NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1Company
Red Hat, Inc., incorporated in Delaware, together with its subsidiaries (Red Hat or the
Company) is a leading global provider of open source software solutions, using a community-powered approach to develop and offer reliable and high-performing operating system, virtualization, management, middleware, cloud, mobile and
storage technologies.
Open source software is an alternative to proprietary software and represents a different model for the
development and licensing of commercial software code than that typically used for proprietary software. Because open source software code is often freely shared, there are customarily no licensing fees for the use of open source software.
Therefore, the Company does not recognize revenue from the licensing of the code itself. The Company provides value to its customers through the development, aggregation, integration, testing, certification, delivery, maintenance, enhancement and
support of its Red Hat technologies, and by providing a level of performance, scalability, flexibility, reliability, and security for the technologies the Company packages and distributes. Moreover, because communities of developers not employed by
the Company assist with the creation of the Companys open source offerings, opportunities for further innovation of the Companys offerings are supplemented by these communities.
The Company derives its revenue and generates cash from customers primarily from two sources: (i) subscription revenue and
(ii) training and services revenue. These arrangements typically involve subscriptions to Red Hat technologies. The arrangements with the Companys customers that produce this revenue and cash are explained in further detail in NOTE
2Summary of Significant Accounting Policies.
NOTE 2Summary of Significant Accounting Policies
Basis of presentation
The accompanying Consolidated Financial Statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant inter-company accounts and transactions are eliminated in
consolidation. There are no significant foreign exchange restrictions on the Companys foreign subsidiaries.
The
Consolidated Balance Sheet as of February 28, 2015 includes the effect of retrospective application of Accounting Standards Update 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(ASU
2015-17) and the effect of retrospective application of Accounting Standards Update 2015-03,
Interest
Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
(ASU
2015-03)
.
The following table summarizes the retrospective-application adjustments made to the as-reported Consolidated Balance Sheet as of February 28, 2015, by line item (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
February 28,
2015
|
|
|
Adjustments for
retrospective
application of
ASU 2015-17
|
|
|
Adjustments for
retrospective
application of
ASU 2015-03
|
|
|
Adjusted
February 28,
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
86,796
|
|
|
|
(86,796
|
)
|
|
|
|
|
|
$
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
|
|
|
|
98,892
|
|
|
|
|
|
|
$
|
98,892
|
|
Other assets, net
|
|
$
|
53,243
|
|
|
|
(18,049
|
)
|
|
|
(12,463
|
)
|
|
$
|
22,731
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current obligations
|
|
$
|
1,844
|
|
|
|
(659
|
)
|
|
|
|
|
|
$
|
1,185
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
$
|
715,402
|
|
|
|
|
|
|
|
(12,463
|
)
|
|
$
|
702,939
|
|
Other long-term obligations
|
|
$
|
77,340
|
|
|
|
(5,294
|
)
|
|
|
|
|
|
$
|
72,046
|
|
79
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For additional discussion related to recent accounting pronouncements the Company has
either recently adopted or is currently evaluating the impact from future adoption, see Recent accounting pronouncements in this note.
Use of estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
balance sheet dates and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from such estimates.
Revenue recognition
The Company establishes persuasive evidence of a sales
arrangement for each type of revenue transaction based on either a signed contract with the end customer, a click-through contract on the Companys website whereby the customer agrees to the Companys standard subscription terms, signed or
click-through distribution contracts with original equipment manufacturers (OEMs) and other resellers, or, in the case of individual training seats, through receipt of payment which indicates acceptance of the Companys training
agreement terms.
Subscription revenue
Subscription revenue is comprised of direct and indirect sales of subscriptions relating to Red Hat technologies. Accounts receivable and deferred revenue are recorded at the time a customer enters into a
binding subscription agreement for the purchase of a subscription, subscription services are made available to the customer and the customer is billed. The deferred revenue amount is recognized as revenue ratably over the life of the subscription.
Red Hat technologies are generally offered with either one or three-year base subscription periods; the majority of the Companys subscriptions have one-year terms. Under these subscription agreements, renewal rates are generally specified for
one or three-year renewal terms. Subscriptions generally entitle the end user to the technology itself and post-contract customer support, generally consisting of varying levels of support services as well as access to security errata, fixes,
functionality enhancements to the technology and upgrades to the technologies, each on an if and when available basis, during the term of the subscription. The Company sells its offerings through two principal channels: (1) direct, which
includes sales by the Companys sales force as well as web store sales, and (2) indirect, which includes certified cloud and service providers (CCSPs), distributors, value added resellers, systems integrators and OEMs. The
Company recognizes revenue from the sale of Red Hat technologies ratably over the period of the subscription beginning on the commencement date of the subscription agreement.
Subscription arrangements with large enterprise customers often have contracts with multiple elements (e.g., software technology, support, training, consulting and other services). The Company allocates
revenue to each element of the arrangement based on vendor-specific objective evidence of each elements fair value when the Company can demonstrate sufficient evidence of the fair value of at least those elements that are undelivered. The fair
value of each element in multiple element arrangements is created by either (i) providing the customer with the ability during the term of the arrangement to renew that element at the same rate paid for the element included in the initial term
of the agreement or (ii) selling the element on a stand-alone basis.
The Company derives a portion of its revenue from
CCSPs that provide public clouds with and allow users to consume computing resources as a service. The Company earns revenue based on subscription units consumed by the CCSP or its end users. These cloud-usage services began expanding significantly
in fiscal 2013 and have continued to grow.
80
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
For periods prior to March 1, 2015, the Company recognized cloud-usage revenue upon
receipt of usage reports from the CCSPs, which typically report fees owed to the Company one month or more after the fees have been earned. Effective March 1, 2015, the Company believed that it had sufficient historical data and experience to
estimate this cloud-usage revenue and has begun estimating the amount of and recognizing such revenue in the period earned. The estimates are based on the historical cloud-usage data available. As a result of the Companys transition to
estimating cloud-usage revenue, the Companys subscription revenues and pre-tax income for the fiscal year ended February 29, 2016 included an additional, favorable adjustment of $5.3 million.
Training and services revenue
Training and services revenue is comprised of revenue for consulting, engineering and customer training and education services. Consulting services consist of time-based arrangements, and revenue is
recognized as these services are performed. Engineering services represent revenue earned under fixed fee arrangements with the Companys OEM partners and other customers to provide for significant modification and customization of Red Hat
technologies. The Company recognizes revenue for these fixed fee engineering services using the percentage of completion basis of accounting, provided the Company has the ability to make reliable estimates of progress towards completion, the fee for
such services is fixed or determinable and collection of the resulting receivable is probable. Under the percentage of completion method, earnings under the contract are recognized based on the progress toward completion as estimated using the ratio
of labor hours incurred to total expected project hours. Changes in estimates are recognized in the period in which they are known. Revenue for customer training and education services is recognized on the dates the services are complete.
Deferred selling costs
Deferred commissions are the incremental costs that are directly associated with non-cancelable subscription contracts with customers and consist of sales commissions paid to the Companys sales
force. The commissions are deferred and amortized over a period that approximates the period of the subscription term. The commission payments are paid in full subsequent to the month in which the customers service commences. The deferred
commission amounts are recoverable through the future revenue streams under the non-cancelable customer contracts. In addition, the Company has the ability and intent under the commission plans with its sales force to recover commissions previously
paid to its sales force in the event that customers breach the terms of their subscription agreements and do not fully pay for their subscription agreements. Deferred commissions are included in prepaid expenses on the accompanying Consolidated
Balance Sheets. Amortization of deferred commissions is included in sales and marketing expense in the accompanying Consolidated Statements of Operations.
Goodwill and other long-lived assets
Goodwill
The Company evaluates goodwill for impairment during the fourth quarter of its fiscal year or more frequently if events or changes in
circumstances indicate that an impairment to goodwill may have occurred. For the year ended February 29, 2016, the Company elected to perform a quantitative assessment of goodwill for all of its reporting units. In doing so, the Company
compared the estimated fair value of each of the reporting units to its respective book value, including allocated goodwill. The Company concluded that there were no impairments of goodwill.
For the year ended February 28, 2015, the Company applied its test for goodwill impairment as permitted by ASU 2011-08, which allows
the Company to first assess qualitative factors to determine whether it is more
81
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
likely than not that the fair value of a reporting unit is less than its carrying value. The outcome of these qualitative tests determines whether it is necessary for a company to perform
the two-step goodwill impairment test as required in years prior to the adoption of ASU 2011-08.
After considering such
qualitative factors as macroeconomic conditions, actual or anticipated changes to cost factors (for example, selling and delivery), overall financial performance and other Company-specific factors, such as potential changes in strategy, the Company
determined that it was not more likely than not that any impairment to goodwill had occurred during the year ended February 28, 2015. Consequently, the Company was not required to perform the remaining two-step quantitative goodwill impairment
test.
Other long-lived assets
The Company evaluates the recoverability of its property and equipment and other long-lived assets whenever events or changes in circumstances indicate that an impairment may have occurred. An impairment
loss is recognized when the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to the assets or the business to which the assets relate. Impairment losses, if any, are measured as the amount by which the
carrying value exceeds the fair value of the assets.
See NOTE 8Other Assets, Net for further discussion of impairment
losses on long-lived assets for the years ended February 29, 2016, February 28, 2015 and February 28, 2014.
Cash and
cash equivalents
The Company considers highly liquid investments purchased with a maturity period of three months or less
at the date of purchase to be cash equivalents.
Accounts receivable and allowance for doubtful accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the
Companys estimate of the amount of probable credit losses in the Companys existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful
accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the
allowance when the Company determines it is probable the receivable will not be recovered. The Company does not have off-balance sheet credit exposure related to its customers. See NOTE 4Accounts Receivable for further discussion on accounts
receivable balances.
Fair value measurements
Fair value is defined as the exchange price that would be received for the purchase of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for such asset
or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair
value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:
Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
82
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Level 3Unobservable inputs that are supported by little or no market activity and
are significant to the fair value of the assets or liabilities.
The Companys investments are comprised primarily of
debt securities that are classified as available for sale and recorded at their fair market values. Liquid investments with effective maturities of three months or less at the date of purchase are classified as cash equivalents. Investments with
remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than twelve months from the balance sheet date are classified as
long-term investments. The Companys Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. The Companys Level 2 financial instruments, including derivative instruments, are valued using
quoted prices for identical instruments in less active markets or using other observable market inputs for comparable instruments.
Unrealized gains and temporary losses on investments classified as available for sale are included within accumulated other comprehensive income, net of any related tax effect. Upon realization, such
amounts are reclassified from accumulated other comprehensive income to Other income (expense), net. Realized gains and losses and other than temporary impairments, if any, are reflected in the consolidated statements of operations as Other income
(expense), net. The Company does not recognize changes in the fair value of its investments in income unless a decline in value is considered other than temporary. The vast majority of the Companys investments are priced by pricing vendors.
These pricing vendors use the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, the
Company assesses other factors to determine the securitys market value, including broker quotes or model valuations. Independent price verifications of all holdings are performed by pricing vendors which are then reviewed by the Company. In
the event a price fails a pre-established tolerance check, it is researched so that the Company can assess the cause of the variance to determine what the Company believes is the appropriate fair market value. See NOTE 18Assets and Liabilities
Measured at Fair Value on a Recurring Basis for further discussion on fair value measurements.
The Company minimizes its
credit risk associated with investments by investing primarily in investment grade, liquid securities. The Companys policy is designed to limit exposures to any one issuer depending on credit quality. Periodic evaluations of the relative
credit standing of those issuers are considered in the Companys investment strategy.
Internal use software
The Company capitalizes costs related to the development of internal use software for its website, enterprise resource planning system and
systems management applications. The Company amortizes the costs of computer software developed for internal use on a straight-line basis over an estimated useful life of five years. The carrying value of internal use software is included in
property and equipment on the Companys Consolidated Balance Sheets.
Capitalized software costs
Capitalization of software development costs for products to be sold to third parties begins upon the establishment of technological
feasibility and ceases when the product is available for general release. As a result of the Companys practice of frequently releasing source code that it has developed on an on-going basis for unrestricted download on the Internet, there is
generally no passage of time between achievement of technological feasibility and the availability of the Companys product for general release. Therefore, at February 29, 2016 and February 28, 2015, the Company had no internally
developed capitalized software costs for products to be sold to third parties.
83
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Property and equipment
Property and equipment is primarily comprised of furniture, computer equipment, computer software and leasehold improvements, which are recorded at cost and depreciated or amortized using the
straight-line method over their estimated useful lives as follows: furniture and fixtures, seven years; computer equipment, three to four years; computer software, five years; leasehold improvements, over the lesser of the estimated remaining useful
life of the asset or the remaining term of the lease. Expenditures for maintenance and repairs are charged to operations as incurred; major expenditures for renewals and betterments are capitalized and depreciated. Property and equipment acquired
under capital leases are depreciated over the lesser of the estimated remaining useful life of the asset or the remaining term of the lease.
Share-based compensation
The Company measures share-based compensation cost as of the grant date, based on the estimated fair value of the award and recognizes the
cost over the employee requisite service period, typically on a straight-line basis, net of estimated forfeitures. The Company estimates the fair value of stock options using the Black-Scholes-Merton valuation model. The fair value of nonvested
share awards, nonvested share units and performance share units (PSUs) are measured at their underlying closing share price on the date of grant. The Companys share-based compensation is described further in NOTE 13Share-based
Awards.
Sales and marketing expenses
Sales and marketing expenses consist of costs, including salaries, sales commissions and related expenses, such as travel, of all personnel involved in the sales and marketing process. Sales and marketing
expenses also include costs of advertising, sales lead generation programs, cooperative marketing arrangements and trade shows. Payments made to resellers or other customers are recognized as a reduction of revenue unless the Company
(i) receives an identifiable benefit (goods or services) in exchange for such payments that is sufficiently separable from the purchase of the Companys products and (ii) the Company can reasonably estimate the fair value of the
benefit identified. Advertising costs are expensed as incurred.
Advertising expense totaled $88.9 million, $62.6 million and
$53.4 million for the years ended February 29, 2016, February 28, 2015 and February 28, 2014, respectively.
Research
and development expenses
Research and development expenses include all direct costs, primarily salaries for Company
personnel and outside consultants, related to the development of new software products, significant enhancements to existing software products, and the portion of costs of development of internal use software required to be expensed. Research and
development costs are charged to operations as incurred with the exception of those software development costs that may qualify for capitalization.
Income taxes
The Company accounts for income taxes using the liability
method in which deferred tax assets or liabilities are recognized for the temporary differences between financial reporting and tax bases of the Companys assets and liabilities and for tax carryforwards at enacted statutory tax rates in effect
for the years in which the differences are expected to reverse.
The Company continues to assess the realizability of its
deferred tax assets, which primarily consist of share-based compensation expense deductions, tax credit carryforwards and deferred revenue. In assessing the realizability of these deferred tax assets, management considers whether it is more likely
than not that some
84
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
portion or all of the deferred tax assets will be realized. The Company continues to maintain a valuation allowance against its deferred tax assets with respect to certain foreign net operating
loss (NOL) carryforwards.
With respect to foreign earnings, it is the Companys policy to invest the
earnings of foreign subsidiaries indefinitely outside the U.S. From time to time, however, the Company may remit a portion of these earnings to the extent it incurs no additional U.S. tax and it is otherwise feasible.
Because tax laws are complex and subject to different interpretations, significant judgment is required. As a result, the Company makes
certain estimates and assumptions in (i) calculating its income tax expense, deferred tax assets and deferred tax liabilities, (ii) determining any valuation allowance recorded against deferred tax assets and (iii) evaluating the
amount of unrecognized tax benefits, as well as the interest and penalties related to such uncertain tax positions. The Companys estimates and assumptions may differ significantly from tax benefits ultimately realized. The Companys
income tax expense and deferred taxes are described further in NOTE 11Income Taxes.
Foreign currency translation
The Euro has been determined to be the primary functional currency for the Companys European operations and local currencies have
been determined to be the functional currencies for the Companys Asia Pacific and Latin American operations, with the exception of the Companys operations in Mexico, where the functional currency is the U.S. dollar. Foreign exchange
gains and losses, which result from the process of remeasuring foreign currency transactions into the appropriate functional currency, are included in other income, net in the Companys Consolidated Statements of Operations.
The impact of changes in foreign currency exchange rates resulting from the translation of foreign currency financial statements into
U.S. dollars for financial reporting purposes is included in other comprehensive income, which is a separate component of stockholders equity. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance
sheet date. Income and expense items are translated at average rates for the period.
Customers and credit risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, cash
equivalents, investments and trade receivables. The Company primarily places its cash, cash equivalents and investments with high-credit quality financial institutions which invest predominantly in U.S. government instruments, investment grade
corporate bonds and certificates of deposit guaranteed by banks which are members of the Federal Deposit Insurance Corporation. Cash deposits are primarily in financial institutions in the U.S. and the United Kingdom. However, cash for monthly
operating costs of international operations are deposited in banks outside the U.S.
The Company performs credit evaluations
to reduce credit risk and generally requires no collateral from its customers. Management estimates the allowance for uncollectible accounts based on their historical experience and credit evaluation. The Companys standard credit terms are net
30 days in North America, net 30 to 45 days in EMEA (Europe, Middle East and Africa) and Latin America, and range from net 30 to net 60 days in Asia Pacific.
Net income per common share
The Company computes basic net income per
common share by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted net income per common
85
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
share is computed by dividing net income by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common share equivalents
consist of shares issuable upon the exercise of stock options or vesting of share-based awards.
With respect to the
Companys 0.25% convertible senior notes due 2019 (the convertible notes), the Company has the option to pay cash or deliver, as the case may be, either cash, shares of its common stock or a combination of cash and shares of its
common stock for the aggregate amount due upon conversion of the convertible notes. The Companys intent is to settle the principal amount of the convertible notes in cash upon conversion. As a result, upon conversion of the convertible notes,
only the amounts payable in excess of the principal amounts of the notes are considered in diluted earnings per share under the treasury stock method. See NOTE 22Convertible Notes to the Companys Consolidated Financial Statements for
detailed information on the convertible notes.
Segment reporting
The Company is organized primarily on the basis of three geographic business units: the Americas (U.S., Latin America and Canada), EMEA
(Europe, Middle East and Africa) and Asia Pacific. These business units are aggregated into one reportable segment due to the similarity in nature of products and services provided, financial performance economic characteristics (e.g., revenue
growth and gross margin), methods of production and distribution and customer classes (e.g., cloud service providers, distributors, resellers and enterprise).
The Company has offices in more than 85 locations around the world. The Company manages its international business on an Americas-wide, EMEA-wide and Asia Pacific-wide basis. See NOTE 20Segment
Reporting for further discussion.
Recent accounting pronouncements
Accounting pronouncements adopted
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
(ASU 2015-17). ASU 2015-17 removes the requirement that deferred tax assets and liabilities be classified as either current or non-current in a classified statement of financial position and instead considers deferred tax assets and
liabilities to be classified as non-current. The Company adopted ASU 2015-17 for the fiscal year ended February 29, 2016 and has applied the update retrospectively to its Consolidated Balance Sheet as of February 28, 2015.
In September 2015, the FASB issued Accounting Standards Update 2015-16,
Business Combinations (Topic 805): Simplifying the Accounting
for Measurement-Period Adjustments
(ASU 2015-16). The FASB issued ASU 2015-16 to simplify U.S. GAAP to require that the acquirer record, in the same periods financial statements, the effect of changes to provisional,
measurement period amounts calculated as if the accounting had been completed at the acquisition date and disclose the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods
if the adjustment to the provisional amounts had been recognized as of the acquisition date. The Company adopted ASU 2015-16 for the fiscal year ended February 29, 2016.
In April 2015, the FASB issued Accounting Standards Update 2015-03,
Interest
Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
(ASU
2015-03). The FASB issued ASU 2015-03 to simplify the presentation of debt issuance costs related to a recognized debt liability to present the debt issuance costs as a direct deduction from the carrying value of the debt liability rather than
showing the
86
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
debt issuance costs as a deferred charge on the balance sheet. The Company adopted ASU 2015-03 for the fiscal year ended February 29, 2016 and has applied the update retrospectively to its
Consolidated Balance Sheet as of February 28, 2015.
Accounting pronouncements being evaluated
In March 2016, the FASB issued Accounting Standards Update 2016-09,
CompensationStock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting
(ASU 2016-09). The FASB issued ASU 2016-09 to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences. This guidance
is effective for the Company as of the first quarter of the fiscal year ending February 28, 2018. Early adoption is permitted.
The Company is currently evaluating the overall impact that ASU 2016-09 will have on its consolidated financial statements. However, a significant impact will result from changes in how the Company
recognized the excess tax benefits (windfalls) or deficiencies (shortfalls) related to share-based payments. For example, such windfalls and shortfalls are currently credited or charged, respectively, to additional paid in
capital in the Companys Consolidated Balance Sheets. Under ASU 2016-09, these windfalls and shortfalls will be recognized as a tax benefit or expense, respectively, in the Companys Consolidated Statements of Operations. For the
years ended February 29, 2016, February 28, 2015 and February 28, 2014, the Company recognized net windfalls totaling $19.8 million, $6.4 million and $10.1 million, respectively, as additional paid in capital. Under the
updated guidance these amounts would have instead been recognized as a reduction in tax expense and consequently an increase in net income.
In addition to the income tax consequences described above, the excess tax benefits from share-based payment arrangements that the Company currently reports as cash flows from financing activities on its
Consolidated Statements of Cash Flowswhich totaled $20.2 million, $5.6 million and $12.8 million for the years ended February 29, 2016, February 28, 2015 and February 28, 2014, respectivelywill instead,
under ASU 2016-09, be reported as cash flows from operating activities on the Companys Consolidated Statements of Cash Flows.
In February 2016, the FASB issued Accounting Standards Update 2016-02,
Leases (Topic 842)
(ASU 2016-02). The FASB issued ASU 2016-02 to increase transparency and comparability among
organizations. Under ASU 2016-02, lessees will recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present
value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or
finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). This guidance is effective for the Company
as of the first quarter of its fiscal year ending February 28, 2019. The Company is currently evaluating the impact that this updated standard will have on its consolidated financial statements.
In January 2016, the FASB issued Accounting Standards Update 2016-01,
Financial InstrumentsOverall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial Liabilities
(ASU 2016-01). The FASB issued ASU 2016-01 to require equity investments with readily determinable fair values to be measured at fair value with changes in
fair value recognized in net income. Equity investments that do not have readily determinable fair values are allowed to be remeasured upon the occurrence of an observable price change or upon identification of an impairment. This guidance is
effective for the Company as of the first quarter of the fiscal year ending February 28, 2019. The Company is currently evaluating the impact that this updated standard will have on its consolidated financial statements.
87
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
In May 2014, the FASB issued Accounting Standards Update 2014-09,
Revenue from
Contracts with Customers
(ASU 2014-09)
.
The FASB issued ASU 2014-09 to clarify the principles for recognizing revenue and to develop a common revenue standard for generally accepted accounting principles (GAAP) and
International Financial Reporting Standards. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes the most current revenue recognition guidance. This
guidance is effective for the Company beginning the first quarter of its fiscal year ending February 28, 2019. The standard must be adopted using either a full retrospective approach for all periods presented in the period of adoption or a
modified retrospective approach. The Company has initiated an assessment of its systems, data and processes related to the implementation of this accounting standard. This assessment is expected to be completed during fiscal 2017. Additionally, the
Company is currently evaluating the potential impact that the implementation of this standard will have on its consolidated financial statements.
NOTE 3Business Combinations
Acquisition of Ansible, Inc.
On October 16, 2015 the Company completed its acquisition of all of the shares of Ansible, Inc. (Ansible). Ansible is a provider of IT automation solutions that allows its users to manage
applications across hybrid cloud environments. The acquisition is intended to augment the Companys management portfolio and help customers to deploy and manage applications across private and public clouds, speed service delivery through
development and operations initiatives, streamline OpenStack installations and upgrades and accelerate container adoption by simplifying orchestration and configuration.
The consideration paid was $126.0 million and includes $125.2 million of cash. Based on managements provisional assessment of the acquisition-date fair value of the assets acquired and liabilities
assumed, the total consideration transferred of $126.0 million has been allocated to the Companys assets and liabilities on a preliminary basis as follows: $102.3 million to goodwill, $25.1 million to identifiable intangible assets and $1.4
million to working capital as a net current liability.
During February 2016, the Company completed its valuation of the
identifiable intangible assets acquired from Ansible. As a result of the valuation, the Company reduced its preliminary estimate of identifiable intangible assets by $17.3 million to $25.1 million as of February 29, 2016 from
$42.4 million as of November 30, 2015. The $17.3 million measurement-period adjustment resulted in an increase to goodwill of $10.8 million and a decrease to deferred taxes of $6.5 million. This adjustment had no significant
impact on the Companys financial results. Management expects to finalize its assessment of the acquisition-date fair value of Ansibles other assets and liabilities, primarily deferred income taxes, in early fiscal 2017.
The Company incurred approximately $3.9 million in transaction costs, including legal and accounting fees, relating to the acquisition.
These transaction costs have been expensed as incurred and included in general and administrative expense on the Companys Consolidated Statement of Operations for the fiscal year ended February 29, 2016.
Acquisition of FeedHenry Ltd.
On October 8, 2014 the Company completed its acquisition of all of the shares of FeedHenry Ltd. (FeedHenry). FeedHenry is a provider of cloud-based enterprise mobile application
platforms. The acquisition is intended to expand the Companys portfolio of application development, integration and platform as a service solutions, enabling the Company to support mobile application development in public and private
environments.
88
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The consideration paid as of the closing date was $80.2 million and has been allocated
to the Companys assets and liabilities as follows: $68.5 million to goodwill, $9.0 million to identifiable intangible assets and the remaining $2.7 million to net working capital.
The Company incurred approximately $1.1 million in transaction costs, including legal and accounting fees, relating to the acquisition.
These transaction costs have been expensed as incurred and included in general and administrative expense on the Companys Consolidated Statement of Operations for the fiscal year ended February 28, 2015.
Acquisition of eNovance, SAS
On June 24, 2014, the Company completed its acquisition of all of the shares of eNovance, SAS (eNovance), a provider of open source cloud computing services. The acquisition is intended
to assist in advancing the Companys market position in OpenStack, and the addition of eNovances systems integration capabilities and engineering talent is expected to help meet growing demand for enterprise OpenStack consulting, design
and deployment.
The consideration paid was $67.6 million and has been allocated to the Companys assets and liabilities
as follows: $60.8 million to goodwill, $5.3 million to identifiable intangible assets and the remaining $1.5 million to net working capital.
In addition to the cash consideration transferred, the Company issued a total of 529,057 restricted common shares to certain employee-shareholders. The vesting of these restricted shares is conditioned on
continued employment with the Company. As a result of the employment condition, the transfer of these shares has been accounted for apart from the business combination. The shares effectively vest 25% per year, with the closing-date date fair
value of the shares being amortized, on a straight-line basis, to share-based compensation expense in the Companys Consolidated Statement of Operations.
The Company incurred approximately $0.9 million in transaction costs, including legal and accounting fees, relating to the acquisition. These transaction costs have been expensed as incurred and included
in general and administrative expense on the Companys Consolidated Statement of Operations for the fiscal year ended February 28, 2015.
Acquisition of Inktank Storage, Inc.
On April 30, 2014, the Company
completed its acquisition of all of the shares of Inktank Storage, Inc. (Inktank), a provider of scale-out, open source storage systems, whose flagship technology, Inktank Ceph Enterprise, delivers object and block storage software to
enterprises deploying public or private clouds. The acquisition is intended to complement the Companys existing GlusterFS-based storage offering.
The consideration paid was $152.5 million and has been allocated to the Companys assets and liabilities as follows: $131.4 million to goodwill, $10.8 million to identifiable intangible assets and
the remaining $10.3 million to net working capital.
The Company incurred approximately $2.0 million in transaction costs,
including legal and accounting fees, relating to the acquisition. These transaction costs have been expensed as incurred and included in general and administrative expense on the Companys Consolidated Statement of Operations for the fiscal
year ended February 28, 2015.
89
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Post-acquisition financial information
The following is a summary of the post-acquisition revenue, expenses and losses of Ansible that are included in the Companys
Consolidated Statement of Operations for the fiscal year ended February 29, 2016 (in thousands):
|
|
|
|
|
|
|
Year Ended
February 29, 2016
|
|
Revenue
|
|
$
|
695
|
|
Operating expenses
|
|
|
(7,707
|
)
|
|
|
|
|
|
Operating loss
|
|
|
(7,012
|
)
|
Tax benefit
|
|
|
1,927
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,085
|
)
|
|
|
|
|
|
Pro forma consolidated financial information
The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the fiscal
years ended February 29, 2016, February 28, 2015 and February 28, 2014 (in thousands, except per share amounts) as if the acquisition of Ansible had closed on March 1, 2014, and the acquisitions of FeedHenry, eNovance and Inktank
had closed on March 1, 2013, after giving effect to certain purchase accounting adjustments. These pro forma results are not necessarily indicative of what the Companys operating results would have been had the acquisitions actually taken
place at the beginning of the period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
|
February 28,
2014
|
|
Revenue
|
|
$
|
2,055,057
|
|
|
$
|
1,796,441
|
|
|
$
|
1,551,301
|
|
Net income
|
|
|
193,099
|
|
|
|
162,385
|
|
|
|
150,870
|
|
Basic net income per common share
|
|
$
|
1.06
|
|
|
$
|
0.87
|
|
|
$
|
0.79
|
|
Diluted net income per common share
|
|
$
|
1.04
|
|
|
$
|
0.86
|
|
|
$
|
0.79
|
|
Goodwill and other business combinations
The Company completed its annual goodwill impairment test in February 2016. No goodwill impairment was deemed to have occurred. The following is a summary of goodwill for the years ended February 29,
2016, February 28, 2015 and February 28, 2014 (in thousands):
|
|
|
|
|
Balance at February 28, 2013
|
|
$
|
690,911
|
|
Final purchase price allocation adjustment for ManageIQ
|
|
|
(3,164
|
)
|
Impact of foreign currency fluctuations
|
|
|
(317
|
)
|
|
|
|
|
|
Balance at February 28, 2014
|
|
$
|
687,430
|
|
Acquisition of Inktank
|
|
|
131,446
|
|
Acquisition of eNovance
|
|
|
60,849
|
|
Acquisition of FeedHenry
|
|
|
68,491
|
|
Impact of foreign currency fluctuations
|
|
|
(21,156
|
)
|
|
|
|
|
|
Balance at February 28, 2015
|
|
$
|
927,060
|
|
Acquisition of Ansible
|
|
|
102,260
|
|
Impact of foreign currency fluctuations and other adjustments
|
|
|
(2,043
|
)
|
|
|
|
|
|
Balance at February 29, 2016
|
|
$
|
1,027,277
|
|
|
|
|
|
|
90
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The excess of purchase price paid for Ansible, FeedHenry, eNovance, Inktank and other
acquisitions over the fair value of the net assets acquired was recognized as goodwill. Goodwill comprises the majority of the purchase price paid for each of the acquired businesses because these businesses were focused on emerging technologies
such as development and operations automation, mobile technologies, cloud-enabling technologies and software-defined storage technologies, which consequentlyat the time of acquisitiongenerated relatively little revenue. However, these
acquired businesses, with their assembled, highly-specialized workforces and community of contributors, are expected to both expand the Companys existing technology portfolio and advance the Companys market position overall in open
source solutions.
NOTE 4Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful accounts. Activity in the Companys allowance
for doubtful accounts for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 is presented in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning
of period
|
|
|
Charged
to
expense
|
|
|
Adjustments (1)
|
|
|
Balance at
end of
period
|
|
Fiscal 2014
|
|
$
|
1,339
|
|
|
|
841
|
|
|
|
(194
|
)
|
|
$
|
1,986
|
|
Fiscal 2015
|
|
$
|
1,986
|
|
|
|
469
|
|
|
|
(208
|
)
|
|
$
|
2,247
|
|
Fiscal 2016
|
|
$
|
2,247
|
|
|
|
1,323
|
|
|
|
(772
|
)
|
|
$
|
2,798
|
|
(1)
|
Represents foreign currency translation adjustments and amounts written-off as uncollectible accounts receivable.
|
As of February 29, 2016 and February 28, 2015, no individual customer accounted for 10% or more of the Companys accounts
receivable.
NOTE 5Prepaid Expenses
Prepaid expenses include sales commissions, taxes and insurance. Sales commissions are the incremental costs that are
directly associated with non-cancelable subscription contracts with customers and consist of sales commissions paid to the Companys sales force. The commissions are deferred and amortized over a period to approximate the period of the
subscription term. For further discussion on deferred commissions see NOTE 2Summary of Significant Accounting Policies. Prepaid expenses, including sales commissions, were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Deferred commissions
|
|
$
|
102,254
|
|
|
$
|
107,313
|
|
Professional services
|
|
|
21,160
|
|
|
|
14,934
|
|
Taxes
|
|
|
15,819
|
|
|
|
17,543
|
|
Insurance
|
|
|
2,160
|
|
|
|
1,859
|
|
Other
|
|
|
9,484
|
|
|
|
9,066
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
150,877
|
|
|
$
|
150,715
|
|
|
|
|
|
|
|
|
|
|
91
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 6Property and Equipment
The Companys property and equipment is recorded at cost and consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Computer equipment
|
|
$
|
135,342
|
|
|
$
|
141,972
|
|
Software, including software developed for internal use
|
|
|
85,517
|
|
|
|
80,565
|
|
Furniture and fixtures
|
|
|
28,800
|
|
|
|
28,595
|
|
Leasehold improvements
|
|
|
104,045
|
|
|
|
100,882
|
|
Property and equipmentin progress
|
|
|
8,001
|
|
|
|
10,251
|
|
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
$
|
361,705
|
|
|
$
|
362,265
|
|
Less: accumulated depreciation
|
|
|
(194,819
|
)
|
|
|
(190,114
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
166,886
|
|
|
$
|
172,151
|
|
|
|
|
|
|
|
|
|
|
Property and equipment is depreciated or amortized using the straight-line method over its estimated
useful life as follows: furniture and fixtures, seven years; computer equipment, three to four years; computer software, five years; leasehold improvements, up to fifteen years, over the lesser of the estimated remaining useful life of the asset or
the remaining term of the lease. Depreciation expense recognized in the Companys Consolidated Financial Statements for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 is summarized as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total depreciation expense
|
|
$
|
48,909
|
|
|
$
|
48,001
|
|
|
$
|
45,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7Identifiable Intangible Assets
Identifiable intangible assets consist primarily of trademarks, copyrights and patents, purchased technologies,
customer and reseller relationships, and covenants not to compete which are amortized over the estimated useful life, generally on a straight-line basis, with the exception of customer and reseller relationships which are generally amortized over
the greater of straight-line or the related assets pattern of economic benefit. Useful lives range from two to ten years. As of February 29, 2016 and February 28, 2015, trademarks with an indefinite estimated useful life totaled
$11.1 million and $11.3 million, respectively. The following is a summary of identifiable intangible assets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Trademarks, copyrights and patents
|
|
$
|
138,106
|
|
|
$
|
(49,876
|
)
|
|
$
|
88,230
|
|
|
$
|
117,020
|
|
|
$
|
(42,630
|
)
|
|
$
|
74,390
|
|
Purchased technologies
|
|
|
96,105
|
|
|
|
(70,940
|
)
|
|
|
25,165
|
|
|
|
81,482
|
|
|
|
(63,618
|
)
|
|
|
17,864
|
|
Customer and reseller relationships
|
|
|
104,593
|
|
|
|
(80,329
|
)
|
|
|
24,264
|
|
|
|
104,084
|
|
|
|
(71,512
|
)
|
|
|
32,572
|
|
Covenants not to compete
|
|
|
13,240
|
|
|
|
(9,875
|
)
|
|
|
3,365
|
|
|
|
10,683
|
|
|
|
(7,657
|
)
|
|
|
3,026
|
|
Other intangible assets
|
|
|
8,833
|
|
|
|
(3,786
|
)
|
|
|
5,047
|
|
|
|
8,833
|
|
|
|
(2,409
|
)
|
|
|
6,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
360,877
|
|
|
$
|
(214,806
|
)
|
|
$
|
146,071
|
|
|
$
|
322,102
|
|
|
$
|
(187,826
|
)
|
|
$
|
134,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following is a summary of the change in identifiable intangible assets for the year
ended February 29, 2016 (in thousands):
|
|
|
|
|
Balance at February 28, 2015
|
|
$
|
134,276
|
|
Purchase of identifiable intangible assets from Ansible
|
|
|
25,100
|
|
Purchase of developed software and other intangible assets
|
|
|
14,381
|
|
Amortization expense
|
|
|
(27,179
|
)
|
Impact of foreign currency fluctuations and other adjustments
|
|
|
(507
|
)
|
|
|
|
|
|
Balance at February 29, 2016
|
|
$
|
146,071
|
|
|
|
|
|
|
Amortization expense associated with identifiable intangible assets recognized in the Companys
Consolidated Financial Statements for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Cost of revenue
|
|
$
|
13,102
|
|
|
$
|
12,049
|
|
|
$
|
11,212
|
|
Sales and marketing
|
|
|
8,075
|
|
|
|
7,838
|
|
|
|
8,872
|
|
Research and development
|
|
|
842
|
|
|
|
2,417
|
|
|
|
3,836
|
|
General and administrative
|
|
|
5,160
|
|
|
|
5,958
|
|
|
|
5,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortization expense
|
|
$
|
27,179
|
|
|
$
|
28,262
|
|
|
$
|
29,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2016, future amortization expense on existing intangibles is as follows (in
thousands):
|
|
|
|
|
Fiscal Year
|
|
Amortization
Expense of
Intangible Assets
|
|
2017
|
|
$
|
30,170
|
|
2018
|
|
|
26,676
|
|
2019
|
|
|
19,880
|
|
2020
|
|
|
15,214
|
|
2021
|
|
|
8,582
|
|
Thereafter
|
|
|
34,436
|
|
|
|
|
|
|
Total amortization expense
|
|
$
|
134,958
|
|
|
|
|
|
|
NOTE 8Other Assets, Net
Other assets, net were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Cost-basis investments
|
|
$
|
16,079
|
|
|
$
|
15,581
|
|
Non-current prepaid expenses
|
|
|
21,275
|
|
|
|
|
|
Security deposits and other
|
|
|
7,152
|
|
|
|
7,150
|
|
|
|
|
|
|
|
|
|
|
Other assets, net
|
|
$
|
44,506
|
|
|
$
|
22,731
|
|
|
|
|
|
|
|
|
|
|
93
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Company reviews its non-marketable cost-basis investments in equity securities for
other than temporary declines in fair value based on prices recently paid for shares in that company, as well as changes in market conditions. The carrying values are not necessarily representative of the amounts that the Company could realize in a
current transaction. The company recognized losses of $2.8 million and $4.6 million on certain investments during the years ended February 29, 2016 and February 28, 2015, respectively. During the year ended February 28, 2014, no
significant losses were recognized on similar investments.
NOTE 9Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Accounts payable
|
|
$
|
63,268
|
|
|
$
|
31,017
|
|
Accrued wages and other compensation related expenses
|
|
|
137,738
|
|
|
|
126,378
|
|
Accrued other trade payables
|
|
|
45,785
|
|
|
|
40,400
|
|
Accrued income and other taxes payable
|
|
|
37,069
|
|
|
|
39,596
|
|
Accrued other
|
|
|
942
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
284,802
|
|
|
$
|
237,733
|
|
|
|
|
|
|
|
|
|
|
NOTE 10Derivative Instruments
The Company transacts business in various foreign countries and is, therefore, subject to risk of foreign currency
exchange rate fluctuations. The Company from time to time enters into forward contracts to economically hedge transactional exposure associated with commitments arising from trade accounts receivable, trade accounts payable and fixed purchase
obligations denominated in a currency other than the functional currency of the respective operating entity. All derivative instruments are recorded on the Consolidated Balance Sheets at their respective fair market values. The Company has elected
not to prepare and maintain the documentation required to qualify for hedge accounting treatment and, therefore, changes in fair value are recorded in the Consolidated Statements of Operations.
The effects of derivative instruments on the Companys Consolidated Financial Statements are as follows as of February 29, 2016
and for the year then ended (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29, 2016
|
|
|
|
As of February 29, 2016
|
|
|
Classification of Gain
(Loss) Recognized
in Income on
Derivatives
|
|
Amount of
Gain
(Loss) Recognized
in Income
on
Derivatives
|
|
|
|
Balance
Sheet Classification
|
|
Fair
Value
|
|
|
Notional
Value
|
|
|
|
Assetsforeign currency forward contracts not designated as hedges
|
|
Other current assets
|
|
$
|
566
|
|
|
$
|
31,390
|
|
|
Other income (expense), net
|
|
$
|
1,226
|
|
|
|
|
|
|
|
Liabilitiesforeign currency forward contracts not designated as hedges
|
|
Accounts payable and accrued expenses
|
|
|
(452
|
)
|
|
|
41,214
|
|
|
Other income (expense), net
|
|
|
(1,195
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
$
|
114
|
|
|
$
|
72,604
|
|
|
|
|
$
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The effects of derivative instruments on the Companys Consolidated Financial
Statements are as follows as of February 28, 2015 and for the year then ended (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28, 2015
|
|
|
|
As of February 28, 2015
|
|
|
Classification of Gain
(Loss) Recognized
in Income on
Derivatives
|
|
Amount of
Gain
(Loss) Recognized
in Income
on
Derivatives
|
|
|
|
Balance
Sheet Classification
|
|
Fair
Value
|
|
|
Notional
Value
|
|
|
|
Assetsforeign currency forward contracts not designated as hedges
|
|
Other current assets
|
|
$
|
74
|
|
|
$
|
5,281
|
|
|
Other income (expense), net
|
|
$
|
664
|
|
|
|
|
|
|
|
Liabilitiesforeign currency forward contracts not designated as hedges
|
|
Accounts payable and accrued expenses
|
|
|
(738
|
)
|
|
|
102,836
|
|
|
Other income (expense), net
|
|
|
(2,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
$
|
(664
|
)
|
|
$
|
108,117
|
|
|
|
|
$
|
(1,962
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11Income Taxes
The U.S. and foreign components of the Companys income before provision for income taxes consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
|
February 28,
2014
|
|
U.S.
|
|
$
|
155,550
|
|
|
$
|
167,388
|
|
|
$
|
135,371
|
|
Foreign
|
|
|
119,315
|
|
|
|
88,110
|
|
|
|
104,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
$
|
274,865
|
|
|
$
|
255,498
|
|
|
$
|
239,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the Companys provision for income taxes consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
|
February 28,
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
$
|
39,168
|
|
|
$
|
26,325
|
|
|
$
|
23,391
|
|
Federal
|
|
|
44,872
|
|
|
|
15,252
|
|
|
|
19,734
|
|
State
|
|
|
5,133
|
|
|
|
4,090
|
|
|
|
7,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax expense
|
|
$
|
89,173
|
|
|
$
|
45,667
|
|
|
$
|
50,272
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
(5,170
|
)
|
|
|
(8,188
|
)
|
|
|
(1,100
|
)
|
Federal
|
|
|
(6,142
|
)
|
|
|
36,197
|
|
|
|
14,468
|
|
State
|
|
|
(2,361
|
)
|
|
|
1,621
|
|
|
|
(2,384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense
|
|
$
|
(13,673
|
)
|
|
$
|
29,630
|
|
|
$
|
10,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net provision for income taxes
|
|
$
|
75,500
|
|
|
$
|
75,297
|
|
|
$
|
61,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Significant components of the Companys deferred tax assets and liabilities at
February 29, 2016 and February 28, 2015, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Foreign net operating loss carryforwards
|
|
$
|
6,679
|
|
|
$
|
6,704
|
|
Domestic net operating loss carryforwards
|
|
|
13,202
|
|
|
|
17,956
|
|
Domestic credit carryforwards
|
|
|
7,849
|
|
|
|
8,990
|
|
Share-based compensation
|
|
|
44,276
|
|
|
|
36,996
|
|
Deferred revenue
|
|
|
83,901
|
|
|
|
68,850
|
|
Foreign deferred royalty expenses
|
|
|
9,896
|
|
|
|
9,958
|
|
Convertible notes
|
|
|
15,182
|
|
|
|
18,683
|
|
Other
|
|
|
12,313
|
|
|
|
12,407
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
193,298
|
|
|
$
|
180,544
|
|
Valuation allowance for deferred tax assets
|
|
|
(3,291
|
)
|
|
|
(2,641
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net of valuation allowance
|
|
$
|
190,007
|
|
|
$
|
177,903
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
9,450
|
|
|
|
7,835
|
|
Fixed and intangible assets
|
|
|
44,085
|
|
|
|
37,321
|
|
Compensation accruals
|
|
|
21,415
|
|
|
|
23,518
|
|
Other
|
|
|
3,770
|
|
|
|
11,152
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$
|
78,720
|
|
|
$
|
79,826
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
111,287
|
|
|
$
|
98,077
|
|
|
|
|
|
|
|
|
|
|
The Companys gross and net deferred tax asset and liability positions at February 29, 2016 are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
Foreign
|
|
|
Consolidated
|
|
Deferred tax assets
|
|
$
|
158,623
|
|
|
$
|
31,384
|
|
|
$
|
190,007
|
|
Deferred tax liabilities
|
|
|
73,254
|
|
|
|
5,466
|
|
|
|
78,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
85,369
|
|
|
$
|
25,918
|
|
|
$
|
111,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2016, the Company continues to maintain a valuation allowance against its
deferred tax assets with respect to certain foreign and state net operating loss (NOL) and credit carryforwards. For the year ended February 29, 2016, the valuation allowance increased $0.7 million primarily as a result of state NOL
and credit carryforwards.
As of February 29, 2016, the Company had U.S. federal NOL carryforwards of $33.0 million,
foreign NOL carryforwards of $28.1 million and U.S. state NOL carryforwards of $58.1 million, of which $23.1 million consists of share-based compensation deductions in excess of the amounts expensed in the Companys operating results. The
resulting excess tax benefit will be recognized as an increase to additional paid in capital when realized. The NOL carryforwards expire in varying amounts beginning in the fiscal year ending February 28, 2017. As of February 29, 2016, the
Company had U.S. federal research tax credit carryforwards of $1.0 million and state research tax credit carryforwards of $14.8 million, which expire in varying amounts beginning in the fiscal year ending February 28, 2017.
96
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Taxes computed at the statutory federal income tax rates are reconciled to the provision
for income taxes for the years ended February 29, 2016, February 28, 2015 and February 28, 2014, respectively, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
|
February 28,
2014
|
|
Effective rate
|
|
|
27.5
|
%
|
|
|
29.5
|
%
|
|
|
25.6
|
%
|
Provision at federal statutory rate, 35%
|
|
$
|
96,203
|
|
|
$
|
89,424
|
|
|
$
|
83,842
|
|
State tax, net of federal tax benefit
|
|
|
601
|
|
|
|
4,042
|
|
|
|
3,169
|
|
Foreign rate differential
|
|
|
(6,771
|
)
|
|
|
(11,124
|
)
|
|
|
(10,817
|
)
|
Israel tax holiday (1)
|
|
|
(1,461
|
)
|
|
|
(2,859
|
)
|
|
|
(1,901
|
)
|
Foreign dividend
|
|
|
|
|
|
|
8,720
|
|
|
|
623
|
|
Nondeductible items
|
|
|
3,426
|
|
|
|
3,339
|
|
|
|
2,157
|
|
Research tax credit
|
|
|
(5,105
|
)
|
|
|
(5,329
|
)
|
|
|
(3,070
|
)
|
Foreign tax credit
|
|
|
(10,267
|
)
|
|
|
(11,755
|
)
|
|
|
(11,878
|
)
|
Domestic production activities deduction
|
|
|
(5,033
|
)
|
|
|
(4,433
|
)
|
|
|
(4,973
|
)
|
Other
|
|
|
3,907
|
|
|
|
5,272
|
|
|
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
75,500
|
|
|
$
|
75,297
|
|
|
$
|
61,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company qualifies for a tax holiday in Israel which began during the fiscal year ended February 28, 2011 and is scheduled to terminate as of the fiscal year
ending February 29, 2020. The tax holiday provides for an exemption from income tax in the first two years, and for a reduced rate of taxation on income generated in Israel for the subsequent eight years. The financial impact of this holiday
for the year ended February 29, 2016 was a $1.5 million reduction in the Companys provision for income taxes, which increased the Companys diluted earnings per share by approximately $0.01.
|
As of February 29, 2016, cumulative undistributed earnings of non-U.S. subsidiaries totaled $537.7 million. Determination of the
deferred tax liability, if any, on these earnings reinvested indefinitely outside the U.S. is not practicable because of available foreign tax credits, continually changing variables and other factors. It is the Companys policy to invest the
earnings of foreign subsidiaries indefinitely outside the U.S. From time to time, however, the Company may remit a portion of these earnings to the extent it is economically prudent. The Company has provided U.S. income taxes on the earnings of
certain foreign subsidiaries that are not considered as permanently reinvested outside the U.S. The U.S. income tax on such earnings is completely offset by U.S. foreign tax credits. The Company has also provided U.S. income taxes on the earnings of
certain foreign subsidiaries that are permanently reinvested outside the U.S. but are deemed distributed for U.S. federal income tax purposes. The U.S. income tax on such earnings is reduced or offset by available U.S. foreign tax credits.
97
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Unrecognized tax benefits
The following table reconciles unrecognized tax benefits for the years ended February 29, 2016, February 28, 2015 and
February 28, 2014 (in thousands):
|
|
|
|
|
Balance at February 28, 2013
|
|
$
|
48,313
|
|
Additions based on tax positions related to prior years
|
|
|
100
|
|
Additions based on tax positions related to the current year
|
|
|
9,005
|
|
Reductions related to settlements with tax authorities
|
|
|
(364
|
)
|
|
|
|
|
|
Balance at February 28, 2014
|
|
$
|
57,054
|
|
Additions based on tax positions related to prior years
|
|
|
514
|
|
Additions based on tax positions related to the current year
|
|
|
3,374
|
|
Reductions related to changes in facts and circumstances
|
|
|
(229
|
)
|
Reductions related to lapse of the statute of limitations
|
|
|
(370
|
)
|
|
|
|
|
|
Balance at February 28, 2015
|
|
$
|
60,343
|
|
Additions based on tax positions related to prior years
|
|
|
13,486
|
|
Additions based on tax positions related to the current year
|
|
|
3,494
|
|
Additions related to changes in facts and circumstances
|
|
|
256
|
|
Reductions related to settlements with tax authorities
|
|
|
(1,112
|
)
|
Reductions related to lapse of the statute of limitations
|
|
|
(1,581
|
)
|
|
|
|
|
|
Balance at February 29, 2016
|
|
$
|
74,886
|
|
|
|
|
|
|
The Companys unrecognized tax benefits as of February 29, 2016 and February 28, 2015,
which, if recognized, would affect the Companys effective tax rate were $59.1 million and $55.7 million, respectively.
It is the Companys policy to recognize interest and penalties related to uncertain tax positions as income tax expense. Accrued
interest and penalties related to unrecognized tax benefits totaled $10.7 million and $9.2 million as of February 29, 2016 and February 28, 2015, respectively.
The results and timing of the resolution of tax audits is highly uncertain and the Company is unable to estimate the range of the possible changes to the balance of unrecognized tax benefits. However, the
Company does not anticipate that within the next 12 months that the total amount of unrecognized tax benefits will significantly increase or decrease as a result of any such potential tax audit resolutions.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various states and foreign
jurisdictions. The following table summarizes the tax years in the Companys major tax jurisdictions that remain subject to income tax examinations by tax authorities as of February 29, 2016. Due to NOL carryforwards, in some cases the tax
years continue to remain subject to examination with respect to such NOLs:
|
|
|
Tax Jurisdiction
|
|
Years Subject to
Income Tax
Examination
|
U.S. federal
|
|
1998 Present
|
California
|
|
2001 Present
|
North Carolina
|
|
2001 Present
|
Massachusetts
|
|
2008 Present
|
Ireland
|
|
2011 Present
|
Japan (1)
|
|
2012 Present
|
(1)
|
The Company has been examined for income tax for years through February 28, 2011. However, the statute of limitations remains through May 31, 2016.
|
98
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Company is currently undergoing income tax examinations in France and India.
The Company believes it has adequately provided for any reasonably foreseeable outcomes related to tax audits.
NOTE 12Common and Preferred Stock
Common stock
The Company has authorized 300,000,000 shares of common stock with a par value of $0.0001 per share. Holders of these shares have one vote per share. Upon the dissolution, liquidation or winding up of the
Company, holders of common stock will be entitled to receive the assets of the Company after satisfaction of the preferential rights of any outstanding preferred stock or any other outstanding stock ranking on liquidation senior to or on parity with
the common stock.
The Company repurchased 3,476,229 shares, 8,355,757 shares and 5,006,579 shares of its common stock during
the fiscal years ended February 29, 2016, February 28, 2015 and February 28, 2014, respectively, at an aggregate cost of $262.6 million, $535.1 million and $239.4 million, respectively. These amounts are recorded as treasury
stock on the Companys Consolidated Balance Sheets.
Preferred stock
At February 29, 2016, the Company has authorized 5,000,000 shares of preferred stock with a par value of $0.0001 per share. No shares
of preferred stock were outstanding as of February 29, 2016 or February 28, 2015.
NOTE 13Share-based Awards
Overview
The Companys 2004 Long-Term Incentive Plan, as amended and restated (the LTIP), provides for the granting of stock options, service-based share awards and performance-based share awards,
among other awards. As of February 29, 2016, there were 12.4 million shares of common stock reserved for issuance under the LTIP for future share-based awards to be granted to any employee, officer or director or consultant of the Company
at terms and prices to be determined by the Board of Directors.
99
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table summarizes share-based awards, by type, granted during the years
ended February 29, 2016, February 28, 2015 and February 28, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards Granted
Year ended
|
|
|
Awards Granted
Year ended
|
|
|
Awards Granted
Year ended
|
|
|
|
February 29, 2016
|
|
|
February 28, 2015
|
|
|
February 28, 2014
|
|
|
|
Shares and
Shares
Underlying
Awards
|
|
|
Weighted
Average
Per Share
Award
Fair Value
|
|
|
Shares and
Shares
Underlying
Awards
|
|
|
Weighted
Average
Per Share
Award
Fair Value
|
|
|
Shares and
Shares
Underlying
Awards
|
|
|
Weighted
Average
Per Share
Award
Fair Value
|
|
Stock options
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
133,800
|
|
|
$
|
12.64
|
|
Service-based shares and share units (1)
|
|
|
2,108,639
|
|
|
$
|
76.45
|
|
|
|
2,994,553
|
|
|
$
|
53.23
|
|
|
|
2,513,328
|
|
|
$
|
47.43
|
|
Performance-based share unitsMaximum
|
|
|
628,596
|
|
|
$
|
77.87
|
|
|
|
1,148,084
|
|
|
$
|
52.17
|
|
|
|
671,448
|
|
|
$
|
47.86
|
|
Stock options assumed as part of a business combination
|
|
|
119,515
|
|
|
$
|
58.22
|
|
|
|
219,169
|
|
|
$
|
48.45
|
|
|
|
|
|
|
$
|
|
|
Restricted shares issued as part of a business combination with continued-employment service conditions
|
|
|
|
|
|
$
|
|
|
|
|
529,057
|
|
|
$
|
54.75
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based awards
|
|
|
2,856,750
|
|
|
$
|
76.00
|
|
|
|
4,890,863
|
|
|
$
|
52.93
|
|
|
|
3,318,576
|
|
|
$
|
46.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Service-based shares granted during the year ended February 29, 2016 include 154,705 restricted shares awarded to certain executives that were subject to both a
four-year service condition and the achievement of a specified dollar amount of revenue for fiscal year 2016 (the RSA performance goal). The RSA performance goal for fiscal year 2016 was met. Therefore, as of April 19, 2016 only the
service condition remained, with 25% vesting one year from the date of grant and the remainder vesting ratably on a quarterly basis over the course of the subsequent three-year period.
|
The following summarizes share-based compensation expense recognized in the Companys Consolidated Financial Statements for the
years ended February 29, 2016, February 28, 2015 and February 28, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Cost of revenue
|
|
$
|
15,898
|
|
|
$
|
14,027
|
|
|
$
|
11,793
|
|
Sales and marketing
|
|
|
69,089
|
|
|
|
55,203
|
|
|
|
40,322
|
|
Research and development
|
|
|
48,466
|
|
|
|
38,517
|
|
|
|
34,194
|
|
General and administrative
|
|
|
32,781
|
|
|
|
27,485
|
|
|
|
27,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
166,234
|
|
|
$
|
135,232
|
|
|
$
|
113,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense qualifying for capitalization was insignificant for each of the
Companys fiscal years ended February 29, 2016, February 28, 2015 and February 28, 2014. Accordingly, no share-based compensation expense was capitalized during these years.
Estimated annual forfeituresAn estimated forfeiture rate of 10% per annum, which approximates the Companys historical
rate, was applied to options and service-based share awards. Awards are adjusted to actual forfeiture rates at vesting. The Company reassesses its estimated forfeiture rate annually or when new information, including actual forfeitures, indicate a
change is appropriate.
100
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Stock options
The total fair value of stock options recognized in the Consolidated Financial Statements for the years ended February 29,
2016, February 28, 2015 and February 28, 2014 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total fair value of stock options recognized
|
|
$
|
4,918
|
|
|
$
|
5,085
|
|
|
$
|
2,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2016, the Company had 374,775 stock options outstanding with a weighted average
remaining contractual life of 5.2 years and a weighted average exercise price of $29.98. The number of stock options exercisable as of February 29, 2016 was 157,896 with a weighted average share price of $35.31.
The intrinsic value of stock options exercised during the years ended February 29, 2016, February 28, 2015 and
February 28, 2014 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total intrinsic value of stock options exercised
|
|
$
|
9,103
|
|
|
$
|
6,289
|
|
|
$
|
6,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2016, compensation cost related to unvested stock options not yet recognized in
the Companys Consolidated Financial Statements totaled $8.6 million. The weighted average period over which these unvested stock options are expected to be recognized is approximately 2.1 years.
Service-based share awards
Service-based share awards include nonvested shares, nonvested share units and deferred share units granted under the LTIP. Nonvested shares and share units generally vest, subject to continued service to
the Company, (i) 25% on the first anniversary of the date of grant and 6.25% on the first day of each subsequent three-month period for nonvested shares and (ii) 25% each year over a four-year period beginning on the date of grant for
nonvested share units. Nonvested shares and nonvested share units are generally amortized to expense on a straight-line basis over four years. Deferred share units are awarded to directors and generally vest within one year when issued in lieu of
annual share awards or immediately when issued in lieu of cash.
The total fair value of service-based share awards recognized
in the Companys Consolidated Financial Statements for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total fair value of service-based awards recognized
|
|
$
|
124,904
|
|
|
$
|
107,887
|
|
|
$
|
92,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table summarizes the activity for the Companys service-based share
awards for the years ended February 29, 2016, February 28, 2015 and February 28, 2014:
|
|
|
|
|
|
|
|
|
|
|
Nonvested
Shares and
Share Units
|
|
|
Weighted
Average
Grant-date
Fair Value
|
|
Service-based share awards at February 28, 2013
|
|
|
5,193,433
|
|
|
$
|
46.59
|
|
Granted
|
|
|
2,513,328
|
|
|
|
47.43
|
|
Vested
|
|
|
(1,915,326
|
)
|
|
|
42.35
|
|
Forfeited
|
|
|
(418,127
|
)
|
|
|
48.53
|
|
|
|
|
|
|
|
|
|
|
Service-based share awards at February 28, 2014
|
|
|
5,373,308
|
|
|
$
|
48.34
|
|
Granted
|
|
|
2,994,553
|
|
|
|
53.23
|
|
Vested
|
|
|
(1,948,247
|
)
|
|
|
47.24
|
|
Forfeited
|
|
|
(569,952
|
)
|
|
|
48.50
|
|
Restricted shares issued as part of a business combination with continued-employment service conditions (1)
|
|
|
529,057
|
|
|
|
54.75
|
|
|
|
|
|
|
|
|
|
|
Service-based share awards at February 28, 2015
|
|
|
6,378,719
|
|
|
$
|
51.49
|
|
Granted
|
|
|
2,108,639
|
|
|
|
76.45
|
|
Vested
|
|
|
(2,047,169
|
)
|
|
|
50.78
|
|
Forfeited
|
|
|
(265,315
|
)
|
|
|
56.21
|
|
|
|
|
|
|
|
|
|
|
Service-based share awards at February 29, 2016
|
|
|
6,174,874
|
|
|
$
|
60.05
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As part of the Companys acquisition of eNovance, a total of 529,057 restricted common shares were issued to certain shareholders of eNovance. These restricted
shares are conditioned on continued employment with the Company. The shares effectively vest 25% per year and are being amortized on a straight-line basis to share-based compensation expense in the Companys Consolidated Statement of
Operations.
|
The following summarizes the intrinsic value, as of February 29, 2016, of the Companys
service-based awards outstanding and expected to vest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic Value of
Service-based Awards
|
|
Number of
Shares and
Share Units
|
|
|
Weighted
Average
Remaining
Vesting Period
|
|
|
Intrinsic Value
at
February 28, 2015
(in thousands)
|
|
Outstanding
|
|
|
6,174,874
|
|
|
|
2.7
|
|
|
$
|
403,528
|
|
Expected to vest (assuming annual forfeiture rate of 10%)
|
|
|
5,339,337
|
|
|
|
2.7
|
|
|
$
|
348,926
|
|
The intrinsic value of service-based awards vesting during the years ended February 29,
2016, February 28, 2015 and February 28, 2014 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total intrinsic value of service-based awards vesting
|
|
$
|
157,864
|
|
|
$
|
108,066
|
|
|
$
|
88,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2016, compensation cost related to service-based share awards not yet recognized
in the Companys Consolidated Financial Statements totaled $287.1 million. The weighted average period over which these nonvested awards are expected to be recognized is approximately 2.7 years.
102
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Performance-based share awards
Under the LTIP, certain executive officers and senior management were awarded a target number of performance share units
(PSUs). The PSU payouts are either based on (i) the Companys financial performance (performance condition) or (ii) the performance of the Companys total stockholder return (market condition).
Set forth below are general descriptions of the two types of performance-based awards granted to certain executive officers and members of senior management.
PSUs with performance conditions
Depending on the Companys financial
performance measured against the financial performance of specified peer companies during a three-year performance period, PSU grantees may earn up to 200% of the target number of PSUs (the Maximum PSUs). Payouts are earned over a
performance period with two separate performance segments. Up to 50% of the Maximum PSUs may be earned in respect of the first performance segment; and up to 100% of the Maximum PSUs may be earned in respect of the second performance segment, less
the amount earned in the first performance segment.
PSUs with market conditions
Depending on the performance of the Companys total stockholder return over a performance period of approximately three years, PSU
grantees may earn up to 200% of the target number of PSUs. The number of PSUs earned is determined based on a comparison of the performance of the Companys total shareholder return relative to the performance of the total shareholder return of
specified peer companies during the same performance period. Each grantee will receive a number of shares of common stock equal to the number of PSUs earned in a single payout following the end of the performance period.
In addition to the PSUs with the market condition described above, certain executives were awarded a total of 242,352 PSUs that pay out
only if the Companys total shareholder return increases by at least 50% within a three-year performance period beginning on August 6, 2014 (TSR Hurdle PSUs). If the performance goal is achieved during the performance period
and the grantees business relationship with the Company has not ceased, 50% of the TSR Hurdle PSUs vest upon achievement of the performance goal and the remaining 50% of the TSR Hurdle PSUs vest on the last day of the four-year service period
beginning on August 6, 2014. The TSR Hurdle PSUs performance goal was met during the fourth quarter of fiscal 2016.
103
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The following table summarizes the activity for the Companys PSUs for the years
ended February 29, 2016, February 28, 2015 and February 28, 2014:
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
Activity
|
|
Shares
Underlying
Performance
Share Units
|
|
|
Weighted Average
Grant
Date
Fair Value
|
|
Outstanding at February 28, 2013
|
|
|
1,504,670
|
|
|
$
|
43.22
|
|
Granted
|
|
|
671,448
|
|
|
|
47.86
|
|
Vested
|
|
|
(399,334
|
)
|
|
|
33.47
|
|
Forfeited
|
|
|
(101,559
|
)
|
|
|
44.34
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2014
|
|
|
1,675,225
|
|
|
$
|
47.34
|
|
Granted
|
|
|
1,148,084
|
|
|
|
52.17
|
|
Vested
|
|
|
(374,921
|
)
|
|
|
45.42
|
|
Forfeited
|
|
|
(299,053
|
)
|
|
|
41.90
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 28, 2015
|
|
|
2,149,335
|
|
|
$
|
51.01
|
|
Granted
|
|
|
628,596
|
|
|
|
77.87
|
|
Vested
|
|
|
(497,656
|
)
|
|
|
52.41
|
|
Forfeited
|
|
|
(230,764
|
)
|
|
|
52.29
|
|
|
|
|
|
|
|
|
|
|
Outstanding at February 29, 2016
|
|
|
2,049,511
|
|
|
$
|
58.76
|
|
|
|
|
|
|
|
|
|
|
Vested and forfeited amounts represent the actual number of shares vesting and forfeited during the year.
Outstanding amounts represent the remaining maximum potential shares available to vest as of the period ended.
The total fair
value of performance-based share awards recognized in the Companys Consolidated Financial Statements for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total fair value of performance-based awards recognized
|
|
$
|
36,412
|
|
|
$
|
22,260
|
|
|
$
|
19,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of performance-based share awards vesting during the years ended
February 29, 2016, February 28, 2015 and February 28, 2014 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total intrinsic value of performance-based awards vesting
|
|
$
|
36,555
|
|
|
$
|
18,733
|
|
|
$
|
19,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2016, the number of shares subject to PSU awards expected to vest was
1.4 million shares. Compensation expense related to PSUs expected to vest but not yet recognized in the Consolidated Financial Statements totaled $34.7 million as of February 29, 2016. The weighted average period over which these awards
are expected to be recognized is approximately 1.1 years.
104
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 14Commitments and Contingencies
Operating leases
As of February 29, 2016, the Company leased office space and certain equipment under various non-cancelable operating leases. Future minimum lease payments required under the operating leases at
February 29, 2016 are as follows (in thousands):
|
|
|
|
|
Fiscal Year
|
|
Operating
Leases
|
|
2017
|
|
$
|
31,381
|
|
2018
|
|
|
22,572
|
|
2019
|
|
|
19,706
|
|
2020
|
|
|
18,322
|
|
2021
|
|
|
16,209
|
|
Thereafter
|
|
|
73,036
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
181,226
|
|
|
|
|
|
|
Rent expense under operating leases for the fiscal years ended February 29,
2016, February 28, 2015 and February 28, 2014 is provided in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total operating lease expense
|
|
$
|
32,078
|
|
|
$
|
30,869
|
|
|
$
|
29,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product indemnification
The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party from losses arising in connection with the Companys services or products, or from
losses arising in connection with certain events defined within a particular contract, which may include litigation or claims relating to intellectual property infringement, certain losses arising from damage to property or injury to persons or
other matters. In each of these circumstances, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the
other partys claims. Further, the Companys obligations under these agreements may in certain cases be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third-parties for certain payments
made by the Company.
It is not possible to predict the maximum potential amount of future payments under these or similar
agreements due to the conditional nature of the Companys obligations and the facts and circumstances involved in each particular agreement. The Company does not record a liability for claims related to indemnification unless the Company
concludes that the likelihood of a material claim is probable and estimable. Payments pursuant to these indemnification claims during the years ended February 29, 2016, February 28, 2015 and February 28, 2014 were in the
aggregate immaterial.
NOTE 15Legal Proceedings
The Company experiences routine litigation in the normal course of its business, including patent litigation. The
Company presently believes that the outcome of this routine litigation will not have a material adverse effect on its financial position, results of operations or cash flows.
105
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 16Employee Benefit Plans
The Company provides retirement plans whereby participants may elect to contribute a portion of their annual
compensation to the plans, after complying with certain limitations. The Company has the option to make contributions to the plans and contributed to the plans for the years ended February 29, 2016, February 28, 2015 and
February 28, 2014 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Total contributions to employee benefit plans
|
|
$
|
25,731
|
|
|
$
|
21,721
|
|
|
$
|
17,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 17Share Repurchase Programs
On March 25, 2015, the Company announced that its Board of Directors has authorized the repurchase of up to $500.0
million of Red Hats common stock from time to time on the open market or in privately negotiated transactions. The program commenced on April 1, 2015, and will expire on the earlier of (i) March 31, 2017, or (ii) a
determination by the Board of Directors, Chief Executive Officer or Chief Financial Officer to discontinue the program.
As of
February 29, 2016, the Company had repurchased 3,476,229 shares of its common stock for $262.6 million under this program. As of February 29, 2016, the amount available under the program for the repurchase of the Companys common
stock was $237.4 million.
Accelerated share repurchase
During the fiscal year ended February 28, 2015, the Company entered into an accelerated share repurchase program (the ASR
Agreement). On October 7, 2014, under the ASR Agreement, the Company paid $375.0 million to the ASR Agreement counterparty and received 5,312,555 shares of its common stock from the ASR Agreement counterparty, which represented 80 percent
of the shares deliverable to the Company under the ASR Agreement assuming an average share price of $56.47 (the Companys closing share price at October 1, 2014). The ASR Agreement was completed on February 27, 2015. On March 4,
2015, the ASR Agreement counterparty delivered 720,101 additional shares of the Companys common stock to the Company in settlement of the ASR Agreement.
The Company initially accounted for the ASR Agreement as two separate transactions: (i) the 5,312,555 shares of common stock initially delivered to the Company were accounted for as a treasury stock
transaction with $300.0 million, or 80 percent, of the $375.0 million upfront payment being recorded in Treasury stock in the Companys Consolidated Balance Sheet at February 28, 2015 and (ii) the unsettled portion of the ASR
Agreement of $75.0 million was recorded in Additional paid-in capital on the Companys Consolidated Balance Sheet as of February 28, 2015. The $75.0 million representing the unsettled portion of the ASR originally recorded in Additional
paid-in capital was reclassified upon settlement to Treasury stock during the fiscal year ended February 29, 2016.
The
total number of shares of common stock the Company repurchased under the ASR Agreement was 6,032,656 shares with a weighted average share price of $62.16.
106
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 18Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes the composition and fair value hierarchy of the Companys financial assets and
liabilities at February 29, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
February 29,
2016
|
|
|
Quoted Prices In
Active
Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money markets (1)
|
|
$
|
221,970
|
|
|
$
|
221,970
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale securities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
|
331,117
|
|
|
|
|
|
|
|
331,117
|
|
|
|
|
|
Corporate securities
|
|
|
736,495
|
|
|
|
|
|
|
|
736,495
|
|
|
|
|
|
Foreign currency derivatives (2)
|
|
|
566
|
|
|
|
|
|
|
|
566
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives (3)
|
|
|
(452
|
)
|
|
|
|
|
|
|
(452
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,289,696
|
|
|
$
|
221,970
|
|
|
$
|
1,067,726
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Companys Consolidated
Balance Sheet at February 29, 2016 in addition to $705.8 million of cash.
|
(2)
|
Included in Other current assets in the Companys Consolidated Balance Sheet at February 29, 2016.
|
(3)
|
Included in Accounts payable and accrued expenses in the Companys Consolidated Balance Sheet at February 29, 2016.
|
The following table summarizes the composition and fair value hierarchy of the Companys financial assets and liabilities at
February 28, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
February 28,
2015
|
|
|
Quoted Prices In
Active
Markets
for Identical
Assets (Level 1)
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money markets (1)
|
|
$
|
369,926
|
|
|
$
|
369,926
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits (1)
|
|
|
39
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
Available-for-sale securities (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
29,994
|
|
|
|
|
|
|
|
29,994
|
|
|
|
|
|
U.S. agency securities
|
|
|
276,287
|
|
|
|
|
|
|
|
276,287
|
|
|
|
|
|
Corporate securities
|
|
|
421,200
|
|
|
|
|
|
|
|
421,200
|
|
|
|
|
|
Foreign government securities
|
|
|
63,744
|
|
|
|
|
|
|
|
63,744
|
|
|
|
|
|
Equity securities (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives (2)
|
|
|
74
|
|
|
|
|
|
|
|
74
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency derivatives (3)
|
|
|
(738
|
)
|
|
|
|
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,160,526
|
|
|
$
|
369,926
|
|
|
$
|
790,600
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Companys Consolidated
Balance Sheet at February 28, 2015, in addition to $647.6 million of cash.
|
107
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(2)
|
Included in Other current assets in the Companys Consolidated Balance Sheet at February 28, 2015.
|
(3)
|
Included in Accounts payable and accrued expenses in the Companys Consolidated Balance Sheet at February 28, 2015.
|
The following table represents the Companys investments measured at fair value as of February 29, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
|
|
Amortized
Cost
|
|
|
Gross Unrealized
|
|
|
Aggregate
Fair
Value
|
|
|
Cash
Equivalent
Marketable
Securities
|
|
|
Investments
in debt
securities,
short-term
|
|
|
Investments
in debt
securities,
long-term
|
|
|
|
|
Gains
|
|
|
Losses(1)
|
|
|
|
|
|
Money markets
|
|
$
|
221,970
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
221,970
|
|
|
$
|
221,970
|
|
|
$
|
|
|
|
$
|
|
|
U.S. agency securities
|
|
|
331,302
|
|
|
|
160
|
|
|
|
(345
|
)
|
|
|
331,117
|
|
|
|
|
|
|
|
50,453
|
|
|
|
280,664
|
|
Corporate securities
|
|
|
737,723
|
|
|
|
994
|
|
|
|
(2,222
|
)
|
|
|
736,495
|
|
|
|
|
|
|
|
230,689
|
|
|
|
505,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,290,995
|
|
|
$
|
1,154
|
|
|
$
|
(2,567
|
)
|
|
$
|
1,289,582
|
|
|
$
|
221,970
|
|
|
$
|
281,142
|
|
|
$
|
786,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of February 29, 2016, there were $0.9 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position
for 12 months or longer.
|
The following table summarizes the stated maturities of the Companys investment
in available-for-sale securities at February 29, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than
5
Years
|
|
Maturity of current and long-term available-for-sale securities
|
|
$
|
1,067,612
|
|
|
$
|
281,142
|
|
|
$
|
612,749
|
|
|
$
|
173,721
|
|
|
$
|
|
|
The following table represents the Companys investments measured at fair value as of
February 28, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Classification
|
|
|
|
Amortized
Cost
|
|
|
Gross Unrealized
|
|
|
Aggregate
Fair
Value
|
|
|
Cash
Equivalent
Marketable
Securities
|
|
|
Investments
in debt
securities,
short-term
|
|
|
Investments
in debt
securities,
long-term
|
|
|
|
|
Gains
|
|
|
Losses(1)
|
|
|
|
|
|
Money markets
|
|
$
|
369,926
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
369,926
|
|
|
$
|
369,926
|
|
|
$
|
|
|
|
$
|
|
|
Interest-bearing deposits
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
Commercial paper
|
|
|
29,994
|
|
|
|
|
|
|
|
|
|
|
|
29,994
|
|
|
|
29,994
|
|
|
|
|
|
|
|
|
|
U.S. agency securities
|
|
|
276,928
|
|
|
|
13
|
|
|
|
(654
|
)
|
|
|
276,287
|
|
|
|
|
|
|
|
5,002
|
|
|
|
271,285
|
|
Corporate securities
|
|
|
420,431
|
|
|
|
1,219
|
|
|
|
(450
|
)
|
|
|
421,200
|
|
|
|
|
|
|
|
146,469
|
|
|
|
274,731
|
|
Foreign government securities
|
|
|
63,687
|
|
|
|
59
|
|
|
|
(2
|
)
|
|
|
63,744
|
|
|
|
|
|
|
|
63,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,161,005
|
|
|
$
|
1,291
|
|
|
$
|
(1,106
|
)
|
|
$
|
1,161,190
|
|
|
$
|
399,920
|
|
|
$
|
215,254
|
|
|
$
|
546,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of February 28, 2015, there were $0.3 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position
for 12 months or longer.
|
108
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 19Earnings Per Share
The Company computes basic net income per common share by dividing net income available to common stockholders by the
weighted average number of common shares outstanding. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential
common share equivalents consist of shares issuable upon the exercise of stock options or vesting of share-based awards.
The
following table reconciles the numerators and denominators of the earnings per share (EPS) calculation for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 (in thousands, except per share
amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Net income, basic and diluted
|
|
$
|
199,365
|
|
|
$
|
180,201
|
|
|
$
|
178,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
182,817
|
|
|
|
186,529
|
|
|
|
189,920
|
|
Incremental shares attributable to assumed vesting or exercise of outstanding equity award shares
|
|
|
3,020
|
|
|
|
2,717
|
|
|
|
2,116
|
|
Dilutive effect of convertible notes
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
186,119
|
|
|
|
189,246
|
|
|
|
192,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share - diluted
|
|
$
|
1.07
|
|
|
$
|
0.95
|
|
|
$
|
0.93
|
|
With respect to the Companys convertible notes, the Company has the option to pay cash or deliver,
as the case may be, either cash, shares of its common stock or a combination of cash and shares of its common stock for the aggregate amount due upon conversion of the convertible notes. The Companys intent is to settle the principal amount of
the convertible notes in cash upon conversion. As a result, upon conversion of the convertible notes, only the amounts payable in excess of the principal amounts of the convertible notes are considered in diluted earnings per share under the
treasury stock method. See NOTE 22Convertible Notes to the Companys Consolidated Financial Statements for detailed information on the convertible notes.
Warrants to purchase 10,965,630 shares of the Companys common stock at $101.65 per share were outstanding during the fiscal years ended February 29, 2016 and February 28, 2015 but were not
included in the computation of diluted EPS because the warrants exercise price was greater than the average market price of the Companys common stock during the related period.
The following share awards are not included in the computation of diluted earnings per share because the aggregate value of proceeds
considered received upon either exercise or vesting was greater than the average market price of the Companys common stock during the related periods and the effect of including such share awards in the computation would be anti-dilutive (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Number of shares considered anti-dilutive for calculating diluted EPS
|
|
|
21
|
|
|
|
121
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 20Segment Reporting
The following summarizes revenue from unaffiliated customers, income (loss) from operations, total cash, cash
equivalents and available-for-sale investment securities and total assets by geographic segment at and for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
EMEA
|
|
|
Asia Pacific
|
|
|
Corporate(1)
|
|
|
Consolidated
|
|
|
|
Year ended February 29, 2016
|
|
Revenue from unaffiliated customers
|
|
$
|
1,354,345
|
|
|
$
|
436,304
|
|
|
$
|
261,581
|
|
|
$
|
|
|
|
$
|
2,052,230
|
|
Income (loss) from operations
|
|
$
|
297,462
|
|
|
$
|
93,373
|
|
|
$
|
63,447
|
|
|
$
|
(166,234
|
)
|
|
$
|
288,048
|
|
Total cash, cash equivalents and available-for-sale investment securities
|
|
$
|
1,222,470
|
|
|
$
|
540,584
|
|
|
$
|
232,336
|
|
|
$
|
|
|
|
$
|
1,995,390
|
|
Total assets
|
|
$
|
2,909,238
|
|
|
$
|
871,475
|
|
|
$
|
374,386
|
|
|
$
|
|
|
|
$
|
4,155,099
|
|
|
|
|
|
Year ended February 28, 2015
|
|
Revenue from unaffiliated customers
|
|
$
|
1,144,237
|
|
|
$
|
410,299
|
|
|
$
|
234,953
|
|
|
$
|
|
|
|
$
|
1,789,489
|
|
Income (loss) from operations
|
|
$
|
242,173
|
|
|
$
|
89,364
|
|
|
$
|
53,689
|
|
|
$
|
(135,232
|
)
|
|
$
|
249,994
|
|
Total cash, cash equivalents and available-for-sale investment securities
|
|
$
|
1,267,824
|
|
|
$
|
405,114
|
|
|
$
|
135,805
|
|
|
$
|
|
|
|
$
|
1,808,743
|
|
Total assets (2)
|
|
$
|
2,755,923
|
|
|
$
|
726,101
|
|
|
$
|
302,545
|
|
|
$
|
|
|
|
$
|
3,784,569
|
|
|
|
|
|
Year ended February 28, 2014
|
|
Revenue from unaffiliated customers
|
|
$
|
974,655
|
|
|
$
|
352,935
|
|
|
$
|
207,025
|
|
|
$
|
|
|
|
$
|
1,534,615
|
|
Income (loss) from operations
|
|
$
|
199,254
|
|
|
$
|
94,949
|
|
|
$
|
51,860
|
|
|
$
|
(113,774
|
)
|
|
$
|
232,289
|
|
Total cash, cash equivalents and available-for-sale investment securities
|
|
$
|
808,830
|
|
|
$
|
517,397
|
|
|
$
|
161,202
|
|
|
$
|
|
|
|
$
|
1,487,429
|
|
Total assets (2)
|
|
$
|
2,126,843
|
|
|
$
|
703,412
|
|
|
$
|
248,815
|
|
|
$
|
|
|
|
$
|
3,079,070
|
|
(1)
|
Amounts represent share-based compensation expense for each of the three fiscal years ended February 29, 2016, February 28, 2015 and February 28,
2014, which was not allocated to geographic segments.
|
(2)
|
Includes the effects of retrospective application of ASU 2015-03 and ASU 2015-17.
|
Supplemental information about geographic areas
The following table lists, for the years ended February 29, 2016, February 28, 2015 and February 28, 2014, revenue from unaffiliated customers in the United States, the Companys
country of domicile, and revenue from foreign countries (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
United States, the Companys country of domicile
|
|
$
|
1,213,493
|
|
|
$
|
1,022,803
|
|
|
$
|
848,053
|
|
Foreign
|
|
|
838,737
|
|
|
|
766,686
|
|
|
|
686,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue from unaffiliated customers
|
|
$
|
2,052,230
|
|
|
$
|
1,789,489
|
|
|
$
|
1,534,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no individual foreign countries in which the Company earned 10% or more of its revenue from
unaffiliated customers.
110
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
Total tangible long-lived assets located in the United States, the Companys
country of domicile, and similar tangible long-lived assets held outside the U.S. are summarized in the following table for the years ended February 29, 2016, February 28, 2015 and February 28, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
|
February 28,
2014
|
|
United States, the Companys country of domicile
|
|
$
|
126,937
|
|
|
$
|
131,792
|
|
|
$
|
137,356
|
|
Foreign
|
|
|
39,949
|
|
|
|
40,359
|
|
|
|
36,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tangible long-lived assets
|
|
$
|
166,886
|
|
|
$
|
172,151
|
|
|
$
|
173,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information about major customers
For the year ended February 29, 2016, the U.S. government and its agencies represented in the aggregate approximately 10% of the
Companys total revenue. For the years ended February 28, 2015 and February 28, 2014, there were no individual customers from which the Company generated 10% or greater revenue.
Supplemental information about products and services
The following table, for each of the fiscal years ended February 29, 2016, February 28, 2015 and February 28, 2014, provides further detail, by type, of our subscription and
services revenues. Infrastructure-related offerings subscription revenue includes subscription revenue generated from Red Hat Enterprise Linux and related technologies such as Red Hat Satellite and Red Hat Enterprise Virtualization. Subscription
revenue generated from our Application development-related and other emerging technology offerings includes Red Hat JBoss Middleware, Red Hat Storage, Red Hat Mobile and Red Hat cloud offerings such as Red Hat Enterprise Linux OpenStack Platform and
OpenShift by Red Hat (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
|
Year ended
February 28,
2014
|
|
Subscription revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Infrastructure-related offerings
|
|
$
|
1,480,463
|
|
|
$
|
1,324,693
|
|
|
$
|
1,171,103
|
|
Application development-related and other emerging technology offerings
|
|
|
322,986
|
|
|
|
236,541
|
|
|
|
165,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription revenue
|
|
|
1,803,449
|
|
|
|
1,561,234
|
|
|
|
1,336,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Training and services revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting services
|
|
|
190,870
|
|
|
|
171,436
|
|
|
|
145,191
|
|
Training
|
|
|
57,911
|
|
|
|
56,819
|
|
|
|
52,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total training and services revenue
|
|
|
248,781
|
|
|
|
228,255
|
|
|
|
197,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
2,052,230
|
|
|
$
|
1,789,489
|
|
|
$
|
1,534,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 21Other Long-Term Obligations
Other long-term obligations were comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Accrued income taxes
|
|
$
|
73,403
|
|
|
$
|
57,083
|
|
Deferred rent credits
|
|
|
13,197
|
|
|
|
12,992
|
|
Net non-current deferred tax liability (see NOTE 11Income Taxes)
|
|
|
169
|
|
|
|
815
|
|
Other
|
|
|
1,143
|
|
|
|
1,156
|
|
|
|
|
|
|
|
|
|
|
Other long-term obligations
|
|
$
|
87,912
|
|
|
$
|
72,046
|
|
|
|
|
|
|
|
|
|
|
111
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 22Convertible Notes
Convertible note offering
On October 7, 2014, the Company completed its offering of $805.0 million aggregate principal amount of its 0.25% Convertible Senior Notes due 2019 (the convertible notes). The convertible
notes were sold in a private placement under a purchase agreement, dated as of October 1, 2014, entered into by and among the Company and the Initial Purchasers, for resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended.
The Company used $148.0 million of the net proceeds from the offering of the convertible
notes to pay the cost of the privately-negotiated convertible note hedge transactions described below. The Company received proceeds of $79.8 million from the sale of warrants pursuant to the warrant transactions described below.
In addition, the Company used $375.0 million of the net proceeds from the offering of the convertible notes to repurchase shares of its
common stock under an accelerated share repurchase program pursuant to an agreement that the Company entered into on October 1, 2014, as described in NOTE 17Share Repurchase Programs to the Companys Consolidated Financial
Statements.
The Company intends to use the remaining net proceeds from the offering for working capital and other general
corporate purposes, which may include capital expenditures, potential acquisitions or strategic transactions.
Indenture
On October 7, 2014, the Company entered into an indenture (the Indenture) with respect to the convertible
notes with U.S. Bank National Association, as trustee (the Trustee). Under the Indenture, the convertible notes will be senior unsecured obligations of the Company and bear interest at a rate of 0.25% per year, payable semiannually
in arrears on April 1 and October 1 of each year, beginning on April 1, 2015. The convertible notes will mature on October 1, 2019, unless previously purchased or converted.
The convertible notes are convertible into shares of the Companys common stock at an initial conversion rate of 13.6219 shares per
$1,000 principal amount of convertible notes (which is equivalent to an initial conversion price of approximately $73.41 per share), subject to adjustment upon the occurrence of certain events. The initial conversion price represents a premium of
approximately 30% to the $56.47 per share closing price of the Companys common stock on October 1, 2014. Upon conversion of the convertible notes, holders will receive cash or shares of the Companys common stock or a combination
thereof, at the Companys election.
Prior to April 1, 2019, the convertible notes will be convertible only upon the
occurrence of certain circumstances, and will be convertible thereafter at any time until the close of business on the second scheduled trading day immediately preceding the maturity date of the convertible notes.
The conversion rate is subject to customary anti-dilution adjustments. If certain corporate events described in the Indenture occur prior
to the maturity date, the conversion rate will be increased for a holder who elects to convert its convertible notes in connection with such corporate event in certain circumstances.
The convertible notes are not redeemable prior to maturity, and no sinking fund is provided for the notes. If the Company undergoes a
fundamental change, as defined in the Indenture, subject to certain conditions, holders may require the Company to purchase for cash all or any portion of their convertible notes. The fundamental change purchase price will be 100% of the
principal amount of the convertible notes to be purchased plus any accrued and unpaid special interest up to but excluding the fundamental change purchase date.
112
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The Indenture contains customary terms and covenants, including that upon certain events
of default occurring and continuing, either the Trustee or the holders of at least 25% in principal amount of the outstanding convertible notes may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the convertible
notes to be due and payable.
In accounting for the issuance of the convertible notes, the Company separated the convertible
notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the estimated fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the
equity component representing the conversion option was determined by deducting the fair value of the liability component from the face value of the convertible notes as a whole. The excess of the face value of the convertible notes as a whole over
the carrying amount of the liability component (the debt discount) is amortized to interest expense over the term of the convertible notes using the effective interest method with an effective interest rate of 2.86% per annum. The
equity component is not remeasured as long as it continues to meet the conditions for equity classification.
As of
February 29, 2016, the Notes consisted of the following (in thousands):
|
|
|
|
|
|
|
February 29,
2016
|
|
Liability component
|
|
|
|
|
Principal
|
|
$
|
805,000
|
|
Less: debt issuance costs
|
|
|
(10,029
|
)
|
Less: debt discount
|
|
|
(71,029
|
)
|
|
|
|
|
|
Net carrying amount
|
|
$
|
723,942
|
|
|
|
|
|
|
Equity component (1)
|
|
$
|
96,890
|
|
|
|
|
|
|
(1)
|
Recorded in the Consolidated Balance Sheet in Additional paid-in capital.
|
In accounting for the transaction costs related to the convertible note issuance, the Company allocated the total amount incurred of $15.2 million to the liability and equity components based on their
relative fair values. Issuance costs attributable to the liability component totaled $13.4 million and are being amortized to interest expense over the term of the convertible notes using the effective interest method. The remaining $1.8 million of
issuance costs have been allocated to the equity component and are included in Additional paid-in capital on the Companys Consolidated Balance Sheet as of February 29, 2016. Additionally, the Company recorded a deferred tax asset of $0.7
million related to the $1.8 million equity component of transactional costs which are deductible for tax purposes.
The
following table includes total interest expense recognized related to the convertible notes for the fiscal years ended February 29, 2016 and February 28, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year ended
February 29,
2016
|
|
|
Year ended
February 28,
2015
|
|
Coupon rate 0.25% per year, payable semiannually
|
|
$
|
2,012
|
|
|
$
|
805
|
|
Amortization of convertible note issuance costsliability component
|
|
|
2,433
|
|
|
|
935
|
|
Accretion of debt discount
|
|
|
18,570
|
|
|
|
7,292
|
|
|
|
|
|
|
|
|
|
|
Total interest expense related to convertible notes
|
|
$
|
23,015
|
|
|
$
|
9,032
|
|
|
|
|
|
|
|
|
|
|
113
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
The fair value of the convertible notes, which was determined based on inputs that are
observable in the market (Level 2), and the carrying value of convertible notes (the carrying value excludes the equity component of the convertible notes classified in equity) is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of February 29, 2016
|
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
Convertible notes
|
|
$
|
714,950
|
|
|
$
|
723,942
|
|
|
|
|
|
|
|
|
|
|
Convertible note hedge transactions and warrant transactions
On October 1, 2014, the Company entered into convertible note hedge transactions and warrant transactions with certain of the Initial
Purchasers of the convertible notes or their respective affiliates (the Option Counterparties).
The convertible
note hedge transactions are expected to offset the potential dilution with respect to shares of the Companys common stock upon any conversion of the convertible notes and/or offset any cash payments the Company is required to make in excess of
the principal amount of the converted notes, as the case may be. To partially offset the $148.0 million cost of the convertible note hedge transactions, the Company issued warrants and received proceeds of $79.8 million. The number of shares of the
Companys common stock underlying the warrants total 10,965,630, the same number of shares underlying the convertible notes and the convertible note hedge transactions. The combination of the convertible note hedge transactions and the warrant
transactions effectively increases the initial conversion price of the convertible notes from $73.41 per share to $101.65 per share. As a result, the warrant transactions will have a dilutive effect with respect to the Companys common stock to
the extent that the market price per share of the Companys common stock, as measured under the terms of the warrant transactions, exceeds the $101.65 strike price of the warrants. However, subject to certain conditions, the Company may elect
to settle all of the warrants in cash. The $101.65 strike price of the warrants represents a premium of approximately 80% over the $56.47 per share closing price of the Companys common stock on October 1, 2014.
The purchase of convertible note hedges and proceeds from issuance of warrants were recorded in stockholders equity and will
continue to be classified as stockholders equity.
NOTE 23Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss was comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
February 29,
2016
|
|
|
February 28,
2015
|
|
Accumulated loss from foreign currency translation adjustment
|
|
$
|
(73,776
|
)
|
|
$
|
(60,986
|
)
|
Accumulated unrealized gain (loss), net of tax, on available-for-sale securities
|
|
|
(673
|
)
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(74,449
|
)
|
|
$
|
(60,621
|
)
|
|
|
|
|
|
|
|
|
|
114
RED HAT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
NOTE 24Unaudited Quarterly Results
Below are unaudited condensed quarterly results for the year ended February 29, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 29, 2016
|
|
|
|
(Unaudited)
|
|
|
|
4th
Quarter
|
|
|
3rd
Quarter
|
|
|
2nd
Quarter
|
|
|
1st
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
|
|
$
|
479,642
|
|
|
$
|
457,488
|
|
|
$
|
441,526
|
|
|
$
|
424,793
|
|
Training and services
|
|
|
63,859
|
|
|
|
66,092
|
|
|
|
62,622
|
|
|
|
56,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription and training and services revenue
|
|
$
|
543,501
|
|
|
$
|
523,580
|
|
|
$
|
504,148
|
|
|
$
|
481,001
|
|
Gross profit
|
|
$
|
462,281
|
|
|
$
|
442,532
|
|
|
$
|
428,184
|
|
|
$
|
409,604
|
|
Income from operations
|
|
$
|
71,771
|
|
|
$
|
68,877
|
|
|
$
|
76,470
|
|
|
$
|
70,930
|
|
Interest income
|
|
$
|
3,189
|
|
|
$
|
2,874
|
|
|
$
|
2,895
|
|
|
$
|
2,715
|
|
Interest expense
|
|
$
|
5,856
|
|
|
$
|
5,817
|
|
|
$
|
5,733
|
|
|
$
|
5,715
|
|
Other income (expense), net
|
|
$
|
(336
|
)
|
|
$
|
49
|
|
|
$
|
(1,245
|
)
|
|
$
|
(203
|
)
|
Net income, basic and diluted
|
|
$
|
53,036
|
|
|
$
|
46,848
|
|
|
$
|
51,395
|
|
|
$
|
48,086
|
|
Net income per common share (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.29
|
|
|
$
|
0.26
|
|
|
$
|
0.28
|
|
|
$
|
0.26
|
|
Diluted
|
|
$
|
0.29
|
|
|
$
|
0.25
|
|
|
$
|
0.28
|
|
|
$
|
0.26
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
182,099
|
|
|
|
182,850
|
|
|
|
183,179
|
|
|
|
183,130
|
|
Diluted
|
|
|
184,888
|
|
|
|
186,094
|
|
|
|
186,750
|
|
|
|
186,175
|
|
(1)
|
Earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal
the reported annual earnings per common share.
|
Below are unaudited condensed quarterly results for the year
ended February 28, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended February 28, 2015
|
|
|
|
(Unaudited)
|
|
|
|
4th
Quarter
|
|
|
3rd
Quarter
|
|
|
2nd
Quarter
|
|
|
1st
Quarter
|
|
|
|
(in thousands, except per share data)
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
|
|
$
|
405,072
|
|
|
$
|
394,699
|
|
|
$
|
389,495
|
|
|
$
|
371,968
|
|
Training and services
|
|
|
58,869
|
|
|
|
61,196
|
|
|
|
56,404
|
|
|
|
51,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total subscription and training and services revenue
|
|
$
|
463,941
|
|
|
$
|
455,895
|
|
|
$
|
445,899
|
|
|
$
|
423,754
|
|
Gross profit
|
|
$
|
393,724
|
|
|
$
|
384,530
|
|
|
$
|
378,725
|
|
|
$
|
359,311
|
|
Income from operations
|
|
$
|
67,607
|
|
|
$
|
67,197
|
|
|
$
|
64,227
|
|
|
$
|
50,963
|
|
Interest income
|
|
$
|
2,288
|
|
|
$
|
2,196
|
|
|
$
|
2,010
|
|
|
$
|
1,842
|
|
Interest expense
|
|
$
|
5,803
|
|
|
$
|
3,441
|
|
|
$
|
97
|
|
|
$
|
53
|
|
Other income (expense), net
|
|
$
|
4,785
|
|
|
$
|
1,559
|
|
|
$
|
(192
|
)
|
|
$
|
410
|
|
Net income, basic and diluted
|
|
$
|
47,700
|
|
|
$
|
47,933
|
|
|
$
|
46,823
|
|
|
$
|
37,745
|
|
Net income per common share (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.25
|
|
|
$
|
0.20
|
|
Diluted
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.25
|
|
|
$
|
0.20
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
183,459
|
|
|
|
185,039
|
|
|
|
188,162
|
|
|
|
189,372
|
|
Diluted
|
|
|
186,307
|
|
|
|
187,674
|
|
|
|
190,755
|
|
|
|
191,457
|
|
(1)
|
Earnings per common share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per common share information may not equal
the reported annual earnings per common share.
|
115