Novell in stock options investigation

Novell in stock options investigation

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By  Published  September 8, 2006

Software company Novell has become the latest US IT firm to launch an internal probe into how it accounts for its stock options, a move it announced last month as it released preliminary results for the third quarter.

The firm said that the results are preliminary on account of the investigation and may have to be adjusted in the light of the findings of the review.

“The financial results reported today do not take into account any adjustments that may be required in connection with the completion of the stock-based compensation review and should be considered preliminary until Novell files its Form 10-Q for the third fiscal quarter ended July 31, 2006,” the company said in a US Securities and Exchange Commission (SEC) filing.

Speaking on a conference call with analysts, recently appointed president and chief executive officer Ronald Hovsepian said the review was “in no way a reflection on the quality of our business or the future growth prospects.”

Novell said it opted to undertake the voluntary review of its practices after news came to light about the stock option practices of other companies across several industries.

The firm is the latest in a string of technology companies that are investigating their accounting activities as the SEC continues to look into potentially fraudulent stock practices related to the backdating of stock options.

While this is not in itself illegal, concerns have arisen that firms may have awarded these benefits without properly disclosing information.

Other companies in the spotlight include Apple, Brocade Communications Systems and Quest Software.

For the third quarter, the Waltham, Massachusetts-based firm recorded net income of US$11.7 million versus US$2.1 million in the comparative period last year. Net revenue dropped to US$241.4 million from US$252.4 million.

Novell said it anticipated net revenue to reach between US$246 million and US$256 million for the fourth fiscal quarter.

“Novell’s focus on execution and acceleration of our strategy resulted in continued strong growth in Linux and Identity revenues,” said Hovsepian.

“The launch of SUSE Linux Enterprise 10 and the rollout of a new marketing campaign earlier this month has generated widespread customer and partner enthusiasm,” he added.

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