RHT » Topics » LIQUIDITY AND CAPITAL RESOURCES

These excerpts taken from the RHT 10-K filed Apr 29, 2009.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from cash flows from operations as well as the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and follow-on public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At February 28, 2009, we had total cash and investments of $846.1 million, which was comprised of $515.5 million in cash and cash equivalents, $141.2 million of short-term, fixed-income investments, $6.0 million of available-for-sale equity securities and $183.4 million of long-term, fixed-income investments. This compares to total cash and investments of $1.33 billion at February 29, 2008.

We believe that we currently have sufficient liquidity with $515.5 million in cash and cash equivalents on hand, and we presently do not intend to liquidate our short and long-term investments in debt securities prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were adverse changes in market interest rates or the overall economic environment, we could be required to recognize a realized loss on those investments when we liquidate. At February 28, 2009, we have accumulated unrealized gains of $0.3 million on our investments in debt securities compared to an accumulated unrealized gain of $5.3 million at February 29, 2008. At February 28, 2009, accumulated unrealized gains related to short-term equity securities available-for-sale totaled $4.7 million. At February 29, 2008 we had no investments in equity securities which were classified as available-for-sale.

LIQUIDITY AND CAPITAL RESOURCES

STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%">We have historically derived a significant portion of our liquidity and operating capital from cash flows from operations as well as the sale of equity
securities, including private sales of preferred stock and the sale of common stock in our initial and follow-on public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At February 28,
2009, we had total cash and investments of $846.1 million, which was comprised of $515.5 million in cash and cash equivalents, $141.2 million of short-term, fixed-income investments, $6.0 million of available-for-sale equity securities and
$183.4 million of long-term, fixed-income investments. This compares to total cash and investments of $1.33 billion at February 29, 2008.

SIZE="2">We believe that we currently have sufficient liquidity with $515.5 million in cash and cash equivalents on hand, and we presently do not intend to liquidate our short and long-term investments in debt securities prior to their scheduled
maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were adverse changes in market interest rates or the overall economic environment, we could be required to recognize a
realized loss on those investments when we liquidate. At February 28, 2009, we have accumulated unrealized gains of $0.3 million on our investments in debt securities compared to an accumulated unrealized gain of $5.3 million at
February 29, 2008. At February 28, 2009, accumulated unrealized gains related to short-term equity securities available-for-sale totaled $4.7 million. At February 29, 2008 we had no investments in equity securities which were
classified as available-for-sale.

This excerpt taken from the RHT 10-Q filed Jan 9, 2009.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from cash flows from operations as well as the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and follow-on public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At November 30, 2008, we had total cash and investments of $1.08 billion, which was comprised of $519.8 million in cash and cash equivalents, $229.2 million of short-term, fixed-income investments, $9.6 million of available-for-sale equity securities and $317.8 million of long-term, fixed-income investments. This compares to total cash and investments of $1.33 billion at February 29, 2008.

Management believes that we currently have sufficient liquidity with $519.8 million in cash and cash equivalents on hand, and we presently do not intend to liquidate our short and long-term investments in debt securities prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were adverse changes in market interest rates or the overall economic environment, we could be required to recognize a realized loss on those investments when we liquidate. At November 30, 2008, we have accumulated unrealized losses of $3.4 million on our investments in debt securities compared to an accumulated unrealized gain of $5.3 million at February 29, 2008. At November 30, 2008, accumulated unrealized gains related to short-term equity securities available-for-sale totaled $7.9 million. At February 29, 2008 we had no investments in equity securities which were classified as available-for-sale. Our investments in equity securities available-for-sale at November 30, 2008 are the result of an initial public offering (“IPO”) of Rackspace Inc. (“Rackspace”) which was completed August 8, 2008. Prior to Rackspace completing its IPO, we accounted for our investment in Rackspace on a lower of cost or market basis, which totaled $2.2 million at February 29, 2008 and is included in other assets, net on our Consolidated Balance Sheet at February 29, 2008.

This excerpt taken from the RHT 10-Q filed Oct 10, 2008.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from cash flows from operations as well as the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and follow-on public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At August 31, 2008, we had total cash and investments of $1.43 billion, which was comprised of $787.5 million in cash and cash equivalents, $258.5 million of short-term, fixed-income investments, $15.7 million of available-for-sale equity securities and $368.2 million of long-term, fixed-income investments. This compares to total cash and investments of $1.33 billion at February 29, 2008.

Management believes that we currently have sufficient liquidity with $787.5 million in cash and cash equivalents on hand, and we presently do not intend to liquidate our short and long-term investments in debt securities prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were adverse changes in market interest rates or the overall economic environment, we could be required to recognize a realized loss on those investments when we liquidate. At August 31, 2008, we have an unrealized loss of $1.5 million on our investments in debt securities compared to an unrealized gain of $5.3 million at February 29, 2008. Accumulated unrealized gains related to short-term equity securities available-for-sale totaled $14.1 million. At February 29, 2008 we had no investments in equity securities which were classified as available-for-sale. Our investments in equity securities available-for-sale at August 31, 2008 are the result of an initial public offering (“IPO”) of Rackspace Inc. (“Rackspace”) which was completed August 8, 2008. Prior to Rackspace completing its IPO, we accounted for our investment in Rackspace on a lower of cost or market basis, which totaled $2.2 million at February 29, 2008 and is included in other assets, net on our Consolidated Balance Sheet at February 29, 2008.

This excerpt taken from the RHT 10-Q filed Jul 10, 2008.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from cash flows from operations as well as the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and follow-on public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At May 31, 2008, we had total cash and investments of $1.35 billion, which was comprised of $610.5 million in cash and cash equivalents, $285.5 million of short-term, fixed-income investments and $453.1 million of long-term, fixed-income investments. This compares to total cash and investments of $1.33 billion at February 29, 2008.

Management believes that we currently have sufficient liquidity with $610.5 million in cash and cash equivalents on hand, and we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were adverse changes in market interest rates or the overall economic environment, we could be required to recognize a realized loss on those investments when we liquidate. At May 31, 2008, we have an unrealized gain of $0.4 million on our investments in debt securities compared to an unrealized gain of $5.3 million at February 29, 2008.

This excerpt taken from the RHT 10-K filed Apr 29, 2008.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from cash flows from operations as well as the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and follow-on public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At February 29, 2008, we had total cash and investments of $1.3 billion, which was comprised of $677.7 million in cash and cash equivalents, $312.4 million of short-term, fixed-income investments and $341.8 million of long-term, fixed-income investments. This compares to total cash and investments of $1.2 billion at February 28, 2007.

Management believes that we currently have sufficient liquidity with $677.7 million in cash and cash equivalents on hand, and we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were adverse changes in market interest rates or the overall economic environment, we could be required to recognize a realized loss on those investments when we liquidate. At February 29, 2008, we have an unrealized gain of $5.3 million on our investments in debt securities compared to an unrealized loss of $2.1 million at February 28, 2007.

This excerpt taken from the RHT 10-Q filed Jan 9, 2008.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from cash flows from operations as well as the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At November 30, 2007, we had total cash and investments of $1.3 billion, which was comprised of $587.0 million in cash and cash equivalents, $454.4 million of short-term, fixed-income investments and $288.4 million of long-term, fixed-income investments. This compares to total cash and investments of $1.2 billion at February 28, 2007.

We currently have sufficient liquidity with $587.0 million in cash and cash equivalents on hand, and we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At November 30, 2007, we have an unrealized gain of $1.3 million on our investments in debt securities compared to an unrealized loss of $2.1 million at February 28, 2007.

This excerpt taken from the RHT 10-Q filed Oct 10, 2007.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures, borrowings under working capital lines of credit and cash flows from operations. At August 31, 2007, we had total cash and investments of $1.3 billion, which was comprised of $524.6 million in cash and cash equivalents, $353.8 million of short-term, fixed-income investments and $375.3 million of long-term, fixed-income investments. This compares to total cash and investments of $1.2 billion at February 28, 2007.

We currently have sufficient liquidity with $524.6 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At August 31, 2007, we have an unrealized loss of $1.6 million on our investments in debt securities compared to an unrealized loss of $2.1 million at February 28, 2007.

This excerpt taken from the RHT 10-Q filed Jul 10, 2007.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At May 31, 2007, we had total cash and investments of $1.2 billion, which was comprised of $437.4 million in cash and cash equivalents, $400.0 million of short-term, fixed-income investments and $353.6 million of long-term, fixed-income investments. This compares to total cash and investments of $1.2 billion at February 28, 2007.

We currently have sufficient liquidity with $437.4 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At May 31, 2007, we have an unrealized loss of $2.9 million on our investments in debt securities compared to $2.1 million at February 28, 2007.

This excerpt taken from the RHT 10-K filed Apr 30, 2007.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At February 28, 2007, we had total cash and investments of $1.2 billion, which was comprised of $527.2 million in cash and cash equivalents, $350.8 million of short-term, fixed-income investments and $278.0 million of long-term, fixed-income investments. This compares to total cash and investments of $1.1 billion at February 28, 2006.

We currently have sufficient liquidity with $527.2 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At February 28, 2006, we have an unrealized loss of $2.1 million on our investments in debt securities compared to $9.8 million at February 28, 2006.

This excerpt taken from the RHT 10-Q filed Jan 9, 2007.

LIQUIDITY AND CAPITAL RESOURCES

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At November 30, 2006, we had total cash and investments of $1.1 billion, which was comprised of $796.0 million in cash and cash equivalents, $180.9 million of short-term, fixed-income investments and $120.3 million of long-term, fixed-income investments. This compares to total cash and investments of $1.1 billion at February 28, 2006.

We currently have sufficient liquidity with $796.0 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At November 30, 2006, we have an unrealized loss of $3.2 million on our investments in debt securities compared to $9.8 million at February 28, 2006.

At November 30, 2006, cash and cash equivalents totaled $796 million, an increase of $528.4 million as compared to February 28, 2006. The increase in cash and cash equivalents for the nine months ended November 30, 2006 resulted from maturities of investment securities of $522.9 million, cash from operations which contributed $155.9 million, net proceeds of $18.6 million from employee-related stock transactions and proceeds from structured stock repurchase transactions of $1.5 million. Partially offsetting these cash increases were payments made for acquisitions of businesses which totaled $149.9 million for the nine months ended November 30, 2006, purchases of property and equipment of $14.8 million and purchases of investment securities of $7.4 million for the same period. Effects of foreign currency exchange rates resulted in an increase to cash of approximately $1.9 million for the nine months ended November 30, 2006.

Change in presentation of cash flows resulting from the adoption of SFAS 123R

SFAS No. 123R requires that the portion of income tax benefits resulting from tax deductions in excess of a share-based award’s original grant date fair value, the “excess tax benefits”, be presented as a source of cash flow from financing activities. Prior to our adoption of SFAS 123R in fiscal 2007, had we realized such excess tax benefits from the exercise of share-based awards, we would have presented these excess tax benefits as a source of cash flow from operating activities.

 

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In the nine months ended November 30, 2006 we recognized $9.1 million of income tax benefits from share-based awards, of which $5.2 million resulted from tax deductions in excess of the original grant date fair value of the awards. For further discussion, see NOTE 9 to Consolidated Financial Statements.

Cash flows from operations

Cash provided by operations of $155.9 million during the nine months ended November 30, 2006, includes net income of $39.4 million, adjustments to exclude the impact of non-cash revenues and expenses, which totaled $58.0 million net source of cash, and changes in working capital, which totaled $63.7 million net source of cash, primarily resulting from an increase in deferred revenue of $63.7 million. The increase in deferred revenue is due to growth in billings as we generally bill our customers in advance of subscription periods. Partially offsetting these sources of operating cash flow was a reclassification of excess tax benefits of $5.2 million related to share-based compensation.

As previously announced, we expect a modest impact on cash flow from operations for the rest of the fiscal year, due to our acquisition of JBoss, which is cash flow negative on a stand alone basis.

Cash flows from investing

Cash provided by investing activities of $350.8 million for the nine months ended November 30, 2006 included maturities of investment securities of $522.9 million. Partially offsetting theses maturities were payments, net of cash acquired, related to business acquisitions of $149.9 million, which includes our recent acquisition of JBoss, businesses in Brazil and Argentina and the acquisition of the remaining minority interest related to our joint venture in India. Also partially offsetting these maturities were investments in property and equipment, primarily information technology infrastructure, and purchases of investment securities which totaled $14.8 million and $7.4 million, respectively for the nine months ended November 30, 2006.

Cash flows from financing

Cash provided by financing activities of $19.9 million for the nine months ended November 30, 2006 was primarily comprised of $14.7 million in proceeds from employees’ exercise of common stock options, $5.2 million from excess tax benefits related to share-based compensation and proceeds from structured stock repurchase transactions of $1.5 million. Partially offsetting proceeds from these sources were repurchases of shares related to employee and non-employee directors withholding taxes of $1.6 million.

Convertible debentures

In January 2004, we issued $600 million in convertible senior debentures, of which $570 million remain outstanding, to the initial purchaser, a sophisticated, accredited investor with a pre-existing relationship with the Company, in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and the debentures were resold by the initial purchaser to qualified institutional buyers under Rule 144A under the Securities Act. The debentures mature on January 15, 2024 and bear interest at a rate of 0.5% per annum, payable semiannually on January 15 and July 15 of each year. The debentures are senior unsecured obligations and rank equally in right of payment with all of our other existing and future unsecured and unsubordinated debt. The debentures are convertible into shares of our common stock under certain circumstances prior to maturity at a conversion rate of 39.0753 shares per $1,000 principal amount of debentures (which represents a conversion price of approximately $25.59 per share) subject to adjustment under certain conditions. We may redeem the debentures, in whole or in part, in cash at any time on or after January 15, 2009. Holders of the debentures may require us to redeem the debentures, in whole or in part, in cash on January 15 of 2009, 2014 and 2019. As of November 30, 2006, no debentures were redeemed. Accrued interest to the redemption date will be paid by us in any such redemption. Interest payments of $1.4 million were made during the nine months ended November 30, 2006. Accrued interest at November 30, 2006 was $1.1 million. See NOTE 7 to the Consolidated Financial Statements for further discussion.

 

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Capital requirements

We have experienced a substantial increase in our operating expenses since our inception in connection with the growth of our operations, the development of our enterprise technologies, the expansion of our services operations and our acquisition activity. Our capital requirements during the year ending February 28, 2007 will depend on numerous factors including the amount of resources we devote to:

 

    Funding the continued development of our Enterprise Technology products;

 

    accelerating the development of our systems management services;

 

    improving and extending our services and the technologies used to deliver these services to our customers;

 

    pursuing strategic acquisitions and alliances; and

 

    making possible investments in businesses, products and technologies.

We have utilized, and will continue to utilize, cash and investments to fund, among other potential uses, purchases of our common stock, purchases of our convertible debentures, purchases of fixed assets and mergers and acquisitions.

Given our historically strong operating cash flow and the $1.1 billion of cash and investments held at November 30, 2006, we do not presently anticipate the need to raise cash to fund our operations, either through the sale of additional equity or through the issuance of debt for the foreseeable future. However, we may take advantage of favorable capital market situations that may arise from time to time to raise additional capital.

We believe that cash flow from operations will continue to improve; however, there can be no assurances that we will improve our cash flow from operations from the current rate or that such cash flows will be adequate to fund other investments or acquisitions that we may choose to make. We may choose to accelerate the expansion of our business from our current plans, which may require us to raise additional funds through the sale of equity or debt securities or through other financing means. There can be no assurances that any such financing would occur in amounts or on terms favorable to us, if at all.

Off-balance sheet financing

We have no off-balance sheet financing arrangements and do not utilize any “structured debt”, “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

This excerpt taken from the RHT 10-Q filed Oct 10, 2006.

Liquidity and capital resources

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At August 31, 2006, we had total cash and investments of $1.0 billion, which was comprised of $568.2 million in cash and cash equivalents, $269.8 million of short-term, fixed-income investments and $196.0 million of long-term, fixed-income investments. This compares to total cash and investments of $1.1 billion at February 28, 2006.

We currently have sufficient liquidity with $568.2 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At August 31, 2006, we have an unrealized loss of $5.4 million on our investments in debt securities compared to $9.8 million at February 28, 2006.

At August 31, 2006, cash and cash equivalents totaled $568.2 million, an increase of $300.6 million as compared to February 28, 2006. The increase in cash and cash equivalents for the six months ended August 31, 2006 resulted from maturities of investment securities of $356.1 million, cash from operations which contributed $96.3 million and net proceeds of $13.3 million from employee-related stock transactions. Partially offsetting these cash increases were payments made for acquisitions of businesses which totaled $149.6 million for the six months ended August 31, 2006, purchases of property and equipment of $9.0 million and purchases of investment securities of $7.4 million for the same period ended. Effects of foreign currency exchange rates resulted in an increase to cash of approximately $1.0 million for the six months ended August 31, 2006.

Change in presentation of cash flows resulting from the adoption of SFAS 123R

SFAS No. 123R requires that the portion of income tax benefits resulting from tax deductions in excess of a share-based award’s original grant date fair value, the “excess tax benefits”, be presented as a source of cash flow from financing activities. Prior to our adoption of SFAS 123R in fiscal 2007, had we realized such excess tax benefits from the exercise of share-based awards, we would have presented these excess tax benefits as a source of cash flow from operating activities.

In the six months ended August 31, 2006 we recognized $4.9 million of income tax benefits from share-based awards, of which $2.9 million resulted from tax deductions in excess of the original fair value of the awards. For further discussion, see NOTE 9 to Consolidated Financial Statements.

Cash flows from operations

Cash provided by operations of $96.3 million during the six months ended August 31, 2006, includes net income of $24.8 million, adjustments to exclude the impact of non-cash revenues and expenses, which totaled $38.4 million net source of cash, and changes in working capital, which totaled $35.9 million net source of cash,

 

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primarily resulting from an increase in deferred revenue of $38.1 million. The increase in deferred revenue is due to growth in billings as we generally bill our customers in advance of subscription periods. Partially offsetting these sources of operating cash flow was a reclassification of excess tax benefits of $2.9 million related to share-based compensation.

As previously announced, we expect a modest impact on cash flow from operations for the rest of the fiscal year, due to our acquisition of JBoss, which was cash flow negative on a stand alone basis. In addition, we believe that cash flow from operations during the second quarter was temporarily adversely affected by changes in sales productivity associated with the integration of our recent acquisitions, changes in the sales structure in our Asia Pacific operations and a higher proportion of three year customer agreements billed one year at a time.

Cash flows from investing

Cash provided by investing activities of $190.1 million for the six months ended August 31, 2006 was comprised of maturities of investment securities of $356.1 million. Partially offsetting theses maturities were payments, net of cash acquired, related to business acquisitions of $149.6 million, which includes our recent acquisition of JBoss, businesses in Brazil and Argentina and the acquisition of the remaining minority interest related to our joint venture in India. Also partially offsetting these maturities were investments in property and equipment, primarily information technology infrastructure, and purchases of investments securities totaled $9.0 million and $7.4 million, respectively for the six months ended August 31, 2006.

Cash flows from financing

Cash provided by financing activities of $13.3 million for the six months ended August 31, 2006 was primarily comprised of $11.7 million in proceeds from employees’ exercise of common stock options and $2.9 million from excess tax benefits related to share-based compensation. Partially offsetting proceeds from these sources were repurchases of treasury shares related to employee and non-employee directors withholding taxes of $1.5 million.

Convertible debentures

In January 2004, we issued $600 million in convertible senior debentures, of which $570 million remain outstanding, to the initial purchaser (a sophisticated, accredited investor with a pre-existing relationship with us) in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and the debentures were resold by the initial purchaser to qualified institutional buyers under Rule 144A of the Securities Act. The debentures mature on January 15, 2024 and bear interest at a rate of 0.5% per annum, payable semiannually on January 15 and July 15 of each year. The debentures are senior unsecured obligations and rank equally in right of payment with all of our other existing and future unsecured and unsubordinated debt. The debentures are convertible into shares of our common stock under certain circumstances prior to maturity at a conversion rate of 39.0753 shares per $1,000 principal amount of debentures (which represents a conversion price of approximately $25.59 per share) subject to adjustment under certain conditions. We may redeem the debentures, in whole or in part, in cash at any time on or after January 15, 2009. Holders of the debentures may require us to redeem the debentures, in whole or in part, in cash on January 15 of 2009, 2014 and 2019. As of August 31, 2006, no debentures were redeemed. Accrued interest to the redemption date will be paid by us in any such redemption. Interest payments of $1.5 million were made during the three and six months ended August 31, 2006. Accrued interest at August 31, 2006 was $0.4 million. See NOTE 7 to the Consolidated Financial Statements for further discussion.

Capital requirements

We have experienced a substantial increase in our operating expenses since our inception in connection with the growth of our operations, the development of our enterprise technologies, the expansion of our services

 

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operations and our acquisition activity. Our capital requirements during the year ending February 28, 2007 will depend on numerous factors including the amount of resources we devote to:

 

    Funding the continued development of our Enterprise Technology products;

 

    accelerating the development of our systems management services;

 

    improving and extending our services and the technologies used to deliver these services to our customers;

 

    pursuing strategic acquisitions and alliances; and

 

    making possible investments in businesses, products and technologies.

We have utilized, and will continue to utilize, cash and investments to fund, among other potential uses, purchases of our common stock, purchases of our convertible debentures, purchases of fixed assets and mergers and acquisitions.

Given our historically strong operating cash flow and the $1.0 billion of cash and investments held at August 31, 2006, we do not presently anticipate the need to raise cash to fund our operations, either through the sale of additional equity or through the issuance of debt for the foreseeable future. However, we may take advantage of favorable capital market situations that may arise from time to time to raise additional capital.

We believe that cash flow from operations will continue to improve; however, there can be no assurances that we will improve our cash flow from operations from the current rate or that such cash flows will be adequate to fund other investments or acquisitions that we may choose to make. We may choose to accelerate the expansion of our business from our current plans, which may require us to raise additional funds through the sale of equity or debt securities or through other financing means. There can be no assurances that any such financing would occur in amounts or on terms favorable to us, if at all.

Off-balance sheet financing

We have no off-balance sheet financing arrangements and do not utilize any “structured debt”, “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

This excerpt taken from the RHT 10-Q filed Jul 10, 2006.

Liquidity and capital resources

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At May 31, 2006, we had total cash and investments of $1.1 billion, which was comprised of $596.9 million in cash and cash equivalents, $335.4 million of short-term, fixed-income investments and $205.3 million of long-term, fixed-income investments. This compares to total cash and investments of $1.1 billion at February 28, 2006.

We currently have sufficient liquidity with $596.9 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At May 31, 2006, we have an unrealized loss of $8.4 million on our investments in debt securities compared to $9.8 million at February 28, 2006.

Three months ended May 31, 2006

At May 31, 2006, cash and cash equivalents totaled $596.9 million, an increase of $329.4 million as compared to February 28, 2006. The increase in cash and cash equivalents resulted primarily from net sales and maturities of investment securities of $270.7 million, $52.4 in cash provided by operations and $7.3 million from

 

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the exercise of common stock options. Partially offsetting these sources of cash were uses of cash including purchases of property and equipment of approximately $3.9 and approximately $1.9 million for acquisitions related to businesses operating in Argentina and Brazil. Effects of foreign currency exchange rates resulted in an increase to cash of approximately $2.5 million.

Cash provided by operations of $52.4 million in the three months ended May 31, 2006, includes net income of $13.8 million, adjustments to exclude the impact of non-cash revenues and expenses, which totaled a $16.2 million net source of cash, and changes in working capital, which totaled $22.4 million net source of cash, primarily resulting from an increase in deferred revenue of $25.5 million and an increase in accrued expenses of $1.6 million. These working capital sources of cash were partially offset by an increase in accounts receivable of $3.5 million, an increase of $1.3 million in prepaid and other current assets. The increase in deferred revenue is due to growth in billings as we generally bill our customers in advance of subscription periods. Also partially offsetting operating cash flow was a reclassification of excess tax benefits of $2.1 million related to share-based compensation. These share-based tax benefits represent the cash savings attributable to the excess of allowable tax deductions over the amount that would have been expensed for financial reporting purposes had we adopted SFAS 123R prior to the required date of March 1, 2006. For further discussion on share-based compensation and the impact to our consolidated financial statements resulting from the adoption of SFAS 123R, see NOTE 9 to Consolidated Financial Statements.

Cash provided by investing activities of $264.9 million for the three months ended May 31, 2006 was primarily comprised of net sales and maturities of fixed income investment securities of $270.7 million. Partially offsetting proceeds from sales and maturities of fixed income investment securities was approximately $3.9 million purchases of property and equipment and cash paid for acquisitions of businesses of approximately $1.9 million.

Cash provided by financing activities of $9.6 million for the three months ended May 31, 2006 was primarily comprised of $7.3 million in proceeds from employees’ exercise of common stock options, $2.1 million from excess tax benefits related to share-based compensation and $0.3 million of proceeds, net of withholding from issuance of common stock due to employees purchases under the Employee Stock Purchase Plan.

Three months ended May 31, 2005

At May 31, 2005, cash and cash equivalents totaled $244.4 million, an increase of $104.2 million as compared to February 28, 2005. The increase in cash and cash equivalents resulted primarily from $36.6 million and $78.6 million in net cash provided by operating activities and investing activities, respectively. These sources of cash were primarily offset by $10.2 million of cash used by our financing activities, due primarily to repurchases of our 0.5% Senior Convertible Debentures due 2024 and of the Company’s common stock.

Cash provided by operations of $36.6 million in the three months ended May 31, 2005, includes net income of $12.4 million, adjusted to exclude the impact of non-cash revenues and expenses, which totaled $3.8 million. Changes in working capital items were a net source of cash of $20.3 million primarily resulting from an increase in deferred revenue of $22.5 million and an increase in accrued expenses of $2.5 million, primarily offset by an increase of $1.4 million in prepaid expenses and other current assets and a decrease in accounts payable of $4.1 million. The increase in deferred revenue is due to growth in billings as we generally bill our customers in advance of subscription periods.

Cash provided by investing activities of $78.6 million for the three months ended May 31, 2005 was primarily comprised of proceeds from the sales and maturities of investment securities of $91.3 million, primarily offset by purchases of fixed-income investments of $8.6 million, and purchases of property and equipment totaling $3.3 million.

 

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Cash used in financing activities of $10.2 million for the three months ended May 31, 2005 was primarily comprised of $8.2 million in purchases of convertible debentures and $5.1 million in purchases of the Company’s common stock pursuant to our previously announced expanded share repurchase program to acquire up to an aggregate of $250 million of our common stock and $50 million of our convertible debentures due 2024, which program has now expired. The cash used in financing activities was partially offset by proceeds from a structured stock repurchase transaction, issuance of common stock due to employees exercise of stock options and purchases under the Employee Stock Purchase Plan totaling $3.5 million in the aggregate.

Convertible debentures

In January 2004, we issued $600 million in convertible senior debentures to the initial purchaser, a sophisticated, accredited investor with a pre-existing relationship with us, in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and the debentures were resold by the initial purchaser to qualified institutional buyers under Rule 144A of the Securities Act. The debentures mature on January 15, 2024 and bear interest at a rate of 0.5% per annum, payable semiannually on January 15 and July 15 of each year. The debentures are senior unsecured obligations and rank equally in right of payment with all of our other existing and future unsecured and unsubordinated debt. The debentures are convertible into shares of our common stock under certain circumstances prior to maturity at a conversion rate of 39.0753 shares per $1,000 principal amount of debentures (which represents a conversion price of approximately $25.59 per share) subject to adjustment under certain conditions. We may redeem the debentures, in whole or in part, in cash at any time on or after January 15, 2009. Holders of the debentures may require us to redeem the debentures, in whole or in part, in cash on January 15 of 2009, 2014 and 2019. As of May 31, 2006, no debentures were redeemed. Accrued interest to the redemption date will be paid by us in any such redemption. No interest payments were made during the three months ended May 31, 2006. Accrued interest at May 31, 2006 was $1.1 million. See NOTE 7 to the Consolidated Financial Statements for further discussion.

Capital requirements

We have experienced a substantial increase in our operating expenses since our inception in connection with the growth of our operations, the development of our enterprise technologies, the expansion of our services operations and our acquisition activity. Our capital requirements during the year ending February 28, 2007 will depend on numerous factors including the amount of resources we devote to:

 

    Funding the continued development of our Enterprise Linux products;

 

    accelerating the development of our systems management services;

 

    improving and extending our services and the technologies used to deliver these services to our customers;

 

    pursuing other strategic acquisitions and alliances, including the recent completion of the JBoss acquisition, as described above under the heading “Subsequent event”; and

 

    making possible investments in businesses, products and technologies.

We have and will continue to utilize cash and investments to fund, among other potential uses, purchases of our common stock, purchases of our convertible debentures, purchases of fixed assets and mergers and acquisitions.

Given our historically strong operating cash flow and the $1.1 billion of cash and investments held at May 31, 2006, we do not presently anticipate the need to raise cash to fund our operations or our recent JBoss acquisition, either through the sale of additional equity or through the issuance of debt for the foreseeable future. However, we may take advantage of favorable capital market situations that may arise from time to time to raise additional capital.

 

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We believe that cash flow from operations will continue to improve; however, there can be no assurances that we will improve our cash flow from operations from the current rate or that such cash flows will be adequate to fund other investments or acquisitions that we may choose to make. We may choose to accelerate the expansion of our business from our current plans, which may require us to raise additional funds through the sale of equity or debt securities or through other financing means. There can be no assurances that any such financing would occur in amounts or on terms favorable to us, if at all.

Off-balance sheet financing

We have no off-balance sheet financing arrangements and do not utilize any “structured debt”, “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

This excerpt taken from the RHT 10-K filed May 12, 2006.

Liquidity and capital resources

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At February 28, 2006, we had total cash and investments of $1.1 billion, which was comprised of $267.5 million in cash and cash equivalents, $537.3 million of short-term, fixed-income investments and $272.7 million of long-term, fixed-income investments. This compares to total cash and investments of $928.8 million at February 28, 2005.

 

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We currently have sufficient liquidity with $267.5 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At February 28, 2006, we have an unrealized loss of $9.8 million on our investments in debt securities compared to $10.7 million at February 28, 2005.

Year ended February 28, 2006

At February 28, 2006, cash and cash equivalents totaled $267.5 million, an increase of $127.4 million as compared to February 28, 2005. The increase in cash and cash equivalents resulted primarily from $186.6 million in cash provided by operations and $44.1 million from the exercise of common stock options. Partially offsetting these sources of cash were uses of cash including repurchase of convertible debt of $26.3 million, purchases of long-term investments of $22.2 million, net purchases of investment securities of approximately $20.4 million, purchases of property and equipment of approximately $16.8 million and purchases of stock of $16.7 million.

Cash provided by operations of $186.6 million in the year ended February 28, 2006, includes net income of $79.7 million, adjustments to exclude the impact of non-cash revenues and expenses, which totaled a $21.4 million net source of cash, and changes in working capital, which totaled $85.5 million net source of cash, primarily resulting from an increase in deferred revenue of $91.3 million and an increase in accrued expenses of $10.5 million. These working capital sources of cash were partially offset by an increase in accounts receivable and earnings in excess of billings of $10.8 million, an increase of $3.1 million in prepaid and other current assets and a decrease in accounts payable of $2.6 million. The increase in deferred revenue is due to growth in billings and the nature by which we generally obtain payments from customers for subscriptions to our technologies in advance of the subscription period.

Cash used in investing activities of $62.3 million for the year ended February 28, 2006 was primarily comprised of purchases of long-term investments of $22.2 million, including $20 million for our investment in Open Invention Network LLC, net purchases of fixed income investment securities of approximately $20.4 million and purchases of property and equipment of approximately $16.8 million.

Cash provided by financing activities of $5.7 million for the year ended February 28, 2006 was primarily comprised of $44.0 million in proceeds from employees’ exercise of common stock options, $3.4 million proceeds and withholding from issuance of common stock due to employees purchases under the Employee Stock Purchase Plan, and $1.0 million from proceeds of structured stock repurchases, partially offset by repurchase of convertible debt of $26.3 million and repurchase of common stock of $16.7 million.

Year ended February 28, 2005

At February 28, 2005, cash and cash equivalents totaled $140.2 million, a decrease of $321.1 million as compared to February 29, 2004. The decrease in cash and cash equivalents during fiscal 2005 resulted primarily from cash provided by operations of $122.2 million and a total of $17.8 million in cash received from the exercise of common stock options and sale of common stock under our employee stock purchase plan, offset by the purchase of investments in debt securities, net of sales of debt securities, of $324.7 million, purchase of treasury stock of $100.0 million, acquisition of business of $21.1 million, purchases of property and equipment of $14.9 million and $1.0 million of cash used to pay down capital lease obligations.

Cash provided by operations of $122.2 million in the year ended February 28, 2005, includes net income of $45.4 million, adjustments to exclude the impact of non-cash items, which totaled a $17.3 million net source of cash, and changes in working capital, which totaled a $59.5 million net source of cash, primarily resulting from an increase in deferred revenue of $61.2 million. The increase in deferred revenue is due to growth in billings to our customers for subscriptions to our technologies.

 

42


In the fiscal year ended February 29, 2004, cash provided by operations was $61.6 million. The significant improvement in our cash flow from operations in fiscal 2005 is a result of increased sales of subscriptions to RHEL, which resulted in the $61.2 million increase in deferred revenues, as well as from the $31.7 million increase in net income.

In the fiscal year ended February 28, 2005, cash used in investing activities of $360.6 million was comprised of purchases of fixed-income investments of $854.5 million, , purchases of property and equipment—mainly computer software, hardware and computer networking equipment—totaling $14.9 million, and acquisition of businesses, net of cash acquired of $21.1 million—the acquisition of the assets of the former Netscape Security Solutions unit from America Online, Inc. (See NOTE 3 to the Consolidated Financial Statements). Cash used in investing activities were partially offset by proceeds from sales and maturities of investment securities of $529.8 million.

Cash used in financing activities of $83.4 million for the year ended February 28, 2005 was primarily comprised of $100.0 million in purchases of treasury shares pursuant to our previously announced share repurchase program, and $1.0 million in payments under capital lease obligations and debt financing costs, partially offset by a total of $17.8 million in proceeds received from the exercise of common stock options and sale of common stock under our Employee Stock Purchase Plan.

Convertible debentures

In January 2004, we issued $600 million in convertible senior debentures to the initial purchaser, a sophisticated, accredited investor with a pre-existing relationship with us, in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and the debentures were resold by the initial purchaser to qualified institutional buyers under Rule 144A of the Securities Act. The debentures mature on January 15, 2024 and bear interest at a rate of 0.5% per annum, payable semiannually on January 15 and July 15 of each year. The debentures are senior unsecured obligations and rank equally in right of payment with all of our other existing and future unsecured and unsubordinated debt. The debentures are convertible into shares of our common stock under certain circumstances prior to maturity at a conversion rate of 39.0753 shares per $1,000 principal amount of debentures (which represents a conversion price of approximately $25.59 per share) subject to adjustment under certain conditions. We may redeem the debentures, in whole or in part, in cash at any time on or after January 15, 2009. Holders of the debentures may require us to redeem the debentures, in whole or in part, in cash on January 15 of 2009, 2014 and 2019. As of February 28, 2006, no debentures were redeemed. Accrued interest to the redemption date will be paid by us in any such redemption. Interest payments totaling $3.0 million were made during the year ended February 28, 2006. Accrued interest at February 28, 2006 was $0.4 million. See NOTE 11 to the Consolidated Financial Statements for further discussion.

Capital requirements

We have experienced a substantial increase in our operating expenses since our inception in connection with the growth of our operations, the development of our enterprise technologies, the expansion of our services operations and our acquisition activity. Our capital requirements during the year ending February 28, 2007 will depend on numerous factors including the amount of resources we devote to:

 

  ·   Funding the continued development of our Enterprise Linux products;

 

  ·   accelerating the development of our systems management services;

 

  ·   improving and extending our services and the technologies used to deliver these services to our customers;

 

  ·   pursuing other strategic acquisitions and alliances, including the anticipated completion of the JBoss acquisition, for which we have entered into an agreement and plan of merger described above under the heading “Subsequent event”; and

 

43


  ·   making possible investments in businesses, products and technologies.

We have and will continue to utilize cash and investments to fund, among other potential uses, purchases of our common stock, purchases of our convertible debentures, purchases of fixed assets and mergers and acquisitions.

Given our historically strong operating cash flow and the $1.1 billion of cash and investments held at February 28, 2006, we do not presently anticipate the need to raise cash to fund our operations or our pending JBoss acquisition, either through the sale of additional equity or through the issuance of debt for the foreseeable future. However, we may take advantage of favorable capital market situations that may arise from time to time to raise additional capital.

We believe that cash flow from operations will continue to improve; however, there can be no assurances that we will improve our cash flow from operations from the current rate or that such cash flows will be adequate to fund other investments or acquisitions that we may choose to make. We may choose to accelerate the expansion of our business from our current plans, which may require us to raise additional funds through the sale of equity or debt securities or through other financing means. There can be no assurances that any such financing would occur in amounts or on terms favorable to us, if at all.

Off-balance sheet financing

We have no off-balance sheet financing arrangements and do not utilize any “structured debt”, “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

This excerpt taken from the RHT 10-Q filed Jan 9, 2006.

Liquidity and Capital Resources

 

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At November 30, 2005, we had total cash and investments of $1 billion, which is comprised of $181.9 million in cash and cash equivalents, $486.4 million of short-term, fixed-income investments and $331.8 million of long-term, fixed-income investments. This compares to total cash and investments of $928.8 million at February 28, 2005.

 

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We currently have sufficient liquidity with $181.9 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity dates. However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate. At November 30, 2005, we have an unrealized loss of $11.2 million on our investments in debt securities.

 

At November 30, 2005, cash and cash equivalents totaled $181.9 million, an increase of $33.9 million as compared to August 31, 2005. The increase in cash and cash equivalents resulted primarily from $54.1 million cash provided by operations and $8.3 million provided by financing activities. Partially offsetting these sources of cash were uses of cash including purchases of long-term investments of $20 million, purchases of property and equipment of approximately $4.4 million and net purchases of investment securities of approximately $1.9 million.

 

Cash provided by operations of $54.1 million in the three months ended November 30, 2005, includes net income of $23.2 million, adjusted to exclude the impact of non-cash revenues and expenses, which totaled a $7.4 million net source of cash. Changes in operating assets and liabilities were a net source of cash totaling $23.5 million primarily resulting from an increase in deferred revenue of $18.0 million, an increase in accrued expenses of $4.0 million and a decrease in accounts receivable and earnings in excess of billings of $3.0 million. These sources were partially offset by an increase of $1.7 million in prepaid and other current assets. The increase in deferred revenue is due to growth in billings and the nature by which we generally obtain payments from customers for subscriptions to our technologies in advance of the subscription period.

 

Cash used in investing activities of $26.6 million for the three months ended November 30, 2005 was primarily comprised of net purchases of other long-term investments of $20 million for our previously announced investment in Open Invention Network LLC, $4.4 million net purchases of property and equipment and $1.9 million net purchases of fixed income investment securities.

 

Cash provided by financing activities of $8.3 million for the three months ended November 30, 2005 was comprised of $7.0 million in proceeds from employees exercise of common stock options, $0.8 million proceeds from issuance of common stock due to employees purchases under the Employee Stock Purchase Plan and $0.6 million from other borrowings related to fixed asset purchases, partially offset by payments on such other borrowings of approximately $0.1 million.

 

In January 2004, we issued $600 million in convertible senior debentures, of which $570 million remains outstanding. The debentures mature on January 15, 2024 and bear interest at a rate of 0.5% per annum, payable semiannually on January 15 and July 15 of each year. The debentures are senior unsecured obligations and rank equally in right of payment with all of our other existing and future unsecured and un-subordinated debt. The debentures are convertible into shares of our common stock under certain circumstances prior to maturity at a conversion rate of 39.0753 shares per $1,000 principal amount of debentures (which represents a conversion price of approximately $25.59 per share), subject to adjustment under certain conditions. We may redeem the debentures, in whole or in part, in cash at any time on or after January 15, 2009. Holders of the debentures may require us to redeem the debentures, in whole or in part, in cash on January 15 of 2009, 2014 and 2019. As of November 30, 2005, no debentures were redeemed. Accrued interest to the redemption date will be paid by us in any such redemption. Accrued interest at November 30, 2005 was $1.1 million.

 

We have and will continue to utilize cash and investments to fund, among other potential uses, purchases of our common stock, purchases of our convertible debentures, purchases of fixed assets and mergers and acquisitions.

 

Given our strong operating cash flow and the $1 billion of cash and investments held at November 30, 2005, we do not presently anticipate the need to raise cash to fund our operations either through the sale of additional equity or through the issuance of debt for the foreseeable future. However, we may take advantage of favorable capital market situations that may arise from time to time to raise additional capital.

 

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We believe that cash flow from operations will continue to improve; however, there can be no assurances that we will improve our cash flow from operations from the current rate or that such cash flows will be adequate to fund other investments or acquisitions that we may choose to make. We may choose to accelerate the expansion of our business from our current plans, which may require us to raise additional funds through the sale of equity or debt securities or through other financing means. There can be no assurances that any such financing would occur in amounts or on terms favorable to us, if at all.

 

We have no off-balance sheet financing arrangements and do not utilize any “structured debt”, “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

 

This excerpt taken from the RHT 10-Q filed Oct 11, 2005.

Liquidity and Capital Resources

 

We have historically derived a significant portion of our liquidity and operating capital from the sale of equity securities, including private sales of preferred stock and the sale of common stock in our initial and secondary public offerings, the issuance of convertible debentures and borrowings under working capital lines of credit. At August 31, 2005, we had total cash and investments of $965.6 million, which is comprised of $148.1 million in cash and cash equivalents, $369.4 million of short-term, fixed-income investments and $448.1 million of long-term, fixed-income investments. This compares to total cash and investments of $928.8 million at February 28, 2005. At August 31, 2005, we have an unrealized loss of $9.9 million on our investments in debt securities. We currently have sufficient liquidity with $148.1 million in cash and cash equivalents on hand that we presently do not intend to liquidate our short and long-term investments prior to their scheduled maturity date.

 

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However, in the event that we did liquidate these investments prior to their scheduled maturities and there were no changes in market interest rates, we could be required to recognize a realized loss on those investments when we liquidate.

 

At August 31, 2005, cash and cash equivalents totaled $148.1 million, a decrease of $96.3 million as compared to May 31, 2005. The decrease in cash and cash equivalents resulted primarily from $118.1 million cash used in investing, primarily related to purchases of debt securities and $23.0 million cash used in financing activities, due primarily to repurchases of our 0.5% senior convertible debentures due 2024 and the Company’s common stock. These uses of cash were partially offset by $45.8 million of cash provided by operations.

 

Cash provided by operations of $45.8 million in the three months ended August 31, 2005, includes net income of $16.7 million, adjusted to exclude the impact of non-cash revenues and expenses, which totaled $4.7 million net source of cash. Changes in operating assets and liabilities were a net source of cash of $24.4 million primarily resulting from an increase in deferred revenue of $27.8 million and an increase in accrued expenses of $5.1 million, partially offset by an increase of $9.8 million in accounts receivable and earnings in excess of billings. The increase in deferred revenue is due to growth in billings and the nature by which we generally obtain payments from customers for subscriptions to our technologies in advance of the subscription period.

 

Cash used in investing activities of $118.1 million for the three months ended August 31, 2005 was primarily comprised of net purchases of fixed income investment securities of $110.8 million, purchases of property and equipment totaling $4.7 million and a required payment of $2.5 million under an earn-out provision related to an acquisition consummated in December 2004.

 

Cash used in financing activities of $23.0 million for the three months ended August 31, 2005 was primarily comprised of $18.1 million in purchases of convertible debentures and $11.6 million in purchases of the Company’s common stock pursuant to the previously announced expanded share repurchase program to acquire up to an aggregate of $250 million of our common stock and $50 million of our 0.5% senior convertible debentures due 2024, partially offset by proceeds from issuance of common stock due to employees exercise of stock options and purchases under the Employee Stock Purchase Plan totaling $6.2 million in the aggregate and other borrowings related to fixed asset purchases totaling $0.4 million.

 

In January 2004, we issued $600 million in convertible senior debentures, of which $570 million remains outstanding. The debentures mature on January 15, 2024 and bear interest at a rate of 0.5% per annum, payable semiannually on January 15 and July 15 of each year. The debentures are senior unsecured obligations and rank equally in right of payment with all of our other existing and future unsecured and unsubordinated debt. The debentures are convertible into shares of our common stock under certain circumstances prior to maturity at a conversion rate of 39.0753 shares per $1,000 principal amount of debentures (which represents a conversion price of approximately $25.59 per share), subject to adjustment under certain conditions. We may redeem the debentures, in whole or in part, in cash at any time on or after January 15, 2009. Holders of the debentures may require us to redeem the debentures, in whole or in part, in cash on January 15 of 2009, 2014 and 2019. As of August 31, 2005, no debentures were redeemed. Accrued interest to the redemption date will be paid by us in any such redemption. Interest payments of $1.5 million were made during the quarter ended August 31, 2005 and accrued interest at August 31, 2005 was $0.4 million. During the quarter ended August 31, 2005, the Company repurchased $20 million in face value of its 0.5% convertible senior debentures due 2024 at a cost of $18.1 million. The repurchased debentures were canceled pursuant to terms of the indenture and the $1.9 million difference in face value and the cost was recorded as other income in the Company’s Consolidated Income Statement, net of a $0.4 million write-off of deferred debt issuance costs related to the canceled debentures.

 

We have and will continue to utilize cash and investments to fund, among other potential uses, purchases of our common stock, purchases of our convertible debentures, purchases of fixed assets and mergers and acquisitions.

 

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Given our strong operating cash flow and the $965.6 million of cash and investments held at August 31, 2005, we do not presently anticipate the need to raise cash to fund our operations either through the sale of additional equity or through the issuance of debt for the foreseeable future. However, we may take advantage of favorable capital market situations that may arise from time to time to raise additional capital.

 

We believe that cash flow from operations will continue to improve; however, there can be no assurances that we will improve our cash flow from operations from the current rate or that such cash flows will be adequate to fund other investments or acquisitions that we may choose to make. We may choose to accelerate the expansion of our business from our current plans, which may require us to raise additional funds through the sale of equity or debt securities or through other financing means. There can be no assurances that any such financing would occur in amounts or on terms favorable to us, if at all.

 

We have no off-balance sheet financing arrangements and do not utilize any “structured debt”, “special purpose” or similar unconsolidated entities for liquidity or financing purposes.

 

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