The latest to step forward with an internal options probe, Novell on Tuesday joined a growing list of marquee technology companies to disclose investigations.

Business software maker Novell said it has begun an internal investigation into its stock options granting practices that could interfere with its quarterly financial filing with regulators.

Waltham, Massachusetts-based Novell reported third-quarter earnings, saying results were on a preliminarybasis while the company continues a voluntary review of its stock-based compensation practices and related potential accounting effect (see Novell Profit Gets Linux Lift).

Novell said in a filing with the U.S. Securities and Exchange Commission its preliminary results could be subject to adjustments pending its probe.

“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 SEC filling said.

Novell said that the news of numerous other companies had brought it to initiate the review of it options granting practices. Based on its preliminary findings, an audit committee of Novell's board of directors has contacted independent outside legal counsel to conduct a review.

Charge Possible

Novell said it intends to file its quarterly report as soon as the audit committee’s review is completed but that it was not guaranteeing it would meet deadlines. Novell also said the review could result in the company having to take a charge.

“This review may result in the need to record non-cash stock compensation charges and related tax effects,” the filing said.

The company also said it was unclear whether the findings of its probe would force it to restate previously issued financials.

For its preliminary third-quarter earnings, the software maker reported a fivefold increase in third-quarter profit.

Net income increased to $11.7 million, or $0.3 per share, compared with $2.1 million in the same period a year ago. A survey of Wall Street analyst had expected Novell to report $0.3 per share. The software maker said revenue decreased to $241 million from $252 million a year ago.

Novell shares decreased by a dime, or 1.47 percent, to $6.78 in after-hours trading.

Contact the writer:SMartin@RedHerring.com

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