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



6,392Cash payments


(1,013
)


(2,181
)


(439
)


(3,633
)Non-cash adjustments






262







262Balance at October 31, 2003


104



2,732



185



3,021Cash payments


(104
)


(862
)






(966
)Non-cash adjustments






(333
)


95



(238
)Balance at October 31, 2004






1,537



280



1,817Cash payments






(880
)


(6
)


(886
)Non-cash adjustments






(330
)






(330
)Balance at October 31, 2005






327



274



601Cash payments






(327
)


(15
)


(342
)Non-cash adjustments










(259
)


(259
)Balance at October 31, 2006

$



$



$



$
     Balance at











Balance atOctober 31,


Additions from


Additional


Payments/


October 31,2005


Acquisitions


Expense


Adjustments


2006(In thousands)Facilities related

$
17,606


$



$
670


$
(3,819
)

$
14,457Employee related


169



437







(521
)


85Other


76



646



56



(676
)


102Total merger liabilities

$
17,851


$
1,083


$
726


$
(5,016
)

$
14,644   N.
    Line of
    Credit         98
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Form 10-Q, Form 10-K, Form 10-Q
    O.
    Asset
    Retirement Obligations  and/or
      P.
    Senior
    Convertible Debentures         Novell
    annual report 2006
    99




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  agreed-upon 00-19,
    Form 10-Q Form 10-Q EITF 96-19, (EITF 96-19),
     100
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   Q.
    Guarantees    and/or and/or
    R.
    Commitments
    and Contingencies    month-to-month
  S.
    Legal
    Proceedings         Novell
    annual report 2006
    101




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
           102
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
          T.
    Redeemable
    Preferred Stock         Novell
    annual report 2006
    103




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  No. 98-5,
        U.
    Stockholders
    Equity  Preferred
    Share Rights Agreement
    Stock
    Repurchase
    Stock
    Option Plans
    The 2000
    Stock Plan and the 1991 Stock Plan
       104
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    The 2000
    Nonqualified Stock Option Plan
    The
    Novell/SilverStream 1997 Stock Option Plan
       Novell
    annual report 2006
    105




---



##### 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
          106
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Fiscal 2006


Fiscal 2005


Fiscal 2004Weighted-





Weighted-





Weighted-Number of


Average


Number of


Average


Number of


AverageOptions


Exercise Price


Options


Exercise Price


Options


Exercise Price(Number of options in thousands)Outstanding at beginning of year


49,530


$
6.72



46,126


$
6.76



41,875


$
5.21Granted:Price at fair value


3,232



8.29



13,053



5.98



17,893



9.58Price at greater than fair value






















Price at less than fair value


5,706



0.10



520



0.10



486



0.10Exercised


(9,406
)


4.28



(4,431
)


3.31



(10,530
)


4.41Cancelled:Forfeited


(4,081
)


7.10



(5,625
)


7.37



(3,593
)


8.59Expired


(2,324
)


9.79



(113
)


6.92



(5
)


5.62Outstanding at end of year


42,657


$
6.28



49,530


$
6.72



46,126


$
6.76Exercisable at end of year


29,181


$
7.17



28,560


$
6.51



23,247


$
5.73     Options OutstandingWeighted-





Options ExercisableNumber of


Average


Weighted-


Number of


Weighted-Options


Remaining


Average


Options


AverageRange of Exercise Prices

Outstanding


Contractual Life


Exercise Price


Exercisable


Exercise Price(Number of options in thousands)$ 0.00  $ 3.92


9,458



2.9


$
1.46



4,124


$
3.16$ 3.93  $ 4.68


3,923



4.4



4.57



3,923



4.57$ 4.70  $ 5.02


1,619



3.2



5.01



1,619



5.01$ 5.21  $ 5.55


5,719



6.1



5.54



2,274



5.54$ 5.62  $ 6.80


3,841



3.6



6.39



2,892



6.45$ 6.91  $ 8.75


4,113



5.2



7.97



1,611



7.98$ 8.91  $ 9.14


6,411



1.1



9.14



6,407



9.14$ 9.19  $10.50


3,778



2.9



9.47



3,366



9.48$10.63  $38.88


3,795



4.3


$
11.76



2,965


$
12.00$ 0.00  $38.88


42,657



3.6


$
6.28



29,181


$
7.17   Fiscal 2006


Fiscal 2005(Number of shares and options in thousands)Options available for future grants


35,970



38,241Shares of common stock outstanding
    at year end


343,363



385,821Options granted during the year as
    a percentage of outstanding common stock


3
%


4
%     Novell
    annual report 2006
    107




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
  Employee
    Stock Purchase Plan
      Shares Reserved
    for Future Issuance
    V.
    Stock-Based
    Compensation    Fiscal Year Ended


Fiscal Year Ended


Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands)Cost of revenue

$
4,096


$
6


$
Sales and marketing


11,533



998



1,957Product development


8,226



1,172



1,746General and administrative


11,147



(428
)


1,237Operating income


35,002



1,748



4,940Discontinued operations


263







Tax benefit










Effect on net income

$
35,265


$
1,748


$
4,940          108
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Stock
    Plans
    Time-Based
    Stock Awards
    Fiscal Year EndedOctober 31, 2006Expected volatility


50
%Expected dividends


0
%Expected term


4 yearsRisk-free interest rate


4.3  5.1
%          Novell
    annual report 2006
    109




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     Weighted-Weighted-


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term


Value(In thousands)





(Years)


(000s)Stock AwardsOutstanding at November 1,
    2005


47,042


$
6.68Granted:Price equal to fair market value


2,195


$
8.16Price less than fair market value


5,222


$
0.00Exercised


(8,856
)

$
4.54Forfeited or expired


(5,235
)

$
4.02Outstanding at October 31,
    2006


40,368


$
6.22



3.6


$
53,324Exercisable at October 31,
    2006


27,768


$
7.20



3.3


$
20,375       Weighted-AverageGrant DateShares


Fair Value(In thousands)Unvested Restricted
    StockUnvested at November 1, 2005


984


$
4.85Granted


275



8.33Vested


(791
)


4.35Forfeited


(144
)


7.83Unvested at October 31, 2006


324


$
7.71     Performance-Based
    and Market-Condition Awards
       110
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
         Weighted-Weighted-


AverageAverage


Remaining


AggregateExercise


Contractual


IntrinsicShares


Price


Term


Value(In thousands)





(Years)


(In thousands)Stock
    AwardsOutstanding at November 1,
    2005


2,413


$
7.49Granted


535


$
8.29Exercised


(101
)

$
6.35Forfeited or expired


(884
)

$
9.22Outstanding at October 31,
    2006


1,963


$
6.97



3.17


$
102Exercisable at October 31,
    2006


1,412


$
6.60



2.06


$
159       Weighted-AverageGrant DateShares


Fair Value(In thousands)Unvested Restricted
    StockUnvested at November 1, 2005


125


$
7.42Granted


87


$
9.22Vested


(25
)

$
7.35Forfeited


(60
)

$
9.22Unvested at October 31, 2006


127


$
6.44        Novell
    annual report 2006
    111




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Celerant
    Stock Awards
    Fiscal
    2005 and 2004 Stock Award Information
    Fiscal Year EndedOctober 31,


October 31,2005


2004(In thousands, except per share amounts)Net income (loss):As reported

$
376,722


$
57,188Less: total stock-based
    compensation expense determined under fair value-based method
    for all awards, net of related tax effects


(50,420
)


(51,436
)Add: total stock-based
    compensation expense recorded in the statement of operations


2,653



4,940Pro forma

$
328,955


$
10,692Net income (loss) per common share:As reported basic

$
0.98


$
0.08Pro forma basic

$
0.86


$
(0.04
)As reported diluted

$
0.86


$
0.08Pro forma diluted

$
0.75


$
(0.04
)     Employee
    Stock Purchase Plan
       112
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    W.
    Employee
    Savings and Retirement Plans  12-month
    Fiscal 2006


Fiscal 2005(In thousands)Change in benefit
    obligationBenefit obligation at beginning of
    fiscal year

$
12,217


$
9,076Service cost


857



751Interest cost


539



473Actuarial (gain) loss


(1,299
)


2,318Benefits paid


(7
)


(7
)Foreign exchange


(306
)


(394
)Benefit obligation at end of
    fiscal year

$
12,001


$
12,217Funded status (benefit obligation)

$
(12,001
)

$
(12,217
)Unrecognized net actuarial (gain)
    loss


620



1,917Unrecognized net obligation


640



729Accrued benefit cost

$
(10,741
)

$
(9,571
)   October 31,


October 31,2006


2005(Dollars in thousands)Weighted-average
    assumptionsDiscount rate


4.5
%


4.3
%Rate of salary increase


3.0
%


3.0
%Post-retirement pension increases


1.8
%


1.8
%Net periodic pension
    cost

$
1,412


$
1,304        Novell
    annual report 2006
    113




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
     X.
    Net
    Income (Loss) Per Share Attributable to Common
    Stockholders    Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands, except per share data)Basic net income from
    continuing operations per share computation:Net income from continuing
    operations

$
7,625


$
371,291


$
46,596Dividends on Series B
    Preferred Stock


(187
)


(466
)


(416
)Allocation of earnings to
    stockholders of Series B Preferred Stock


(32
)


(3,614
)


(181
)Deemed dividend related to
    beneficial conversion feature of Series B Preferred Stock










(25,680
)Net income attributable to common
    stockholders

$
7,406


$
367,211


$
20,319Weighted-average common shares
    outstanding, excluding unvested restricted stock


361,174



379,499



381,100Basic net income from continuing
    operations per share attributable to common stockholders

$
0.02


$
0.97


$
0.05Diluted net income from
    continuing operations per share computation:Net income from continuing
    operations

$
7,625


$
371,291


$
46,596Dividends on Series B
    Preferred Stock


(187
)


(466
)


(416
)Allocation of earnings to the
    holders of Series B Preferred Stock


(32
)


(3,614
)


(181
)Deemed dividend related to
    beneficial conversion feature of Series B Preferred Stock










(25,680
)Interest expense on the Debentures






5,972



Diluted net income from continuing
    operations attributable to common stockholders

$
7,406


$
373,183


$
20,319Weighted-average common shares
    outstanding


361,174



379,499



381,100Incremental shares attributable to
    the assumed exercise of outstanding options, unvested restricted
    stock, and other stock plans


4,485



9,012



9,779Incremental shares attributable to
    the assumed conversion of the Debentures






52,074



Total adjusted weighted average
    common shares


365,659



440,585



390,879Diluted net income from continuing
    operations per share attributable to common stockholders

$
0.02


$
0.85


$
0.05      114
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      Y.
    Comprehensive
    Income    Fiscal Year EndedOctober 31,


October 31,2006


2005(In thousands)Net unrealized loss on investments

$
(3,567
)

$
(7,620
)Minimum pension liability






(633
)Cumulative translation adjustment


17,647



15,697Total accumulated other
    comprehensive income

$
14,080


$
7,444     Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands)Total change in gross unrealized
    loss on investments during the year

$
3,558


$
(8,550
)

$
(4,251
)Adjustment for net realized gains
    on investments included in net income (loss)


495



783



2,899Net unrealized loss on investments


4,053



(7,767
)


(1,352
)Minimum pension liability


633



623



(1,256
)Cumulative translation adjustments


1,950



(1,592
)


11,720Other comprehensive income (loss)

$
6,636


$
(8,736
)

$
9,112     Z.
    Related
    Party Transactions    AA.  Segment
    Information
       Novell
    annual report 2006
    115




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      
    Americas  includes the United States, Canada and
    Latin America
    EMEA  includes Eastern and Western Europe, Middle
    East, and Africa
    Asia Pacific  includes China, Southeast Asia,
    Australia, New Zealand, Japan, and India      Fiscal 2006


Fiscal 2005


Fiscal 2004Operating





Operating





OperatingNet Revenue


Income (Loss)


Net Revenue


Income (Loss)


Net Revenue


Income (Loss)(In thousands)Americas

$
536,813


$
279,703


$
537,198


$
274,585


$
535,507


$
273,002EMEA


345,597



107,369



407,998



133,002



378,269



122,111Asia Pacific


84,867



15,434



94,027



21,367



90,078



27,061Common unallocated operating costs






(406,189
)






(3,248
)






(369,173
)Stock-based compensation expenses






(35,002
)






(1,748
)






(4,940
)Total per statement of operations

$
967,277


$
(38,685
)

$
1,039,223


$
423,958


$
1,003,854


$
48,061       
    Systems, security, and identity management (formerly
    Identity-driven computing solutions).
    Sub-categories
    include:  
    Resource management  major products include ZENworks
    Identity and access management  major products
    include Identity Manager, Secure Login, iChain, and Sentinel
    Other systems, security, and identity management
    products  major products include eDirectory and web
    services     116
    Novell
    annual report 2006




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
   
    Open platform solutions.
    Sub-categories
    include:  
    Linux platform products  major products include SUSE
    Linux Enterprise Server and our Linux desktop products
    Other open platform products  major products include
    SUSE Linux Professional  
    Workspace solutions.
    Sub-categories
    include:  
    Open Enterprise Server (OES)
    NetWare and other NetWare-related  major products
    include NetWare and Cluster Services
    Collaboration  major products include GroupWise
    Other workspace  major products include BorderManager
    and Novell iFolder  
    Global services and support  comprehensive worldwide
    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 technology.    Revenue
    by Solution Category
  Fiscal Year Ended October 31,2006


2005


2004(In thousands)Resource management

$
134,579


$
144,358


$
124,338Identity and access management


97,721



74,936



61,324Other systems, security, and
    identity management products


17,975



21,022



21,353Systems, security and identity
    management


250,275



240,316



207,015Linux platform products


45,296



35,836



19,309Other open platform products


8,146



17,761



14,678Open platform solutions


53,442



53,597



33,987Open Enterprise Server


181,695



85,331



NetWare and other NetWare-related


47,779



193,549



301,441Collaboration


96,176



99,422



103,556Other workspace products


23,594



30,842



50,093Workspace solutions


349,244



409,144



455,090Total software licenses and
    maintenance


652,961



703,057



696,092Global services and support


314,316



336,166



307,762Total net revenue

$
967,277


$
1,039,223


$
1,003,854      Novell
    annual report 2006
    117




---



##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    
    Systems and resource management
    Identity and security management
    Open platform solutions
    Workgroup    Geographic
    Information
    Fiscal Year EndedOctober 31,


October 31,


October 31,2006


2005


2004(In thousands)Revenue:U.S. operations

$
596,259


$
606,600


$
587,710Irish operations


299,568



349,959



320,624Other international operations


146,577



161,690



149,736Eliminations


(75,127
)


(79,026
)


(54,216
)Total revenue

$
967,277


$
1,039,223


$
1,003,854Long-lived assets at year end:U.S. operations

$
653,562


$
715,192


$
715,005Irish operations


233,830



295,708



291,168Other international operations


382,322



329,579



326,033Eliminations


(618,262
)


(621,832
)


(605,048
)Total long-lived assets at year end

$
651,452


$
718,647


$
727,158      118
    Novell
    annual report 2006




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##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
    October 31,


October 31,2006


2005(In thousands)Long-lived assets

$
651,452


$
718,647Other long-term assets


37,146



34,158Current assets


1,761,125



2,009,053Total assets

$
2,449,723


$
2,761,858     AB.  Executive
    Termination Benefits
    AC.  Subsequent
    Events
  Sale of
    Venture Capital Funds
    Conversion
    of Redeemable Preferred Stock
    Microsoft
    Agreements
         Novell
    annual report 2006
    119




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##### Table of Contents



NOVELL,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
    (Continued)
      
    Development of technologies to optimize each of SLES and Windows
    running as guests in a virtualized setting on the other
    operating system;
    Development of management tools for managing heterogeneous
    virtualization environments, to enable each partys
    management tools to command, control and configure the other
    partys operating system in a virtual machine environment;
    Development of translators to improve interoperability between
    Microsoft Office and OpenOffice document formats; and
    Collaboration on improving directory and identity
    interoperability and identity management between Microsoft
    Active Directory software and Novell eDirectory software.      RedMojo
    Acquisition
    Sale of
    Salmon Subsidiary
       120
    Novell
    annual report 2006




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##### 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
       Novell
    annual report 2006
    121




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##### Table of Contents



Pricewaterhousecoopers
    LLP
        122
    Novell
    annual report 2006




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##### Table of Contents



REPORT OF
    ERNST & YOUNG LLP,
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          Ernst &
    Young LLP
    to the matter discussed in the second        Novell
    annual report 2006
    123




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##### Table of Contents



NOVELL,
    INC.



SELECTED
    CONSOLIDATED QUARTERLY FINANCIAL DATA

Unaudited  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Fiscal Year(In thousands, except per share data)Fiscal Year Ended
    October 31, 2006Net revenue

$
242,294


$
238,726


$
241,352


$
244,905


$
967,277Gross profit


160,971



157,074



160,676



168,471



647,192Income (loss) from continuing
    operations before taxes


14,231



8,220



(28,523
)


36,928



30,856Income (loss) from continuing
    operations


4,230



3,242



(20,560
)


20,713



7,625Income before cumulative effect of
    a change in accounting principle


1,865



3,342



(5,524
)


19,870



19,553Net income


1,865



3,342



(6,421
)


19,870



18,656Income (loss) from continuing
    operations per share, basic

$
0.01


$
0.01


$
(0.06
)

$
0.06


$
0.02Income (loss) from continuing
    operations per share, diluted

$
0.01


$
0.01


$
(0.06
)

$
0.06


$
0.02Net income per common share, basic

$
0.00


$
0.01


$
(0.02
)

$
0.06


$
0.05Net income per common share,
    diluted

$
0.00


$
0.01


$
(0.02
)

$
0.05


$
0.05Fiscal Year Ended
    October 31, 2005Net revenue

$
246,079


$
253,144


$
252,382


$
287,618


$
1,039,223Gross profit


159,761



161,095



167,736



198,565



687,157Income (loss) from continuing
    operations before taxes


452,071



(1,308
)


7,429



(241
)


457,951Income (loss) from continuing
    operations


393,326



(16,928
)


560



(5,667
)


371,291Net income (loss)


395,161



(15,627
)


2,140



(4,952
)


376,722Income (loss) from continuing
    operations per share, basic

$
1.03


$
(0.05
)

$
0.00


$
(0.02
)

$
0.97Income (loss) from continuing
    operations per share, diluted

$
0.90


$
(0.05
)

$
0.00


$
(0.02
)

$
0.85Net income (loss) per common
    share, basic

$
1.04


$
(0.04
)

$
0.01


$
(0.01
)

$
0.98Net income (loss) per common
    share, diluted

$
0.90


$
(0.04
)

$
0.00


$
(0.01
)

$
0.86   Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Effectiveness
    of Disclosure Controls and
    Procedures.
       124
    Novell
    annual report 2006




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##### Table of Contents



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 and dispositions 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.      Changes
    in Internal Control Over Financial
    Reporting.
   Item 9B.  Other
    Information       Novell
    annual report 2006
    125




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##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of Registrant  Directors
    of the Registrant
     Albert Aiello
    Director since 2003
     Fred Corrado
    Director since 2002
     Richard L. Crandall
    Director since 2003
  Dreman/Claymore
   Ronald W. Hovsepian
    Director since 2006
  17-year
     126
    Novell
    annual report 2006




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##### Table of Contents



Patrick S. Jones
    Director since 2007
     Claudine B. Malone
    Director since 2003
     Richard L. Nolan
    Director since 1998
     Thomas G. Plaskett
    Director since 2002
     John W. Poduska, Sr., Sc.D.
    Director since 2001
       Novell
    annual report 2006
    127




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##### Table of Contents



James D. Robinson, III
    Director since 2001
  Coca-Cola
   Kathy Brittain White
    Director since 2003
    Executive
    Officers of the Registrant
    Name

Age


PositionRonald W. Hovsepian


46


President and Chief Executive
    OfficerDr. Jeffrey Jaffe


52


Executive Vice President and Chief
    Technology OfficerTom Francese


57


Executive Vice President,
    Worldwide SalesAlan J. Friedman


59


Senior Vice President, PeopleJoseph A. LaSala, Jr


52


Senior Vice President, General
    Counsel and SecretaryColleen OKeefe


51


Senior Vice President of ServicesJohn Dragoon


47


Senior Vice President and Chief
    Marketing OfficerDana C. Russell


45


Senior Vice President and Chief
    Financial Officer    Ronald W. Hovsepian
  17-year
     128
    Novell
    annual report 2006




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##### Table of Contents



Dr. Jeffrey Jaffe
     Tom Francese
  30-year
   Alan J. Friedman
     Joseph A. LaSala, Jr.
     Colleen OKeefe
     John Dragoon
     Dana C. Russell
       Novell
    annual report 2006
    129




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About the
    Board of Directors and its Committees
  Board
    of Directors
  http://www.novell.com/company/ir/cg/
  Independence
       130
    Novell
    annual report 2006




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##### Table of Contents



Board
    Committees
    Audit
    Committee
  Fred Corrado, Chairperson

 Oversee accounting and
    financial reporting processes and audits of the financial
    statementsAlbert Aiello

 review
    judgments and decisions affecting financial statementsRichard L. Crandall

 review all
    financial data to be releasedPatrick S. Jones

 Monitor compliance
    with applicable laws and regulations and review significant
    cases of misconductClaudine B. Malone

 Oversee internal
    control over financial reporting Oversee disclosure
    controls and procedures Oversee implementation
    of the Code of Business Ethics Oversee our
    initiatives in connection with Section 404 of the
    Sarbanes-Oxley Act of 2002 to (i) establish and maintain an
    adequate internal control structure and procedures for financial
    reporting and (ii) assess the effectiveness of such
    internal control structure and procedures. Oversee our investment
    policies, controls, and procedures, and portfolio performance Oversee internal audit
    function Oversee independent
    auditors appoint
    and approve compensation pre-approve
    permitted services evaluate
    performance monitor
    independence   www.novell.com/ethics/index.jsp, follow-up,
  http://www.novell.com/company/ir/cg/
  Financial
    Expertise
       Novell
    annual report 2006
    131




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##### Table of Contents



Compensation
    Committee
  John W. Poduska, Sr.
    Chairperson

 Establish overall
    compensation philosophies Evaluate management
    performance and developmentRichard L. Nolan Recommend performance
    evaluation and compensation for CEO to BoardClaudine B. Malone Set compensation for
    executivesThomas G. Plaskett consider
    industry benchmarks establish
    and administer performance goals Establish compensation
    program for employees Recommend director
    compensation to Corporate Governance Committee and Board Administer employee
    benefit and incentive plans Administer stock
    option and other equity-based plans Oversee succession
    planning Review management
    development policies   http://www.novell.com/company/ir/cg/
  Corporate
    Governance Committee
  Thomas G. Plaskett, Chairperson

 Establish criteria for
    the selection of directors and recommend Board nomineesJohn W. Poduska, Sr.

 conduct
    searches for prospective directorsKathy Brittain White

 review
    candidates recommended by stockholders Recommend committee
    membership Oversee corporate
    governance review
    committee charters review
    codes of ethics for executives, employees and directors Monitor director
    independence Review and approve all
    transactions between us and our directors and executive officers Oversee board and
    committee evaluation and development Recommend director
    compensation to the Board   http://www.novell.com/company/ir/cg/
  Technology
    Committee
  Rickard L. Nolan, Chairperson

 Oversee our product
    strategy and roadmapAlbert Aiello

 Oversee internal IT
    projectsJohn W. Poduska, Sr.

 Monitor the
    effectiveness of IT security and disaster recovery capabilitiesJames D. Robinson, III

 Monitor the quality
    and effectiveness of IT systems and processes that relate to or
    affect the Companys internal control systemsKathy Brittain White

 Advise the Board of
    Directors on technology related matters      132
    Novell
    annual report 2006




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##### Table of Contents



http://www.novell.com/company/ir/cg/
  Option
    Grant Committee
  Ronald W. Hovsepian

 Make discretionary
    grants of stock options, restricted stock and restricted stock
    units to non-executive employees eligible to participate in our
    employee equity plans.   Meetings
    of the Board of Directors and Board Committees
      Bylaw
    Amendments regarding Director Nomination Process
      Codes of
    Ethics
    Code of Business Ethics. http://www.novell.com/company/ir/cg/
     Novell
    annual report 2006
    133




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##### Table of Contents



Non-Employee Director Code of
    Ethics. www.novell.com/company/ir/cg/
  Section 16(a)
    Beneficial Ownership Reporting Company
    Item 11.
    Executive
    Compensation  Summary
    Compensation Table
    Long-Term Compensation AwardAnnual Compensation(1)


Restricted


SecuritiesOther Annual


Stock


Underlying


All OtherFiscal


Salary


Bonus


Compensation


Awards


Options


CompensationName and Principal Position

Year


($)


($)(2)


($)(3)


($)(4)


(#)


($)(5)Jack L. Messman(6)


2006


$
608,389


$



$
9,488


$
1,287,000



600,000


$
5,741,244Former Chief Executive Officer


2005


$
950,150


$
625,000


$
171,826







1,551,528


$
83,3832004


$
950,037


$
987,026


$
77,013







848,500


$
43,062Ronald Hovsepian


2006


$
786,440


$







$
501,848



237,005


$
92,187President and Chief


2005


$
500,020


$
416,000






$
2,256,000



575,000


$
32,815Executive Officer


2004


$
500,020


$
575,000











137,000


$
27,759Dr. Jeffrey M. Jaffe(6)


2006


$
417,708


$
729,000


$
120,346


$
843,320



331,325


$
15,401Executive Vice President, Chief
    Technology OfficerThomas Francese(6)


2006


$
450,017


$
341,000


$
321,133










$
6,900Executive Vice President,


2005


$
37,501


$
300,000






$
747,000



200,000



Worldwide SalesJoseph A. LaSala, Jr.


2006


$
355,014


$
350,000



4,337


$
169,993



80,275


$
45,145Senior Vice President,


2005


$
352,627


$
161,000


$
3,073







163,319


$
25,672General Counsel and Secretary


2004


$
340,015


$
262,548


$
6,740







137,500


$
14,047Susan Heystee(6)


2006


$
460,005


$
184,000






$
291,410



137,615



President, Novell Americas


2005


$
457,067


$
50,415











280,000



     (1)
    
    Compensation deferred at the election of the executive, pursuant
    to the our Retirement and Savings Plan, the Deferred
    Compensation Plan, and the Stock-Based Deferred Compensation
    Plan, is included in the year earned.(2)
    
    Cash bonuses for services rendered in fiscal 2006, 2005 and 2004
    have been listed in the fiscal year earned, although most
    bonuses were paid after the end of the applicable fiscal year.
    Pursuant to Mr. Hovsepians     134
    Novell
    annual report 2006




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##### Table of Contents



(3)
    
    No Named Executive Officer received perquisites in an amount
    greater than the lesser of (i) $50,000 or (ii) 10% of
    such Named Executive Officers total salary plus bonus,
    except for Mr. Messman in 2005 and 2004, Dr. Jaffe in
    2006, and Mr. Francese in 2006. Amounts listed for
    Mr. Messman in 2006 and for Mr. LaSala represent
    reimbursement for the payment of taxes.Amounts for Mr. Messman in fiscal 2005 and fiscal 2004
    include personal use of our corporate aircraft that was valued
    at $137,711 (valued at the incremental cost to the corporation)
    and $54,615 (valued using Standard Industry Fare Level
    (SIFL) rates from the U.S. Department of
    Transportation), respectively.The amount for Dr. Jaffe represents $75,000 in relocation
    expenses and $45,346 in reimbursement for the payment of taxes.The amount for Mr. Francese includes (i) a cash
    payment of $193,590 intended to compensate for a portion of
    housing, car, cost of living, continuation of his residence in
    Texas, and the storage of household goods, (ii) $56,410 in
    rent paid by Novell on behalf of Mr. Francese,
    (iii) $50,219 for travel for Mr. Francese and his
    family and storage of household goods, and (iv) $18,162 in
    reimbursement for the payment of taxes.(4)
    
    The dollar value of restricted common stock awards is calculated
    by multiplying the closing market price of our common stock on
    the date of grant, less the purchase price, by the number of
    shares awarded. Holders of such restricted common stock awards
    have the right to vote the shares and to receive cash dividends,
    if any. Any stock dividends that may be received will have the
    same vesting restrictions as the shares. The award to
    Ms. Heystee was an award of restricted common stock units
    (RSUs). RSUs are automatically converted
    to common stock upon vesting. Until conversion, the holders of
    RSUs do not have any right to vote any underlying shares
    of common stock or to receive dividends.As of October 31, 2006, when the closing price of our
    common stock was $6.00, Mr. Hovsepian had 321,750 unvested
    shares with a fair market value of $1,898,325, Dr. Jaffe
    had 107,830 unvested shares with a fair market value of
    $636,197, Mr. Francese had 58,334 unvested shares with a
    fair market value of $344,171, Mr. LaSala had 20,070
    unvested shares with a fair market value of $118,413, and
    Ms. Heystee had 44,405 unvested RSUs that represented
    a fair market value of $261,990.One-half of the restricted stock grant in fiscal 2006 of
    150,000 shares to Mr. Messman, 59,250 shares to
    Mr. Hovsepian, 7,830 shares to Dr. Jaffe, and
    20,070 shares to Mr. LaSala will vest over four years
    on each annual grant date anniversary and one-half will vest
    based on the achievement of various operating profit targets. An
    additional restricted stock grant in fiscal 2006 of
    100,000 shares to Dr. Jaffe will vest one-third on
    each of the first three annual anniversaries of the grant date.
    One half of the restricted stock grant in fiscal 2006 of 34,405
    RSUs to Ms. Heystee will vest over four years on each
    annual grant date anniversary and one half will vest based upon
    the achievement of various operating revenue targets. One half
    of the restricted stock grant in fiscal 2005 of
    300,000 shares to Mr. Hovsepian will vest based on the
    achievement of various operating profit targets, and the other
    half will vest ratably on each of the first four annual
    anniversaries of the grant date. The restricted stock grant in
    fiscal 2005 of 100,000 shares to Mr. Francese will
    vest as follows: 50,000 shares will vest ratably on each of
    the first three annual anniversaries of the grant date,
    25,000 shares will vest on the day that the average
    reported closing price of our common stock over the previous 30
    consecutive trading days has been greater than or equal to
    $8.20, and 25,000 shares will vest on the day that the
    average reported closing price of our common stock over the
    previous 30 consecutive trading days has been greater than or
    equal to $9.42.(5)
    
    The stated amounts are our matching contributions to our 401(k)
    Retirement and Savings Plan, Deferred Compensation Plan, and
    Stock-Based Deferred Compensation Plan, except as follows:In September 2006, we adopted an amendment to our Flexible Time
    Off (FTO) program (vacation and sick days) to reduce
    the number of hours that may be carried over from year to year
    by immediately cashing out all accruals over 120 hours to
    bring accrued FTO for all employees to 120 hours and
    establishing additional caps on the number of hours that may be
    carried over in future years. The following persons received the
    following one-time payments pursuant to the amendment to the FTO
    program: Mr. Messman  $114,265;
    Mr. Hovsepian  $35,439; and
    Mr. LaSala  $23,212.     Novell
    annual report 2006
    135




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##### Table of Contents



Upon his termination in June 2006, Mr. Messman received a
    one-time payment of $114,265 to cash out his accrued but unused
    FTO.The following amounts reflect the dollar value of benefits
    related to life insurance: Mr. Messman  $6,000,
    $5,500 and $5,060 in fiscal years 2006, 2005 and 2004,
    respectively; and Mr. LaSala  $1,780, $1,680 and
    $1,580 in fiscal years 2006, 2005 and 2004, respectively.
    Messrs. Messman and LaSala have collaterally assigned these
    life insurance policies to us to secure the repayment to us of
    up to the entire amount of the premiums paid by us pursuant to
    these policies. These payments are in respect of split-dollar
    insurance arrangements that were entered into prior to the
    adoption of the Sarbanes-Oxley Act of 2002, and no new
    arrangements have been entered into since the adoption of the
    Act.The amount of $5,571,243 in 2006 was a severance benefit paid to
    Mr. Messman pursuant to his severance agreement.(6)
    
    Mr. Messman served as Chief Executive Officer until June
    2006. Dr. Jaffe joined us as an executive officer in
    November 2005. Mr. Francese joined us as an executive
    officer in October 2005. Ms. Heystee became an executive
    officer in July 2005.  Stock
    Option Grants in Fiscal Year 2006
    Individual GrantsNumber of


% of TotalSecurities


Options








Potential Realizable Value atUnderlying


Granted to








Assumed Annual Rates ofOptions


Employees


Exercise





Stock Price Appreciation for Option Term(3)Granted


in Fiscal


Price


Expiration


5%


10%Name

(#)(1)


Year(2)


($/Sh)


Date


($)


($)Jack L. Messman


600,000
(4)(5)


7.07
%

$
8.71



12/21/2006
(5)

$



$
Ronald W. Hovsepian


237,005
(4)


2.79
%

$
8.71



12/12/2013


$
985,618


$
2,360,726Dr. Jeffrey M. Jaffe


300,000
(6)


3.53
%

$
7.93



11/28/2013


$
1,135,867


$
2,720,59831,325
(4)


0.37
%

$
8.71



12/12/2013


$
130,269


$
312,018Thomas Francese







%














Joseph A. LaSala, Jr.


80,275
(4)


0.95
%

$
8.71



12/12/2013


$
333,835


$
799,592Susan Heystee


137,615
(4)


1.62
%

$
8.71



12/12/2013


$
572,291


$
1,370,736     (1)
    
    All options shown in the table have exercise prices equal to the
    fair market value of our common stock on the date of grant and
    have the terms indicated. In the event of a change in control,
    as defined in our stock plans, except as otherwise determined by
    the Board of Directors prior to the occurrence of such change in
    control, all options shall become fully exercisable and vested
    and shall be terminated in exchange for a net cash payment. In
    the event of a merger involving us or the sale of substantially
    all of our assets that does not constitute a change in control,
    the acquiring company shall assume the unvested options. The
    Board of Directors can accelerate unvested options if the
    acquiring company does not assume the options. Each of the
    persons listed in the table has a severance agreement with us
    that may vary the treatment of these options in the event of a
    change in control. The plans provide for various methods of
    exercise. We currently allow for cash, cashiers check or
    cashless exercise.(2)
    
    Options to purchase a total of approximately
    8,487,998 shares were granted to employees in fiscal 2006.(3)
    
    Potential realizable value assumes the price of our common stock
    will appreciate at the annual rates shown. These rates are
    compounded annually from the date of grant until the end of the
    term of the option. The potential realizable value is calculated
    as: the potential stock price per share at the end of
    the term based on the 5% and 10% assumed appreciation rates, less the exercise price per share, times the number of shares subject to the option.     136
    Novell
    annual report 2006




---



##### Table of Contents



These numbers are calculated based on the requirements of the
    SEC and do not reflect our estimate of future common stock price
    growth. Actual gains, if any, on stock option exercises and
    common stock holdings are dependent on, among other things, the
    timing of such exercise and the future performance of our common
    stock. There is no assurance that the rates of appreciation
    assumed in this table can be achieved or that the amounts
    reflected will be received by the individuals.(4)
    
    Half of the shares subject to this option become vested and
    exercisable based on timing requirements, with 25% of this half
    of the option becoming exercisable on the first annual
    anniversary of the date of grant, and an additional 2.0833% of
    this half of the option becoming vested and exercisable on each
    succeeding monthly anniversary of the date of grant, so that
    this half of the option will be fully vested on the fourth
    annual anniversary of the date of grant. The other half of the
    shares subject to this option will vest based on the achievement
    of various operating revenue targets.(5)
    
    Pursuant to our severance agreement with Mr. Messman,
    112,500 of the shares subject to this option became immediately
    vested and exercisable upon the termination of his employment on
    June 21, 2006 and subsequently expired unexercised six
    months after termination on December 21, 2006. The
    remaining 487,500 shares subject to this option expired
    upon the termination of Mr. Messmans employment on
    June 21, 2006.(6)
    
    One-third of the shares subject to this option become vested and
    exercisable based on timing requirements with 25% of this
    one-third of the options becoming exercisable on the first
    annual anniversary of the date of grant, with an additional
    2.0833% of such portion becoming vested and exercisable on each
    succeeding monthly anniversary of the date of grant, so that
    this one-third of the option will be fully vested on the fourth
    annual anniversary of the date of grant. Another one-third of
    the shares subject to this option will vest based on the
    achievement of various operating revenue targets. The final
    one-third of the shares subject to this option will vest based
    on the achievement of various operating profit targets.  Aggregated
    Option Exercises in Last Fiscal Year and Fiscal Year-End Option
    Values
    Number of SecuritiesUnderlying Unexercised


Value of Unexercised
    In-the-Shares


Value


Options at Fiscal Year


Money Options at Fiscal YearAcquired on


Realized


End(#)


End($)(2)Name

Exercise (#)


($)(1)


Exercisable


Unexercisable


Exercisable


UnexercisableJack L. Messman


3,953,045


$
5,387,348



2,018,928






$
6,000


$
Ronald W. Hovsepian










791,145



657,860


$
1,330,000


$
Dr. Jeffrey M. Jaffe














331,325


$



$
Thomas Francese










75,000



125,000


$



$
Joseph A. LaSala, Jr.










587,606



216,488


$
749,553


$
15,068Susan Heystee










203,957



283,658


$
14,250


$
21,750     (1)
    
    Value realized on exercise is calculated as: the fair market value of our common stock on the
    date of exercise, less the option exercise price per share, times the number of shares subject to the options
    exercised.(2)
    
    Value of unexercised
    in-the-money
    options is calculated as: the fair market value of our common stock on
    October 31, 2006 ($6.00 per share), less the option exercise price per share, times the number of shares subject to the options.     Novell
    annual report 2006
    137




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##### Table of Contents



Director
    Compensation
    
    the annual retainer for the Chairman of the Board of Directors
    is $125,000;
    the annual retainer for all other members of the Board of
    Directors is $50,000;
    the annual retainer for service as chairperson of the Audit
    Committee is $20,000;
    the annual retainer for service as chairperson of all other
    committees of the Board of Directors is $10,000;
    fees for attendance at meetings of the Board of Directors are
    $1,500;
    fees for attendance at committee meetings of the Board of
    Directors are $1,500; and
    stock option grants as described below.               138
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    annual report 2006




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##### Table of Contents



Employment
    Contracts, Termination of Employment and
    Change-in-Control
    Arrangements
               Novell
    annual report 2006
    139




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##### Table of Contents



grossed-up.
      Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  Equity
    Compensation Plan Information
  Form 10-K
  Number ofSecurities tobe Issued Upon





Number of SecuritiesExercise





Remaining Available forof Outstanding


Weighted-Average


Future Issuance UnderOptions,


Exercise Price of


Equity Compensation PlansWarrants and


Outstanding Options,


(Excluding SecuritiesPlan Category

Rights (a)


Warrants and Rights (b)


Reflected in Column (a))(c)Equity compensation plans approved
    by security holders


31,898,842


$
5.78



23,141,079Equity compensation plans not
    approved by security holders


10,758,447


$
7.77



12,828,520Total


42,657,289


$
6.28



35,969,599      140
    Novell
    annual report 2006




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##### Table of Contents



SHARE
    OWNERSHIP BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND
    MANAGEMENT
    Number ofOutstanding








Total Shares


Percent ofShares


Right to


Restricted


Beneficially


OutstandingName

Owned(1)


Acquire(2)


Stock(3)


Owned


SharesCapital Research &
    Management Co.(4)


21,656,800











21,656,800



6.25
%333 South Hope StreetLos Angeles, CA
    90071-1406Columbia Wanger Asset Management,
    L.P.(5)


24,424,600











24,424,600



7.04
%227 West Monroe
    Street  3000Chicago, IL
    60606-5018OppenheimerFunds, Inc.(6)


23,179,009











23,179,009



6.68
%Two World Financial Center
    225 Liberty Street, 14th Floor
    New York, NY
    10281-1008Ziff Asset Management, L.P.(7)


20,388,664











20,388,664



5.88
%350 Park Avenue,
    11th Floor
    New York, NY 10022Albert Aiello


24,000



137,500







161,500



*Fred Corrado


16,000



137,500







153,500



*Richard L. Crandall


24,100



87,500







111,600



*Ronald W. Hovsepian


101,496



912,916



314,344



1,328,756



*Patrick Jones


















Claudine B. Malone


19,500



87,500







107,000



*Richard L. Nolan


10,000



312,500







322,500



*Thomas G. Plaskett


15,000



137,500







152,500



*John W. Poduska, Sr.


113,275



202,500







315,775



*James D. Robinson, III


34,751



202,500







237,251



*Kathy Brittain White


4,000



100,000







104,000



*Dr. Jeffrey M. Jaffe


22,902



50,275



73,519



146,696



*Thomas Francese


30,793



95,833



58,334



184,960



*Joseph A. LaSala, Jr.


52,463



641,363



17,562



711,388



*Susan Heystee


16,498
(8)


283,043







299,541



*All current directors and
    executive officers as a group (19 persons)


574,598
(8)


4,313,733



481,321



5,369,652



1.55
%     *
    
    less than 1%(1)
    
    The persons named in the table have sole voting and investment
    power with respect to all shares shown as beneficially owned by
    them except as may be otherwise indicated in a footnote. With
    respect to directors and executive officers, these tables
    include vested restricted stock holdings and exclude shares that
    may be acquired through stock option exercises and unvested
    restricted common stock holdings.(2)
    
    Includes shares that can be acquired through stock options that
    are exercisable through June 29, 2007.(3)
    
    These shares can be voted, but are subject to a vesting
    schedule, forfeiture risk and other restrictions.     Novell
    annual report 2006
    141




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##### Table of Contents



(4)
    
    Pursuant to a Schedule 13G/A filed on February 12,
    2007, Capital Research and Management Company disclosed that it
    had sole power to vote and dispose of all shares. Capital
    Research and Management Company subsequently disclosed in a
    Form 13F filed for the period ended March 31, 2007
    that it held 29,056,800 shares of common stock.(5)
    
    Pursuant to a Schedule 13G/A filed on January 10,
    2007, Columbia Wanger Asset Management, L.P. disclosed that it
    had sole power to vote and dispose of 23,924,600 shares and
    shared power to vote and dispose of 500,000 shares.(6)
    
    Pursuant to a Schedule 13G/A filed on February 6,
    2007, OppenheimerFunds, Inc. disclosed that it had shared power
    to vote and dispose of all shares.(7)
    
    Pursuant to a Schedule 13G filed on April 13, 2007,
    Ziff Asset Management, L.P. disclosed that it and its affiliates
    named in that Schedule had shared power to vote and dispose of
    all shares. Affiliates named included Ziff Asset Management,
    L.P.; PBK Holdings, Inc.; Philip B. Korsant; and ZBI Equities,
    L.L.C., all of which have a principal business address of 283
    Greenwich Avenue, Greenwich, CT 06830.(8)
    
    Includes shares owned as of April 30, 2007 as well as
    shares to be issued in connection with the filing of this Annual
    Report on
    Form 10-K
    under restricted stock units that vested during March 2007.  Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services    Fees
    Billed to Novell by PwC During Fiscal Years 2005 and
    2006
  Audit
    Fees
  Form 10-K Forms 10-Q,
  Form 10-K Forms 10-Q,
  Audit-Related
    Fees
         142
    Novell
    annual report 2006




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##### Table of Contents



Tax
    Fees
      All
    Other Fees
      Pre-approval
    Policies and Procedures
             Novell
    annual report 2006
    143




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  (a)
    (1.)Financial Statements:  Form 10-K
                (2.)Financial Statement Schedules:
  Form 10-K:
      (3.)Exhibits:
  Form 10-K,
  (b)
    Exhibits    (c)
    Financial
    Statement Schedules       144
    Novell
    annual report 2006




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##### Table of Contents



SIGNATURES
       By:
    /s/  Ronald
    W. Hovsepian   President and Chief Executive Officer
       Novell
    annual report 2006
    145




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##### Table of Contents



SIGNATURES
    Name

Title

Date/s/  Ronald
    W. Hovsepian(Ronald
    W. Hovsepian)

President and  Chief Executive
    Officer (Principal Executive Officer)

May 25, 2007/s/  Dana
    C. Russell(Dana
    C. Russell)

Senior Vice President, Chief
    Financial Officer (Principal Financial and Accounting Officer)

May 25, 2007/s/  Albert
    Aiello(Albert
    Aiello)

Director

May 25, 2007/s/  Fred
    Corrado(Fred
    Corrado)

Director

May 25, 2007/s/  Richard
    L. Crandall(Richard
    L. Crandall)

Director

May 25, 2007/s/  Patrick
    S. Jones(Patrick
    S. Jones)

Director

May 25, 2007/s/  Claudine
    B. Malone(Claudine
    B. Malone)

Director

May 25, 2007/s/  Richard
    L. Nolan(Richard
    L. Nolan)

Director

May 25, 2007/s/  Thomas
    G. Plaskett(Thomas
    G. Plaskett)

Director

May 25, 2007/s/  John
    W. Poduska, Sr.(John
    W. Poduska, Sr.)

Director

May 25, 2007/s/  James
    D. Robinson, III(James
    D. Robinson, III)

Director

May 25, 2007/s/  Kathy
    Brittain White(Kathy
    Brittain White)

Director

May 25, 2007      146
    Novell
    annual report 2006




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##### Table of Contents



NOVELL,
    INC.
    SCHEDULE II  VALUATION AND QUALIFYING
    ACCOUNTS
    Accounts Receivable Allowance
  Additions


Additions





Deductions


DeductionsBalance at


Charged to


Charged to


Additions


from


from Bad





BalanceBeginning


Return


Bad Debt


from


Return


Debt


Deductions from


at Endof Period


Allowances


Allowances


Acquisition


Allowances


Allowances


Disposition


of Period(In thousands)Fiscal year ended October 31,
    2004

$
26,852


$
3,778


$
1,074


$
2,468


$
6,332


$
3,444


$



$
24,396October 31, 2005

$
24,396


$
6,466


$
329


$
12


$
9,983


$
4,582


$



$
16,638October 31, 2006

$
16,638


$
1,202


$
51


$
320


$
7,103


$
1,273


$
4,261


$
5,574      Novell
    annual report 2006
    147




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description2
.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
    April 10, 2007. (4) (Exhibit 3.2)4
.1

Reference is made to
    Exhibit 3.14
.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)4
.5

First Supplemental Indenture dated
    as of November 9, 2006 between the Registrant and Wells
    Fargo Bank, National Association, as Trustee. (8)
    (Exhibit 99.2)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. (9) (Exhibit 4.1)10
.3*

Novell, Inc. 1991 Stock Plan. (10)
    (Exhibit 4.1)10
.4*

Novell, Inc. 2000 Stock Plan. (11)
    (Exhibit 4.2)10
.5*

Novell, Inc. 2000 Stock Option
    Plan. (11) (Exhibit 4.1)10
.6*

UNIX System Laboratories, Inc.
    Stock Option Plan. (12) (Exhibit 4.3)10
.7*

Novell, Inc. Stock Option Plan for
    Non-Employee Directors. (13) (Exhibit 4.1)10
.8*

Novell, Inc./SilverStream
    Software, Inc. 1997 Stock Incentive Plan. (14) (Exhibit 4.2)10
.9*

Novell, Inc./SilverStream
    Software, Inc. 2001 Stock Incentive Plan. (14) (Exhibit 4.3)10
.10*

Novell, Inc./SilverStream
    Software, Inc./eObject, Inc. 2000 Stock Plan. (14)
    (Exhibit 4.4)10
.11*

Novell, Inc./SilverStream
    Software, Inc./Bondi Software, Inc. Employee Stock Option Plan.
    (14) (Exhibit 4.5)10
.12*

Novell, Inc. Stock Based Deferred
    Compensation Plan. (15) (Appendix E)10
.13*

Novell, Inc. Stock-Based Deferred
    Compensation Plan   Stock Purchase Assistance
    Subplan. (16) (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.
    (16) (Exhibit 10.15)10
.16*

Severance Agreement dated as of
    March 25, 2003 between the Registrant and Alan J. Friedman.
    (17) (Exhibit 10.16)10
.17*

Severance Agreement dated as of
    May 29, 2003 between the Registrant and Ronald W.
    Hovsepian. (17) (Exhibit 10.17)10
.18*

Amendment 2005-1 to Severance
    Agreement dated as of October 31, 2005 between the
    Registrant and Ronald W. Hovsepian. (18) (Exhibit 10.18)10
.19*

Severance Agreement dated as of
    March 25, 2003 between the Registrant and Joseph A.
    LaSala, Jr. (17) (Exhibit 10.18)10
.20*

Severance Agreement dated as of
    February 10, 2003 between the Registrant and Joseph S.
    Tibbetts, Jr. (17) (Exhibit 10.20)     148
    Novell
    annual report 2006




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##### Table of Contents



ExhibitNumber

Description10
.21*

Severance Agreement dated as of
    September 7, 2005 between the Registrant and Susan Heystee.
    (18) (Exhibit 10.21)10
.22*

Severance Agreement dated as of
    October 3, 2005 between the Registrant and Thomas Francese.
    (18) (Exhibit 10.22)10
.23*

Severance Agreement dated as of
    November 28, 2005 between the Registrant and Jeffrey M.
    Jaffe. (18) (Exhibit 10.23)10
.24*

Severance Agreement dated as of
    April 24, 2007 between Registrant and Dana C. Russell. (20)
    (Exhibit 10.1)10
.25*

Letter Agreement dated
    December 15, 1995 between Novell, Inc. and RRE Advisors,
    LLC. (19) (Exhibit 10.2)10
.26*

Novell, Inc. Non-employee Director
    Compensation Summary. (18) (Exhibit 10.25)10
.27*

Novell, Inc. Deferred Compensation
    Plan.(16)10
.28*

Offer letter dated and
    countersigned May 27, 2003 between the Registrant and Ron
    Hovsepian. (21)10
.29*

Offer letter countersigned
    February 14, 2004 between the Registrant and Susan Heystee.
    (21)10
.30*

Offer letter dated August 31,
    2005 and countersigned September 2, 2005 between the
    Registrant and Thomas Francese. (21)10
.31*

Letter of Understanding dated
    August 1, 2006 between the Registrant and Thomas Francese.
    (21)10
.32*

Offer letter dated and
    countersigned November 7, 2005 between the Registrant and
    Jeffrey M. Jaffe. (21)10
.33

Second Amended and Restated
    Technical Collaboration Agreement effective November 2,
    2006 between the Registrant and Microsoft Corporation. (21) (22)10
.34

First Amended and Restated
    Business Collaboration Agreement effective November 2, 2006
    between the Registrant and Microsoft Corporation. (21) (22)10
.35

Patent Cooperation Agreement
    effective November 2, 2006 between the Registrant and
    Microsoft Corporation (21) (22)10
.36

Side Letter Agreement, dated
    November 7, 2006, to the Patent Cooperation Agreement
    between the Registrant and Microsoft Corporation. (21)21


Subsidiaries of the Registrant.
    (21)23
.1

Consent of PricewaterhouseCoopers,
    LLP, Independent Registered Public Accounting Firm. (21)23
.2

Consent of Ernst & Young
    LLP, Independent Registered Public Accounting Firm. (21)31
.1

Rule 13a-14(a)
    Certification (21)31
.2

Rule 13a-14(a)
    Certification (21)32
.1

18 U.S.C. Section 1350
    Certification. (21)32
.2

18 U.S.C. Section 1350
    Certification. (21)     *
    
    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
    Current 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
    parentheses, filed as an exhibit to the Registrants
    Current Report on
    Form 8-K,
    filed April 16, 2007 (File
    No. 0-13351).    Novell
    annual report 2006
    149




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##### Table of Contents



(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
    Registration Statement 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
    Current Report on
    Form 8-K,
    filed November 15, 2006 (File
    No. 0-13351).(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
    October 12, 2001 (File
    No. 333-62087).(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
    May 29, 1996 (File
    No. 333-04775).(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 1, 2000 (File
    No. 333-41328).(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
    July 2, 1993 (File
    No. 33-65440).(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
    May 30, 1996 (File
    No. 333-04823).(14)
    
    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).(15)
    
    Incorporated by reference to the Appendix identified in
    parentheses, filed as an exhibit to the Proxy Statement of the
    Registrant filed March 17, 2003.(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, 2004 (File
    No. 0-13351).(17)
    
    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).(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, 2005 (File
    No. 0-13351).(19)
    
    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).(20)
    
    Incorporated by reference to the Exhibit identified in
    parentheses, filed as an exhibit to the Registrants
    Current Report on
    Form 8-K,
    filed April 27, 2007 (File No. 0-13351).(21)
    
    Filed herewith.(22)
    
    Portions of this exhibit have been omitted and filed separately
    with the Securities and Exchange Commission pursuant to a
    request for confidential treatment.     150
    Novell
    annual report 2006