RHAT Red Hat

Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal 2007 second quarter. Total revenue for the quarter was $99.7 million, an increase of 52% from the year-ago quarter and 19% from the prior quarter. Subscription revenue was $84.9 million, up 56% year-over-year and 19% sequentially. JBoss-related revenue of $7 million was at the top of management�s previously provided guidance. Net income for the quarter was $11.0 million or $0.05 per diluted share compared with $16.7 million or $0.09 per diluted share for the second quarter of the last fiscal year. Due to differences in the accounting treatment for taxes and stock compensation expense between fiscal 2006 and 2007, net income is not directly comparable between these periods. After adjusting for these accounting differences, non-GAAP adjusted net income for the second quarter of fiscal 2007 was $23.7 million, or $0.11 per diluted share. This compares to non-GAAP adjusted net income of $17.7 million, or $0.09 per diluted share in the second quarter of the last fiscal year. At quarter end, the company's total deferred revenue balance was $284.1 million, an increase of $29.4 million, or 12% when compared to the end of the last fiscal quarter. Other highlights from the quarter included: � Quarterly gross margin improved to 84% from 82% in the year-ago period. � Red Hat Enterprise Linux OEM revenue grew 90% year-over-year. � Total cash and investments as of August 31, 2006 were $1.0 billion. �The second quarter was one of intense focus on integrating our recent acquisitions in Argentina, Brazil, India and, of course, JBoss,� stated Charlie Peters, Executive Vice President and Chief Financial Officer. �We are pleased with the pace and progress of our integration work and believe that results in subsequent quarters will benefit from the investments in employee time and expense made in Q2. Revenue grew nicely and we expect the recent introduction of the Red Hat Application Stack will help continue that trend. We expect operating results and cash flow will improve in the second half of fiscal 2007 since much of the heavy integration work is behind us already.� �Our better than expected revenue and earnings per share speak to the ongoing demand for open source solutions that we continue to see worldwide,� stated Dion Cornett, Vice President of Investor Relations. �Moreover, the particular strength we saw in hardware OEM revenue growth stands in stark contrast to the reported weakness experienced by server suppliers this past quarter. We feel this difference highlights the value Red Hat is able to provide that extends beyond mere box counts.� Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below. About Red Hat, Inc. Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with offices spanning the globe. CIOs and other senior-level IT executives have ranked Red Hat as the industry's most valued vendor for two consecutive years in the CIO Insight Magazine Vendor Value study. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with applications, management and middleware solutions, including JBoss Enterprise Middleware Suite (JEMS). Red Hat is accelerating the shift to service-oriented architectures (SOA) and enabling the next generation of web-enabled applications running on a low-cost, secure open source platform. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com. Forward Looking Statements Certain statements contained in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: risks related to the integration of acquisitions; the ability of the Company to effectively compete; the inability to adequately protect Company intellectual property and the potential for infringement or breach of license claims of or relating to third party intellectual property; risks related to data and information security vulnerabilities; ineffective management of, and control over, the Company's growth and international operations; adverse results in litigation; the dependence on key personnel as well as other factors contained in our most recent Quarterly Report on Form 10-Q (copies of which may be accessed through the Securities and Exchange Commission's website at http://www.sec.gov), including those found therein under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". In addition, the forward-looking statements included in this press release represent the Company's views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of the press release. LINUX is a trademark of Linus Torvalds. RED HAT and JBOSS are registered trademarks of Red Hat, Inc. and its subsidiaries in the US and other countries. RED HAT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands - except per share amounts) � � Three Months Ended Six Months Ended Aug 31, Aug 31, Aug 31, Aug 31, � 2006� � � 2005� � 2006� � � 2005� Revenue: � Subscriptions $ 84,947� $ 54,327� $ 156,439� $ 103,568� Training and services � 14,726� � 11,391� � 27,237� � 22,930� � � Total subscription, training and services revenue � 99,673� � 65,718� � 183,676� � 126,498� � Cost of revenue: � Subscriptions 7,386� 5,003� 13,382� 10,836� Training and services � 9,034� � 6,589� � 16,484� � 13,384� � � Total cost of subscription, training and services revenue � 16,420� � 11,592� � 29,866� � 24,220� � � Total gross profit 83,253� 54,126� 153,810� 102,278� � Operating expense: Sales and marketing 37,807� 20,478� 68,308� 40,793� Research and development 18,068� 10,450� 31,883� 20,298� General and administrative � 17,926� � 11,271� � 31,555� � 21,614� � Total operating expense � 73,801� � 42,199� � 131,746� � 82,705� � Income from operations 9,452� 11,927� 22,064� 19,573� Other income (expense), net 9,573� 8,220� 20,275� 15,956� Interest expense � (1,490) � (1,556) � (2,974) � (3,122) � Income before provision for income taxes 17,535� 18,591� 39,365� 32,407� Provision for income taxes � 6,488� � 1,859� � 14,565� � 3,241� � Net income $ 11,047� $ 16,732� $ 24,800� $ 29,166� � Net income-diluted $ 12,000� $ 18,079� $ 26,705� $ 31,889� � Net income per share: Basic $ 0.06� $ 0.09� $ 0.13� $ 0.16� Diluted $ 0.05� $ 0.09� $ 0.12� $ 0.15� � Weighted average shares outstanding: Basic 190,292� 177,208� 186,936� 176,995� Diluted 219,940� 208,583� 217,348� 207,894� � Diluted net income per share computation: GAAP Net income, basic $ 11,047� $ 16,732� $ 24,800� $ 29,166� Interest expense on convertible debentures, net of related GAAP tax effects 464� 654� 927� 1326� Amortization of debt issuance costs, net of related GAAP tax effects 489� 693� 978� 1397� � GAAP Net income, diluted $ 12,000� $ 18,079� $ 26,705� $ 31,889� � � Note: certain prior year amounts have been reclassified to conform with current year presentation. RED HAT, INC. CONSOLIDATED BALANCE SHEETS (In thousands) � ASSETS � Aug 31, February 28, � 2006� � 2006� (unaudited) Current assets: Cash and cash equivalents $ 568,181� $ 267,547� Investments in debt securities 269,775� 537,324� Accounts receivable, net 70,346� 59,792� Prepaid expenses and other current assets � 27,859� � 16,576� � Total current assets 936,161� 881,239� � Property and equipment, net 40,055� 35,822� Goodwill 343,122� 75,942� Identifiable intangibles, net 90,958� 13,467� Investments in debt securities 196,002� 272,669� Other assets, net � 34,273� � 35,102� � Total assets $ 1,640,571� $ 1,314,241� � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,642� $ 5,627� Accrued expenses 32,858� 31,960� Deferred revenue 211,400� 162,934� Other current obligations � 493� � 401� � Total current liabilities 252,393� 200,922� � Deferred lease credits 5,418� 4,994� Long term deferred revenue 72,709� 60,554� Other long term obligations 89� 213� Convertible debentures 570,000� 570,000� Stockholders' equity: Minority interest -� 771� Common stock 19� 19� Additional paid-in capital 997,708� 763,906� Deferred compensation -� (2,418) Accumulated deficit (127,199) (152,113) Treasury stock, at cost (125,656) (124,125) Accumulated other comprehensive loss � (4,910) � (8,482) � Total stockholders' equity � 739,962� � 477,558� � Total liabilities and stockholders' equity $ 1,640,571� $ 1,314,241� � � Note: certain prior year amounts have been reclassified to conform with current year presentation. RED HAT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) � � Three Months Ended Six Months Ended Aug 31, Aug 31, Aug 31, Aug 31, 2006� � 2005� 2006� � 2005� � Cash flows from operating activities: Net income $ 11,047� $ 16,732� $ 24,800� $ 29,166� Adjustments to reconcile net income to net cash provided by operating activities: � Depreciation and amortization 6,754� 3,751� 11,098� 7,298� Deferred income taxes 4,092� (606) 9,502� (799) Share-based compensation expense 8,300� 1,310� 15,926� 2,495� Excess tax benefits from share-based payment arrangements (740) -� (2,875) -� Gain from repurchase of convertible debentures -� (1,544) -� (3,140) Provision for doubtful accounts 201� 57� 702� 141� Amortization of debt issuance costs 752� 770� 1,504� 1,552� Other (12) 993� (289) 1,018� Changes in operating assets and liabilities net of effects of acquisitions: Accounts receivable 3,311� (9,837) (181) (9,241) Prepaid expenses and other current assets (1,115) 615� (2,415) (790) Accounts payable 399� 735� 509� (3,367) Accrued expenses (1,707) 5,049� (157) 7,456� Deferred revenue 12,623� 27,760� 38,079� 50,246� Other assets (21) (29) 53� 325� � Net cash provided by operating activities � 43,884� � 45,756� � 96,256� � 82,360� � Cash flows from investing activities: Purchase of investment securities (112) (130,577) (7,444) (139,177) Proceeds from sales and maturities of investment securities 78,021� 19,731� 356,052� 111,017� Acquisitions of businesses, net of cash acquired (147,651) (2,500) (149,562) (2,500) Purchase of other investments -� -� -� (767) Purchase of property and equipment � (5,107) � (4,716) � (8,985) � (7,988) � Net cash provided by (used in) investing activities � (74,849) � (118,062) � 190,061� � (39,415) � Cash flows from financing activities: Excess tax benefits from share-based payment arrangements 740� -� 2,875� -� Repurchase of convertible debentures -� (18,091) -� (26,301) Structured stock repurchases -� -� -� 1,031� Net proceeds from issuance of common stock under Employee Stock Purchase Plan -� 770� 306� 1,497� Proceeds from exercise of common stock options 4,354� 5,418� 11,684� 7,124� Purchase of treasury stock (1,359) (11,560) (1,532) (16,688) Other financing � (31) � 415� � (31) � 83� � Net cash provided by (used in) financing activities � 3,704� � (23,048) � 13,302� � (33,254) � Effect of foreign currency exchange rates on cash and cash equivalents (1,475) (958) 1,015� (1,804) Net increase in cash and cash equivalents (28,736) (96,312) 300,634� 7,887� Cash and cash equivalents at beginning of the period � 596,917� � 244,368� � 267,547� � 140,169� � Cash and cash equivalents at end of period $ 568,181� $ 148,056� $ 568,181� $ 148,056� � Note: certain prior year amounts have been reclassified to conform with current year presentation. RED HAT, INC. NON CASH SHARE-BASED COMPENSATION AND RECONCILIATION OF GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS (Unaudited) (In thousands - except per share amounts) � � Non cash share-based compensation expense included in Consolidated Statements of Operations: � Three Months Ended Six Months Ended Aug 31, Aug 31, Aug 31, Aug 31, 2006� � 2005� 2006� � 2005� � Cost of revenue $ 539� $ -� $ 1,049� $ -� Sales and marketing 2,455� 19� 4,572� 31� Research and development 1,771� 53� 3,268� 105� General and administration � 3,535� � 1,238� � 7,037� � 2,359� Total stock based compensation expense $ 8,300� $ 1,310� $ 15,926� $ 2,495� � � � � Reconciliation of GAAP Results to non-GAAP adjusted Results (for prior year comparison purposes only) � Three Months Ended Six Months Ended Aug 31, Aug 31, Aug 31, Aug 31, 2006� � 2005� 2006� � 2005� � GAAP Net income $ 11,047� $ 16,732� $ 24,800� $ 29,166� � GAAP Provision for income taxes 6,488� 1,859� 14,565� 3,241� � GAAP Income before provision for income taxes $ 17,535� $ 18,591� $ 39,365� $ 32,407� � Add: Share-based compensation per FAS 123R (Aug 06 only) 8,300� 1,310� 15,926� 2,495� Deduct: Intrinsic value of stock options per APB No. 25 � (870) � (1,310) � � (1,686) � � (2,495) Incremental non-cash share-based compensation expense 7,430� 0� 14,240� 0� � Non-GAAP adjusted income before provision for income taxes $ 24,965� $ 18,591� $ 53,605� $ 32,407� � Non-GAAP cash provision for income taxes $ 1,248� $ 930� $ 2,680� $ 1,620� � Non-GAAP adjusted net income $ 23,717� $ 17,661� $ 50,925� $ 30,787� � Non-GAAP adjusted net income-diluted $ 25,109� $ 19,083� $ 53,708� $ 33,661� � Non-GAAP adjusted net income per share: Basic $ 0.12� $ 0.10� $ 0.27� $ 0.17� Diluted $ 0.11� $ 0.09� $ 0.25� $ 0.16� � � Non-GAAP diluted net income per share computation: Non-GAAP adjusted net income $ 23,717� $ 17,661� $ 50,925� $ 30,787� Interest expense on convertible debentures, net of related 5% cash tax effects 677� 691� 1,354� 1,400� Amortization of debt issuance costs, net of related 5% cash tax effects 715� 731� 1,429� 1,474� � Non-GAAP adjusted net income-diluted $ 25,109� $ 19,083� $ 53,708� $ 33,661� Red Hat, Inc. (NASDAQ:RHAT), the world's leading provider of open source solutions to the enterprise, today announced financial results for its fiscal 2007 second quarter. Total revenue for the quarter was $99.7 million, an increase of 52% from the year-ago quarter and 19% from the prior quarter. Subscription revenue was $84.9 million, up 56% year-over-year and 19% sequentially. JBoss-related revenue of $7 million was at the top of management's previously provided guidance. Net income for the quarter was $11.0 million or $0.05 per diluted share compared with $16.7 million or $0.09 per diluted share for the second quarter of the last fiscal year. Due to differences in the accounting treatment for taxes and stock compensation expense between fiscal 2006 and 2007, net income is not directly comparable between these periods. After adjusting for these accounting differences, non-GAAP adjusted net income for the second quarter of fiscal 2007 was $23.7 million, or $0.11 per diluted share. This compares to non-GAAP adjusted net income of $17.7 million, or $0.09 per diluted share in the second quarter of the last fiscal year. At quarter end, the company's total deferred revenue balance was $284.1 million, an increase of $29.4 million, or 12% when compared to the end of the last fiscal quarter. Other highlights from the quarter included: -- Quarterly gross margin improved to 84% from 82% in the year-ago period. -- Red Hat Enterprise Linux OEM revenue grew 90% year-over-year. -- Total cash and investments as of August 31, 2006 were $1.0 billion. "The second quarter was one of intense focus on integrating our recent acquisitions in Argentina, Brazil, India and, of course, JBoss," stated Charlie Peters, Executive Vice President and Chief Financial Officer. "We are pleased with the pace and progress of our integration work and believe that results in subsequent quarters will benefit from the investments in employee time and expense made in Q2. Revenue grew nicely and we expect the recent introduction of the Red Hat Application Stack will help continue that trend. We expect operating results and cash flow will improve in the second half of fiscal 2007 since much of the heavy integration work is behind us already." "Our better than expected revenue and earnings per share speak to the ongoing demand for open source solutions that we continue to see worldwide," stated Dion Cornett, Vice President of Investor Relations. "Moreover, the particular strength we saw in hardware OEM revenue growth stands in stark contrast to the reported weakness experienced by server suppliers this past quarter. We feel this difference highlights the value Red Hat is able to provide that extends beyond mere box counts." Additional information on Red Hat's reported results, including a reconciliation of the non-GAAP adjusted results, are included in the financial tables below. About Red Hat, Inc. Red Hat, the world's leading open source solutions provider, is headquartered in Raleigh, NC with offices spanning the globe. CIOs and other senior-level IT executives have ranked Red Hat as the industry's most valued vendor for two consecutive years in the CIO Insight Magazine Vendor Value study. Red Hat is leading Linux and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system software along with applications, management and middleware solutions, including JBoss Enterprise Middleware Suite (JEMS). Red Hat is accelerating the shift to service-oriented architectures (SOA) and enabling the next generation of web-enabled applications running on a low-cost, secure open source platform. Red Hat also offers support, training and consulting services to its customers worldwide and through top-tier partnerships. Red Hat's open source strategy offers customers a long term plan for building infrastructures that are based on and leverage open source technologies with focus on security and ease of management. Learn more: http://www.redhat.com. Forward Looking Statements Certain statements contained in this press release may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: risks related to the integration of acquisitions; the ability of the Company to effectively compete; the inability to adequately protect Company intellectual property and the potential for infringement or breach of license claims of or relating to third party intellectual property; risks related to data and information security vulnerabilities; ineffective management of, and control over, the Company's growth and international operations; adverse results in litigation; the dependence on key personnel as well as other factors contained in our most recent Quarterly Report on Form 10-Q (copies of which may be accessed through the Securities and Exchange Commission's website at http://www.sec.gov), including those found therein under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". In addition, the forward-looking statements included in this press release represent the Company's views as of the date of this press release and these views could change. However, while the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing the Company's views as of any date subsequent to the date of the press release. LINUX is a trademark of Linus Torvalds. RED HAT and JBOSS are registered trademarks of Red Hat, Inc. and its subsidiaries in the US and other countries. -0- *T RED HAT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands - except per share amounts) Three Months Ended Six Months Ended ------------------- ------------------- Aug 31, Aug 31, Aug 31, Aug 31, 2006 2005 2006 2005 ------------------- ------------------- Revenue: Subscriptions $ 84,947 $ 54,327 $156,439 $103,568 Training and services 14,726 11,391 27,237 22,930 --------- --------- --------- --------- Total subscription, training and services revenue 99,673 65,718 183,676 126,498 --------- --------- --------- --------- Cost of revenue: Subscriptions 7,386 5,003 13,382 10,836 Training and services 9,034 6,589 16,484 13,384 --------- --------- --------- --------- Total cost of subscription, training and services revenue 16,420 11,592 29,866 24,220 --------- --------- --------- --------- Total gross profit 83,253 54,126 153,810 102,278 Operating expense: Sales and marketing 37,807 20,478 68,308 40,793 Research and development 18,068 10,450 31,883 20,298 General and administrative 17,926 11,271 31,555 21,614 --------- --------- --------- --------- Total operating expense 73,801 42,199 131,746 82,705 --------- --------- --------- --------- Income from operations 9,452 11,927 22,064 19,573 Other income (expense), net 9,573 8,220 20,275 15,956 Interest expense (1,490) (1,556) (2,974) (3,122) --------- --------- --------- --------- Income before provision for income taxes 17,535 18,591 39,365 32,407 Provision for income taxes 6,488 1,859 14,565 3,241 --------- --------- --------- --------- Net income $ 11,047 $ 16,732 $ 24,800 $ 29,166 ========= ========= ========= ========= Net income-diluted $ 12,000 $ 18,079 $ 26,705 $ 31,889 ========= ========= ========= ========= Net income per share: Basic $ 0.06 $ 0.09 $ 0.13 $ 0.16 Diluted $ 0.05 $ 0.09 $ 0.12 $ 0.15 Weighted average shares outstanding: Basic 190,292 177,208 186,936 176,995 Diluted 219,940 208,583 217,348 207,894 Diluted net income per share computation: GAAP Net income, basic $ 11,047 $ 16,732 $ 24,800 $ 29,166 Interest expense on convertible debentures, net of related GAAP tax effects 464 654 927 1326 Amortization of debt issuance costs, net of related GAAP tax effects 489 693 978 1397 GAAP Net income, diluted $ 12,000 $ 18,079 $ 26,705 $ 31,889 ========= ========= ========= ========= Note: certain prior year amounts have been reclassified to conform with current year presentation. *T -0- *T RED HAT, INC. CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS Aug 31, February 28, 2006 2006 ----------- ------------ (unaudited) Current assets: Cash and cash equivalents $ 568,181 $ 267,547 Investments in debt securities 269,775 537,324 Accounts receivable, net 70,346 59,792 Prepaid expenses and other current assets 27,859 16,576 ----------- ------------ Total current assets 936,161 881,239 Property and equipment, net 40,055 35,822 Goodwill 343,122 75,942 Identifiable intangibles, net 90,958 13,467 Investments in debt securities 196,002 272,669 Other assets, net 34,273 35,102 ----------- ------------ Total assets $1,640,571 $1,314,241 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,642 $ 5,627 Accrued expenses 32,858 31,960 Deferred revenue 211,400 162,934 Other current obligations 493 401 ----------- ------------ Total current liabilities 252,393 200,922 Deferred lease credits 5,418 4,994 Long term deferred revenue 72,709 60,554 Other long term obligations 89 213 Convertible debentures 570,000 570,000 Stockholders' equity: Minority interest - 771 Common stock 19 19 Additional paid-in capital 997,708 763,906 Deferred compensation - (2,418) Accumulated deficit (127,199) (152,113) Treasury stock, at cost (125,656) (124,125) Accumulated other comprehensive loss (4,910) (8,482) ----------- ------------ Total stockholders' equity 739,962 477,558 ----------- ------------ Total liabilities and stockholders' equity $1,640,571 $1,314,241 =========== ============ Note: certain prior year amounts have been reclassified to conform with current year presentation. *T -0- *T RED HAT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended Six Months Ended --------------------- --------------------- Aug 31, Aug 31, Aug 31, Aug 31, 2006 2005 2006 2005 --------------------- --------------------- Cash flows from operating activities: Net income $ 11,047 $ 16,732 $ 24,800 $ 29,166 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,754 3,751 11,098 7,298 Deferred income taxes 4,092 (606) 9,502 (799) Share-based compensation expense 8,300 1,310 15,926 2,495 Excess tax benefits from share-based payment arrangements (740) - (2,875) - Gain from repurchase of convertible debentures - (1,544) - (3,140) Provision for doubtful accounts 201 57 702 141 Amortization of debt issuance costs 752 770 1,504 1,552 Other (12) 993 (289) 1,018 Changes in operating assets and liabilities net of effects of acquisitions: Accounts receivable 3,311 (9,837) (181) (9,241) Prepaid expenses and other current assets (1,115) 615 (2,415) (790) Accounts payable 399 735 509 (3,367) Accrued expenses (1,707) 5,049 (157) 7,456 Deferred revenue 12,623 27,760 38,079 50,246 Other assets (21) (29) 53 325 Net cash provided by operating activities 43,884 45,756 96,256 82,360 ---------- ---------- ---------- ---------- Cash flows from investing activities: Purchase of investment securities (112) (130,577) (7,444) (139,177) Proceeds from sales and maturities of investment securities 78,021 19,731 356,052 111,017 Acquisitions of businesses, net of cash acquired (147,651) (2,500) (149,562) (2,500) Purchase of other investments - - - (767) Purchase of property and equipment (5,107) (4,716) (8,985) (7,988) ---------- ---------- ---------- ---------- Net cash provided by (used in) investing activities (74,849) (118,062) 190,061 (39,415) ---------- ---------- ---------- ---------- Cash flows from financing activities: Excess tax benefits from share-based payment arrangements 740 - 2,875 - Repurchase of convertible debentures - (18,091) - (26,301) Structured stock repurchases - - - 1,031 Net proceeds from issuance of common stock under Employee Stock Purchase Plan - 770 306 1,497 Proceeds from exercise of common stock options 4,354 5,418 11,684 7,124 Purchase of treasury stock (1,359) (11,560) (1,532) (16,688) Other financing (31) 415 (31) 83 ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 3,704 (23,048) 13,302 (33,254) ---------- ---------- ---------- ---------- Effect of foreign currency exchange rates on cash and cash equivalents (1,475) (958) 1,015 (1,804) Net increase in cash and cash equivalents (28,736) (96,312) 300,634 7,887 Cash and cash equivalents at beginning of the period 596,917 244,368 267,547 140,169 ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period $ 568,181 $ 148,056 $ 568,181 $ 148,056 ========== ========== ========== ========== Note: certain prior year amounts have been reclassified to conform with current year presentation. *T -0- *T RED HAT, INC. NON CASH SHARE-BASED COMPENSATION AND RECONCILIATION OF GAAP RESULTS TO NON-GAAP ADJUSTED RESULTS (Unaudited) (In thousands - except per share amounts) Non cash share-based compensation expense included in Consolidated Statements of Operations: Three Months Ended Six Months Ended ------------------ ----------------- Aug 31, Aug 31, Aug 31, Aug 31, 2006 2005 2006 2005 ------------------ ----------------- Cost of revenue $ 539 $ - $ 1,049 $ - Sales and marketing 2,455 19 4,572 31 Research and development 1,771 53 3,268 105 General and administration 3,535 1,238 7,037 2,359 --------- -------- -------- -------- Total stock based compensation expense $ 8,300 $ 1,310 $15,926 $ 2,495 ========= ======== ======== ======== Reconciliation of GAAP Results to non-GAAP adjusted Results (for prior year comparison purposes only) Three Months Ended Six Months Ended ------------------ ----------------- Aug 31, Aug 31, Aug 31, Aug 31, 2006 2005 2006 2005 ------------------ ----------------- GAAP Net income $11,047 $16,732 $24,800 $29,166 GAAP Provision for income taxes 6,488 1,859 14,565 3,241 GAAP Income before provision for income taxes $17,535 $18,591 $39,365 $32,407 Add: Share-based compensation per FAS 123R (Aug 06 only) 8,300 1,310 15,926 2,495 Deduct: Intrinsic value of stock options per APB No. 25 (870) (1,310) (1,686) (2,495) --------- -------------------------- Incremental non-cash share-based compensation expense 7,430 0 14,240 0 Non-GAAP adjusted income before provision for income taxes $24,965 $18,591 $53,605 $32,407 Non-GAAP cash provision for income taxes $ 1,248 $ 930 $ 2,680 $ 1,620 --------- -------- -------- -------- Non-GAAP adjusted net income $23,717 $17,661 $50,925 $30,787 ========= ======== ======== ======== Non-GAAP adjusted net income- diluted $25,109 $19,083 $53,708 $33,661 ========= ======== ======== ======== Non-GAAP adjusted net income per share: Basic $ 0.12 $ 0.10 $ 0.27 $ 0.17 Diluted $ 0.11 $ 0.09 $ 0.25 $ 0.16 Non-GAAP diluted net income per share computation: Non-GAAP adjusted net income $23,717 $17,661 $50,925 $30,787 Interest expense on convertible debentures, net of related 5% cash tax effects 677 691 1,354 1,400 Amortization of debt issuance costs, net of related 5% cash tax effects 715 731 1,429 1,474 Non-GAAP adjusted net income- diluted $25,109 $19,083 $53,708 $33,661 ========= ======== ======== ======== *T