Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
May 31, 2016 | Jun. 30, 2016 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | May 31, 2016 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | RHT | |
Entity Registrant Name | RED HAT INC | |
Entity Central Index Key | 1,087,423 | |
Current Fiscal Year End Date | --02-28 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 181,096,136 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | [1] |
Current assets: | |||
Cash and cash equivalents | $ 1,031,565 | $ 927,778 | |
Investments in debt securities, short-term | 364,850 | 281,142 | |
Accounts receivable, net of allowances for doubtful accounts of $2,315 and $2,798, respectively | 326,334 | 509,715 | |
Prepaid expenses | 159,829 | 150,877 | |
Other current assets | 1,375 | 2,921 | |
Total current assets | 1,883,953 | 1,872,433 | |
Property and equipment, net of accumulated depreciation and amortization of $208,451 and $194,819, respectively | 168,015 | 166,886 | |
Goodwill | 1,029,636 | 1,027,277 | |
Identifiable intangibles, net | 140,704 | 146,071 | |
Investments in debt securities, long-term | 723,461 | 786,470 | |
Deferred tax assets, net | 116,393 | 111,456 | |
Other assets, net | 50,119 | 44,506 | |
Total assets | 4,112,281 | 4,155,099 | |
Current liabilities: | |||
Accounts payable and accrued expenses | 251,401 | 284,802 | |
Deferred revenue | 1,251,096 | 1,272,908 | |
Other current obligations | 1,980 | 1,467 | |
Total current liabilities | 1,504,477 | 1,559,177 | |
Long-term deferred revenue | 441,060 | 449,636 | |
Convertible notes | 729,307 | 723,942 | |
Other long-term obligations | 88,102 | 87,912 | |
Commitments and contingencies (NOTES 12 and 13) | |||
Stockholders' equity: | |||
Preferred stock, 5,000,000 shares authorized, none outstanding | |||
Common stock, $0.0001 per share par value, 300,000,000 shares authorized, 235,700,463 and 234,896,137 shares issued, and 181,088,587 and 181,185,861 shares outstanding at May 31, 2016 and February 29, 2016, respectively | 24 | 23 | |
Additional paid-in capital | 2,176,208 | 2,162,264 | |
Retained earnings | 1,160,472 | 1,099,738 | |
Treasury stock at cost, 54,611,876 and 53,710,276 shares at May 31, 2016 and February 29, 2016, respectively | (1,919,622) | (1,853,144) | |
Accumulated other comprehensive loss | (67,747) | (74,449) | |
Total stockholders' equity | 1,349,335 | 1,334,432 | |
Total liabilities and stockholders' equity | $ 4,112,281 | $ 4,155,099 | |
[1] | Derived from audited financial statements. |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | [1] |
Accounts receivable, allowances for doubtful accounts | $ 2,315 | $ 2,798 | |
Property and equipment, accumulated depreciation and amortization | $ 208,451 | $ 194,819 | |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | |
Preferred stock, outstanding | 0 | 0 | |
Common stock, per share par value | $ 0.0001 | $ 0.0001 | |
Common stock, shares authorized | 300,000,000 | 300,000,000 | |
Common stock, shares issued | 235,700,463 | 234,896,137 | |
Common stock, shares outstanding | 181,088,587 | 181,185,861 | |
Treasury stock, shares | 54,611,876 | 53,710,276 | |
[1] | Derived from audited financial statements. |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Revenue: | ||
Subscriptions | $ 501,665 | $ 424,793 |
Training and services | 66,234 | 56,208 |
Total subscription and training and services revenue | 567,899 | 481,001 |
Cost of subscription and training and services revenue: | ||
Cost of subscriptions | 36,545 | 29,846 |
Cost of training and services | 47,503 | 41,551 |
Total cost of subscription and training and services revenue | 84,048 | 71,397 |
Gross profit | 483,851 | 409,604 |
Operating expense: | ||
Sales and marketing | 243,248 | 198,872 |
Research and development | 115,016 | 97,431 |
General and administrative | 50,224 | 42,371 |
Total operating expense | 408,488 | 338,674 |
Income from operations | 75,363 | 70,930 |
Interest income | 3,430 | 2,715 |
Interest expense | 5,887 | 5,715 |
Other income (expense), net | (553) | (203) |
Income before provision for income taxes | 72,353 | 67,727 |
Provision for income taxes | 11,169 | 19,641 |
Net income | $ 61,184 | $ 48,086 |
Basic net income per common share | $ 0.34 | $ 0.26 |
Diluted net income per common share | $ 0.33 | $ 0.26 |
Weighted average shares outstanding | ||
Basic | 181,168 | 183,130 |
Diluted | 184,187 | 186,175 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Net income | $ 61,184 | $ 48,086 |
Other comprehensive income (loss): | ||
Change in foreign currency translation adjustment | 5,917 | (5,629) |
Available-for-sale securities: | ||
Unrealized gain (loss) on available-for-sale securities during the period | 1,238 | (406) |
Reclassification for (gain) loss realized on available-for-sale securities, reported in Other income (expense), net | (9) | 5 |
Tax benefit (expense) | (444) | 47 |
Net change in available-for-sale securities (net of tax) | 785 | (354) |
Total other comprehensive income (loss) | 6,702 | (5,983) |
Comprehensive income | $ 67,886 | $ 42,103 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | ||
May 31, 2016 | May 31, 2015 | ||
Cash flows from operating activities: | |||
Net income | $ 61,184 | $ 48,086 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 20,702 | 18,547 | |
Amortization of debt discount and transaction costs | 5,365 | 5,195 | |
Share-based compensation expense | 41,275 | 36,522 | |
Deferred income taxes | (2,152) | 1,914 | |
Excess tax benefits from share-based payment arrangements | 7,950 | 6,419 | |
Net amortization of bond premium on debt securities available for sale | 3,540 | 2,597 | |
Other | (765) | 830 | |
Changes in operating assets and liabilities: | |||
Accounts receivable | 190,330 | 179,387 | |
Prepaid expenses | (9,373) | (427) | |
Accounts payable and accrued expenses | (38,136) | (52,346) | |
Deferred revenue | (46,093) | (31,562) | |
Other | (1,530) | 15 | |
Net cash provided by operating activities | 232,297 | 215,177 | |
Cash flows from investing activities: | |||
Purchase of investment in debt securities available for sale | (134,601) | (406,211) | |
Proceeds from sales and maturities of investment in debt securities available for sale | 117,182 | 182,583 | |
Purchase of other intangible assets | (2,868) | (3,929) | |
Purchase of property and equipment | (17,653) | (10,696) | |
Other | (111) | (2,000) | |
Net cash used in investing activities | (38,051) | (240,253) | |
Cash flows from financing activities: | |||
Proceeds from exercise of common stock options | 1,380 | 2,109 | |
Payments related to net settlement of share-based compensation awards | (31,079) | (25,211) | |
Purchase of treasury stock | (66,478) | ||
Other | 55 | (351) | |
Net cash used in financing activities | (96,122) | (23,453) | |
Effect of foreign currency exchange rates on cash and cash equivalents | 5,663 | (8,022) | |
Net increase (decrease) in cash and cash equivalents | 103,787 | (56,551) | |
Cash and cash equivalents at beginning of the period | 927,778 | [1] | 1,047,473 |
Cash and cash equivalents at end of the period | $ 1,031,565 | $ 990,922 | |
[1] | Derived from audited financial statements. |
Company
Company | 3 Months Ended |
May 31, 2016 | |
Company | NOTE 1—Company 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 Company’s open source offerings, opportunities for further innovation of the Company’s 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 Company’s customers that produce this revenue and cash are explained in further detail in NOTE 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2016. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 3 Months Ended |
May 31, 2016 | |
Summary of Significant Accounting Policies | NOTE 2—Summary of Significant Accounting Policies Basis of presentation The unaudited interim consolidated financial statements as of and for the three months ended May 31, 2016 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the consolidated balance sheets, consolidated operating results, consolidated other comprehensive income and consolidated cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America. Operating results for the three months ended May 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2017. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the SEC’s rules and regulations for interim reporting. These unaudited financial statements should be read in conjunction with the Company’s Consolidated Financial Statements, including notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2016. Other than the accounting pronouncement adopted during the three months ended May 31, 2016 related to accounting for share-based compensation as described below, there have been no changes to the Company’s significant accounting policies from those described in NOTE 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2016. These unaudited financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10-K. Consolidation policy 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 have been eliminated in consolidation. There are no significant foreign currency exchange restrictions on the Company’s foreign subsidiaries. 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. Accounting pronouncement adopted In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Impact to Consolidated Statements of Operations One of the more significant impacts of adopting ASU 2016-09 is the required change in how the Company recognizes the excess tax benefits (“windfalls”) or deficiencies (“shortfalls”) related to share-based compensation. For example, prior to adopting ASU 2016-09 such windfalls and shortfalls were credited or charged, respectively, to additional paid-in capital in the Company’s Consolidated Balance Sheets. Under ASU 2016-09, these windfalls and shortfalls are recognized as a discrete tax benefit or discrete tax expense, respectively, in the Company’s Consolidated Statements of Operations. For the three months ended May 31, 2016, the Company recognized a discrete tax benefit of $7.9 million related to net windfall tax benefits from share-based compensation. ASU 2016-09 requires companies to adopt the amendment related to accounting for windfalls and shortfalls on a prospective basis only. As a result, no change has been made to the Consolidated Statement of Operations for the three months ended May 31, 2015 related to the $5.6 million of net windfall tax benefits the Company recognized as additional paid-in capital during the three months ended May 31, 2015. Net windfall tax benefits of $5.6 million recognized as additional paid-in-capital during the three months ended May 31, 2015 includes gross windfall tax benefits of $6.4 million net of $0.8 million shortfall tax expense. Impact to Consolidated Statements of Cash Flows In addition to the income tax consequences described above, under ASU 2016-09 all windfall tax benefits related to share-based payments are reported as cash flows from operating activities along with all other income tax cash flows. Previously, windfall tax benefits from share-based payment arrangements were reported as cash flows from financing activities. With respect to the classification of windfall tax benefits on the statement of cash flows, ASU 2016-09 allows companies to elect either a prospective or retrospective application. The Company has elected to apply this classification amendment retrospectively. As a result, $6.4 million of windfall tax benefits previously reported as cash flows from financing activities on the Company’s Consolidated Statement of Cash Flows for the three months ended May 31, 2015 have been reclassified as cash flows from operating activities. Impact to Consolidated Balance Sheets ASU 2016-09 requires that certain other amendments relevant to the Company be applied using a modified-retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the guidance is adopted. As a result of adopting ASU 2016-09 during the three months ended May 31, 2016, the Company adjusted retained earnings for amendments related to (i) the timing of when unrealized net windfall tax benefits are recognized and (ii) an entity-wide accounting policy election to recognize share-based award forfeitures only as they occur rather than estimate by applying a forfeiture rate. The following table summarizes the impact to the Company’s Consolidated Balance Sheet, including the net amount charged to retained earnings as of March 1, 2016 (in thousands): As of March 1, 2016 Balance Sheet Classification Amount Increase to additional paid-in capital resulting from the Company’s election to recognize forfeitures as they occur rather than applying an estimated forfeiture rate Additional paid-in capital $ 2,369 Recognition of deferred tax assets related to cumulative-effect adjustment from the Company’s election to recognize forfeitures as they occur Deferred tax assets, net $ 603 Recognition of deferred tax assets related to certain unrealized net windfall tax benefits from share-based compensation Deferred tax assets, net $ 1,316 Net charge to retained earnings for cumulative-effect adjustment from adoption of ASU 2016-09 Retained earnings $ 450 Accounting pronouncements being evaluated In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers . |
Changes in Equity
Changes in Equity | 3 Months Ended |
May 31, 2016 | |
Changes in Equity | NOTE 3—Changes in Equity The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2016 (in thousands): Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at February 29, 2016 $ 23 $ 2,162,264 $ 1,099,738 $ (1,853,144 ) $ (74,449 ) $ 1,334,432 Net income — — 61,184 — — 61,184 Other comprehensive income (loss), net of tax — — — — 6,702 6,702 Exercise of common stock options 1 1,379 — — — 1,380 Common stock repurchase (see NOTE 10) — — — (66,478 ) — (66,478 ) Share-based compensation expense — 41,275 — — — 41,275 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (31,079 ) — — — (31,079 ) Cumulative-effect adjustment from adoption of ASU 2016-09 — 2,369 (450 ) — — 1,919 Balance at May 31, 2016 $ 24 $ 2,176,208 $ 1,160,472 $ (1,919,622 ) $ (67,747 ) $ 1,349,335 The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2015 (in thousands): Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at February 28, 2015 $ 23 $ 1,963,851 $ 900,373 $ (1,515,288 ) $ (60,621 ) $ 1,288,338 Net income — — 48,086 — — 48,086 Other comprehensive income (loss), net of tax — — — — (5,983 ) (5,983 ) Exercise of common stock options — 2,109 — — — 2,109 Common stock repurchase — 75,000 — (75,000 ) — — Share-based compensation expense — 36,522 — — — 36,522 Net tax benefits related to share-based awards — 5,562 — — — 5,562 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (25,211 ) — — — (25,211 ) Other adjustments — 213 — (213 ) — — Balance at May 31, 2015 $ 23 $ 2,058,046 $ 948,459 $ (1,590,501 ) $ (66,604 ) $ 1,349,423 Accumulated other comprehensive loss The following is a summary of accumulated other comprehensive loss as of May 31, 2016 and February 29, 2016 (in thousands): As of As of Accumulated loss from foreign currency translation adjustment $ (67,859 ) $ (73,776 ) Accumulated unrealized gain (loss), net of tax, on available-for-sale securities 112 (673 ) Accumulated other comprehensive loss $ (67,747 ) $ (74,449 ) |
Identifiable Intangible Assets
Identifiable Intangible Assets | 3 Months Ended |
May 31, 2016 | |
Identifiable Intangible Assets | NOTE 4—Identifiable 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 related asset’s pattern of economic benefit or on a straight-line basis if a straight-line basis results in a greater amount of amortization for the period reported. Useful lives range from two to ten years. As of May 31, 2016 and February 29, 2016, trademarks with an indefinite estimated useful life totaled $11.3 million and $11.1 million, respectively. The following is a summary of identifiable intangible assets (in thousands): As of May 31, 2016 As of February 29, 2016 Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Trademarks, copyrights and patents $ 140,245 $ (52,169 ) $ 88,076 $ 138,106 $ (49,876 ) $ 88,230 Purchased technologies 96,246 (73,191 ) 23,055 96,105 (70,940 ) 25,165 Customer and reseller relationships 104,745 (82,492 ) 22,253 104,593 (80,329 ) 24,264 Covenants not to compete 13,315 (10,698 ) 2,617 13,240 (9,875 ) 3,365 Other intangible assets 8,833 (4,130 ) 4,703 8,833 (3,786 ) 5,047 Total identifiable intangible assets $ 363,384 $ (222,680 ) $ 140,704 $ 360,877 $ (214,806 ) $ 146,071 Amortization expense associated with identifiable intangible assets recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2016 and May 31, 2015 is summarized as follows (in thousands): Three Months Ended May 31, May 31, Cost of revenue $ 3,967 $ 2,917 Sales and marketing 1,916 2,005 Research and development 34 250 General and administrative 1,753 1,052 Total amortization expense $ 7,670 $ 6,224 |
Income Taxes
Income Taxes | 3 Months Ended |
May 31, 2016 | |
Income Taxes | NOTE 5—Income Taxes The following table summarizes the Company’s tax provision for the three months ended May 31, 2016 and May 31, 2015 (in thousands): Three Months Ended May 31, May 31, Income before provision for income taxes $ 72,353 $ 67,727 Estimated annual effective tax rate 27 % 29 % Provision for income taxes before discrete tax benefits 19,535 19,641 Discrete tax benefits related to net excess tax benefits from share-based payments 7,938 — Other discrete tax benefits 428 — Provision for income taxes $ 11,169 $ 19,641 For the three months ended May 31, 2016, the Company’s estimated annual effective tax rate of 27% differed from the U.S. federal statutory rate of 35% principally due to foreign income taxed at lower rates, research tax credits and the domestic production activities deduction. Tax expense for the three months ended May 31, 2016 included a discrete tax benefit of $7.9 million related to net excess tax benefits from share-based payments resulting from the Company’s early adoption of ASU 2016-09. See NOTE 2—Summary of Significant Accounting Policies for more details regarding the adoption of ASU 2016-09. For the three months ended May 31, 2015, the Company’s then-estimated annual effective tax rate of 29% differed from the U.S. federal statutory rate of 35%, principally due to foreign income taxed at lower rates, state income taxes net of federal benefits and the domestic production activities deduction. |
Assets and Liabilities Measured
Assets and Liabilities Measured at Fair Value on a Recurring Basis | 3 Months Ended |
May 31, 2016 | |
Assets and Liabilities Measured at Fair Value on a Recurring Basis | NOTE 6—Assets and Liabilities Measured at Fair Value on a Recurring Basis 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 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs 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. Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. The Company’s 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 Company’s Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. The Company’s 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 Company’s 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 security’s 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. The Company minimizes its credit risk associated with investments by investing primarily in investment grade, liquid securities. The Company’s 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 Company’s investment strategy. The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities at May 31, 2016 (in thousands): As of 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) $ 284,422 $ 284,422 $ — $ — Available-for-sale securities (1): U.S. agency securities 341,705 — 341,705 — Corporate securities 746,606 — 746,606 — Foreign currency derivatives (2) 46 — 46 — Liabilities: Foreign currency derivatives (3) (437 ) — (437 ) — Total $ 1,372,342 $ 284,422 $ 1,087,920 $ — (1) Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet at May 31, 2016, in addition to $747.1 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet at May 31, 2016. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at May 31, 2016. The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities at February 29, 2016 (in thousands): As of 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 Company’s Consolidated Balance Sheet at February 29, 2016, in addition to $705.8 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet at February 29, 2016. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at February 29, 2016. The following table represents the Company’s investments measured at fair value as of May 31, 2016 (in thousands): Gross Unrealized Balance Sheet Classification Amortized Cost Gains Losses (1) Aggregate Fair Value Cash Investments Investments Money markets $ 284,422 $ — $ — $ 284,422 $ 284,422 $ — $ — U.S. agency securities 342,155 132 (582 ) 341,705 — 60,443 281,262 Corporate securities 746,340 1,128 (862 ) 746,606 — 304,407 442,199 Total $ 1,372,917 $ 1,260 $ (1,444 ) $ 1,372,733 $ 284,422 $ 364,850 $ 723,461 (1) As of May 31, 2016, there were $0.6 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 represents the Company’s investments measured at fair value as of February 29, 2016 (in thousands): Gross Unrealized Balance Sheet Classification Amortized Cost Gains Losses (1) Aggregate Fair Value Cash Investments Investments 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. |
Derivative Instruments
Derivative Instruments | 3 Months Ended |
May 31, 2016 | |
Derivative Instruments | NOTE 7—Derivative 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 does not designate these forward contracts as hedging instruments under applicable accounting guidance and, therefore, changes in fair value are recorded in the Consolidated Statements of Operations. The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2016 and for the three months then ended (in thousands): As of May 31, 2016 Three Months Ended May 31, 2016 Balance Sheet Classification Fair Value Notional Value Classification of Amount of Gain Assets—foreign currency forward contracts not designated as hedges Other current assets $ 46 $ 6,563 Other income (expense), net $ 1,199 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (437 ) 27,842 Other income (expense), net (678 ) Total $ (391 ) $ 34,405 $ 521 The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2015 and for the three months then ended (in thousands): As of May 31, 2015 Three Months Ended May 31, 2015 Balance Sheet Classification Fair Value Notional Value Classification of Amount of Gain Assets—foreign currency forward contracts not designated as hedges Other current assets $ 86 $ 2,765 Other income $ 680 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (293 ) 29,919 Other income (809 ) Total $ (207 ) $ 32,684 $ (129 ) |
Share-based Awards
Share-based Awards | 3 Months Ended |
May 31, 2016 | |
Share-based Awards | NOTE 8—Share-based Awards The Company measures share-based compensation cost at 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. 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 are measured at their underlying closing share price on the day of grant. Effective March 1, 2016, the Company adopted ASU 2016-09. Upon adoption of ASU 2016-09 the Company made an accounting policy election to account for forfeitures as they occur rather than apply an estimated forfeiture rate. See NOTE 2—Summary of Significant Accounting Policies for more details regarding the adoption of ASU 2016-09. The following summarizes share-based compensation expense recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2016 and May 31, 2015 (in thousands): Three Months Ended May 31, 2016 May 31, 2015 Cost of revenue $ 4,305 $ 3,727 Sales and marketing 18,440 15,412 Research and development 12,002 10,874 General and administrative 6,528 6,509 Total share-based compensation expense $ 41,275 $ 36,522 Share-based compensation expense qualifying for capitalization was insignificant for each of the three months ended May 31, 2016 and May 31, 2015. Accordingly, no share-based compensation expense was capitalized during the three months ended May 31, 2016 and May 31, 2015. During the three months ended May 31, 2016 and May 31, 2015, the Company granted the following share-based awards: Three Months Ended May 31, 2016 May 31, 2015 Shares and Shares Underlying Weighted Shares and Weighted Service-based shares and share units 934,890 $ 75.45 807,596 $ 74.81 Performance share units—target 360,676 (1) $ 76.70 258,118 $ 77.28 Performance share awards 140,182 (2) $ 76.70 98,525 $ 77.28 Total awards 1,435,748 $ 75.89 1,164,239 $ 75.57 (1) Certain executives and senior management were awarded a target number of performance share units (“PSUs”). PSU grantees may earn up to 200% of the target number of PSUs. Half of the target number of PSUs can be earned by the grantees depending upon the Company’s financial performance measured against the financial performance of specified peer companies during a three-year performance period beginning on March 1, 2016. The remaining target number of PSUs can be earned by the grantees depending upon the Company’s total shareholder return performance measured against the total shareholder return performance of specified peer companies during a three-year period beginning on March 1, 2016. (2) Certain executives were granted restricted stock awards. These shares were awarded subject to the achievement of a specified dollar amount of revenue for FY2017 (the “RSA Performance Goal”). If the Company fails to achieve the RSA Performance Goal for FY2017, then all such shares are forfeited. If the Company achieves the RSA Performance Goal for FY2017, then 25% of the restricted stock vests on or about July 16, 2017, and the remainder vests ratably on a quarterly basis over the course of the subsequent three-year period, provided that the grantee’s business relationship with the Company has not ceased. |
Earnings Per Share
Earnings Per Share | 3 Months Ended |
May 31, 2016 | |
Earnings Per Share | NOTE 9—Earnings 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 three months ended May 31, 2016 and May 31, 2015 (in thousands, except per share amounts): Three Months Ended May 31, May 31, Net income, basic and diluted $ 61,184 $ 48,086 Weighted average common shares outstanding 181,168 183,130 Incremental shares attributable to assumed vesting or exercise of outstanding equity award shares 3,019 2,994 Dilutive effect of convertible notes — 51 Diluted shares 184,187 186,175 Diluted net income per share $ 0.33 $ 0.26 With respect to the Company’s 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 Company’s 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 would be considered in diluted earnings per share under the treasury stock method. See NOTE 15—Convertible Notes for detailed information on the convertible notes. Warrants to purchase 10,965,630 shares of the Company’s common stock at $101.65 per share were outstanding during the three months ended May 31, 2016 and May 31, 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 Company’s common stock during the related period. The following employee share awards were 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 Company’s common stock during the related periods and the effect of including such share awards in the computation would be anti-dilutive (in thousands): Three Months Ended May 31, May 31, 2015 Number of shares considered anti-dilutive for calculating diluted EPS 1,081 3 |
Share Repurchase Programs
Share Repurchase Programs | 3 Months Ended |
May 31, 2016 | |
Share Repurchase Programs | NOTE 10—Share Repurchase Programs On March 25, 2015, the Company announced that its Board of Directors (the “Board”) has authorized the repurchase of up to $500.0 million of Red Hat’s 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, Chief Executive Officer or Chief Financial Officer to discontinue the program. During the three months ended May 31, 2016, the Company repurchased 901,600 shares of its common stock for $66.5 million under this repurchase program. As of May 31, 2016, the amount available under the program for the repurchase of the Company’s common stock was $170.9 million. On June 22, 2016, the Company announced that its Board authorized a new repurchase program and terminated the repurchase program described above effective June 30, 2016. See NOTE 16—Subsequent Events for additional information regarding the Company’s new share repurchase program. |
Segment Reporting
Segment Reporting | 3 Months Ended |
May 31, 2016 | |
Segment Reporting | NOTE 11—Segment Reporting The following summarizes revenue from unaffiliated customers and income (loss) from operations for the three months ended May 31, 2016 and May 31, 2015 and total cash, cash equivalents and available-for-sale investment securities and total assets as of May 31, 2016 and May 31, 2015, by geographic segment (in thousands): Americas EMEA Asia Pacific Corporate (1) Consolidated Three Months Ended May 31, 2016 Revenue from unaffiliated customers $ 365,723 $ 124,299 $ 77,877 $ — $ 567,899 Income (loss) from operations $ 69,756 $ 25,688 $ 21,194 $ (41,275 ) $ 75,363 Total cash, cash equivalents and available-for-sale investment securities $ 1,240,377 $ 613,619 $ 265,880 $ — $ 2,119,876 Total assets $ 2,815,567 $ 892,729 $ 403,985 $ — $ 4,112,281 Three Months Ended May 31, 2015 Revenue from unaffiliated customers $ 321,833 $ 97,473 $ 61,695 $ — $ 481,001 Income (loss) from operations $ 75,533 $ 16,407 $ 15,512 $ (36,522 ) $ 70,930 Total cash, cash equivalents and available-for-sale investment securities $ 1,302,959 $ 446,318 $ 219,197 $ — $ 1,968,474 Total assets $ 2,727,050 $ 724,218 $ 309,012 $ — $ 3,760,280 (1) Amounts represent share-based compensation expense for each of the three months ended May 31, 2016 and May 31, 2015, which was not allocated to geographic segments. Supplemental information about geographic areas The following table lists, for each of the three months ended May 31, 2016 and May 31, 2015, revenue from unaffiliated customers in the United States, the Company’s country of domicile, and revenue from unaffiliated customers from foreign countries (in thousands): Three Months Ended May 31, 2016 May 31, 2015 United States, the Company’s country of domicile $ 328,529 $ 287,461 Foreign 239,370 193,540 Total revenue from unaffiliated customers $ 567,899 $ 481,001 Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company’s country of domicile, and similar tangible long-lived assets, net of accumulated depreciation, held outside the United States are summarized in the following table as of May 31, 2016 and February 29, 2016 (in thousands): As of May 31, As of February 29, United States, the Company’s country of domicile $ 126,280 $ 126,937 Foreign 41,735 39,949 Total tangible long-lived assets $ 168,015 $ 166,886 Supplemental information about major customers For each of the three months ended May 31, 2016 and May 31, 2015, the U.S. government and its agencies represented in the aggregate approximately 10% of the Company’s total revenue. Supplemental information about products and services The following table, for each of the three months ended May 31, 2016 and May 31, 2015, provides further detail, by type, of the Company’s 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 the Company’s 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 OpenStack Platform and OpenShift by Red Hat (in thousands): Three Months Ended May 31, May 31, Subscription revenue: Infrastructure-related offerings $ 403,182 $ 354,018 Application development-related and other emerging technology offerings 98,483 70,775 Total subscription revenue 501,665 424,793 Training and services revenue: Consulting services 50,310 43,199 Training 15,924 13,009 Total training and services revenue 66,234 56,208 Total subscription and training and services revenue $ 567,899 $ 481,001 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
May 31, 2016 | |
Commitments and Contingencies | NOTE 12—Commitments and Contingencies Operating leases As of May 31, 2016, the Company had leases of office space and certain equipment under various non-cancelable operating leases. Rent expense under operating leases for the three months ended May 31, 2016 and May 31, 2015 was $8.5 million and $7.8 million, respectively. 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 Company’s 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 party’s claims. Further, the Company’s 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 Company’s 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. Historically, payments pursuant to these indemnifications have been immaterial. |
Legal Proceedings
Legal Proceedings | 3 Months Ended |
May 31, 2016 | |
Legal Proceedings | NOTE 13—Legal 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. |
Business Combinations
Business Combinations | 3 Months Ended |
May 31, 2016 | |
Business Combinations | NOTE 14—Business 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 Company’s 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 management’s 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 Company’s 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 Company’s financial results. Management expects to finalize its assessment of the acquisition-date fair value of Ansible’s other assets and liabilities, primarily deferred income taxes, in early fiscal 2017. Pro forma consolidated financial information The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three months ended May 31, 2015 (in thousands, except per share amounts) as if the acquisition of Ansible had closed on March 1, 2015, after giving effect to certain purchase accounting adjustments. These pro forma results are not necessarily indicative of what the Company’s operating results would have been had the acquisition actually taken place at the beginning of the period. Three Months Ended May 31, 2015 Revenue $ 481,812 Net income $ 46,048 Basic net income per common share $ 0.25 Diluted net income per common share $ 0.25 |
Convertible Notes
Convertible Notes | 3 Months Ended |
May 31, 2016 | |
Convertible Notes | NOTE 15—Convertible Notes Convertible notes 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 Morgan Stanley & Co. LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC as representatives of the several initial purchasers named therein (collectively, 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 and completed on February 27, 2015. 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, and began 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 Company’s 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 Company’s common stock on October 1, 2014. Upon conversion of the convertible notes, holders will receive cash or shares of the Company’s common stock or a combination thereof, at the Company’s 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 convertible 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. 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 May 31, 2016 and February 29, 2016, the convertible notes consisted of the following (in thousands): As of As of Liability component: Principal $ 805,000 $ 805,000 Less: debt issuance costs (9,395 ) (10,029 ) Less: debt discount (66,298 ) (71,029 ) Net carrying amount $ 729,307 $ 723,942 Equity component (1) $ 96,890 $ 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 Company’s Consolidated Balance Sheet as of May 31, 2016. Additionally, the Company recorded a deferred tax asset of $0.7 million related to the $1.8 million equity component of transactional costs that are deductible for tax purposes. The following table includes total interest expense recognized related to the convertible notes for the three months ended May 31, 2016 and May 31, 2015 (in thousands): Three Months Ended May 31, May 31, Coupon rate 0.25% per year, payable semiannually $ 503 $ 503 Amortization of convertible note issuance costs—liability component 633 596 Accretion of debt discount 4,732 4,599 Total interest expense related to convertible notes $ 5,868 $ 5,698 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 the convertible notes (the carrying value excludes the equity component of the convertible notes classified in equity) are as follows (in thousands): As of May 31, 2016 Fair Value Carrying Value Convertible notes $ 727,896 $ 729,307 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 convertible note hedge transactions are expected to offset the potential dilution with respect to shares of the Company’s 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 Company’s 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 Company’s common stock to the extent that the market price per share of the Company’s 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 Company’s 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. |
Subsequent Events
Subsequent Events | 3 Months Ended |
May 31, 2016 | |
Subsequent Events | NOTE 16—Subsequent Events On June 22, 2016, the Company announced that its Board authorized the repurchase of up to $1.0 billion of Red Hat’s common stock from time to time on the open market or in privately negotiated transactions. The new program commenced on July 1, 2016, and will expire on the earlier of (i) June 30, 2018 or (ii) a determination by the Board, Chief Executive Officer or Chief Financial Officer to discontinue the program. The new program replaced the previous $500 million repurchase program, which was terminated by the Board effective June 30, 2016. |
Summary of Significant Accoun23
Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
May 31, 2016 | |
Basis of presentation | Basis of presentation The unaudited interim consolidated financial statements as of and for the three months ended May 31, 2016 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. These consolidated statements are unaudited and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments and accruals) necessary for a fair statement of the consolidated balance sheets, consolidated operating results, consolidated other comprehensive income and consolidated cash flows for the periods presented in accordance with accounting principles generally accepted in the United States of America. Operating results for the three months ended May 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending February 28, 2017. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted in accordance with the SEC’s rules and regulations for interim reporting. These unaudited financial statements should be read in conjunction with the Company’s Consolidated Financial Statements, including notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2016. Other than the accounting pronouncement adopted during the three months ended May 31, 2016 related to accounting for share-based compensation as described below, there have been no changes to the Company’s significant accounting policies from those described in NOTE 2—Summary of Significant Accounting Policies to the Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended February 29, 2016. These unaudited financial statements should be read in conjunction with the financial statements included in the Annual Report on Form 10-K. |
Consolidation policy | Consolidation policy 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 have been eliminated in consolidation. There are no significant foreign currency exchange restrictions on the Company’s foreign subsidiaries. |
Use of estimates | 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. |
Accounting pronouncements | Accounting pronouncement adopted In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting Impact to Consolidated Statements of Operations One of the more significant impacts of adopting ASU 2016-09 is the required change in how the Company recognizes the excess tax benefits (“windfalls”) or deficiencies (“shortfalls”) related to share-based compensation. For example, prior to adopting ASU 2016-09 such windfalls and shortfalls were credited or charged, respectively, to additional paid-in capital in the Company’s Consolidated Balance Sheets. Under ASU 2016-09, these windfalls and shortfalls are recognized as a discrete tax benefit or discrete tax expense, respectively, in the Company’s Consolidated Statements of Operations. For the three months ended May 31, 2016, the Company recognized a discrete tax benefit of $7.9 million related to net windfall tax benefits from share-based compensation. ASU 2016-09 requires companies to adopt the amendment related to accounting for windfalls and shortfalls on a prospective basis only. As a result, no change has been made to the Consolidated Statement of Operations for the three months ended May 31, 2015 related to the $5.6 million of net windfall tax benefits the Company recognized as additional paid-in capital during the three months ended May 31, 2015. Net windfall tax benefits of $5.6 million recognized as additional paid-in-capital during the three months ended May 31, 2015 includes gross windfall tax benefits of $6.4 million net of $0.8 million shortfall tax expense. Impact to Consolidated Statements of Cash Flows In addition to the income tax consequences described above, under ASU 2016-09 all windfall tax benefits related to share-based payments are reported as cash flows from operating activities along with all other income tax cash flows. Previously, windfall tax benefits from share-based payment arrangements were reported as cash flows from financing activities. With respect to the classification of windfall tax benefits on the statement of cash flows, ASU 2016-09 allows companies to elect either a prospective or retrospective application. The Company has elected to apply this classification amendment retrospectively. As a result, $6.4 million of windfall tax benefits previously reported as cash flows from financing activities on the Company’s Consolidated Statement of Cash Flows for the three months ended May 31, 2015 have been reclassified as cash flows from operating activities. Impact to Consolidated Balance Sheets ASU 2016-09 requires that certain other amendments relevant to the Company be applied using a modified-retrospective transition method by means of a cumulative-effect adjustment to retained earnings as of the beginning of the period in which the guidance is adopted. As a result of adopting ASU 2016-09 during the three months ended May 31, 2016, the Company adjusted retained earnings for amendments related to (i) the timing of when unrealized net windfall tax benefits are recognized and (ii) an entity-wide accounting policy election to recognize share-based award forfeitures only as they occur rather than estimate by applying a forfeiture rate. The following table summarizes the impact to the Company’s Consolidated Balance Sheet, including the net amount charged to retained earnings as of March 1, 2016 (in thousands): As of March 1, 2016 Balance Sheet Classification Amount Increase to additional paid-in capital resulting from the Company’s election to recognize forfeitures as they occur rather than applying an estimated forfeiture rate Additional paid-in capital $ 2,369 Recognition of deferred tax assets related to cumulative-effect adjustment from the Company’s election to recognize forfeitures as they occur Deferred tax assets, net $ 603 Recognition of deferred tax assets related to certain unrealized net windfall tax benefits from share-based compensation Deferred tax assets, net $ 1,316 Net charge to retained earnings for cumulative-effect adjustment from adoption of ASU 2016-09 Retained earnings $ 450 Accounting pronouncements being evaluated In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers . |
Assets and Liabilities Measured at Fair Value | 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 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Inputs 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. Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. The Company’s 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 Company’s Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. The Company’s 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 Company’s 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 security’s 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. The Company minimizes its credit risk associated with investments by investing primarily in investment grade, liquid securities. The Company’s 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 Company’s investment strategy. |
Share Based Awards | The Company measures share-based compensation cost at 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. 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 are measured at their underlying closing share price on the day of grant. Effective March 1, 2016, the Company adopted ASU 2016-09. Upon adoption of ASU 2016-09 the Company made an accounting policy election to account for forfeitures as they occur rather than apply an estimated forfeiture rate. See NOTE 2—Summary of Significant Accounting Policies for more details regarding the adoption of ASU 2016-09. |
Summary of Significant Accoun24
Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
May 31, 2016 | |
Impact to Consolidated Balance Sheet Including Net Amount Charged to Retained Earnings | The following table summarizes the impact to the Company’s Consolidated Balance Sheet, including the net amount charged to retained earnings as of March 1, 2016 (in thousands): As of March 1, 2016 Balance Sheet Classification Amount Increase to additional paid-in capital resulting from the Company’s election to recognize forfeitures as they occur rather than applying an estimated forfeiture rate Additional paid-in capital $ 2,369 Recognition of deferred tax assets related to cumulative-effect adjustment from the Company’s election to recognize forfeitures as they occur Deferred tax assets, net $ 603 Recognition of deferred tax assets related to certain unrealized net windfall tax benefits from share-based compensation Deferred tax assets, net $ 1,316 Net charge to retained earnings for cumulative-effect adjustment from adoption of ASU 2016-09 Retained earnings $ 450 |
Changes in Equity (Tables)
Changes in Equity (Tables) | 3 Months Ended |
May 31, 2016 | |
Summary of Changes in Stockholders' Equity | The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2016 (in thousands): Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at February 29, 2016 $ 23 $ 2,162,264 $ 1,099,738 $ (1,853,144 ) $ (74,449 ) $ 1,334,432 Net income — — 61,184 — — 61,184 Other comprehensive income (loss), net of tax — — — — 6,702 6,702 Exercise of common stock options 1 1,379 — — — 1,380 Common stock repurchase (see NOTE 10) — — — (66,478 ) — (66,478 ) Share-based compensation expense — 41,275 — — — 41,275 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (31,079 ) — — — (31,079 ) Cumulative-effect adjustment from adoption of ASU 2016-09 — 2,369 (450 ) — — 1,919 Balance at May 31, 2016 $ 24 $ 2,176,208 $ 1,160,472 $ (1,919,622 ) $ (67,747 ) $ 1,349,335 The following table summarizes the changes in the Company’s stockholders’ equity during the three months ended May 31, 2015 (in thousands): Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at February 28, 2015 $ 23 $ 1,963,851 $ 900,373 $ (1,515,288 ) $ (60,621 ) $ 1,288,338 Net income — — 48,086 — — 48,086 Other comprehensive income (loss), net of tax — — — — (5,983 ) (5,983 ) Exercise of common stock options — 2,109 — — — 2,109 Common stock repurchase — 75,000 — (75,000 ) — — Share-based compensation expense — 36,522 — — — 36,522 Net tax benefits related to share-based awards — 5,562 — — — 5,562 Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards — (25,211 ) — — — (25,211 ) Other adjustments — 213 — (213 ) — — Balance at May 31, 2015 $ 23 $ 2,058,046 $ 948,459 $ (1,590,501 ) $ (66,604 ) $ 1,349,423 |
Summary of Accumulated Other Comprehensive Loss | The following is a summary of accumulated other comprehensive loss as of May 31, 2016 and February 29, 2016 (in thousands): As of As of Accumulated loss from foreign currency translation adjustment $ (67,859 ) $ (73,776 ) Accumulated unrealized gain (loss), net of tax, on available-for-sale securities 112 (673 ) Accumulated other comprehensive loss $ (67,747 ) $ (74,449 ) |
Identifiable Intangible Assets
Identifiable Intangible Assets (Tables) | 3 Months Ended |
May 31, 2016 | |
Summary of Identifiable Intangible Assets | The following is a summary of identifiable intangible assets (in thousands): As of May 31, 2016 As of February 29, 2016 Gross Amount Accumulated Amortization Net Amount Gross Amount Accumulated Amortization Net Amount Trademarks, copyrights and patents $ 140,245 $ (52,169 ) $ 88,076 $ 138,106 $ (49,876 ) $ 88,230 Purchased technologies 96,246 (73,191 ) 23,055 96,105 (70,940 ) 25,165 Customer and reseller relationships 104,745 (82,492 ) 22,253 104,593 (80,329 ) 24,264 Covenants not to compete 13,315 (10,698 ) 2,617 13,240 (9,875 ) 3,365 Other intangible assets 8,833 (4,130 ) 4,703 8,833 (3,786 ) 5,047 Total identifiable intangible assets $ 363,384 $ (222,680 ) $ 140,704 $ 360,877 $ (214,806 ) $ 146,071 |
Schedule of Amortization Expense Associated with Identifiable Intangible Assets | Amortization expense associated with identifiable intangible assets recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2016 and May 31, 2015 is summarized as follows (in thousands): Three Months Ended May 31, May 31, Cost of revenue $ 3,967 $ 2,917 Sales and marketing 1,916 2,005 Research and development 34 250 General and administrative 1,753 1,052 Total amortization expense $ 7,670 $ 6,224 |
Income Taxes (Tables)
Income Taxes (Tables) | 3 Months Ended |
May 31, 2016 | |
Summary of Tax Provision | The following table summarizes the Company’s tax provision for the three months ended May 31, 2016 and May 31, 2015 (in thousands): Three Months Ended May 31, May 31, Income before provision for income taxes $ 72,353 $ 67,727 Estimated annual effective tax rate 27 % 29 % Provision for income taxes before discrete tax benefits 19,535 19,641 Discrete tax benefits related to net excess tax benefits from share-based payments 7,938 — Other discrete tax benefits 428 — Provision for income taxes $ 11,169 $ 19,641 |
Assets and Liabilities Measur28
Assets and Liabilities Measured at Fair Value on a Recurring Basis (Tables) | 3 Months Ended |
May 31, 2016 | |
Fair Value of Assets and Liabilities Acquired | The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities at May 31, 2016 (in thousands): As of 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) $ 284,422 $ 284,422 $ — $ — Available-for-sale securities (1): U.S. agency securities 341,705 — 341,705 — Corporate securities 746,606 — 746,606 — Foreign currency derivatives (2) 46 — 46 — Liabilities: Foreign currency derivatives (3) (437 ) — (437 ) — Total $ 1,372,342 $ 284,422 $ 1,087,920 $ — (1) Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet at May 31, 2016, in addition to $747.1 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet at May 31, 2016. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at May 31, 2016. The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities at February 29, 2016 (in thousands): As of 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 Company’s Consolidated Balance Sheet at February 29, 2016, in addition to $705.8 million of cash. (2) Included in Other current assets in the Company’s Consolidated Balance Sheet at February 29, 2016. (3) Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at February 29, 2016. |
Investments Measured at Fair Value | The following table represents the Company’s investments measured at fair value as of May 31, 2016 (in thousands): Gross Unrealized Balance Sheet Classification Amortized Cost Gains Losses (1) Aggregate Fair Value Cash Investments Investments Money markets $ 284,422 $ — $ — $ 284,422 $ 284,422 $ — $ — U.S. agency securities 342,155 132 (582 ) 341,705 — 60,443 281,262 Corporate securities 746,340 1,128 (862 ) 746,606 — 304,407 442,199 Total $ 1,372,917 $ 1,260 $ (1,444 ) $ 1,372,733 $ 284,422 $ 364,850 $ 723,461 (1) As of May 31, 2016, there were $0.6 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 represents the Company’s investments measured at fair value as of February 29, 2016 (in thousands): Gross Unrealized Balance Sheet Classification Amortized Cost Gains Losses (1) Aggregate Fair Value Cash Investments Investments 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. |
Derivative Instruments (Tables)
Derivative Instruments (Tables) | 3 Months Ended |
May 31, 2016 | |
Summary of Effects of Derivative Instruments | The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2016 and for the three months then ended (in thousands): As of May 31, 2016 Three Months Ended May 31, 2016 Balance Sheet Classification Fair Value Notional Value Classification of Amount of Gain Assets—foreign currency forward contracts not designated as hedges Other current assets $ 46 $ 6,563 Other income (expense), net $ 1,199 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (437 ) 27,842 Other income (expense), net (678 ) Total $ (391 ) $ 34,405 $ 521 The effects of derivative instruments on the Company’s Consolidated Financial Statements are as follows as of May 31, 2015 and for the three months then ended (in thousands): As of May 31, 2015 Three Months Ended May 31, 2015 Balance Sheet Classification Fair Value Notional Value Classification of Amount of Gain Assets—foreign currency forward contracts not designated as hedges Other current assets $ 86 $ 2,765 Other income $ 680 Liabilities—foreign currency forward contracts not designated as hedges Accounts payable and accrued expenses (293 ) 29,919 Other income (809 ) Total $ (207 ) $ 32,684 $ (129 ) |
Share-based Awards (Tables)
Share-based Awards (Tables) | 3 Months Ended |
May 31, 2016 | |
Share-Based Compensation Expense | The following summarizes share-based compensation expense recognized in the Company’s Consolidated Financial Statements for the three months ended May 31, 2016 and May 31, 2015 (in thousands): Three Months Ended May 31, 2016 May 31, 2015 Cost of revenue $ 4,305 $ 3,727 Sales and marketing 18,440 15,412 Research and development 12,002 10,874 General and administrative 6,528 6,509 Total share-based compensation expense $ 41,275 $ 36,522 |
Summary of Share-Based Awards Granted During Period | During the three months ended May 31, 2016 and May 31, 2015, the Company granted the following share-based awards: Three Months Ended May 31, 2016 May 31, 2015 Shares and Shares Underlying Weighted Shares and Weighted Service-based shares and share units 934,890 $ 75.45 807,596 $ 74.81 Performance share units—target 360,676 (1) $ 76.70 258,118 $ 77.28 Performance share awards 140,182 (2) $ 76.70 98,525 $ 77.28 Total awards 1,435,748 $ 75.89 1,164,239 $ 75.57 (1) Certain executives and senior management were awarded a target number of performance share units (“PSUs”). PSU grantees may earn up to 200% of the target number of PSUs. Half of the target number of PSUs can be earned by the grantees depending upon the Company’s financial performance measured against the financial performance of specified peer companies during a three-year performance period beginning on March 1, 2016. The remaining target number of PSUs can be earned by the grantees depending upon the Company’s total shareholder return performance measured against the total shareholder return performance of specified peer companies during a three-year period beginning on March 1, 2016. (2) Certain executives were granted restricted stock awards. These shares were awarded subject to the achievement of a specified dollar amount of revenue for FY2017 (the “RSA Performance Goal”). If the Company fails to achieve the RSA Performance Goal for FY2017, then all such shares are forfeited. If the Company achieves the RSA Performance Goal for FY2017, then 25% of the restricted stock vests on or about July 16, 2017, and the remainder vests ratably on a quarterly basis over the course of the subsequent three-year period, provided that the grantee’s business relationship with the Company has not ceased. |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 3 Months Ended |
May 31, 2016 | |
Reconciliation of Numerators and Denominators of Earnings Per Share Calculation | The following table reconciles the numerators and denominators of the earnings per share (“EPS”) calculation for the three months ended May 31, 2016 and May 31, 2015 (in thousands, except per share amounts): Three Months Ended May 31, May 31, Net income, basic and diluted $ 61,184 $ 48,086 Weighted average common shares outstanding 181,168 183,130 Incremental shares attributable to assumed vesting or exercise of outstanding equity award shares 3,019 2,994 Dilutive effect of convertible notes — 51 Diluted shares 184,187 186,175 Diluted net income per share $ 0.33 $ 0.26 |
Shares Considered Anti-Dilutive for Calculating Diluted EPS | The following employee share awards were 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 Company’s common stock during the related periods and the effect of including such share awards in the computation would be anti-dilutive (in thousands): Three Months Ended May 31, May 31, 2015 Number of shares considered anti-dilutive for calculating diluted EPS 1,081 3 |
Segment Reporting (Tables)
Segment Reporting (Tables) | 3 Months Ended |
May 31, 2016 | |
Summary of Revenue, Income (Loss) from Operations, Total Assets and Total Cash, Cash Equivalents and Available-for-Sale Investment Securities by Geographic Segment | The following summarizes revenue from unaffiliated customers and income (loss) from operations for the three months ended May 31, 2016 and May 31, 2015 and total cash, cash equivalents and available-for-sale investment securities and total assets as of May 31, 2016 and May 31, 2015, by geographic segment (in thousands): Americas EMEA Asia Pacific Corporate (1) Consolidated Three Months Ended May 31, 2016 Revenue from unaffiliated customers $ 365,723 $ 124,299 $ 77,877 $ — $ 567,899 Income (loss) from operations $ 69,756 $ 25,688 $ 21,194 $ (41,275 ) $ 75,363 Total cash, cash equivalents and available-for-sale investment securities $ 1,240,377 $ 613,619 $ 265,880 $ — $ 2,119,876 Total assets $ 2,815,567 $ 892,729 $ 403,985 $ — $ 4,112,281 Three Months Ended May 31, 2015 Revenue from unaffiliated customers $ 321,833 $ 97,473 $ 61,695 $ — $ 481,001 Income (loss) from operations $ 75,533 $ 16,407 $ 15,512 $ (36,522 ) $ 70,930 Total cash, cash equivalents and available-for-sale investment securities $ 1,302,959 $ 446,318 $ 219,197 $ — $ 1,968,474 Total assets $ 2,727,050 $ 724,218 $ 309,012 $ — $ 3,760,280 (1) Amounts represent share-based compensation expense for each of the three months ended May 31, 2016 and May 31, 2015, which was not allocated to geographic segments. |
Summary of Revenue from Unaffiliated Customers | The following table lists, for each of the three months ended May 31, 2016 and May 31, 2015, revenue from unaffiliated customers in the United States, the Company’s country of domicile, and revenue from unaffiliated customers from foreign countries (in thousands): Three Months Ended May 31, 2016 May 31, 2015 United States, the Company’s country of domicile $ 328,529 $ 287,461 Foreign 239,370 193,540 Total revenue from unaffiliated customers $ 567,899 $ 481,001 |
Summary of Tangible Long-Lived Assets | Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company’s country of domicile, and similar tangible long-lived assets, net of accumulated depreciation, held outside the United States are summarized in the following table as of May 31, 2016 and February 29, 2016 (in thousands): As of May 31, As of February 29, United States, the Company’s country of domicile $ 126,280 $ 126,937 Foreign 41,735 39,949 Total tangible long-lived assets $ 168,015 $ 166,886 |
Summary of Subscription Revenue and Services by Technology Classes | The following table, for each of the three months ended May 31, 2016 and May 31, 2015, provides further detail, by type, of the Company’s 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 the Company’s 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 OpenStack Platform and OpenShift by Red Hat (in thousands): Three Months Ended May 31, May 31, Subscription revenue: Infrastructure-related offerings $ 403,182 $ 354,018 Application development-related and other emerging technology offerings 98,483 70,775 Total subscription revenue 501,665 424,793 Training and services revenue: Consulting services 50,310 43,199 Training 15,924 13,009 Total training and services revenue 66,234 56,208 Total subscription and training and services revenue $ 567,899 $ 481,001 |
Business Combinations (Tables)
Business Combinations (Tables) | 3 Months Ended |
May 31, 2016 | |
Ansible, Inc | |
Pro Forma Consolidated Financial Information | The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three months ended May 31, 2015 (in thousands, except per share amounts) as if the acquisition of Ansible had closed on March 1, 2015, after giving effect to certain purchase accounting adjustments. These pro forma results are not necessarily indicative of what the Company’s operating results would have been had the acquisition actually taken place at the beginning of the period. Three Months Ended May 31, 2015 Revenue $ 481,812 Net income $ 46,048 Basic net income per common share $ 0.25 Diluted net income per common share $ 0.25 |
Convertible Notes (Tables)
Convertible Notes (Tables) | 3 Months Ended |
May 31, 2016 | |
Components of Convertible Notes | As of May 31, 2016 and February 29, 2016, the convertible notes consisted of the following (in thousands): As of As of Liability component: Principal $ 805,000 $ 805,000 Less: debt issuance costs (9,395 ) (10,029 ) Less: debt discount (66,298 ) (71,029 ) Net carrying amount $ 729,307 $ 723,942 Equity component (1) $ 96,890 $ 96,890 (1) Recorded in the Consolidated Balance Sheet in Additional paid-in capital. |
Schedule of Total Interest Expense Recognized Related to Convertible Notes | The following table includes total interest expense recognized related to the convertible notes for the three months ended May 31, 2016 and May 31, 2015 (in thousands): Three Months Ended May 31, May 31, Coupon rate 0.25% per year, payable semiannually $ 503 $ 503 Amortization of convertible note issuance costs—liability component 633 596 Accretion of debt discount 4,732 4,599 Total interest expense related to convertible notes $ 5,868 $ 5,698 |
Summary of Fair Value of Convertible Notes and Carrying Value of Convertible Notes | 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 the convertible notes (the carrying value excludes the equity component of the convertible notes classified in equity) are as follows (in thousands): As of May 31, 2016 Fair Value Carrying Value Convertible notes $ 727,896 $ 729,307 |
Summary of Significant Accoun35
Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Significant Accounting Policies [Line Items] | ||
Description of accounting pronouncement adoption | In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) to simplify several aspects of the accounting for share-based compensation, 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. However, the Company elected to early adopt ASU 2016-09 effective March 1, 2016. | |
Discrete tax benefits related to net windfall tax benefits from share-based compensation | $ 7,938 | |
Tax benefits related to share-based awards | $ 5,600 | |
Provision for income taxes | 11,169 | 19,641 |
Excess tax benefits from share-based payment arrangements | $ 7,950 | 6,419 |
Tax Shortfall Share Based Compensation | ||
Significant Accounting Policies [Line Items] | ||
Provision for income taxes | $ 800 |
Consolidated Balance Sheet Incl
Consolidated Balance Sheet Including Net Amount Charged to Retained Earnings (Detail) - New accounting pronouncement, early adoption, effect $ in Thousands | Mar. 01, 2016USD ($) |
Deferred Tax Assets | Recognition related to election to recognize forfeitures as they occur | |
New Accounting Pronouncement, Early Adoption [Line Items] | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | $ 603 |
Deferred Tax Assets | Recognition related to unrealized net windfall tax benefits from share-based compensation | |
New Accounting Pronouncement, Early Adoption [Line Items] | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | 1,316 |
Additional Paid-In Capital | Increases from election to recognize forfeitures as they occur | |
New Accounting Pronouncement, Early Adoption [Line Items] | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | 2,369 |
Retained Earnings | Net charge for cumulative-effect adjustment | |
New Accounting Pronouncement, Early Adoption [Line Items] | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | $ 450 |
Summary of Changes in Stockhold
Summary of Changes in Stockholders' Equity (Detail) - USD ($) $ in Thousands | 3 Months Ended | ||
May 31, 2016 | May 31, 2015 | ||
Beginning Balance | $ 1,334,432 | [1] | $ 1,288,338 |
Net income | 61,184 | 48,086 | |
Other comprehensive income (loss), net of tax | 6,702 | (5,983) | |
Exercise of common stock options | 1,380 | 2,109 | |
Common stock repurchase | (66,478) | ||
Share-based compensation expense | 41,275 | 36,522 | |
Net tax benefits related to share-based awards | 5,562 | ||
Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards | (31,079) | (25,211) | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | 1,919 | ||
Ending Balance | 1,349,335 | 1,349,423 | |
Common Stock | |||
Beginning Balance | 23 | 23 | |
Exercise of common stock options | 1 | ||
Ending Balance | 24 | 23 | |
Additional Paid-In Capital | |||
Beginning Balance | 2,162,264 | 1,963,851 | |
Exercise of common stock options | 1,379 | 2,109 | |
Common stock repurchase | 75,000 | ||
Share-based compensation expense | 41,275 | 36,522 | |
Net tax benefits related to share-based awards | 5,562 | ||
Minimum tax withholdings paid by the Company on behalf of employees related to net settlement of employee share-based awards | (31,079) | (25,211) | |
Other adjustments | 213 | ||
Cumulative-effect adjustment from adoption of ASU 2016-09 | 2,369 | ||
Ending Balance | 2,176,208 | 2,058,046 | |
Retained Earnings | |||
Beginning Balance | 1,099,738 | 900,373 | |
Net income | 61,184 | 48,086 | |
Cumulative-effect adjustment from adoption of ASU 2016-09 | (450) | ||
Ending Balance | 1,160,472 | 948,459 | |
Treasury Stock | |||
Beginning Balance | (1,853,144) | (1,515,288) | |
Common stock repurchase | (66,478) | (75,000) | |
Other adjustments | (213) | ||
Ending Balance | (1,919,622) | (1,590,501) | |
Accumulated Other Comprehensive Income (Loss) | |||
Beginning Balance | (74,449) | (60,621) | |
Other comprehensive income (loss), net of tax | 6,702 | (5,983) | |
Ending Balance | $ (67,747) | $ (66,604) | |
[1] | Derived from audited financial statements. |
Summary of Accumulated Other Co
Summary of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | |
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Accumulated loss from foreign currency translation adjustment | $ (67,859) | $ (73,776) | |
Accumulated unrealized gain (loss), net of tax, on available-for-sale securities | 112 | (673) | |
Accumulated other comprehensive loss | $ (67,747) | $ (74,449) | [1] |
[1] | Derived from audited financial statements. |
Identifiable Intangible Asset39
Identifiable Intangible Assets - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | |
May 31, 2016 | Feb. 29, 2016 | |
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Carrying amount for intangible assets | $ 11.3 | $ 11.1 |
Trademarks, Copyrights and Patents | Minimum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 2 years | |
Trademarks, Copyrights and Patents | Maximum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 10 years | |
Purchased Technologies | Minimum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 2 years | |
Purchased Technologies | Maximum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 10 years | |
Customer and Reseller Relationships | Minimum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 2 years | |
Customer and Reseller Relationships | Maximum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 10 years | |
Covenants Not To Compete | Minimum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 2 years | |
Covenants Not To Compete | Maximum | ||
Acquired Finite-Lived Intangible Assets [Line Items] | ||
Useful life (in years) | 10 years |
Summary of Identifiable Intangi
Summary of Identifiable Intangible Assets (Detail) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | |
Finite-Lived Intangible Assets [Line Items] | |||
Gross Amount | $ 363,384 | $ 360,877 | |
Accumulated Amortization | (222,680) | (214,806) | |
Net Amount | 140,704 | 146,071 | [1] |
Trademarks, Copyrights and Patents | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Amount | 140,245 | 138,106 | |
Accumulated Amortization | (52,169) | (49,876) | |
Net Amount | 88,076 | 88,230 | |
Purchased Technologies | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Amount | 96,246 | 96,105 | |
Accumulated Amortization | (73,191) | (70,940) | |
Net Amount | 23,055 | 25,165 | |
Customer and Reseller Relationships | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Amount | 104,745 | 104,593 | |
Accumulated Amortization | (82,492) | (80,329) | |
Net Amount | 22,253 | 24,264 | |
Covenants Not To Compete | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Amount | 13,315 | 13,240 | |
Accumulated Amortization | (10,698) | (9,875) | |
Net Amount | 2,617 | 3,365 | |
Other Intangible Assets | |||
Finite-Lived Intangible Assets [Line Items] | |||
Gross Amount | 8,833 | 8,833 | |
Accumulated Amortization | (4,130) | (3,786) | |
Net Amount | $ 4,703 | $ 5,047 | |
[1] | Derived from audited financial statements. |
Schedule of Amortization Expens
Schedule of Amortization Expense Associated with Identifiable Intangible Assets (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | $ 7,670 | $ 6,224 |
Cost of Revenue | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | 3,967 | 2,917 |
Sales and Marketing | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | 1,916 | 2,005 |
Research and Development | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | 34 | 250 |
General and Administrative | ||
Finite-Lived Intangible Assets [Line Items] | ||
Total amortization expense | $ 1,753 | $ 1,052 |
Summary of Tax Provision (Detai
Summary of Tax Provision (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Reconciliation of Provision of Income Taxes [Line Items] | ||
Income before provision for income taxes | $ 72,353 | $ 67,727 |
Estimated annual effective tax rate | 27.00% | 29.00% |
Provision for income taxes before discrete tax benefits | $ 19,535 | $ 19,641 |
Discrete tax benefits related to net excess tax benefits from share-based payments | 7,938 | |
Other discrete tax benefits | 428 | |
Provision for income taxes | $ 11,169 | $ 19,641 |
Income Taxes - Additional Infor
Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Income Taxes [Line Items] | ||
Estimated effective tax rate excluding discrete tax items | 27.00% | 29.00% |
Federal statutory rate | 35.00% | 35.00% |
Discrete tax benefits related to net excess tax benefits from share-based payments | $ 7,938 |
Fair Value of Assets and Liabil
Fair Value of Assets and Liabilities Acquired (Detail) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Available-for-sale securities | $ 1,372,733 | $ 1,289,582 | ||
Total | 1,372,342 | 1,289,696 | ||
Foreign Exchange Contract | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Foreign currency derivatives, assets | 46 | [1] | 566 | [2] |
Foreign currency derivatives, liabilities | (437) | [3] | (452) | [4] |
Money Market Funds | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Available-for-sale securities | 284,422 | [5] | 221,970 | [6] |
U.S. Agencies Securities | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Available-for-sale securities | 341,705 | [5] | 331,117 | [6] |
Corporate Securities | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Available-for-sale securities | 746,606 | [5] | 736,495 | [6] |
Fair Value, Inputs, Level 1 | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Total | 284,422 | 221,970 | ||
Fair Value, Inputs, Level 1 | Money Market Funds | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Available-for-sale securities | 284,422 | [5] | 221,970 | [6] |
Fair Value, Inputs, Level 2 | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Total | 1,087,920 | 1,067,726 | ||
Fair Value, Inputs, Level 2 | Foreign Exchange Contract | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Foreign currency derivatives, assets | 46 | [1] | 566 | [2] |
Foreign currency derivatives, liabilities | (437) | [3] | (452) | [4] |
Fair Value, Inputs, Level 2 | U.S. Agencies Securities | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Available-for-sale securities | 341,705 | [5] | 331,117 | [6] |
Fair Value, Inputs, Level 2 | Corporate Securities | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Available-for-sale securities | $ 746,606 | [5] | $ 736,495 | [6] |
[1] | Included in Other current assets in the Company's Consolidated Balance Sheet at May 31, 2016. | |||
[2] | Included in Other current assets in the Company's Consolidated Balance Sheet at February 29, 2016. | |||
[3] | Included in Accounts payable and accrued expenses in the Company's Consolidated Balance Sheet at May 31, 2016. | |||
[4] | Included in Accounts payable and accrued expenses in the Company's Consolidated Balance Sheet at February 29, 2016. | |||
[5] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet at May 31, 2016, in addition to $747.1 million of cash. | |||
[6] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet at February 29, 2016, in addition to $705.8 million of cash. |
Fair Value of Assets and Liab45
Fair Value of Assets and Liabilities Acquired (Parenthetical) (Detail) - USD ($) $ in Millions | May 31, 2016 | Feb. 29, 2016 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Cash | $ 747.1 | $ 705.8 |
Investments Measured at Fair Va
Investments Measured at Fair Value (Detail) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Amortized Cost | $ 1,372,917 | $ 1,290,995 | ||
Gross Unrealized Gains | 1,260 | 1,154 | ||
Gross Unrealized Losses | (1,444) | [1] | (2,567) | [2] |
Aggregate Fair Value | 1,372,733 | 1,289,582 | ||
Cash Equivalent Marketable Securities | 284,422 | 221,970 | ||
Investments in debt securities, short-term | 364,850 | 281,142 | [3] | |
Investments in debt securities, long-term | 723,461 | 786,470 | [3] | |
Money Market Funds | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Amortized Cost | 284,422 | 221,970 | ||
Aggregate Fair Value | 284,422 | [4] | 221,970 | [5] |
Cash Equivalent Marketable Securities | 284,422 | 221,970 | ||
U.S. Agencies Securities | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Amortized Cost | 342,155 | 331,302 | ||
Gross Unrealized Gains | 132 | 160 | ||
Gross Unrealized Losses | (582) | [1] | (345) | [2] |
Aggregate Fair Value | 341,705 | [4] | 331,117 | [5] |
Investments in debt securities, short-term | 60,443 | 50,453 | ||
Investments in debt securities, long-term | 281,262 | 280,664 | ||
Corporate Securities | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Amortized Cost | 746,340 | 737,723 | ||
Gross Unrealized Gains | 1,128 | 994 | ||
Gross Unrealized Losses | (862) | [1] | (2,222) | [2] |
Aggregate Fair Value | 746,606 | [4] | 736,495 | [5] |
Investments in debt securities, short-term | 304,407 | 230,689 | ||
Investments in debt securities, long-term | $ 442,199 | $ 505,806 | ||
[1] | As of May 31, 2016, there were $0.6 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. | |||
[2] | 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. | |||
[3] | Derived from audited financial statements. | |||
[4] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet at May 31, 2016, in addition to $747.1 million of cash. | |||
[5] | Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company's Consolidated Balance Sheet at February 29, 2016, in addition to $705.8 million of cash. |
Investments Measured at Fair 47
Investments Measured at Fair Value (Parenthetical) (Detail) - USD ($) $ in Millions | May 31, 2016 | Feb. 29, 2016 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Accumulated unrealized losses related to investments | $ 0.6 | $ 0.9 |
Summary of Effects of Derivativ
Summary of Effects of Derivative Instruments (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Derivative [Line Items] | ||
Total, Fair Value | $ (391) | $ (207) |
Notional value of foreign currency forward contracts not designated as hedges | 34,405 | 32,684 |
Amount of Gain (Loss) Recognized in Income on Derivatives | 521 | (129) |
Other Current Assets | ||
Derivative [Line Items] | ||
Assets-foreign currency forward contracts not designated as hedges | 46 | 86 |
Notional value of foreign currency forward contracts not designated as hedges, assets | 6,563 | 2,765 |
Accounts Payable and Accrued Expenses | ||
Derivative [Line Items] | ||
Liabilities-foreign currency forward contracts not designated as hedges | (437) | (293) |
Notional value of foreign currency forward contracts not designated as hedges, liabilities | 27,842 | 29,919 |
Other Income (Expense), Net | Derivative Liabilities | ||
Derivative [Line Items] | ||
Amount of Gain (Loss) Recognized in Income on Derivatives | (678) | (809) |
Other Income (Expense), Net | Derivative Assets | ||
Derivative [Line Items] | ||
Amount of Gain (Loss) Recognized in Income on Derivatives | $ 1,199 | $ 680 |
Share Based Awards - Additional
Share Based Awards - Additional Information (Detail) - USD ($) | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Fair value assumptions, method used | Black-Scholes-Merton | |
Share-based compensation expense capitalized | $ 0 | $ 0 |
Share-Based Compensation Expens
Share-Based Compensation Expense (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | $ 41,275 | $ 36,522 |
Cost of Revenue | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | 4,305 | 3,727 |
Sales and Marketing | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | 18,440 | 15,412 |
Research and Development | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | 12,002 | 10,874 |
General and Administrative | ||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||
Total share-based compensation expense | $ 6,528 | $ 6,509 |
Summary of Share-Based Awards G
Summary of Share-Based Awards Granted During Period (Detail) - $ / shares | 3 Months Ended | ||
May 31, 2016 | May 31, 2015 | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 1,435,748 | 1,164,239 | |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 75.89 | $ 75.57 | |
Service-Based Shares and Share Units | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 934,890 | 807,596 | |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 75.45 | $ 74.81 | |
Performance Share Units - Target | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 360,676 | [1] | 258,118 |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 76.70 | $ 77.28 | |
Performance Share Awards | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Shares and Share units, Shares and Shares Underlying Awards | 140,182 | [2] | 98,525 |
Shares and share units, Weighted Average Per Share Award Fair Value | $ 76.70 | $ 77.28 | |
[1] | Certain executives and senior management were awarded a target number of performance share units ("PSUs"). PSU grantees may earn up to 200% of the target number of PSUs. Half of the target number of PSUs can be earned by the grantees depending upon the Company's financial performance measured against the financial performance of specified peer companies during a three-year performance period beginning on March 1, 2016. The remaining target number of PSUs can be earned by the grantees depending upon the Company's total shareholder return performance measured against the total shareholder return performance of specified peer companies during a three-year period beginning on March 1, 2016. | ||
[2] | Certain executives were granted restricted stock awards. These shares were awarded subject to the achievement of a specified dollar amount of revenue for FY2017 (the "RSA Performance Goal"). If the Company fails to achieve the RSA Performance Goal for FY2017, then all such shares are forfeited. If the Company achieves the RSA Performance Goal for FY2017, then 25% of the restricted stock vests on July 16, 2017, and the remainder vests ratably on a quarterly basis over the course of the subsequent three-year period, provided that the grantee's business relationship with the Company has not ceased. |
Summary of Share-Based Awards52
Summary of Share-Based Awards Granted During Period (Parenthetical) (Detail) | 3 Months Ended |
May 31, 2016 | |
Performance Share Units - Target | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Targeted percentage of performance share units earned by executive | 200.00% |
Performance Share Awards | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Percentage vested after one year if performance conditions achieved | 25.00% |
Reconciliation of Numerators an
Reconciliation of Numerators and Denominators of Earnings Per Share Calculation (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | ||
Net income, basic and diluted | $ 61,184 | $ 48,086 |
Weighted average common shares outstanding | 181,168 | 183,130 |
Incremental shares attributable to assumed vesting or exercise of outstanding equity award shares | 3,019 | 2,994 |
Dilutive effect of convertible notes | 51 | |
Diluted shares | 184,187 | 186,175 |
Diluted net income per share | $ 0.33 | $ 0.26 |
Earnings Per Share - Additional
Earnings Per Share - Additional Information (Detail) - $ / shares | May 31, 2016 | May 31, 2015 | Oct. 01, 2014 |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | |||
Number of shares of common stock underlying the warrants | 10,965,630 | 10,965,630 | 10,965,630 |
Exercise price per share | $ 101.65 | $ 101.65 | $ 101.65 |
Shares Considered Anti-Dilutive
Shares Considered Anti-Dilutive for Calculating Diluted EPS (Detail) - shares shares in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Number of shares considered anti-dilutive for calculating diluted EPS | 1,081 | 3 |
Share Repurchase Programs - Add
Share Repurchase Programs - Additional Information (Detail) - USD ($) | Mar. 25, 2015 | May 31, 2016 |
Accelerated Share Repurchases [Line Items] | ||
Common stock authorized for stock repurchase program | $ 500,000,000 | |
Stock repurchase program expiration date | Mar. 31, 2017 | |
Stock repurchase program expiration description | A determination by the Board, Chief Executive Officer or Chief Financial Officer to discontinue the program. | |
Repurchase of common stock, shares | 901,600 | |
Aggregate cost of common stock repurchased | $ 66,478,000 | |
Stock available for repurchase | $ 170,900,000 | |
Stock repurchase program termination date | Jun. 30, 2016 |
Summary of Revenue, Income (Los
Summary of Revenue, Income (Loss) from Operations, Total Assets and Total Cash, Cash Equivalents and Available-for-Sale Investment Securities by Geographic Segments (Detail) - USD ($) $ in Thousands | 3 Months Ended | ||||
May 31, 2016 | May 31, 2015 | Feb. 29, 2016 | [1] | ||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | $ 567,899 | $ 481,001 | |||
Income (loss) from operations | 75,363 | 70,930 | |||
Total cash, cash equivalents and available-for-sale investment securities | 2,119,876 | 1,968,474 | |||
Total assets | 4,112,281 | 3,760,280 | $ 4,155,099 | ||
Corporate | |||||
Segment Reporting Information [Line Items] | |||||
Income (loss) from operations | [2] | (41,275) | (36,522) | ||
Americas | |||||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | 365,723 | 321,833 | |||
Income (loss) from operations | 69,756 | 75,533 | |||
Total cash, cash equivalents and available-for-sale investment securities | 1,240,377 | 1,302,959 | |||
Total assets | 2,815,567 | 2,727,050 | |||
EMEA | |||||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | 124,299 | 97,473 | |||
Income (loss) from operations | 25,688 | 16,407 | |||
Total cash, cash equivalents and available-for-sale investment securities | 613,619 | 446,318 | |||
Total assets | 892,729 | 724,218 | |||
Asia Pacific | |||||
Segment Reporting Information [Line Items] | |||||
Revenue from unaffiliated customers | 77,877 | 61,695 | |||
Income (loss) from operations | 21,194 | 15,512 | |||
Total cash, cash equivalents and available-for-sale investment securities | 265,880 | 219,197 | |||
Total assets | $ 403,985 | $ 309,012 | |||
[1] | Derived from audited financial statements. | ||||
[2] | Amounts represent share-based compensation expense for each of the three months ended May 31, 2016 and May 31, 2015, which was not allocated to geographic segments. |
Summary of Revenue from Unaffil
Summary of Revenue from Unaffiliated Customers (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Segment Reporting Information [Line Items] | ||
Total revenue from unaffiliated customers | $ 567,899 | $ 481,001 |
United States, the Company's Country of Domicile | ||
Segment Reporting Information [Line Items] | ||
Total revenue from unaffiliated customers | 328,529 | 287,461 |
Foreign | ||
Segment Reporting Information [Line Items] | ||
Total revenue from unaffiliated customers | $ 239,370 | $ 193,540 |
Summary of Tangible Long-Lived
Summary of Tangible Long-Lived Assets (Detail) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | |
Segment Reporting, Asset Reconciling Item [Line Items] | |||
Total tangible long-lived assets | $ 168,015 | $ 166,886 | [1] |
United States, the Company's Country of Domicile | |||
Segment Reporting, Asset Reconciling Item [Line Items] | |||
Total tangible long-lived assets | 126,280 | 126,937 | |
Foreign | |||
Segment Reporting, Asset Reconciling Item [Line Items] | |||
Total tangible long-lived assets | $ 41,735 | $ 39,949 | |
[1] | Derived from audited financial statements. |
Segment Reporting - Additional
Segment Reporting - Additional Information (Detail) | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
U.S. Government and Agencies | Subscription Revenues | Customer Concentration Risk | ||
Segment Reporting Information [Line Items] | ||
Percentage of revenue | 10.00% | 10.00% |
Summary of Subscription and Ser
Summary of Subscription and Services Revenue by Technology Classes (Detail) - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Revenue from External Customer [Line Items] | ||
Subscription revenue | $ 501,665 | $ 424,793 |
Training and services revenue | 66,234 | 56,208 |
Total subscription and training and services revenue | 567,899 | 481,001 |
Infrastructure Related Subscriptions | ||
Revenue from External Customer [Line Items] | ||
Subscription revenue | 403,182 | 354,018 |
Application Development Related and Other Emerging Technology Subscriptions | ||
Revenue from External Customer [Line Items] | ||
Subscription revenue | 98,483 | 70,775 |
Consulting Services | ||
Revenue from External Customer [Line Items] | ||
Training and services revenue | 50,310 | 43,199 |
Training Services | ||
Revenue from External Customer [Line Items] | ||
Training and services revenue | $ 15,924 | $ 13,009 |
Commitments and Contingencies -
Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Commitments and Contingencies [Line Items] | ||
Rent expense under operating leases | $ 8.5 | $ 7.8 |
Business Combinations - Additio
Business Combinations - Additional Information (Detail) - USD ($) $ in Thousands | Oct. 16, 2015 | Feb. 29, 2016 | May 31, 2016 | Nov. 30, 2015 | |
Business Acquisition [Line Items] | |||||
Goodwill acquired | $ 1,027,277 | [1] | $ 1,029,636 | ||
Ansible, Inc | |||||
Business Acquisition [Line Items] | |||||
Business combination, consideration transferred | $ 126,000 | ||||
Cash paid | 125,200 | ||||
Goodwill acquired | 102,300 | ||||
Identifiable intangible assets acquired | 25,100 | ||||
Working capital - net current liability | $ 1,400 | ||||
Identifiable intangible assets acquired | 25,100 | $ 42,400 | |||
Decrease in identifiable intangible assets | (17,300) | ||||
Increase in goodwill | 10,800 | ||||
Decrease in deferred income taxes | $ (6,500) | ||||
[1] | Derived from audited financial statements. |
Pro Forma Consolidated Financia
Pro Forma Consolidated Financial Information (Detail) $ / shares in Units, $ in Thousands | 3 Months Ended |
May 31, 2015USD ($)$ / shares | |
Business Acquisition, Pro Forma Information [Line Items] | |
Revenue | $ | $ 481,812 |
Net income | $ | $ 46,048 |
Basic net income per common share | $ / shares | $ 0.25 |
Diluted net income per common share | $ / shares | $ 0.25 |
Convertible Notes - Additional
Convertible Notes - Additional Information (Detail) | Oct. 07, 2014USD ($) | Oct. 01, 2014USD ($)$ / sharesshares | May 31, 2016USD ($)$ / sharesshares | Feb. 29, 2016USD ($) | May 31, 2015$ / sharesshares |
Debt Instrument [Line Items] | |||||
Purchase of convertible note hedges | $ 148,000,000 | ||||
Proceeds from issuance of warrants | 79,800,000 | $ 79,800,000 | |||
Repurchase of common stock, value | $ (375,000,000) | ||||
Effective interest rate for amortizing debt discount of convertible debt | 2.86% | ||||
Strike price of warrants | $ / shares | $ 101.65 | $ 101.65 | $ 101.65 | ||
Premium on closing price of common stock | 80.00% | ||||
Number of shares of common stock underlying the warrants | shares | 10,965,630 | 10,965,630 | 10,965,630 | ||
Fundamental Change | |||||
Debt Instrument [Line Items] | |||||
Repurchase of note principal amount | 100.00% | ||||
Default | |||||
Debt Instrument [Line Items] | |||||
Repurchase of note principal amount | 100.00% | ||||
0.25% Convertible Senior Notes due 2019 | |||||
Debt Instrument [Line Items] | |||||
Debt instrument, aggregate principal amount | $ 805,000,000 | ||||
Debt instrument, interest rate | 0.25% | 0.25% | 0.25% | ||
Debt instrument, offering date | Oct. 1, 2014 | ||||
Frequency of interest payment | Semiannually | ||||
Transaction cost related to note issuance | $ 15,200,000 | $ 9,395,000 | $ 10,029,000 | ||
Transaction cost related to note issuance allocated to equity component | 1,800,000 | ||||
0.25% Convertible Senior Notes due 2019 | Liability Component | |||||
Debt Instrument [Line Items] | |||||
Transaction cost related to note issuance | 13,400,000 | ||||
0.25% Convertible Senior Notes due 2019 | Equity Component | |||||
Debt Instrument [Line Items] | |||||
Deferred tax liability, equity component | $ 700,000 | ||||
0.25% Convertible Senior Notes due 2019 | Unsecured Debt | |||||
Debt Instrument [Line Items] | |||||
Debt instrument, interest rate | 0.25% | ||||
Debt instrument, maturity date | Oct. 1, 2019 | ||||
Frequency of interest payment | Semiannually in arrears on April 1 and October 1 of each year, and began on April 1, 2015 | ||||
Common stock conversion rate per $1,000 principal amount of notes | 13.6219 | ||||
Principal amount per note | $ 1,000 | ||||
Debt instrument, convertible, conversion price, per share | $ / shares | $ 73.41 | $ 73.41 | |||
Premium on closing price of common stock | 30.00% | ||||
Closing price of common stock | $ / shares | $ 56.47 |
Components of Notes (Detail)
Components of Notes (Detail) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | Oct. 07, 2014 | ||
Liability component | |||||
Net carrying amount | $ 729,307 | $ 723,942 | [1] | ||
0.25% Convertible Senior Notes due 2019 | |||||
Liability component | |||||
Principal | 805,000 | 805,000 | |||
Less: debt issuance costs | (9,395) | (10,029) | $ (15,200) | ||
Less: debt discount | (66,298) | (71,029) | |||
Net carrying amount | 729,307 | 723,942 | |||
Equity component | [2] | $ 96,890 | $ 96,890 | ||
[1] | Derived from audited financial statements. | ||||
[2] | Recorded in the Consolidated Balance Sheet in Additional paid-in capital. |
Schedule of Total Interest Expe
Schedule of Total Interest Expense Recognized Related to Convertible Notes (Detail) - 0.25% Convertible Senior Notes due 2019 - USD ($) $ in Thousands | 3 Months Ended | |
May 31, 2016 | May 31, 2015 | |
Debt Instrument [Line Items] | ||
Coupon rate 0.25% per year, payable semiannually | $ 503 | $ 503 |
Amortization of convertible note issuance costs-liability component | 633 | 596 |
Accretion of debt discount | 4,732 | 4,599 |
Total interest expense related to convertible notes | $ 5,868 | $ 5,698 |
Schedule of Total Interest Ex68
Schedule of Total Interest Expense Recognized Related to Convertible Notes (Parenthetical) (Detail) - 0.25% Convertible Senior Notes due 2019 | 3 Months Ended | ||
May 31, 2016 | May 31, 2015 | Oct. 07, 2014 | |
Debt Instrument [Line Items] | |||
Coupon rate per year | 0.25% | 0.25% | 0.25% |
Frequency of coupon payment | Semiannually |
Fair Value of Notes Based on In
Fair Value of Notes Based on Inputs Observable in Market (Level 2) and Carrying Value of Debt Instruments (Detail) - USD ($) $ in Thousands | May 31, 2016 | Feb. 29, 2016 | [1] |
Debt Instrument [Line Items] | |||
Carrying value, convertible notes | $ 729,307 | $ 723,942 | |
Fair Value, Inputs, Level 2 | |||
Debt Instrument [Line Items] | |||
Fair value, convertible notes | $ 727,896 | ||
[1] | Derived from audited financial statements. |
Subsequent Events - Additional
Subsequent Events - Additional Information (Detail) - USD ($) | Jun. 22, 2016 | Mar. 25, 2015 |
Subsequent Event [Line Items] | ||
Common stock authorized for stock repurchase program | $ 500,000,000 | |
Stock repurchase program expiration date | Mar. 31, 2017 | |
Stock repurchase program expiration description | A determination by the Board, Chief Executive Officer or Chief Financial Officer to discontinue the program. | |
Stock repurchase program termination date | Jun. 30, 2016 | |
Subsequent Event | ||
Subsequent Event [Line Items] | ||
Common stock authorized for stock repurchase program | $ 1,000,000,000 | |
Stock repurchase program expiration date | Jun. 30, 2018 | |
Stock repurchase program expiration description | A determination by the Board, Chief Executive Officer or Chief Financial Officer to discontinue the program. |