On Tuesday, Aug. 29, networking software company Novell (NASDAQ:NOVL) released preliminary Q3 2006 earnings for the period ended July 31.

  • Earnings and free cash flow jumped sky-high, despite lower revenues than last year. However, a large portion of that gain came from discontinued operations, and Novell reported a net loss of $0.01 per diluted share on continuing operations.

  • The company reported 30% revenue growth year over year in the Linux segment, and 46% in Identity and Access Management. NetWare-related revenues declined 19% year over year.

  • The results are "preliminary" because Novell is currently conducting a voluntary review of its stock-option granting practices, and might need to restate previously filed financial statements.

(Figures in millions, except per-share data)

Income Statement Highlights

Avg. Est.

Q3 2006

Q3 2005

Change

Sales

$242

$241

$252

(4.4%)

Net Profit

--

$12

$2

452.4%

EPS

$0.03

$0.03

$0.00

N/A

Diluted Shares

--

340

385

(11.8%)



Get back to basics with a look at the income statement.

Margin Checkup

Q3 2006

Q3 2005

Change*

Gross Margin

66.57%

66.44%

0.13

Operating Margin

(6.34%)

(0.36%)

(5.98)

Net Margin

4.81%

0.83%

3.98

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Balance Sheet Highlights

Assets

Q3 2006

Q3 2005

Change

Cash + ST Invest.

$1,299

$1,604

(19%)

Accounts Rec.

$236

$255

(7.6%)

Inventory

N/A

N/A

N/A



Liabilities

Q3 2006

Q3 2005

Change

Accounts Payable

$40

$49

(17.2%)

Long-Term Debt

$600

$600

0%



Learn the ways of the balance sheet.

Cash Flow Highlights

Q3 2006

Q3 2005

Change

Cash From Ops.

$33

$16

111.6%

Capital Expenditures

$2

$9

(73.8%)

Free Cash Flow

$31

$7

336.7%



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At the time of publication, Anders Bylund had no position in any company mentioned. Fool rules are here .