RED HAT INC | 2013 | FY |

NOTE 14—Commitments and Contingencies

Operating leases

As of February 28, 2013, the Company leased office space and certain equipment under various non-cancelable operating leases. Future minimum lease payments required under the operating leases at February 28, 2013 are as follows (in thousands):

 

Fiscal Year		Operating Leases
2014		$	28,630
2015			25,316
2016			21,699
2017			18,117
2018			12,816
Thereafter			82,723
Total minimum lease payments		$	189,301

Rent expense under operating leases for the fiscal years ended February 28, 2013, February 29, 2012 and February 28, 2011 is provided in the following table (in thousands):

 

		Year Ended February 28, 2013				Year Ended February 29, 2012				Year Ended February 28, 2011
Total operating lease expense		$	26,830			$	24,434			$	22,973

Facility Exit Costs

In December 2011, the Company entered into an agreement to sublease a building in downtown Raleigh, North Carolina in which the Company’s headquarters are currently located. In connection with the transition to the Company’s new headquarters, the Company has endeavored to assign, sublease or otherwise dispose of its existing leases related to the two facilities that previously constituted the Company’s headquarters in Raleigh, North Carolina.

In May 2012, the Company entered into a sublease agreement with an unrelated third-party to lease one of the two facilities that previously constituted its headquarters. As a result, the Company has recognized a loss of $3.1 million for the year ended February 28, 2013 which represents the excess of the Company’s remaining obligation on the space over the agreed sublease income.

The Company will continue to market the remaining facility for sublease. However, to the extent the Company is unable to sublease or otherwise dispose of such space and recover the full amount of its remaining obligation, it will be required to recognize a loss at the date the Company ceases using this facility, currently estimated to be May 2013. At that time the Company’s loss, net of deferred rent credits, with respect to the remaining facility is expected to be approximately $4.8 million.

Amortization of related leasehold improvements has been accelerated to coincide with the Company’s exit from the two facilities. This change in estimated useful life resulted in incremental amortization expense of $2.9 million for the year ended February 28, 2013 and is included in general and administration expense on the Company’s Consolidated Statement of Operations.

 

Product Indemnification

The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify the other party from losses arising in connection with the Company’s services or products, or from losses arising in connection with certain events defined within a particular contract, which may include litigation or claims relating to intellectual property infringement, certain losses arising from damage to property or injury to persons or other matters. In each of these circumstances, payment by the Company is conditioned on the other party making a claim pursuant to the procedures specified in the particular contract, which procedures typically allow the Company to challenge the other party’s claims. Further, the Company’s obligations under these agreements may in certain cases be limited in terms of time and/or amount, and in some instances, the Company may have recourse against third-parties for certain payments made by the Company.

It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of the Company’s obligations and the facts and circumstances involved in each particular agreement. The Company does not record a liability for claims related to indemnification unless the Company concludes that the likelihood of a material claim is probable and estimable. Payments pursuant to these indemnification claims during the year ended February 28, 2013 were in the aggregate immaterial.