Red Hat Announces Plan to Change Method of Revenue Recognition for Subscription Agreements and to Restate Financial Statements to Reflect Change.RALEIGH Raleigh (rôl`ē, räl`ē), city (1990 pop. 207,951), state capital, and seat of Wake co., central N.C.; the site was selected for the capital in 1788, and the city was laid out and inc. 1792. , N.C. -- Red Hat Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :RHAT RHAT Red Hat (stock symbol) RHAT Rainwater Harvesting Association of Tanzania RHAT Register Hba Attributes ): -- Change confined con·fine v. con·fined, con·fin·ing, con·fines v.tr. 1. To keep within bounds; restrict: Please confine your remarks to the issues at hand. See Synonyms at limit. to revenue recognition for subscription agreements -- No anticipated material effect on annual revenues -- No effect on operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. or number of new subscriptions sold in each quarter -- No change in cumulative revenues that will be recognized from the Company's subscription agreements -- Previously announced Investor Call to be held Tuesday Tuesday: see week. , July July: see month. 13, 2004 at 8:00AM Eastern Time - details below Red Hat, Inc. (NASDAQ: RHAT) today announced that it has corrected the manner in which it recognizes revenues for certain of its subscription agreements and, as a result, will restate re·state tr.v. re·stat·ed, re·stat·ing, re·states To state again or in a new form. See Synonyms at repeat. re·state its audited financial statements for the fiscal years ended February February: see month. 29, 2004, February 28, 2003, and February 28, 2002, and its unaudited financial statements for the fiscal quarter ended May 31, 2004. The decision results from recent discussions between the Company and the Company's independent auditors Independent Auditor An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report. Notes: These auditors aren't affiliated with the company being audited. , PricewaterhouseCoopers, following the normal rotation Rotation An active asset management strategy that tactically overweighted and underweighted certain sectors, depending on expected performance. Sometimes called sector rotation. of audit partners required by the accounting profession's rotation rules. As a result of these discussions, the Company determined it would be appropriate to stop recognizing revenue for subscription agreements on a monthly basis - a method it has consistently applied for the last five years - and start recognizing revenue on a daily basis over the particular contract term. The restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. is due entirely to the correction CORRECTION,punishment. Chastisement by one having authority of a person who has committed some offence, for the purpose of bringing him to legal subjection. 2. It is chiefly exercised in a parental manner, by parents, or those who are placed in loco parentis. in the Company's method of recognizing revenue for subscription agreements. The effect of using the new method is to defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. a portion of the revenue that had been previously recognized in the month of commencement of a subscription to the month in which the subscription ends. This correction in method has no effect on the amount of revenues that the Company will ultimately recognize from the subscriptions to the Company's Red Hat Enterprise Linux Red Hat Enterprise Linux (often abbreviated to RHEL) is a Linux distribution produced by Red Hat and targeted toward the commercial market, including mainframes. Red Hat commits to supporting each version of RHEL for 7 years after its release. product that the Company has sold over the last 24 months, nor does it affect the sequential One after the other in some consecutive order such as by name or number. quarterly growth in the number of subscriptions sold over the last two fiscal years or the increase in operating cash flows that has resulted from the increase in the number of new subscriptions sold over this period. While the new accounting method is not expected to materially affect annual revenues and will not affect operating cash flows or the number of new subscriptions for any quarterly period, it is expected to result in significant percentage differences in certain items such as quarterly operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. and net income. Attached is a summary of the estimated range of effects of the accounting change on the Company's annual and quarterly historical results. "The restatement is not expected to reflect any material difference in the meaningful historical trends of our business, nor will it adversely affect our business outlook, which remains strong," said Matthew Szulik Matthew J. Szulik - Chairman, Chief Executive Officer and President of Red Hat, leader of some other technology companies, such as Interleaf and MapInfo for more than 20 years. , Chairman and Chief Executive Officer at Red Hat. "We remain committed to meeting high standards in providing timely, accurate and transparent (1) Refers to a change in hardware or software that, after installation, causes no noticeable change in operation. Also known as "feature transparency." Contrast with "seamless integration," which means that an additional component to the system can be added without incurring any financial reporting, and our planned restatement reflects this commitment. The restatement will also assure that future comparisons to past periods are made on a consistent basis." The Company recognized revenues, prior to the correction, using a method that resulted in revenue recognition as if the subscription commenced on the first day of the month in which the subscription was sold. For example, the Company would have recognized one-twelfth Noun 1. one-twelfth - one part in twelve equal parts duodecimal, twelfth part, twelfth common fraction, simple fraction - the quotient of two integers of the revenue of a twelve-month subscription in the calendar month during which the subscription commenced, and the remaining subscription revenue over the next eleven calendar months. On June June: see month. 16, 2004, the Company's independent auditors informed the Company that it should consider recognizing revenue from a subscription over the term of the subscription (for example, the number of days in the subscription period), which ultimately resulted in the Company deciding to change to this method. The resulting change in method will now mean that the Company will begin to recognize revenue on the date of commencement of a subscription and ratably over the remaining term of the subscription. The effect of the Company's decision is to defer a portion of the subscription revenues that would have been recognized in the month of the commencement of the subscription to the last month of the subscription term. Red Hat is currently not aware of any other adjustments that will be required to its historical financial statements in addition to those reflected in the estimates in the attached summary. It is possible, however, that other items may be identified in the process of restating the Company's financial statements. In addition, the Company is in the process of responding to prior comments and questions from the SEC regarding its Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. . Although the Company does not anticipate that the review by the Staff will result in any material changes to previously reported financial results, the Company cannot provide assurances that such changes will not be required. The Company will be filing a Form 12b-25 extending the deadline for the filing of its Form 10-Q Form 10-Q See 10-Q. for the fiscal quarter ended May 31, 2004, and currently anticipates filing its Form 10-Q for that fiscal quarter on or before July 19, 2004. As soon as practicable practicable adj. when something can be done or performed. , the Company will amend its Form 10-K for the fiscal year ended February 29, 2004.
Investor Call Details:
The dial-in information is as follows:
Date and Time: July 13, 2004, at 8am ET
Domestic 800-216-6592
International 706-634-0636
Replay 800-642-1687 or 706-645-9291
Passcode 8733382
The replay will be available from July 13, 2004, at 6pm ET until July 20, 2004, at midnight ET. This call is being webcast by CCBN CCBN Central Coast Bancorp CCBN Charles County Business Network and can be accessed at the Investor Relations Investor relations The process by which the corporation communicates with its investors. page of Red Hat's web site: www.redhat.com. This call is also being distributed over CCBN's Investor Distribution Network to both institutional and individual investors. Individual investors can listen to the call through CCBN's individual investor center at www.companyboardroom.com or by visiting any of the investor sites in CCBN's Individual Investor Network. Institutional investors Institutional Investor A non-bank person or organization that trades securities in large enough share quantities or dollar amounts that they qualify for preferential treatment and lower commissions. can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com). About Red Hat, Inc. Red Hat, the world's leading provider of open source solutions to the enterprise, is headquartered in Raleigh, NC with satellite offices spanning the globe. Red Hat is leading Linux Linux Nonproprietary operating system (OS) for digital computers. In 1991 Linus Torvalds of Finland began asking for volunteer programmers over the Internet to collaborate on the development of a UNIX-like OS for personal computers; the “1. and open source solutions into the mainstream by making high quality, low cost technology accessible. Red Hat provides operating system operating system (OS) Software that controls the operation of a computer, directs the input and output of data, keeps track of files, and controls the processing of computer programs. software along with middleware Software that functions as a conversion or translation layer. It is also a consolidator and integrator. Custom-programmed middleware solutions have been developed for decades to enable one application to communicate with another that either runs on a different platform or comes from a , applications and management solutions. Red Hat also offers support, training and consulting services Noun 1. consulting service - service provided by a professional advisor (e.g., a lawyer or doctor or CPA etc.) service - work done by one person or group that benefits another; "budget separately for goods and services" to its customers worldwide and through top-tier partnerships. Red Hat's Open Source strategy offers customers a long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Any statements in this press release about future expectations, plans and prospects for the Company, including statements about the estimated effects of the Company's restatements, future operating or financial results, the outcome of any review and other statements containing the words "believes," "anticipates," "plans," "expects," "will," and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the factors discussed in our most recent annual report filed with the SEC (a copy of which may be accessed through the SEC's website at http://www.sec.gov See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. ), reliance upon strategic relationships, management of growth, the possibility of undetected software errors, the risks of economic downturns generally, and in Red Hat's industry specifically, the risks associated with competition and competitive pricing pressures, the viability of the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the , and the possibility that (i) the Company, its independent auditors and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. the SEC may identify in the course of any review or otherwise additional items that materially and adversely affect the Company's financial results and (ii) the Company, its independent auditors and/or the SEC may identify errors in or corrections to the estimates of the effects of the restatements on the Company's financial results. In addition, the forward-looking statements included in this press release represent the Company's views as of July 13, 2004, 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 July 13, 2004. LINUX is a trademark of Linus Torvalds Linus Benedict Torvalds (born December 28 1969 in Helsinki, Finland) is a Finnish software engineer best known for initiating the development of the Linux kernel. . RED HAT is a registered trademark of Red Hat, Inc. All other names and trademarks are the property of their respective owners.
RED HAT, INC.
ESTIMATED RANGE OF EFFECTS OF ACCOUNTING CHANGE
ON RED HAT'S ANNUAL AND QUARTERLY RESULTS
(in thousands - except per share amounts)
Quarter Ended
---------------------------
May 31, May 31, May 31,
2004 2004 2004
---------------------------
Reported Restated Restated
High Low
Total revenue $41,615 $41,700 $41,200
Gross profit $33,160 $33,200 $32,800
Total operating expense $28,259 $28,350 $28,300
Income (loss) from operations $4,901 $4,850 $4,500
Net income (loss) $10,674 $10,723 $10,273
Net income (loss) per share $0.05 $0.05 $0.05
Weighted average shares outstanding 195,633 195,633 195,633
Quarter Ended
---------------------------
May 31, May 31, May 31,
2003 2003 2003
---------------------------
Reported Restated Restated
High Low
Total revenue $27,182 $26,100 $25,600
Gross profit $18,430 $17,900 $17,700
Total operating expense $19,492 $19,300 $19,250
Income (loss) from operations $(1,062) $(1,400) $(1,550)
Net income (loss) $1,519 $1,063 $913
Net income (loss) per share $0.01 $0.01 $0.01
Weighted average shares outstanding 180,671 180,671 180,671
Quarter Ended
-------------------------------
Aug 31, Aug 31, Aug 31,
2003 2003 2003
-------------------------------
Reported Restated Restated
High Low
Total revenue $28,849 $29,100 $28,600
Gross profit $20,868 $21,150 $20,800
Total operating expense $20,628 $20,650 $20,550
Income (loss) from operations $240 $500 $250
Net income (loss) $3,337 $3,597 $3,347
Net income (loss) per share $0.02 $0.02 $0.02
Weighted average shares outstanding 182,377 182,377 182,377
Quarter Ended
----------------------------------
Nov 30, Nov 30, Nov 30,
2003 2003 2003
----------------------------------
Reported Restated Restated
High Low
Total revenue $33,088 $32,800 $32,300
Gross profit $23,976 $24,250 $23,900
Total operating expense $22,476 $22,500 $22,400
Income (loss) from operations $1,500 $1,750 $1,500
Net income (loss) $4,145 $4,395 $4,145
Net income (loss) per share $0.02 $0.02 $0.02
Weighted average shares outstanding 184,210 184,210 184,210
Quarter Ended
----------------------------------
Feb 29, Feb 29, Feb 29,
2004 2004 2004
----------------------------------
Reported Restated Restated
High Low
Total revenue $36,965 $36,800 $36,300
Gross profit $27,941 $27,500 $27,150
Total operating expense $25,407 $25,500 $25,450
Income (loss) from operations $2,534 $2,000 $1,700
Net income (loss) $4,997 $4,463 $4,163
Net income (loss) per share $0.03 $0.02 $0.02
Weighted average shares outstanding 191,641 191,641 191,641
Fiscal Year 2004
--------- ----------- ------------
Feb 29, Feb 29, Feb 29,
2004 2004 2004
--------- ----------- ------------
Reported Restated Restated
High Low
Total revenue $126, 084 $124,800 $123,800
Gross profit $91,215 $90,800 $90,300
Total operating expense $88,003 $87,900 $87,800
Income (loss) from operations $3,212 $2,900 $2,500
Net income (loss) $13,998 $13,686 $13,286
Net income (loss) per share $0.08 $0.07 $0.07
Weighted average shares outstanding 182,913 182,913 182,913
RED HAT, INC.
ESTIMATED RANGE OF EFFECTS OF ACCOUNTING CHANGE
ON RED HAT'S ANNUAL AND QUARTERLY RESULTS
(in thousands - except per share amounts)
Quarter Ended
------------------------------
May 31, May 31, May 31,
2002 2002 2002
------------------------------
Reported Restated Restated
High Low
Total revenue $19,522 $19,350 $19,050
Gross profit $12,253 $12,100 $11,800
Total operating expense $19,466 $19,500 $19,400
Income (loss) from operations $(7,213) $(7,400) $(7,600)
Net income (loss) $(4,588) $(4,775) $(4,975)
Net income (loss) per share ($0.03) ($0.03) ($0.03)
Weighted average shares outstanding 169,826 169,826 169,826
Quarter Ended
-------- -------- --------
Aug 31, Aug 31, Aug 31,
2002 2002 2002
-------- -------- --------
Reported Restated Restated
High Low
Total revenue $21,234 $21,400 $21,100
Gross profit $13,615 $13,900 $13,600
Total operating expense $18,313 $18,400 $18,300
Income (loss) from operations $(4,698) $(4,500) $(4,700)
Net income (loss) $(1,951) $(1,753) $(1,953)
Net income (loss) per share ($0.01) ($0.01) ($0.01)
Weighted average shares outstanding 169,977 169,977 169,977
Quarter Ended
-------- -------- --------
Nov 30, Nov 30, Nov 30,
2002 2002 2002
-------- -------- --------
Reported Restated Restated
High Low
Total revenue $24,278 $23,550 $23,250
Gross profit $16,090 $15,400 $15,100
Total operating expense $18,984 $18,950 $18,900
Income (loss) from operations $(2,894) $(3,550) $(3,800)
Net income (loss) $214 $(442) $(692)
Net income (loss) per share $0.00 $0.00 $0.00
Weighted average shares outstanding 178,268 178,268 178,268
Quarter Ended
-------- -------- --------
Feb 28, Feb 28, Feb 28,
2003 2003 2003
-------- -------- --------
Reported Restated Restated
High Low
Total revenue $25,891 $26,000 $25,700
Gross profit $17,503 $17,700 $17,500
Total operating expense $19,861 $19,950 $19,900
Income (loss) from operations $(2,358) $(2,250) $(2,400)
Net income (loss) $(273) $(165) $(315)
Net income (loss) per share $0.00 $0.00 $0.00
Weighted average shares outstanding 170,656 170,656 170,656
Fiscal Year 2003
--------- --------- ---------
Feb 28, Feb 28, Feb 28,
2003 2003 2003
--------- --------- ---------
Reported Restated Restated
High Low
Total revenue $90,926 $90,300 $89,700
Gross profit $59,464 $59,100 $58,900
Total operating expense $76,628 $76,700 $76,600
Income (loss) from operations $(17,164) $(17,600) $(17,700)
Net income (loss) $(6,599) $(6,935) $(7,235)
Net income (loss) per share ($0.04) ($0.04) ($0.04)
Weighted average shares outstanding 170,158 170,158 170,158
Fiscal Year 2002
--------- --------- ----------
Feb 28, Feb 28, Feb 28,
2002 2002 2002
--------- --------- ----------
Reported Restated Restated
High Low
Total revenue $78,910 $78,900 $78,300
Gross profit $50,395 $50,500 $49,700
Total operating expense $185,444 $185,500 $185,400
Income (loss) from operations $(135,049)$(135,000)$(135,700)
Net income (loss) $(140,216)$(140,150)$(140,500)
Net income (loss) per share ($0.83) ($0.83) ($0.83)
Weighted average shares outstanding 169,451 169,451 169,451
Note: As a result of the above restatements, the Company's accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. deficit at each balance sheet date is expected to increase by an amount equal to the cumulative change in net income (loss). The Company's deferred revenue is expected to increase by an amount equal to the revenues which are being deferred. Certain other balance sheet accounts such as inventory and other assets other assets Assets of relatively small value. For financial reporting purposes, firms frequently combine small assets into a single category rather than listing each item separately. are also expected to be affected. |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion