The Intelligent and Connected Enterprise
D E AR S HARE H O LD E RS ,
(cid:44)(cid:81)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:55)(cid:72)(cid:91)(cid:87)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:430)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
performance as we focused on principled and disciplined execution. During the year, we
transitioned OpenText to a recurring revenue business as our Annual Recurring Revenue
crossed $2 billion in Fiscal 2018. The OpenText team executed very well against our
Total Growth strategy, particularly as it relates to expanding our product and service
(cid:82)(cid:428)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:111)(cid:86)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:112)(cid:55)(cid:75)(cid:72)(cid:3)
Information Company,” enabling the Intelligent and Connected Enterprise and inspiring
new ways to work.
Very few software companies in the world have scaled to a multi-billion-dollar revenue level – OpenText is one of the
few to create such a global franchise. In Fiscal 2018, we were added to the S&P/TSX 60 Index, an index of 60 of the
most valued companies in Canada listed on the TSX. As a recognized top Canadian company, and as we continue to
grow our business and expand our value proposition, we believe that OpenText is increasingly considered a strategic
technology partner to our customers in the Global 10,000.
(cid:58)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:430)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)
Growth strategy, which focuses on growth through both acquisitions and organic activities. Key pillars within this
strategy include an intense focus on customer success and extending our reach to the Global 10,000 customers
through our partner network. The OpenText Business System is focused on growing shareholder value, and it is a
strategy that has proven to be successful over the long-term. The OpenText Business System is about combining
total growth with operational excellence. We focus our execution on key metrics, such as Annual Recurring Revenues
(cid:11)(cid:36)(cid:53)(cid:53)(cid:12)(cid:15)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:37)(cid:44)(cid:55)(cid:39)(cid:36)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:86)(cid:3)(cid:11)(cid:50)(cid:38)(cid:41)(cid:12)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:3)(cid:73)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:76)(cid:83)(cid:79)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)
capital allocation approach and provides the fuel for strategic acquisitions.
Our Vision: The Intelligent and Connected Enterprise
We have been accelerating our time to market for product innovations over the past few years and, as well, how we
connect customers to OpenText solutions. Organizations must use new technologies to unlock the power of
information, become more intelligent and connected, and drive engagement with customers, partners, and employees.
(cid:36)(cid:87)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:55)(cid:72)(cid:91)(cid:87)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:76)(cid:74)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:116)(cid:3)(cid:88)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:72)(cid:3)(cid:430)(cid:79)(cid:72)(cid:86)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)
employee information, to transactions and interactions along the supply chain, to information used to manage assets
such as planes, trains, automobiles, nuclear power plants, oil rigs, and to industry accelerators like IT and innovation
platforms.
Our comprehensive EIM product portfolio combines digital applications with an information platform, bringing together
Content Services, Security, the Business Network, the IoT, and the Developer for optimized customer experience,
(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:88)(cid:87)(cid:76)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:76)(cid:81)(cid:3)(cid:72)(cid:433)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:17)
Our Vision: The Intelligent and Connected Enterprise
Customer experience
Employee engagement
(cid:54)(cid:88)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:85)(cid:3)(cid:72)(cid:433)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)
EIM
applications
Asset utilization
Product innovations
E I M Suite
Intelligent
Information core
Automation & AI,
APIs & data
management
Content services
Security
EIM
platforms
Business Network
IoT, data integration
OpenText C l o u
d
SDK, Developer
With more information generated ever than before, Content Services manage the entire lifecycle of information—in its
many formats (including both structured and unstructured)—from creation through disposition.
(cid:55)(cid:75)(cid:72)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:55)(cid:72)(cid:91)(cid:87)(cid:3)(cid:40)(cid:44)(cid:48)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:82)(cid:428)(cid:72)(cid:85)(cid:86)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:16)(cid:79)(cid:72)(cid:89)(cid:72)(cid:79)(cid:15)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:16)(cid:85)(cid:82)(cid:79)(cid:72)(cid:15)(cid:3)(cid:80)(cid:88)(cid:79)(cid:87)(cid:76)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:91)(cid:87)(cid:3)Security. Information is secured at the database
level, by user enrolled security, context rights, and time-based security. EIM supports single sign-on for system
protection and encryption at rest for document-level security.
The OpenText Business Network supports intelligent connections at a global scale, with billions of transactions every
year and more than 600,000 trading partners, providing a proven foundation for digital business and secure e-commerce.
With our cloud-based Internet of Things (IoT) platform, the enterprise can dynamically build IoT solutions for greater
(cid:72)(cid:433)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:68)(cid:74)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:16)(cid:68)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:80)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:76)(cid:87)(cid:10)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:80)(cid:68)(cid:85)(cid:87)(cid:3)
machine, industrial machinery, an automotive or medical device.
The OpenText EIM platform expands its low-code development capabilities with additional out-of-the-box integrations
designed to support the Developer (cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:88)(cid:81)(cid:76)(cid:430)(cid:72)(cid:71)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)
OpenText EIM delivers the Intelligent and Connected Enterprise. Together with the OpenText Enterprise Cloud, it helps
(cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:69)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:430)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:89)(cid:68)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:3)(cid:72)(cid:81)(cid:71)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:80)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:44)(cid:82)(cid:55)(cid:15)(cid:3)(cid:86)(cid:87)(cid:68)(cid:92)(cid:3)(cid:68)(cid:75)(cid:72)(cid:68)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)
the regulatory technology curve, identify threats that cross their networks, leverage discovery with information forensics,
and gain insight and action through AI and automation.
ii
The Cloud
OpenText’s cloud business has grown from zero to over $800 million in just six years, as our customers and partners
accelerate cloud adoption. Supported by a global, scalable, and secure infrastructure, the OpenText Cloud includes a
foundational platform of technology services and packaged business applications for industry and business
processes, with comprehensive Managed Services at its core.
For almost three decades, our focus has been on empowering the world’s largest businesses to unlock the potential of
(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:55)(cid:82)(cid:71)(cid:68)(cid:92)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:430)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:86)(cid:72)(cid:79)(cid:89)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:432)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:17)(cid:3)(cid:3)(cid:38)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:79)(cid:72)(cid:74)(cid:68)(cid:79)(cid:15)(cid:3)(cid:79)(cid:76)(cid:73)(cid:72)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)
and public sector, for whom public-cloud deployments once seemed impossible, are now looking for a secure cloud
infrastructure to help manage their information.
Completing the Need: OpenText Enterprise Cloud
On Premise
Release 16
Private Cloud
Managed Services
Release 16
Public SaaS
Cloud
OT2
Business Network
Our customers operate in a “hybrid” world, and so do we. Hybrid is the destination, not a way point. Release 16 and
the EP series, together with the launch of OT2, complete the customers’ need for secure access to content in the
private cloud, the public SaaS cloud, or as a managed service. Based on this hybrid platform, Release 16 delivers the
most comprehensive EIM suite on the market. It supports hybrid workloads and deliver content applications and
(cid:85)(cid:82)(cid:69)(cid:88)(cid:86)(cid:87)(cid:3)(cid:86)(cid:72)(cid:70)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:74)(cid:72)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:74)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:17)(cid:3)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:55)(cid:72)(cid:91)(cid:87)(cid:3)(cid:50)(cid:55)(cid:21)(cid:15)(cid:3)(cid:68)(cid:3)(cid:432)(cid:72)(cid:91)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:40)(cid:44)(cid:48)(cid:3)
(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:86)(cid:76)(cid:80)(cid:83)(cid:79)(cid:76)(cid:430)(cid:72)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:428)(cid:72)(cid:85)(cid:86)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:74)(cid:85)(cid:72)(cid:68)(cid:87)(cid:72)(cid:85)(cid:3)(cid:432)(cid:72)(cid:91)(cid:76)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:40)(cid:44)(cid:48)(cid:3)(cid:86)(cid:88)(cid:76)(cid:87)(cid:72)(cid:3)
(cid:76)(cid:86)(cid:3)(cid:81)(cid:82)(cid:90)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:82)(cid:81)(cid:16)(cid:83)(cid:85)(cid:72)(cid:80)(cid:76)(cid:86)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:55)(cid:72)(cid:91)(cid:87)(cid:3)(cid:38)(cid:79)(cid:82)(cid:88)(cid:71)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:54)(cid:68)(cid:68)(cid:54)(cid:3)(cid:82)(cid:428)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:89)(cid:68)(cid:76)(cid:79)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:79)(cid:82)(cid:88)(cid:71)(cid:3)
with OpenText OT2.
iii
The Global 10,000 Customer Base
Our opportunity, as The Information Company, is to guide our customers’ transition to Intelligent and Connected
Enterprises. We focus on enabling the 10,000 largest companies and organizations in the world. OpenText sells to Global
10,000 customers in Retail, Government, Manufacturing, Automotive, Food/Beverage, Technology, Financial Services,
Insurance, Life Sciences, Healthcare & Pharmaceutical, Transportation, and Energy, Oil & Gas and Utilities, Logistics and
Engineering. Across all industries, organizations are using our solutions to solve their most complex business problems
— from Engagement, Capture, Content, and Process to Collaboration, Discover, Exchange, and Insight.
Employees
Our culture centers on two key words: People First. The alignment of our culture and strategy positions us to achieve
greater success. It starts with the hiring and developing the best talent in the industry, clear accountabilities, strong
relationships, an obsession over the customer, bias for action and ability to openly critique our assumptions and
progress. Software is a team sport.
Experienced Management Team
Mark J.
Barrenechea
Vice Chair,
CEO & CTO
Madhu
Ranganathan
EVP,
CFO
Muhi
Majzoub
EVP,
Engineering &
Cloud Services
Gordon A.
Davies
EVP, CLO &
Corporate
Development
(cid:54)(cid:76)(cid:80)(cid:82)(cid:81)(cid:3)(cid:112)(cid:55)(cid:72)(cid:71)(cid:113)(cid:3)
Harrison
EVP,
Worldwide
Sales
James
McGourlay
EVP,
Worldwide
Support
Paul
Duggan
SVP,
Worldwide
Operations
Kasey
Holman
SVP,
Communications
& Brand
David
Jamieson
SVP,
CIO
Prentiss
Donohue
SVP,
Professional
Services
Leslie
Sarauer
SVP,
Human
Resources
Patricia E.
Nagle
SVP,
Chief Marketing
(cid:50)(cid:433)(cid:70)(cid:72)(cid:85)
Our executive team has over 300 years of combined experience in the technology sector. I am very proud of the team’s
capabilities and the operational rigor, excellence and degree of collaboration which each member consistently brings to
the table. We each have a role to contribute, and we are outcome oriented.
The OpenText Business System
Focused on growing shareholder value, the OpenText Business System is a strategy that has proven successful over the
long term. You will see that our business system starts with total growth. We apply operational excellence methods and
(cid:87)(cid:82)(cid:82)(cid:79)(cid:86)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:80)(cid:72)(cid:87)(cid:85)(cid:76)(cid:70)(cid:86)(cid:15)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:36)(cid:53)(cid:53)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:73)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:76)(cid:83)(cid:79)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)
capital allocation approach and fuels strategic acquisitions where integration and value separate OpenText from others.
We then complete the circle in a well-formed strategy that brings us back to total growth. This is OpenText. This is what
we are centered on. This is how we work. We call this the OpenText Business System.
iv
The OpenText Business System
Optimize, Scale,
Market Leadership.
Integration.
Onboarding.
Strategic
Acquisitions
Source, Diligence,
Value Oriented
Total
Growth
The Information
Company
$100 Billion
Market
Acquisitions, Organic, Distribution.
Customer & Partner Success.
Emphasis on recurring revenues.
Customer Driven innovation.
Tools, System, Methods.
Operational
Excellence
Best Teams Win.
Dividends, ROIC
Disciplined
Capital
Allocation
Key
Metrics
ARR, Adj. EBITDA, OCF.
Continuous
Improvement.
Ultimately, the OpenText Business System is designed to drive shareholder value, and in particular, long-term
shareholder value. I’m pleased to report that over the last six years, this has helped drive a 206% increase in our
stock price on NASDAQ. This is a strong absolute performance, and it is a higher return as compared to NASDAQ’s
return of 156% over the same time period.
(1)
Fiscal 2018: Six Years of Proven Financial Performance
In Fiscal 2018, we generated $2.8 billion in total revenue with 23% year-over-year growth. We successfully
transitioned the business to Annual Recurring Revenue model, added $375 million of new ARR, and crossed the $2
billion in ARR threshold. We delivered over $1 billion in adjusted EBITDA, or 36% of total revenues, with 29% y/y
(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:26)(cid:20)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:3)(cid:25)(cid:21)(cid:8)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:16)(cid:82)(cid:89)(cid:72)(cid:85)(cid:16)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)(cid:3)(cid:3)(cid:50)(cid:83)(cid:72)(cid:81)(cid:55)(cid:72)(cid:91)(cid:87)(cid:3)
(cid:430)(cid:81)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:25)(cid:27)(cid:22)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:20)(cid:23)(cid:25)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:87)(cid:82)(cid:3)
our shareholders via dividends.
Fiscal 2018 was another proof point in the company’s long-term track record of delivering strong results via the
OpenText Business System. Over the last six years, the top line performance is nothing short of impressive - total
(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:81)(cid:3)(cid:20)(cid:22)(cid:22)(cid:8)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:21)(cid:17)(cid:27)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:36)(cid:53)(cid:53)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:81)(cid:3)(cid:21)(cid:20)(cid:23)(cid:8)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:21)(cid:17)(cid:20)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:70)(cid:79)(cid:82)(cid:88)(cid:71)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:74)(cid:82)(cid:81)(cid:72)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:93)(cid:72)(cid:85)(cid:82)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)
(cid:7)(cid:27)(cid:19)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:81)(cid:3)(cid:27)(cid:27)(cid:8)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:20)(cid:17)(cid:21)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:30)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:76)(cid:70)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:81)(cid:3)(cid:23)(cid:28)(cid:8)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:23)(cid:22)(cid:27)(cid:3)
(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:71)(cid:85)(cid:68)(cid:80)(cid:68)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:430)(cid:79)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:36)(cid:53)(cid:53)(cid:3)
and as we look ahead, we are focused on continuing to grow ARR as a percentage of our total revenue.
1. Source: NASDAQ
v
Key Metrics
ARR(1)
($US M)
Adj.
EBITDA
& Margin(2)
($US M)
(cid:50)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:86)
($US M)
$2,061
214%
$657
FY’12
FY’18
ARR
214% Growth
190%
$1,019
36.2%
$710
166%
$266
FY’18
FY’12
FY’18
$351
29.1%
FY’12
Adj. EBITDA(2)
190% Growth
OCF
166% Growth
(cid:3)
(cid:3)
(cid:20)(cid:17)(cid:3)(cid:36)(cid:53)(cid:53)(cid:3)(cid:115)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:70)(cid:88)(cid:85)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:430)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:88)(cid:80)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:82)(cid:88)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:70)(cid:85)(cid:76)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:17)
(cid:21)(cid:17)(cid:3)(cid:51)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:86)(cid:72)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:81)(cid:70)(cid:76)(cid:79)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:87)(cid:82)(cid:3)(cid:49)(cid:82)(cid:81)(cid:16)(cid:42)(cid:36)(cid:36)(cid:51)(cid:3)(cid:80)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:3)(cid:47)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:75)(cid:76)(cid:86)(cid:87)(cid:82)(cid:85)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:430)(cid:79)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:3)(cid:20)(cid:19)(cid:52)(cid:3)(cid:9)(cid:3)(cid:20)(cid:19)(cid:46)
In addition to driving total growth, the OpenText Business System is focused on operational excellence, and that
(cid:80)(cid:72)(cid:68)(cid:81)(cid:86)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:88)(cid:72)(cid:79)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:17)(cid:3)(cid:3)(cid:50)(cid:89)(cid:72)(cid:85)(cid:3)
the last six years, we have expanded our adjusted EBITDA margin from 29% to 36%, which, combined with our
(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:83)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:86)(cid:70)(cid:68)(cid:79)(cid:72)(cid:15)(cid:3)(cid:79)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:25)(cid:25)(cid:8)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:7)(cid:26)(cid:19)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:17)
Successful M&A Strategy Continues
Mergers and Acquisitions (M&A) remains an important component of our Total Growth strategy. We have a proven
track record of acquiring and integrating companies, and view this as a core competency of OpenText and a major
competitive advantage. This year we completed the largest integration in our history, following our acquisition of
ECD/Documentum from Dell EMC in Fiscal 2017. In Fiscal 2018, we closed three acquisitions, Covisint, Guidance
Software and Hightail, further expanding our market into IoT and end-point security.
Covisint is a leading cloud platform for building digital identity management, Internet of Things (IoT) applications,
automotive transportation supply chains, and B2B collaboration that we believe are at the heart of today’s digital
revolution where extreme connectivity, automation, and computing are converging. The acquisition of Covisint
enables our customers to be digital leaders and to unlock the value of their information through automation, analytics,
(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:87)(cid:76)(cid:430)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:79)(cid:79)(cid:76)(cid:74)(cid:72)(cid:81)(cid:70)(cid:72)(cid:17)
Guidance is a leading provider of forensic security solutions, that includes digital discovery solutions and endpoint
information security. The acquisition of Guidance Software broadens the OpenText Discovery portfolio through
industry leading digital investigation, forensic security, and data risk management solutions.
vi
(cid:43)(cid:76)(cid:74)(cid:75)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:79)(cid:82)(cid:88)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:72)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:430)(cid:79)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:85)(cid:72)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:82)(cid:79)(cid:79)(cid:68)(cid:69)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:3)(cid:41)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:78)(cid:81)(cid:82)(cid:90)(cid:81)(cid:3)(cid:68)(cid:86)(cid:3)(cid:60)(cid:82)(cid:88)(cid:54)(cid:72)(cid:81)(cid:71)(cid:44)(cid:87)(cid:15)(cid:3)
Hightail had approximately 5.5 million customers globally spanning enterprise accounts, paid subscribers, and
(cid:76)(cid:81)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:88)(cid:68)(cid:79)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:43)(cid:76)(cid:74)(cid:75)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:70)(cid:82)(cid:85)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:79)(cid:76)(cid:89)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:76)(cid:428)(cid:72)(cid:85)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)
solutions in the cloud that enable marketers and creative professionals to share, produce, and securely collaborate on
digital content.
(cid:55)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:86)(cid:70)(cid:76)(cid:83)(cid:79)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:68)(cid:70)(cid:75)(cid:3)(cid:87)(cid:82)(cid:3)(cid:48)(cid:9)(cid:36)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:79)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:3)
(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:430)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:72)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:3)
Looking Ahead
As we begin Fiscal 2019, I have never felt better about OpenText’s future. As we execute against our total growth
strategy, we believe we are well positioned to continue generating organic growth in a healthy economic environment.
We are addressing some of the most strategic categories in the overall technology landscape, including our new
products in cloud, security, business networks, content services and AI. Products alone are not enough, we have a
global sales organization that are highly focused, and we extend our reach by building on our existing network of
(cid:76)(cid:81)(cid:432)(cid:88)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:3)
(cid:47)(cid:82)(cid:82)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:75)(cid:72)(cid:68)(cid:71)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:69)(cid:68)(cid:81)(cid:71)(cid:90)(cid:76)(cid:71)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:430)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:48)(cid:9)(cid:36)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:92)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)
(cid:72)(cid:91)(cid:70)(cid:72)(cid:79)(cid:79)(cid:72)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:71)(cid:72)(cid:16)(cid:79)(cid:72)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:68)(cid:79)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:86)(cid:75)(cid:72)(cid:72)(cid:87)(cid:3)(cid:87)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:432)(cid:82)(cid:90)(cid:3)(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:82)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
net debt leverage ratio exiting Fiscal 2018 at less than half of our debt covenant level. We are ready to execute on
(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:430)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:85)(cid:76)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:17)(cid:3)
(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:82)(cid:83)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:433)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
committed to continued margin expansion to meet our Fiscal 2021 aspirational targets. From sales and support to
engineering and consulting, our 12,000 colleagues believe deeply in our purpose as “The Information Company,” and
they are deeply passionate in helping our customers unlock their potential through information. With a robust market
strategy and compelling roadmap to drive growth and customer adoption, I believe the best days are still ahead for
OpenText. We are energized and ready to go.
On behalf of the Board of Directors, the OpenText Executive Leadership Team, and all of our employees worldwide,
(cid:87)(cid:75)(cid:68)(cid:81)(cid:78)(cid:3)(cid:92)(cid:82)(cid:88)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:430)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:17)
Sincerely,
Mark J. Barrenechea, Vice Chair, CEO & CTO
vii
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this Annual Report, including statements about the focus of Open Text Corporation (“OpenText” or “the
Company”) in our fiscal year ending June 30, 2018 (Fiscal 2018) on growth in earnings and cash flows, creating value through
investments in broader Enterprise Information Management (EIM) capabilities, distribution, the Company's presence in the cloud
and in growth markets, expected growth in our revenue lines, total growth from acquisitions, innovation and organic initiatives,
and distribution expansion, the focus on recurring revenues, improving efficiency, expanding cash flow and strengthening the
business, adjusted operating income and cash flow, its financial condition, the adjusted operating margin target range, results of
operations and earnings, announced acquisitions, ongoing tax matters, the integration of the acquired businesses, expected
timing, charges and savings related to restructuring activities, declaration of quarterly dividends, future tax rates, new platform
and product offerings, scaling OpenText to new levels in Fiscal 2019 and beyond, the anticipated size, benefits and timing related
to our restructuring plan, and other matters, may contain words such as "anticipates", "expects", "intends", "plans", "believes",
"seeks", "estimates", "may", "could", "would", "might", "will" and variations of these words or similar expressions are considered
forward-looking statements or information under applicable securities laws. In addition, any information or statements that refer
to expectations, beliefs, plans, projections, objectives, performance or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking, and based on our current expectations, forecasts and projections
about the operating environment, economies and markets in which we operate. Forward-looking statements reflect our current
estimates, beliefs and assumptions, which are based on management's perception of historic trends, current conditions and
expected future developments, as well as other factors it believes are appropriate in the circumstances, such as certain
assumptions about the economy, as well as market, financial and operational assumptions. Management's estimates, beliefs and
assumptions are inherently subject to significant business, economic, competitive and other uncertainties and contingencies
regarding future events and, as such, are subject to change. We can give no assurance that such estimates, beliefs and
assumptions will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other
factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors
include, but are not limited to: (i) the future performance, financial and otherwise, of OpenText; (ii) the ability of OpenText to bring
new products and services to market and to increase sales; (iii) the strength of the Company's product development pipeline; (iv)
the Company's growth and profitability prospects; (v) the estimated size and growth prospects of the EIM market including
expected growth in the Artificial Intelligence market; (vi) the Company's competitive position in the EIM market and its ability to
take advantage of future opportunities in this market; (vii) the benefits of the Company's products and services to be realized by
customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products
and services in the EIM marketplace; (ix) downward pressure on our share price and dilutive effect of future sales or issuances of
equity securities (including in connection with future acquisitions); (x) the Company's financial condition and capital requirements;
and (xi) statements about the impact of product releases. The risks and uncertainties that may affect forward-looking statements
include, but are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of
restructuring charges and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with
acquisitions and the impact on the ratings or outlooks of rating agencies on the Company's outstanding debt securities; (iii) the
possibility that the Company may be unable to meet its future reporting requirements under the U.S. Securities Exchange Act of
1934, as amended, and the rules promulgated thereunder, or applicable Canadian securities regulation; (iv) the risks associated
with bringing new products and services to market; (v) failure to comply with privacy laws and regulations that are extensive, open
to various interpretations and complex to implement including General Data Protection Regulation (GDPR) and Country by
Country Reporting (CBCR); (vi) fluctuations in currency exchange rates; (vii) delays in the purchasing decisions of the Company's
customers; (viii) the competition the Company faces in its industry and/or marketplace; (ix) the final determination of litigation, tax
audits (including tax examinations in the United States and elsewhere) and other legal proceedings; (x) potential exposure to
greater than anticipated tax liabilities or expenses, including with respect to changes in Canadian, U.S. or international tax regimes
including the new tax reform legislation enacted through the Tax Cuts and Jobs Act in the United States; (xi) the possibility of
technical, logistical or planning issues in connection with the deployment of the Company's products or services; (xii) the
continuous commitment of the Company's customers; and (xiii) demand for the Company's products and services. For additional
information with respect to risks and other factors which could occur, see the Company's Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and other securities filings with the Securities and Exchange Commission (SEC) and other securities
regulators. Readers are cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of
the date made. Unless otherwise required by applicable securities laws, the Company disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
viii
Notes:
(1)
All dollar amounts in this letter are in U.S. Dollars unless otherwise indicated.
(2) Use of Non-GAAP Financial Measures
In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures that are not in
accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that they do not have a standardized
meaning and thus the Company's definition may be different from similar Non-GAAP financial measures used by other companies and/or
analysts and may differ from period to period. Thus it may be more difficult to compare the Company's financial performance to that of other
companies. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items
excluded in the calculation of these Non-GAAP financial measures both in its reconciliation to the U.S. GAAP financial measures and its
Consolidated Financial Statements, all of which should be considered when evaluating the Company's results.
The Company uses these Non-GAAP financial measures to supplement the information provided in its Consolidated Financial
Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures are not meant to be a
substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated in conjunction with and as a
supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its financial information in its entirety and not to
rely on a single financial measure. The Company therefore believes that despite these limitations, it is appropriate to supplement the
disclosure of the U.S. GAAP measures with certain Non-GAAP measures defined below.
Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are calculated as GAAP-based net income or
earnings per share, attributable to OpenText, on a diluted basis, after giving effect to the amortization of acquired intangible assets, other
income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any tax benefits/expense items unrelated to
current period income, as further described in the tables below. Non-GAAP-based gross profit is the arithmetical sum of GAAP-based gross
profit and the amortization of acquired technology-based intangible assets and share-based compensation within cost of sales. Non-GAAP-
based gross margin is calculated as Non-GAAP-based gross profit expressed as a percentage of total revenue. Non-GAAP-based income
from operations is calculated as GAAP-based income from operations, excluding the amortization of acquired intangible assets, Special
charges (recoveries), and share-based compensation expense. Non-GAAP-based operating margin is calculated as Non-GAAP-based income
from operations expressed as a percentage of total revenue.
Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is calculated as GAAP-based net
income, attributable to OpenText excluding interest income (expense), provision for income taxes, depreciation and amortization of acquired
intangible assets, other income (expense), share-based compensation and Special charges (recoveries).
The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides useful
information to investors because they portray the financial results of the Company before the impact of certain non-operational charges. The
use of the term “non-operational charge” is defined for this purpose as an expense that does not impact the ongoing operating decisions
taken by the Company's management. These items are excluded based upon the way the Company's management evaluates the
performance of the Company's business for use in the Company's internal reports and are not excluded in the sense that they may be used
under U.S. GAAP.
The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-GAAP measures,
which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that are primarily related to
acquisitions, will provide readers of financial statements with a more consistent basis for comparison across accounting periods and be more
useful in helping readers understand the Company’s operating results and underlying operational trends. Additionally, the Company has
engaged in various restructuring activities over the past several years that have resulted in costs associated with reductions in headcount,
consolidation of leased facilities and related costs, all which are recorded under the Company’s “Special Charges (recoveries)” caption on the
Consolidated Statements of Income. Each restructuring activity is a discrete event based on a unique set of business objectives or
circumstances, and each differs in terms of its operational implementation, business impact and scope, and the size of each restructuring
plan can vary significantly from period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will
also better aid readers of financial statements in the understanding and comparability of the Company's operating results and underlying
operational trends.
In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the operational and
financial performance of the Company's core business using the same evaluation measures that management uses, and is therefore a useful
indication of OpenText's performance or expected performance of future operations and facilitates period-to-period comparison of operating
performance (although prior performance is not necessarily indicative of future performance). As a result, the Company considers it
appropriate and reasonable to provide, in addition to U.S. GAAP measures, supplementary Non-GAAP financial measures that exclude certain
items from the presentation of its financial results.
See historical filings, including the Company’s Annual Reports on Form 10-K, for reconciliations of certain Non-GAAP measures to U.S.
GAAP-based financial measures.
ix
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
___________________________
FORM 10-K
___________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2018.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-27544
______________________________________
OPEN TEXT CORPORATION
(Exact name of Registrant as specified in its charter)
______________________________________
Canada
98-0154400
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
275 Frank Tompa Drive,
Waterloo, Ontario, Canada
(Address of principal executive offices)
N2L 0A1
(Zip code)
Registrant's telephone number, including area code: (519) 888-7111
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock without par value
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
______________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
No
No
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulations S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Smaller reporting company
Accelerated filer
Emerging growth company
(Do not check if smaller reporting company)
Non-accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Aggregate market value of the Registrant's Common Shares held by non-affiliates, based on the closing price of the Common Shares as reported by the
No
NASDAQ Global Select Market (“NASDAQ”) on December 31, 2017, the end of the registrant's most recently completed second fiscal quarter, was
approximately $9.3 billion. The number of the Registrant's Common Shares outstanding as of July 31, 2018 was 267,846,320.
None.
1
DOCUMENTS INCORPORATED BY REFERENCE
OPEN TEXT CORPORATION
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operation
Part I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Part II
Item 5
Item 6
Item 7
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Part III
Item 10
Item 11
Item 12
Item 13
Item 14
Part IV
Item 15
Item 16
Signatures
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page No
3
11
26
26
27
27
28
32
33
66
67
67
68
70
76
101
103
104
105
157
158
2
Part I
Forward-Looking Statements
In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as
amended (the Exchange Act), and Section 27A of the U.S. Securities Act of 1933, as amended (the Securities Act), and is
subject to the safe harbors created by those sections. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”,
“seeks”, “estimates”, “may”, “could”, “would”, “might”, “will” and variations of these words or similar expressions are
intended to identify forward-looking statements. In addition, any statements that refer to expectations, beliefs, plans,
projections, objectives, performance or other characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements, and are based on our current expectations, forecasts and projections about the
operating environment, economies and markets in which we operate. Forward-looking statements reflect our current estimates,
beliefs and assumptions, which are based on management’s perception of historic trends, current conditions and expected future
developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are
based on certain assumptions including the following: (i) countries continuing to implement and enforce existing and additional
customs and security regulations relating to the provision of electronic information for imports and exports; (ii) our continued
operation of a secure and reliable business network; (iii) the stability of general political, economic and market conditions,
currency exchange rates, and interest rates; (iv) equity and debt markets continuing to provide us with access to capital; (v) our
continued ability to identify and source attractive and executable business combination opportunities, as well as our ability to
continue to successfully integrate any such opportunities, including in accordance with the expected timeframe and/or cost
budget for such integration; and (vi) our continued compliance with third party intellectual property rights. These forward-
looking statements involve known and unknown risks as well as uncertainties, including those discussed herein and in the
Notes to Consolidated Financial Statements for the year ended June 30, 2018, which are set forth in Part II, Item 8 of this
Annual Report. The actual results that we achieve may differ materially from any forward-looking statements, which reflect
management's current expectations and projections about future results only as of the date hereof. We undertake no obligation
to revise or publicly release the results of any revisions to these forward-looking statements. A number of factors may
materially affect our business, financial condition, operating results and prospects. These factors include, but are not limited to,
those set forth in Part I, Item 1A “Risk Factors” and elsewhere in this Annual Report as well as other documents we file from
time to time with the United States Securities and Exchange Commission (the SEC). Any one of these factors may cause our
actual results to differ materially from recent results or from our anticipated future results. You should not rely too heavily on
the forward-looking statements contained in this Annual Report on Form 10-K because these forward-looking statements are
relevant only as of the date they were made.
Item 1.
Business
Open Text Corporation was incorporated on June 26, 1991. References herein to the “Company”, “OpenText”, “we” or
“us” refer to Open Text Corporation and, unless context requires otherwise, its subsidiaries. Our principal office is located at
275 Frank Tompa Drive, Waterloo, Ontario, Canada N2L 0A1, and our telephone number at that location is (519) 888-7111.
Our internet address is www.opentext.com. Our website is included in this Annual Report on Form 10-K as an inactive textual
reference only. Except for the documents specifically incorporated by reference into this Annual Report, information contained
on our website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered to be a part
of this Annual Report. Throughout this Annual Report on Form 10-K: (i) the term "Fiscal 2019" means our fiscal year
beginning on July 1, 2018 and ending June 30, 2019; (ii) the term “Fiscal 2018” means our fiscal year beginning on July 1,
2017 and ended June 30, 2018; (iii) the term “Fiscal 2017” means our fiscal year beginning on July 1, 2016 and ended June 30,
2017; (iv) the term “Fiscal 2016” means our fiscal year beginning on July 1, 2015 and ended June 30, 2016; and (v) the term
“Fiscal 2015” means our fiscal year beginning on July 1, 2014 and ended June 30, 2015. Our Consolidated Financial
Statements are presented in U.S. dollars and, unless otherwise indicated, all amounts included in this Annual Report on Form
10-K are expressed in U.S. dollars.
Business Overview and Strategy
What We Do: About OpenText
We operate in the Enterprise Information Management (EIM) market where we enable the intelligent and connected
enterprise. We develop enterprise software to support businesses in becoming digital businesses and governments in becoming
digital governments. The OpenText comprehensive EIM platform and suite of software products and services provide secure
and scalable solutions for global companies and governments around the world. With our software, organizations manage a
valuable asset - information. Information that is made more valuable by connecting it to digital business processes, information
that is protected and secure throughout its entire lifecycle, information that captivates customers, and information that connects
3
and fuels some of the world's largest digital supply chains in manufacturing, retail, and financial services. With Artificial
Intelligence (AI) from OpenText, our customers leverage their information for automation, insights, predictions, and ultimately
better decision making.
We offer software through traditional on-premises solutions, cloud solutions or a combination of both. We believe our
customers will operate in hybrid on-premises and cloud environments, and we are ready to support the delivery method the
customer prefers. In providing choice and flexibility, we strive to maximize the lifetime value of the relationship with our
customers.
What We Offer: Our Products and Services Overview
At its core, the OpenText EIM suite is about enabling the Intelligent and Connected Enterprise with automation, AI,
application programming interfaces (APIs), and data management designed into its intelligent information core. These
capabilities bring together information from both humans and machines, where it can be securely managed, stored and accessed
and mined with analytics for actionable and relevant insights.
Our comprehensive EIM product portfolio combines digital applications with an information platform, bringing
together Content Services, Security, the Business Network, the Internet of Things ( IoT), and the Developer for optimized
customer experience, employee engagement, asset utilization, and supply chain efficiency.
Content Services such as Extended Enterprise Content Management (ECM) and records management integrate with
platforms, such as SAP and manage the entire lifecycle of information, in its many formats, from creation through to
disposition.
The OpenText EIM platform offers multi-level, multi-role, multi context security to make it one of the most secure
information platforms in the world. Information is secured at the database level, by user enrolled security, context rights, and
time-based security. EIM supports single sign-on for system protection and encryption at rest for document-level security.
The OpenText Business Network supports intelligent connections at a global scale providing a proven foundation for
digital business and secure e-commerce.
With our cloud-based IoT platform, the enterprise can dynamically integrate multi-tiered supply chain communities and
build IoT solutions for greater efficiency, agility, and new value-added services. Information from machines is supported,
whether it's a smart machine, industrial machinery, or an automotive or medical device.
The developer is critical to the development of secure-from-day-1 applications. The OpenText EIM platform expands its
low-code development capabilities with additional out-of-the-box integrations designed to support the developer with a unified
application development environment.
At OpenText, we follow the unstructured content from customer information and case files, to employee information,
transactions and interactions along the supply chain, to information used to manage assets such as planes, trains, automobiles,
nuclear power plants, and oil rigs, to industry accelerators like IT and innovation platforms.
4
To simplify consumption and offer our customers greater flexibility, our EIM suite is available on-premises, in the
OpenText Cloud, or as a software as a service (SaaS) offering.
Designed to fulfill on our vision of the “Intelligent and Connected Enterprise”, OpenText EIM enables organizations to
secure their most valuable asset - information so that they can collaborate with confidence, validate endpoints with all machines
and the IoT, stay ahead of the regulatory technology curve, identify threats that cross their networks, leverage discovery with
information forensics, and gain insight and action through AI and automation.
Our portfolio is comprised of capabilities in the following areas:
Content Services
Part of the OpenText EIM platform, OpenText™ Content Services help organizations connect content to their Digital
Business to improve process productivity, personal productivity, and control. Additionally, OpenText Content Services adhere
to the Content Management Interoperability Services (CMIS) standard and support a broad range of operating systems,
databases, application servers, and enterprise applications. Our Content Services are available on-premises, as a subscription in
our cloud or as a managed service.
Digital Process Automation (DPA)
Our DPA enables organizations to transform into digital, data-driven businesses through automation. Our DPA solutions
simplify and streamline processes from front office to back office with intelligent automation, artificial intelligence and ready
access to valuable enterprise information.
Customer Experience Management (CEM)
CEM is a set of processes used to track customer interactions throughout the customer journey. The purpose of CEM is to
gain insight into these customer interactions and optimize them to drive loyalty and improve customer lifetime value. Our CEM
platform suite offers a set of CEM solutions and extensions that focus on delivering highly personalized content and customer
engagement along a continuous customer journey. Our CEM suite also helps provide a solid foundation for implementing a
successful customer experience strategy.
Discovery
Our Discovery suite provides leading forensics and unstructured data analytics for searching, collecting, and investigating
enterprise data to manage legal obligations and risk. Our Discovery suite has powerful machine learning capabilities to help
legal and compliance teams quickly find critical information for litigation discovery, investigations, compliance, data breach
response, business projects, and financial contract analysis. Users can conduct discreet, forensically-sound data collections
from networks, endpoints, and mobile devices without disrupting day-to-day business.
Business Network (BN)
Our BN is a set of solutions within EIM that facilitate efficient, secure and compliant exchange of information inside and
outside of organizations. Our BN delivers a comprehensive product set that accelerates time to transaction. It integrates
messaging and business-to-business (B2B) integration services such as secure mail, large file transfer, fax and electronic data
interchange (EDI) within a single platform, enabling "any-to-any" transactions. Our BN also enables businesses to accelerate
and control how information is delivered which we believe increases the security and reliability of sensitive or complex
communications.
Analytics
Our Analytics suite helps organizations improve decision-making, gain operational efficiency and increase visibility by
enabling Information Technology (IT) to place interactive dashboards, reports and data visualizations quickly into the hands of
business users. Our Analytics suite aims to help organizations leverage all their data, whether it be structured data or
unstructured data, to help organizations increase their opportunities for growth.
Security
EnCase is a leading forensic security and automated cyber risk management software service that offers deep, 360-degree
visibility across all endpoints, devices and networks, allowing proactive identification and remediation of threats.
5
Our Strategy
Growth
As an organization, our management believes in delivering “Total Growth”, which is to say we strive towards delivering
value through acquisitions, innovations and organic initiatives, as well as financial performance. This growth is further
enhanced through our direct and indirect sales distribution channels. With an emphasis on increasing recurring revenues and
expanding our margins, we believe our “Total Growth” strategy will ultimately drive overall cash flow generation, thus helping
to fuel our disciplined capital allocation approach and further drive our ability to continue identifying and executing strategic
acquisitions (and subsequently successfully integrating such acquisitions into our business). We believe this “Total Growth”
strategy will create shareholder value over both the near and long-term.
We remain a value oriented and disciplined acquirer and consolidator, having efficiently deployed $5.8 billion on
acquisitions over the last 10 years. Mergers and acquisitions is one of our leading growth drivers and similar to high-
performing conglomerates, we create value by focusing on acquiring and integrating businesses. We have developed a
philosophy, which we refer to as “The OpenText Business System”, that is designed to create value by leveraging a clear set of
operational mandates for integrating newly acquired companies and assets. We see our ability to successfully integrate acquired
companies and assets into our business as a strength and pursuing strategic acquisitions is an important aspect to our Total
Growth strategy. In Fiscal 2018, we further demonstrated the implementation of our strategy by acquiring Covisint Corporation
(Covisint), Guidance Software, Inc. (Guidance) and Hightail, Inc. (Hightail). We regularly evaluate acquisition opportunities on
an ongoing basis and at any time may be at various stages of discussion with respect to such opportunities. For additional
details on our acquisitions, please see "Acquisitions During the Last Five Fiscal Years", elsewhere in Item 1 of this Annual
Report on Form 10-K.
While acquiring companies is one of our leading growth drivers, our growth strategy also includes organic growth
through continuous innovation. We believe we create sustained value through new innovation by expanding distribution and
continually adding value to our installed base of customers. Over the last three fiscal years, we have invested a cumulative total
of approximately $799.2 million in research and development (R&D) or approximately 11.5% of cumulative revenue for such
three year period and we typically target to spend approximately 11% to 13% of revenues for R&D each fiscal year. We believe
our ability to leverage our global presence is helpful to our ability to grow organically.
As we have continued to invest in R&D and acquisitions, we have internally developed an AI platform called “OpenText
Magellan” (Magellan). Magellan incorporates Apache Spark, the powerful, open source computing foundation that lets
customers take advantage of the flexibility, extensibility, and diversity of an open product stack while maintaining full
ownership of their data and algorithms. As our enterprise software has historically been focused on managing data and content
archives, we believe we are well positioned to turn these archives of data into active “data lakes” and we believe we can
develop AI to transform this digital information into useful knowledge and insight for our customers.
We have also developed a platform called OpenText Release 16 (Release 16), which was released in April 2016. Release
16 helps organizations with their digital transformation by digitizing information, experiences, processes and supply chains, to
create a better way to work within their enterprise. Release 16 also has a major focus on analysis and reporting across all
product lines and use cases. It offers customers a coordinated platform for digital transformation that is intended to yield the
benefits of scale and single-vendor interaction. We have made significant investments to our cloud infrastructure over the past
couple of years, and now with Release 16, virtually all of our products are available in the "OpenText Cloud". Over the past
year, OpenText has released Enhancement Packs (EP3 and EP4) to further address customer and market requirements.
We see a continued opportunity to help our customers become “digital businesses” and, with Magellan and Release 16 as
well as our recent acquisitions and continued efforts in R&D, we believe we have a strong platform to integrate personalized
analytics and insights into our OpenText EIM suites of products, which will further our vision to “Empower the Intelligent and
Connected Enterprise” and strengthen our position as a leader in EIM.
Looking Towards the Future
In Fiscal 2019 we intend to continue to implement strategies that are designed to:
Broaden Our Reach into EIM, B2B Integration, Analytics, Discovery, and the Cloud. As technologies and customers
become more sophisticated, we intend to be a leader in expanding the definition of traditional market sectors. We have been a
leader in investing in adjacent markets through acquisitions that have provided us with the technology to accelerate our time to
market and increase our scale. We have also invested in technologies to address the growing influence of analytics and social,
mobile, and cloud platforms on corporate information.
Deepen Existing Customer Footprint. We believe one of our greatest opportunities is to sell newly acquired technologies
to our existing customer base, and cross-sell historical OpenText products to newly acquired customers. We have significant
6
expertise in a number of industry sectors and aim to increase our customer penetration based on our strong credentials. We are
particularly focused on circumstances where the customer is looking to consolidate multiple vendors with solutions from a
single source while addressing a broader spectrum of business problems or equally new or existing customers looking to take a
more holistic approach to digital transformation.
Invest in Technology Leadership. We believe we are well-positioned to develop additional innovative solutions to address
the evolving market. We plan to continue investing in technology “innovation” by funding internal development as well as
collaborating with third-parties.
Deepen Strategic Partnerships. OpenText is committed culturally, programmatically and strategically to being a partner-
embracing company. Our partnerships with companies such as SAP SE, Microsoft Corporation, Oracle Corporation,
Salesforce.com Corporation, Accenture plc, Deloitte Consulting LLP and others serve as an example of how we are working
together with our partners to create next-generation EIM solutions and deliver them to market. We will continue to look for
ways to create more customer value from our strategic partnerships.
Broaden Global Presence. As customers become increasingly multi-national and as international markets continue to
adopt EIM, we plan to further grow our brand, presence, and partner networks in these new markets. We are focused on using
our direct sales for targeting existing customers and plan to address new geographies jointly with our partners.
Selectively Pursue Acquisitions. We expect to continue to pursue strategic acquisitions in the future to strengthen our
service offerings in the EIM market. In light of the continually evolving marketplace in which we operate, on an ongoing basis
we regularly evaluate acquisition opportunities within the EIM market and at any time may be in various stages of discussions
with respect to such opportunities. We plan to continue to pursue acquisitions that complement our existing business, represent
a strong strategic fit and are consistent with our overall growth strategy and disciplined financial management. We may also
target future acquisitions to expand or add functionality and capabilities to our existing portfolio of solutions, as well as add
new solutions to our portfolio.
OpenText Revenues
Our business consists of four revenue streams: license, cloud services and subscriptions, customer support, and
professional service and other. For information regarding our revenues and assets by geography for Fiscal 2018, Fiscal 2017
and Fiscal 2016, see note 19 “Segment Information” in the Notes to Consolidated Financial Statements included in Item 8 to
this Annual Report on Form 10-K.
License
License revenues consist of fees earned from the licensing of software products to our customers. Our license revenues
are impacted by the strength of general economic and industry conditions, the competitive strength of our software products,
and our acquisitions. The decision by a customer to license our software products often involves a comprehensive
implementation process across the customer’s network or networks and the licensing and implementation of our software
products may entail a significant commitment of resources by prospective customers.
Cloud Services and Subscriptions
Cloud services and subscription revenues consist of (i) SaaS offerings (ii) managed service arrangements and (iii)
subscription revenues relating to on premise offerings. These offerings allow customers to transmit a variety of content between
various mediums and to securely manage enterprise information without the commitment of investing in related hardware
infrastructure.
In addition, we offer B2B integration solutions, such as messaging services, and managed services. Messaging services
allow for the automated and reliable exchange of electronic transaction information, such as purchase orders, invoices,
shipment notices and other business documents, among businesses worldwide. Managed services provide an end-to-end fully
outsourced B2B integration solution to our customers, including program implementation, operational management, and
customer support. These services enable customers to effectively manage the flow of electronic transaction information with
their trading partners and reduce the complexity of disparate standards and communication protocols.
Customer Support
The first year of our customer support offering is usually purchased by customers together with the license of our EIM
software products. Customer support is typically renewed on an annual basis and historically customer support revenues have
been a significant portion of our total revenue. Through our OpenText customer support programs, customers receive access to
software upgrades, a knowledge base, discussions, product information, and an online mechanism to post and review “trouble
tickets”. Additionally, our customer support teams handle questions on the use, configuration, and functionality of OpenText
7
products and can help identify software issues, develop solutions, and document enhancement requests for consideration in
future product releases.
Professional Service and Other
We provide consulting and learning services to customers and generally these services relate to the implementation,
training and integration of our licensed product offerings into the customer's systems.
Our consulting services help customers build solutions that enable them to leverage their investments in our technology
and in existing enterprise systems. The implementation of these services can range from simple modifications to meet specific
departmental needs to enterprise applications that integrate with multiple existing systems.
Our learning services consultants analyze our customers' education and training needs, focusing on key learning
outcomes and timelines, with a view to creating an appropriate education plan for the employees of our customers who work
with our products. Education plans are designed to be flexible and can be applied to any phase of implementation: pilot, roll-
out, upgrade or refresher. OpenText learning services employ a blended approach by combining mentoring, instructor-led
courses, webinars, eLearning and focused workshops.
Marketing and Sales
Customers
Our customer base consists of a number of Global 10,000 organizations as well as mid-market companies and
government agencies. Historically, including in Fiscal 2018, no single customer has accounted for 10% or more of our total
revenues.
Global Distribution Channels
We operate on a global basis and in Fiscal 2018 we generated approximately 57% of our revenues from our “Americas”
region, which consists of countries in North, Central, and South America, approximately 33% from our "EMEA" region, which
primarily consists of countries in Europe, the Middle East, and Africa, and approximately 10% from our "Asia Pacific" region,
which primarily consists of Japan, Australia, China, Korea, Philippines, Singapore and New Zealand. We make direct sales of
products and services through our global network of subsidiaries.
Partners and Alliances
We also market our products and services worldwide through indirect channels. We partner with prominent organizations
in the enterprise software and hardware industries in an effort to enhance the value of our solutions and the investments our
customers have made in their existing systems. We strive to create mutually beneficial relationships with global systems
integrators, consultants, and software and hardware developers that augment and extend our products and services. Through
these relationships, we and our partners are better able to fulfill key market objectives, drive new business, establish a
competitive advantage, and create demonstrable business value.
Our strategic partners include:
•
SAP SE (SAP): Our solutions help SAP customers improve the way they manage content in SAP systems in order to
assist them to improve efficiency in key processes, manage compliance, or gain new insights.
• Microsoft Corporation (Microsoft): Our partnership enables organizations to connect all aspects of their content
infrastructure and take advantage of their most valuable asset - information. This helps organizations to better scale
operations with confidence and improve IT and developer efficiency - all with the aim of obtaining a lower total cost
of ownership over competitive solutions.
• Oracle Corporation (Oracle): We develop innovative solutions for Oracle applications that enhance the experience
and productivity of users working with these tools.
•
Salesforce.com Corporation (Salesforce): The company-to-company partnership between OpenText and Salesforce is
focused on continuing to grow a full portfolio of EIM solutions to complement the Salesforce ecosystem by uniting
the structured and unstructured information experience.
Our main global systems integrators include, but are not limited to Accenture plc, Deloitte Consulting LLP, Tata
Consultancy Services, ATOS and Ernst & Young.
8
International Markets
We provide our product offerings worldwide. Our geographic coverage allows us to draw on business and technical
expertise from a geographically diverse workforce, providing greater stability to our operations and revenue streams by
diversifying our portfolio to better mitigate against the risks of a single geographically focused business.
There are inherent risks to conducting operations internationally. For more information about these risks, see “Risk
Factors” included in Item 1A of this Annual Report on Form 10-K.
Competition
The market for our products and services is highly competitive, subject to rapid technological change and shifting
customer needs and economic pressures. We compete with multiple companies, some that have single or narrow solutions and
some that have a range of information management solutions, like ourselves. Our primary competitor is International Business
Machines Corporation (IBM), with numerous other software vendors with niche offerings competing with us in the EIM sector,
such as Veeva Systems Inc., j2 Global Inc., Pegasystems Inc., Hyland Software Inc., SPS Commerce Inc., and Adobe Systems
Inc. In certain markets, OpenText competes with Oracle and Microsoft, who are also our partners. In addition, we also face
competition from systems integrators that configure hardware and software into customized systems. Additionally, new
competitors or alliances among existing competitors may emerge and could rapidly acquire additional market share. We also
expect that competition will increase as a result of ongoing software industry consolidation.
We believe that certain competitive factors affect the market for our software products and services, which may include:
(i) vendor and product reputation; (ii) product quality, performance and price; (iii) the availability of software products on
multiple platforms; (iv) product scalability; (v) product integration with other enterprise applications; (vi) software
functionality and features; (vii) software ease of use; (viii) the quality of professional services, customer support services and
training; and (ix) the ability to address specific customer business problems. We believe the relative importance of each of these
factors depends upon the concerns and needs of each specific customer.
Research and Development
The industry in which we compete is subject to rapid technological developments, evolving industry standards, changes
in customer requirements and competitive new products and features. As a result, our success, in part, depends on our ability to
continue to enhance our existing products in a timely and efficient manner and to develop and introduce new products that meet
customer needs while reducing total cost of ownership. To achieve these objectives, we have made and expect to continue to
make investments in research and development, through internal and third-party development activities, third-party licensing
agreements and potentially through technology acquisitions. Our R&D expenses were $323.5 million for Fiscal 2018, $281.7
million for Fiscal 2017, and $194.1 million for Fiscal 2016. We believe our spending on research and development is an
appropriate balance between managing our organic growth and results of operations. We expect to continue to invest in R&D to
maintain and improve our products and services offerings.
Acquisitions During the Last Five Fiscal Years
Our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies,
products, services and capabilities. In light of the continually evolving marketplace in which we operate, we regularly evaluate
acquisition opportunities within the EIM market and at any time may be in various stages of discussions with respect to such
opportunities.
Pursuing strategic acquisitions is an important aspect to our current and future growth strategy, which we expect to
continue, in order to strengthen our service offerings in the EIM market. In Fiscal 2018 we acquired Covisint, Guidance and
Hightail. Covisint was a leading cloud platform for building Identity, Automotive, and IoT applications. Guidance was a
leading provider of forensic security solutions. Hightail was a leading cloud service provider for file sharing and creative
collaboration.
Below is a summary of the more material acquisitions we have made over the last five fiscal years.
In Fiscal 2018, we completed the following acquisitions:
•
•
•
On February 14, 2018, we acquired Hightail for approximately $20.5 million.
On September 14, 2017, we acquired Guidance for approximately $240.5 million.
On July 26, 2017, we acquired Covisint for approximately $102.8 million.
9
Prior to Fiscal 2018, we completed the following acquisitions:
•
On January 23, 2017, we acquired certain assets and assumed certain liabilities of the enterprise content division of
EMC Corporation, a Massachusetts corporation, and certain of its subsidiaries (ECD Business) for approximately
$1.62 billion.
On July 31, 2016, we acquired certain customer communications management software services assets and
liabilities from HP Inc. (CCM Business) for approximately $315.0 million.
On July 20, 2016, we acquired Recommind, a leading provider of eDiscovery and information analytics, based in
San Francisco, California, United States, for approximately $170.1 million.
On May 1, 2016, we acquired ANXe Business Corporation (ANX), a leading provider of cloud-based information
exchange services to the automotive and healthcare industries, based in Michigan, United States. Total consideration
for ANX was approximately $104.6 million.
On April 30, 2016, we acquired certain customer experience software and services assets and liabilities from HP Inc.
(CEM Business) for approximately $160.0 million.
On November 23, 2015, we acquired Daegis Inc. (Daegis), a global information governance, data migration
solutions and development company, based in Texas, United States. Total consideration for Daegis was
approximately $23.3 million.
On January 16, 2015, we acquired Actuate Corporation (Actuate), based in San Francisco, California, United States,
for $332.0 million, comprised of approximately $322.4 million in cash and shares we purchased of Actuate in the
open market with a fair value of approximately $9.5 million as of the date of acquisition. Actuate was a leader in
personalized analytics and insights.
On January 2, 2015, we acquired Informative Graphics Corporation (IGC), based in Scottsdale, Arizona, United
States, for approximately $40.0 million. IGC was a leading developer of viewing, annotation, redaction and
publishing commercial software.
On January 16, 2014, we acquired GXS Group Inc. (GXS), a Delaware corporation based in Gaithersburg,
Maryland, United States, and leader in cloud-based B2B integration services for $1.2 billion, inclusive of the
issuance of 5,190,084 OpenText Common Shares.
On August 15, 2013, we acquired Cordys Holding B.V. (Cordys), a leading provider of BPM and case management
solutions, offered on one platform with cloud, mobile, and social capabilities, based in Putten, the Netherlands for
$33.2 million.
•
•
•
•
•
•
•
•
•
We believe our acquisitions support our long-term strategy for growth, strengthen our competitive position, expand our
customer base and provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We
expect to continue to strategically acquire companies, products, services and technologies to augment our existing business.
Intellectual Property Rights
Our success and ability to compete depends on our ability to develop and maintain our intellectual property and
proprietary technology and to operate without infringing on the proprietary rights of others. Our software products are
generally licensed to our customers on a non-exclusive basis for internal use in a customer's organization. We also grant rights
to our intellectual property to third parties that allow them to market certain of our products on a non-exclusive or limited-
scope exclusive basis for a particular application of the product(s) or to a particular geographic area.
We rely on a combination of copyright, patent, trademark and trade secret laws, non-disclosure agreements and other
contractual provisions to establish and maintain our proprietary rights. We have obtained or applied for trademark registration
for most strategic product names in most major markets. We have a number of U.S. and foreign patents and pending
applications, including patents and rights to patent applications acquired through strategic transactions, which relate to various
aspects of our products and technology. The duration of our patents is determined by the laws of the country of issuance and is
typically 20 years from the date of filing of the patent application resulting in the patent. While we believe our intellectual
property is valuable and our ability to maintain and protect our intellectual property rights is important to our success, we also
believe that our business as a whole is not materially dependent on any particular patent, trademark, license, or other
intellectual property right.
For more information on the risks related to our intellectual property rights, see "Risk Factors" included in Item 1A of
this Annual Report on Form 10-K.
Employees
As of June 30, 2018, we employed a total of approximately 12,200 individuals. The approximate composition of our
employee base is as follows: (i) 2,000 employees in sales and marketing, (ii) 3,300 employees in product development, (iii)
2,800 employees in cloud services, (iv) 1,500 employees in professional services, (v) 1,100 employees in customer support, and
10
(vi) 1,500 employees in general and administrative roles. We believe that relations with our employees are strong. None of our
employees are represented by a labour union, nor do we have collective bargaining arrangements with any of our employees.
However, in certain international jurisdictions in which we operate, a “Workers' Council” represents our employees.
Available Information
Access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to these reports filed with or furnished to the SEC may be obtained free of charge through the Investors section of
our website at investors.opentext.com as soon as is reasonably practical after we electronically file or furnish these reports. Our
website is included in this Annual Report on Form 10-K as an inactive textual reference only. Except for the documents
specifically incorporated by reference into this Annual Report, information contained on our website is not incorporated by
reference in this Annual Report and should not be considered to be a part of this Annual Report. In addition, our filings with the
SEC may be accessed through the SEC's website at www.sec.gov and our filings with the Canadian Securities Administrators
(CSA) may be accessed through the CSA's System for Electronic Document Analysis and Retrieval (SEDAR) at
www.sedar.com. All statements made in any of our securities filings, including all forward-looking statements or information,
are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation
to update any of those statements or documents unless we are required to do so by applicable law.
Item 1A. Risk Factors
The following important factors could cause our actual business and financial results to differ materially from our current
expectations, estimates, forecasts and projections. These forward-looking statements contained in this Annual Report on Form
10-K or made elsewhere by management from time to time are subject to important risks, uncertainties and assumptions which
are difficult to predict. The risks and uncertainties described below are not the only risks and uncertainties facing us.
Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results,
financial condition and liquidity. Our business is also subject to general risks and uncertainties that affect many other
companies. The risks discussed below are not necessarily presented in order of importance or probability of occurrence.
The length of our sales cycle can fluctuate significantly which could result in significant fluctuations in revenues being
recognized from quarter to quarter
The decision by a customer to license our software products or purchase our services often involves a comprehensive
implementation process across the customer's network or networks. As a result, the licensing and implementation of our
software products and any related services may entail a significant commitment of resources by prospective customers,
accompanied by the attendant risks and delays frequently associated with significant technology implementation projects.
Given the significant investment and commitment of resources required by an organization to implement our software products,
our sales cycle may be longer compared to other companies within our own industry, as well as companies in other industries.
Also, because of changes in customer spending habits, it may be difficult for us to budget, forecast and allocate our resources
properly. In weak economic environments, it is not uncommon to see reduced information technology spending. It may take
several months, or even several quarters, for marketing opportunities to materialize. If a customer's decision to license our
software or purchase our services is delayed or if the implementation of these software products takes longer than originally
anticipated, the date on which we may recognize revenues from these licenses or sales would be delayed. Such delays and
fluctuations could cause our revenues to be lower than expected in a particular period and we may not be able to adjust our
costs quickly enough to offset such lower revenues, potentially negatively impacting our business, operating results and
financial condition.
Our success depends on our relationships with strategic partners, distributors and third party service providers and any
reduction in the sales efforts by distributors, cooperative efforts from our partners or service from third party providers
could materially impact our revenues
We rely on close cooperation with strategic partners for sales and software product development as well as for the
optimization of opportunities that arise in our competitive environment. A portion of our license revenues is derived from the
licensing of our software products through third parties. Also, a portion of our service revenues may be impacted by the level of
service provided by third party service providers relating to Internet, telecommunications and power services. Our success will
depend, in part, upon our ability to maintain access to existing channels of distribution and to gain access to new channels if
and when they develop. We may not be able to retain a sufficient number of our existing distributors or develop a sufficient
number of future distributors. Distributors may also give higher priority to the licensing or sale of software products and
services other than ours (which could include competitors' products and services) or may not devote sufficient resources to
marketing our software products and services. In addition, potential changes or renegotiations of the North American Free
11
Trade Agreement (NAFTA) as well as tariff changes between the U.S. and Canada could impact our relationships with
distributors. The performance of third party distributors and third party service providers is largely outside of our control, and
we are unable to predict the extent to which these distributors and service providers will be successful in either marketing and
licensing or selling our software products and services or providing adequate Internet, telecommunication and power services
so that disruptions and outages are not experienced by our customers. A reduction in strategic partner cooperation or sales
efforts, a decline in the number of distributors, a decision by our distributors to discontinue the licensing of our software
products or a decline or disruption in third party services could cause users and the general public to perceive our software
products and services as inferior and could materially reduce revenues.
If we do not continue to develop technologically advanced products that successfully integrate with the software products
and enhancements used by our customers, future revenues and our operating results may be negatively affected
Our success depends upon our ability to design, develop, test, market, license, sell and support new software products and
services and enhancements of current products and services on a timely basis in response to both competitive threats and
marketplace demands. The software industry is increasingly focused on cloud computing, mobility, social media and SaaS
among other continually evolving shifts. In addition, our software products, services, and enhancements must remain
compatible with standard platforms and file formats. Often, we must integrate software licensed or acquired from third parties
with our proprietary software to create or improve our products. If we are unable to achieve a successful integration with third
party software, we may not be successful in developing and marketing our new software products, services, and enhancements.
If we are unable to successfully integrate third party software to develop new software products, services, and enhancements to
existing software products and services, or to complete the development of new software products and services which we
license or acquire from third parties, our operating results will materially suffer. In addition, if the integrated or new products or
enhancements do not achieve acceptance by the marketplace, our operating results will materially suffer. Moreover, if new
industry standards emerge that we do not anticipate or adapt to, or with rapid technological change occurring, if alternatives to
our services and solutions are developed by our competitors, our software products and services could be rendered less
competitive or obsolete, causing us to lose market share and, as a result, harm our business and operating results, and our
ability to compete in the marketplace.
If our software products and services do not gain market acceptance, our operating results may be negatively affected
We intend to pursue our strategy of being a market leading consolidator for cloud-based EIM solutions, and growing the
capabilities of our EIM software offerings through our proprietary research and the development of new software product and
service offerings, as well as through acquisitions. In response to customer demand, it is important to our success that we
continue to enhance our software products and services and to seek to set the standard for EIM capabilities. The primary market
for our software products and services is rapidly evolving which means that the level of acceptance of products and services
that have been released recently, including Release 16 and Magellan, or that are planned for future release to the marketplace is
not certain. If the markets for our software products and services fail to develop, develop more slowly than expected or become
subject to increased competition, our business may suffer. As a result, we may be unable to: (i) successfully market our current
products and services, (ii) develop new software products and services and enhancements to current software products and
services, (iii) complete customer implementations on a timely basis, or (iv) complete software products and services currently
under development. In addition, increased competition could put significant pricing pressures on our products which could
negatively impact our margins and profitability. If our software products and services are not accepted by our customers or by
other businesses in the marketplace, our business, operating results and financial condition will be materially adversely
affected.
Our existing customers might cancel contracts with us, fail to renew contracts on their renewal dates, and/or fail to
purchase additional services and products, and we may be unable to attract new customers
We depend on our installed customer base for a significant portion of our revenues. We have significant contracts with
our license customers for ongoing support and maintenance, as well as significant service contracts that provide recurring
services revenues to us. In addition, our installed customer base has historically generated additional new license and services
revenues for us. Service contracts are generally renewable at a customer’s option and/or subject to cancellation rights, and there
are generally no mandatory payment obligations or obligations to license additional software or subscribe for additional
services.
If our customers fail to renew or cancel their service contracts or fail to purchase additional services or products, then our
revenues could decrease and our operating results could be materially adversely affected. Factors influencing such contract
terminations and failure to purchase additional services or products could include changes in the financial circumstances of our
customers, dissatisfaction with our products or services, our retirement or lack of support for our legacy products and services,
our customers selecting or building alternate technologies to replace us, the cost of our products and services as compared to
12
the cost of products and services offered by our competitors, our ability to attract, hire and maintain qualified personnel to meet
customer needs, consolidating activities in the market, changes in our customers’ business or in regulation impacting our
customers’ business that may no longer necessitate the use of our products or services, general economic or market conditions,
or other reasons. Further, our customers could delay or terminate implementations or use of our services and products or be
reluctant to migrate to new products. Such customers will not generate the revenues we may have anticipated within the
timelines anticipated, if at all, and may be less likely to invest in additional services or products from us in the future. We may
not be able to adjust our expense levels quickly enough to account for any such revenue losses.
Our investment in our current research and development efforts may not provide a sufficient, timely return
The development of EIM software products is a costly, complex and time-consuming process, and the investment in EIM
software product development often involves a long wait until a return is achieved on such an investment. We are making, and
will continue to make, significant investments in software research and development and related product and service
opportunities. Investments in new technology and processes are inherently speculative. Commercial success depends on many
factors, including the degree of innovation of the software products and services developed through our research and
development efforts, sufficient support from our strategic partners, and effective distribution and marketing. Accelerated
software product introductions and short product life cycles require high levels of expenditures for research and development.
These expenditures may adversely affect our operating results if they are not offset by revenue increases. We believe that we
must continue to dedicate a significant amount of resources to our research and development efforts in order to maintain our
competitive position. However, significant revenues from new software product and service investments may not be achieved
for a number of years, if at all. Moreover, new software products and services may not be profitable, and even if they are
profitable, operating margins for new software products and services may not be as high as the margins we have experienced
for our current or historical software products and services.
Product development is a long, expensive and uncertain process, and we may terminate one or more of our development
programs
We may determine that certain software product candidates or programs do not have sufficient potential to warrant the
continued allocation of resources. Accordingly, we may elect to terminate one or more of our programs for such product
candidates. If we terminate a software product in development in which we have invested significant resources, our prospects
may suffer, as we will have expended resources on a project that does not provide a return on our investment and we may have
missed the opportunity to have allocated those resources to potentially more productive uses and this may negatively impact
our business, operating results and financial condition.
Failure to protect our intellectual property could harm our ability to compete effectively
We are highly dependent on our ability to protect our proprietary technology. We rely on a combination of copyright,
patent, trademark and trade secret laws, as well as non-disclosure agreements and other contractual provisions to establish and
maintain our proprietary rights. We intend to protect our intellectual property rights vigorously; however, there can be no
assurance that these measures will, in all cases, be successful. Enforcement of our intellectual property rights may be difficult,
particularly in some countries outside of North America in which we seek to market our software products and services. While
U.S. and Canadian copyright laws, international conventions and international treaties may provide meaningful protection
against unauthorized duplication of software, the laws of some foreign jurisdictions may not protect proprietary rights to the
same extent as the laws of Canada or the United States. The absence of internationally harmonized intellectual property laws
makes it more difficult to ensure consistent protection of our proprietary rights. Software piracy has been, and is expected to be,
a persistent problem for the software industry, and piracy of our software products represents a loss of revenue to us. Where
applicable, certain of our license arrangements have required us to make a limited confidential disclosure of portions of the
source code for our software products, or to place such source code into escrow for the protection of another party. Despite the
precautions we have taken, unauthorized third parties, including our competitors, may be able to copy certain portions of our
software products or reverse engineer or obtain and use information that we regard as proprietary. Our competitive position
may be adversely affected by our possible inability to effectively protect our intellectual property. In addition, certain of our
products contain open source software. Licensees of open source software may be required to make public certain source code,
to license proprietary software for free or to make certain derivative works available to others. While we monitor and control
the use of open source software in our products and in any third party software that is incorporated into our products, and we
try to ensure that no open source software is used in such a way as to require us to disclose the source code to the related
product or service, there can be no guarantee that such use could not inadvertently occur. If this happened it could harm our
intellectual property position and have a material adverse effect on our business, results of operations and financial condition.
13
Other companies may claim that we infringe their intellectual property, which could materially increase costs and materially
harm our ability to generate future revenues and profits
Claims of infringement are common in the software industry and increasing as related legal protections, including
copyrights and patents, are applied to software products. Although most of our technology is proprietary in nature, we do
include certain third party and open source software in our software products. In the case of third party software, we believe
this software is licensed from the entity holding the intellectual property rights. While we believe that we have secured proper
licenses for all third-party intellectual property that is integrated into our products, third parties have and may continue to assert
infringement claims against us in the future, including the sometimes aggressive and opportunistic actions of non-practicing
entities whose business model is to obtain patent-licensing revenues from operating companies such as us. Any such assertion,
regardless of merit, may result in litigation or may require us to obtain a license for the intellectual property rights of third
parties. Such licenses may not be available or they may not be available on commercially reasonable terms. In addition, as we
continue to develop software products and expand our portfolio using new technology and innovation, our exposure to threats
of infringement may increase. Any infringement claims and related litigation could be time-consuming, disruptive to our ability
to generate revenues or enter into new market opportunities and may result in significantly increased costs as a result of our
defense against those claims or our attempt to license the intellectual property rights or rework our products to avoid
infringement of third party rights. Typically our agreements with our partners and customers contain provisions which require
us to indemnify them for damages sustained by them as a result of any infringement claims involving our products. Any of the
foregoing infringement claims and related litigation could have a significant adverse impact on our business and operating
results as well as our ability to generate future revenues and profits.
The loss of licenses to use third-party software or the lack of support or enhancement of such software could adversely
affect our business
We currently depend upon a limited number of third-party software products. If such software products were not
available, we might experience delays or increased costs in the development of our own software products. For a limited
number of our product modules, we rely on software products that we license from third parties, including software that is
integrated with internally developed software and which is used in our products to perform key functions. These third-party
software licenses may not continue to be available to us on commercially reasonable terms and the related software may not
continue to be appropriately supported, maintained, or enhanced by the licensors. The loss by us of the license to use, or the
inability by licensors to support, maintain, or enhance any of such software, could result in increased costs, lost revenues or
delays until equivalent software is internally developed or licensed from another third party and integrated with our software.
Such increased costs, lost revenues or delays could adversely affect our business.
Current and future competitors could have a significant impact on our ability to generate future revenues and profits
The markets for our software products and services are intensely competitive and are subject to rapid technological
change and other pressures created by changes in our industry. The convergence of many technologies has resulted in
unforeseen competitors arising from companies that were traditionally not viewed as threats to our marketplace. We expect
competition to increase and intensify in the future as the pace of technological change and adaptation quickens and as
additional companies enter our markets, including those competitors who offer solutions similar to ours, but offer it through a
different form of delivery. Numerous releases of competitive products have occurred in recent history and are expected to
continue in the future. We may not be able to compete effectively with current competitors and potential entrants into our
marketplace. We could lose market share if our current or prospective competitors: (i) develop technologies that are perceived
to be substantially equivalent or superior to our technologies, (ii) introduce new competitive products or services, (iii) add new
functionality to existing products and services, (iv) acquire competitive products and services, (v) reduce prices, or (vi) form
strategic alliances or cooperative relationships with other companies. If other businesses were to engage in aggressive pricing
policies with respect to competing products, or if the dynamics in our marketplace resulted in increasing bargaining power by
the consumers of our software products and services, we would need to lower the prices we charge for the products and
services we offer. This could result in lower revenues or reduced margins, either of which may materially adversely affect our
business and operating results. Additionally, if prospective consumers choose other methods of EIM delivery different from that
which we offer, our business and operating results could also be materially adversely affected.
Acquisitions, investments, joint ventures and other business initiatives may negatively affect our operating results
The growth of our Company through the successful acquisition and integration of complementary businesses is a critical
component of our corporate strategy. In light of the continually evolving marketplace in which we operate, we regularly
evaluate acquisition opportunities on an ongoing basis and at any time may be in various stages of discussions with respect to
such opportunities. We plan to continue to pursue acquisitions that complement our existing business, represent a strong
strategic fit and are consistent with our overall growth strategy and disciplined financial management. We may also target
14
future acquisitions to expand or add functionality and capabilities to our existing portfolio of solutions, as well as add new
solutions to our portfolio. We may also consider, from time to time, opportunities to engage in joint ventures or other business
collaborations with third parties to address particular market segments. These activities create risks such as: (i) the need to
integrate and manage the businesses and products acquired with our own business and products; (ii) additional demands on our
resources, systems, procedures and controls; (iii) disruption of our ongoing business; and (iv) diversion of management's
attention from other business concerns. Moreover, these transactions could involve: (i) substantial investment of funds or
financings by issuance of debt or equity or equity-related securities; (ii) substantial investment with respect to technology
transfers and operational integration; and (iii) the acquisition or disposition of product lines or businesses. Also, such activities
could result in charges and expenses and have the potential to either dilute the interests of existing shareholders or result in the
issuance or assumption of debt, which could have a negative impact on the credit ratings of our outstanding debt securities.
Such acquisitions, investments, joint ventures or other business collaborations may involve significant commitments of
financial and other resources of our Company. Any such activity may not be successful in generating revenues, income or other
returns to us, and the resources committed to such activities will not be available to us for other purposes. In addition, while we
conduct due diligence prior to consummating an acquisition, joint venture or business collaboration, such diligence may not
identify all material issues associated with such activities. We may also experience unanticipated challenges or difficulties
identifying suitable new acquisition candidates that are available for purchase at reasonable prices. Even if we are able to
identify such candidates, we may be unable to consummate an acquisition on suitable terms. Moreover, if we are unable to
access capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so on
the basis of a less than optimal capital structure. Our inability (i) to take advantage of growth opportunities for our business or
for our products and services, or (ii) to address risks associated with acquisitions or investments in businesses, may negatively
affect our operating results and financial condition. Additionally, any impairment of goodwill or other intangible assets
acquired in an acquisition or in an investment, or charges associated with any acquisition or investment activity, may materially
impact our results of operations and financial condition which, in turn, may have a material adverse effect on the market price
of our Common Shares or credit ratings of our outstanding debt securities.
Businesses we acquire may have disclosure controls and procedures and internal controls over financial reporting,
cybersecurity and compliance with data privacy laws that are weaker than or otherwise not in conformity with ours
We have a history of acquiring complementary businesses of varying size and organizational complexity. Upon
consummating an acquisition, we seek to implement our disclosure controls and procedures, our internal controls over financial
reporting as well as procedures relating to cybersecurity and compliance with data privacy laws and regulations at the acquired
company as promptly as possible. Depending upon the nature and scale of the business acquired, the implementation of our
disclosure controls and procedures as well as the implementation of our internal controls over financial reporting at an acquired
company may be a lengthy process and may divert our attention from other business operations. Our integration efforts may
periodically expose deficiencies in the disclosure controls and procedures and internal controls over financial reporting as well
as procedures relating to cybersecurity and compliance with data privacy laws and regulations of an acquired company that
were not identified in our due diligence undertaken prior to consummating the acquisition. If such deficiencies exist, we may
not be in a position to comply with our periodic reporting requirements and, as a result, our business and financial condition
may be materially harmed.
We may be unable to successfully integrate acquired businesses or do so within the intended timeframes, which could have
an adverse effect on our financial condition, results of operations and business prospects
Our ability to realize the anticipated benefits of acquired businesses will depend, in part, on our ability to successfully and
efficiently integrate acquired businesses and operations with our own. The integration of acquired operations with our existing
business will be complex, costly and time-consuming, and may result in additional demands on our resources, systems,
procedures and controls, disruption of our ongoing business, and diversion of management’s attention from other business
concerns. Although we cannot be certain of the degree and scope of operational and integration problems that may arise, the
difficulties and risks associated with the integration of acquired businesses may include, among others:
•
the increased scope and complexity of our operations;
• coordinating geographically separate organizations, operations, relationships and facilities;
•
integrating (i) personnel with diverse business backgrounds, corporate cultures and management philosophies, and (ii)
the standards, policies and compensation structures, as well as the complex systems, technology, networks and other
assets, of the businesses;
• preserving important strategic and customer relationships;
•
retention of key employees;
15
•
the possibility that we may have failed to discover obligations of acquired businesses or risks associated with those
businesses during our due diligence investigations as part of the acquisition for which we, as a successor owner, may
be responsible or subject to; and
• provisions in contracts with third parties that may limit flexibility to take certain actions.
As a result of these difficulties and risks, we may not accomplish the integration of acquired businesses smoothly,
successfully or within our budgetary expectations and anticipated timetables, which may result in a failure to realize some or all
of the anticipated benefits of our acquisitions.
We may not generate sufficient cash flow to satisfy our unfunded pension obligations
Through our acquisitions, we have assumed certain unfunded pension plan liabilities. We will be required to use the
operating cash flow that we generate in the future to meet these obligations. As a result, our future net pension liability and cost
may be materially affected by the discount rate used to measure these pension obligations and by the longevity and actuarial
profile of the relevant workforce. A change in the discount rate may result in a significant increase or decrease in the valuation
of these pension obligations, and these changes may affect the net periodic pension cost in the year the change is made and in
subsequent years. We cannot assure that we will generate sufficient cash flow to satisfy these obligations. Any inability to
satisfy these pension obligations may have a material adverse effect on the operational and financial health of our business.
For more details see note 11 "Pension Plans and Other Post Retirement Benefits" to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Consolidation in the industry, particularly by large, well-capitalized companies, could place pressure on our operating
margins which could, in turn, have a material adverse effect on our business
Acquisitions by large, well-capitalized technology companies have changed the marketplace for our software products
and services by replacing competitors which are comparable in size to our Company with companies that have more resources
at their disposal to compete with us in the marketplace. In addition, other large corporations with considerable financial
resources either have products and/or services that compete with our software products and services or have the ability to
encroach on our competitive position within our marketplace. These companies have considerable financial resources, channel
influence, and broad geographic reach; thus, they can engage in competition with our software products and services on the
basis of price, marketing, services or support. They also have the ability to introduce items that compete with our maturing
software products and services. The threat posed by larger competitors and their ability to use their better economies of scale to
sell competing products and services at a lower cost may materially reduce the profit margins we earn on the software products
and services we provide to the marketplace. Any material reduction in our profit margin may have a material adverse effect on
the operations or finances of our business, which could hinder our ability to raise capital in the public markets at opportune
times for strategic acquisitions or general operational purposes, which may then prevent effective strategic growth, improved
economies of scale or put us at a disadvantage to our better capitalized competitors.
We must continue to manage our internal resources during periods of company growth or our operating results could be
adversely affected
The EIM market in which we compete continues to evolve at a rapid pace. Moreover, we have grown significantly
through acquisitions in the past and expect to continue to review acquisition opportunities as a means of increasing the size and
scope of our business. Our growth, coupled with the rapid evolution of our markets, has placed, and will continue to place,
significant strains on our administrative and operational resources and increased demands on our internal systems, procedures
and controls. Our administrative infrastructure, systems, procedures and controls may not adequately support our operations. In
addition, our management may not be able to achieve the rapid, effective execution of the product and business initiatives
necessary to successfully implement our operational and competitive strategy. If we are unable to manage growth effectively,
our operating results will likely suffer which may, in turn, adversely affect our business.
If we lose the services of our executive officers or other key employees or if we are not able to attract or retain top
employees, our business could be significantly harmed
Our performance is substantially dependent on the performance of our executive officers and key employees. We do not
maintain “key person” life insurance policies on any of our employees. Our success is also highly dependent on our continuing
ability to identify, hire, train, retain and motivate highly qualified management, technical, sales and marketing personnel. In
particular, the recruitment and retention of top research developers and experienced salespeople, particularly those with
specialized knowledge, remains critical to our success, including providing consistent and uninterrupted service to our
customers. Competition for such people is intense, substantial and continuous, and we may not be able to attract, integrate or
retain highly qualified technical, sales or managerial personnel in the future. In our effort to attract and retain critical personnel,
16
we may experience increased compensation costs that are not offset by either improved productivity or higher prices for our
software products or services. In addition, the loss of the services of any of our executive officers or other key employees could
significantly harm our business, operating results and financial condition.
Loss of key personnel could impair the integration of acquired businesses, lead to loss of customers and a decline in
revenues, or otherwise could have an adverse effect on our operations
Our success as a combined business with any prior or future acquired businesses will depend, in part, upon our ability to
retain key employees, especially during the integration phase of the businesses. It is possible that the integration process could
result in current and prospective employees of ours and the acquired business to experience uncertainty about their future roles
with us, which could have an adverse effect on our ability to retain or recruit key managers and other employees. If, despite our
retention and recruiting efforts, key employees depart or fail to continue employment with us, the loss of their services and their
experience and knowledge regarding our business or an acquired business could have an adverse effect on our future operating
results and the successful ongoing operation of our businesses.
Our compensation structure may hinder our efforts to attract and retain vital employees
A portion of our total compensation program for our executive officers and key personnel includes the award of options
to buy our Common Shares. If the market price of our Common Shares performs poorly, such performance may adversely
affect our ability to retain or attract critical personnel. In addition, any changes made to our stock option policies, or to any
other of our compensation practices, which are made necessary by governmental regulations or competitive pressures could
adversely affect our ability to retain and motivate existing personnel and recruit new personnel. For example, any limit to total
compensation which may be prescribed by the government or applicable regulatory authorities or any significant increases in
personal income tax levels levied in countries where we have a significant operational presence may hurt our ability to attract
or retain our executive officers or other employees whose efforts are vital to our success. Additionally, payments under our
long-term incentive plan (the details of which are described in Item 11 of this Annual Report on Form 10-K) are dependent to a
significant extent upon the future performance of our Company both in absolute terms and in comparison to similarly situated
companies. Any failure to achieve the targets set under our long-term incentive plan could significantly reduce or eliminate
payments made under this plan, which may, in turn, materially and adversely affect our ability to retain the key personnel who
are subject to this plan.
Unexpected events may materially harm our ability to align when we incur expenses with when we recognize revenues
We incur operating expenses based upon anticipated revenue trends. Since a high percentage of these expenses are
relatively fixed, a delay in recognizing revenues from transactions related to these expenses (such a delay may be due to the
factors described elsewhere in this risk factor section or it may be due to other factors) could cause significant variations in
operating results from quarter to quarter and could materially reduce operating income. If these expenses are not subsequently
matched by revenues, our business, financial condition, or results of operations could be materially and adversely affected.
We may fail to achieve our financial forecasts due to inaccurate sales forecasts or other factors
Our revenues and particularly our new software license revenues are difficult to forecast, and, as a result, our quarterly
operating results can fluctuate substantially. We use a “pipeline” system, a common industry practice, to forecast sales and
trends in our business. By reviewing the status of outstanding sales proposals to our customers and potential customers, we
make an estimate as to when a customer will make a purchasing decision involving our software products. These estimates are
aggregated periodically to make an estimate of our sales pipeline, which we use as a guide to plan our activities and make
internal financial forecasts. Our sales pipeline is only an estimate and may be an unreliable predictor of actual sales activity,
both in a particular quarter and over a longer period of time. Many factors may affect actual sales activity, such as weakened
economic conditions, which may cause our customers and potential customers to delay, reduce or cancel IT related purchasing
decisions and the tendency of some of our customers to wait until the end of a fiscal period in the hope of obtaining more
favorable terms from us. If actual sales activity differs from our pipeline estimate, then we may have planned our activities and
budgeted incorrectly and this may adversely affect our business, operating results and financial condition. In addition, for
newly acquired companies, we have limited ability to immediately predict how their pipelines will convert into sales or
revenues following the acquisition and their conversion rate post-acquisition may be quite different from their historical
conversion rate.
17
Our revenue and operating cash flows could be adversely affected in the short term as we continue to see more customers
transition to our cloud offerings
Should we continue to see more of our customers selecting our subscription pricing and managed service offerings, with
payments made over time rather than a perpetual license with upfront fees, this could, in some cases, result in instances where
reported revenue and cash flow could be lower in the short term when compared to our historical perpetual license model, as
well as varying between periods depending on our customers' preference to license our products or subscribe to our
subscription-based or managed service offerings. While we expect that, over time, the transition to a cloud and subscription
model will help our business to generate revenue growth by attracting new users and keeping our user base current as
subscriptions allow users to receive the latest product updates and thereby increase recurring revenue per user, there is no
guarantee that our short term revenue and operating cash will not be adversely affected during any ongoing transition period.
The restructuring of our operations may adversely affect our business or our finances and we may incur restructuring
charges in connection with such actions
We often undertake initiatives to restructure or streamline our operations, particularly during the period post acquisition.
We may incur costs associated with implementing a restructuring initiative beyond the amount contemplated when we first
developed the initiative and these increased costs may be substantial. Additionally, such costs would adversely impact our
results of operations for the periods in which those adjustments are made. We will continue to evaluate our operations, and may
propose future restructuring actions as a result of changes in the marketplace, including the exit from less profitable operations
or the decision to terminate products or services which are not valued by our customers. Any failure to successfully execute
these initiatives on a timely basis may have a material adverse effect on our business, operating results and financial condition.
Fluctuations in foreign currency exchange rates could materially affect our financial results
Our Consolidated Financial Statements are presented in U.S. dollars. In general, the functional currency of our
subsidiaries is the local currency. For each subsidiary, assets and liabilities denominated in foreign currencies are translated into
U.S dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average
exchange rates prevailing during the month of the transaction. Therefore, increases or decreases in the value of the U.S. dollar
against other major currencies affect our net operating revenues, operating income and the value of balance sheet items
denominated in foreign currencies. In addition, unexpected and dramatic devaluations of currencies in developing, as well as
developed, markets could negatively affect our revenues from, and the value of the assets located in, those markets.
Transactional foreign currency gains (losses) included in the Consolidated Statements of Income under the line item “Other
income (expense) net” for Fiscal 2018, Fiscal 2017 and Fiscal 2016 were $4.8 million, $3.1 million, and $(1.9) million,
respectively. While we use derivative financial instruments to attempt to reduce our net exposure to currency exchange rate
fluctuations, fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major
currencies or the currencies of large developing countries, could continue to materially affect our financial results. These risks
and their potential impacts may be exacerbated by Brexit and any policy changes resulting from the new U.S. administration.
See “-The vote by the United Kingdom to leave the European Union (EU) could adversely affect us.”
Our international operations expose us to business, political and economic risks that could cause our operating results to
suffer
We intend to continue to make efforts to increase our international operations and anticipate that international sales will
continue to account for a significant portion of our revenues. These international operations are subject to certain risks and
costs, including the difficulty and expense of administering business and compliance abroad, differences in business practices,
compliance with domestic and foreign laws (including without limitation domestic and international import and export laws
and regulations), costs related to localizing products for foreign markets, costs related to translating and distributing software
products in a timely manner, and economic or political instability and uncertainties. International operations also tend to be
subject to a longer sales and collection cycle. In addition, regulatory limitations regarding the repatriation of earnings may
adversely affect the transfer of cash earned from foreign operations. Significant international sales may also expose us to
greater risk from political and economic instability, unexpected changes in Canadian, United States or other governmental
policies concerning import and export of goods and technology, regulatory requirements, tariffs and other trade barriers
including potential renegotiations of NAFTA. As of the date of filing of this Annual Report on Form 10-K, the results of the
renegotiations, including the possibility of U.S. withdrawal from NAFTA, remain unclear. Our business, operating results and
financial condition may be adversely impacted by any changes resulting from the NAFTA renegotiations. Additionally,
international earnings may be subject to taxation by more than one jurisdiction, which may materially adversely affect our
effective tax rate. Also, international expansion may be difficult, time consuming, and costly. These risks and their potential
impacts may be exacerbated by Brexit and any policy changes resulting from the new U.S. administration. See “-The vote by
the United Kingdom to leave the EU could adversely affect us.” As a result, if revenues from international operations do not
18
offset the expenses of establishing and maintaining foreign operations, our business, operating results and financial condition
will suffer.
The vote by the United Kingdom to leave the EU could adversely affect us
The June 2016 United Kingdom referendum on its membership in the EU resulted in a majority of United Kingdom
voters voting to exit the EU (Brexit). We have operations in the United Kingdom and the EU, and as a result, we face risks
associated with the potential uncertainty and disruptions that may follow Brexit, including with respect to volatility in exchange
rates and interest rates and potential material changes to the regulatory regime applicable to our operations in the United
Kingdom. Brexit could adversely affect European or worldwide political, regulatory, economic or market conditions and could
contribute to instability in global political institutions, regulatory agencies and financial markets. For example, depending on
the terms of Brexit, the United Kingdom could also lose access to the single EU market and to the global trade deals negotiated
by the EU on behalf of its members. Disruptions and uncertainty caused by Brexit may also cause our customers to closely
monitor their costs and reduce their spending budget on our products and services. Any of these effects of Brexit, and others we
cannot anticipate or that may evolve over time, could adversely affect our business, operating results and financial condition.
Our software products and services may contain defects that could harm our reputation, be costly to correct, delay revenues,
and expose us to litigation
Our software products and services are highly complex and sophisticated and, from time to time, may contain design
defects, software errors, hardware failures or other computer system failures that are difficult to detect and correct. Errors may
be found in new software products or services or improvements to existing products or services after delivery to our customers.
If these defects are discovered, we may not be able to successfully correct such errors in a timely manner. In addition, despite
the extensive tests we conduct on all our software products or services, we may not be able to fully simulate the environment in
which our products or services will operate and, as a result, we may be unable to adequately detect the design defects or
software or hardware errors which may become apparent only after the products are installed in an end-user's network, and
after users have transitioned to our services. The occurrence of errors and failures in our software products or services could
result in the delay or the denial of market acceptance of our products and alleviating such errors and failures may require us to
make significant expenditure of our resources. Customers often use our services and solutions for critical business processes
and as a result, any defect or disruption in our solutions, any data breaches or misappropriation of proprietary information, or
any error in execution, including human error or intentional third-party activity such as denial of service attacks or hacking,
may cause customers to reconsider renewing their contract with us. The errors in or failure of our software products and
services could also result in us losing customer transaction documents and other customer files, causing significant customer
dissatisfaction and possibly giving rise to claims for monetary damages. The harm to our reputation resulting from product and
service errors and failures may be material. Since we regularly provide a warranty with our software products, the financial
impact of fulfilling warranty obligations may be significant in the future. Our agreements with our strategic partners and end-
users typically contain provisions designed to limit our exposure to claims. These agreements regularly contain terms such as
the exclusion of all implied warranties and the limitation of the availability of consequential or incidental damages. However,
such provisions may not effectively protect us against claims and the attendant liabilities and costs associated with such claims.
Any claims for actual or alleged losses to our customers’ businesses may require us to spend significant time and money in
litigation or arbitration or to pay significant settlements or damages. Defending a lawsuit, regardless of merit, can be costly and
would divert management’s attention and resources. Although we maintain errors and omissions insurance coverage and
comprehensive liability insurance coverage, such coverage may not be adequate to cover all such claims. Accordingly, any such
claim could negatively affect our business, operating results or financial condition.
Our software products rely on the stability of infrastructure software that, if not stable, could negatively impact the
effectiveness of our products, resulting in harm to our reputation and business
Our development of Internet and intranet applications depends on the stability, functionality and scalability of the
infrastructure software of the underlying intranet, such as the infrastructure software produced by Hewlett-Packard, Oracle,
Microsoft and others. If weaknesses in such infrastructure software exist, we may not be able to correct or compensate for such
weaknesses. If we are unable to address weaknesses resulting from problems in the infrastructure software such that our
software products do not meet customer needs or expectations, our reputation, and consequently, our business may be
significantly harmed.
Risks associated with the evolving use of the Internet, including changing standards, competition, and regulation and
associated compliance efforts, may adversely impact our business
The use of the Internet as a vehicle for electronic data interchange (EDI), and related services currently raises numerous
issues, including reliability, data security, data integrity and rapidly evolving standards. New competitors, which may include
19
media, software vendors and telecommunications companies, offer products and services that utilize the Internet in competition
with our products and services and may be less expensive or process transactions and data faster and more efficiently. Internet-
based commerce is subject to increasing regulation by Canadian, U.S. federal and state and foreign governments, including in
the areas of data privacy and breaches, and taxation. Laws and regulations relating to the solicitation, collection, processing or
use of personal or consumer information could affect our customers’ ability to use and share data, potentially reducing demand
for Internet-based solutions and restricting our ability to store, process, analyze and share data through the Internet. Although
we believe that the Internet will continue to provide opportunities to expand the use of our products and services, we cannot
ensure that our efforts to exploit these opportunities will be successful or that increased usage of the Internet for business
integration products and services or increased competition, and regulation will not adversely affect our business, results of
operations and financial condition.
Business disruptions, including those related to data security breaches, may adversely affect our operations
Our business and operations are highly automated and a disruption or failure of our systems may delay our ability to
complete sales and to provide services. Business disruptions can be caused by several factors, including natural disasters,
terrorist attacks, power loss, telecommunication and system failures, computer viruses, physical attacks and cyber-attacks. A
major disaster or other catastrophic event that results in the destruction or disruption of any of our critical business or
information technology systems, including our cloud services, could severely affect our ability to conduct normal business
operations. We operate data centers in various locations around the world and although we have redundancy capability built
into our disaster recovery plan, we cannot ensure that our systems and data centers will remain fully operational during and
immediately after a disaster or disruption. We also rely on third parties that provide critical services in our operations and
despite our diligence around their disaster recovery processes, we cannot provide assurances as to whether these third party
service providers can maintain operations during a disaster or disruption. Any business disruption could negatively affect our
business, operating results or financial condition.
In addition, if data security is compromised, this could materially and adversely affect our operating results given that we
have customers that use our systems to store and exchange large volumes of proprietary and confidential information and the
security and reliability of our services are significant to these customers. We have experienced attempts by third parties to
identify and exploit product and service vulnerabilities, penetrate or bypass our security measures, and gain unauthorized
access to our or our customers' or service providers' cloud offerings and other products and systems. If our products or systems,
or the products or systems of third-party service providers on whom we rely, are attacked or accessed by unauthorized parties, it
could lead to major disruption or denial of service and access to or loss, modification or theft of our and our customers' data
which may involve us having to spend material resources on correcting the breach and indemnifying the relevant parties which
could have adverse effects on our reputation, business, operating results and financial condition.
Unauthorized disclosures and breaches of data security may adversely affect our operations
Most of the jurisdictions in which we operate have laws and regulations relating to data privacy, security and protection
of information. We have certain measures to protect our information systems against unauthorized access and disclosure of
personal information and of our confidential information and confidential information belonging to our customers. We have
policies and procedures in place dealing with data security and records retention. However, there is no assurance that the
security measures we have put in place will be effective in every case. Breaches in security could result in a negative impact for
us and for our customers, adversely affecting our and our customers' businesses, assets, revenues, brands and reputations and
resulting in penalties, fines, litigation, regulatory proceedings and other potential liabilities, in each case depending on the
nature of the information disclosed. Security breaches could also affect our relations with our customers, injure our reputation
and harm our ability to keep existing customers and to attract new customers. Some jurisdictions have enacted laws requiring
companies to notify individuals of data security breaches involving certain types of personal data, and in some cases our
agreements with certain customers require us to notify them in the event of a data security incident. Such mandatory
disclosures could lead to negative publicity and may cause our current and prospective customers to lose confidence in the
effectiveness of our data security measures. These risks to our business may increase as we expand the number of web-based
and cloud-based products and services we offer and as we increase the number of countries in which we operate.
Our revenues and operating results are likely to fluctuate, which could materially impact the market price of our Common
Shares
We experience significant fluctuations in revenues and operating results caused by many factors, including:
• Changes in the demand for our software products and services and for the products and services of our competitors;
• The introduction or enhancement of software products and services by us and by our competitors;
• Market acceptance of our software products, enhancements and/or services;
• Delays in the introduction of software products, enhancements and/or services by us or by our competitors;
20
• Customer order deferrals in anticipation of upgrades and new software products;
• Changes in the lengths of sales cycles;
• Changes in our pricing policies or those of our competitors;
• Delays in software product implementation with customers;
• Change in the mix of distribution channels through which our software products are licensed;
• Change in the mix of software products and services sold;
• Change in the mix of international and North American revenues;
• Changes in foreign currency exchange rates, LIBOR and other applicable interest rates;
• Acquisitions and the integration of acquired businesses;
• Restructuring charges taken in connection with any completed acquisition or otherwise;
• Outcome and impact of tax audits and other contingencies;
•
• Changes in earnings estimates by securities analysts and our ability to meet those estimates;
• Changes in laws and regulations affecting our business;
• Changes in general economic and business conditions; and
• Changes in general political developments, such as the impact of Brexit, any further policy changes resulting from the
new U.S. administration, international trade policies and policies taken to stimulate or to preserve national economies
including potential changes to NAFTA.
Investor perception of our Company;
A general weakening of the global economy or a continued weakening of the economy in a particular region or economic
or business uncertainty could result in the cancellation of or delay in customer purchases. A cancellation or deferral of even a
small number of license sales or services or delays in the implementation of our software products could have a material
adverse effect on our business, operating results and financial condition. As a result of the timing of software product and
service introductions and the rapid evolution of our business as well as of the markets we serve, we cannot predict whether
patterns or trends experienced in the past will continue. For these reasons, you should not rely upon period-to-period
comparisons of our financial results to forecast future performance. Our revenues and operating results may vary significantly
and this possible variance could materially reduce the market price of our Common Shares.
Our sales to government clients expose us to business volatility and risks, including government budgeting cycles and
appropriations, early termination, audits, investigations, sanctions and penalties
We derive revenues from contracts with U.S. and Canadian federal, state, provincial and local governments, and other
foreign governments and their respective agencies, which may terminate most of these contracts at any time, without cause.
There is increased pressure on governments and their agencies, both domestically and internationally, to reduce spending.
Further, our U.S. federal government contracts are subject to the approval of appropriations made by the U.S. Congress to fund
the expenditures under these contracts. Similarly, our contracts with U.S. state and local governments, Canadian federal,
provincial and local governments and other foreign governments and their agencies are generally subject to government
funding authorizations. Additionally, government contracts are generally subject to audits and investigations which could result
in various civil and criminal penalties and administrative sanctions, including termination of contracts, refund of a portion of
fees received, forfeiture of profits, suspension of payments, fines and suspensions or debarment from future government
business.
Changes in the market price of our Common Shares and credit ratings of our outstanding debt securities could lead to
losses for shareholders and debt holders
The market price of our Common Shares and credit ratings of our outstanding debt securities are subject to fluctuations.
Such fluctuations in market price or credit ratings may continue in response to: (i) quarterly and annual variations in operating
results; (ii) announcements of technological innovations or new products or services that are relevant to our industry;
(iii) changes in financial estimates by securities analysts; (iv) changes to the ratings or outlook of our outstanding debt
securities by rating agencies; or (v) other events or factors. In addition, financial markets experience significant price and
volume fluctuations that particularly affect the market prices of equity securities of many technology companies. These
fluctuations have often resulted from the failure of such companies to meet market expectations in a particular quarter, and thus
such fluctuations may or may not be related to the underlying operating performance of such companies. Broad market
fluctuations or any failure of our operating results in a particular quarter to meet market expectations may adversely affect the
market price of our Common Shares or the credit ratings of our outstanding debt securities. Occasionally, periods of volatility
in the market price of a company's securities may lead to the institution of securities class action litigation against a company. If
we are subject to such volatility in our stock price, we may be the target of such securities litigation in the future. Such legal
action could result in substantial costs to defend our interests and a diversion of management's attention and resources, each of
which would have a material adverse effect on our business and operating results.
21
We may become involved in litigation that may materially adversely affect us
From time to time in the ordinary course of our business, we may become involved in various legal proceedings,
including commercial, product liability, employment, class action and other litigation and claims, as well as governmental and
other regulatory investigations and proceedings. Such matters can be time-consuming, divert management's attention and
resources and cause us to incur significant expenses. Furthermore, because litigation is inherently unpredictable, the results of
any such actions may have a material adverse effect on our business, operating results or financial condition.
Our provision for income taxes and effective income tax rate may vary significantly and may adversely affect our results of
operations and cash resources
Significant judgment is required in determining our provision for income taxes. Various internal and external factors may
have favorable or unfavorable effects on our future provision for income taxes, income taxes receivable, and our effective
income tax rate. These factors include, but are not limited to, changes in tax laws, regulations and/or rates, including the Tax
Cuts and Jobs Act which was enacted in the United States on December 22, 2017, results of audits by tax authorities, changing
interpretations of existing tax laws or regulations, changes in estimates of prior years' items, the impact of transactions we
complete, future levels of research and development spending, changes in the valuation of our deferred tax assets and liabilities,
transfer pricing adjustments, changes in the overall mix of income among the different jurisdictions in which we operate, and
changes in overall levels of income before taxes. Changes in the tax laws of various jurisdictions in which we do business
could result from the base erosion and profit shifting (BEPS) project being undertaken by the Organization for Economic Co-
operation and Development (OECD). The OECD, a coalition of member countries, has been developing recommendations for
international tax rules to address different types of BEPS, including situations in which profits are shifted (or payments are
made) from higher tax jurisdictions to lower tax jurisdictions. Adoption of these recommendations (or other changes in law or
policy) by the countries in which we do business could adversely affect our provision for income taxes and our effective tax
rate. Furthermore, new accounting pronouncements or new interpretations of existing accounting pronouncements (such as
those that may be described in note 2 “Recent Accounting Pronouncements” in our notes to the Consolidated Financial
Statements included in this Annual Report on Form 10-K), and/or any internal restructuring initiatives we may implement from
time to time to streamline our operations, can have a material impact on our effective income tax rate. In July 2016, we
implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance operational and
administrative efficiencies through further consolidated ownership, management, and development of our intellectual property
(IP) in Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single
operational legal entity in each jurisdiction.
Tax examinations are often complex as tax authorities may disagree with the treatment of items reported by us and our
transfer pricing methodology based upon our limited risk distributor model, the result of which could have a material adverse
effect on our financial condition and results of operations. Although we believe our estimates are reasonable, the ultimate
outcome with respect to the taxes we owe may differ from the amounts recorded in our financial statements, and this difference
may materially affect our financial position and financial results in the period or periods for which such determination is made.
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which
significantly changed the existing US tax laws, including a reduction in the federal corporate tax rate from 35% to 21%, and the
transition of US international taxation from a worldwide tax system to a partially territorial tax system. As a result of the
enactment of the legislation, the Company incurred a provisional one-time tax expense of $19.0 million for the year ended
June 30, 2018, primarily related to the transition tax on accumulated foreign earnings and the re-measurement of certain
deferred tax assets and liabilities. The portion of this anticipated increase to tax expense attributable to the transition tax is
payable over a period of up to eight years. The impact of the $19.0 million adjustment resulting from the US legislation on the
effective tax rate is an increase of 4.9% for the year ended June 30, 2018. The $19.0 million is a provisional amount in respect
of Alternative Minimum Tax (AMT), and transition tax on accumulated foreign earnings in accordance with Staff Accounting
Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (SAB 118). The finalization of the
provisional one-time amount is pending finalization of considerations related to undistributed foreign earnings and evaluating
whether any portion of our existing AMT credit carryforwards are not expected to be refundable as a result of the repeal of
corporate AMT, which may result in changes to the provisional amount during the SAB 118 measurement period. The
Company continues to assess the impact of the new law on its consolidated financial statements and anticipates finalizing the
determination on or before December 22, 2018 in accordance with SAB 118.
For more details of tax audits to which we are subject and the impact of the recently enacted Tax Cuts and Jobs Act in the
United States, see notes 13 "Guarantees and Contingencies" and 14 "Income Taxes", respectively, to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
22
As part of a tax examination by the United States Internal Revenue Service (IRS), we have received a Notice of Proposed
Adjustment (NOPA) proposing a material increase to our taxes arising from the reorganization in Fiscal 2010 and an
additional NOPA proposing a material increase to our taxes arising in connection with our integration of Global 360 in
Fiscal 2012 into the structure that resulted from our reorganization. An adverse outcome of these tax examinations could
have a material adverse effect on our financial position and results of operations.
As we have previously disclosed, the United States IRS is examining certain of our tax returns for our fiscal year ended
June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in connection with those
examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual property ownership in
Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also previously disclosed
that the examinations may lead to proposed adjustments to our taxes that may be material, individually or in the aggregate, and
that we have not recorded any material accruals for any such potential adjustments in our Consolidated Financial Statements.
We previously disclosed that, as part of these examinations, on July 17, 2015 we received from the IRS an initial Notice
of Proposed Adjustment (NOPA) in draft form proposing a one-time approximately $280 million increase to our U.S. federal
taxes arising from the reorganization in Fiscal 2010, plus penalties and interest, and that we expected to receive an additional
NOPA proposing an increase to our U.S. federal taxes for Fiscal 2012 arising from the integration of Global 360 Holding Corp.
into the structure that resulted from the reorganization, accompanied by proposed penalties and interest. We also previously
disclosed that the draft NOPA could be changed before the final NOPA is issued, including because the IRS reserved the right
in the draft NOPA to increase the adjustment by assigning a higher value to our intellectual property.
On July 11, 2018, we received from the IRS a revised draft NOPA proposing an increase to our U.S. federal taxes for
Fiscal 2010 (the 2010 NOPA) and a draft NOPA proposing an increase to our U.S. federal taxes for Fiscal 2012 (the 2012
NOPA), respectively. A NOPA is an IRS position and does not impose an obligation to pay tax. After evaluation of these
NOPAs, we continue to strongly disagree with the IRS’ positions and intend to vigorously contest the proposed adjustments to
our taxable income.
We currently estimate our potential aggregate liability, as of June 30, 2018, in connection with these ongoing matters with
the IRS, including additional state income taxes plus penalties and interest that may be due, to be approximately $725 million,
comprised of approximately $455 million in U.S. federal and state taxes, approximately $105 million of penalties, and
approximately $165 million of interest, as further described in Note 13 "Guarantees and Contingencies" to the Consolidated
Financial Statements included in this Annual Report on Form 10-K.
Based on our discussions with the IRS and the fact that the adjustments proposed in these NOPAs reflect the IRS’ own
asserted valuations of our intangible property, we do not expect the IRS to further revise the NOPAs to increase any of their
proposed adjustments to our U.S. federal income taxes (subject to the continued accrual of interest, as noted above).
We strongly disagree with the IRS’ position and intend to vigorously contest the proposed adjustments to our taxable
income. We are examining various alternatives available to taxpayers to contest the proposed adjustments. Any such
alternatives could involve a lengthy process and result in the incurrence of significant expenses. As of the date of this Annual
Report on Form 10-K, we have not recorded any material accruals in respect of these examinations in our Consolidated
Financial Statements. An adverse outcome of these tax examinations could have a material adverse effect on our financial
position and results of operations.
For details of this and other tax audits to which we are subject, see notes 13 "Guarantees and Contingencies" and 14
"Income Taxes" to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
The declaration, payment and amount of dividends will be made at the discretion of our Board of Directors and will depend
on a number of factors
We have adopted a policy to declare non-cumulative quarterly dividends on our Common Shares. The declaration,
payment and amount of any dividends will be made pursuant to our dividend policy and is subject to final determination each
quarter by our Board of Directors in its discretion based on a number of factors that it deems relevant, including our financial
position, results of operations, available cash resources, cash requirements and alternative uses of cash that our Board of
Directors may conclude would be in the best interest of our shareholders. Our dividend payments are subject to relevant
contractual limitations, including those in our existing credit agreements and to solvency conditions established by the Canada
Business Corporations Act (CBCA), the statute under which we are incorporated. Accordingly, there can be no assurance that
any future dividends will be equal or similar in amount to any dividends previously paid or that our Board of Directors will not
decide to reduce, suspend or discontinue the payment of dividends at any time in the future.
Our operating results could be adversely affected by any weakening of economic conditions
Our overall performance depends in part on worldwide economic conditions. Certain economies have experienced
periods of downturn as a result of a multitude of factors, including, but not limited to, turmoil in the credit and financial
23
markets, concerns regarding the stability and viability of major financial institutions, declines in gross domestic product,
increases in unemployment, volatility in commodity prices and worldwide stock markets, excessive government debt and
disruptions to global trade. The severity and length of time that a downturn in economic and financial market conditions may
persist, as well as the timing, strength and sustainability of any recovery, are unknown and are beyond our control. Recently,
Brexit and its impact on the United Kingdom and the EU, as well as any policy changes resulting from the new U.S.
administration, have raised additional concerns regarding economic uncertainties. Moreover, any instability in the global
economy affects countries in different ways, at different times and with varying severity, which makes the impact to our
business complex and unpredictable. During such downturns, many customers may delay or reduce technology purchases.
Contract negotiations may become more protracted or conditions could result in reductions in the licensing of our software
products and the sale of cloud and other services, longer sales cycles, pressure on our margins, difficulties in collection of
accounts receivable or delayed payments, increased default risks associated with our accounts receivables, slower adoption of
new technologies and increased price competition. In addition, deterioration of the global credit markets could adversely
impact our ability to complete licensing transactions and services transactions, including maintenance and support renewals.
Any of these events, as well as a general weakening of, or declining corporate confidence in, the global economy, or a
curtailment in government or corporate spending could delay or decrease our revenues and therefore have a material adverse
effect on our business, operating results and financial condition.
Risks associated with data privacy issues, including evolving laws and regulations and associated compliance efforts, may
adversely impact our business
Our business depends on the processing of personal data, including data transfer between our affiliated entities, to and
from our business partners and customers, and with third-party service providers. The laws and regulations relating to personal
data constantly evolve, as federal, state and foreign governments continue to adopt new measures addressing data privacy and
processing (including collection, storage, transfer, disposal and use) of personal data. Moreover, the interpretation and
application of many existing or recently enacted privacy and data protection laws and regulations in the European Union, the
U.S. and elsewhere are uncertain and fluid, and it is possible that such laws and regulations may be interpreted or applied in a
manner that is inconsistent with our existing data management practices or the features of our products and services. Any such
new laws or regulations, any changes to existing laws and regulations and any such interpretation or application may affect
demand for our products and services, impact our ability to effectively transfer data across borders in support of our business
operations, or increase the cost of providing our products and services. Additionally, any actual or perceived breach of such
laws or regulations may subject us to claims and may lead to administrative, civil, or criminal liability, as well as reputational
harm to our Company and its employees. We could also be required to fundamentally change our business activities and
practices, or modify our products and services, which could have an adverse effect on our business.
In the U.S., various laws and regulations apply to the collection, processing, transfer, disposal, unauthorized disclosure
and security of personal data. For example, data protection laws passed by most states within the U.S. require notification to
users when there is a security breach for personal data. Additionally, the Federal Trade Commission (FTC) and many state
attorneys general are interpreting federal and state consumer protection laws as imposing standards for the online collection,
use, transfer and security of data. The U.S. Congress and state legislatures, along with federal regulatory authorities have
recently increased their attention to matters concerning personal data, and this may result in new legislation which could
increase the cost of compliance. In addition to government regulation, privacy advocacy and industry groups may propose new
and different self-regulatory standards that either legally or contractually apply to us or our clients.
In the European Union, some of our operations are subject to the European Union’s General Data Protection Regulation
(GDPR), which took effect from May 25, 2018. The GDPR introduces a number of new obligations for subject companies and
we will need to continue dedicating financial resources and management time to GDPR compliance in the coming months. The
GDPR enhances the obligations placed on companies that control or process personal data including, for example, expanded
disclosures about how personal data is to be used, new mechanisms for obtaining consent from data subjects, new controls for
data subjects with respect to their personal data (including by enabling them to exercise rights to erasure and data portability),
limitations on retention of personal data and mandatory data breach notifications. Additionally, the GDPR places companies
under new obligations relating to data transfers and the security of the personal data they process. The GDPR provides that
supervisory authorities in the European Union may impose administrative fines for certain infringements of the GDPR of up to
EUR 20,000,000 or 4% of an undertaking’s total, worldwide, annual turnover of the preceding financial year, whichever is
higher. Individuals who have suffered damage as a result of a subject company’s non-compliance with the GDPR also have the
right to seek compensation from such company. Given the breadth of the GDPR, compliance with its requirements is likely to
continue to require significant expenditure of resources on an ongoing basis, and there can be no assurance that the measures
we have taken for the purposes of compliance will be successful in preventing breach of the GDPR. Given the potential fines,
liabilities and damage to our reputation in the event of an actual or perceived breach of the GDPR, such a breach may have an
adverse effect on our business and operations.
24
Outside of the U.S. and the European Union, many jurisdictions have adopted or are adopting new data privacy laws that
may impose further onerous compliance requirements, such as data localization, which prohibits companies from storing
outside the jurisdiction data relating to resident individuals. The proliferation of such laws within the jurisdictions in which we
operate may result in conflicting and contradictory requirements, particularly in relation to evolving technologies such as cloud
computing. Any failure to successfully navigate the changing regulatory landscape could result in legal liability or impairment
to our reputation in the marketplace, which could have a material adverse effect on our business, results of operations and
financial condition.
Privacy-related claims or lawsuits initiated by governmental bodies, customers or other third parties, whether meritorious
or not, could be time consuming, result in costly regulatory proceedings, litigation, penalties and fines, or require us to change
our business practices, sometimes in expensive ways, or other potential liabilities. Unfavorable publicity regarding our privacy
practices could injure our reputation, harm our ability to keep existing customers or attract new customers or otherwise
adversely affect our business, assets, revenue, brands and reputation.
Stress in the global financial system may adversely affect our finances and operations in ways that may be hard to predict or
to defend against
Financial developments seemingly unrelated to us or to our industry may adversely affect us over the course of time. For
example, material increases in LIBOR or other applicable interest rate benchmarks may increase the debt payment costs for our
credit facilities. Credit contraction in financial markets may hurt our ability to access credit in the event that we identify an
acquisition opportunity or require significant access to credit for other reasons. Similarly, volatility in the market price of our
Common Shares due to seemingly unrelated financial developments could hurt our ability to raise capital for the financing of
acquisitions or other reasons. Potential price inflation caused by an excess of liquidity in countries where we conduct business
may increase the cost we incur to provide our solutions and may reduce profit margins on agreements that govern the licensing
of our software products and/or the sale of our services to customers over a multi-year period. A reduction in credit, combined
with reduced economic activity, may adversely affect businesses and industries that collectively constitute a significant portion
of our customer base such as the public sector. As a result, these customers may need to reduce their licensing of our software
products or their purchases of our services, or we may experience greater difficulty in receiving payment for the licenses and
services that these customers purchase from us. Any of these events, or any other events caused by turmoil in world financial
markets, may have a material adverse effect on our business, operating results, and financial condition.
Our indebtedness could limit our operations and opportunities.
Our debt service obligations could have an adverse effect on our earnings and cash flows for as long as the indebtedness
is outstanding, which could reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions
and other general corporate purposes.
As of June 30, 2018, our credit facilities consisted of a $1 billion term loan facility (Term Loan B) and a $450 million
committed revolving credit facility (the Revolver). Borrowings under Term Loan B and the Revolver, if any, are or will be
secured by a first charge over substantially all of our assets.
Repayments made under Term Loan B are equal to 0.25% of the original principal amount in equal quarterly installments
for the life of Term Loan B, with the remainder due at maturity. The terms of Term Loan B and the Revolver include customary
restrictive covenants that impose operating and financial restrictions on us, including restrictions on our ability to take actions
that could be in our best interests. These restrictive covenants include certain limitations on our ability to make investments,
loans and acquisitions, incur additional debt, incur liens and encumbrances, consolidate, amalgamate or merge with any other
person, dispose of assets, make certain restricted payments, including a limit on dividends on equity securities or payments to
redeem, repurchase or retire equity securities or other indebtedness, engage in transactions with affiliates, materially alter the
business we conduct, and enter into certain restrictive agreements. Term Loan B and the Revolver includes a financial covenant
relating to a maximum consolidated net leverage ratio, which could restrict our operations, particularly our ability to respond to
changes in our business or to take specified actions. Our failure to comply with any of the covenants that are included in Term
Loan B and the Revolver could result in a default under the terms thereof, which could permit the lenders thereunder to declare
all or part of any outstanding borrowings to be immediately due and payable.
As of June 30, 2018, we also have $800 million in aggregate principal amount of our 5.625% senior unsecured notes due
2023 (Senior Notes 2023) and $850 million in aggregate principal amount of our 5.875% senior unsecured notes due 2026
(Senior Notes 2026, and with the Senior Notes 2023, the Senior Notes) outstanding, both respectively issued in private
placements to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain persons in offshore
transactions pursuant to Regulation S under the Securities Act. Our failure to comply with any of the covenants that are
included in the indentures governing the Senior Notes could result in a default under the terms thereof, which could result in all
or a portion of the Senior Notes to be immediately due and payable.
25
The risks discussed above would be increased to the extent that we engage in acquisitions that involve the incurrence of
material additional debt, or the acquisition of businesses with material debt, and such incurrences or acquisitions could
potentially negatively impact the ratings or outlook of the rating agencies on our outstanding debt securities.
For more details see note 10 "Long-Term Debt" to the Consolidated Financial Statements included in this Annual Report
on Form 10-K.
Changes in generally accepted accounting principles may materially adversely affect our reported results of operations or
financial position.
From time to time, the Financial Accounting Standards Board (FASB) issues new accounting principles. For example, in
May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers, with
amendments in 2015, 2016 and 2017, which creates new Accounting Standards Codification Topic 606 (Topic 606) that will
replace most existing revenue recognition guidance in U.S. generally accepted accounting principles (GAAP) when it becomes
effective for us in the first quarter of Fiscal 2019. Under Topic 606, more judgment and estimates will be required within the
revenue recognition process than are required under existing GAAP. In connection with our adoption of Topic 606, we are
developing new policies and processes based on the changes in revenue recognition guidance and implementing a new revenue
recognition accounting system. Such changes and any difficulties implementing such changes could materially adversely affect
our reported financial results and the effectiveness of our internal controls over financial reporting.
For more details see note 2 "Accounting Policies and Recent Accounting Pronouncements" to the Consolidated Financial
Statements included in this Annual Report on Form 10-K.
Certain of our products may be perceived as, or determined by the courts to be, a violation of privacy rights and related laws.
Any such perception or determination could adversely affect our revenues and results of operations.
Because of the nature of certain of our products, including those relating to digital investigations, potential customers and
purchasers of our products or the public in general may perceive that use of these products may result in violations of their
individual privacy rights. In addition, certain courts or regulatory authorities could determine that the use of our software
solutions or other products is a violation of privacy laws, particularly in jurisdictions outside of the United States. Any such
determination or perception by potential customers, the general public, government entities or the judicial system could harm
our reputation and adversely affect our revenues and results of operations.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
Our properties consist of owned and leased office facilities for sales, support, research and development, consulting and
administrative personnel, totaling approximately 336,000 square feet of owned facilities and approximately 2,501,000 square
feet of leased facilities.
Owned Facilities
Waterloo, Ontario, Canada
Our headquarters is located in Waterloo, Ontario, Canada, and it consists of approximately 232,000 square feet. The land
upon which the buildings stand is leased from the University of Waterloo for a period of 49 years beginning in December 2005,
with an option to renew for an additional term of 49 years. The option to renew is exercisable by us upon providing written
notice to the University of Waterloo not earlier than the 40th anniversary and not later than the 45th anniversary of the lease
commencement date.
Brook Park, Ohio, United States
We also own a building, along with its land, located in Brook Park, Ohio, that consists of approximately 104,000 square
feet. This building is used primarily as a data center.
Leased Facilities
We lease approximately 2,501,000 square feet both domestically and internationally. Our significant facilities include the
following:
• Hyderabad facility, located in India, totaling approximately 230,000 square feet;
26
• Makati City facility, located in Manila, Philippines, totaling approximately 135,000 square feet;
• Bangalore facility, located in India, totaling approximately 133,000 square feet;
• Grasbrunn facility, located in Germany, totaling approximately 123,000 square feet of office and storage;
San Mateo facility, located in California, United States, totaling approximately 108,000 square feet;
•
• Richmond Hill facility, located in Ontario, Canada, totaling approximately 101,000 square feet;
•
Pasadena facility, located in California, United States, totaling approximately 90,000 square feet;
• Gaithersburg facility, located in Maryland, United States, totaling approximately 84,000 square feet;
• Reading facility, located in Reading, UK, totaling approximately 53,000 square feet; and
• Tinton Falls facility, located in New Jersey, United States, totaling approximately 45,000 square feet;
Due to restructuring and merger integration initiatives, we have vacated approximately 354,000 square feet of our leased
properties. The vacated space has either been sublet or is being actively marketed for sublease or disposition.
In addition, we also maintain a customer briefing centre and management office in Toronto, Ontario, Canada.
Item 3.
Legal Proceedings
In the normal course of business, we are subject to various legal claims, as well as potential legal claims. While the
results of litigation and claims cannot be predicted with certainty, we believe that the final outcome of these matters will not
have a materially adverse effect on our consolidated results of operations or financial conditions.
For more information regarding litigation and the status of certain regulatory and tax proceedings, please refer to Part I,
Item 1A "Risk Factors" and to note 13 “Guarantees and Contingencies” to our Consolidated Financial Statements, which are set
forth in Part IV, under Item 15 of this Annual Report on Form 10-K.
Item 4.
Mine Safety Disclosures
Not applicable.
27
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our Common Shares have traded on the NASDAQ stock market since 1996 under the symbol “OTEX” and our Common
Shares have traded on the Toronto Stock Exchange (TSX) since 1998, first under the symbol "OTC", and since 2017, trades
under the symbol “OTEX”.
The following table sets forth the high and low sales prices for our Common Shares, as reported by the TSX and
NASDAQ, respectively, for the periods indicated below.
Fiscal Year Ended June 30, 2018:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal Year Ended June 30, 2017:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
NASDAQ
(in USD)
TSX
(in CAD)
High
Low
High
Low
$36.77
$40.31
$35.80
$34.98
$35.21
$35.07
$32.79
$33.42
$33.26
$33.19
$32.05
$30.92
$30.88
$30.58
$29.30
$28.85
$48.12
$49.49
$45.39
$44.09
$48.28
$46.45
$43.56
$43.75
$42.55
$41.34
$40.22
$38.65
$40.19
$41.05
$38.92
$37.55
On June 30, 2018, the closing price of our Common Shares on the NASDAQ was $35.19 per share, and on the TSX was
Canadian $46.27 per share.
As at June 30, 2018, we had 343 shareholders of record holding our Common Shares of which 294 were U.S.
shareholders.
Unregistered Sales of Equity Securities
None.
Dividend Policy
We currently expect to continue paying cash dividends on a quarterly basis. However, future declarations of dividends are
subject to the final determination of our Board of Directors, in its discretion, based on a number of factors that it deems
relevant, including our financial position, results of operations, available cash resources, cash requirements and alternative uses
of cash that our Board of Directors may conclude would be in the best interest of our shareholders. Our dividend payments are
subject to relevant contractual limitations, including those in our existing credit agreements and to solvency conditions
established under the Canada Business Corporations Act (CBCA), the statute under which we are incorporated. We have
historically declared dividends in U.S. dollars, but registered shareholders can elect to receive dividends in U.S. dollars or
Canadian dollars by contacting the Company's transfer agent.
In Fiscal 2018, our Board of Directors declared the following dividends:
Declaration Date
Dividend per Share
Record Date
Total amount (in
thousands of U.S. dollars)
5/8/2018
1/30/2018
11/1/2017
8/2/2017
$
$
$
$
0.1518
0.1320
0.1320
0.1320
6/8/2018
3/2/2018
12/1/2017
9/1/2017
$
$
$
$
40,617
35,168
34,811
35,017
Payment Date
6/29/2018
3/23/2018
12/20/2017
9/22/2017
28
In Fiscal 2017, our Board of Directors declared the following dividends:
Declaration Date
Dividend per Share
5/5/2017
2/1/2017
11/3/2016
7/26/2016
Stock Purchases
$
$
$
$
0.1320
0.1150
0.1150
0.1150
Record Date
5/26/2017
3/3/2017
12/2/2016
8/26/2016
Total amount (in
thousands of U.S. dollars)
$
$
$
$
34,628
30,303
27,859
27,791
Payment Date
6/17/2017
3/27/2017
12/22/2016
9/16/2016
No shares were repurchased during the three months ended June 30, 2018.
Stock Performance Graph and Cumulative Total Return
The following graph compares for each of the five fiscal years ended June 30, 2018, the yearly percentage change in the
cumulative total shareholder return on our Common Shares with the cumulative total return on:
•
•
•
an index of companies in the software application industry (S&P North American Technology-Software Index);
the NASDAQ Composite Index; and
the S&P/TSX Composite Index.
The graph illustrates the cumulative return on a $100 investment in our Common Shares made on June 30, 2013, as
compared with the cumulative return on a $100 investment in the S&P North American Technology-Software Index, the
NASDAQ Composite Index and the S&P/TSX Composite Index (the Indices) made on the same day. Dividends declared on
securities comprising the respective Indices and declared on our Common Shares are assumed to be reinvested. The
performance of our Common Shares as set out in the graph is based upon historical data and is not indicative of, nor intended to
forecast, future performance of our Common Shares. The graph lines merely connect measurement dates and do not reflect
fluctuations between those dates.
29
The chart below provides information with respect to the value of $100 invested on June 30, 2013 in our Common
Shares as well as in the other Indices, assuming dividend reinvestment when applicable:
Open Text Corporation
S&P North American Technology-Software Index
NASDAQ Composite
S&P/TSX Composite
June 30,
2013
$100.00
$100.00
$100.00
$100.00
June 30,
2014
$142.06
$127.52
$131.17
$126.97
June 30,
2015
$121.76
$148.34
$150.10
$107.23
June 30,
2016
$180.72
$159.26
$147.58
$102.92
June 30,
2017
$195.57
$208.21
$189.34
$114.18
June 30,
2018
$221.79
$279.19
$234.02
$124.57
To the extent that this Annual Report on Form 10-K has been or will be specifically incorporated by reference into any
filing by us under the Securities Act or the Exchange Act, the foregoing “Stock Performance Graph and Cumulative Total
Return” shall not be deemed to be “soliciting materials” or to be so incorporated, unless specifically otherwise provided in any
such filing.
For information relating to our various stock compensation plans, see Item 12 of this Annual Report on Form 10-K.
Canadian Tax Matters
Dividends
Since June 21, 2013 and unless stated otherwise, dividends paid by the Company to Canadian residents are eligible
dividends as per the Income Tax Act (Canada).
Non-residents of Canada
Dividends paid or credited to non-residents of Canada are subject to a 25% withholding tax unless reduced by treaty.
Under the Canada-United States Tax Convention (1980) (the Treaty), U.S. residents who are entitled to all of the benefits of the
Treaty are generally subject to a 15% withholding tax.
Beginning in calendar year 2012, the Canada Revenue Agency has introduced new rules requiring residents of any
country with which Canada has a tax treaty to certify that they reside in that country and are eligible to have Canadian non-
resident tax withheld on the payment of dividends at the tax treaty rate. Registered shareholders should have completed the
Declaration of Eligibility for Benefits (Reduced Tax) under a Tax Treaty for a Non-Resident Person and returned it to our
transfer agent, ComputerShare Investor Services Inc.
United States Tax Matters
U.S. residents
The following discussion summarizes certain U.S. federal income tax considerations relevant to an investment in the
Common Shares by a U.S. holder. For purposes of this summary, a “U.S. holder” is a beneficial owner of Common Shares that
holds such shares as capital assets under the U.S. Internal Revenue Code of 1986, as amended (the Code), and is a citizen or
resident of the United States and not of Canada, a corporation organized under the laws of the United States or any political
subdivision thereof, or a person that is otherwise subject to U.S. federal income tax on a net income basis in respect of
Common Shares. It does not address any aspect of U.S. federal gift or estate tax, or of state, local or non-U.S. tax laws and does
not address aspects of U.S. federal income taxation applicable to U.S. holders holding options, warrants or other rights to
acquire Common Shares. Further, this discussion does not address the U.S. federal income tax consequences to U.S. holders
that are subject to special treatment under U.S. federal income tax laws, including, but not limited to U.S. holders owning
directly, indirectly or by attribution 10% or more of the voting power or value of the Company's stock; broker-dealers; banks or
insurance companies; financial institutions; regulated investment companies; taxpayers who have elected mark-to-market
accounting; tax-exempt organizations; taxpayers who hold Common Shares as part of a “straddle,” “hedge,” or “conversion
transaction” with other investments; individual retirement or other tax-deferred accounts; taxpayers whose functional currency
is not the U.S. dollar; partnerships or the partners therein; S corporations; or U.S. expatriates.
The discussion is based upon the provisions of the Code, the Treasury regulations promulgated thereunder, the
Convention Between the United States and Canada with Respect to Taxes on Income and Capital, together with related
Protocols and Competent Authority Agreements (the Convention), the administrative practices published by the IRS and U.S.
judicial decisions, all of which are subject to change. This discussion does not consider the potential effects, both adverse and
beneficial, of any recently proposed legislation which, if enacted, could be applied, possibly on a retroactive basis, at any time.
30
Distributions on the Common Shares
Subject to the discussion below under “Passive Foreign Investment Company Rules,” U.S. holders generally will treat
the gross amount of distributions paid by the Company equal to the U.S. dollar value of such dividends on the date the
dividends are received or treated as received (based on the exchange rate on such date), without reduction for Canadian
withholding tax (see “Canadian Tax Matters - Dividends - Non-residents of Canada”), as dividend income for U.S. federal
income tax purposes to the extent of the Company’s current and accumulated earnings and profits. Because the Company does
not expect to maintain calculations of its earnings and profits under U.S. federal income tax principles, it is expected that
distributions paid to U.S. holders generally will be reported as dividends.
Individual U.S. holders will generally be eligible to treat dividends as “qualified dividend income” taxable at
preferential rates with certain exceptions for short-term and hedged positions, and provided that the Company is not during the
taxable year in which the dividends are paid (and was not in the preceding taxable year) classified as a “passive foreign
investment company” (PFIC) as described below under “Passive Foreign Investment Company Rules.” Dividends paid on the
Common Shares generally will not be eligible for the “dividends received” deduction allowed to corporate U.S. holders in
respect of dividends from U.S. corporations.
If a U.S. holder receives foreign currency on a distribution that is not converted into U.S. dollars on the date of receipt,
the U.S. holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date the dividends are received
or treated as received. Any gain or loss recognized upon a subsequent sale or other disposition of the foreign currency,
including an exchange for U.S. dollars, will be U.S. source ordinary income or loss.
The amount of Canadian tax withheld generally will give rise to a foreign tax credit or deduction for U.S. federal
income tax purposes (see “Canadian Tax Matters - Dividends - Non-residents of Canada”). Dividends paid by the Company
generally will constitute “passive category income” for purposes of the foreign tax credit (or in the case of certain U.S. holders,
“general category income”). The Code, as modified by the Convention, applies various limitations on the amount of foreign tax
credit that may be available to a U.S. taxpayer. The Common Shares are currently traded on both the NASDAQ and TSX.
Dividends paid by a foreign corporation that is at least 50% owned by U.S. persons may be treated as U.S. source income
(rather than foreign source income) for foreign tax credit purposes to the extent they are attributable to earnings and profits of
the foreign corporation from sources within the United States, if the foreign corporation has more than an insignificant amount
of U.S. source earnings and profits. Although this rule does not appear to be intended to apply in the context of a public
company such as the Company, we are not aware of any authority that would render it inapplicable. In part because the
Company does not expect to calculate its earnings and profits for U.S. federal income tax purposes, the effect of this rule may
be to treat all or a portion of any dividends paid by the Company as U.S. source income, which in turn may limit a U.S.
holder’s ability to claim a foreign tax credit for the Canadian withholding taxes payable in respect of the dividends. Subject to
limitations, the Code permits a U.S. holder entitled to benefits under the Convention to elect to treat any dividends paid by the
Company as foreign-source income for foreign tax credit purposes. The foreign tax credit rules are complex. U.S. holders
should consult their own tax advisors with respect to the implications of those rules for their investments in the Common
Shares.
Sale, Exchange, Redemption or Other Disposition of Common Shares
Subject to the discussion below under “Passive Foreign Investment Company Rules,” the sale of Common Shares
generally will result in the recognition of gain or loss to a U.S. holder in an amount equal to the difference between the amount
realized and the U.S. holder’s adjusted basis in the Common Shares. A U.S. holder’s tax basis in a Common Share will
generally equal the price it paid for the Common Share. Any capital gain or loss will be long-term if the Common Shares have
been held for more than one year. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules
Special U.S. federal income tax rules apply to U.S. persons owning shares of a PFIC. The Company will be classified as a
PFIC in a particular taxable year if either: (i) 75 percent or more of the Company’s gross income for the taxable year is passive
income, or (ii) the average percentage of the value of the Company’s assets that produce or are held for the production of
passive income is at least 50 percent. If the Company is treated as a PFIC for any year, U.S. holders may be subject to adverse
tax consequences upon a sale, exchange, or other disposition of the Common Shares, or upon the receipt of certain “excess
distributions” in respect of the Common Shares. Dividends paid by a PFIC are not qualified dividends eligible for taxation at
preferential rates. Based on audited consolidated financial statements, we believe that the Company was not treated as a PFIC
for U.S. federal income tax purposes with respect to its 2017 or 2018 taxable years. In addition, based on a review of the
Company’s audited consolidated financial statements and its current expectations regarding the value and nature of its assets
and the sources and nature of its income, the Company does not anticipate being treated as a PFIC for the 2019 taxable year.
31
Information Reporting and Backup Withholding
Except in the case of corporations or other exempt holders, dividends paid to a U.S. holder may be subject to U.S.
information reporting requirements and may be subject to backup withholding unless the U.S. holder provides an accurate
taxpayer identification number on a properly completed IRS Form W-9 and certifies that no loss of exemption from backup
withholding has occurred. The amount of any backup withholding will be allowed as a credit against the U.S. holder’s U.S.
federal income tax liability and may entitle the U.S. holder to a refund, provided that certain required information is timely
furnished to the IRS.
Item 6.
Selected Financial Data
The following table summarizes our selected consolidated financial data for the periods indicated. The selected
consolidated financial data should be read in conjunction with our Consolidated Financial Statements and related notes and
“Management's Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Annual
Report on Form 10-K. The selected consolidated statement of income and balance sheet data for each of the five fiscal years
indicated below has been derived from our audited Consolidated Financial Statements. Over the last five fiscal years we have
acquired a number of companies including, but not limited to Hightail, Guidance, Covisint, ECD Business, CCM Business,
Recommind, ANX, CEM Business, Daegis, Actuate, and GXS. The results of these companies and all of our previously
acquired companies have been included herein and have contributed to the growth in our revenues, net income and net income
per share and such acquisitions affect period-to-period comparability.
2018
2017
2016
2015
2014
Fiscal Year Ended June 30,
(In thousands, except per share data)
Statement of Income Data:
Revenues
Net income, attributable to
OpenText(1)
Net income per share, basic,
attributable to OpenText(1)
Net income per share, diluted,
attributable to OpenText(1)
Weighted average number of Common
Shares outstanding, basic
$
$
$
$
Weighted average number of Common
Shares outstanding, diluted
(1)
2,815,241 $
2,291,057 $
1,824,228 $
1,851,917 $
1,624,699
242,224 $
1,025,659 $
284,477 $
234,327 $
218,125
0.91 $
4.04 $
1.17 $
0.96 $
0.91 $
4.01 $
1.17 $
0.95 $
0.91
0.90
266,085
253,879
242,926
244,184
239,348
267,492
255,805
244,076
245,914
241,152
Fiscal 2017 included a significant one-time tax benefit of $876.1 million recorded in the first quarter of Fiscal 2017.
2018
2017
2016
2015
2014
As of June 30,
Balance Sheet Data:
Total assets
Total Long-term liabilities
Cash dividends per Common Share
$
$
$
7,765,029 $
3,053,172 $
0.5478 $
7,480,562 $
2,820,200 $
0.4770 $
5,154,144 $
2,503,918 $
0.4150 $
4,353,330 $
1,899,086 $
0.3588 $
3,847,205
1,564,890
0.3113
32
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Annual Report on Form 10-K, including this Management's Discussion and Analysis of Financial Condition and
Results of Operations (MD&A), contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A
of the U.S. Securities Act of 1933, as amended (the Securities Act), and is subject to the safe harbors created by those sections.
All statements other than statements of historical facts are statements that could be deemed forward-looking statements.
When used in this report, the words “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “may”,
“could”, “would”, "might", "will" and other similar language, as they relate to Open Text Corporation (“OpenText” or the
“Company”), are intended to identify forward-looking statements under applicable securities laws. Specific forward-looking
statements in this report include, but are not limited to: (i) statements about our focus in the fiscal year beginning July 1, 2018
and ending June 30, 2019 (Fiscal 2019) on growth in earnings and cash flows; (ii) creating value through investments in broader
Enterprise Information Management (EIM) capabilities; (iii) our future business plans and business planning process; (iv)
statements relating to business trends; (v) statements relating to distribution; (vi) the Company’s presence in the cloud and in
growth markets; (vii) product and solution developments, enhancements and releases and the timing thereof; (viii) the Company’s
financial conditions, results of operations and earnings; (ix) the basis for any future growth and for our financial performance;
(x) declaration of quarterly dividends; (xi) future tax rates; (xii) the changing regulatory environment including the new tax reform
legislation enacted through the Tax Cuts and Jobs Act in the United States and its impact on our business; (xiii) annual recurring
revenues; (xiv) research and development and related expenditures; (xv) our building, development and consolidation of our
network infrastructure; (xvi) competition and changes in the competitive landscape; (xvii) our management and protection of
intellectual property and other proprietary rights; (xviii) foreign sales and exchange rate fluctuations; (xix) cyclical or seasonal
aspects of our business; (xx) capital expenditures; (xxi) potential legal and/or regulatory proceedings; (xxii) statements about the
impact of Magellan and Release 16; and (xxiii) other matters.
In addition, any statements or information that refer to expectations, beliefs, plans, projections, objectives, performance or
other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking, and based
on our current expectations, forecasts and projections about the operating environment, economies and markets in which we
operate. Forward-looking statements reflect our current estimates, beliefs and assumptions, which are based on management’s
perception of historic trends, current conditions and expected future developments, as well as other factors it believes are
appropriate in the circumstances. The forward-looking statements contained in this report are based on certain assumptions
including the following: (i) countries continuing to implement and enforce existing and additional customs and security regulations
relating to the provision of electronic information for imports and exports; (ii) our continued operation of a secure and reliable
business network; (iii) the stability of general economic and market conditions, currency exchange rates, and interest rates; (iv)
equity and debt markets continuing to provide us with access to capital; (v) our continued ability to identify, source and finance
attractive and executable business combination opportunities; and (vi) our continued compliance with third party intellectual
property rights. Management’s estimates, beliefs and assumptions are inherently subject to significant business, economic,
competitive and other uncertainties and contingencies regarding future events and, as such, are subject to change. We can give
no assurance that such estimates, beliefs and assumptions will prove to be correct.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual
results, performance or achievements to differ materially from the anticipated results, performance or achievements expressed or
implied by such forward-looking statements. The risks and uncertainties that may affect forward-looking statements include, but
are not limited to: (i) integration of acquisitions and related restructuring efforts, including the quantum of restructuring charges
and the timing thereof; (ii) the potential for the incurrence of or assumption of debt in connection with acquisitions and the impact
on the ratings or outlooks of rating agencies on our outstanding debt securities; (iii) the possibility that the Company may be
unable to meet its future reporting requirements under the Exchange Act, and the rules promulgated thereunder, or applicable
Canadian securities regulation; (iv) the risks associated with bringing new products and services to market; (v) fluctuations in
currency exchange rates (including as a result of the impact of Brexit and any policy changes resulting from the new U.S.
administration); (vi) delays in the purchasing decisions of the Company’s customers; (vii) the competition the Company faces in
its industry and/or marketplace; (viii) the final determination of litigation, tax audits (including tax examinations in the United
States, Canada or elsewhere) and other legal proceedings; (ix) potential exposure to greater than anticipated tax liabilities or
expenses, including with respect to changes in Canadian, U.S. or international tax regimes; (x) the possibility of technical, logistical
or planning issues in connection with the deployment of the Company’s products or services; (xi) the continuous commitment of
the Company’s customers; (xii) demand for the Company’s products and services; (xiii) increase in exposure to international
business risks (including as a result of the impact of Brexit and any policy changes resulting from the new U.S. administration,
including potential renegotiation of NAFTA) as we continue to increase our international operations; (xiv) inability to raise capital
at all or on not unfavorable terms in the future; (xv) downward pressure on our share price and dilutive effect of future sales or
issuances of equity securities (including in connection with future acquisitions); and (xvi) potential changes in ratings or outlooks
of rating agencies on our outstanding debt securities. Other factors that may affect forward-looking statements include, but are
not limited to: (i) the future performance, financial and otherwise, of the Company; (ii) the ability of the Company to bring new
33
products and services to market and to increase sales; (iii) the strength of the Company’s product development pipeline; (iv) failure
to secure and protect patents, trademarks and other proprietary rights; (v) infringement of third-party proprietary rights triggering
indemnification obligations and resulting in significant expenses or restrictions on our ability to provide our products or services;
(vi) failure to comply with privacy laws and regulations that are extensive, open to various interpretations and complex to implement
including General Data Protection Regulation (GDPR) and Country by Country Reporting; (vii) the Company’s growth and other
profitability prospects; (viii) the estimated size and growth prospects of the EIM market; (ix) the Company’s competitive position
in the EIM market and its ability to take advantage of future opportunities in this market; (x) the benefits of the Company’s products
and services to be realized by customers; (xi) the demand for the Company’s products and services and the extent of deployment
of the Company’s products and services in the EIM marketplace; (xii) the Company’s financial condition and capital requirements;
(xiii) system or network failures or information security breaches in connection with the Company's offerings and information
technology systems generally; and (xiv) failure to attract and retain key personnel to develop and effectively manage the Company's
business.
Readers should carefully review Part I, Item 1A "Risk Factors" and other documents we file from time to time with the
Securities and Exchange Commission (SEC) and other securities regulators. A number of factors may materially affect our
business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in
Part I, Item 1A "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Any one of these factors, and other factors
that we are unaware of, or currently deem immaterial, may cause our actual results to differ materially from recent results or
from our anticipated future results.
The following MD&A is intended to help readers understand our results of operations and financial condition, and is
provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and the
accompanying Notes to our Consolidated Financial Statements under Part II, Item 8 of this Annual Report on Form 10-K.
All dollar and percentage comparisons made herein under the sections titled "Fiscal 2018 compared to Fiscal 2017" refer
to the twelve months ended June 30, 2018 (Fiscal 2018) compared with the twelve months ended June 30, 2017 (Fiscal 2017).
All dollar and percentage comparisons made herein under the sections titled "Fiscal 2017 compared to Fiscal 2016" refer to
Fiscal 2017 compared with the twelve months ended June 30, 2016 (Fiscal 2016).
Where we say “we”, “us”, “our”, “OpenText” or “the Company”, we mean Open Text Corporation or Open Text
Corporation and its subsidiaries, as applicable.
EXECUTIVE OVERVIEW
We operate in the Enterprise Information Management (EIM) market where we enable the intelligent and connected
enterprise. We develop enterprise software to support businesses in becoming digital businesses and governments in becoming
digital governments. The OpenText comprehensive EIM platform and suite of software products and services provide secure
and scalable solutions for global companies and governments around the world. With our software, organizations manage a
valuable asset - information. Information that is made more valuable by connecting it to digital business processes, information
that is protected and secure throughout its entire lifecycle, information that captivates customers, and information that connects
and fuels some of the world's largest digital supply chains in manufacturing, retail, and financial services. With Artificial
Intelligence (AI) from OpenText, our customers leverage their information for automation, insights, predictions, and ultimately
better decision making.
We offer software through traditional on-premises solutions, cloud solutions or a combination of both. We believe our
customers will operate in hybrid on-premises and cloud environments, and we are ready to support the delivery method the
customer prefers. In providing choice and flexibility, we strive to maximize the lifetime value of the relationship with our
customers.
Our initial public offering was on the NASDAQ in 1996 and we were subsequently listed on the Toronto Stock Exchange
(TSX) in 1998. We are a multinational company and as of June 30, 2018, employed approximately 12,200 people worldwide.
Our ticker symbol on both the NASDAQ and the TSX is "OTEX".
Fiscal 2018 Summary:
During Fiscal 2018 we saw the following activity:
• Total revenue was $2,815.2 million, up 22.9% compared to the prior fiscal year; up 19.7% after factoring the impact
of $72.6 million of foreign exchange rate changes.
• Total annual recurring revenue, which we define as the sum of cloud services and subscriptions revenue and
customer support revenue, was $2,061.5 million, up 22.2% compared to the prior fiscal year; up 19.4% after
factoring the impact of $47.5 million of foreign exchange rate changes.
34
• Cloud services and subscriptions revenue was $829.0 million, up 17.5% compared to the prior fiscal year; up 16.0%
after factoring the impact of $10.4 million of foreign exchange rate changes.
• License revenue was $437.5 million, up 18.5% compared to the prior fiscal year; up 14.8% after factoring the impact
of $13.9 million of foreign exchange rate changes.
• GAAP-based EPS, diluted, was $0.91 compared to $4.01 in the prior fiscal year. Fiscal 2017 included a significant
one-time tax benefit of $876.1 million recorded in the first quarter of Fiscal 2017.
• Non-GAAP-based EPS, diluted, was $2.56 compared to $2.02 in the prior fiscal year.
• GAAP-based gross margin was 66.2% compared to 66.7% in the prior fiscal year.
• Non-GAAP-based gross margin was 73.0% compared to 72.6% in the prior fiscal year.
• GAAP-based operating margin was 18.0% compared to 15.4% in the prior fiscal year.
• Non-GAAP-based operating margin was 33.1% compared to 31.8% in the prior fiscal year.
• GAAP-based net income attributable to OpenText was $242.2 million compared to $1,025.7 million in the prior
fiscal year. Fiscal 2017 included a significant one-time tax benefit of $876.1 million recorded in the first quarter of
Fiscal 2017.
• Non-GAAP-based net income attributable to OpenText was $683.6 million compared to $517.7 million in the prior
fiscal year.
• Adjusted EBITDA was $1,019.1 million compared to $792.5 million in the prior fiscal year.
• Operating cash flow was $709.9 million, up 61.6% from the prior fiscal year.
• Cash and cash equivalents was $682.9 million as of June 30, 2018, compared to $443.4 million as of June 30, 2017.
See "Use of Non-GAAP Financial Measures" below for definitions and reconciliations of GAAP-based measures to Non-
GAAP-based measures.
See "Acquisitions" below for the impact of acquisitions on the period-to-period comparability of results.
Acquisitions
Our competitive position in the marketplace requires us to maintain a complex and evolving array of technologies,
products, services and capabilities. In light of the continually evolving marketplace in which we operate, on an ongoing basis
we regularly evaluate acquisition opportunities within the EIM market and at any time may be in various stages of discussions
with respect to such opportunities.
Acquisition of Hightail, Inc.
On February 14, 2018, we acquired all of the equity interest in Hightail, Inc. (Hightail), a leading cloud service provider
for file sharing and creative collaboration, for approximately $20.5 million. This acquisition complements and extends our EIM
portfolio. The results of operations of this acquisition have been consolidated with those of OpenText beginning February 14,
2018.
Acquisition of Guidance Software, Inc.
On September 14, 2017, we acquired all of the equity interest in Guidance Software Inc. (Guidance), a leading provider
of forensic security solutions, for approximately $240.5 million. This acquisition complements and extends our EIM portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning September 14, 2017.
Acquisition of Covisint Corporation
On July 26, 2017, we acquired all of the equity interest in Covisint Corporation (Covisint), a leading cloud platform for
building Identity, Automotive, and Internet of Things applications, for approximately $102.8 million. This acquisition
complements and extends our EIM portfolio. The results of operations of this acquisition have been consolidated with those of
OpenText beginning July 26, 2017.
We believe our acquisitions support our long-term strategic direction, strengthen our competitive position, expand our
customer base, provide greater scale to accelerate innovation, grow our earnings and provide superior shareholder value. We
expect to continue to strategically acquire companies, products, services and technologies to augment our existing business.
Our acquisitions, particularly significant ones, can affect the period-to-period comparability of our results. See note 18
"Acquisitions" to our Consolidated Financial Statements for more details.
35
Outlook for Fiscal 2019
We expect to continue to pursue strategic acquisitions in the future to strengthen our service offerings in the EIM market,
and at any time may be in various stages of discussions with respect to such opportunities. We believe we are a value oriented
and disciplined acquirer, having efficiently deployed approximately $5.8 billion on acquisitions over the last 10 years. We see
our ability to successfully integrate acquired companies and assets into our business as a strength and pursuing strategic
acquisitions is an important aspect to our growth strategy. During Fiscal 2018, we further demonstrated the implementation of
this strategy by acquiring Covisint, Guidance and Hightail, deploying an aggregate of $363.8 million.
While acquiring companies is one of our leading growth drivers, our growth strategy also includes organic growth
through ongoing innovation. We believe we create sustained value through new innovation by expanding distribution and
continually adding value to our installed base of customers. This fiscal year we invested approximately $323 million in
research and development (R&D) or approximately 11% of revenue, in line with our target to spend approximately 11% to 13%
of revenues for R&D this fiscal year. We believe our ability to leverage our global presence is helpful to our organic growth
initiatives.
We have developed an AI platform called “OpenText Magellan” (Magellan). Magellan incorporates Apache Spark, the
powerful, open source computing foundation that lets customers take advantage of the flexibility, extensibility, and diversity of
an open product stack while maintaining full ownership of their data and algorithms. As our enterprise software has historically
been focused on managing data and content archives, we believe we are well positioned to turn these archives of data into
active “data lakes” and we believe we can develop AI to transform this digital information into useful knowledge and insight
for our customers.
We have also developed a platform called OpenText Release 16 (Release 16), which was released in April 2016. Release
16 helps organizations with their digital transformation by digitizing information, experiences, processes and supply chains, to
create a better way to work within their enterprise. Release 16 also has a major focus on analysis and reporting across all
product lines and use cases. It offers customers a coordinated platform for digital transformation that is intended to yield the
benefits of scale and single-vendor interaction. We have made significant investments to our cloud infrastructure over the past
couple of years, and now with Release 16, virtually all of our products are available in the "OpenText Cloud". Over the past
year, OpenText has released Enhancement Packs (EP3 and EP4) to further address customer and market requirements.
We see a continued opportunity to help our customers become “digital businesses” and, with Magellan and Release 16 as
well as our recent acquisitions and continued efforts in R&D, we believe we have a strong platform to integrate personalized
analytics and insights into our OpenText EIM suites of products, which will further our vision to “Empower the Intelligent and
Connected Enterprise” and strengthen our position as a leader in EIM.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and
assumptions that affect the amounts reported in the Consolidated Financial Statements. These estimates, judgments and
assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially
from those estimates. Significant Accounting Policies in the Notes to the Consolidated Financial Statements contains a
summary of the significant accounting policies that we use. Many of these accounting policies involve complex situations and
require a high degree of judgment, either in the application and interpretation of existing accounting literature or in the
development of estimates that affect our financial statements. The accounting policies that reflect our more significant
estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating
our reported financial results include the following:
Revenue recognition,
Goodwill,
Acquired intangibles, and
Income taxes.
(i)
(ii)
(iii)
(iv)
For a full discussion of all our accounting policies, please see Note 2 "Accounting Policies and Recent Accounting
Pronouncements" to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
Revenue recognition
We recognize revenues in accordance with Accounting Standard Codification (ASC) Topic 985-605, “Software Revenue
Recognition” (Topic 985-605).
36
We record product revenues from software licenses and products when persuasive evidence of an arrangement exists, the
software product has been shipped, there are no significant uncertainties surrounding product acceptance by the customer, the
fees are fixed and determinable, and collection is considered probable. We use the residual method to recognize revenues on
delivered elements when a license agreement includes one or more elements to be delivered at a future date if evidence of the
fair value of all undelivered elements exists. If an undelivered element for the arrangement exists under the license
arrangement, revenues related to the undelivered element is deferred based on vendor-specific objective evidence (VSOE) of
the fair value of the undelivered element.
Our multiple-element sales arrangements include arrangements where software licenses and the associated post contract
customer support (PCS) are sold together. We have established VSOE of the fair value of the undelivered PCS element based
on the contracted price for renewal PCS included in the original multiple element sales arrangement, as substantiated by
contractual terms and our significant PCS renewal experience, from our existing worldwide base. Our multiple element sales
arrangements generally include irrevocable rights for the customer to renew PCS after the bundled term ends. The customer is
not subject to any economic or other penalty for failure to renew. Further, the renewal PCS options are for services comparable
to the bundled PCS and cover similar terms. It is our experience that customers generally exercise their renewal PCS option. In
the renewal transaction, PCS is sold on a stand-alone basis to the licensees one year or more after the original multiple element
sales arrangement. The exercised renewal PCS price is consistent with the renewal price in the original multiple element sales
arrangement, although an adjustment to reflect consumer price index changes is common.
If VSOE of fair value does not exist for all undelivered elements, all revenues are deferred until sufficient evidence exists
or revenue is recognized over the term of the last undelivered element.
Cloud services and subscription revenues consist of (i) software as a service (SaaS) offerings (ii) managed service
arrangements and (iii) subscription revenues relating to on premise offerings. The customer contracts for each of these three
offerings are long term contracts (greater than twelve months) and are based on the customer’s usage over the contract period.
The revenue associated with such contracts is recognized once usage has been measured, the fee is fixed and determinable and
collection is probable.
In certain managed services arrangements, we sell transaction processing along with implementation and start-up services.
Start-up services performed as part of the core implementation may include: infrastructure assessment and capacity planning,
provisioning of infrastructure, customer connectivity and other initial setup activities. These sets of services do not have stand-
alone value and, therefore, they do not qualify as separate units of accounting and are not separated. We believe these services
do not have stand-alone value as the customer only receives value from these services in conjunction with the use of the related
transaction processing service, we do not sell such services separately, and the output of such services cannot be re-sold by the
customer. Revenues related to start-up services are recognized over the longer of the contract term or the estimated customer
life. In some arrangements, we also sell distinct implementation and professional services that do have stand-alone value and
can be separated from other elements in the arrangement. To the extent that they can be separately identified, the revenue
related to these services is recognized as the service is performed; otherwise they are recognized in the same pattern as
discussed above. In some arrangements, we also sell professional services as a separate single element arrangement. The
revenue related to these services is recognized as the service is performed. We defer all direct and relevant start-up costs
associated with non-distinct start-up and core implementation activities of long-term customer contracts to the extent such costs
can be recovered through guaranteed contract revenues. All other costs related to distinct implementation and professional
services arrangements are recognized as the services is performed and expensed as incurred.
Service revenues consist of revenues from consulting, implementation, training and integration services. These services
are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary
as a result of the inclusion or exclusion of these services. For those contracts where the services are not essential to the
functionality of any other element of the transaction, we determine VSOE of fair value for these services based upon normal
pricing and discounting practices for these services when sold separately. These consulting and implementation services
contracts are primarily time and materials based contracts that are, on average, less than six months in length. Revenues from
these services are recognized at the time such services are performed.
Revenues for contracts that are primarily fixed fee arrangements, wherein the services are not essential to the functionality
of a software element, are recognized using the proportional performance method.
Revenues from training and integration services are recognized in the period in which these services are performed.
Customer support revenues consist of revenues derived from contracts to provide PCS to license holders. These revenues
are recognized ratably over the term of the contract. Advance billings of PCS are not recorded to the extent that the term of the
PCS has not commenced and payment has not been received.
37
Deferred revenues primarily relate to cloud and customer support agreements which have been paid for by customers
prior to the performance of those services. Generally, the services related to customer support agreements will be provided in
the twelve months after the signing of the agreement. For cloud-related service agreements, deferred revenues are primarily
recognized ratably over the performance or service period, which can vary from contract to contract. Deferred implementation
revenue, specifically, is recognized over the longer of the estimated customer life or initial contract term.
We may enter into certain long-term sales contracts involving the sale of integrated solutions that include the modification
and customization of software and the provision of services that are essential to the functionality of the other elements in this
arrangement. As prescribed by ASC Topic 985-605, we recognize revenues from such arrangements in accordance with the
contract accounting guidelines in ASC Topic 605-35, “Construction-Type and Production-Type Contracts” (Topic 605-35), after
evaluating for separation of any non-Topic 605-35 elements in accordance with the provisions of ASC Topic 605-25, “Multiple-
Element Arrangements” (Topic 605-25). When circumstances exist that allow us to make reasonably dependable estimates of
contract revenues, contract costs and the progress of the contract to completion, we account for sales under such long-term
contracts using the percentage-of-completion (POC) method of accounting. Under the POC method, we measure progress
towards completion based upon an input measure and calculate this as the proportion of the actual hours incurred compared to
the total estimated hours. For training and integration services rendered under such contracts, revenues are recognized as the
services are rendered. We will review, on a quarterly basis, the total estimated remaining costs to completion for each of these
contracts and apply the impact of any changes on the POC prospectively. If at any time we anticipate that the estimated
remaining costs to completion will exceed the value of the contract, the resulting loss will be recognized immediately.
When circumstances exist that prevent us from making reasonably dependable estimates of contract revenues, we account
for sales under such long-term contracts using the completed contract method.
We execute certain sales contracts through resellers and distributors (collectively, resellers) and also large, well-
capitalized partners such as SAP SE and Accenture plc. (collectively, channel partners).
Revenues relating to sales through resellers and channel partners are recognized when all the recognition criteria have
been met, in other words, persuasive evidence of an arrangement exists, delivery has occurred in the reporting period, the fee is
fixed and determinable, and collectability is probable. In addition we assess the creditworthiness of each reseller and if the
reseller is newly formed, undercapitalized or in financial difficulty any revenues expected to emanate from such resellers are
deferred and recognized only when cash is received and all other revenue recognition criteria are met.
Please also refer to "Recent Accounting Pronouncements" within Note 2 "Accounting Policies and Recent Accounting
Pronouncements" to our Consolidated Financial Statements included in this Annual Report on Form 10-K for a discussion of
our upcoming adoption of Topic 606 "Revenue from Contracts with Customers".
As noted further in Note 2 "Accounting Policies and Recent Accounting Pronouncements" to our Consolidated Financial
Statements included in this Annual Report on Form 10-K, Topic 606 supersedes the revenue recognition requirements in Topic
605 and nearly all other existing revenue recognition guidance under U.S. GAAP. We will be adopting Topic 606 using the
cumulative effect approach when this guidance becomes effective for us, starting in the first quarter of Fiscal 2019.
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and
intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually)
and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.
Our operations are analyzed by management and our chief operating decision maker (CODM) as being part of a single
industry segment: the design, development, marketing and sales of EIM software and solutions. Therefore, our goodwill
impairment assessment is based on the allocation of goodwill to a single reporting unit.
We initially perform a qualitative assessment to test our reporting unit's goodwill for impairment. Based on our
qualitative assessment, if we determine that the fair value of our reporting unit is more likely than not (i.e., a likelihood of more
than 50 percent) to be less than its carrying amount, the second step of the impairment test is performed. In the second step of
the impairment test, we estimate the fair value of our reporting unit and compare it to its carrying value. If the fair value of the
reporting unit exceeds the carrying value, goodwill is not considered impaired. If the carrying value of the net assets of our
reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value
of goodwill allocated to the reporting unit, would be recorded.
Our annual impairment analysis of goodwill was performed as of April 1, 2018. Our qualitative assessment indicated that
there were no indications of impairment and therefore there was no impairment of goodwill required to be recorded for Fiscal
2018.
38
Acquired intangibles
Acquired intangibles consist of acquired technology and customer relationships associated with various acquisitions.
Acquired technology is initially recorded at fair value based on the present value of the estimated net future income-
producing capabilities of software products acquired on acquisitions. We amortize acquired technology over its estimated
useful life on a straight-line basis.
Customer relationships represent relationships that we have with customers of the acquired companies and are either
based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity
and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value
based on the present value of expected future cash flows. We amortize customer relationships on a straight-line basis over their
estimated useful lives.
We continually evaluate the remaining estimated useful life of our intangible assets being amortized to determine whether
events and circumstances warrant a revision to the remaining period of amortization.
Income taxes
We account for income taxes in accordance with ASC Topic 740, “Income Taxes” (Topic 740). Deferred tax assets and
liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the
Consolidated Financial Statements that will result in taxable or deductible amounts in future years. These temporary differences
are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that we
consider it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, we
consider factors such as the reversal of deferred income tax liabilities, projected taxable income, and the character of income
tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax
expense.
We account for our uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit
to recognize. The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be
realized. The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit.
On subsequent recognition and measurement the maximum amount which is more likely than not to be recognized at each
reporting date will represent the Company's best estimate, given the information available at the reporting date, although the
outcome of the tax position is not absolute or final. We recognize both accrued interest and penalties related to liabilities for
income taxes within the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income.
RESULTS OF OPERATIONS
The following tables provide a detailed analysis of our results of operations and financial condition. For each of the
periods indicated below, we present our revenues by product, revenues by major geography, cost of revenues by product, total
gross margin, total operating margin, gross margin by product, and their corresponding percentage of total revenue. In addition,
we provide Non-GAAP measures for the periods discussed in order to provide additional information to investors that we
believe will be useful as this presentation is in line with how our management assesses our Company's performance. See "Use
of Non-GAAP Financial Measures" below for a reconciliation of GAAP-based measures to Non-GAAP-based measures.
39
Summary of Results of Operations
(In thousands)
Total Revenues by Product Type:
License
Cloud services and subscriptions
Customer support
Professional service and other
Total revenues
Total Cost of Revenues
Total GAAP-based Gross Profit
Total GAAP-based Gross Margin %
Year Ended June 30,
2018
Change increase
(decrease)
2017
Change increase
(decrease)
2016
$
437,512
$
68,368
$
369,144
$
85,434
$
828,968
1,232,504
316,257
2,815,241
951,411
1,863,830
66.2%
123,473
251,402
80,941
524,184
189,020
335,164
705,495
981,102
235,316
2,291,057
762,391
1,528,666
66.7%
104,477
234,693
42,225
466,829
188,391
278,438
Total GAAP-based Operating Expenses
1,358,427
182,693
1,175,734
294,069
Total GAAP-based Income from Operations
$
505,403
$
152,471
$
352,932
$
(15,631)
$
% Revenues by Product Type:
License
Cloud services and subscriptions
Customer support
Professional service and other
Total Cost of Revenues by Product Type:
License
Cloud services and subscriptions
Customer support
Professional service and other
Amortization of acquired technology-based
intangible assets
15.6%
29.4%
43.8%
11.2%
16.1%
30.8%
42.8%
10.3%
$
13,693
$
61
$
13,632
$
3,336
$
364,091
134,089
253,670
185,868
63,836
11,336
58,475
55,312
300,255
122,753
195,195
130,556
56,234
32,892
39,611
56,318
Total cost of revenues
$
951,411
$
189,020
$
762,391
$
188,391
$
% GAAP-based Gross Margin by Product Type:
96.9%
56.1%
89.1%
19.8%
96.3%
57.4%
87.5%
17.0%
283,710
601,018
746,409
193,091
1,824,228
574,000
1,250,228
68.5%
881,665
368,563
15.6%
32.9%
40.9%
10.6%
10,296
244,021
89,861
155,584
74,238
574,000
96.4%
59.4%
88.0%
19.4%
License
Cloud services and subscriptions
Customer support
Professional service and other
Total Revenues by Geography:(1)
Americas (2)
EMEA (3)
Asia Pacific (4)
Total revenues
% Revenues by Geography:
Americas (2)
EMEA (3)
Asia Pacific (4)
$
$
1,619,634
$
262,215
$
1,357,419
$
308,320
$
1,049,099
917,767
277,840
197,207
64,762
720,560
213,078
109,613
48,896
610,947
164,182
2,815,241
$
524,184
$
2,291,057
$
466,829
$
1,824,228
57.5%
32.6%
9.9%
59.2%
31.5%
9.3%
57.5%
33.5%
9.0%
40
GAAP-based gross margin
GAAP-based operating margin
GAAP-based EPS, diluted
Net income, attributable to OpenText
Non-GAAP-based gross margin (5)
Non-GAAP-based operating margin (5)
Non-GAAP-based EPS, diluted (5)
Adjusted EBITDA (5)
2018
66.2%
18.0%
0.91
242,224
73.0%
33.1%
2.56
1,019,061
$
$
$
$
Year Ended June 30,
2017
(6)
(6)
66.7%
15.4%
4.01
1,025,659
72.6%
31.8%
2.02
792,517
$
$
$
$
2016
68.5%
20.2%
1.17
284,477
72.8%
33.8%
1.77
671,737
$
$
$
$
(1)
(2)
(3)
(4)
(5)
(6)
Total revenues by geography are determined based on the location of our end customer.
Americas consists of countries in North, Central and South America.
EMEA primarily consists of countries in Europe, the Middle East and Africa.
Asia Pacific primarily consists of the countries Japan, Australia, China, Korea, Philippines, Singapore and New Zealand.
See "Use of Non-GAAP Financial Measures" (discussed later in this MD&A) for definitions and reconciliations of GAAP-based measures to Non-
GAAP-based measures.
We recorded a significant tax benefit in the first quarter of Fiscal 2017 of $876.1 million. This significant tax benefit is specifically tied to the
Company's internal reorganization and applied to the first quarter of Fiscal 2017 only and as a result, has not and will not continue in future periods.
Revenues, Cost of Revenues and Gross Margin by Product Type
1) License:
License revenues consist of fees earned from the licensing of software products to customers. Our license revenues are
impacted by the strength of general economic and industry conditions, the competitive strength of our software products, and
our acquisitions. Cost of license revenues consists primarily of royalties payable to third parties.
(In thousands)
License Revenues:
Americas
EMEA
Asia Pacific
Total License Revenues
Cost of License Revenues
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
$
207,655
$
29,257
$
178,398
$
46,760
$
131,638
170,631
59,226
437,512
13,693
23,788
15,323
68,368
61
146,843
43,903
369,144
13,632
20,919
17,755
85,434
3,336
GAAP-based License Gross Profit
$
423,819
$
68,307
$
355,512
$
82,098
$
GAAP-based License Gross Margin %
% License Revenues by Geography:
Americas
EMEA
Asia Pacific
96.3%
48.3%
39.8%
11.9%
96.9%
47.5%
39.0%
13.5%
41
125,924
26,148
283,710
10,296
273,414
96.4%
46.4%
44.4%
9.2%
Fiscal 2018 Compared to Fiscal 2017
License revenues increased by $68.4 million during Fiscal 2018 as compared to the prior fiscal year, inclusive of the
positive impact of foreign exchange of approximately $13.9 million. Geographically, the overall increase was attributable to an
increase in Americas of $29.3 million, an increase in EMEA of $23.8 million and an increase in Asia Pacific of $15.3 million.
During Fiscal 2018, we closed 140 license deals greater than $0.5 million, of which 58 deals were greater than $1.0 million.
This is compared to 125 deals in Fiscal 2017, of which 50 deals were greater than $1.0 million. The increase in license deals
has contributed to higher license revenues in the current fiscal year.
Cost of license revenues remained relatively stable during Fiscal 2018, as compared to the prior fiscal year. Overall, the
gross margin percentage on license revenues increased slightly to approximately 97% from approximately 96%.
Fiscal 2017 Compared to Fiscal 2016
License revenues increased by $85.4 million during Fiscal 2017 as compared to the prior fiscal year, inclusive of the
negative impact of foreign exchange of approximately $3.6 million. Geographically, the overall increase was attributable to an
increase in Americas of $46.8 million, an increase in EMEA of $20.9 million and an increase in Asia Pacific of $17.8 million.
The number of license deals greater than $0.5 million that closed during Fiscal 2017 was 125 deals, of which 50 deals were
greater than $1.0 million, compared to 78 deals in Fiscal 2016, of which 34 deals were greater than $1.0 million.
Cost of license revenues increased by $3.3 million during Fiscal 2017 as compared to the prior fiscal year as a result of an
increase in third party technology costs relating to a broad range of products that we have inherited from our recent
acquisitions. Overall, the gross margin percentage on license revenues remained relatively stable at 96%.
2) Cloud Services and Subscriptions:
Cloud services and subscription revenues consist of (i) SaaS offerings, (ii) managed service arrangements and (iii)
subscription revenues relating to on premise offerings. These offerings allow our customers to make use of OpenText software,
services and content over Internet enabled networks supported by OpenText data centers. These web applications allow
customers to transmit a variety of content between various mediums and to securely manage enterprise information without the
commitment of investing in related hardware infrastructure. Revenues are generated on several transactional usage-based
models, are typically billed monthly in arrears, and can therefore fluctuate from period to period. Certain service fees are
occasionally charged to customize hosted software for some customers and are either amortized over the estimated customer
life, in the case of setup fees, or recognized in the period they are provided.
In addition, we offer business-to-business (B2B) integration solutions, such as messaging services, and managed services.
Messaging services allow for the automated and reliable exchange of electronic transaction information, such as purchase
orders, invoices, shipment notices and other business documents, among businesses worldwide. Managed services provide an
end-to-end fully outsourced B2B integration solution to our customers, including program implementation, operational
management, and customer support. These services enable customers to effectively manage the flow of electronic transaction
information with their trading partners and reduce the complexity of disparate standards and communication protocols.
Revenues are primarily generated through transaction processing. Transaction processing fees are recurring in nature and are
recognized on a per transaction basis in the period in which the related transactions are processed. Revenues from contracts
with monthly, quarterly or annual minimum transaction levels are recognized based on the greater of the actual transactions or
the specified contract minimum amounts during the relevant period. Customers who are not committed to multi-year contracts
generally are under contracts for transaction processing solutions that automatically renew every month or year, depending on
the terms of the specific contracts.
Cost of Cloud services and subscriptions revenues is comprised primarily of third party network usage fees, maintenance
of in-house data hardware centers, technical support personnel-related costs, amortization of customer set up and
implementation costs, and some third party royalty costs.
42
(In thousands)
Cloud Services and Subscriptions:
Americas
EMEA
Asia Pacific
Total Cloud Services and Subscriptions Revenues
Cost of Cloud Services and Subscriptions Revenues
GAAP-based Cloud Services and Subscriptions Gross
Profit
GAAP-based Cloud Services and Subscriptions Gross
Margin %
% Cloud Services and Subscriptions Revenues by
Geography:
Americas
EMEA
Asia Pacific
Fiscal 2018 Compared to Fiscal 2017
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
$
555,223
$
70,216
$
485,007
$
86,294
$
191,520
82,225
828,968
364,091
40,673
12,584
123,473
63,836
150,847
69,641
705,495
300,255
13,059
5,124
104,477
56,234
2016
398,713
137,788
64,517
601,018
244,021
$
464,877
$
59,637
$
405,240
$
48,243
$
356,997
56.1%
67.0%
23.1%
9.9%
57.4%
68.7%
21.4%
9.9%
59.4%
66.3%
22.9%
10.8%
Cloud services and subscriptions revenues increased by $123.5 million during Fiscal 2018 as compared to the prior fiscal
year, inclusive of the positive impact of foreign exchange of approximately $10.4 million. Geographically, the overall change
was attributable to an increase in Americas of $70.2 million, an increase in EMEA of $40.7 million and an increase in Asia
Pacific of $12.6 million. The number of Cloud services deals greater than $1.0 million that closed during Fiscal 2018 was 46
deals, compared to 51 in Fiscal 2017.
Cost of Cloud services and subscriptions revenues increased by $63.8 million during Fiscal 2018 as compared to the prior
fiscal year, primarily due to (i) an increase in labour-related costs of approximately $59.7 million, predominantly on account of
recent acquisitions, (ii) an increase in third party network usage fees of $3.0 million and (iii) an increase in other miscellaneous
costs of $1.1 million. Overall, the gross margin percentage on Cloud services and subscriptions revenues decreased slightly to
approximately 56% from approximately 57%.
Fiscal 2017 Compared to Fiscal 2016
Cloud services and subscriptions revenues increased by $104.5 million during Fiscal 2017 as compared to the prior fiscal
year, inclusive of the negative impact of foreign exchange of approximately $6.3 million. Geographically, the overall change
was attributable to an increase in Americas of $86.3 million, an increase in EMEA of $13.1 million and an increase in Asia
Pacific of $5.1 million. The number of Cloud services deals greater than $1.0 million that closed during Fiscal 2017 was 51
deals, compared to 31 deals in Fiscal 2016.
Cost of Cloud services and subscriptions revenues increased by $56.2 million during Fiscal 2017 as compared to the prior
fiscal year, primarily due to an increase in labour-related costs of approximately $40.0 million resulting from increased
headcount, predominantly on account of recent acquisitions, and an increase in third party network usage fees of approximately
$16.7 million related to an expanded portfolio of cloud-based offerings. These increases were partially offset by a reduction in
other miscellaneous costs of $0.5 million. Overall, the gross margin percentage on Cloud services and subscriptions revenues
decreased to approximately 57% from approximately 59%.
3) Customer Support:
Customer support revenues consist of revenues from our customer support and maintenance agreements. These
agreements allow our customers to receive technical support, enhancements and upgrades to new versions of our software
products when and if available. Customer support revenues are generated from support and maintenance relating to current year
sales of software products and from the renewal of existing maintenance agreements for software licenses sold in prior periods.
Therefore, changes in Customer support revenues do not always correlate directly to the changes in license revenues from
period to period. The terms of support and maintenance agreements are typically twelve months, with customer renewal
options. Our management reviews our Customer support renewal rates on a quarterly basis and we use these rates as a method
of monitoring our customer service performance. For the quarter ended June 30, 2018, our Customer support renewal rate was
approximately 91%, stable compared with the Customer support renewal rate during the quarter ended June 30, 2017.
43
Cost of Customer support revenues is comprised primarily of technical support personnel and related costs, as well as
third party royalty costs.
260,126
57,376
746,409
89,861
656,548
88.0%
57.5%
34.9%
7.6%
(In thousands)
Customer Support Revenues:
Americas
EMEA
Asia Pacific
Total Customer Support Revenues
Cost of Customer Support Revenues
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
$
705,285
$
122,870
$
582,415
$
153,508
$
428,907
423,773
103,446
1,232,504
134,089
103,145
25,387
251,402
11,336
320,628
78,059
981,102
122,753
60,502
20,683
234,693
32,892
GAAP-based Customer Support Gross Profit
$
1,098,415
$
240,066
$
858,349
$
201,801
$
GAAP-based Customer Support Gross Margin %
89.1%
% Customer Support Revenues by Geography:
Americas
EMEA
Asia Pacific
Fiscal 2018 Compared to Fiscal 2017
57.2%
34.4%
8.4%
87.5%
59.4%
32.7%
7.9%
Customer support revenues increased by $251.4 million during Fiscal 2018 as compared to the prior fiscal year, inclusive
of the positive impact of foreign exchange of approximately $37.1 million. Geographically, the overall increase was attributable
to an increase in Americas of $122.9 million, an increase in EMEA of $103.1 million and an increase in Asia Pacific of $25.4
million.
Cost of Customer support revenues increased by $11.3 million during Fiscal 2018 as compared to the prior fiscal year,
due to (i) an increase in labour-related costs of approximately $10.4 million, which was partially due to recent acquisitions, (ii)
an increase in the installed base of third party products of approximately $0.6 million, and (iii) an increase in other
miscellaneous costs of $0.3 million. Overall, the gross margin percentage on Customer support revenues increased to
approximately 89% from approximately 88%.
Fiscal 2017 Compared to Fiscal 2016
Customer support revenues increased by $234.7 million during Fiscal 2017 as compared to the prior fiscal year, inclusive
of the negative impact of foreign exchange of approximately $12.4 million. Geographically, the overall increase was
attributable to an increase in Americas of $153.5 million, an increase in EMEA of $60.5 million and an increase in Asia Pacific
of $20.7 million.
Cost of Customer support revenues increased by $32.9 million during Fiscal 2017 as compared to the prior fiscal year,
due to (i) an increase in labour-related costs of approximately $27.1 million, which was predominantly due to recent
acquisitions, (ii) an increase in the installed base of third party products of approximately $5.7 million, and (iii) an increase in
other miscellaneous costs of $0.1 million. The increase in the installed base of third party products was primarily the result of
products we have inherited from our recent acquisitions. Overall, the gross margin percentage on Customer support revenues
remained stable at approximately 88%.
4) Professional Service and Other:
Professional service and other revenues consist of revenues from consulting contracts and contracts to provide
implementation, training and integration services (professional services). Other revenues consist of hardware revenues. These
revenues are grouped within the “Professional service and other” category because they are relatively immaterial to our service
revenues. Professional services are typically performed after the purchase of new software licenses. Cost of professional
service and other revenues consists primarily of the costs of providing integration, configuration and training with respect to
our various software products. The most significant components of these costs are personnel-related expenses, travel costs and
third party subcontracting.
44
(In thousands)
Professional Service and Other Revenues:
Americas
EMEA
Asia Pacific
Total Professional Service and Other Revenues
Cost of Professional Service and Other Revenues
GAAP-based Professional Service and Other Gross
Profit
GAAP-based Professional Service and Other Gross
Margin %
% Professional Service and Other Revenues by
Geography:
Americas
EMEA
Asia Pacific
Fiscal 2018 Compared to Fiscal 2017
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
$
151,471
$
39,872
$
111,599
$
21,758
$
131,843
32,943
316,257
253,670
29,601
11,468
80,941
58,475
102,242
21,475
235,316
195,195
15,133
5,334
42,225
39,611
2016
89,841
87,109
16,141
193,091
155,584
$
62,587
$
22,466
$
40,121
$
2,614
$
37,507
19.8%
47.9%
41.7%
10.4%
17.0%
47.4%
43.4%
9.2%
19.4%
46.5%
45.1%
8.4%
Professional service and other revenues increased by $80.9 million during Fiscal 2018 as compared to the prior fiscal
year, inclusive of the positive impact of foreign exchange of approximately $11.2 million. Geographically, the overall increase
was attributable to an increase in Americas of $39.9 million, an increase in EMEA of $29.6 million and an increase in Asia
Pacific of $11.5 million.
Cost of Professional service and other revenues increased by $58.5 million during Fiscal 2018 as compared to the prior
fiscal year, primarily as a result of an increase in labour-related costs of approximately $53.8 million, which was partially due
to recent acquisitions, and an increase in other miscellaneous costs of $4.7 million. However, the gross margin percentage on
Professional service and other revenues increased to approximately 20% from approximately 17%.
Fiscal 2017 Compared to Fiscal 2016
Professional service and other revenues increased by $42.2 million during Fiscal 2017 as compared to the prior fiscal
year, inclusive of the negative impact of foreign exchange of approximately $4.1 million. Geographically, the overall increase
was attributable to an increase in Americas of $21.8 million, an increase in EMEA of $15.1 million and an increase in Asia
Pacific of $5.3 million.
Cost of Professional service and other revenues increased by $39.6 million during Fiscal 2017 as compared to the prior
fiscal year, primarily as a result of an increase in labour-related costs of approximately $40.8 million, which was predominantly
due to recent acquisitions. Approximately $1.1 million of the increase in labour-related costs was associated with one-time
charges incurred earlier this fiscal year from reorganizing our professional services organization. These increases were partially
offset by a reduction in other miscellaneous costs of $1.2 million. Overall, the gross margin percentage on Professional service
and other revenues decreased to approximately 17% from approximately 19%.
Amortization of Acquired Technology-based Intangible Assets
(In thousands)
Amortization of acquired technology-based intangible
assets
Fiscal 2018 Compared to Fiscal 2017
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
$
185,868
$
55,312
$
130,556
$
56,318
$
74,238
Amortization of acquired technology-based intangible assets increased during Fiscal 2018 by $55.3 million as compared
to the prior fiscal year. This was due to an increase in amortization of $62.0 million, relating to newly acquired technology-
based intangible assets from our acquisitions of Hightail, Guidance and Covisint, as well as the full year impact of amortization
from our acquisitions of certain assets and liabilities of the enterprise content division of EMC Corporation (ECD Business),
certain customer communication management software assets and liabilities from HP Inc. (CCM Business), and Recommind
45
Inc. (Recommind) which were acquired in the prior fiscal year. The increase in amortization was partially offset by a reduction
of $6.7 million, relating to intangible assets pertaining to certain previous acquisitions becoming fully amortized.
Fiscal 2017 Compared to Fiscal 2016
Amortization of acquired technology-based intangible assets increased during Fiscal 2017 by $56.3 million as compared
to the prior fiscal year. This was due to an increase in amortization of $66.8 million relating to newly acquired technology-
based intangible assets from our acquisitions of ECD Business, CCM Business, Recommind, certain customer experience
software and services assets and liabilities from HP Inc. (CEM Business), ANXe Business Corporation (ANX) and Daegis Inc.
(Daegis). The increase in amortization was partially offset by a reduction of $10.5 million relating to certain intangible assets
pertaining to previous acquisitions becoming fully amortized.
Operating Expenses
(In thousands)
Research and development
Sales and marketing
General and administrative
Depreciation
Amortization of acquired customer-based intangible
assets
Special charges (recoveries)
Total operating expenses
% of Total Revenues:
Research and development
Sales and marketing
General and administrative
Depreciation
Amortization of acquired customer-based intangible
assets
Special charges (recoveries)
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
$
323,461
$
41,781
$
281,680
$
87,623
$
529,381
205,313
86,943
184,118
29,211
84,543
34,875
22,625
33,276
(34,407)
444,838
170,438
64,318
150,842
63,618
100,603
30,041
9,389
37,641
28,772
$
1,358,427
$
182,693
$
1,175,734
$
294,069
$
11.5%
18.8%
7.3%
3.1%
6.5%
1.0%
12.3%
19.4%
7.4%
2.8%
6.6%
2.8%
2016
194,057
344,235
140,397
54,929
113,201
34,846
881,665
10.6%
18.9%
7.7%
3.0%
6.2%
1.9%
Research and development expenses consist primarily of payroll and payroll-related benefits expenses, contracted
research and development expenses, and facility costs. Research and development assists with organic growth and improves
product stability and functionality, and accordingly, we dedicate extensive efforts to update and upgrade our product offerings.
The primary driver is typically budgeted software upgrades and software development.
(In thousands)
Payroll and payroll-related benefits
Contract labour and consulting
Share-based compensation
Travel and communication
Facilities
Other miscellaneous
Total year-over-year change in research and development expenses
Fiscal 2018 Compared to Fiscal 2017
Change between Fiscal
2018 and 2017
2017 and 2016
39,206
$
(3,899)
(1,490)
(343)
7,834
473
41,781
$
58,437
9,535
4,333
549
12,203
2,566
87,623
$
$
Research and development expenses increased by $41.8 million during Fiscal 2018 as compared to the prior fiscal year.
This was primarily due to an increase in payroll and payroll-related benefits of $39.2 million and an increase in the use of
facility and related resources of $7.8 million, which were partly the result of recent acquisitions. These were partially offset by
a decrease in contract labour and consulting of $3.9 million and a decrease in share-based compensation expense of $1.5
million. Overall, our research and development expenses, as a percentage of total revenues, remained stable at approximately
12%.
46
Our research and development labour resources increased by 627 employees, from 2,704 employees at June 30, 2017 to
3,331 employees at June 30, 2018, primarily as a result of our recent acquisitions.
Fiscal 2017 Compared to Fiscal 2016
Research and development expenses increased by $87.6 million during Fiscal 2017 as compared to the prior fiscal year.
This was primarily due to an increase in payroll and payroll-related benefits of $58.4 million and an increase in the use of
facility and related resources of $12.2 million, which were predominantly the result of recent acquisitions. Additionally,
contract labour and consulting increased by $9.5 million, and share-based compensation increased by $4.3 million. Overall, our
research and development expenses, as a percentage of total revenues, increased to approximately 12% from approximately
11%.
Our research and development labour resources increased by 536 employees, from 2,168 employees at June 30, 2016 to
2,704 employees at June 30, 2017, primarily as a result of our recent acquisitions.
Sales and marketing expenses consist primarily of personnel expenses and costs associated with advertising, marketing
and trade shows.
(In thousands)
Payroll and payroll-related benefits
Commissions
Contract labour and consulting
Share-based compensation
Travel and communication
Marketing expenses
Facilities
Bad Debt expense
Other miscellaneous
Total year-over-year change in sales and marketing expenses
Fiscal 2018 Compared to Fiscal 2017
Change between Fiscal
2018 and 2017
2017 and 2016
48,573
$
16,993
609
(454)
271
3,880
8,373
4,013
2,285
63,973
22,762
1,623
(2,273)
4,628
4,717
5,988
21
(836)
84,543
$
100,603
$
$
Sales and marketing expenses increased by $84.5 million during Fiscal 2018 as compared to the prior fiscal year. This
was primarily due to an increase in payroll and payroll-related benefits of $48.6 million and an increase in facility and related
resources of $8.4 million, both of which were partly the result of recent acquisitions. Additionally, commissions expense
increased by $17.0 million in conjunction with higher revenues. Overall, our sales and marketing expenses, as a percentage of
total revenues, remained stable at approximately 19%.
Our sales and marketing labour resources increased by 142 employees, from 1,806 employees at June 30, 2017 to 1,948
employees at June 30, 2018, primarily as a result of our recent acquisitions.
Fiscal 2017 Compared to Fiscal 2016
Sales and marketing expenses increased by $100.6 million during Fiscal 2017 as compared to the prior fiscal year. This
was primarily due to an increase in payroll and payroll-related benefits of $64.0 million and an increase in facility and related
resources of $6.0 million, both of which were predominantly the result of recent acquisitions. Additionally, commissions
expense increased by $22.8 million in conjunction with higher revenues. The remainder of the change was primarily
attributable to normal growth in our business operations. Overall, our sales and marketing expenses, as a percentage of total
revenues, remained stable at approximately 19%.
Our sales and marketing labour resources increased by 364 employees, from 1,442 employees at June 30, 2016 to 1,806
employees at June 30, 2017, primarily as a result of our recent acquisitions.
General and administrative expenses consist primarily of payroll and payroll related benefits expenses, related overhead,
audit fees, other professional fees, contract labour and consulting expenses and public company costs.
47
(In thousands)
Payroll and payroll-related benefits
Contract labour and consulting
Share-based compensation
Travel and communication
Facilities
Other miscellaneous
Total year-over-year change in general and administrative expenses
Fiscal 2018 Compared to Fiscal 2017
Change between Fiscal
2018 and 2017
2017 and 2016
$
$
22,909
$
(1,054)
(1,709)
80
5,777
8,872
34,875
$
17,923
4,879
2,188
454
1,333
3,264
30,041
General and administrative expenses increased by $34.9 million during Fiscal 2018 as compared to the prior fiscal year.
This was primarily due to an increase in payroll and payroll-related benefits of $22.9 million and an increase in facility and
related resources of $5.8 million, which were partly the result of recent acquisitions, and an increase in other miscellaneous
expenses of $8.9 million, which includes professional fees such as legal, audit and tax related expenses. These increases were
partially offset by a $1.7 million reduction in share-based compensation and a $1.1 million reduction in contract labour and
consulting. Overall, general and administrative expenses, as a percentage of total revenue, remained stable at approximately
7%.
Our general and administrative labour resources increased by 116 employees, from 1,385 employees at June 30, 2017 to
1,501 employees at June 30, 2018, primarily as a result of our recent acquisitions.
Fiscal 2017 Compared to Fiscal 2016
General and administrative expenses increased by $30.0 million during Fiscal 2017 as compared to the prior fiscal year.
This was primarily due to an increase in payroll and payroll-related benefits of $17.9 million, which was predominantly the
result of recent acquisitions. The remainder of the change was attributable to normal growth in our business operations.
Overall, general and administrative expenses as a percentage of total revenue decreased slightly to approximately 7% from
approximately 8%.
Our general and administrative labour resources increased by 283 employees, from 1,102 employees at June 30, 2016 to
1,385 employees at June 30, 2017, primarily as a result of our recent acquisitions.
Depreciation expenses:
(In thousands)
Depreciation
Fiscal 2018 Compared to Fiscal 2017
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
86,943
22,625
64,318
9,389
54,929
Depreciation expenses increased by $22.6 million during Fiscal 2018 as compared to the prior fiscal year, primarily in
accordance with increased capital asset expenditures. Depreciation expense remained relatively stable as a percentage of total
revenue, at approximately 3%.
Fiscal 2017 Compared to Fiscal 2016
Depreciation expenses increased by $9.4 million during Fiscal 2017 as compared to the prior fiscal year, but remained
relatively stable as a percentage of total revenue, at approximately 3%.
Amortization of acquired customer-based intangible assets:
(In thousands)
Amortization of acquired customer-based intangible
assets
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
$
184,118
$
33,276
$
150,842
$
37,641
$
113,201
48
Fiscal 2018 Compared to Fiscal 2017
Acquired customer-based intangible assets amortization expense increased by $33.3 million during Fiscal 2018 as
compared to the prior fiscal year. This was primarily due to an increase in amortization of $39.2 million relating to newly
acquired customer-based intangible assets from our acquisitions of Hightail, Guidance and Covisint, as well as the full year
impact of amortization from our acquisitions of ECD Business, CCM Business, and Recommind, which were acquired in the
prior fiscal year. This increase in amortization was partially offset by a reduction of $5.9 million, relating to certain customer-
based intangible assets pertaining to previous acquisitions becoming fully amortized.
Fiscal 2017 Compared to Fiscal 2016
Acquired customer-based intangible assets amortization expense increased by $37.6 million during Fiscal 2017 as
compared to the prior fiscal year. This was primarily due to an increase in amortization of $44.3 million relating to newly
acquired customer-based intangible assets from our acquisitions of ECD Business, CCM Business, Recommind, CEM
Business, ANX and Daegis. This increase in amortization was partially offset by a reduction of $6.6 million relating to certain
customer-based intangible assets pertaining to previous acquisitions becoming fully amortized.
Special charges (recoveries):
Special charges typically relate to amounts that we expect to pay in connection with restructuring plans relating to
employee workforce reduction and abandonment of excess facilities, acquisition-related costs and other similar charges and
recoveries. Generally, we implement such plans in the context of integrating acquired entities with existing OpenText
operations. Actions related to such restructuring plans are typically completed within a period of one year. In certain limited
situations, if the planned activity does not need to be implemented, or an expense lower than anticipated is paid out, we record
a recovery of the originally recorded expense to Special charges.
(In thousands)
Special charges (recoveries)
Fiscal 2018 Compared to Fiscal 2017
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
$
29,211
$
(34,407) $
63,618
$
28,772
$
34,846
Special charges decreased by $34.4 million during Fiscal 2018 as compared to the prior fiscal year. The decrease was
primarily due to (i) a $15.8 million reduction in restructuring activities, (ii) a reduction in acquisition related costs of $11.1
million, (iii) a reduction in expense of $7.5 million relating to an ERP implementation project that was completed in early July
2017, and (iv) a reduction in expense of $6.5 million relating to commitment fees incurred during Fiscal 2017 that did not
reoccur in Fiscal 2018. These decreases were partially offset by (i) an increase of $2.9 million relating to system
implementation costs, (ii) $1.2 million relating to a lower net impact of reversals from certain pre-acquisition sales and use tax
liabilities and interest being settled, or in certain instances, becoming statute barred, as compared to the prior fiscal year. The
remainder of the change is due to miscellaneous items.
Fiscal 2017 Compared to Fiscal 2016
Special charges increased by $28.8 million during Fiscal 2017 as compared to the prior fiscal year. This was primarily due
to (i) an increase in restructuring charges of $14.8 million, (ii) an increase in acquisition related costs of $8.2 million, (iii) a net
increase of $6.5 million relating to commitments fees, (iv) an increase of $2.5 million relating to an ERP implementation
project we were involved in, and (v) an increase of $0.4 million relating to a lower net impact of reversals from certain pre-
acquisition sales and use tax liabilities and interest being settled, or in certain instances, becoming statute barred. These
increases were partially offset by a decrease of $3.5 million relating to a reduction in post-acquisition integration costs
necessary to streamline acquired companies into our operations. The remainder of the change is due to miscellaneous items.
For more details on Special charges (recoveries), see note 17 "Special Charges (Recoveries)" to our Consolidated Financial
Statements.
Other Income (Expense), Net
Other income (expense), net relates to certain non-operational charges primarily consisting of income or losses in our
share of marketable equity securities accounted for under the equity method and of transactional foreign exchange gains
(losses). The income (expense) from foreign exchange is dependent upon the change in foreign currency exchange rates vis-à-
vis the functional currency of the legal entity.
49
(In thousands)
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
Foreign exchange gains (losses)
$
4,805
$
1,736
$
3,069
$
4,968
$
(1,899)
OpenText share in net income (loss) of equity investees
Income from long-term other receivable
Gain on shares held in Guidance (1)
Gain from contractual settlement (2)
Other miscellaneous income (expense)
6,005
1,327
841
5,000
(5)
45
(5,099)
841
5,000
(293)
5,960
6,426
—
—
288
5,960
6,426
—
—
(188)
Total other income (expense), net
$
17,973
$
2,230
$
15,743
$
17,166
$
—
—
—
—
476
(1,423)
(1) Represents the release to income from other comprehensive income relating to the mark to market on shares we held in
Guidance prior to our acquisition in the first quarter of Fiscal 2018.
(2) Represents a gain recognized in connection with the settlement of a certain breach of contractual arrangement in the second
quarter of Fiscal 2018.
Interest and Other Related Expense, Net
Interest and other related expense, net is primarily comprised of interest paid and accrued on our debt facilities, offset by
interest income earned on our cash and cash equivalents.
(In thousands)
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
Interest and other related expense, net
$
137,250
$
18,126
$
119,124
$
42,761
$
76,363
Fiscal 2018 Compared to Fiscal 2017
Interest and other related expense, net increased by $18.1 million during Fiscal 2018 as compared to the prior fiscal year.
This was primarily due to additional interest of $6.4 million incurred relating to a higher outstanding balance on the Revolver
(as defined herein) and additional interest incurred of $3.1 million relating to Term Loan B (as defined herein). Also, during
Fiscal 2018, we incurred additional interest expense of $6.8 million relating to the full year impact of interest owing on the
reopening of Senior Notes 2026 (as defined herein), which were issued in December 2016.
Fiscal 2017 Compared to Fiscal 2016
Interest and other related expense, net increased during Fiscal 2017 by $42.8 million, as compared to the prior fiscal year.
This was primarily due to additional interest expense incurred relating to Senior Notes 2026 (as defined herein), issued in May
2016 and December 2016 of approximately $40.2 million and additional interest incurred relating to outstanding balances on
the Revolver (as defined herein) during Fiscal 2017 of $2.6 million.
For more details see note 10 "Long-Term Debt" to our Consolidated Financial Statements.
Provision for (Recovery of) Income Taxes
We operate in several tax jurisdictions and are exposed to various foreign tax rates. We also note that we are subject to tax
rate discrepancies between our domestic tax rate and foreign tax rates that are significant and these discrepancies are primarily
related to earnings in the United States.
Please also see Part I, Item 1A "Risk Factors" elsewhere in this Annual Report on Form 10-K.
(In thousands)
Year Ended June 30,
2018
Change
increase
(decrease)
2017
Change
increase
(decrease)
2016
Provision for (recovery of) income taxes
$
143,826
$
920,190
$
(776,364) $
(782,646) $
6,282
50
Fiscal 2018 Compared to Fiscal 2017
In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance
operational and administrative efficiencies through further consolidated ownership, management, and development of our IP in
Canada, continuing to reduce the number of entities in our group and working towards our objective of having a single
operating legal entity in each jurisdiction. We believe our reorganization also reduces our exposure to global political and tax
uncertainties, particularly in Europe. We believe that further consolidating our IP in Canada will continue to ensure appropriate
legal protections for our consolidated IP, simplify legal, accounting and tax compliance, and improve our global cash
management. A significant tax benefit of $876.1 million, associated primarily with the recognition of a net deferred tax asset
arising from the entry of the IP into Canada, was recognized in the first quarter of Fiscal 2017. We believe it is more likely than
not that the deferred tax asset will be realized and therefore no valuation allowance was required. We continue to evaluate our
taxable position quarterly and consider factors by taxing jurisdiction, including but not limited to factors such as estimated
taxable income, any historical experience of losses for tax purposes and the future growth of OpenText. This significant tax
benefit is specifically tied to the reorganization and applied to the first quarter of Fiscal 2017 only and as a result, has not and
will not continue in future periods.
The effective tax rate increased to a provision of 37.2% for the year ended June 30, 2018, compared to a recovery of
311.1% for the year ended June 30, 2017. The increase in tax expense of $920.2 million was primarily due to (i) a significant
tax benefit of $876.1 million resulting from the Fiscal 2017 internal reorganization as described above which did not reoccur in
Fiscal 2018, (ii) the impact of changes in US tax legislation in Fiscal 2018 resulting in a provisional charge of $19.0 million
(see below), and (iii) an increase of $29.9 million on account of the Company having higher income before taxes, including the
impact of foreign tax rates and (iv) an increase of $9.2 million relating to differences in tax filings from provisions, offset by (i)
a decrease of $8.9 million resulting from the net impact of reversals and accruals of reserves, and (ii) a decrease of $2.1 million
relating to a decrease in amortization of deferred charges. The remainder of the difference was due to normal course
movements and non-material items.
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which
significantly changed the existing US tax laws, including a reduction in the federal corporate tax rate from 35% to 21%, and the
transition of US international taxation from a worldwide tax system to a partially territorial tax system. As a result of the
enactment of the legislation, the Company incurred a provisional one-time tax expense of $19.0 million for the year ended
June 30, 2018, primarily related to the transition tax on accumulated foreign earnings and the re-measurement of certain
deferred tax assets and liabilities. The portion of this anticipated increase to tax expense attributable to the transition tax is
payable over a period of up to eight years. The impact of the $19.0 million adjustment resulting from the US legislation on the
effective tax rate is an increase of 4.9% for the year ended June 30, 2018.
The $19.0 million is a provisional amount in respect of Alternative Minimum Tax (AMT), and transition tax on
accumulated foreign earnings in accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the
Tax Cuts and Jobs Act” (SAB 118). The finalization of the provisional one-time amount is pending finalization of
considerations related to undistributed foreign earnings and evaluating whether any portion of our existing AMT credit
carryforwards are not expected to be refundable as a result of the repeal of corporate AMT, which may result in changes to the
provisional amount during the SAB 118 measurement period.
The Company continues to assess the impact of the new law on its consolidated financial statements and anticipates
finalizing the determination on or before December 22, 2018 in accordance with SAB 118.
Fiscal 2017 Compared to Fiscal 2016
The effective tax rate decreased to a recovery of 311.1% for Fiscal 2017, compared to a provision of 2.2% for Fiscal
2016. The decrease in tax expense of $782.6 million was primarily due to (i) a significant tax benefit of $876.1 million
resulting from an internal reorganization as described above, (ii) a decrease of $16.8 million relating to differences in tax filings
from provisions, (iii) a decrease of $10.9 million on account of the Company having lower income before taxes, (iv) a decrease
of $7.0 million resulting from the effects of permanent differences and (v) a decrease of $5.0 million relating to a decrease in
amortization of deferred charges. These decreases were partially offset by (i) an increase of $80.1 million resulting from the
impact of foreign tax rates as it relates to changes in the proportion of income earned in domestic jurisdictions compared to
foreign jurisdictions with different statutory rates, (ii) an increase of $35.5 million relating to the release of a valuation
allowance that occurred in Fiscal 2016 but did not reoccur in Fiscal 2017, and (iii) an increase of $14.7 million primarily
related to the reversal of reserves in Fiscal 2016 that did not reoccur in Fiscal 2017. The remainder of the difference was due to
normal course movements and non-material items.
For information with regards to certain potential tax contingencies, see note 13 "Guarantees and Contingencies" to our
Consolidated Financial Statements.
51
Use of Non-GAAP Financial Measures
In addition to reporting financial results in accordance with U.S. GAAP, the Company provides certain financial measures
that are not in accordance with U.S. GAAP (Non-GAAP). These Non-GAAP financial measures have certain limitations in that
they do not have a standardized meaning and thus the Company's definition may be different from similar Non-GAAP financial
measures used by other companies and/or analysts and may differ from period to period. Thus it may be more difficult to
compare the Company's financial performance to that of other companies. However, the Company's management compensates
for these limitations by providing the relevant disclosure of the items excluded in the calculation of these Non-GAAP financial
measures both in its reconciliation to the U.S. GAAP financial measures and its Consolidated Financial Statements, all of which
should be considered when evaluating the Company's results.
The Company uses these Non-GAAP financial measures to supplement the information provided in its Consolidated
Financial Statements, which are presented in accordance with U.S. GAAP. The presentation of Non-GAAP financial measures
are not meant to be a substitute for financial measures presented in accordance with U.S. GAAP, but rather should be evaluated
in conjunction with and as a supplement to such U.S. GAAP measures. OpenText strongly encourages investors to review its
financial information in its entirety and not to rely on a single financial measure. The Company therefore believes that despite
these limitations, it is appropriate to supplement the disclosure of the U.S. GAAP measures with certain Non-GAAP measures
defined below.
Non-GAAP-based net income and Non-GAAP-based EPS, attributable to OpenText, are calculated as GAAP-based net
income or earnings per share, attributable to OpenText, on a diluted basis, after giving effect to the amortization of acquired
intangible assets, other income (expense), share-based compensation, and Special charges (recoveries), all net of tax and any
tax benefits/expense items unrelated to current period income, as further described in the tables below. Non-GAAP-based gross
profit is the arithmetical sum of GAAP-based gross profit and the amortization of acquired technology-based intangible assets
and share-based compensation within cost of sales. Non-GAAP-based gross margin is calculated as Non-GAAP-based gross
profit expressed as a percentage of total revenue. Non-GAAP-based income from operations is calculated as GAAP-based
income from operations, excluding the amortization of acquired intangible assets, Special charges (recoveries), and share-based
compensation expense. Non-GAAP-based operating margin is calculated as Non-GAAP-based income from operations
expressed as a percentage of total revenue.
Adjusted earnings (loss) before interest, taxes, depreciation and amortization (Adjusted EBITDA) is calculated as GAAP-
based net income, attributable to OpenText excluding interest income (expense), provision for income taxes, depreciation and
amortization of acquired intangible assets, other income (expense), share-based compensation and Special charges (recoveries).
The Company's management believes that the presentation of the above defined Non-GAAP financial measures provides
useful information to investors because they portray the financial results of the Company before the impact of certain non-
operational charges. The use of the term “non-operational charge” is defined for this purpose as an expense that does not impact
the ongoing operating decisions taken by the Company's management. These items are excluded based upon the way the
Company's management evaluates the performance of the Company's business for use in the Company's internal reports and are
not excluded in the sense that they may be used under U.S. GAAP.
The Company does not acquire businesses on a predictable cycle, and therefore believes that the presentation of non-
GAAP measures, which in certain cases adjust for the impact of amortization of intangible assets and the related tax effects that
are primarily related to acquisitions, will provide readers of financial statements with a more consistent basis for comparison
across accounting periods and be more useful in helping readers understand the Company’s operating results and underlying
operational trends. Additionally, the Company has engaged in various restructuring activities over the past several years that
have resulted in costs associated with reductions in headcount, consolidation of leased facilities and related costs, all which are
recorded under the Company’s “Special Charges (recoveries)” caption on the Consolidated Statements of Income. Each
restructuring activity is a discrete event based on a unique set of business objectives or circumstances, and each differs in terms
of its operational implementation, business impact and scope, and the size of each restructuring plan can vary significantly from
period to period. Therefore, the Company believes that the exclusion of these special charges (recoveries) will also better aid
readers of financial statements in the understanding and comparability of the Company's operating results and underlying
operational trends.
In summary, the Company believes the provision of supplemental Non-GAAP measures allow investors to evaluate the
operational and financial performance of the Company's core business using the same evaluation measures that management
uses, and is therefore a useful indication of OpenText's performance or expected performance of future operations and
facilitates period-to-period comparison of operating performance (although prior performance is not necessarily indicative of
future performance). As a result, the Company considers it appropriate and reasonable to provide, in addition to U.S. GAAP
measures, supplementary Non-GAAP financial measures that exclude certain items from the presentation of its financial results.
The following charts provide unaudited reconciliations of U.S. GAAP-based financial measures to Non-GAAP-based
financial measures for the following periods presented:
52
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2018
(in thousands except for per share data)
Cost of revenues
Cloud services and subscriptions
Customer support
Professional service and other
Amortization of acquired technology-based intangible assets
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
Operating expenses
Research and development
Sales and marketing
General and administrative
Amortization of acquired customer-based intangible assets
Special charges (recoveries)
GAAP-based income from operations and operating margin (%) / Non-
GAAP-based income from operations and operating margin (%)
Other income (expense), net
Provision for (recovery of) income taxes
GAAP-based net income / Non-GAAP-based net income, attributable to
OpenText
GAAP-based earnings per share / Non-GAAP-based earnings per share-
diluted, attributable to OpenText
Year Ended June 30, 2018
GAAP-
based
Measures
% of Total
Revenue
GAAP-based
Measures
Non-GAAP-
based
Measures
Non-GAAP-
based
Measures
% of Total
Revenue
Adjustments Note
$
364,091
$
134,089
253,670
185,868
(1,429)
(1,233)
(1,838)
(185,868)
(1)
(1)
(1)
(2)
$
362,662
132,856
251,832
—
1,863,830
66.2%
190,368
(3)
2,054,198
73.0%
323,461
529,381
205,313
184,118
29,211
(5,659)
(9,231)
(8,204)
(184,118)
(29,211)
(1)
(1)
(1)
(2)
(4)
317,802
520,150
197,109
—
—
505,403
18.0%
426,791
(5)
932,194
33.1%
17,973
143,826
242,224
(17,973)
(6)
—
(32,534)
(7)
111,292
441,352
(8)
683,576
$
0.91
$
1.65
(8)
$
2.56
(1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded
from our internal analysis of operating results.
(2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of
amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4) Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries)
are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing
operations, and are therefore excluded from our internal analysis of operating results. See note 17 "Special Charges (Recoveries)" to our
Consolidated Financial Statements for more details.
(5) GAAP-based and Non-GAAP-based income from operations stated in dollars and operating margin stated as a percentage of total revenue.
(6) Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally
relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded
from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-
marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our
ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments
as we do not believe they are reflective of our ongoing business and operating results.
(7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 37% and a Non-GAAP-based tax rate of
approximately 14%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-
based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income
(expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and
valuation allowance reserves, and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits
arising from the internal reorganization (see note 14 "Income Taxes") assumed to be allocable to the current period based on the forecasted utilization
period. In arriving at our Non-GAAP-based tax rate of approximately 14%, we analyzed the individual adjusted expenses and took into consideration
the impact of statutory tax rates from local jurisdictions incurring the expense. We also took into consideration changes in US tax reform legislation
that was enacted on December 22, 2017 through the Tax Cuts and Jobs Act.
53
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2018
Per share diluted
GAAP-based net income, attributable to OpenText
$
242,224 $
Add:
Amortization
Share-based compensation
Special charges (recoveries)
Other (income) expense, net
GAAP-based provision for (recovery of) income taxes
Non-GAAP-based provision for income taxes
369,986
27,594
29,211
(17,973)
143,826
(111,292)
Non-GAAP-based net income, attributable to OpenText
$
683,576 $
0.91
1.38
0.10
0.11
(0.07)
0.54
(0.41)
2.56
Reconciliation of Adjusted EBITDA
GAAP-based net income, attributable to OpenText
Add:
Provision for (recovery of) income taxes
Interest and other related expense, net
Amortization of acquired technology-based intangible assets
Amortization of acquired customer-based intangible assets
Depreciation
Share-based compensation
Special charges (recoveries)
Other (income) expense, net
Adjusted EBITDA
Year Ended June 30, 2018
242,224
143,826
137,250
185,868
184,118
86,943
27,594
29,211
(17,973)
1,019,061
$
$
54
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2017
(in thousands except for per share data)
Cost of revenues
Cloud services and subscriptions
Customer support
Professional service and other
Amortization of acquired technology-based intangible assets
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
Operating expenses
Research and development
Sales and marketing
General and administrative
Amortization of acquired customer-based intangible assets
Special charges (recoveries)
GAAP-based income from operations and operating margin (%) / Non-
GAAP-based income from operations and operating margin (%)
Other income (expense), net
Provision for (recovery of) income taxes
Year Ended June 30, 2017
GAAP-based
Measures
GAAP-based
Measures
% of Total
Revenue
Adjustments Note
Non-GAAP-
based
Measures
Non-GAAP-
based
Measures
% of Total
Revenue
$
300,255
$
(1,229)
(1)
$
299,026
122,753
195,195
130,556
(1,079)
(1)
(1,451)
(1)
(130,556)
(2)
121,674
193,744
—
1,528,666
66.7%
134,315
(3)
1,662,981
72.6%
281,680
444,838
170,438
150,842
63,618
(7,149)
(1)
(9,680)
(1)
(9,919)
(1)
(150,842)
(2)
(63,618)
(4)
274,531
435,158
160,519
—
—
352,932
15.4%
375,523
(5)
728,455
31.8%
15,743
(776,364)
(15,743)
(6)
867,764
(7)
—
91,400
GAAP-based net income / Non-GAAP-based net income, attributable to
OpenText
GAAP-based earnings per share / Non-GAAP-based earnings per share-
diluted, attributable to OpenText
1,025,659
(507,984)
(8)
517,675
$
4.01
$
(1.99)
(8)
$
2.02
(1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded
from our internal analysis of operating results.
(2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of
amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4) Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries)
are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing
operations, and are therefore excluded from our internal analysis of operating results. See note 17 "Special Charges (Recoveries)" to our
Consolidated Financial Statements for more details.
(5) GAAP-based and Non-GAAP-based income from operations stated in dollars and operating margin stated as a percentage of total revenue.
(6) Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally
relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded
from our internal analysis of operating results. Other income (expense) also includes our share of income (losses) from our holdings in non-
marketable securities investments as a limited partner. We do not actively trade equity securities in these privately held companies nor do we plan our
ongoing operations based around any anticipated fundings or distributions from these investments. We exclude gains and losses on these investments
as we do not believe they are reflective of our ongoing business and operating results.
(7) Adjustment relates to differences between the GAAP-based tax recovery rate of approximately 311% and a Non-GAAP-based tax rate of
approximately 15%; these rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-
based adjusted net income. Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income
(expense), net. Also excluded are tax benefits/expense items unrelated to current period income such as changes in reserves for tax uncertainties and
valuation allowance reserves and “book to return” adjustments for tax return filings and tax assessments. Included is the amount of net tax benefits
arising from the internal reorganization (see note 14 "Income Taxes") assumed to be allocable to the current period based on the forecasted utilization
period. In arriving at our Non-GAAP-based tax rate of approximately 15%, we analyzed the individual adjusted expenses and took into consideration
the impact of statutory tax rates from local jurisdictions incurring the expense.
55
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2017
Per share diluted
GAAP-based net income, attributable to OpenText
$
1,025,659 $
Add:
Amortization
Share-based compensation
Special charges (recoveries)
Other (income) expense, net
GAAP-based provision for (recovery of) income taxes
Non-GAAP-based provision for income taxes
281,398
30,507
63,618
(15,743)
(776,364)
(91,400)
Non-GAAP-based net income, attributable to OpenText
$
517,675 $
4.01
1.10
0.12
0.25
(0.06)
(3.03)
(0.37)
2.02
Reconciliation of Adjusted EBITDA
GAAP-based net income, attributable to OpenText
Add:
Provision for (recovery of) income taxes
Interest and other related expense, net
Amortization of acquired technology-based intangible assets
Amortization of acquired customer-based intangible assets
Depreciation
Share-based compensation
Special charges (recoveries)
Other (income) expense, net
Adjusted EBITDA
Year Ended June 30, 2017
1,025,659
(776,364)
119,124
130,556
150,842
64,318
30,507
63,618
(15,743)
792,517
$
$
56
Reconciliation of selected GAAP-based measures to Non-GAAP-based measures for the year ended June 30, 2016
(in thousands except for per share data)
Cost of revenues
Cloud services and subscriptions
Customer support
Professional service and other
Amortization of acquired technology-based intangible assets
GAAP-based gross profit and gross margin (%) /
Non-GAAP-based gross profit and gross margin (%)
Operating expenses
Research and development
Sales and marketing
General and administrative
Amortization of acquired customer-based intangible assets
Special charges (recoveries)
Year Ended June 30, 2016
GAAP-based
Measures
GAAP-based
Measures
% of Total
Revenue
Adjustments Note
Non-GAAP-
based
Measures
Non-GAAP-
based
Measures
% of Total
Revenue
$
244,021
$
(953)
(1)
$
243,068
89,861
155,584
74,238
(900)
(1)
(1,626)
(1)
(74,238)
(2)
88,961
153,958
—
1,250,228
68.5%
77,717
(3)
1,327,945
72.8%
194,057
344,235
140,397
113,201
34,846
(1,423)
6,282
284,477
(2,824)
(1)
(12,069)
(1)
(7,606)
(1)
(113,201)
(2)
(34,846)
(4)
248,263
1,423
101,793
(5)
(6)
(7)
191,233
332,166
132,791
—
—
616,826
33.8%
—
108,075
147,893
(8)
432,370
$
1.17
$
0.60
(8)
$
1.77
GAAP-based income from operations and operating margin (%) / Non-
GAAP-based income from operations and operating margin (%)
368,563
20.2%
Other income (expense), net
Provision for (recovery of) income taxes
GAAP-based net income / Non-GAAP-based net income, attributable to
OpenText
GAAP-based earnings per share / Non-GAAP-based earnings per share-
diluted, attributable to OpenText
(1) Adjustment relates to the exclusion of share-based compensation expense from our Non-GAAP-based operating expenses as this expense is excluded
from our internal analysis of operating results.
(2) Adjustment relates to the exclusion of amortization expense from our Non-GAAP-based operating expenses as the timing and frequency of
amortization expense is dependent on our acquisitions and is hence excluded from our internal analysis of operating results.
(3) GAAP-based and Non-GAAP-based gross profit stated in dollars and gross margin stated as a percentage of total revenue.
(4) Adjustment relates to the exclusion of Special charges (recoveries) from our Non-GAAP-based operating expenses as Special charges (recoveries)
are generally incurred in the periods relevant to an acquisition and include certain charges or recoveries that are not indicative or related to continuing
operations, and are therefore excluded from our internal analysis of operating results. See note 17 "Special Charges (Recoveries)" to our
Consolidated Financial Statements for more details.
(5) GAAP-based and Non-GAAP-based income from operations stated in dollars and operating margin stated as a percentage of total revenue.
(6) Adjustment relates to the exclusion of Other income (expense) from our Non-GAAP-based operating expenses as Other income (expense) generally
relates to the transactional impact of foreign exchange and is generally not indicative or related to continuing operations and is therefore excluded
from our internal analysis of operating results.
(7) Adjustment relates to differences between the GAAP-based tax provision rate of approximately 2% and a Non-GAAP-based tax rate of 20%; these
rate differences are due to the income tax effects of items that are excluded for the purpose of calculating Non-GAAP-based adjusted net income.
Such excluded items include amortization, share-based compensation, Special charges (recoveries) and other income (expense), net. Also excluded
are tax expense items unrelated to current period income such as changes in reserves for tax uncertainties and valuation allowance reserves and “book
to return” adjustments for tax return filings and tax assessments. In arriving at our Non-GAAP-based tax rate of 20%, we analyzed the individual
adjusted expenses and took into consideration the impact of statutory tax rates from local jurisdictions incurring the expense.
57
(8)
Reconciliation of GAAP-based net income to Non-GAAP-based net income:
Year Ended June 30, 2016
Per share diluted
GAAP-based net income, attributable to OpenText
$
284,477 $
Add:
Amortization
Share-based compensation
Special charges (recoveries)
Other (income) expense, net
GAAP-based provision for (recovery of ) income taxes
Non-GAAP-based provision for income taxes
Non-GAAP-based net income, attributable to OpenText
$
187,439
25,978
34,846
1,423
6,282
(108,075)
432,370 $
1.17
0.77
0.10
0.14
0.01
0.03
(0.45)
1.77
Reconciliation of Adjusted EBITDA
GAAP-based net income, attributable to OpenText
Add:
Provision for (recovery of) income taxes
Interest and other related expense, net
Amortization of acquired technology-based intangible assets
Amortization of acquired customer-based intangible assets
Depreciation
Share-based compensation
Special charges (recoveries)
Other (income) expense, net
Adjusted EBITDA
Year Ended June 30, 2016
284,477
6,282
76,363
74,238
113,201
54,929
25,978
34,846
1,423
671,737
$
$
58
LIQUIDITY AND CAPITAL RESOURCES
The following tables set forth changes in cash flows from operating, investing and financing activities for the periods
indicated:
(In thousands)
Cash and cash equivalents
Short-term investments
$
$
As of June 30,
2018
682,942
Change
increase (decrease)
239,585
$
As of June 30,
2017
$
443,357
Change
increase (decrease)
$
As of June 30,
2016
1,283,757
11,839
(840,400) $
(11,839) $
— $
— $
— $
Year Ended June 30,
(In thousands)
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in) financing activities
Cash and cash equivalents
Change
2018
709,885
$
$
270,632
$ (444,441) $ 1,746,523
$
(23,673) $ (933,217) $
Change
2017
439,253
2016
$
525,722
$ (2,190,964) $ (1,829,788) $ (361,176)
430,164
(86,469) $
909,544
479,380
$
$
$
Cash and cash equivalents primarily consist of balances with banks as well as deposits with original maturities of 90 days
or less.
We continue to anticipate that our cash and cash equivalents, as well as available credit facilities, will be sufficient to fund
our anticipated cash requirements for working capital, contractual commitments, capital expenditures, dividends and operating
needs for the next twelve months. Any further material or acquisition-related activities may require additional sources of
financing and would be subject to the financial covenants established under our credit facilities. For more details, see "Long-
term Debt and Credit Facilities" below.
As of June 30, 2018, we have provided $28.5 million (June 30, 2017—$22.1 million) in respect of both additional foreign
taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United
States subsidiaries, and planned periodic repatriations from certain United States and German subsidiaries, that will be subject
to withholding taxes upon distribution.
Cash flows provided by operating activities
Fiscal 2018 Compared to Fiscal 2017
Cash flows from operating activities increased by $270.6 million due to an increase in net income before the impact of
non-cash items of $283.4 million, partially offset by a decrease in changes from working capital of $12.8 million. The decrease
in operating cash flow from changes in working capital was primarily due to the net impact of the following decreases: (i)
$145.1 million relating to a lower accounts payable and accrued liabilities balance and (ii) $29.6 million relating to income
taxes payable and deferred charges and credits. These decreases were partially offset by increases of (i) $104.2 million relating
to accounts receivable, (ii) $32.1 million relating to deferred revenues, (iv) $25.1 million relating to other assets and (v) $0.5
million relating to prepaid and other current assets.
During the fourth quarter of Fiscal 2018 our days sales outstanding (DSO) was 58 days, compared to a DSO of 60 days
during the fourth quarter of Fiscal 2017 and the per day impact of our DSO in the fourth quarters of Fiscal 2018 and Fiscal
2017 on our cash flows was $8.4 million and $7.4 million, respectively.
Fiscal 2017 Compared to Fiscal 2016
Cash flows from operating activities decreased by $86.5 million due to a decrease in changes from working capital of
$109.4 million, partially offset by an increase in net income before the impact of non-cash items of $22.9 million. The decrease
in operating cash flow from changes in working capital was primarily due to the net impact of the following decreases: (i)
$135.8 million relating to a higher accounts receivable balance, which is primarily due to increased billings associated with
more revenue recognized during Fiscal 2017 as compared to the prior fiscal year, (ii) $25.0 million relating to other assets, of
which approximately $6.5 million is attributable to more security deposits made to landlords in accordance with facility lease
agreements, approximately $6.3 million is attributable to more direct and relevant costs recorded on implementation of long-
term contacts, $6.4 million is on account of the recognition of a long-term other receivable, and the remainder is due to an
increase in investment and other miscellaneous activities, (iii) $8.1 million relating to prepaid and other current assets, and (iv)
$8.0 million relating to income taxes payable and deferred charges and credits. These decreases were partially offset by an
increase in operating cash flows of (i) $59.2 million relating to a higher accounts payable and accrued liabilities balance which
59
is primarily due to an increase in accrued salaries and commissions of $50.2 million, and (ii) $8.3 million relating to deferred
revenues.
During the fourth quarter of Fiscal 2017 our DSO was 60 days compared to a DSO of 53 days during the fourth quarter of
Fiscal 2016. The per day impact of our DSO in the fourth quarters of Fiscal 2017 and Fiscal 2016 on our cash flows was $7.4
million and $5.4 million, respectively. During Fiscal 2017, our operating cash flows were negatively impacted by the DSO of
recent acquisitions, such as Recommind, which historically offered longer payment terms than OpenText.
Cash flows used in investing activities
Our cash flows used in investing activities is primarily on account of acquisitions and additions of property and
equipment.
Fiscal 2018 Compared to Fiscal 2017
Cash flows used in investing activities decreased by $1.7 billion, primarily due to a decrease in consideration paid for
acquisitions during Fiscal 2018 as compared to Fiscal 2017. During Fiscal 2017 we closed one material acquisition, namely
ECD, for $1.6 billion.
Fiscal 2017 Compared to Fiscal 2016
Cash flows used in investing activities increased by $1.8 billion, primarily due to an increase in consideration paid for
acquisitions during Fiscal 2017, which includes the acquisition of ECD Business for approximately $1.6 billion.
Cash flows provided by (used in) financing activities
Our cash flows from financing activities generally consist of long-term debt financing and amounts received from stock
options exercised by our employees. These inflows are typically offset by scheduled and non-scheduled repayments of our
long-term debt financing and, when applicable, the payment of dividends and/or the repurchases of our Common Shares.
Fiscal 2018 Compared to Fiscal 2017
Cash flows used in financing activities increased by $933.2 million. During Fiscal 2017 we received net proceeds from
our public offering of Common Shares of approximately $584.6 million. During Fiscal 2018 we focused on repaying our long-
term debt obligations and made additional payments of approximately $373.6 million, net of proceeds, as compared to Fiscal
2017. This increase in cash outflow used in financing activities was offset by an inflow of approximately $40.3 million relating
to cash collected from the issuance of Common Shares for the exercise of options and the OpenText Employee Share Purchase
Plan (ESPP). The remainder of the change was due to miscellaneous items.
Fiscal 2017 Compared to Fiscal 2016
Cash flows provided by financing activities increased by $479.4 million. This was primarily due to (i) net proceeds from
our public offering of Common Shares during the second quarter of Fiscal 2017 which resulted in cash inflow of approximately
$584.6 million, (ii) the issuance of an additional $250 million in aggregate principal amount of Senior Notes 2026 at an issue
price of 102.75%, which resulted in a gross cash inflow of approximately $256.9 million, (iii) proceeds from drawings on the
Revolver of $225.0 million, (iv) savings of $65.5 million relating to Common Shares repurchased under our Share Repurchase
Plan (as defined herein) during Fiscal 2016, for which no similar purchases were made during Fiscal 2017, (v) an increase of
$15.5 million relating to cash collected from the issuance of Common Shares for the exercise of options and the OpenText
Employee Share Purchase Plan (ESPP), and (vi) an increase of $2.4 million relating to savings from fewer Common Shares
repurchased for potential reissuance under our Long Term Incentive Plans (LTIP) or other plans during Fiscal 2017 as
compared to Fiscal 2016. These cash inflows were partially offset by (i) repayments on the Revolver of $50.0 million and (ii)
an increase in dividend payments made to our shareholders of $21.3 million. The remainder of the change was due to
miscellaneous items.
Cash Dividends
During the year ended June 30, 2018, we declared and paid cash dividends of $0.5478 per Common Share, respectively,
that totaled $145.6 million. Future declarations of dividends and the establishment of future record and payment dates are
subject to the final determination and discretion of the Board. See Item 5 "Dividend Policy" in this Annual Report on Form 10-
K for more information.
In Fiscal 2017, we declared and paid cash dividends of $0.4770 per Common Share that totaled $120.6 million.
In Fiscal 2016, we declared and paid cash dividends of $0.4150 per Common Share that totaled $99.3 million.
60
Long-term Debt and Credit Facilities
Senior Unsecured Fixed Rate Notes
Senior Notes 2026
On May 31, 2016 we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes
2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to certain
persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2026 bear interest at a rate of
5.875% per annum, payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2016. Senior
Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance with their terms, or repurchased.
On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior
Notes 2026 at an issue price of 102.75%. The additional notes have identical terms, are fungible with and are a part of a single
series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate
principal amount of Senior Notes 2026, after taking into consideration the additional issuance, is $850 million.
We may redeem all or a portion of the Senior Notes 2026 at any time prior to June 1, 2021 at a redemption price equal to
100% of the principal amount of Senior Notes 2026 plus an applicable premium, plus accrued and unpaid interest, if any, to the
redemption date. In addition, we may also redeem up to 40% of the aggregate principal amount of Senior Notes 2026, on one or
more occasions, prior to June 1, 2019, using the net proceeds from certain qualified equity offerings at a redemption price of
105.875% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, subject to compliance with
certain conditions. We may, on one or more occasions, redeem Senior Notes 2026, in whole or in part, at any time on and after
June 1, 2021 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2026, dated as of May
31, 2016, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S. trustee, and
BNY Trust Company of Canada, as Canadian trustee (the 2026 Indenture), plus accrued and unpaid interest, if any, to the
redemption date.
If we experience one of the kinds of changes of control triggering events specified in the 2026 Indenture, we will be
required to make an offer to repurchase Senior Notes 2026 at a price equal to 101% of the principal amount of Senior Notes
2026, plus accrued and unpaid interest, if any, to the date of purchase.
The 2026 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things: (i)
create certain liens and enter into sale and lease-back transactions; (ii) create, assume, incur or guarantee additional
indebtedness of the Company or the guarantors without such subsidiary becoming a subsidiary guarantor of the notes; and (iii)
consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and assets substantially as
an entirety to, another person. These covenants are subject to a number of important limitations and exceptions as set forth in
the 2026 Indenture. The 2026 Indenture also provides for events of default, which, if any of them occurs, may permit or, in
certain circumstances, require the principal, premium, if any, interest and any other monetary obligations on all the then-
outstanding notes to be due and payable immediately.
Senior Notes 2026 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that
borrow or guarantee the obligations under our existing senior credit facilities. Senior Notes 2026 and the guarantees rank
equally in right of payment with all of our and our guarantors’ existing and future senior unsubordinated debt and will rank
senior in right of payment to all of the our and our guarantors’ future subordinated debt. Senior Notes 2026 and the guarantees
will be effectively subordinated to all of our and our guarantors’ existing and future secured debt, including the obligations
under the senior credit facilities, to the extent of the value of the assets securing such secured debt.
The foregoing description of the 2026 Indenture does not purport to be complete and is qualified in its entirety by
reference to the full text of the 2026 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed
with the SEC on May 31, 2016.
Senior Notes 2023
On January 15, 2015, we issued $800 million in aggregate principal amount of our 5.625% Senior Notes due 2023 (Senior
Notes 2023) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to
certain persons in offshore transactions pursuant to Regulation S under the Securities Act. Senior Notes 2023 bear interest at a
rate of 5.625% per annum, payable semi-annually in arrears on January 15 and July 15, commencing on July 15, 2015. Senior
Notes 2023 will mature on January 15, 2023, unless earlier redeemed in accordance with their terms, or repurchased.
We may, on one or more occasion, redeem Senior Notes 2023, in whole or in part, at any time on and after January 15,
2018 at the applicable redemption prices set forth in the indenture governing the Senior Notes 2023, dated as of January 15,
2015, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon (as successor to Citibank
61
N.A.), as U.S. trustee, and BNY Trust Company of Canada (as successor to Citi Trust Company Canada), as Canadian trustee
(the 2023 Indenture), plus accrued and unpaid interest, if any, to the redemption date.
If we experience one of the kinds of changes of control triggering events specified in the 2023 Indenture, we will be
required to make an offer to repurchase Senior Notes 2023 at a price equal to 101% of the principal amount of Senior Notes
2023, plus accrued and unpaid interest, if any, to the date of purchase.
The 2023 Indenture contains covenants that limit our and certain of our subsidiaries’ ability to, among other things: (i)
create certain liens and enter into sale and lease-back transactions; (ii) create, assume, incur or guarantee additional
indebtedness of the Company or the subsidiary guarantors without such subsidiary becoming a subsidiary guarantor of Senior
Notes 2023; and (iii) consolidate, amalgamate or merge with, or convey, transfer, lease or otherwise dispose of its property and
assets substantially as an entirety to, another person. These covenants are subject to a number of important limitations and
exceptions as set forth in the 2023 Indenture. The 2023 Indenture also provides for events of default, which, if any of them
occurs, may permit or, in certain circumstances, require the principal, premium, if any, interest and any other monetary
obligations on all the then-outstanding notes to be due and payable immediately.
Senior Notes 2023 are guaranteed on a senior unsecured basis by our existing and future wholly-owned subsidiaries that
borrow or guarantee the obligations under our existing senior credit facilities. Senior Notes 2023 and the guarantees rank
equally in right of payment with all of our and our subsidiary guarantors’ existing and future senior unsubordinated debt and
will rank senior in right of payment to all of our and our subsidiary guarantors’ future subordinated debt. Senior Notes 2023 and
the guarantees will be effectively subordinated to all of ours and our guarantors’ existing and future secured debt, including the
obligations under the Revolver and Term Loan B (as defined herein), to the extent of the value of the assets securing such
secured debt.
The foregoing description of the 2023 Indenture does not purport to be complete and is qualified in its entirety by
reference to the full text of the 2023 Indenture, which is filed as an exhibit to the Company’s Current Report on Form 8-K filed
with the SEC on January 15, 2015.
Term Loan B
On May 30, 2018, we entered into a credit facility, which provides for a $1 billion term loan facility with certain lenders
named therein, Barclays Bank PLC (Barclays), as sole administrative agent and collateral agent, and with Barclays and RBC
Capital Markets as lead arrangers and joint bookrunners (Term Loan B) and borrowed the full amount on May 30, 2018 to,
among other things, repay in full the loans under our prior $800 million term loan credit facility originally entered into on
January 16, 2014. Repayments made under Term Loan B are equal to 0.25% of the principal amount in equal quarterly
installments for the life of Term Loan B, with the remainder due at maturity.
Borrowings under Term Loan B are secured by a first charge over substantially all of our assets on a pari passu basis with
the Revolver. Term Loan B has a seven year term.
Borrowings under Term Loan B bear interest at a rate per annum equal to an applicable margin plus, at the borrower’s
option, either (1) the eurodollar rate for the interest period relevant to such borrowing or (2) an ABR rate. The applicable
margin for borrowings under Term Loan B is 1.75%, with respect to LIBOR advances and 0.75%, with respect to ABR
advances. The interest on the current outstanding balance for Term Loan B is equal to 1.75% plus LIBOR (subject to a 0.00%
floor). As of June 30, 2018, the outstanding balance on the Term Loan B bears an interest rate of approximately 3.73%.
Term Loan B has incremental facility capacity of (i) $250 million plus (ii) additional amounts, subject to meeting a
“consolidated senior secured net leverage” ratio not exceeding 2.75:1.00, in each case subject to certain conditions.
Consolidated senior secured net leverage ratio is defined for this purpose as the proportion of our total debt reduced by
unrestricted cash, including guarantees and letters of credit, that is secured by our or any of our subsidiaries’ assets, over our
trailing twelve months net income before interest, taxes, depreciation, amortization, restructuring, share-based compensation
and other miscellaneous charges.
Under Term Loan B, we must maintain a “consolidated net leverage” ratio of no more than 4:1 at the end of each financial
quarter. Consolidated net leverage ratio is defined for this purpose as the proportion of our total debt reduced by unrestricted
cash, including guarantees and letters of credit, over our trailing twelve months net income before interest, taxes, depreciation,
amortization, restructuring, share-based compensation and other miscellaneous charges. As of June 30, 2018, our consolidated
net leverage ratio was 1.9:1.
62
Revolver
We currently have a $450 million committed revolving credit facility (the Revolver) which matures on May 5, 2022.
Borrowings under the Revolver are secured by a first charge over substantially all of our assets, and on a pari passu basis with
Term Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear
interest per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging
from 1.25% to 1.75%.
During the year ended June 30, 2018, we drew down $200 million, from the Revolver partially to finance acquisitions
(year ended June 30, 2017 and 2016—$225 million and nil, respectively).
During the year ended June 30, 2018, we repaid $375 million (year ended June 30, 2017 and 2016—$50 million and nil,
respectively). As of June 30, 2018 we have no outstanding balance on the Revolver.
For the year ended June 30, 2018, we recorded interest expense of $9.0 million, relating to amounts drawn on the
Revolver (year ended June 30, 2017 and 2016—$2.6 million and nil, respectively).
For further details relating to our debt, please see note 10 "Long-Term Debt" to our Consolidated Financial Statements.
Shelf Registration Statement
On August 30, 2017, we filed a universal shelf registration statement on Form S-3 with the SEC, which became effective
automatically (the Shelf Registration Statement). The Shelf Registration Statement allows for primary and secondary offerings
from time to time of equity, debt and other securities, including Common Shares, Preference Shares, debt securities, depositary
shares, warrants, purchase contracts, units and subscription receipts. A base shelf short-form prospectus qualifying the
distribution of such securities was concurrently filed with Canadian securities regulators on August 30, 2017. The type of
securities and the specific terms thereof will be determined at the time of any offering and will be described in the applicable
prospectus supplement to be filed separately with the SEC and Canadian securities regulators.
Pensions
As of June 30, 2018, our total unfunded pension plan obligations were $68.0 million, of which $2.3 million is payable
within the next twelve months. We expect to be able to make the long-term and short-term payments related to these obligations
in the normal course of operations.
Our anticipated payments under our most significant plans for the fiscal years indicated below are as follows:
2019
2020
2021
2022
2023
2024 to 2028
Total
Fiscal years ending June 30,
CDT
GXS GER
GXS PHP
$
$
655
700
800
890
999
6,008
10,052
$
$
1,027
1,032
1,061
1,068
1,071
5,506
10,765
$
$
138
104
144
330
198
1,913
2,827
For a detailed discussion on pensions, see note 11 "Pension Plans and Other Post Retirement Benefits" to our
Consolidated Financial Statements.
63
Commitments and Contractual Obligations
As of June 30, 2018, we have entered into the following contractual obligations with minimum payments for the indicated
fiscal periods as follows:
Long-term debt obligations (1)
Operating lease obligations (2)
Purchase obligations
Total
3,524,567
394,907
16,108
3,935,582
$
$
$
$
Payments due between
July 1, 2018—
June 30, 2019
July 1, 2019—
June 30, 2021
July 1, 2021—
June 30, 2023
July 1, 2023
and beyond
142,626
$
284,013
$
282,398
$
2,815,530
72,224
9,577
224,427
$
127,878
6,354
418,245
$
85,943
177
368,518
$
108,862
—
2,924,392
(1) Includes interest up to maturity and principal payments. Please see note 10 "Long-Term Debt" for more details.
(2) Net of $7.6 million of sublease income to be received from properties which we have subleased to third parties.
Guarantees and Indemnifications
We have entered into customer agreements which may include provisions to indemnify our customers against third party
claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to
a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification
provisions and have not accrued any liabilities related to these indemnification provisions in our Consolidated Financial
Statements.
Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including,
among others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such
agreements have not had a material effect on our results of operations, financial position or cash flows.
Litigation
We are currently involved in various claims and legal proceedings.
Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be
treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss
Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the
status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim
that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each
matter in light of its merits and our experience with similar proceedings under similar circumstances.
If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably
estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Annual Report on
Form 10-K, the aggregate of such estimated losses was not material to our consolidated financial position or result of
operations and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts
already recognized will be incurred that would be material to our consolidated financial position or results of operations.
Contingencies
IRS Matter
As we have previously disclosed, the United States Internal Revenue Service (IRS) is examining certain of our tax returns
for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in
connection with those examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual
property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also
previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or
in the aggregate, and that we have not recorded any material accruals for any such potential adjustments in our Consolidated
Financial Statements.
We previously disclosed that, as part of these examinations, on July 17, 2015 we received from the IRS an initial Notice
of Proposed Adjustment (NOPA) in draft form proposing a one-time approximately $280 million increase to our U.S. federal
taxes arising from the reorganization in Fiscal 2010, plus penalties and interest, and that we expected to receive an additional
NOPA proposing an increase to our U.S. federal taxes for Fiscal 2012 arising from the integration of Global 360 Holding Corp.
into the structure that resulted from the reorganization, accompanied by proposed penalties and interest. We also previously
64
disclosed that the draft NOPA could be changed before the final NOPA is issued, including because the IRS reserved the right
in the draft NOPA to increase the adjustment by assigning a higher value to our intellectual property.
On July 11, 2018, we received from the IRS a revised draft NOPA proposing an increase to our U.S. federal taxes for
Fiscal 2010 (the 2010 NOPA) and a draft NOPA proposing an increase to our U.S. federal taxes for Fiscal 2012 (the 2012
NOPA), respectively. A NOPA is an IRS position and does not impose an obligation to pay tax. After evaluation of these
NOPAs, we continue to strongly disagree with the IRS’ positions and intend to vigorously contest the proposed adjustments to
our taxable income.
We currently estimate our potential aggregate liability, as of June 30, 2018, in connection with these ongoing matters with
the IRS, including additional state income taxes plus penalties and interest that may be due, to be approximately $725 million,
comprised of approximately $455 million in U.S. federal and state taxes, approximately $105 million of penalties, and
approximately $165 million of interest, further described below. Our previously disclosed estimated potential aggregate
liability, as of March 31, 2018, was approximately $605 million.
The 2010 NOPA received from the IRS on July 11, 2018 increases the one-time proposed adjustment to our U.S. federal
income taxes for Fiscal 2010 by approximately $55 million, from, as previously disclosed, approximately $280 million to
approximately $335 million. Such increase is based on the IRS’ assertion that certain of our intangible property involved in our
internal reorganization had a greater value than was assigned to it in the original draft NOPA. As contemplated by the original
draft NOPA, the 2010 NOPA asserts penalties equal to 20% of the additional proposed taxes for Fiscal 2010, plus interest at the
applicable statutory rate (which will continue to accrue until the matter is resolved and may be substantial).
On July 11, 2018, we also received, consistent with previously disclosed expectations, the 2012 NOPA proposing an
approximately $80 million adjustment to our U.S. federal taxes for Fiscal 2012, which was previously included in our estimated
potential aggregate liability of approximately $605 million. The 2012 NOPA also asserts, however, that the penalty rate should
be 40% of the additional proposed taxes for Fiscal 2012.
The $120 million increase from the previously estimated potential aggregate liability of approximately $605 million, as of
March 31, 2018, is attributable to (i) approximately $95 million of increased proposed U.S. federal and state taxes and
associated penalties and interest related to the IRS asserting a higher valuation of our intangible property in the 2010 NOPA,
(ii) approximately $20 million related to the additional 20% penalties and associated interest asserted by the IRS in the 2012
NOPA, and (iii) approximately $5 million related to an estimate of additional interest that has continued to accrue since March
31, 2018.
Based on our discussions with the IRS and the fact that the adjustments proposed in these NOPAs reflect the IRS’ own
asserted valuations of our intangible property, we do not expect the IRS to further revise the NOPAs to increase any of their
proposed adjustments to our U.S. federal income taxes (subject to the continued accrual of interest, as noted above).
As previously disclosed and noted above, we strongly disagree with the IRS’ position and intend to vigorously contest the
proposed adjustments to our taxable income. We are examining various alternatives available to taxpayers to contest the
proposed adjustments. Any such alternatives could involve a lengthy process and result in the incurrence of significant
expenses. As of the date of this Annual Report on Form 10-K, we have not recorded any material accruals in respect of these
examinations in our Consolidated Financial Statements. An adverse outcome of these tax examinations could have a material
adverse effect on our financial position and results of operations.
CRA Matter
As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer
pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of
reassessment for Fiscal 2012 and Fiscal 2013. Assuming the utilization of available tax attributes (further described below), we
estimate our potential aggregate liability, as of June 30, 2018, in connection with the CRA's reassessments for Fiscal 2012 and
Fiscal 2013 to be limited to penalties and interest that may be due of approximately $23 million.
The notices of reassessment for Fiscal 2012 and Fiscal 2013 would, as drafted, increase our taxable income by
approximately $90 million for each of those years, as well as, in the case of Fiscal 2012, impose a 10% penalty on the proposed
adjustment to income, with a similar penalty expected to be imposed for Fiscal 2013.
We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012 and Fiscal 2013 (including
any penalties) are without merit. We have filed a notice of objection for Fiscal 2012, will be filing an objection for Fiscal 2013,
and we are currently seeking competent authority consideration under applicable international treaties in respect of these
reassessments.
Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012 and
Fiscal 2013, or potential reassessments that may be proposed for subsequent years currently under audit, we have elective
65
deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that
no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.
We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest
assessments. As of the date of this Annual Report on Form 10-K, we have not recorded any accruals in respect of these
reassessments in our Consolidated Financial Statements. Audits by the CRA of our tax returns for fiscal years prior to Fiscal
2012 have been completed with no reassessment of our income tax liability in respect of our international transactions,
including the transfer pricing methodology applied to them. The CRA is currently auditing Fiscal 2014 and Fiscal 2015. We are
engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.
GXS Brazil Matter
As part of our acquisition of GXS, we inherited a tax dispute in Brazil between the Company’s subsidiary, GXS
Tecnologia da Informação (Brasil) Ltda. (GXS Brazil), and the municipality of São Paulo, in connection with GXS Brazil’s
judicial appeal of a tax claim. During the first quarter of Fiscal 2018 the courts ruled in favour of the municipality of São Paulo.
The Company decided not to pursue further appeal. On October 1, 2017, the Company reached a settlement with the
municipality and paid $1.4 million.
Historically, prior to our acquisition of GXS, GXS would charge certain costs to its subsidiaries, including GXS Brazil,
primarily based on historical transfer pricing studies that were intended to reflect the costs incurred by subsidiaries in relation
to services provided by the parent company to the subject subsidiary. GXS recorded taxes on amounts billed, that were
considered to be due based on the intercompany charges. GXS subsequently re-evaluated its intercompany charges to GXS
Brazil and related taxes and, upon taking into consideration the current environment and judicial proceedings in Brazil,
concluded that it was probable that certain indirect taxes would be assessable and payable based upon the accrual of such
intercompany charges and has approximately $1.6 million accrued for the probable amount of a settlement related to the
indirect taxes, interest and penalties.
GXS India Matter
Our Indian subsidiary, GXS India Technology Centre Private Limited (GXS India), is subject to potential assessments by
Indian tax authorities in the city of Bangalore. GXS India has received assessment orders from the Indian tax authorities
alleging that the transfer price applied to intercompany transactions was not appropriate. Based on advice from our tax
advisors, we believe that the facts that the Indian tax authorities are using to support their assessment are incorrect. We have
filed appeals and anticipate an eventual settlement with the Indian tax authorities. We have accrued $1.3 million to cover our
anticipated financial exposure in this matter.
Please also see Part I, Item 1A "Risk Factors" in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We do not enter into off-balance sheet financing as a matter of practice, except for guarantees relating to taxes and letters
of credit on behalf of parties with whom we conduct business, and the use of operating leases for office space, computer
equipment, and vehicles. None of the operating leases described in the previous sentence has, and we currently do not believe
that they potentially may have, a material effect on our financial condition, revenues, expenses, results of operations, liquidity,
capital expenditures or capital resources. In accordance with U.S. GAAP, neither the lease liability nor the underlying asset is
carried on the balance sheet, as the terms of the leases do not meet the criteria for capitalization.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
We are primarily exposed to market risks associated with fluctuations in interest rates on our term loans, revolving loans
and foreign currency exchange rates.
Interest rate risk
Our exposure to interest rate fluctuations relate primarily to our Term Loan B and the Revolver.
As of June 30, 2018, we had an outstanding balance of $997.5 million on Term Loan B. Term Loan B bears a floating
interest rate of 1.75% plus LIBOR. As of June 30, 2018, an adverse change of one percent on the interest rate would have the
effect of increasing our annual interest payment on Term Loan B by approximately $10.0 million, assuming that the loan
balance as of June 30, 2018 is outstanding for the entire period (June 30, 2017—$7.7 million).
As of June 30, 2018, we had no outstanding balance on the Revolver. Borrowings under the Revolver would bear interest
per annum at a floating rate of LIBOR plus a fixed rate that is dependent on our consolidated net leverage ratio ranging from
66
1.25% to 1.75%. As of June 30, 2018, an adverse change of one percent on the interest rate would have no effect on our annual
interest payment on the Revolver, as there was no balance outstanding, and assuming that the loan balance of nil remained for
the entire year (June 30, 2017—$1.8 million).
Foreign currency risk
Foreign currency transaction risk
We transact business in various foreign currencies. Our foreign currency exposures typically arise from intercompany
fees, intercompany loans and other intercompany transactions that are expected to be cash settled in the near term. We expect
that we will continue to realize gains or losses with respect to our foreign currency exposures. Our ultimate realized gain or loss
with respect to foreign currency exposures will generally depend on the size and type of cross-currency transactions that we
enter into, the currency exchange rates associated with these exposures and changes in those rates. Additionally, we have
hedged certain of our Canadian dollar foreign currency exposures relating to our payroll expenses in Canada.
Based on the foreign exchange forward contracts outstanding as of June 30, 2018, a one cent change in the Canadian
dollar to U.S. dollar exchange rate would have caused a change of approximately $0.5 million in the mark to market on our
existing foreign exchange forward contracts (June 30, 2017—$0.4 million).
Foreign currency translation risk
Our reporting currency is the U.S. dollar. Fluctuations in foreign currencies impact the amount of total assets and
liabilities that we report for our foreign subsidiaries upon the translation of these amounts into U.S. dollars. In particular, the
amount of cash and cash equivalents that we report in U.S. dollars for a significant portion of the cash held by these
subsidiaries is subject to translation variance caused by changes in foreign currency exchange rates as of the end of each
respective reporting period (the offset to which is recorded to accumulated other comprehensive income on our Consolidated
Balance Sheets).
The following table shows our cash and cash equivalents denominated in certain major foreign currencies as of June 30,
2018 (equivalent in U.S. dollar):
(In thousands)
Euro
British Pound
Canadian Dollar
Swiss Franc
Other foreign currencies
Total cash and cash equivalents denominated in foreign currencies
U.S. dollar
Total cash and cash equivalents
U.S. Dollar
Equivalent at
June 30, 2018
U.S. Dollar
Equivalent at
June 30, 2017
$
120,346
$
121,621
31,211
24,590
52,652
117,459
346,258
336,684
$
682,942
$
30,425
29,131
41,925
87,144
310,246
133,111
443,357
If overall foreign currency exchange rates in comparison to the U.S. dollar uniformly weakened by 10%, the amount of
cash and cash equivalents we would report in equivalent U.S. dollars would decrease by approximately $34.6 million (June 30,
2017—$31.0 million), assuming we have not entered into any derivatives discussed above under "Foreign Currency
Transaction Risk".
Item 8.
Financial Statements and Supplementary Data
The response to this Item 8 is submitted as a separate section of this Annual Report on Form 10-K. See Part IV, Item 15.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
67
Item 9A.
Controls and Procedures
(A) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of the
Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that as of June 30, 2018, our disclosure controls and procedures were effective to provide reasonable assurance that information
required to be disclosed in our reports filed or submitted under the Exchange Act were recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that information
required to be disclosed by us in the reports we file under the Exchange Act (according to Rule 13(a)-15(e)) is accumulated and
communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
(B) Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting
(ICFR), as such term is defined in Exchange Act Rule 13a-15(f). ICFR is a process designed by, or under the supervision of,
our Chief Executive Officer and Chief Financial Officer and effected by our Board of Directors, management and other
personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our
financial statements for external purposes in accordance with generally accepted accounting principles. ICFR includes those
policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and
expenditures are being made only in accordance with the authorizations of our management and our directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that
could have a material effect on our financial statements.
Our management assessed our ICFR as of June 30, 2018, the end of our most recent fiscal year. In making our
assessment, our management used the criteria established in Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Based on the results of our evaluation, our management, including the Chief Executive Officer and Chief Financial
Officer, concluded that our ICFR was effective as of June 30, 2018.
The results of our management’s assessment was reviewed with our Audit Committee and the conclusion that our ICFR
was effective as of June 30, 2018 has been audited by KPMG LLP, our independent registered public accounting firm, as stated
in their report which is included in Part IV, Item 15 of this Annual Report.
Our management, including the Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure
controls or our ICFR will prevent or detect all error or all fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control
system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their
costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have
been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error. Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The design of any system of controls is based in
part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Any evaluation of prospective control effectiveness, with respect
to future periods, is subject to risks. Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures.
(C) Attestation Report of the Independent Registered Public Accounting Firm
KPMG LLP, our independent registered public accounting firm, has issued a report under Public Company Accounting
Oversight Board Auditing Standard No. 5 on the effectiveness of our ICFR. See Part IV, Item 15 of this Annual Report on Form
10-K.
68
(D) Changes in Internal Control over Financial Reporting (ICFR)
Based on the evaluation completed by our management, in which our Chief Executive Officer and Chief Financial Officer
participated, our management has concluded that there were no changes in our internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2018 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
Other Matters
As of June 30, 2018, in anticipation of our adoption of Topic 606, Revenue from Contracts with Customers, we were in
the process of finalizing certain changes to our policies, procedures, information systems and the related control activities, to
monitor and maintain appropriate internal controls over financial reporting. These changes in policies and procedures,
information systems and the related control activities were effective in July 2018.
69
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The following table sets forth certain information as to our directors and executive officers as of July 25, 2018.
Name
Age Office and Position Currently Held With Company
Mark J. Barrenechea
Madhu Ranganathan
Gordon A. Davies
Prentiss Donohue
Paul Duggan
Simon Harrison
Kasey Holman
David Jamieson
Aditya Maheshwari
Muhi Majzoub
James McGourlay
Patricia Nagle
Leslie Sarauer
P. Thomas Jenkins
Randy Fowlie (2)(3)
Gail E. Hamilton (2)
Brian J. Jackman (1)
Stephen J. Sadler
Michael Slaunwhite (1)(3)
Katharine B. Stevenson (2)
Carl Jürgen Tinggren (2)
Deborah Weinstein (1)(3)
53 Vice Chairman, Chief Executive Officer and Chief Technology Officer, Director
54
56
48
43
48
51
53
44
58
49
53
56
58
Executive Vice President and Chief Financial Officer
Executive Vice President, Chief Legal Officer and Corporate Development
Senior Vice President, Professional Services
Senior Vice President, Worldwide Operations
Senior Vice President, Worldwide Sales
Senior Vice President, Communications & Brand
Chief Information Officer
Senior Vice President and Chief Accounting Officer
Executive Vice President, Engineering and Cloud Services
Senior Vice President, Worldwide Support
Senior Vice President, Chief Marketing Officer
Senior Vice President, Human Resources
Chairman of the Board
58 Director
68 Director
77 Director
67 Director
57 Director
56 Director
60 Director
58 Director
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Corporate Governance and Nominating Committee.
Mark J. Barrenechea
Mr. Barrenechea joined OpenText in January 2012 as the President and Chief Executive Officer. In January 2016, Mr.
Barrenechea stepped down as President and assumed the role of Chief Technology Officer, while remaining the Company’s
Chief Executive Officer. In September 2017, Mr. Barrenechea was appointed Vice Chair, in addition to remaining the Chief
Executive Officer and Chief Technology Officer. Before joining OpenText, Mr. Barrenechea was President and Chief Executive
Officer of Silicon Graphics International Corporation (SGI), where he also served as a member of the Board. During Mr.
Barrenechea's tenure at SGI, he led strategy and execution, which included transformative acquisition of assets, as well as
penetrating diverse new markets and geographic regions. Mr. Barrenechea also served as a director of SGI from 2006 to 2012.
Prior to SGI, Mr. Barrenechea served as Executive Vice President and CTO for CA, Inc. (CA) (formerly Computer Associates
International, Inc.) from 2003 to 2006 and was a member of the executive management team. Before going to CA, Mr.
Barrenechea was the Senior Vice President of Applications Development at Oracle Corporation from 1997 to 2003, managing a
multi-thousand person global team while serving as a member of the executive management team. From 1994 to 1997, Mr.
70
Barrenechea served as Vice President of Development at Scopus, a software applications company. Prior to Scopus, Mr.
Barrenechea was the Vice President of Development at Tesseract, where he was responsible for reshaping the company's line of
human capital management software. Mr. Barrenechea serves as a member of the Board and Audit Committee of Dick's
Sporting Goods and also serves as a board member of Hamilton Insurance Group. Mr. Barrenechea holds a Bachelor of Science
degree in computer science from Saint Michael's College. Mr. Barrenechea has authored several books including The Golden
Age of Innovation, On Digital, Digital: Disrupt or Die, eGovernment or Out of Government, Enterprise Information
Management: The Next Generation of Enterprise Software, Software Rules and e-Business or out of Business.
Madhu Ranganathan
Ms. Ranganathan joined OpenText as Executive Vice President, Chief Financial Officer in April 2018. With more than 25
years of financial leadership experience, Ms. Ranganathan most recently served as the Chief Financial Officer for [24]7.ai from
June 2008 to March 2018. Ms. Ranganathan also held senior financial roles at Rackable Systems from December 2005 to May
2008, Redback Networks from August 2002 to November 2005, and Backweb Technologies from December 1996 to January
2000. She also has public accounting experience with PriceWaterhouseCoopers LLC. Ms. Ranganathan currently serves as
Board Member and Audit Committee Chair for ServiceSource and previously served as a Board Member of Watermark, a Bay
Area organization focused on professional development for women. Ms. Ranganathan holds an MBA in Finance from the
University of Massachusetts, is a Certified Public Accountant in California and a Chartered Accountant (India).
Gordon A. Davies
Mr. Davies joined OpenText as Chief Legal Officer in September 2009. Mr. Davies also serves as the Company's
Corporate Secretary and Chief Compliance Officer, and has responsibility for Corporate Development and the Program
Management Office. Prior to joining OpenText, Mr. Davies was the Chief Legal Officer and Corporate Secretary of Nortel
Networks Corporation. During his sixteen years at Nortel, Mr. Davies acted as Deputy General Counsel and Corporate
Secretary during 2008, and as interim Chief Legal Officer and Corporate Secretary in 2005 and again in 2007. He led the
Corporate Securities legal team as General Counsel-Corporate from 2003, with responsibility for providing legal support on all
corporate and securities law matters, and spent five years in Europe supporting all aspects of the Europe, Middle East and
Africa (EMEA) business, ultimately as General Counsel, EMEA. Prior to joining Nortel, Mr. Davies practiced securities law at
a major Toronto law firm. Mr. Davies holds an LL.B and an MBA from the University of Ottawa, and a B.A. from the
University of British Columbia. He is a member of the Law Society of Upper Canada, the Canadian Bar Association, the
Association of Canadian General Counsel and the Society of Corporate Secretaries and Governance Professionals.
Prentiss Donohue
Mr. Donohue joined OpenText as Senior Vice President of Professional Services in April 2016. He brings over 20 years of
experience in support and services management. Prior to joining OpenText, Mr. Donohue served as Group Vice President and
General Manager of Advanced Customer Services for Oracle Corporation from January 2010 to March 2016, where he was
responsible for driving Oracle’s innovative software, systems and cloud services. From April 1998 to December 2010, Mr.
Donohue worked at Sun Microsystems in various leadership roles, including in Managed Services Management and Corporate
Marketing. Mr. Donohue served on the board of directors of Summit Charter School until May 2016. Mr. Donohue holds a BA
from the University of Colorado and has completed executive leadership programs at the University of Michigan’s Ross School
of Business and the University of Hong Kong.
Paul Duggan
Mr. Duggan joined OpenText as Senior Vice President of Worldwide Operations in January 2017. He is responsible for
operations across sales, professional services, business networks, and customer support. Prior to joining OpenText, Mr. Duggan
held various roles at Oracle Corporation, including Group Vice President of Support Renewal Sales, North America from
December 1999 to January 2017. Previously, Mr. Duggan served on the advisory board for the Technology Services Industry
Association from 2016 to 2017. He has completed executive leadership programs at the University of Michigan Ross School of
Business and IESE Business School in Barcelona, Spain.
Simon Harrision
Mr. Harrison has served as the Company’s Executive Vice President of Worldwide Sales since October 2017. Prior to this,
Mr. Harrison, who joined the Company through its acquisition of IXOS AG, has held a number of senior leadership roles,
including serving as its Senior Vice President of Enterprise Sales from 2015 to 2017, Senior Vice President of Fast Growth
Markets from 2014 to 2015 and as the Company’s Senior Vice President of Sales for the EMEA region from 2012 to 2014. Mr.
Harrison holds an honors degree in Computer Science from Leeds University.
71
Kasey Holman
Ms. Holman has served as the Company's Senior Vice President, Communications & Brand since February 2018 and is
responsible for global communications (corporate and employee), public relations, brand and creative, industry analyst
relations, social media, corporate social responsibility, web and digital customer experience as well as customer marketing.
Previously, Ms. Holman was the Company's Vice President of Corporate & Brand Marketing from 2013 to 2018. Prior to
joining OpenText, Ms Holman served as the Vice President of Global Communications for BMC Software. Ms. Holman has
also held senior corporate marketing and communications roles at Silicon Image and Sun Microsystems. Ms. Holman holds a
BA in Mass Communications/Journalism from the California State University.
David Jamieson
Mr. Jamieson joined OpenText as the Chief Information Officer in November 2014. He brings over 25 years of experience
in leading Information Technology organizations through the ever-changing technology landscape. Prior to joining OpenText,
Mr. Jamieson worked at Barrick Gold Corporation, where he served as Director of Information Technology for four years
before being appointed as the Vice President of Information Management and Technology in 2005. Mr. Jamieson has held
senior positions with companies, such as Universal Studios Canada from 1999 to 2001, EDS/SHL Systemhouse from 1996 to
1999, and Canadian Pacific Railway from 1988 to 1996. Mr. Jamieson holds a Bachelor of Applied Science, Mechanical
Engineering from the University of Toronto and received his Professional Engineer designation in 1990.
Aditya Maheshwari
Mr. Maheshwari joined OpenText as Senior Vice President and Chief Accounting Officer in February 2016. Prior to
joining OpenText, Mr. Maheshwari was an Audit Partner in the Technology, Media and Telecoms practice at KPMG LLP,
Canada until February 5, 2016. With 15 years of experience at KPMG including international postings in the UK and India, Mr.
Maheshwari has the experience of working with several large multinational companies under U.S. GAAP and International
Financial Reporting Standards. Mr. Maheshwari represented Canada on KPMG's global think-tank for the Technology sector
and is the co-author of 11 technical and thought-leadership publications, published by KPMG, on revenue recognition for the
Technology, Media and Telecoms sector. During his tenure in the UK, Mr. Maheshwari worked in KPMG's technical
accounting group, International Standards Group, specializing in revenue recognition. Mr. Maheshwari is a Chartered
Professional Accountant (Ontario), Certified Public Accountant (Colorado) and Chartered Accountant (India).
Muhi Majzoub
Mr. Majzoub has served as Executive Vice President, Engineering since January 2016. Prior to that he served as Senior
Vice President, Engineering from June 2012 to January 2016. Mr. Majzoub is responsible for managing product development
cycles, global development organization and driving internal operations and development processes. Mr. Majzoub is a seasoned
enterprise software technology executive having recently served as Head of Products for NorthgateArinso, a private company
that provides global Human Resources software and services. Prior to this, Mr. Majzoub was Senior Vice President of Product
Development for CA, Technologies from June 2004 to July 2010. Mr. Majzoub also worked for several years as Vice President
for Product Development at Oracle Corporation from January 1989 to June 2004. Mr. Majzoub attended San Francisco State
University.
James McGourlay
Mr. McGourlay has served as Executive Vice President, Worldwide Support since October 2017. Prior to this, Mr.
McGourlay was the Company's Senior Vice President of Global Technical Services from May 2015 to October 2017 and Senior
Vice President of Worldwide Customer Service from February 2012 to May 2015. Mr. McGourlay joined OpenText in 1997
and held progressive positions in information technology, technical support, product support and special projects, including,
Director, Customer Service and Vice President, Customer Service.
Patricia Nagle
Ms. Nagle has served as Senior Vice President, Chief Marketing Officer since February 2018 and is responsible for all
marketing and demand generation initiatives, including field marketing, programs, events, product marketing, industry
marketing, demonstrations, partners and alliances as well as inside sales. Prior to this role, Ms. Nagle held various positions
within the Company since joining OpenText in 2007, including Vice President of Global Partners and Strategic Alliances, from
January 2007 to February 2018. Prior to joining OpenText, Ms. Nagle was SVP of World Wide Sales, Services and Marketing
at Percussion Software, where she was responsible for direct and indirect sales and all customer facing, external media
communications, client satisfaction and demand generation activities globally. Ms. Nagle holds a BA in Business
72
Administration, a BA in Economics and a concentration in Marketing from the University of New Hampshire as well as an
MBA in Business Administration & Management from Harvard University.
Leslie Sarauer
Ms. Sarauer joined OpenText as Senior Vice President of Human Resources in April 2016. She brings with her over 25
years of diverse experience as a Human Resource leader in both the corporate and professional services settings. Prior to
joining OpenText, Ms. Sarauer held various senior leadership roles at Agrium Inc., including Senior Director, Corporate HR &
Organizational Development from July 2012 to August 2014; Senior Director, Wholesales Human Resources from September
2006 to June 2012; and Senior Director, Total Compensation from January 2003 to August 2006. Ms. Sarauer also held various
roles at Mercer Human Resources Consulting, including Principle Consultant, Executive Compensation from April 1997 to
August 2002. Ms. Sarauer holds a Bachelor of Arts in Economics and a Bachelor of Laws from Queen’s University. She also
attended the Advanced HR Executive Program at the Ross School of Business of the University of Michigan.
P. Thomas Jenkins
Mr. Jenkins is Chair of the Board of OpenText. From 1994 to 2005, Mr. Jenkins was President, then Chief Executive
Officer and then from 2005 to 2013, Chief Strategy Officer of OpenText. Mr. Jenkins has served as a Director of OpenText
since 1994 and as its Chairman since 1998. In addition to his OpenText responsibilities, Mr. Jenkins was the tenth Chancellor
of the University of Waterloo and Chair of the Ontario Global 100 (OG100). Currently, Mr. Jenkins is a board member of
Manulife Financial Corporation. In the past five years, Mr. Jenkins also served as a board member of Thomson Reuters Inc. and
TransAlta Corporation. He is the Chair of the National Research Council of Canada (NRC) and Canadian Chair of the Atlantik
Bruecke. Mr. Jenkins received an M.B.A. from Schulich School of Business at York University, an M.A.Sc. from the
University of Toronto and a B.Eng. & Mgt. from McMaster University. Mr. Jenkins received honorary doctorates from six
universities. He is a Companion of the Canadian Business Hall of Fame and recipient of the Ontario Entrepreneur of the Year
award, the McMaster Engineering L.W. Shemilt Distinguished Alumni Award and the Schulich School of Business Outstanding
Executive Leadership award. He is a Fellow of the Canadian Academy of Engineering (FCAE). Mr. Jenkins was awarded the
Canadian Forces Decoration (CD) and the Queen's Diamond Jubilee Medal (QJDM). Mr. Jenkins is an Officer of the Order of
Canada (OC).
Randy Fowlie
Mr. Fowlie has served as a director of OpenText since March 1998. From March 2011 to April 2017, Mr. Fowlie was the
President and CEO of RDM Corporation, a leading provider of specialized hardware and software solutions in the electronic
payment industry. Mr. Fowlie operated a consulting practice from July 2006 to December 2010. From January 2005 until July
2006, Mr. Fowlie held the position of Vice President and General Manager, Digital Media, of Harris Corporation, formerly
Leitch Technology Corporation (Leitch), a company that was engaged in the design, development, and distribution of audio and
video infrastructure to the professional video industry. Leitch was acquired in August 2005 by Harris Corporation. From June
1999 to January 2005, Mr. Fowlie held the position of Chief Operating Officer and Chief Financial Officer of Inscriber
Technology Corporation (Inscriber), a computer software company and from February 1998 to June 1999 Mr. Fowlie was the
Chief Financial Officer of Inscriber. Inscriber was acquired by Leitch in January 2005. Prior to working at Inscriber Mr. Fowlie
was a partner with KPMG LLP, Chartered Accountants, where he worked from 1984 to February 1998. Mr. Fowlie received a
B.B.A. (Honours) from Wilfrid Laurier University and is a Chartered Professional Accountant. Currently, Mr. Fowlie is also a
director of InvestorCom Inc. In the last five years, Mr. Fowlie also served as a director of RDM Corporation.
Gail E. Hamilton
Ms. Hamilton has served as a director of OpenText since December 2006. For the five years prior thereto, Ms. Hamilton
led a team of over 2,000 employees worldwide as Executive Vice President at Symantec Corp (Symantec), an infrastructure
software company, and most recently had “P&L” responsibility for their global services and support business. During her five
years at Symantec, Ms. Hamilton helped steer the company through an aggressive acquisition strategy. In 2003, Information
Security magazine recognized Ms. Hamilton as one of the “20 Women Luminaries” shaping the security industry. Ms.
Hamilton has over 20 years of experience growing leading technology and services businesses in the enterprise market. She has
extensive management experience at Compaq and Hewlett Packard, as well as Microtec Research. Ms. Hamilton received both
a BSEE from the University of Colorado and an MSEE from Stanford University. Currently, Ms. Hamilton is also a director of
the following public companies: Westmoreland Coal Company and Arrow Electronics, Inc. In the past five years Ms. Hamilton
also served as a director of Ixia.
73
Brian J. Jackman
Mr. Jackman has served as a director of OpenText since December 2002. Mr. Jackman is the President of the Jackman
Group Inc., a private consulting firm he founded in 2005. From 1982 until his retirement in September 2001, Mr. Jackman held
various positions with Tellabs Inc., a U.S. based manufacturer of telecommunications equipment, most recently as Executive
Vice President of the company, and President, Global Systems and Technologies division, and as a member of the board of
directors of the company. Prior to joining Tellabs Inc., Mr. Jackman worked for IBM Corporation from 1965 to 1982, in a
variety of systems, sales and marketing positions. Mr. Jackman also serves as a director of PC-TEL, Incorporated. Mr. Jackman
received a B.A from Gannon University and an M.B.A from The Pennsylvania State University.
Stephen J. Sadler
Mr. Sadler has served as a director of OpenText since September 1997. From April 2000 to present, Mr. Sadler has served
as the Chairman and CEO of Enghouse Systems Limited, a publicly traded software engineering company that develops
geographic information systems as well as contact center systems. Mr. Sadler was previously Chief Financial Officer, President
and Chief Executive Officer of GEAC Computer Corporation Ltd. (GEAC). Prior to Mr. Sadler's involvement with GEAC, he
held executive positions with Phillips Electronics Limited and Loblaws Companies Limited, and was Chairman of Helix
Investments (Canada) Inc. Currently, Mr. Sadler is a director of Enghouse Systems Limited. Mr. Sadler holds a B.A. Sc.
(Honours) in Industrial Engineering and an M.B.A. (Dean's List) and he is a Chartered Professional Accountant.
Michael Slaunwhite
Mr. Slaunwhite has served as a director of OpenText since March 1998. Mr. Slaunwhite has also been Director and
Chairman of Vector Talent Holdings, L.P., the parent holding company of Saba Software, since 2017. Prior to his appointment
at Vector Talent Holdings, Mr. Slaunwhite served as CEO and Chairman of Halogen Software Inc. from 2000 to August 2006,
as President and Chairman from 1995 to 2000, and as a Director and Chairman from 1995 up to its acquisition by Vector Talent
Holdings in 2017. From 1994 to 1995, Mr. Slaunwhite was an independent consultant to a number of companies, assisting them
with strategic and financing plans. Mr. Slaunwhite was the Chief Financial Officer of Corel Corporation from 1988 to 1993.
Mr. Slaunwhite holds a B.A. Commerce (Honours) from Carleton University.
Katharine B. Stevenson
Ms. Stevenson has served as a director of OpenText since December of 2008. She is a corporate director who has served
on a variety of public and Not-for-Profit boards in Canada and the United States. Ms. Stevenson is director of the Canadian
Imperial Bank of Commerce (CIBC) where she chairs its Corporate Governance Committee. Ms. Stevenson is also a director of
CAE Inc. and Capital Power Corporation. CIBC, CAE Inc., and Capital Power Corporation are all publicly listed companies.
She also serves on the St. Michael's Hospital Foundation Board. She was formerly a senior finance executive of Nortel
Networks Corporation from 1995 to 2007, serving as global treasurer. Previously, she held a variety of positions in investment
and corporate banking at JP Morgan Chase & Co. Ms. Stevenson holds a B.A. (Magna Cum Laude) from Harvard University.
She is certified with the professional designation ICD.D. granted by the Institute of Corporate Directors (ICD). Previously, Ms.
Stevenson also served as a director of Valeant Pharmaceuticals International Inc. and OSI Pharmaceuticals Inc.
Carl Jürgen Tinggren
Mr. Tinggren has served as a director of OpenText since February 2017. Mr. Tinggren is the former Chief Executive
Officer of Schindler Group, a European based global industrial corporation, and has over 30 years of international business
experience. Previous to Schindler Group, Mr. Tinggren gained extensive management experience at Sika AG, a public specialty
chemicals company, based out of Switzerland, Sweden and North America, as well as at Booz Allen & Hamilton. Mr. Tinggren
is currently a non-executive member of the board of directors of Johnson Controls International, where he also serves as lead
director and as chair of the audit committee. He is also a director at the Conference Board. Previously, Mr. Tinggren also served
as a director of Schindler Group and Sika AG. Mr. Tinggren received an M.B.A. from Stockholm School of Economics and
New York University Business School.
Deborah Weinstein
Ms. Weinstein has served as a director of OpenText since December 2009. Ms. Weinstein is a co-founder and partner of
LaBarge Weinstein LLP, a business law firm based in Ottawa, Ontario, since 1997. Ms. Weinstein's legal practice specializes in
corporate finance, securities law, mergers and acquisitions and business law representation of public and private companies,
primarily in knowledge-based growth industries. Prior to founding LaBarge Weinstein LLP, Ms. Weinstein was a partner of the
law firm Blake, Cassels & Graydon LLP, where she practiced from 1990 to 1997 in Ottawa, and in Toronto from 1985 to 1987.
Ms. Weinstein also serves as a director of Dynex Power Inc., a manufacturer of power semiconductors, and on a number of not-
74
for-profit boards. Ms. Weinstein holds an LL.B. from Osgoode Hall Law School of York University. In the last five years, Ms.
Weinstein also served as a director of LW Capital Pool Inc. and Standard Innovation Corporation, a private company.
Involvement in Certain Legal Proceedings
Ms. Stevenson served as the Treasurer of Nortel Networks Corporation (Nortel) from 2000 to August 2007. Mr. Davies
served as the Chief Legal Officer and Corporate Secretary of Nortel during 2007 and from January to September 2009. In
January 2009, Nortel filed petitions under applicable bankruptcy and insolvency laws of the United States, Canada and the
United Kingdom.
Ms. Stevenson served as a director of Valeant Pharmaceuticals International, Inc. (Valeant) from 2010 to March 2016.
During her tenure, Valeant was, and continues to be, the subject of certain putative securities class action claims in Canada and
the United States. These claims allege, among other things, misrepresentations by Valeant in certain of its public disclosure
documents.
Mr. Fowlie was a director of Meikle Group Inc. (Meikle Group), a private company, from June 2009 to April 2010.
Subsequent to Mr. Fowlie's resignation, as part of a restructuring, creditors appointed a receiver to sell the business assets and
transfer employees of Meikle Group, as a going concern, to a newly financed company.
Mr. Sadler was a director of Frontline Technologies Inc. (formerly Belzberg Technologies Inc.) from October 1997 to
April 2012. Subsequent to Mr. Sadler's resignation, Frontline Technologies Inc. filed an assignment into bankruptcy under
applicable bankruptcy and insolvency laws of Canada.
Audit Committee
The Audit Committee currently consists of four directors, Mr. Fowlie (Chair), Mr. Tinggren, and Mses. Hamilton and
Stevenson, all of whom have been determined by the Board of Directors to be independent as that term is defined in NASDAQ
Rule 5605(a)(2) and in Rule 10A-3 promulgated by the SEC under the Exchange Act, and within the meaning of our director
independence standards and those of any exchange, quotation system or market upon which our securities are traded.
The responsibilities, mandate and operation of the Audit Committee are set out in the Audit Committee Charter, a copy of
which is available on the Company's website, investors.opentext.com under the Corporate Governance section.
The Board of Directors has determined that Mr. Fowlie qualifies as an “audit committee financial expert” as such term is
defined in SEC Regulation S-K, Item 407(d)(5)(ii).
Code of Business Conduct and Ethics
We have a Code of Business Conduct and Ethics (the Ethics Code) that applies to all of our directors, officers and
employees. The Ethics Code incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical
conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional
relationships, and compliance with all applicable laws and regulations. The Ethics Code also incorporates our expectations of
our employees that enable us to provide full, fair, accurate, timely and understandable disclosure in our filings with the SEC
and other public communications.
The full text of the Ethics Code is published on our web site at investors.opentext.com under the Corporate Governance
section.
If we make any substantive amendments to the Ethics Code or grant any waiver, including any implicit waiver, from a
provision of the Ethics Code to our Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer, we will
disclose the nature of the amendment or waiver on our website at investors.opentext.com or on a Current Report on Form 8-K.
Board Diversity and Term Limits
The Company, including the Corporate Governance and Nominating Committee, views diversity in a broad context
and considers a variety of factors when assessing nominees for the Board. The Company has established a Board Diversity
Policy recognizing that a Board made up of highly qualified directors from diverse backgrounds, including diversity of gender,
age, race, sexual orientation, religion, ethnicity and geographic representation, is important. The Company has not established a
specific target number or date by which to achieve a specific number of women on the Board, as we consider a multitude of
factors, including skills, experience, expertise and character, in determining the best nominee at the time and consider the
Company’s objectives and challenges at such time. There are currently three women on the Board which represents
approximately 30% of the current Board and of the director nominees, and 38% of the current independent Board members.
The Company has not set term limits for independent directors because it values the cumulative experience and
comprehensive knowledge of the Company that long serving directors possess. The Company does not have a director
75
retirement policy, however the Corporate Governance and Nominating Committee considers the results of its director
assessment process in determining the nominees to be put forward. In conducting director evaluations and nominations, the
Corporate Governance and Nominating Committee considers the composition of the Board and whether there is a need to
include nominees with different skills, experiences and perspectives on the Board. This flexible approach allows the Company
to consider each director individually as well as the Board composition generally to determine if the appropriate balance is
being achieved.
Diversity in Executive Officer Positions
The Company is committed to a diverse and inclusive workplace, including advancing women to executive officer
positions. The Company has not adopted specific objectives or targets regarding women at the executive officer level; however,
the Company has adopted a formal written Global Diversity and Inclusion Policy which expresses its commitment to fostering
a diverse and inclusive workplace for all employees. The Company currently has four women (33%) on the executive
leadership team (ELT), while approximately 23% of existing positions on the senior leadership team (SLT), exclusive of our
ELT, are held by women. A principal objective of our Global Diversity and Inclusion Policy is to support and monitor the
identification, development and retention of diverse employees, including gender diversity at executive and leadership
positions. We will continue to develop a sustainable culture of diversity and inclusion that provides all employees an
opportunity to excel.
Item 11.
Executive Compensation
COMPENSATION COMMITTEE REPORT
Our Compensation Committee has reviewed and discussed with our management the following Compensation Discussion
and Analysis (CD&A). Based on this review and discussion, our Compensation Committee has recommended to the Board that
the following CD&A be included in our Annual Report on Form 10-K for Fiscal 2018.
This report is provided by the following independent directors, who comprise our Compensation Committee:
Michael Slaunwhite (Chair), Brian J. Jackman, Deborah Weinstein.
To the extent that this Annual Report on Form 10-K has been or will be specifically incorporated by reference into any
filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (Exchange Act),
this “Compensation Committee Report” shall not be deemed “soliciting materials”, unless specifically otherwise provided in
any such filing.
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion and analysis of compensation arrangements of the following individuals for the fiscal year
which ended on June 30, 2018 (Fiscal 2018), should be read together with the compensation tables and related disclosures set
forth below: (i) our principal executive officer, (ii) our principal financial officer, (iii) our three most highly compensated
executive officers, other than our principal executive officer and principal financial officer, and (iv) one additional individual
who previously served as our principal financial officer during part of Fiscal 2018 (collectively, the Named Executive Officers).
This discussion contains forward-looking statements that are based on our current plans, considerations, expectations and
projections regarding future compensation programs. Actual compensation programs that we adopt in the future may differ
materially from the various planned programs summarized in this discussion.
Payments in Canadian dollars and British pounds sterling included herein, unless otherwise specified, are converted to
U.S. dollars using an average annual exchange rate of 0.786589 and 1.342283, respectively.
Overview of Compensation Program
The compensation of our Named Executive Officers is the responsibility of the Compensation Committee of OpenText's
board of directors (the Compensation Committee or the Committee), either alone or in certain circumstances, in consultation
with the Board. The Compensation Committee ensures compensation decisions are in line with our goal to provide total
compensation to our Named Executive Officers that (i) is fair, reasonable and consistent with our compensation philosophy to
achieve our short-term and long-term business goals, and (ii) provides market competitive compensation. The Named
Executive Officers who are the subject of this CD&A are:
• Mark J. Barrenechea - Vice Chair, Chief Executive Officer and Chief Technology Officer (CEO)
• Madhu Ranganathan - Executive Vice President and Chief Financial Officer (CFO)
76
• John M. Doolittle - Former Executive Vice President and Chief Financial Officer (Former CFO)
• Simon Harrison - Executive Vice President, Worldwide Sales
• Muhi Majzoub - Executive Vice President, Engineering
• Gordon A. Davies - Executive Vice President, Chief Legal Officer and Corporate Development
During Fiscal 2018, Mr. Doolittle served as our Executive Vice President and Chief Financial Officer until his departure
from such office, effective April 2, 2018. Mr. Doolittle will remain with the Company until September 2018 for transition
purposes.
Compensation Oversight Process
Role of Compensation Committee
The Compensation Committee has responsibility for the oversight of executive compensation within the terms and
conditions of our various compensation plans. The Compensation Committee approves the compensation of our executive
officers, with the exception of our CEO. In making compensation decisions relating to, among other things, performance
targets, base salary, bonuses, short-term incentives and long-term incentives, the Compensation Committee considers the input
of the CEO. With respect to the compensation of our CEO, the Compensation Committee makes recommendations to the Board
(excluding the CEO) for approval. The Compensation Committee reviews and approves all equity awards related to executive
compensation prior to final approval and granting by the Board.
The Board, the Compensation Committee, and our management have instituted a set of detailed policies and procedures
to evaluate the performance of each of our Named Executive Officers which help determine the amount of the short-term
incentives and long-term incentives to award to each Named Executive Officer.
The Compensation Committee considers previous compensation awards, the impact of tax, accounting treatments and
applicable regulatory requirements when approving compensation programs.
During Fiscal 2018, the Committee’s work included the following:
• Executive Compensation Review - The Compensation Committee continually reviews compensation practices and
policies with respect to our senior management team against similar-sized global technology companies, in order to
allow us to place our compensation practices for these positions in a market context. This benchmarking may include a
review of base salary, total cash compensation and total direct compensation.
• Long-Term Incentive Plan - The Compensation Committee reviewed semi-annual analysis provided by Mercer
Canada Limited (Mercer) related to performance under all outstanding Performance Share Unit Programs (for details
on the programs, refer to the section titled “Long Term Incentives”).
In reaching its decisions, the Compensation Committee may consider input from management, analysis provided from the
compensation consultant, as well as other factors that the Committee considers appropriate. Decisions made by the
Compensation Committee are the responsibility of the Committee and may reflect factors and considerations other than the
information and/or recommendations provided by management and the compensation consultants.
Compensation Consultant
NASDAQ standards require compensation committees to have certain responsibilities and authority regarding the
retention, oversight and funding of committees' advisors and perform an evaluation of each advisor's independence, taking into
consideration all factors relevant to that person's independence from management. NASDAQ standards also require that such
rights and responsibilities be enumerated in the compensation committee's charter. While, as a foreign private issuer under the
U.S. federal securities laws, we are exempt from these rules, nonetheless, our Compensation Committee has the sole authority
to retain and terminate outside consultants. From time to time, the Compensation Committee seeks the advice of an outside
compensation consultant to provide assistance and guidance on compensation issues. The consultant may provide the
Compensation Committee with relevant information pertaining to market compensation levels, alternative compensation plan
designs, market trends and best practices and may assist the Compensation Committee with respect to determining the
appropriate benchmarks for each Named Executive Officer's compensation.
In Fiscal 2018, the Compensation Committee retained Hugessen Consulting Inc. (Hugessen), an independent consulting
firm specializing in executive compensation consulting. Hugessen did not attend any Compensation Committee meetings;
however, representatives of Hugessen were made available from time to time to consult with members of the Compensation
77
Committee. Hugessen did not provide any other services to the Company during Fiscal 2018, outside of its capacity as
compensation consultants.
The Compensation Committee met four times during Fiscal 2018. Management assisted in the coordination and
preparation of the meeting agenda and materials for each meeting. The agenda is reviewed and approved by the Chairman of
the Compensation Committee. The meeting materials are generally posted and made available to the other Committee members
and invitees, if any, for review approximately one week in advance of each meeting.
Compensation Philosophy
We believe that compensation plays an important role in achieving short and long-term business objectives that ultimately
drives business success in alignment with long-term shareholder value creation.
Our compensation philosophy is based on three fundamental principles:
• Strong link to business strategy - Our short and long-term goals are reflected in our overall compensation program.
• Pay for performance - We aim to reward sustained company performance and individual achievements by aligning a
significant portion of total compensation to our financial results and strategic objectives. We believe compensation
should fluctuate with financial performance and accordingly, we structure total compensation to be at or above our
peer group median when our financial performance exceeds our target performance and likewise, we structure total
compensation to be below our peer group median if our financial performance falls below our targets.
• Market relevant - Our compensation program provides market competitive pay in terms of value and structure in
order to retain talent who are performing according to their objectives and to attract new talent of the highest caliber.
We aim to position our executive officers’ compensation targets at the median in relation to our peer group, however,
actual pay depends on performance of the executive officers and the Company.
Our reward package is based primarily on results achieved by the Company as a whole. The Compensation Committee
has the flexibility to exercise discretion to ensure total compensation appropriately reflects performance. The Compensation
Committee rarely exercises said discretion.
Compensation Objectives
The objectives of our compensation program are to:
• Attract and retain highly qualified executive officers who have a history of proven success;
• Align the interests of executive officers with our shareholders' interests and with the execution of our business
strategy;
• Motivate and reward our high caliber executive team through competitive pay practices and an appropriate mix of
short and long-term incentives;
• Evaluate executive performance on the basis of key financial metrics which we believe closely correlate to long-term
shareholder value; and
• Tie compensation awards directly to key financial metrics with evaluations based on achieving and overachieving
predetermined objectives.
Competitive Compensation
Aggregate compensation for each Named Executive Officer is designed to be market competitive. The Compensation
Committee researches and refers to the compensation practices of similarly situated companies in determining our
compensation policy. Although the Compensation Committee reviews each element of compensation for market
competitiveness, and may weigh a particular element more heavily than another based on our Named Executive Officer's role
within the Company, the focus remains on being competitive in the market with respect to total compensation.
The Compensation Committee periodically reviews data related to compensation levels and programs of a peer group of
comparable organizations. Our last peer group analysis was prepared for management by Radford, an AON Hewitt Company
(Radford), in November 2016 using the criteria described in the table below, and was presented to and approved by the
Compensation Committee at that time. Our peer group consists of 17 companies that include 16 US-based companies and one
Israel-based company. No additional comparable companies were added to our peer group in Fiscal 2018.
78
General Description
Global software and service
providers that are similar in
size, business complexity,
and scope of operations to
us.
Criteria Considered
Key metrics considered include revenue, market
capitalization, number of employees, and net
income.
Generally, organizations within our peer group
are in a similar software/technology industry
with similar revenues, market size and number
of employees.
Peer Group List
Akamai Technologies, Inc.
Autodesk, Inc.
Broadridge Financial Solutions, Inc.
Brocade Communications Systems, Inc.
CA Technologies
Cadence Design Systems, Inc.
Check Point Software Technologies Ltd.
Citrix Systems, Inc.
Global Payments Inc.
Nuance Communications, Inc.
Pitney Bowes Inc.
Red Hat, Inc.
Sabre Corporation
Symantec Corporation
Synopsys, Inc.
Teradata Corporation
The Dun & Bradstreet Corporation
Taking into account the benchmarking review performed in Fiscal 2017, further efforts were made to align our Named
Executive Officers' compensation packages more closely with our stated compensation objectives. Accordingly, Messrs.
Doolittle, Davies, Majzoub and Harrison received an adjustment to their respective total cash compensation effective at the
commencement of Fiscal 2018. The results of the benchmarking review, in consultation with the Compensation Committee,
were also taken into consideration when offering employment to Ms. Ranganathan, who joined the Company in April 2018 as
Executive Vice President and CFO. Also see " Long-Term Incentives - Other Long-Term Equity Grants" below.
Aligning Officers' Interests with Shareholders' Interests
We believe that transparent, objective and easily verified corporate goals play an important role in creating and
maintaining an effective compensation strategy for our Named Executive Officers. Our objective is to facilitate an increase in
shareholder value, over the longer term, through the achievement of these corporate goals under the leadership of our Named
Executive Officers working in conjunction with all of our valued employees.
We use a combination of fixed and variable compensation to motivate our executive officers to achieve our corporate
goals. For Fiscal 2018, the basic components of our executive officer compensation program were:
• Fixed pay;
• Short-term incentives; and
• Long-term incentives.
To ensure alignment of the interests of our executive officers with the interests of our shareholders, our executive officers
have a significant proportion of compensation “at risk”. Compensation that is “at risk” means compensation that may or may
not be paid to an executive officer depending on whether the Company and such executive officer is able to meet or exceed
applicable performance targets. Short-term incentives and long-term incentives meet this definition of compensation which is at
risk, and long-term incentives are an additional incentive used to promote the creation of longer-term shareholder value. In
general, the greater the executive officer’s influence upon our financial or operational results, the higher is the "at risk" portion
of the executive officer's compensation.
The Compensation Committee annually considers the percentage of each Named Executive Officer's total compensation
that is “at risk” depending on the Named Executive Officer's responsibilities and objectives.
79
The chart below provides the approximate percentage of target total compensation provided to each Named Executive
Officer that was either fixed pay or “at risk” for Fiscal 2018:
Fixed Pay Percentage
Percentage (at 100% target)
Percentage (at 100% target)
Short-Term Incentive
Long-Term Incentive
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan(1)
John M. Doolittle
Simon Harrison
Muhi Majzoub
Gordon A. Davies
(1) The "at risk" portion of Ms. Ranganathan's total compensation set forth in this table is lower than what the Compensation
Committee would normally target for her respective position. This is the mathematical result of her long-term incentive grants
being awarded at a prorated value based on the number of months Ms. Ranganathan was employed with the Company during
Fiscal 2018.
(“Not At Risk”)
12%
32%
23%
34%
21%
21%
(“At Risk”)
18%
32%
23%
34%
21%
21%
(“At Risk”)
70%
36%
54%
32%
58%
58%
Fixed Pay
Fixed pay includes:
• Base salary;
• Perquisites; and
• Other benefits.
Base Salary
The base salary review for each Named Executive Officer takes into consideration factors such as current competitive
market conditions and particular skills (such as leadership ability and management effectiveness, experience, responsibility and
proven or expected performance) of the particular individual. The Compensation Committee obtains information regarding
competitive market conditions through the assistance of management and our compensation consultants.
The performance of each of our Named Executive Officers, other than our CEO, is assessed by our CEO in his capacity
as the direct supervisor of the other Named Executive Officers. The performance of our CEO is assessed by the Board
(excluding the CEO). The Board conducts the initial discussions and makes the initial decisions with respect to the performance
of our CEO in a special session from which management is absent.
For details on our benchmarking process, see "Competitive Compensation" above.
Perquisites
Our Named Executive Officers receive a minimal amount of non-cash compensation in the form of executive perquisites.
In order to remain competitive in the market place, our Named Executive Officers are entitled to some limited benefits that are
not otherwise available to all of our employees, including:
• An annual executive medical physical examination;
• A base allowance to cover expenses such as financial planning or health club memberships.
Other Benefits
We provide various employee benefit programs on the same terms to all employees, including our Named Executive
Officers, such as, but not limited to:
• Medical health insurance;
• Dental insurance;
•
•
Life insurance; and
Tax based retirement savings plans matching contributions.
80
Short-Term Incentives
In Fiscal 2018, all of our Named Executive Officers participated in our short-term incentive plan, which is designed to
motivate achievement of our short-term corporate goals. These short-term corporate goals are typically derived from our annual
business plan which is prepared by management and approved by the Board. Awards made under the short-term incentive plan
are made by way of cash payments only.
The amount of the short-term incentive payable to each Named Executive Officer, in general, is based on the ability of
each Named Executive Officer to meet pre-established, qualitative and quantitative corporate objectives related to improving
shareholder and company value, as applicable, which are reviewed and approved by the Compensation Committee and the
Board. For all Named Executive Officers these objectives consist of worldwide revenues and worldwide adjusted operating
income with the exception of Mr. Harrison. Due to his specific responsibilities relating to sales, Mr. Harrison's objectives
consist of worldwide license and cloud revenues and worldwide adjusted operating income.
Worldwide revenues are derived from the “Total Revenues” line of our audited income statement with certain
adjustments relating to the aging of accounts receivable. Worldwide revenues are an important variable that helps us to assess
our Named Executive Officers’ performance in helping us to grow and manage our business.
Worldwide license and cloud revenues are derived from sum of the "License" and "Cloud services and subscriptions"
lines of our audited income statement.
Worldwide adjusted operating income, which is intended to reflect the operational effectiveness of our leadership, is
calculated as total revenues less the total cost of revenues and operating expenses excluding amortization of intangible assets,
special charges and stock-based compensation expense. Worldwide adjusted operating income is also adjusted to remove the
impact of foreign exchange.
For Fiscal 2018, the following table illustrates the total short-term target awards for each Named Executive Officer, along
with the associated weighting of the related performance measures.
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan(1)
John M. Doolittle
Simon Harrison(2)
Muhi Majzoub
Gordon A. Davies
Total Target
Award
1,425,000
Worldwide
Revenues
50%
125,000
498,172
300,000
400,000
367,076
50%
50%
N/A
50%
50%
$
$
$
$
$
$
Worldwide
Adjusted
Operating
Income
50%
Worldwide
License and
Cloud Revenues
N/A
50%
50%
50%
50%
50%
N/A
N/A
50%
N/A
N/A
(1) The target amount was prorated based on the number of months Ms. Ranganathan was employed with us during Fiscal 2018.
(2) The target amount was prorated based on the number of months Mr. Harrison held the position of Executive Vice President, Worldwide Sales during
Fiscal 2018 and does not include short-term target awards prior to his promotion.
For the short-term incentive award amounts that would be earned at each of threshold, target and maximum levels of
performance, for applicable objectives, see “Grants of Plan-Based Awards for Fiscal 2018” below.
For each performance measure noted above, the Compensation Committee approves the total target award, and the Board
applies a threshold and target level of performance. Where applicable, the Board also applies an objective formula for
determining the percentage payout under awards for levels of performance above and below threshold and target. To the extent
target performance is exceeded, the award will be proportionately greater. The threshold and target levels and payout formula
are set forth below as well as actual performance and payout percentages achieved in Fiscal 2018. The Board has discretion to
make positive or negative adjustments if it considers them to be reasonably appropriate. The Board did not make any
discretionary adjustments for Fiscal 2018 awards.
Objectives (in millions)
Worldwide Revenues
Worldwide Adjusted Operating Income
Worldwide License and Cloud Revenues
Threshold Target
$
$
$
2,472 $
813 $
1,140 $
Target
Fiscal 2018
Actual (1)
2,747 $
903 $
1,267 $
2,713
889
1,230
% Target
Actually
Achieved
% of Payment
per Fiscal 2018
Payout Table
98.8%
98.4%
97.1%
85%
85%
70%
(1) Adjusted to remove the impact of foreign exchange and, in some cases, reflect certain adjustments relating to the aging of accounts receivable.
81
The table below illustrates the percentage of the target awards that are paid to our Named Executives Officers, with the
exception of Mr. Harrison, in accordance with our actual results achieved during Fiscal 2018.
Worldwide Revenues and Worldwide Adjusted Operating Income - Attainment and Corresponding Payment
% Attainment
0 - 89%
90 - 91%
92 - 93%
94 - 95%
96 - 97%
98 - 99%
% Payment
—%
15%
40%
55%
70%
85%
Formula:
Actual / Budget = % of Attainment
Linear x25 for every 0.5% over100%
% Attainment
100.0%
100.5%
101.0%
101.5%
102% and above
% Payment
100%
125%
150%
175%
200%
Example: an attainment of 101% results in a payment of 150%
In Fiscal 2018, rounded up, we achieved 99% of our worldwide revenue target and 98% of our worldwide adjusted
operating income target. The “Worldwide Revenues and Worldwide Adjusted Operating Income Calculations” table above
illustrates under the “% Attainment” column that an achievement of 99% of target for the worldwide revenue performance
criteria results in an award payment of 85% of the target award amount and an achievement of 98% of target for the worldwide
adjusted operating income performance criterion results in an award payment of 85% of the target award amount.
The table below illustrates the percentage of the target awards that are paid to Mr. Harrison, as a result of more direct
responsibilities relating to sales, in accordance with our actual results achieved during Fiscal 2018.
Worldwide License and Cloud Revenues and Worldwide Adjusted Operating Income -
Attainment and Corresponding Payment
% Payment
% Attainment
0 - 89%
90 - 91%
92 - 93%
94 - 95%
96 - 97%
98 - 99%
100%
101%
—%
15%
40%
55%
70%
85%
100%
125%
% Attainment
102%
103%
104%
105%
106%
107%
108% and above
% Payment
150%
175%
200%
225%
250%
275%
300% cap
Formula:
Actual / Budget = % of Attainment
Linear x25 for every 0.5% over100%
Example: an attainment of 101% results in a payment of
150%
In Fiscal 2018, Mr. Harrison achieved 97% of his worldwide license and cloud revenue target and 98% of his worldwide
adjusted operating income target. The “Worldwide License and Cloud Revenue and Worldwide Adjusted Operating Income
Calculation” table above illustrates under the “% Attainment” column that an achievement of 97% of target for the worldwide
license and cloud revenue performance criteria results in an award payment of 70% of the target award amount and an
achievement of 98% of target for the worldwide adjusted operating income performance criterion results in an award payment
of 85% of the target award amount.
The actual short-term incentive award earned by each Named Executive Officer for Fiscal 2018 was determined in
accordance with the formulas described above. We have set forth below for each Named Executive Officer the award amount
actually paid for Fiscal 2018, and the percentage of target award amount represented by the actual award paid broken out by
performance measure as follows:
82
Mark J. Barrenechea
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Madhu Ranganathan
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Payable at
Target
Payable at
Threshold
712,500 $
712,500 $
106,875 $
106,875 $
Actual
Payable
($)
605,625
605,625
1,425,000 $
213,750 $
1,211,250
Actual
Payable
(% of Target)
85%
85%
85%
Payable at
Target
Payable at
Threshold
Actual
Payable
($)
Actual
Payable
(% of Target)
62,500 $
62,500 $
9,375 $
9,375 $
53,125
53,125
125,000 $
18,750 $
106,250
85%
85%
85%
$
$
$
$
$
$
The target amount and resulting amount payable was prorated based on the number of months Ms. Ranganathan was employed
with the Company during Fiscal 2018.
John M. Doolittle
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Simon Harrison
Performance Measure:
Worldwide License and Cloud Revenues
Worldwide Adjusted Operating Income
Total
Payable at
Target
Payable at
Threshold
249,086 $
249,086 $
498,172 $
37,363 $
37,363 $
74,726 $
Actual
Payable
($)
211,725
211,725
423,450
Actual
Payable
(% of Target)
85%
85%
85%
Payable at
Target
Payable at
Threshold
150,000 $
150,000 $
300,000 $
22,500 $
22,500 $
45,000 $
Actual
Payable
($)
105,000
127,500
232,500
Actual
Payable
(% of Target)
70%
85%
78%
$
$
$
$
$
$
The target amount and resulting amount payable was prorated based on the number of months Mr. Harrison held the position of
Executive Vice President, Worldwide Sales during Fiscal 2018 and does not include payments made to Mr. Harrison earned
prior to his promotion.
Muhi Majzoub
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Payable at
Target
Payable at
Threshold
$
$
$
200,000 $
200,000 $
400,000 $
30,000 $
30,000 $
60,000 $
Actual
Payable
($)
170,000
170,000
340,000
Actual
Payable
(% of Target)
85%
85%
85%
83
Gordon A. Davies
Performance Measure:
Worldwide Revenues
Worldwide Adjusted Operating Income
Total
Long-Term Incentives
Payable at
Target
Payable at
Threshold
$
$
$
183,538 $
183,538 $
367,076 $
27,531 $
27,531 $
55,062 $
Actual
Payable
($)
156,007
156,008
312,015
Actual
Payable
(% of Target)
85%
85%
85%
As with many North American technology companies, we have a general practice of granting variable long-term
incentives to executive officers. Our long-term incentives represent a significant proportion of our executive officers’ total
compensation, and its purpose is two-fold: (i) as a component of a competitive compensation package; and (ii) to align the
interests of our executive officers with the interests of our shareholders. Grants are consistent with competitive market practice,
and vesting occurs over time, to ensure alignment with our performance over the longer term. Usually a very high percentage
of the long-term incentive is "at risk" indicating we will not provide any compensation to the executive unless shareholders
have received a positive return.
Long-Term Incentive Plans (LTIP) - General
We incentivize our executive officers, in part, with long-term compensation pursuant to our LTIP. For each LTIP grant, a
target value is established by the Compensation Committee for each Named Executive Officer, except for the CEO, whose
target value is established by the Board, based on competitive market practice and by the respective Named Executive Officer’s
ability to influence financial or operational performance. Grants are generally made annually and are comprised of the
components outlined in the table below.
The target value of the LTIP is split into three components, with 50% represented by Performance Share Units (PSUs),
25% represented by Restricted Share Units (RSUs) and 25% represented by stock options. PSUs and RSUs are based on a
rolling three-year program, which means that assessment of a Named Executive Officer's performance under each grant is made
continuously over the period, but payments on that grant may only be made at the end of the applicable three year term in either
cash or Common Shares, at the discretion of the Board. Options granted under the LTIP generally vest over four years. The
LTIP payments may also be subject to certain payment limitations in the event of early termination of employment or change in
control of the Company. As well, LTIP payments are subject to mandatory repayment or “claw-back” in the event of fraud,
willful misconduct or gross negligence by any executive officer, including a Named Executive Officer, affecting the financial
performance or financial statements of the Company or the price of our Common Shares. The performance targets and the
weightings of performance targets under each LTIP are first recommended by the Compensation Committee and then approved
by the Board. No dividends are paid or accrued on PSUs or RSUs.
84
Vehicle
Performance
Share Units
(PSU)
% of Total
LTIP
50% of LTIP
target award
value
Restricted
Share Units
(RSU)
25% of LTIP
target award
value
Description
The value of each PSU is equivalent to one
Common Share. The number of PSUs granted is
determined by converting the dollar value of the
target award to PSUs, based on an average share
price determined at time of Board grant. The
number of PSUs to vest will be based on the
Company’s total shareholder return (TSR) at the
end of a three year period as compared to the
TSR of companies comprising the constituents of
the S&P MidCap400 Software and Services
Index.
The value of each RSU is equivalent to one
Common Share. The number of RSUs granted is
determined by converting the dollar value of the
target award to RSUs, based on an average share
price determined at time of Board grant.
Vesting
Cliff vesting in
the third year
following the
determination
by the Board
that the
performance
criteria have
been met.
Cliff vesting,
generally three
years after grant
date.
Stock
Options
25% of LTIP
target award
value
The dollar value of the target award is converted
to a number of options using a Black Scholes
model. The exercise price is equal to the closing
price of our Common Shares on the trading day
preceding the date of grant.
Vesting is
typically 25%
on each of the
first four
anniversaries of
grant date.
Options expire
seven years
after the grant
date.
Payout
Once vested, units will be
settled in either Common
Shares or cash, at the
discretion of the Board.
We expect to settle these
awards in Common
Shares.
Once vested, units will be
settled in either Common
Shares or cash, at the
discretion of the Board.
We expect to settle these
awards in Common
Shares.
Once vested, participants
may exercise options for
Common Shares.
Fiscal 2020 LTIP
Grants made in Fiscal 2018 under the Fiscal 2020 LTIP took effect starting on August 7, 2017 with the goal of measuring
performance over the three year period starting July 1, 2017. For each Named Executive Officer, the compensation target under
the Fiscal 2020 LTIP, was determined based on the Named Executive Officer's overall compensation and by their ability to
influence our financial or operational performance.
The target compensation set for each Named Executive Officer under the Fiscal 2020 LTIP is comprised of three
elements: PSUs, RSUs and stock options, which represent 50%, 25% and 25%, respectively, of each Named Executive
Officer’s total LTIP target award. The table below illustrates the target value of each element under the Fiscal 2020 LTIP for
each Named Executive Officer.
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan(1)
John M. Doolittle(2)
Simon Harrison(3)
Muhi Majzoub
Gordon A. Davies
Performance Share Units
$
2,815,000 $
$
$
$
$
287,337 $
N/A
184,564 $
550,000 $
518,579 $
Restricted Share Units
Stock Options
Total
1,407,500 $
1,407,500 $
143,669 $
N/A
92,282 $
275,000 $
259,289 $
143,669 $
N/A
92,282 $
275,000 $
259,289 $
5,630,000
574,675
N/A
369,128
1,100,000
1,037,157
(1) Grants made to Ms. Ranganathan under the LTIP 2020 plan were prorated based on the number of months Ms. Ranganathan was employed with the
Company during Fiscal 2018.
(2) As a result of his upcoming departure from the Company, the grants made to Mr. Doolittle under Fiscal 2020 LTIP are not eligible for vesting.
(3) Grants made to Mr. Harrison under the LTIP 2020 plan were made prior to his promotion to Executive Vice President, Worldwide Sales.
Awards granted in Fiscal 2018 under the Fiscal 2020 LTIP were in addition to the awards granted in Fiscal 2017, Fiscal
2016, and prior years. For details of our previous LTIPs, see Item 11 of our Annual Report on Form 10-K for the appropriate
year.
85
Fiscal 2020 LTIP - PSUs
With respect to our PSUs, we use relative TSR to benchmark the Company’s performance against the performance of the
corporations comprising the constituents of the S&P Mid Cap 400 Software & Services Index (the Index). The Index is
comprised of 400 U.S. public companies with unadjusted market capitalization of $1.8 billion to $13.6 billion and is a useful
measure of the performance of mid-sized companies. Relative TSR is the sole measure for each Named Executive Officer's
performance over the relevant three year period for the Fiscal 2020 LTIP with respect to PSUs. If over the three year period, the
relative cumulative TSR of the Company compared to the cumulative TSR of the Index is greater than the 66th percentile, the
relative TSR target will be achieved in full. If it is negative at the end of the three year period, no payout will be made.
Otherwise, any target percentile achieved between 1% and 100% will be interpolated to determine a payout that can range from
1.5% to 150% of the target award based on the number of PSUs that were granted in connection with the Fiscal 2020 LTIP.
The amounts that may be realized for PSU awards under the Fiscal 2020 LTIP are as follows, calculated based on the
market price of our Common Shares on the NASDAQ as of June 30, 2018, and applied to the number of PSUs to be issued to
the Named Executive Officers based on target level achievement.
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan(1)
John M. Doolittle(2)
Simon Harrison(3)
Muhi Majzoub
Gordon A. Davies
Fiscal 2020 LTIP PSUs
1.5% Achievement
at June 30, 2020
100% Achievement
at June 30, 2020
150% Achievement
at June 30, 2020
$
$
$
$
$
44,060 $
4,202 $
N/A
2,755 $
8,609 $
7,828 $
2,937,309 $
280,112 $
N/A
183,692 $
573,949 $
521,868 $
4,405,964
420,168
N/A
275,538
860,924
782,802
(1) Grants made to Ms. Ranganathan under the LTIP 2020 plan were prorated based on the number of months Ms. Ranganathan was employed with the
Company during Fiscal 2018.
(2) As a result of his upcoming departure from the Company, the grants made to Mr. Doolittle under Fiscal 2020 LTIP are not eligible for vesting.
(3) Grants made to Mr. Harrison under the LTIP 2020 plan were made prior to his promotion to Executive Vice President, Worldwide Sales.
Fiscal 2020 LTIP - RSUs
RSUs vest over three years and do not have any specific performance-based vesting criteria. Provided the eligible
employee remains employed throughout the vesting period, all RSUs granted shall become vested RSUs at the end of the Fiscal
2020 LTIP period.
The amounts that may be realized for RSU awards under the Fiscal 2020 LTIP are as follows, calculated based on the
market price of our Common Shares on the NASDAQ as of June 30, 2018, and applied to the number of equivalent RSUs to be
issued to the Named Executive Officers.
Fiscal 2020 LTIP RSUs
Named Executive Officer
Mark J. Barrenechea
Madhu Ranganathan(1)
John M. Doolittle(2)
Simon Harrison(3)
Muhi Majzoub
Gordon A. Davies
Value at June 30, 2018
1,468,479
140,056
N/A
91,846
286,799
260,758
$
$
$
$
$
(1) Grants made to Ms. Ranganathan under the LTIP 2020 plan were prorated based on the number of months Ms. Ranganathan was employed with the
Company during Fiscal 2018.
(2) As a result of his upcoming departure from the Company, the grants made to Mr. Doolittle under Fiscal 2020 LTIP are not eligible for vesting.
(3) Grants made to Mr. Harrison under the LTIP 2020 plan were made prior to his promotion to Executive Vice President, Worldwide Sales.
86
Fiscal 2020 LTIP - Stock Options
The stock options granted in connection with the Fiscal 2020 LTIP vest over four years, do not have any specific
performance-based vesting criteria and, if not exercised, expire after seven years.
Other Long-Term Equity Grants
In addition to grants made in connection with our LTIP program, from time to time, we may grant stock options and/or
RSUs to new strategic hires and to our employees in recognition of their service, such as for promotions, retention, or other
reasons. In Fiscal 2018, we granted stock options to two of our Named Executive Officers, namely, Ms. Ranganathan, in
connection with the commencement of her employment with us, and Mr. Harrison, in connection with his promotion to
Executive Vice President, Worldwide Sales. Details of these grants are contained in the table below under "Grants of Plan
Based Awards" Our RSUs and stock options vest over a specified contract date, typically over three and four years,
respectively, and do not have any specific performance criteria. With respect to stock option grants, the Board will determine
the following, based upon the recommendation of the Compensation Committee: the executive officers entitled to participate in
our stock option plan, the number of options to be granted, and any other material terms and conditions of the stock option
grant.
All stock option grants, whether part of the LTIP or granted separately for new hires, promotions, retention or other
reasons, are governed by our stock option plans. In addition, grants and exercises of stock options are subject to our Insider
Trading Policy. For details of our Insider Trading Policy, see “Other Information With Respect to Our Compensation Program -
Insider Trading Policy” below.
For details on the determination of targeted awards and our benchmarking process, see "Compensation Objective -
Competitive Compensation" above.
Executive Change in Control and Severance Benefits
Our severance benefit agreements are designed to provide reasonable compensation to departing senior executive officers
under certain circumstances. While we do not believe that the severance benefits would be a determinative factor in a senior
executive's decision to join or remain with the Company, the absence of such benefits, we believe, would present a distinct
competitive disadvantage in the market for talented executive officers. Furthermore, we believe that it is important to set forth
the benefits payable in triggering circumstances in advance in an attempt to avoid future disputes or litigation.
The severance benefits we offer to our senior executive officers are competitive with similarly situated individuals and
companies. We have structured our senior executive officers' change in control benefits as “double trigger” benefits, meaning
that the benefits are only paid in the event of, first, a change in control transaction, and second, the loss of employment within
one year after the transaction. These benefits attempt to provide an incentive to our senior executive officers to remain
employed with the Company in the event of such a transaction.
Other Information With Respect to Our Compensation Program
Pension Plans
We do not provide pension benefits or any non-qualified deferred compensation to any of our Named Executive Officers.
Share Ownership Guidelines
We currently have equity ownership guidelines (Share Ownership Guidelines), the objective of which is to encourage our
senior management, including our Named Executive Officers, and our directors to buy and hold Common Shares in the
Company based upon an investment target. We believe that the Share Ownership Guidelines help align the financial interests of
our senior management team and directors with the financial interests of our shareholders.
The equity ownership levels are as follows:
CEO
Other senior management
Non-management director
4x base salary
1x base salary
3x annual retainer
For purposes of the Share Ownership Guidelines, individuals are deemed to hold all securities over which he or she is the
registered or beneficial owner thereof under the rules of Section 13(d) of the Exchange Act through any contract, arrangement,
understanding, relationship or otherwise in which such person has or shares:
87
•
•
voting power which includes the power to vote, or to direct the voting of, such security; and/or
investment power which includes the power to dispose, or to direct the disposition of, such security.
Also, Common Shares will be valued at the greater of their book value (i.e., purchase price) or the current market value.
On an annual basis, the Compensation Committee reviews the recommended ownership levels under the Share Ownership
Guidelines and the compliance by our executive officers and directors with the Share Ownership Guidelines.
The Board implemented the Share Ownership Guidelines in October 2009 and recommends that equity ownership levels
be achieved within five years of becoming a member of the executive leadership team, including Named Executive Officers.
The Board also recommends that the executive leadership team retain their ownership levels for so long as they remain
members of the executive leadership team.
Named Executive Officers
Named Executive Officers may achieve these Share Ownership Guidelines through the exercise of stock option awards,
purchases under the OpenText Employee Stock Purchase Plan (ESPP), through open market purchases made in compliance
with applicable securities laws or through any equity plan(s) we may adopt from time to time providing for the acquisition of
Common Shares. Until the Share Ownership Guidelines are met, it is recommended that a Named Executive Officer retain a
portion of any stock option exercise or LTIP award in Common Shares to contribute to the achievement of the Share Ownership
Guidelines. Common Shares issuable pursuant to the unexercised options shall not be counted towards meeting the equity
ownership target.
As of the date of this Annual Report on Form 10-K, all Named Executive Officers comply with the Share Ownership
Guidelines for Fiscal 2018, as they have either met the share ownership guidelines or, in the case of Ms. Ranganathan and Mr.
Harrison, have five years from becoming subject to these guidelines to achieve the equity ownership guidelines required by
their position.
Directors
With respect to non-management directors, both Common Shares and deferred stock units (DSUs) are counted towards
the achievement of the Share Ownership Guidelines. The Company currently has a Directors’ Deferred Share Unit Plan (DSU
Plan), whereby any non-management director of the Company may elect to defer all or part of his or her retainer and/or fees in
the form of common stock equivalents. As of the date of this Annual Report on Form 10-K, all non-management directors have
exceeded the Share Ownership Guidelines applicable to them, which is three times their annual retainer, with the exception of
Mr. Tinggren, who joined as a member of our Board in February 2017. For further details, see the table below titled “Director
Compensation for Fiscal 2018”.
Insider Trading Policy
All of our employees, officers and directors, including our Named Executive Officers, are required to comply with our
Insider Trading Policy. Our Insider Trading Policy prohibits the purchase, sale or trade of our securities with the knowledge of
material inside information. In addition, our Insider Trading Policy prohibits our employees, officers and directors, including
our Named Executive Officers, from, directly or indirectly, short selling any security of the Company or entering into any other
arrangement that results in a gain only if the value of the Company's securities decline in the future, selling a “call option”
giving the holder an option to purchase securities of the Company, or buying a “put option” giving the holder an option to sell
securities of the Company. The definition of “trading in securities” includes any derivatives-based, monetization, non-recourse
loan or similar arrangement that changes the insider’s economic exposure to or interest in securities of the Company and which
may not necessarily involve a sale.
All grants of stock options are subject to our Insider Trading Policy and as a result, stock options may not be granted
during the “blackout” period beginning on the fifteenth day of the last month of each quarter and ending at the beginning of the
second trading day following the date on which the Company’s quarterly or annual financial results, as applicable, have been
publicly released. If the Board approves the issuance of stock options during the blackout period, these stock options are not
granted until the blackout period is over. The price at which stock options are granted is not less than the closing price of the
Company’s Common Shares on the trading day for the NASDAQ market immediately preceding the applicable grant date.
88
Tax Deductibility of Compensation
Under Section 162(m) of the United States Internal Revenue Code (or Section 162(m)) publicly-held corporations cannot
deduct compensation paid in excess of $1,000,000 to certain executive officers in any taxable year. Certain compensation paid
under plans that are “performance-based” (which means compensation paid only if the individual's performance meets pre-
established objective goals based upon performance criteria approved by shareowners) are not subject to the $1,000,000 annual
limit. Although our compensation policy is designed to link compensation to performance, payments in excess of $1,000,000
made pursuant to any of our compensation plans to United States-based executives may not be deductible under Section
162(m). The Tax Cuts and Jobs Act amended Section 162(m) to delete the exception for performance-based compensation and
to expand the corporations and executives to which it applies. Beginning with Fiscal 2019, we will be unable to deduct under
Section 162(m) compensation paid in excess of $1,000,000 to any person who served as CEO or CFO during the taxable year
and any other Named Executive Officer serving as an executive at the end of the taxable year (each, a “covered employee”) as
well any person who was a covered employee in a preceding taxable year, subject to limited transition relief.
89
Summary Compensation Table
The following table sets forth summary information concerning the annual compensation of our Named Executive
Officers. All numbers are rounded to the nearest dollar or whole share. Changes in exchange rates will impact payments
illustrated below that are made in currencies other than the U.S. dollar. Any Canadian dollar payments included herein have
been converted to U.S. dollars at an annual average rate of 0.786589, 0.754836, and 0.755310, for Fiscal 2018, Fiscal 2017,
and Fiscal 2016, respectively. Any British pounds sterling payments included herein have been converted to U.S. dollars at an
annual average rate of 1.342283 for Fiscal 2018.
Fiscal
Year
Salary
($)
Bonus
($)
Stock
Awards
($) (1)
Option
Awards
($) (2)
Non-Equity
Incentive Plan
Compensation
($) (3)
Change in
Pension Value
and
Non-qualified
Deferred
Compensation
Earnings ($)
All Other
Compensation
($) (4)
Mark J. Barrenechea
2018
$ 950,000
— $ 3,538,963 $ 1,407,556 $
1,211,250
N/A
$ 37,161
Vice Chair, Chief
Executive Officer and
Chief Technology Officer
2017
$ 945,000
— $ 3,233,360 $ 5,821,023 $
1,925,625
N/A
$ 13,926
2016
$ 945,000
— $ 3,658,934 $ 1,283,437 $
923,738
N/A
$ 22,082
Madhu Ranganathan(12)
2018
$ 125,000
— $
315,057 $ 2,275,143 $
106,250
EVP, Chief Financial
Officer
2017
2016
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$
—
N/A
N/A
John M. Doolittle
2018
$ 498,175
— $
699,341 $
278,118 $
423,450
N/A
$ 14,896
Former EVP, Chief
Financial Officer
2017
$ 415,160
— $
480,818 $
190,968 $
725,744
N/A
$ 10,133
2016
$ 377,655
— $
560,347 $
196,449 $
295,326
N/A
$ 14,424
(5)
(6)
(6)
(7)
(8)
(8)
(9)
(6)
(6)
Total ($)
$ 7,144,930
$ 11,938,934
$ 6,833,191
$ 2,821,450
N/A
N/A
$ 1,913,980
$ 1,822,823
$ 1,444,201
Simon Harrison (13)
2018
$ 388,916
— $
221,328 $
868,563 $
288,972
EVP, Worldwide Sales
2017
N/A
N/A
2016
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Muhi Majzoub
2018
$ 400,000
— $
691,379 $
274,993 $
340,000
EVP, Engineering
2017
$ 356,000
— $
535,825 $
212,651 $
527,313
2016
$ 356,000
— $
606,276 $
212,632 $
243,398
Gordon A. Davies
2018
$ 367,077
— $
628,627 $
249,994 $
312,015
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$ 11,470
(10)
$ 1,779,249
(8)
(8)
(7)
(7)
(7)
N/A
N/A
—
—
—
$
$
$
N/A
N/A
$ 1,706,372
$ 1,631,789
$ 1,418,306
$ 15,969
(11)
$ 1,573,682
EVP, Chief Legal Officer
and Corporate
Development
2017
$ 314,012
— $
630,050 $
250,270 $
464,681
N/A
$
—
2016
$ 314,209
— $
713,431 $
250,169 $
214,850
N/A
$ 15,276
(7)
(6)
$ 1,659,013
$ 1,507,935
(1) PSUs and RSUs were granted pursuant to the Fiscal 2020 LTIP and other non- LTIP related grants. The amounts set forth in this column represent the
aggregate grant date fair value, as computed in accordance with ASC Topic 718 “Compensation-Stock Compensation” (Topic 718). Grant date fair value
may vary from the target value indicated in the table set forth above in the section “Fiscal 2020 LTIP”. For a discussion of the assumptions used in these
valuations, see note 12 “Share Capital, Option Plans and Share-based Payments” to our Notes to Consolidated Financial Statements under Item 8 of this
Annual Report on Form 10-K. For the maximum value that may be received under the PSU awards by each Named Executive Officer, see the
“Maximum” column under “Estimated Future Payouts under Equity Incentive Plan Awards” under the “Grants of Plan-Based Awards in Fiscal 2018”
table below.
(2) Amounts set forth in this column represent the amount recognized as the aggregate grant date fair value of stock option awards, as calculated in
accordance with Topic 718 for the fiscal year in which the awards were granted. In all cases, these amounts do not reflect whether the recipient has
actually realized a financial benefit from the exercise of the awards. For a discussion of the assumptions used in this valuation, see note 12 “Share
Capital, Option Plans and Share-based Payments” to our Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K.
90
(3) The amounts set forth in this column for Fiscal 2018 represent payments under the short-term incentive plan.
(4) Except as otherwise indicated the amounts in “All Other Compensation” primarily include (i) medical examinations; (ii) car allowances, (iii) club
memberships reimbursed, and (iv) tax preparation and financial advisory fees paid. “All Other Compensation” does not include benefits received by the
Named Executive Officers which are generally available to all our salaried employees.
(5) Represents amounts we paid or reimbursed for Tax, Financial, and Estate Planning.
(6) For details of the amounts of fees or expenses we paid or reimbursed please refer to Summary Compensation Table in Item 11 of our Annual Report on
Form 10-K for the corresponding fiscal years ended June 30, 2017 and June 30, 2016.
(7) The total value of all perquisites and personal benefits for this Named Executive Officer was less than $10,000, and, therefore, excluded.
(8) The executive officer was not a Named Executive Officer during the fiscal year, and, therefore compensation details have been excluded.
(9) Represents amounts we paid or reimbursed for:
a.
Taxable benefit on annual sales event ($12,547)
b. Other miscellaneous expenses or benefits that are less than 10% of the total amount of perquisites and personal benefits related to Mr. Doolittle.
(10) Represents amounts we paid or reimbursed for:
a.
Taxable benefit on annual sales event ($5,327)
b. Car allowances ($4,698)
(11) Represents amounts we paid or reimbursed for:
a.
Taxable benefit on annual sales event ($12,547)
b. Club membership fees ($3,422)
(12) The amounts set forth for Ms. Ranganathan's salary and non-equity incentive awards represents a prorated amount based on the number of months Ms.
Ranganathan was employed with the Company during Fiscal 2018.
(13) The amounts set forth for Mr. Harrison's total compensation includes all amounts earned during Fiscal 2018 as Executive Vice President, Worldwide Sales
and those earned prior to his promotion.
Grants of Plan-Based Awards in Fiscal 2018
The following table sets forth certain information concerning grants of awards made to each Named Executive Officer
during Fiscal 2018.
Name
Grant Date
Threshold
($)
Target
($)
Maximum
($)
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards (1)
All Other Option
Awards: Number
of Securities
Underlying (2)
Options
(#)
Exercise or
Base Price
of Option
Awards
Grant
Date Fair
Value of
Options (3)
($/share)
Awards ($)
August 7, 2017
Mark J. Barrenechea
Madhu Ranganathan(4) May 11, 2018
John M. Doolittle
August 7, 2017
Simon Harrison(5)
August 7, 2017
November 6, 2017
Muhi Majzoub
Gordon A. Davies
August 7, 2017
August 7, 2017
$ 213,750 $ 1,425,000 $ 2,850,000
189,180 $
34.49 $ 1,407,556
$
$
$
$
$
18,750 $ 125,000 $
250,000
293,510 $
34.71 $ 2,275,143
74,726 $ 498,172 $
996,344
37,380 $
34.49 $
278,118
45,000 $ 300,000 $
900,000
60,000 $ 400,000 $
55,062 $ 367,076 $
800,000
734,152
11,840 $
100,000 $
36,960 $
33,600 $
34.49 $
34.48 $
34.49 $
34.49 $
88,093
780,470
274,993
249,994
Name
Mark J. Barrenechea
Madhu Ranganathan
John M. Doolittle(8)
Simon Harrison
Muhi Majzoub
Gordon A. Davies
Grant Date
August 7, 2017
May 11, 2018
August 7, 2017
August 7, 2017
August 7, 2017
August 7, 2017
Estimated Future Payouts
Under Equity
Incentive Plan Awards (6)
Target
(#)
83,470
Threshold
(#)
1,252
Maximum
(#)
125,205
7,960
N/A
5,220
16,310
14,830
11,940
N/A
7,830
24,465
22,245
119
N/A
78
245
222
91
All Other Stock
Awards: Number
of Securities
Underlying (7)
Stock
(#)
41,730
3,980
N/A
2,610
8,150
7,410
Grant
Date Fair
Value of
Stock (3)
Awards ($)
$
$
$
$
$
3,538,963
315,057
N/A
221,328
691,379
628,627
(1) Represents the threshold, target and maximum estimated payouts under our short-term incentive plan for Fiscal 2018. For further information, see
“Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Short-Term Incentives” above.
(2) For further information regarding our options granting procedures, see “Compensation Discussion and Analysis - Aligning Officers' Interests with
Shareholders' Interests - Long-Term Incentives” above.
(3) Amounts set forth in this column represent the amount recognized as the aggregate grant date fair value of equity-based compensation awards, as
calculated in accordance with ASC Topic 718 for the fiscal year in which the awards were granted. In all cases, these amounts do not reflect whether the
recipient has actually realized a financial benefit from the exercise of the awards. For a discussion of the assumptions used in this valuation, see note 12
“Share Capital, Option Plan and Share-based Payments” to our Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form
10-K.
(4) The amounts set forth for Ms. Ranganathan's equity incentive plan awards represents a prorated amount based on the number of months Ms. Ranganathan
was employed with the Company during Fiscal 2018.
(5) The amounts set forth for Mr. Harrison's equity incentive plan awards represents a prorated amount based on the time Mr. Harrison held the position of
Executive Vice President, Worldwide Sales during Fiscal 2018.
(6) Represents the threshold, target and maximum estimated payouts under our Fiscal 2020 LTIP PSUs. For further information, see “Compensation
Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2020 LTIP” above.
(7) Represents the estimated payouts under our Fiscal 2020 LTIP RSUs granted in Fiscal 2018. For further information, see “Compensation Discussion and
Analysis - Aligning Officers' Interests with Shareholders' Interests - Long-Term Incentives - Fiscal 2020 LTIP” above.
(8) As a result of his upcoming departure from the Company, the grants made to Mr. Doolittle under Fiscal 2020 LTIP are not eligible for vesting.
Outstanding Equity Awards at End of Fiscal 2018
The following table sets forth certain information regarding outstanding equity awards held by each Named Executive Officer
as of June 30, 2018.
Option Awards (1)
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options (#)
Non-
exercisable
Option
Exercise
Price ($)
Option
Expiration
Date
135,208
95,806
200,000
— $
16.58 August 2, 2020
31,934 $
200,000 $
27.83 August 1, 2021
27.09 January 29, 2022
—
800,000 $
27.09 January 29, 2022
114,200
49,140
—
—
114,200 $
147,420 $
600,000 $
189,180 $
22.87 July 31, 2022
29.75 July 29, 2023
32.63 June 1, 2024
34.49 August 7, 2024
Name
Mark J.
Barrenechea
Grant Date
August 2, 2013
August 1, 2014
January 29, 2015
January 29, 2015
July 31, 2015
July 29, 2016
June 1, 2017
August 7, 2017
August 23, 2015
August 23, 2015
August 14, 2016
August 14, 2016
August 7, 2017
August 7, 2017
Madhu
Ranganathan May 11, 2018
May 11, 2018
May 11, 2018
May 11, 2018
—
—
275,000 $
34.71 May 11, 2025
18,510 $
34.71 May 11, 2025
John M.
Doolittle
September 8, 2014
September 8, 2014
July 31, 2015
3,226
75,000 $
28.65 September 8, 2021
—
—
6,914 $
28.65 September 8, 2021
17,480 $
22.87 July 31, 2022
92
Stock Awards
Equity
Incentive
Plan
Awards:
Number of
unearned
shares,
units or
other
rights that
have
not vested
(#) (3)
Equity
Incentive
Plan
Awards:
Market or
payout value
of unearned
shares,
units or
other
rights that
have not
vested ($) (3)
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)(2)
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($) (2)
65,820 $ 2,316,206
41,600 $ 1,463,904
41,730 $ 1,468,479
131,640 $
4,632,412
83,200 $
2,927,808
83,470 $
2,937,309
3,980 $
140,056
7,960 $
280,112
Simon
Harrison
July 29, 2016
August 7, 2017
August 23, 2015
August 23, 2015
August 14, 2016
August 14, 2016
August 13, 2012
November 2, 2012
August 2, 2013
August 7, 2017
November 6, 2017
August 23, 2015
August 14, 2016
August 7, 2017
August 7, 2017
7,310
—
21,930 $
29.75 July 29, 2023
37,380 $
34.49 August 7, 2024
20,000
6,504
7,266
—
—
— $
— $
— $
13.63 August 13, 2019
13.19 November 2, 2019
16.58 August 2, 2020
11,840 $
34.49 August 7, 2024
100,000 $
34.48 November 6, 2024
10,080 $
354,715
4,228 $
148,783
20,160 $
709,430
8,471 $
298,094
8,980 $
316,006
5,680 $
199,879
2,610 $
91,846
5,220 $
183,692
Muhi Majzoub June 11, 2012
100,000
18,788
20,996
17,356
18,920
8,140
—
— $
— $
11.68 June 11, 2019
13.19 November 2, 2019
— $
5,784 $
16.58 August 2, 2020
27.83 August 1, 2021
18,920 $
22.87 July 31, 2022
24,420 $
36,960 $
29.75 July 29, 2023
34.49 August 7, 2024
—
—
—
—
7,154 $
27.83 August 1, 2021
22,260 $
22.87 July 31, 2022
28,740 $
29.75 July 29, 2023
33,600 $
34.49 August 7, 2024
10,900 $
385,571
6,900 $
242,811
8,150 $
286,799
21,820 $
767,846
13,780 $
484,918
16,310 $
573,949
12,840 $
451,840
8,100 $
285,039
7,410 $
260,758
25,660 $
902,975
16,220 $
570,782
14,830 $
521,868
November 2, 2012
August 2, 2013
August 1, 2014
July 31, 2015
July 29, 2016
August 7, 2017
August 23, 2015
August 23, 2015
August 14, 2016
August 14, 2016
August 7, 2017
August 7, 2017
August 1, 2014
July 31, 2015
July 29, 2016
August 7, 2017
August 23, 2015
August 23, 2015
August 14, 2016
August 14, 2016
August 7, 2017
August 7, 2017
Gordon A.
Davies
(1) Options in the table above vest annually over a period of 4 years starting from the date of grant, with the exception of 1,200,000 options granted to the
CEO in Fiscal 2015 and 600,000 options granted to the CEO in Fiscal 2017. For additional detail, see “Compensation Discussion and Analysis - Aligning
Officers' Interests with Shareholders' Interests - Long-Term Incentives - Long-Term Equity Grants to CEO” above and under Item 11 of our Annual
Report on Form 10-K for Fiscal 2015 and Fiscal 2017.
(2) Represents each Named Executive Officer's target number of RSUs granted pursuant to the Fiscal 2018, Fiscal 2019, and Fiscal 2020 LTIPs and other
RSU grants, which vest upon the schedules described above in "Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders'
Interests - Long Term Incentives". These amounts illustrate the market value as of June 30, 2018 based upon the closing price for the Company's
Common Shares as traded on the NASDAQ on such date of $35.19.
(3) Represents each Named Executive Officer's target number of PSUs granted pursuant to the Fiscal 2018, Fiscal 2019, and Fiscal 2020 LTIPs, which vest
upon the schedules described above in "Compensation Discussion and Analysis - Aligning Officers' Interests with Shareholders' Interests - Long Term
Incentives", and the market value as of June 30, 2018 based upon the closing price for the Company's Common Shares as traded on the NASDAQ on
such date of $35.19.
As of June 30, 2018, options to purchase an aggregate of 7,078,435 Common Shares had been previously granted and
are outstanding under our stock option plans, of which 2,482,288 Common Shares were vested. Options to purchase an
additional 10,893,828 Common Shares remain available for issuance pursuant to our stock option plans. Our outstanding
options pool represents 2.6% of the Common Shares issued and outstanding as of June 30, 2018.
93
During Fiscal 2018, the Company granted options to purchase 1,322,340 Common Shares or 0.5% of the Common
Shares issued and outstanding as of June 30, 2018.
Option Exercises and Stock Vested in Fiscal 2018
The following table sets forth certain details with respect to each of the Named Executive Officers concerning the exercise of
stock options and vesting of stock in Fiscal 2018:
Name
Mark J. Barrenechea
Madhu Ranganathan
John M. Doolittle
Simon Harrison
Muhi Majzoub
Gordon A. Davies
Option Awards
Stock Awards (3)
Number of Shares
Acquired on Exercise
(#)
1,620,984 $
— $
260,000 $
10,000 $
— $
35,936 $
Value Realized on
Exercise(1)
($)
32,092,449
—
1,939,443
227,702
—
428,032
Number of Shares
Acquired on Vesting
(#)
Value Realized on
Vesting(2)
($)
107,950 $
— $
25,262 $
4,060 $
15,936 $
19,714 $
3,518,908
—
813,030
130,894
513,777
635,579
(1) “Value realized on exercise” is the excess of the market price, at date of exercise, of the shares underlying the options over the exercise price of the
options.
(2) “Value realized on vesting” is the market price of the underlying Common Shares on the vesting date.
(3) Relates to (i) the vesting of PSUs and RSUs under our Fiscal 2017 LTIP, and (ii) the vesting of RSUs for Messrs. Barrenechea and Doolittle in accordance
with the terms of their respective contractual agreements.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
We have entered into employment contracts with each of our Named Executive Officers. These contracts may require us
to make certain types of payments and provide certain types of benefits to the Named Executive Officers upon the occurrence
of any of these events:
• If the Named Executive Officer is terminated without cause; and
• If there is a change in control in the ownership of the Company and subsequent to the change in control, there is a
change in the relationship between the Company and the Named Executive Officer.
When determining the amounts and the type of compensation and benefits to provide in the event of a termination or
change in control described above, we considered available information with respect to amounts payable to similarly situated
officers of our peer groups and the position held by the Named Executive Officer within the Company. The amounts payable
upon termination or change in control represent the amounts determined by the Company and are not the result of any
individual negotiations between us and any of our Named Executive Officers.
Our employment agreements with our Named Executive Officers are similar in structure, terms and conditions, with the
key exception of the amount of severance payments, which is determined by the position held by the Named Executive Officer.
Details are set out below of each of their potential payments upon a termination by the Company without cause and upon a
change in control event where there is a subsequent change in the relationship between the Company and the Named Executive
Officer.
Termination Without Cause
If the Named Executive Officer is terminated without cause, we may be obligated to make payments or provide benefits
to the Named Executive Officer. A termination without cause means a termination of a Named Executive Officer for any reason
other than the following, each of which provides “cause” for termination:
• The failure by the Named Executive Officer to attempt in good faith to perform his duties, other than as a result of a
•
•
•
•
physical or mental illness or injury;
The Named Executive Officer's willful misconduct or gross negligence of a material nature in connection with the
performance of his duties which is or could reasonably be expected to be injurious to the Company;
The breach by the Named Executive Officer of his fiduciary duty or duty of loyalty to the Company;
The Named Executive Officer's intentional and unauthorized removal, use or disclosure of information relating to the
Company, including customer information, which is injurious to the Company or its customers;
The willful performance by the Named Executive Officer of any act of dishonesty or willful misappropriation of
funds or property of the Company or its affiliates;
94
•
•
•
The indictment of the Named Executive Officer or a plea of guilty or nolo contender to a felony or other serious
crime involving moral turpitude;
The material breach by the Named Executive Officer of any obligation material to his employment relationship with
the Company; or
The material breach by the Named Executive Officer of the Company's policies and procedures which breach causes
or could reasonably be expected to cause harm to the Company;
provided that in certain of the circumstances listed above, OpenText has given the Named Executive Officer reasonable notice
of the reason for termination as well as a reasonable opportunity to correct the circumstances giving rise to the termination.
Change in Control
If there is a change in control of the Company and within one year of such change in control event, there is a change in
the relationship between the Company and the Named Executive Officer without the Named Executive Officer's written
consent, we may be obligated to provide payments or benefits to the Named Executive Officer, unless such a change is in
connection with the termination of the Named Executive Officer either for cause or due to the death or disability of the Named
Executive Officer.
A change in control includes the following events:
• The sale, lease, exchange or other transfer, in one transaction or a series of related transactions, of all or substantially
all of the Company’s assets;
• The approval by the holders of Common Shares of any plan or proposal for the liquidation or dissolution of the
Company;
• Any transaction in which any person or group acquires ownership of more than 50% of outstanding Common Shares;
or
• Any transaction in which a majority of the Board is replaced over a twelve-month period and such replacement of the
Board was not approved by a majority of the Board still in office at the beginning of such period.
Examples of a change in the relationship between the Named Executive Officer and the Company where payments or
benefits may be triggered following a change in control event include:
• A material diminution in the duties and responsibilities of the Named Executive Officer, other than (a) a change
arising solely out of the Company becoming part of a larger organization following the change in control event or any
related change in the reporting hierarchy or (b) a reorganization of the Company resulting in similar changes to the
duties and responsibilities of similarly situated executive officers;
• A material reduction to the Named Executive Officer's compensation, other than a similar reduction to the
compensation of similarly situated executive officers;
• A relocation of the Named Executive Officer's primary work location by more than fifty miles;
• A reduction in the title or position of the Named Executive Officer, other than (a) a change arising solely out of the
Company becoming part of a larger organization following the change in control event or any related change in the
reporting hierarchy or (b) a reorganization of the Company resulting in similar changes to the titles or positions of
similarly situated executive officers;
None of our Named Executive Officers are entitled to the payments or benefits described below, or any other payments or
benefits, solely upon a change in control where there is no change to the Named Executive Officer's relationship with the
Company.
Amounts Payable Upon Termination or Change in Control
Generally, upon termination of employment without cause or following a change in the Named Executive Officer's
relationship with the Company, in each case, either within twelve months of a change in control event or absent a change in
control event, the Named Executive Officer is entitled to either twelve or twenty-four months of compensation, depending upon
the Named Executive Officer's position, including short term incentives equal to 100% of the current year's target bonus and a
pro-rated portion of the LTIP.
With respect to the LTIP, if the termination of employment occurs either without cause or due to a change in the nature of
the relationship between the Named Executive Officer and the Company, in each case, within twelve months of a change in
control event, the Named Executive Officer is entitled to 100% of his LTIP.
With respect to options, (a) upon termination of employment without cause or following a change in the Named
Executive Officer's relationship with the Company, in each case, absent a change in control event, the Named Executive Officer
95
is entitled to exercise those stock options which have vested as of the date of termination; and (b) upon termination of
employment without cause or upon a change in the relationship between the Named Executive Officer and the Company, in
each case, within twelve months of a change in control event, the Named Executive Officer is entitled to exercise 100% of all
outstanding options, which are all deemed immediately vested. The Named Executive Officer shall have 90 days from the
termination date to exercise vested options.
Further details of each Named Executive Officer’s entitlement upon termination of employment without cause or
following a change in the Named Executive Officer’s relationship with the Company, both absent a change in control event and
within twelve months of a change in control event, are set forth below.
No Change in Control
No change in control
Base
Short term
incentives (1)
LTIP (2)
Options (3)
Employee and
Medical Benefits (4)
Mark J.
Barrenechea
Termination without cause or
Change in relationship
24 months
24 months
Prorated
Vested
24 months(5)
Madhu
Ranganathan
Termination without cause or
Change in relationship
John M.
Doolittle
Termination without cause or
Change in relationship
Simon Harrison
Termination without cause or
Change in relationship
Muhi Majzoub
Termination without cause or
Change in relationship
Gordon A.
Davies
Termination without cause or
Change in relationship
12 months
12 months
Prorated
Vested
12 months
12 months
12 months
Prorated
Vested
12 months
12 months
12 months
Prorated
Vested
12 months
12 months
12 months
Prorated
Vested
12 months
12 months
12 months
Prorated
Vested
12 months
(1) Assuming 100% achievement of the expected targets for the fiscal year in which the triggering event occurred.
(2) LTIP amounts are prorated for the number of months of participation at termination date in the applicable 38 month performance period. If the
termination date is before the commencement of the 19th month of the performance period, a prorated LTIP will not be paid.
(3) Already vested as of termination date with no acceleration of unvested options. For a period of 90 days following the termination date, the Named
Executive Officer has the right to exercise all options which have vested as of the date of termination.
(4) Employee and medical benefits provided to each Named Executive Officer immediately prior to the occurrence of the trigger event.
(5)
In accordance with the terms of his employment agreement, as amended, Mr. Barrenechea is entitled to participate until the age of 65 in healthcare
benefits substantially similar to what he currently receives as Vice Chair, Chief Executive Officer and Chief Technology Officer of the Company. These
benefits will be provided at the cost of the Company, provided that Mr. Barrenechea continues to be responsible for funding an amount that is equal to his
employee contribution as Vice Chair, Chief Executive Officer and Chief Technology Officer, unless he becomes employed elsewhere, at which point this
benefit will terminate. In the event that the employee or company contribution funding increases, Mr. Barrenechea would be responsible for that increase.
96
Within 12 Months of a Change in Control
Within 12 Months of a Change in Control
Base
Short term
incentives (1)
LTIP
Options (2)
Employee and
Medical Benefits (3)
Mark J.
Barrenechea
Termination without cause or
Change in relationship
24 months
24 months
Madhu
Ranganathan
Termination without cause or
Change in relationship
24 months
24 months
John M.
Doolittle
Termination without cause or
Change in relationship
24 months
24 months
Simon Harrison Termination without cause or
Change in relationship
24 months
24 months
Muhi Majzoub
Termination without cause or
Change in relationship
24 months
24 months
Gordon A.
Davies
Termination without cause or
Change in relationship
24 months
24 months
100%
Vested
100%
Vested
100%
Vested
100%
Vested
100%
Vested
100%
Vested
100% Vested
24 months(4)
100% Vested
24 months
100% Vested
24 months
100% Vested
24 months
100% Vested
24 months
100% Vested
24 months
(1) Assuming 100% achievement of the expected targets for the fiscal year in which the triggering event occurred.
(2) For a period of 90 days following the termination date, the Named Executive Officer has the right to exercise all options which are deemed to have vested
as of the date of termination.
(3) Employee and medical benefits provided to each Named Executive Officer immediately prior to the occurrence of the trigger event.
(4)
In accordance with the terms of his employment agreement, as amended, Mr. Barrenechea is entitled to participate until the age of 65 in healthcare
benefits substantially similar to what he currently receives as Vice Chair, Chief Executive Officer and Chief Technology Officer of the Company. These
benefits will be provided at the cost of the Company, provided that Mr. Barrenechea continues to be responsible for funding an amount that is equal to his
employee contribution as Vice Chair, Chief Executive Officer and Chief Technology Officer, unless he becomes employed elsewhere, at which point this
benefit will terminate. In the event that the employee or company contribution funding increases, Mr. Barrenechea would be responsible for that increase.
In addition to the information identified above, each Named Executive Officer is entitled to all accrued payments up to
the date of termination, including all earned but unpaid short-term incentive amounts and earned but unsettled LTIP. Except as
otherwise required by law, we are required to make all these payments and provide these benefits over a period of 12 months or
24 months, depending on the Named Executive Officer’s entitlement and the circumstances which triggered our obligation to
make such payments and provide such benefits, from the date of the event which triggered our obligation. With respect to
payments to Mr. Barrenechea, the Company intends to make all required payments to Mr. Barrenechea no later than two and a
half months after the end of the later of the fiscal year or calendar year in which the payments are no longer subject to a
substantial risk of forfeiture.
In return for receiving the payments and the benefits described above, each Named Executive Officer must comply with
certain obligations in favour of the Company, including a non-disparagement obligation. Also, each Named Executive Officer
is bound by a confidentiality and non-solicitation agreement where the non-solicitation obligation lasts 6 months from the date
of termination of his employment.
Any breach by a Named Executive Officer of any provision of his contractual agreements may only be waived upon the
review and approval of the Board.
Quantitative Estimates of Payments upon Termination or Change in Control
Further information regarding payments to our Named Executive Officers in the event of a termination or a change in
control may be found in the table below. This table sets forth the estimated amount of payments and other benefits each Named
Executive Officer would be entitled to receive upon the occurrence of the indicated event, assuming that the event occurred on
June 30, 2018. Amounts (i) potentially payable under plans which are generally available to all salaried employees, such as life
and disability insurance, and (ii) earned but unpaid, in both cases, are excluded from the table. The values related to vesting of
stock options and awards are based upon the fair market value of our Common Shares of $35.19 per share as reported on the
97
NASDAQ on June 30, 2018, the last trading day of our fiscal year. The other material assumptions made with respect to the
numbers reported in the table below are:
• Payments in Canadian dollars included herein are converted to U.S. dollars using an exchange rate, as of June 30,
2018, of 0.786589;
• The salary and incentive payments are calculated based on the amounts of salary, incentive and benefit payments
which were payable to each Named Executive Officer as of June 30, 2018; and
• Payments under the LTIPs are calculated as though 100% of Fiscal 2020 LTIP (granted in Fiscal 2018), Fiscal 2019
LTIP (granted in Fiscal 2017), and Fiscal 2018 LTIP (granted in Fiscal 2016) have vested with respect to a termination
without cause or change in relationship following a change in control event, and as though a pro-rated amount have
vested with respect to no change in control event.
Actual payments made at any future date may vary, including the amount the Named Executive Officer would have
accrued under the applicable benefit or compensation plan as well as the price of our Common Shares.
Named Executive Officer
Mark J.
Barrenechea
Termination Without Cause /
Change in Relationship with
no Change in Control
Termination Without Cause /
Change in Relationship,
within 12 months following a
Change in Control
Madhu
Ranganathan
Termination Without Cause /
Change in Relationship with
no Change in Control
John M.
Doolittle
Simon
Harrison
Muhi
Majzoub
Gordon A.
Davies
Termination Without Cause /
Change in Relationship,
within 12 months following a
Change in Control
Termination Without Cause /
Change in Relationship with
no Change in Control
Termination Without Cause /
Change in Relationship,
within 12 months following a
Change in Control
Termination Without Cause /
Change in Relationship with
no Change in Control
Termination Without Cause /
Change in Relationship,
within 12 months following a
Change in Control
Termination Without Cause /
Change in Relationship with
no Change in Control
Termination Without Cause /
Change in Relationship,
within 12 months following a
Change in Control
Termination Without Cause /
Change in Relationship with
no Change in Control
Termination Without Cause /
Change in Relationship,
within 12 months following a
Change in Control
Short-term
Incentive
Payment
($)
Salary
($)
Gain on
Vesting of
LTIP and
Non-LTIP
RSUs
($)
Gain on
Vesting of
Stock Options
($)
Employee
Benefits
($)
Total
($)
$ 1,900,000 $ 2,850,000 $ 9,356,614 $
— $ 74,322 (1) $ 14,180,936
$ 1,900,000 $ 2,850,000 $15,746,117 $12,218,837 $ 74,322
$ 32,789,276
$
500,000 $
500,000 $
— $
— $
—
$
1,000,000
$ 1,000,000 $ 1,000,000 $
420,169 $
140,885 $
—
$
498,173 $
498,173 $ 1,290,377 $
— $ 21,610
$
$
$
$
$
$
996,346 $
996,346 $ 1,511,023 $
897,143 $ 43,219
400,000 $
400,000 $
425,614 $
— $ 8,730
800,000 $
800,000 $
791,423 $
79,288 $ 17,460
400,000 $
400,000 $ 1,550,434 $
— $ 12,201
800,000 $
800,000 $ 2,739,893 $
434,627 $ 24,401
367,075 $
367,075 $ 1,824,027 $
— $ 24,739
$
$
$
$
$
$
$
$
2,561,054
2,308,333
4,444,077
1,234,344
2,488,171
2,362,635
4,798,921
2,582,916
$
734,150 $
734,150 $ 2,993,261 $
507,053 $ 49,478
$
5,018,092
(1)
In accordance with the terms of his employment agreement, as amended, Mr. Barrenechea is entitled to participate until the age of 65 in healthcare
benefits substantially similar to what he currently receives as Chief Executive Officer of the Company. These benefits will be provided at the cost of the
Company, provided that Mr. Barrenechea continues to be responsible for funding an amount that is equal to his employee contribution as Chief Executive
Officer, unless he becomes employed elsewhere, at which point this benefit will terminate. In the event that the employee or company contribution
funding increases, Mr. Barrenechea would be responsible for that increase.
98
Director Compensation for Fiscal 2018
The following table sets forth summary information concerning the annual compensation received by each of the non-
management directors of OpenText for the fiscal year ended June 30, 2018.
Fees Earned
or
Paid in Cash
($) (1)
Stock
Awards
($) (2)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
P. Thomas Jenkins (3)
Randy Fowlie (4)
Gail E. Hamilton (5)
Brian J. Jackman (6)
Stephen J. Sadler (7)
Michael Slaunwhite (8)
Katharine B. Stevenson (9)
Carl Jurgen Tinggren (10)
Deborah Weinstein (11)
$
$
$
$
$
$
$
— $ 546,926 $ — $
48,450 $ 325,407 $ — $
84,750 $ 257,756 $ — $
79,500 $ 252,010 $ — $
2,000 $ 326,163 $ — $
4,738 $ 365,436 $ — $
— $ 352,017 $ — $
$ 126,250 $ 229,866 $ — $
$
— $ 363,697 $ — $
—
—
—
—
—
—
—
—
—
Change in Pension
Value and Non-
qualified
Deferred
Compensation
Earnings
($)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$
$
$
$
$
$
$
$
$
All Other
Compensation
($)
Total
($)
$ 546,926
$ 373,857
$ 342,506
$ 331,510
—
—
—
—
789,886 (12) $ 1,118,049
—
—
—
—
$ 370,174
$ 352,017
$ 356,116
$ 363,697
(1) Non-management directors may elect to defer all or a portion of their retainer and/or fees in the form of Common Share equivalent units under our
Directors' Deferred Share Unit Plan (DSU Plan) based on the value of the Company's shares as of the date fees would otherwise be paid. The DSU Plan
became effective February 2, 2010, is available to any non-management director of the Company and is designed to promote greater alignment of long-
term interests between directors of the Company and its shareholders. DSUs granted as compensation for directors fees vest immediately whereas the
annual DSU grant vests at the Company’s next annual general meeting. No DSUs are payable by the Company until the director ceases to be a member of
the Board.
(2) The amounts set forth in this column represents the amount recognized as the aggregate grant date fair value of equity-based compensation awards,
inclusive of DSU dividend equivalents, as calculated in accordance with ASC Topic 718. These amounts do not reflect whether the recipient has actually
realized a financial benefit from the awards. For a discussion of the assumptions used in this valuation, see note 12 “Share Capital, Option Plan and
Share-based Payments” to our consolidated financial statements. In Fiscal 2018, Messrs. Jenkins, Fowlie, Jackman, Sadler, Tinggren and Slaunwhite and
Mses. Hamilton, Stevenson and Weinstein received 15,848, 9,428, 7,306, 9,460, 6,651, 10,592, 7,476, 10,199, and 10,541 DSUs, respectively.
(3) As of June 30, 2018, Mr. Jenkins holds no options and 91,001 DSUs. Mr. Jenkins serves as Chairman of the Board.
(4) As of June 30, 2018, Mr. Fowlie holds no options and 78,297 DSUs.
(5) As of June 30, 2018, Ms. Hamilton holds no options and 61,917 DSUs.
(6) As of June 30, 2018, Mr. Jackman holds no options and 51,354 DSUs.
(7) As of June 30, 2018, Mr. Sadler holds no options and 73,213 DSUs.
(8) As of June 30, 2018, Mr. Slaunwhite holds no options and 90,114 DSUs.
(9) As of June 30, 2018, Ms. Stevenson holds no options and 71,471 DSUs.
(10) As of June 30, 2018, Mr. Tinggren holds no options and 10,492 DSUs.
(11) As of June 30, 2018, Ms. Weinstein holds no options and 85,506 DSUs.
(12) During Fiscal 2018, Mr. Sadler received $789,886 in consulting fees, paid or payable in cash, for assistance with acquisition-related business
activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.
99
Directors who are salaried officers or employees receive no compensation for serving as directors. Mr. Barrenechea was the
only employee director in Fiscal 2018. The material terms of our director compensation arrangements are as follows:
Description
Annual Chairman retainer fee payable to the Chairman of the
Board
Amount and Frequency of Payment
$200,000 per year payable following our Annual General
Meeting
Annual retainer fee payable to each non-management director
$60,000 per director payable following our Annual General
Meeting
Annual Audit Committee retainer fee payable to each member
of the Audit Committee
$25,000 per year payable at $6,250 at the beginning of
each quarterly period.
Annual Audit Committee Chair retainer fee payable to the Chair
of the Audit Committee
$10,000 per year payable at $2,500 at the beginning of
each quarterly period.
Annual Compensation Committee retainer fee payable to each
member of the Compensation Committee
$15,000 per year payable at $3,750 at the beginning of
each quarterly period.
Annual Compensation Committee Chair retainer fee payable to
the Chair of the Compensation Committee
$10,000 per year payable at $2,500 at the beginning of
each quarterly period.
Annual Corporate Governance Committee retainer fee payable
to each member of the Corporate Governance Committee
$8,000 per year payable at $2,000 at the beginning of each
quarterly period.
Annual Corporate Governance Committee Chair retainer fee
payable to the Chair of the Corporate Governance Committee
$6,000 per year payable at $1,500 at the beginning of each
quarterly period.
The Board has adopted a DSU Plan which is available to any non-management director of the Company. In Fiscal 2018,
certain directors elected to receive DSUs instead of a cash payment for their directors’ fees. In addition to the scheduled fee
arrangements set forth in the table above, whether paid in cash or DSUs, non-management directors also receive an annual
DSU grant representing the long term component of their compensation. The amount of the annual DSU grant is discretionary;
however, historically, the amount of this grant has been determined and updated on a periodic basis with the assistance of the
Compensation Committee and the compensation consultant and benchmarked against director compensation for comparable
companies. For Fiscal 2018, the annual DSU grant was approximately $225,000 for each non-management director and
approximately $295,000 for the Chairman of the Board. DSUs granted as compensation for directors fees vest immediately
whereas the annual DSU grant vests at the Company’s next annual general meeting. No DSUs are payable by the Company
until the director ceases to be a member of the Board.
As with its employees, the Company believes that granting compensation to directors in the form of equity, such as DSUs,
promotes a greater alignment of long-term interests between directors of the Company and the shareholders of the Company.
During Fiscal 2018, no stock options were granted to non-management directors and the Company has taken the position that
non-management directors will receive DSUs instead of stock options where granting of equity awards is appropriate. All non-
management directors have exceeded the Share Ownership Guidelines applicable to them, which is three times their annual
retainer, with the exception of Mr. Tinggren, who joined as a member of our Board in February 2017. For further details of our
Share Ownership Guidelines as they relate to directors, see “Share Ownership Guidelines” above.
The Company does not have a retirement policy for its directors; however, the Company does review its director
performance annually as part of its governance process.
Compensation Committee Interlocks and Insider Participation
The members of our Compensation Committee consist of Messrs. Slaunwhite (Chair) and Jackman and Ms. Weinstein.
None of the members of the Compensation Committee have been or are an officer or employee of the Company, or any of our
subsidiaries, or had any relationship requiring disclosure herein. None of our executive officers served as a member of the
compensation committee of another entity (or other committee of the board of directors performing equivalent functions, or in
the absence of any such committee, the entire board of directors) one of whose executive officers served as a director of ours.
100
Board's Role in Risk Oversight
The Board has overall responsibility for risk oversight. The Board is responsible for overseeing management’s
implementation and operation of enterprise risk management, either directly or through its committees, which shall report to the
Board with respect to risk oversight undertaken in accordance with their respective charters. At least annually, the Board shall
review reports provided by management on the risks inherent in the business of the Company (including appropriate crisis
preparedness, business continuity, information system controls, cybersecurity and disaster recovery plans), the appropriate
degree of risk mitigation and risk control, overall compliance with and the effectiveness of the Company’s risk management
policies, and residual risks remaining after implementation of risk controls. In addition, each committee reviews and reports to
the Board on risk oversight matters, as described below.
The Audit Committee oversees risks related to our accounting, financial statements and financial reporting process. On a
quarterly basis, the Audit Committee also reviews reports provided by management on the risks inherent in the business of the
Company, including those related to cybersecurity and disaster recovery plans, and reports to the Board with respect to risk
oversight undertaken.
The Compensation Committee oversees risks which may be associated with our compensation policies, practices and
programs, in particular with respect to our executive officers. The Compensation Committee assesses such risks with the
review and assistance of the Company's management and the Compensation Committee's external compensation consultants.
The Corporate Governance and Nominating Committee monitors risk and potential risks with respect to the effectiveness
of the Board, and considers aspects such as director succession, Board composition and the principal policies that guide the
Company's overall corporate governance.
The members of each of the Audit Committee, Compensation Committee, and the Corporate Governance and Nominating
Committee are all “independent” directors within the meaning ascribed to it in Multilateral Instrument 52-110-Audit
Committees as well as the listing standards of NASDAQ, and, in the case of the Audit Committee, the additional independence
requirements set out by the SEC.
All of our directors are kept informed of our business through open discussions with our management team, including our
CEO, who serves on our Board. The Board also receives documents, such as quarterly and periodic management reports and
financial statements, as well our directors have access to all books, records and reports upon request, and members of
management are available at all times to answer any questions which Board members may have.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information as of June 30, 2018 regarding Common Shares beneficially owned by
the following persons or companies: (i) each person or company known by us to be the beneficial owner of approximately 5%
or more of our outstanding Common Shares, (ii) each director of our Company, (iii) each Named Executive Officer, and (iv) all
directors and executive officers as a group. Except as otherwise indicated, we believe that the beneficial owners of the
Common Shares listed below have sole investment and voting power with respect to such Common Shares, subject to
community property laws where applicable.
The number and percentage of shares beneficially owned as exhibited in Item 12 is based on filings made in accordance
with the rules of the SEC, and is not necessarily indicative of beneficial ownership for any other purpose. Under these rules,
beneficial ownership includes any shares as to which a person has sole or shared voting or investment power and also any
shares of Common Shares underlying options or warrants that are exercisable by that person within 60 days of June 30, 2018.
Unless otherwise indicated, the address of each person or entity named in the table is “care of” Open Text Corporation, 275
Frank Tompa Drive, Waterloo, Ontario, Canada, N2L 0A1.
101
Name and Address of Beneficial Owner
Caisse de Depot et Placement du Quebec (1)
1000 Place Jean-Paul Riopelle, Montreal H2Z 2B3
Jarislowsky, Fraser Ltd. (1)
1010 Sherbrooke St. West, Montreal QC H3A 2R7
P. Thomas Jenkins (2)
Mark J. Barrenechea (3)
Michael Slaunwhite (4)
Randy Fowlie (5)
Muhi Majzoub (6)
Stephen J. Sadler (7)
Katharine B. Stevenson (8)
Brian Jackman (9)
Deborah Weinstein (10)
Gail E. Hamilton (11)
Gordon A. Davies (12)
John M. Doolittle (13)
Simon Harrison (14)
Carl Jürgen Tinggren (15)
Amount and Nature of
Beneficial Ownership
Percent of Common
Shares Outstanding
18,056,800
6.75%
16,972,231
4,280,572
1,410,789
516,805
6.34%
1.59%
*
*
297,788
269,476
216,704
119,402
117,245
98,997
69,408
65,596
55,792
49,444
3,983
*
*
*
*
*
*
*
*
*
*
*
Madhu Ranganathan
All executive officers and directors as a group (16)
—
8,007,452
*
2.97%
(2)
(3)
*
(1)
Less than 1%
Information regarding the shares outstanding is based on information filed in Schedule 13G, 13F, or Schedule 13G/A
with the SEC. The percentage of Common Shares outstanding is calculated using the total shares outstanding as of
June 30, 2018.
Includes 4,198,104 Common Shares owned and 82,468 deferred stock units (DSUs) which are exercisable.
Includes 630,966 Common Shares owned, 594,354 options which are exercisable and 185,469 options which will become
exercisable within 60 days of June 30, 2018.
Includes 433,200 Common Shares owned and 83,605 DSUs which are exercisable.
Includes 226,000 Common Shares owned and 71,788 DSUs which are exercisable.
Includes 52,652 Common Shares owned, 184,200 options which are exercisable and 32,624 options which will become
exercisable within 60 days of June 30, 2018.
Includes 150,000 Common Shares owned and 66,704 DSUs which are exercisable.
(7)
Includes 54,440 Common Shares owned and 64,962 DSUs which are exercisable.
(8)
(9)
Includes 72,400 Common Shares owned and 44,845 DSUs which are exercisable.
(10) Includes 20,000 Common Shares owned and 78,997 DSUs which are exercisable.
(11) Includes 14,000 Common Shares owned and 55,408 DSUs which are exercisable.
(12) Includes 29,332 Common Shares owned and 36,264 options which will become exercisable within 60 days of June 30,
(4)
(5)
(6)
2018.
(13) Includes 19,861 Common Shares owned, 10,536 options which are exercisable and 25,395 options which will become
exercisable within 60 days of June 30, 2018.
(14) Includes 12,714 Common Shares owned, 33,770 options which are exercisable and 2,960 options which will become
exercisable within 60 days of June 30, 2018.
(15) Includes 3,983 DSUs which are exercisable.
(16) Includes 5,957,993 Common Shares owned, 1,155,403 options which are exercisable, 341,296 options which will
become exercisable within 60 days of June 30, 2018, and 552,760 DSUs which are exercisable.
102
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth summary information relating to our various stock compensation plans as of June 30, 2018:
Plan Category
Equity compensation plans approved
by security holders:
Equity compensation plans not
approved by security holders :
Under deferred stock unit awards
Under performance stock unit
awards
Under restricted stock unit awards
Total
Number of securities
to be issued upon exercise
of outstanding options,
warrants, and rights
Weighted average
exercise price
of outstanding options,
warrants, and rights
(a)
7,078,435
613,365
515,437
814,220
9,021,457
(b)
$28.41
N/A
N/A
N/A
N/A
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column a)
(c)
10,893,828
—
—
—
10,893,828
For more information regarding stock compensation plans, please refer to note 12 "Share Capital, Option Plans and
Share-Based Payments" to our Consolidated Financial Statements, under Part IV, Item 15 of this Annual Report on Form 10-K.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Related Transactions Policy and Director Independence
We have adopted a written policy that all transactional agreements between us and our officers, directors and affiliates
will be first approved by a majority of the independent directors. Once these agreements are approved, payments made
pursuant to the agreements are approved by the members of our Audit Committee.
Our procedure regarding the approval of any related party transaction is that the material facts of such transaction shall be
reviewed by the independent members of our Audit Committee and the transaction approved by a majority of the independent
members of our Audit Committee. The Audit Committee reviews all transactions wherein we are, or will be a participant and
any related party has or will have a direct or indirect interest. In determining whether to approve a related party transaction, the
Audit Committee generally takes into account, among other facts it deems appropriate: whether the transaction is on terms no
less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent
and nature of the related person's interest in the transaction; the benefits to the company of the proposed transaction; if
applicable, the effects on a director's independence; and if applicable, the availability of other sources of comparable services or
products.
The Board has determined that all directors, except Messrs. Barrenechea and Sadler, meet the independence requirements
under the NASDAQ Listing Rules and qualify as “independent directors” under those Listing Rules. Mr. Barrenechea is not
considered independent by virtue of being our Vice Chairman, Chief Executive Officer and Chief Technology Officer. See
“Transactions with Related Persons” below with respect to payments made to Mr. Sadler. Each of the members of our
Compensation Committee, Audit Committee and Corporate Governance and Nominating Committee is an independent director.
Transactions With Related Persons
One of our directors, Mr. Sadler, received consulting fees for assistance with acquisition-related business activities
pursuant to a consulting agreement with the Company. Mr. Sadler's consulting agreement, which was adopted by way of Board
resolution effective July 1, 2011, is for an indefinite period. The material terms of the agreement are as follows: Mr. Sadler is
paid at the rate of Canadian dollars (CAD) $450 per hour for services relating to his consulting agreement. In addition, he is
eligible to receive a bonus fee equivalent to 1.0% of the acquired company's revenues, up to CAD $10.0 million in revenue,
plus an additional amount of 0.5% of the acquired company's revenues above CAD $10.0 million. The total bonus fee payable,
for any given fiscal year, is subject to an annual limit of CAD $450,000 per single acquisition and an aggregate annual limit of
CAD $980,000. The acquired company's revenues, for this purpose, is equal to the acquired company's revenues for the 12
months prior to the date of acquisition.
103
During Fiscal 2018, Mr. Sadler received approximately CAD $1.0 million in consulting fees from OpenText (equivalent
to $0.8 million USD), inclusive of CAD $980 thousand bonus fees for assistance with acquisition-related business
activities. Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.
Item 14.
Principal Accountant Fees and Services
The aggregate fees for professional services rendered by our independent registered public accounting firm, KPMG LLP,
for Fiscal 2018 and Fiscal 2017 were:
(In thousands)
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
Total
Year ended June 30,
2018
2017
$
4,701
—
116
101
4,918
$
4,269
166
98
9
4,542
$
$
(1) Audit fees were primarily for professional services rendered for (a) the annual audits of our consolidated financial
statements and the accompanying attestation report regarding our ICFR contained in our Annual Report on Form 10-
K, (b) the review of quarterly financial information included in our Quarterly Reports on Form 10-Q, (c) audit services
related to mergers and acquisitions and offering documents, and (d) annual statutory audits where applicable.
(2) Audit-related fees were primarily for assurance and related services, such as the review of non-periodic filings with
the SEC.
(3) Tax fees were for services related to tax compliance, including the preparation of tax returns, tax planning and tax
advice.
(4) All other fees consist of fees for services other than the services reported in audit fees, audit-related fees, and tax fees.
OpenText's Audit Committee has established a policy of reviewing, in advance, and either approving or not approving, all
audit, audit-related, tax and other non-audit services that our independent registered public accounting firm provides to us. This
policy requires that all services received from our independent registered public accounting firm be approved in advance by the
Audit Committee or a delegate of the Audit Committee. The Audit Committee has delegated the pre-approval responsibility to
the Chair of the Audit Committee. All services that KPMG LLP provided to us in Fiscal 2018 and Fiscal 2017 have been pre-
approved by the Audit Committee.
The Audit Committee has determined that the provision of the services as set out above is compatible with the
maintaining of KPMG LLP's independence in the conduct of its auditing functions.
104
Item 15.
Exhibits and Financial Statements Schedules
PART IV
(a) Financial Statements and Schedules
Index to Consolidated Financial Statements and Supplementary Data (Item 8)
Page Number
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2018 and 2017
Consolidated Statements of Income for the years ended June 30, 2018, 2017, and 2016
Consolidated Statements of Comprehensive Income for the years ended June 30, 2018, 2017, and 2016
Consolidated Statements of Shareholders' Equity for the years ended June 30, 2018, 2017, and 2016
Consolidated Statements of Cash Flows for the years ended June 30, 2018, 2017, and 2016
Notes to Consolidated Financial Statements
110
111
112
113
114
115
116
117
(b) The following documents are filed as a part of this report:
1) Consolidated financial statements and Reports of Independent Registered Public Accounting Firm and the related
notes thereto are included under Item 8, in Part II.
2) Valuation and Qualifying Accounts; see note 3 "Allowance for Doubtful Accounts" and note 14 "Income Taxes" in
the Notes to Consolidated Financial Statements included under Item 8, in Part II.
3) Exhibits: The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated by
reference to exhibits previously filed with the SEC.
Exhibit
Number
2.1
2.2
2.3
2.4
2.5
2.6
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
4.1
Description of Exhibit
Agreement and Plan of Merger between Open Text Corporation, EPIC Acquisition Sub Inc., a Delaware
corporation and an indirect wholly-owned subsidiary of OpenText and EasyLink Services International
Corporation dated May 1, 2012. (14)
Agreement and Plan of Merger, dated as of November 4, 2013, among Open Text Corporation, Ocelot Merger
Sub, Inc., GXS Group, Inc. and the stockholders' representative named therein. (20)
Support Agreement, dated as of November 4, 2013, among GXS Group, Inc., Open Text Corporation, and Global
Acquisition LLC. (20)
Support Agreement, dated as of November 4, 2013, among GXS Group, Inc., Open Text Corporation, CCG
Investment Fund, L.P., CCG Associates - QP, LLC, CCG Investment Fund - AI, LP, CCG AV, LLC - Series A,
CCG AV, LLC - Series C and CCG CI, LLC. (20)
Agreement and Plan of Merger, dated as of December 5, 2014, by and among Open Text Corporation, Asteroid
Acquisition Corporation and Actuate. (24)
Agreement and Plan of Merger, dated September 12, 2016, by and among Open Text Corporation, EMC
Corporation, EMC International Company, and EMC (Benelux) B.V. (26)
Articles of Amalgamation of the Company. (1)
Articles of Amendment of the Company. (1)
Articles of Amendment of the Company. (1)
Articles of Amalgamation of the Company. (1)
Articles of Amalgamation of the Company, dated July 1, 2001. (2)
Articles of Amalgamation of the Company, dated July 1, 2002. (3)
Articles of Amalgamation of the Company, dated July 1, 2003. (4)
Articles of Amalgamation of the Company, dated July 1, 2004. (5)
Articles of Amalgamation of the Company, dated July 1, 2005. (6)
Articles of Continuance of the Company, dated December 29, 2005. (7)
By-Law 1 of Open Text Corporation. (39)
Form of Common Share Certificate. (1)
105
4.2
4.3
4.4
4.5
4.6
4.7
10.1*
10.2*
10.3*
10.4*
10.5
10.6*
10.7*
10.8*
10.9*
Amended and Restated Shareholder Rights Plan Agreement between Open Text Corporation and Computershare
Investor Services, Inc. dated September 23, 2016. (19)
Registration Rights Agreement, dated as of November 4, 2013, by and among Open Text Corporation and the
principal stockholders named therein, and for the benefit of the holders (as defined therein). (20)
Indenture, dated as of January 15, 2015, among the Company, the subsidiary guarantors party thereto, The Bank
of New York Mellon (as successor to Citibank, N.A.), as U.S. trustee, and BNY Trust Company of Canada (as
successor to Citi Trust Company Canada), as Canadian trustee (including form of 5.625% Senior Notes due
2023). (27)
Indenture, dated as of May 31, 2016, among the Company, the subsidiary guarantors party thereto, The Bank of
New York Mellon, as U.S. trustee, and BNY Trust Company of Canada, as Canadian trustee (including form of
5.875% Senior Notes due 2026). (30)
Supplemental Indenture, dated as of December 9, 2016, to the Indenture governing 5.625% Senior Notes due
2023, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.
trustee, and BNY Trust Company of Canada, as Canadian trustee. (31)
Supplemental Indenture, dated as of December 9, 2016, to the Indenture governing 5.875% Senior Notes due
2026, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.
trustee, and BNY Trust Company of Canada, as Canadian trustee. (31)
1998 Stock Option Plan. (8)
Form of Indemnity Agreement between the Company and certain of its officers dated September 7, 2006. (9)
Consulting Agreement between Steven Sadler and SJS Advisors Inc. and the Company, dated May 3, 2005. (10)
Open Text Corporation Directors' Deferred Share Unit Plan effective February 2, 2010. (11)
Amended and Restated Credit Agreement among Open Text Corporation and certain of its subsidiaries, the
Lenders, Barclays Bank PLC, Royal Bank of Canada, Barclays Capital and RBC Capital Markets, dated as of
November 9, 2011. (12)
OpenText Corporation 2004 Stock Option Plan, as amended and restated September 26, 2016. (15)
OpenText Corporation Long-Term Incentive Plan 2015 for eligible employees, effective October 3, 2012. (16)
Employment Agreement, dated October 30, 2012 between Mark Barrenechea and the Company. (16)
Amendment No. 1 to the Employment Agreement between Mark J. Barrenechea and the Company dated January
24, 2013 (amending the Employment Agreement between Mark J. Barrenechea and the Company dated October
30, 2012). (17)
10.10*
Employment Agreement, as of December 19, 2012, between Gordon A. Davies and the Company. (18)
10.11
10.12
10.13
10.14
10.15
10.16*
10.17*
10.18*
10.20*
10.22*
Commitment Letter, dated as of November 4, 2013, by and among Barclays Bank PLC, Royal Bank of Canada
and Open Text Corporation. (20)
First Amendment to Amended and Restated Credit Agreement and Amended and Restated Security and Pledge
Agreement, dated as of December 16, 2013, between Open Text ULC, as term borrower, Open Text ULC, Open
Text Inc. and Open Text Corporation, as revolving credit borrowers, the domestic guarantors party thereto, each
of the lenders party thereto, Barclays Bank PLC, as sole administrative agent and collateral agent, and Royal
Bank of Canada, as documentary credit lender. (21)
Credit Agreement, dated as of January 16, 2014, among Open Text Corporation, as guarantor, Ocelot Merger
Sub, Inc., which on January 16, 2014 merged with and into GXS Group, Inc. which survived such merger, as
borrower, the other domestic guarantors party thereto, the lenders named therein, as lenders, Barclays Bank PLC,
as sole administrative agent and collateral agent, and with Barclays and RBC Capital Markets, as lead arrangers
and joint bookrunners. (22)
Second Amendment to Amended and Restated Credit Agreement, dated as of December 22, 2014, between Open
Text ULC, as term borrower, Open Text ULC, Open Text Holdings, Inc. and Open Text Corporation, as revolving
credit borrowers, the domestic guarantors party thereto, each of the lenders party thereto, Barclays Bank PLC, as
sole administrative agent and collateral agent, and Royal Bank of Canada, as documentary credit lender. (25)
Tender and Voting Agreement, dated as of December 5, 2014, by and among Open Text Corporation, Asteroid
Acquisition Corporation and certain stockholders of Actuate. (24)
Employment Agreement, dated November 30, 2012, between Muhi Majzoub and the Company. (23)
Employment Agreement, dated July 30, 2014, between John M. Doolittle and the Company. (23)
Amendment No. 2 to the Employment Agreement between Mark J. Barrenechea and the Company dated July 30,
2014 (amending the Employment Agreement between Mark J. Barrenechea and the Company dated October
30, 2012). (23)
Employment Agreement, dated October 13, 2014, between David Jamieson and the Company. (28)
Amended and Restated Employee Stock Purchase Plan (29)
106
10.23
10.24
10.25*
10.26*
10.27
10.28*
10.29
10.30
10.31*
12.1
18.1
21.1
23.1
31.1
31.2
32.1
Repricing Amendment and Amendment No. 2 dated as of February 22, 2017 to Credit Agreement, by and among
Open Text Corporation, as guarantor, Open Text GXS ULC, as borrower, the other guarantors party thereto, each
of the lenders party thereto and Barclays Bank PLC, as administrative agent. (32)
Amendment No. 3 to Second Amended and Restated Credit Agreement, dated as of May 5, 2017, among Open
Text ULC, Open Text Holdings, Inc. and Open Text Corporation, as borrowers, the guarantors party thereto, each
of the lenders party thereto, and Barclays Bank PLC, as sole administrative agent and collateral agent. (33)
Amendment No. 3 to the Employment Agreement between Mark J. Barrenechea and the Company dated June 1,
2017 (amending the Employment Agreement between Mark J. Barrenechea and the Company dated October
30, 2012). (34)
Employment Agreement, dated January 2, 2014, between George Schulze and the Company (35)
Amendment No. 4 to Second Amended and Restated Credit Agreement, dated as of September 6, 2017, among
Open Text ULC, Open Text Holdings, Inc. and Open Text Corporation, as borrowers, the guarantors party
thereto, each of the lenders party thereto, and Barclays Bank PLC, as sole administrative agent and collateral
agent. (36)
Employment Agreement, dated January 30, 2018, among the Company, Open Text Inc. and Madhu Ranganathan
(37)
Amended and Restated Credit Agreement dated as of May 30, 2018, by and among Open Text Corporation, as
borrower, the guarantors party thereto, each of the lenders party thereto and Barclays Bank PLC, as
administrative agent and collateral agent (38)
Third Amended and Restated Credit Agreement dated as of May 30, 2018, by and among Open Text ULC, Open
Text Holdings, Inc. and Open Text Corporation, as borrowers, the guarantors party thereto, each of the lenders
party thereto, Barclays Bank PLC, as administrative agent, collateral agent and swing line lender and Royal Bank
of Canada as documentary credit lender. (38)
Employment Agreement, dated October 1, 2017, between Simon (Ted) Harrison and the Company
Statement of Computation of Ratios of Earnings to Combined Fixed Charges and Preferences
Preferability letter dated February 2, 2012 from the Company's auditors, KPMG LLP, regarding a change in the
Company's accounting policy relating to the income statement classification of tax related interest and penalties.
(13)
List of the Company's Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL instance document.
101.SCH XBRL taxonomy extension schema.
101.CAL XBRL taxonomy extension calculation linkbase.
101.DEF XBRL taxonomy extension definition linkbase.
101.LAB XBRL taxonomy extension label linkbase.
101.PRE XBRL taxonomy extension presentation.
*
Indicates management contract relating to compensatory plans or arrangements
(1) Filed as an Exhibit to the Company's Registration Statement on Form F-1 (Registration Number 33-98858) as filed
with the Securities and Exchange Commission (the “SEC”) on November 1, 1995 or Amendments 1, 2 or 3 thereto
(filed on December 28, 1995, January 22, 1996 and January 23, 1996 respectively), and incorporated herein by
reference.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 28, 2001 and
incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 28, 2002 and
incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 29, 2003 and
incorporated herein by reference.
107
(5) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 13, 2004 and
incorporated herein by reference.
(6) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 27, 2005 and
incorporated herein by reference.
(7) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on February 3, 2006 and
incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 20, 1999 and
incorporated herein by reference.
(9) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on September 12, 2006 and
incorporated herein by reference.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 26, 2008 and
incorporated herein by reference.
(11) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on April 30, 2010 and
incorporated herein by reference.
(12) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on November 9, 2011 and
incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on February 2, 2012 and
incorporated herein by reference.
(14) Filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on July 3, 2012 and
incorporated herein by reference.
(15) Filed as an exhibit to the Company's Registration Statement on Form S-8, as filed with the SEC on November 4, 2016,
and incorporated herein by reference.
(16) Filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on November 1, 2012 and
incorporated herein by reference.
(17) Filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on January 25, 2013 and
incorporated herein by reference.
(18) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 1, 2013 and
incorporated herein by reference.
(19) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 23, 2016 and
incorporated herein by reference.
(20) Filed as an Exhibit to the Company's Current Report on Form 8-K/A, as filed with the SEC on November 6, 2013 and
incorporated herein by reference.
(21) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on December 20, 2013 and
incorporated herein by reference.
(22) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on January 16, 2014 and
incorporated herein by reference.
(23)Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on July 31, 2014 and
incorporated herein by reference.
(24) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on December 5, 2014 and
incorporated herein by reference.
(25) Filed as an exhibit to the Company's Current Report on Form 8-K, as fined with the SEC on December 23, 2014 and
incorporated herein by reference.
(26) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 13, 2016 and
incorporated herein by reference.
(27) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on January 15, 2015 and
incorporated herein by reference.
(28) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on July 29, 2015 and
incorporated herein by reference.
(29) Filed as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on October 2, 2015 and
incorporated herein by reference.
(30) Filed as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on May 31, 2016 and
incorporated herein by reference.
(31) Filed as an Exhibit to the Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-3, as
filed with the SEC on December 12, 2016 and incorporated herein by reference.
(32) Filed as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on February 22, 2017 and
incorporated herein by reference.
(33) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on May 8, 2017 and
incorporated herein by reference.
108
(34) Filed as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on June 6, 2017 and
incorporated herein by reference.
(35) Filed as an Exhibit to the Company's Annual Report on Form 10-K, as filed with the SEC on August 3, 2017 and
incorporated herein by reference.
(36) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q, as filed with the SEC on November 2, 2017 and
incorporated herein by reference.
(37) Filed as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on February 1, 2018 and
incorporated herein by reference.
(38) Filed as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on May 30, 2018 and
incorporated herein by reference.
(39) Filed as an Exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on September 26, 2013 and
incorporated herein by reference.
109
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Open Text Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Open Text Corporation (the Company) as of June 30, 2018
and 2017, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each
of the years in the three year period ended June 30, 2018, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the
three year period ended June 30, 2018, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of June 30, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and our report dated August 1, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control
over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
We have served as the Company's auditor since 2001.
Toronto, Canada
August 1, 2018
110
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Open Text Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Open Text Corporation’s (the Company) internal control over financial reporting as of June 30, 2018, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of June 30, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of June 30, 2018 and 2017, the related consolidated statements
of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended
June 30, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated August 1, 2018
expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report on
Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
August 1, 2018
111
OPEN TEXT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share data)
Cash and cash equivalents
$
682,942
$
443,357
ASSETS
June 30, 2018
June 30, 2017
Accounts receivable trade, net of allowance for doubtful accounts of $9,741 as of June
30, 2018 and $6,319 as of June 30, 2017 (note 3)
Income taxes recoverable (note 14)
Prepaid expenses and other current assets
Total current assets
Property and equipment (note 4)
Goodwill (note 5)
Acquired intangible assets (note 6)
Deferred tax assets (note 14)
Other assets (note 7)
Deferred charges (note 8)
Long-term income taxes recoverable (note 14)
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities (note 9)
Current portion of long-term debt (note 10)
Deferred revenues
Income taxes payable (note 14)
Total current liabilities
Long-term liabilities:
Accrued liabilities (note 9)
Deferred credits (note 8)
Pension liability (note 11)
Long-term debt (note 10)
Deferred revenues
Long-term income taxes payable (note 14)
Deferred tax liabilities (note 14)
Total long-term liabilities
Shareholders’ equity:
Share capital and additional paid-in capital (note 12)
267,651,084 and 264,059,567 Common Shares issued and outstanding at June 30,
2018 and June 30, 2017, respectively; authorized Common Shares: unlimited
Accumulated other comprehensive income
Retained earnings
Treasury stock, at cost (690,336 shares at June 30, 2018 and 1,101,612 at June 30,
2017, respectively)
Total OpenText shareholders' equity
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity
Guarantees and contingencies (note 13)
Related party transactions (note 22)
Subsequent events (note 23)
$
$
487,956
55,623
101,059
1,327,580
264,205
3,580,129
1,296,637
1,122,729
111,267
38,000
24,482
7,765,029
302,154
10,000
644,211
38,234
994,599
52,827
2,727
65,719
2,610,523
69,197
172,241
79,938
3,053,172
1,707,073
33,645
1,994,235
(18,732)
3,716,221
1,037
3,717,258
7,765,029
$
445,812
32,683
81,625
1,003,477
227,418
3,416,749
1,472,542
1,215,712
93,763
42,344
8,557
7,480,562
342,120
182,760
570,328
31,835
1,127,043
50,338
5,283
58,627
2,387,057
61,678
162,493
94,724
2,820,200
1,613,454
48,800
1,897,624
(27,520)
3,532,358
961
3,533,319
7,480,562
$
$
$
See accompanying Notes to Consolidated Financial Statements
112
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of U.S. dollars, except share and per share data)
Year Ended June 30,
2018
2017
2016
$
437,512
$
369,144
$
Revenues:
License
Cloud services and subscriptions
Customer support
Professional service and other
Total revenues
Cost of revenues:
License
Cloud services and subscriptions
Customer support
Professional service and other
Amortization of acquired technology-based intangible
assets (note 6)
Total cost of revenues
Gross profit
Operating expenses:
Research and development
Sales and marketing
General and administrative
Depreciation
Amortization of acquired customer-based intangible assets
(note 6)
Special charges (recoveries) (note 17)
Total operating expenses
Income from operations
Other income (expense), net
Interest and other related expense, net
Income before income taxes
Provision for (recovery of) income taxes (note 14)
Net income for the period
Net (income) loss attributable to non-controlling interests
Net income attributable to OpenText
Earnings per share—basic attributable to OpenText (note 21)
Earnings per share—diluted attributable to OpenText (note 21)
Weighted average number of Common Shares outstanding—
basic (in '000's)
Weighted average number of Common Shares outstanding—
diluted (in '000's)
Dividends declared per Common Share
$
$
$
$
$
828,968
1,232,504
316,257
2,815,241
13,693
364,091
134,089
253,670
185,868
951,411
1,863,830
323,461
529,381
205,313
86,943
184,118
29,211
1,358,427
505,403
17,973
(137,250)
386,126
143,826
242,300
(76)
242,224
0.91
0.91
266,085
267,492
0.5478
$
$
$
$
$
705,495
981,102
235,316
2,291,057
13,632
300,255
122,753
195,195
130,556
762,391
1,528,666
281,680
444,838
170,438
64,318
150,842
63,618
1,175,734
352,932
15,743
(119,124)
249,551
(776,364)
1,025,915
(256)
1,025,659
4.04
4.01
253,879
255,805
0.4770
$
$
$
$
$
283,710
601,018
746,409
193,091
1,824,228
10,296
244,021
89,861
155,584
74,238
574,000
1,250,228
194,057
344,235
140,397
54,929
113,201
34,846
881,665
368,563
(1,423)
(76,363)
290,777
6,282
284,495
(18)
284,477
1.17
1.17
242,926
244,076
0.4150
See accompanying Notes to Consolidated Financial Statements
113
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars)
Net income for the period
Other comprehensive income (loss)—net of tax:
Net foreign currency translation adjustments
Unrealized gain (loss) on cash flow hedges:
Unrealized gain (loss) - net of tax expense (recovery) effect
of ($171), $34 and ($928) for the year ended June 30, 2018,
2017 and 2016, respectively
(Gain) loss reclassified into net income - net of tax
(expense) recovery effect of ($489), $67 and $1,065 for the
year ended June 30, 2018, 2017 and 2016, respectively
Actuarial gain (loss) relating to defined benefit pension plans:
Actuarial gain (loss) - net of tax expense (recovery) effect
of ($1,846), $840 and ($1,612) for the year ended June 30,
2018, 2017 and 2016, respectively
Amortization of actuarial (gain) loss into net income - net
of tax (expense) recovery effect of $183, $241 and $132 for
the year ended June 30, 2018, 2017 and 2016, respectively
Unrealized net gain (loss) on marketable securities - net of tax
effect of nil for the year ended June 30, 2018, 2017 and 2016,
respectively
Release of unrealized gain on marketable securities - net of tax
effect of nil for the year ended June 30, 2018, 2017 and 2016,
respectively
Total other comprehensive income (loss) net, for the period
Total comprehensive income
Comprehensive (income) loss attributable to non-controlling
interests
Year Ended June 30,
2018
$
242,300
$
2017
1,025,915
$
2016
284,495
(9,582)
(4,756)
(3,318)
(476)
(1,357)
95
186
(2,574)
2,956
(3,383)
6,216
(3,374)
260
—
(617)
(15,155)
227,145
(76)
565
184
—
347
445
—
2,490
1,028,405
(256)
(5,518)
278,977
(18)
Total comprehensive income attributable to OpenText
$
227,069
$
1,028,149
$
278,959
See accompanying Notes to Consolidated Financial Statements
114
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands of U.S. dollars and shares)
Common Shares and
Additional Paid in Capital
Treasury Stock
Shares
Amount
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Non-
Controlling
Interests
Total
244,586
$ 934,427
(1,252) $ (19,986) $
863,015
$
51,828
$
523
$ 1,829,807
Common Shares repurchased
(2,952)
Under employee stock option plans
Under employee stock purchase
plans
1,012
427
20,732
11,604
Under the public Equity Offering
19,811
604,223
Balance as of June 30, 2015
Issuance of Common Shares
Under employee stock option plans
Under employee stock purchase
plans
Share-based compensation
Income tax effect related to share-based
compensation
Purchase of treasury stock
Issuance of treasury stock
Dividends
Other comprehensive income (loss) - net
Non-controlling interest
Net income for the year
Balance as of June 30, 2016
Issuance of Common Shares
Income tax effect related to public
Equity Offering
Equity issuance costs
Share-based compensation
Income tax effect related to share-based
compensation
Purchase of treasury stock
Issuance of treasury stock
Dividends
Other comprehensive income (loss) - net
Non-controlling interest
Net income for the year
Balance as of June 30, 2017
Issuance of Common Shares
Under employee stock option plans
Under employee stock purchase
plans
Share-based compensation
Issuance of treasury stock
Dividends
Other comprehensive income (loss) - net
Net income for the year
936
240
—
—
—
—
—
—
—
—
14,576
5,027
25,978
230
—
(5,345)
(9,825)
—
—
—
—
—
—
—
—
—
—
—
—
(450)
434
(10,627)
5,345
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(55,684)
(99,262)
—
—
284,477
—
—
—
—
—
—
—
—
(5,518)
—
—
—
—
—
—
—
—
—
—
—
—
18
14,576
5,027
25,978
230
(10,627)
—
(65,509)
(99,262)
(5,518)
—
284,495
242,810
$ 965,068
(1,268) $ (25,268) $
992,546
$
46,310
$
541
$ 1,979,197
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(244)
410
(8,198)
5,946
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(120,581)
—
—
1,025,659
—
—
—
—
—
—
—
—
—
—
2,490
—
—
—
—
—
—
—
—
—
—
—
—
5,077
(19,574)
30,507
1,534
—
(5,946)
—
—
229
—
264,060
$ 1,613,454
(1,102) $ (27,520) $ 1,897,624
$
48,800
$
2,870
721
—
—
—
—
—
54,355
20,458
27,594
(8,788)
—
—
—
—
—
—
411
—
—
—
—
—
—
8,788
—
—
—
—
—
—
—
(145,613)
—
—
—
—
—
—
(15,155)
242,224
—
—
—
—
—
—
—
—
—
—
—
—
164
256
961
—
—
—
—
—
—
76
20,732
11,604
604,223
5,077
(19,574)
30,507
1,534
(8,198)
—
(120,581)
2,490
393
1,025,915
$ 3,533,319
54,355
20,458
27,594
—
(145,613)
(15,155)
242,300
Balance as of June 30, 2018
267,651
$ 1,707,073
(691) $ (18,732) $ 1,994,235
$
33,645
$
1,037
$ 3,717,258
See accompanying Notes to Consolidated Financial Statements
115
OPEN TEXT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
Cash flows from operating activities:
Net income for the period
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of intangible assets
Share-based compensation expense
Excess tax (benefits) expense on share-based compensation expense
Pension expense
Amortization of debt issuance costs
Amortization of deferred charges and credits
Loss on sale and write down of property and equipment
Release of unrealized gain on marketable securities to income
Write off of unamortized debt issuance costs
Deferred taxes
Share in net (income) loss of equity investees
Other non-cash charges
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Income taxes and deferred charges and credits
Accounts payable and accrued liabilities
Deferred revenue
Other assets
Net cash provided by operating activities
Cash flows from investing activities:
Additions of property and equipment
Proceeds from maturity of short-term investments
Purchase of Hightail, Inc.
Purchase of Guidance Software, Inc., net of cash acquired
Purchase of Covisint Corporation, net of cash acquired
Purchase of ECD Business
Purchase of HP Inc. CCM Business
Purchase of Recommind, Inc.
Purchase consideration for acquisitions completed prior to Fiscal 2017
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Excess tax benefits (expense) on share-based compensation expense
Proceeds from long-term debt and Revolver
Proceeds from issuance of Common Shares from exercise of stock options and ESPP
Proceeds from issuance of Common Shares under the public Equity Offering
Repayment of long-term debt and Revolver
Debt issuance costs
Equity issuance costs
Common Shares repurchased
Purchase of Treasury Stock
Purchase of non-controlling interest
Payments of dividends to shareholders
Net cash provided by (used in) financing activities
Foreign exchange gain (loss) on cash held in foreign currencies
Increase (decrease) in cash and cash equivalents during the period
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Supplemental cash flow disclosures (note 20)
Year Ended June 30,
2018
2017
2016
$
242,300
$
1,025,915
$
284,495
456,929
27,594
—
3,738
4,646
4,242
2,234
(841)
155
89,736
(5,965)
—
(22,566)
(7,274)
(31,323)
(91,650)
35,629
2,301
709,885
(105,318)
—
(20,535)
(229,275)
(71,279)
—
—
—
—
(18,034)
(444,441)
—
1,200,000
75,935
—
(1,149,620)
(4,375)
—
—
—
—
(145,613)
(23,673)
(2,186)
239,585
443,357
345,715
30,507
(1,534)
3,893
5,014
6,298
784
—
833
(871,195)
(5,952)
1,033
(126,784)
(7,766)
(1,683)
53,490
3,484
(22,799)
439,253
(79,592)
9,212
—
—
—
(1,622,394)
(315,000)
(170,107)
(7,146)
(5,937)
(2,190,964)
1,534
481,875
35,593
604,223
(57,880)
(7,240)
(19,574)
—
(8,198)
(208)
(120,581)
909,544
1,767
(840,400)
1,283,757
242,368
25,978
(230)
4,577
4,678
9,903
1,108
—
—
(54,461)
—
—
8,985
316
6,294
(5,671)
(4,781)
2,163
525,722
(70,009)
11,297
—
—
—
—
—
—
(293,071)
(9,393)
(361,176)
230
600,000
20,097
—
(8,000)
(6,765)
—
(65,509)
(10,627)
—
(99,262)
430,164
(10,952)
583,758
699,999
$
682,942
$
443,357
$
1,283,757
See accompanying Notes to Consolidated Financial Statements
116
OPEN TEXT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended June 30, 2018
(Tabular amounts in thousands of U.S. dollars, except share and per share data)
NOTE 1—BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of Open Text Corporation and our
subsidiaries, collectively referred to as "OpenText" or the "Company". We wholly own all of our subsidiaries with the
exception of Open Text South Africa Proprietary Ltd. (OT South Africa), GXS, Inc. (GXS Korea) and EC1 Pte. Ltd. (GXS
Singapore), which as of June 30, 2018, were 70%, 85% and 81% owned, respectively, by OpenText. All inter-company
balances and transactions have been eliminated.
These Consolidated Financial Statements are expressed in U.S. dollars and are prepared in accordance with United States
generally accepted accounting principles (U.S. GAAP). The information furnished reflects all adjustments necessary for a fair
presentation of the results for the periods presented and includes the financial results of Covisint Corporation (Covisint), with
effect from July 26, 2017, Guidance Software, Inc. (Guidance), with effect from September 14, 2017, and Hightail, Inc.
(Hightail), with effect from February 14, 2018 (see note 18 "Acquisitions").
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and
assumptions that affect the amounts reported in the Consolidated Financial Statements. These estimates, judgments and
assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those
estimates. In particular, significant estimates, judgments and assumptions include those related to: (i) revenue recognition,
(ii) testing of goodwill for impairment, (iii) the valuation of acquired intangible assets, (iv) the valuation of long-lived assets,
(v) the recognition of contingencies, (vi) restructuring accruals, (vii) acquisition accruals and pre-acquisition contingencies,
(viii) the realization of investment tax credits, (ix) the valuation of stock options granted and obligations related to share-based
payments, including the valuation of our long-term incentive plans, (x) the valuation of pension assets and obligations, and
(xi) accounting for income taxes. Beginning in the second quarter of Fiscal 2018, our income tax estimates were impacted by
legislation informally known as the Tax Cuts and Jobs Act, which was enacted in the United States on December 22, 2017. The
Company has recorded a provisional charge and continues to assess the effect of the new law on its consolidated financial
statements in accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the Tax Cuts and Jobs
Act” (SAB 118). For more details related to this matter, please refer to note 14 "Income Taxes".
NOTE 2— ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS
Accounting Policies
Cash and cash equivalents
Cash and cash equivalents include balances with banks as well as deposits that have terms to maturity of three months or
less. Cash equivalents are recorded at cost and typically consist of term deposits, commercial paper, certificates of deposit and
short-term interest bearing investment-grade securities of major banks in the countries in which we operate.
Short-Term Investments
In accordance with Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) Topic 320
"Investments - Debt and Equity Securities" (Topic 320) related to accounting for certain investments in debt and equity
securities, and based on our intentions regarding these instruments, we classify our marketable securities as available for sale
and account for these investments at fair value. Marketable securities consist primarily of high quality debt securities with
original maturities over 90 days, and may include corporate notes, United States government agency notes and municipal notes.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make
payments. We evaluate the creditworthiness of our customers prior to order fulfillment and based on these evaluations, we
117
adjust our credit limit to the respective customer. In addition to these evaluations, we conduct on-going credit evaluations of our
customers' payment history and current creditworthiness. The allowance is maintained for 100% of all accounts deemed to be
uncollectible and, for those receivables not specifically identified as uncollectible, an allowance is maintained for a specific
percentage of those receivables based upon the aging of accounts, our historical collection experience and current economic
expectations. To date, the actual losses have been within our expectations. No single customer accounted for more than 10% of
the accounts receivable balance as of June 30, 2018 and 2017.
Property and equipment
Property and equipment are stated at the lower of cost or net realizable value, and shown net of depreciation which is
computed on a straight-line basis over the estimated useful lives of the related assets. Gains and losses on asset disposals are
taken into income in the year of disposition. Fully depreciated property and equipment are retired from the consolidated balance
sheet when they are no longer in use. We did not recognize any significant property and equipment impairment charges in
Fiscal 2018, Fiscal 2017, or Fiscal 2016. The following represents the estimated useful lives of property and equipment:
Furniture and fixtures
Office equipment
Computer hardware
Computer software
Capitalized software
Leasehold improvements
Building
Capitalized Software
5 years
5 years
3 years
3 to 7 years
3 to 5 years
Lesser of the lease term or 5 years
40 years
We capitalize software development costs in accordance with ASC Topic 350-40 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal-Use". We capitalize costs for software to be used internally when we enter the
application development stage. This occurs when we complete the preliminary project stage, management authorizes and
commits to funding the project, and it is feasible that the project will be completed and the software will perform the intended
function. We cease to capitalize costs related to a software project when it enters the post implementation and operation stage. If
different determinations are made with respect to the state of development of a software project, then the amount capitalized
and the amount charged to expense for that project could differ materially.
Costs capitalized during the application development stage consist of payroll and related costs for employees who are
directly associated with, and who devote time directly to, a project to develop software for internal use. We also capitalize the
direct costs of materials and services, which generally includes outside contractors, and interest. We do not capitalize any
general and administrative or overhead costs or costs incurred during the application development stage related to training or
data conversion costs. Costs related to upgrades and enhancements to internal-use software, if those upgrades and
enhancements result in additional functionality, are capitalized. If upgrades and enhancements do not result in additional
functionality, those costs are expensed as incurred. If different determinations are made with respect to whether upgrades or
enhancements to software projects would result in additional functionality, then the amount capitalized and the amount charged
to expense for that project could differ materially.
We amortize capitalized costs with respect to development projects for internal-use software when the software is ready
for use. The capitalized software development costs are generally amortized using the straight-line method over a 3 to 5 year
period. In determining and reassessing the estimated useful life over which the cost incurred for the software should be
amortized, we consider the effects of obsolescence, technology, competition and other economic factors. If different
determinations are made with respect to the estimated useful life of the software, the amount of amortization charged in a
particular period could differ materially.
As of June 30, 2018 and 2017 our capitalized software development costs were $81.1 million and $67.1 million,
respectively. Our additions, relating to capitalized software development costs, incurred during Fiscal 2018 and Fiscal 2017
were $14.6 million and $12.8 million, respectively.
Acquired intangibles
Acquired intangibles consist of acquired technology and customer relationships associated with various acquisitions.
118
Acquired technology is initially recorded at fair value based on the present value of the estimated net future income-
producing capabilities of software products acquired on acquisitions. We amortize acquired technology over its estimated useful
life on a straight-line basis.
Customer relationships represent relationships that we have with customers of the acquired companies and are either
based upon contractual or legal rights or are considered separable; that is, capable of being separated from the acquired entity
and being sold, transferred, licensed, rented or exchanged. These customer relationships are initially recorded at their fair value
based on the present value of expected future cash flows. We amortize customer relationships on a straight-line basis over their
estimated useful lives.
We continually evaluate the remaining estimated useful life of our intangible assets being amortized to determine whether
events and circumstances warrant a revision to the remaining period of amortization.
Impairment of long-lived assets
We account for the impairment and disposition of long-lived assets in accordance with ASC Topic 360, “Property, Plant,
and Equipment” (Topic 360). We test long-lived assets or asset groups, such as property and equipment and definite lived
intangible assets, for recoverability when events or changes in circumstances indicate that their carrying amount may not be
recoverable. Circumstances which could trigger a review include, but are not limited to: significant adverse changes in the
business climate or legal factors; current period cash flow or operating losses combined with a history of losses or a forecast of
continuing losses associated with the use of the asset; and a current expectation that the asset will more likely than not be sold
or disposed of before the end of its estimated useful life.
Recoverability is assessed based on comparing the carrying amount of the asset to the aggregate pre-tax undiscounted
cash flows expected to result from the use and eventual disposal of the asset or asset group. Impairment is recognized when the
carrying amount is not recoverable and exceeds the fair value of the asset or asset group. The impairment loss, if any, is
measured as the amount by which the carrying amount exceeds fair value, which for this purpose is based upon the discounted
projected future cash flows of the asset or asset group.
We have not recorded any significant impairment charges for long-lived assets during Fiscal 2018, Fiscal 2017 and Fiscal
2016.
Business combinations
We apply the provisions of ASC Topic 805, “Business Combinations” (Topic 805), in the accounting for our acquisitions.
It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at their acquisition date fair
values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition
date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to
accurately value assets acquired and liabilities, including contingent consideration where applicable, assumed at the acquisition
date, our estimates are inherently uncertain and subject to refinement, particularly since these assumptions and estimates are
based in part on historical experience and information obtained from the management of the acquired companies. As a result,
during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets
acquired and liabilities assumed with the corresponding offset to goodwill in the period identified. Furthermore, when valuing
certain intangible assets that we have acquired, critical estimates may be made relating to, but not limited to: (i) future expected
cash flows from software license sales, cloud SaaS, DaaS and PaaS contracts, support agreements, consulting agreements and
other customer contracts (ii) the acquired company's technology and competitive position, as well as assumptions about the
period of time that the acquired technology will continue to be used in the combined company's product portfolio, and (iii)
discount rates. Upon the conclusion of the measurement period or final determination of the values of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments would be recorded to our Consolidated Statements of
Income.
For a given acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and may extend
our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain
sufficient information to assess whether we include these contingencies as a part of the purchase price allocation and, if so, to
determine the estimated amounts.
If we determine that a pre-acquisition contingency (non-income tax related) is probable in nature and estimable as of the
acquisition date, we record our best estimate for such a contingency as a part of the preliminary purchase price allocation. We
often continue to gather information and evaluate our pre-acquisition contingencies throughout the measurement period and if
we make changes to the amounts recorded or if we identify additional pre-acquisition contingencies during the measurement
period, such amounts will be included in the purchase price allocation during the measurement period and, subsequently, in our
results of operations.
119
Uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are
initially estimated as of the acquisition date. We review these items during the measurement period as we continue to actively
seek and collect information relating to facts and circumstances that existed at the acquisition date. Changes to these uncertain
tax positions and tax related valuation allowances made subsequent to the measurement period, or if they relate to facts and
circumstances that did not exist at the acquisition date, are recorded in the "Provision for (recovery of) income taxes" line of our
Consolidated Statements of Income.
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and
intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually)
and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.
Our operations are analyzed by management and our chief operating decision maker (CODM) as being part of a single
industry segment: the design, development, marketing and sales of Enterprise Information Management (EIM) software and
solutions. Therefore, our goodwill impairment assessment is based on the allocation of goodwill to a single reporting unit.
We perform a qualitative assessment to test our reporting unit's goodwill for impairment. Based on our qualitative
assessment, if we determine that the fair value of our reporting unit is more likely than not (i.e. a likelihood of more than 50
percent) to be less than its carrying amount, the second step of the impairment test is performed. In the second step of the
impairment test, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit
exceeds its carrying value, goodwill is not considered impaired and we are not required to perform further testing. If the
carrying value of the net assets of our reporting unit exceeds its fair value, then an impairment loss equal to the difference, but
not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.
Our annual impairment analysis of goodwill was performed as of April 1, 2018. Our qualitative assessment indicated
that there were no indications of impairment and therefore there was no impairment of goodwill required to be recorded for
Fiscal 2018 (no impairments were recorded for Fiscal 2017 and Fiscal 2016).
Derivative financial instruments
We use derivative financial instruments to manage foreign currency rate risk. We account for these instruments in
accordance with ASC Topic 815, “Derivatives and Hedging” (Topic 815), which requires that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured at its fair value as of the reporting date. Topic 815 also
requires that changes in our derivative financial instruments' fair values be recognized in earnings; unless specific hedge
accounting and documentation criteria are met (i.e. the instruments are accounted for as hedges). We recorded the effective
portions of the gain or loss on derivative financial instruments that were designated as cash flow hedges in "Accumulated other
comprehensive income", net of tax, in our accompanying Consolidated Balance Sheets. Any ineffective or excluded portion of a
designated cash flow hedge, if applicable, was recognized in our Consolidated Statements of Income.
Asset retirement obligations
We account for asset retirement obligations in accordance with ASC Topic 410, “Asset Retirement and Environmental
Obligations” (Topic 410), which applies to certain obligations associated with “leasehold improvements” within our leased
office facilities. Topic 410 requires that a liability be initially recognized for the estimated fair value of the obligation when it is
incurred. The associated asset retirement cost is capitalized as part of the carrying amount of the long-lived asset and
depreciated over the remaining life of the underlying asset and the associated liability is accreted to the estimated fair value of
the obligation at the settlement date through periodic accretion charges recorded within general and administrative expenses.
When the obligation is settled, any difference between the final cost and the recorded amount is recognized as income or loss on
settlement in our Consolidated Statements of Income.
Revenue recognition
License revenues
We recognize revenues in accordance with ASC Topic 985-605, “Software Revenue Recognition” (Topic 985-605).
We record product revenues from software licenses and products when persuasive evidence of an arrangement exists, the
software product has been shipped, there are no significant uncertainties surrounding product acceptance by the customer, the
fees are fixed and determinable, and collection is considered probable. We use the residual method to recognize revenues on
delivered elements when a license agreement includes one or more elements to be delivered at a future date if evidence of the
fair value of all undelivered elements exists. If an undelivered element for the arrangement exists under the license
120
arrangement, revenues related to the undelivered element is deferred based on vendor-specific objective evidence (VSOE) of
the fair value of the undelivered element.
Our multiple-element sales arrangements include arrangements where software licenses and the associated post contract
customer support (PCS) are sold together. We have established VSOE of the fair value of the undelivered PCS element based on
the contracted price for renewal PCS included in the original multiple element sales arrangement, as substantiated by
contractual terms and our significant PCS renewal experience, from our existing worldwide base. Our multiple element sales
arrangements generally include irrevocable rights for the customer to renew PCS after the bundled term ends. The customer is
not subject to any economic or other penalty for failure to renew. Further, the renewal PCS options are for services comparable
to the bundled PCS and cover similar terms.
It is our experience that customers generally exercise their renewal PCS option. In the renewal transaction, PCS is sold on
a stand-alone basis to the licensees one year or more after the original multiple element sales arrangement. The exercised
renewal PCS price is consistent with the renewal price in the original multiple element sales arrangement, although an
adjustment to reflect consumer price changes is common.
If VSOE of fair value does not exist for all undelivered elements, all revenues are deferred until sufficient evidence exists
or revenue is recognized over the term of the last undelivered element.
We assess whether payment terms are customary or extended in accordance with normal practice relative to the market in
which the sale is occurring. Our sales arrangements generally include standard payment terms. These terms effectively relate to
all customers, products, and arrangements regardless of customer type, product mix or arrangement size. Exceptions are only
made to these standard terms for certain sales in parts of the world where local practice differs. In these jurisdictions, our
customary payment terms are in line with local practice.
Cloud services and subscriptions revenues
Cloud services and subscription revenues consist of (i) SaaS offerings (ii) managed service arrangements and (iii)
subscription revenues relating to on premise offerings. The customer contracts for each of these three offerings are long term
contracts (greater than twelve months) and are based on the customer’s usage over the contract period. The revenue associated
with such contracts is recognized once usage has been measured, the fee is fixed and determinable and collection is probable.
In certain managed services arrangements, we sell transaction processing along with implementation and start-up services.
Start-up services performed as part of the core implementation may include: infrastructure assessment and capacity planning,
provisioning of infrastructure, customer connectivity and other initial setup activities. These sets of services do not have stand-
alone value and, therefore, they do not qualify as separate units of accounting and are not separated. We believe these services
do not have stand-alone value as the customer only receives value from these services in conjunction with the use of the related
transaction processing service, we do not sell such services separately, and the output of such services cannot be re-sold by the
customer. Revenues related to start-up services are recognized over the longer of the contract term or the estimated customer
life. In some arrangements, we also sell distinct implementation and professional services that do have stand-alone value and
can be separated from other elements in the arrangement. To the extent that they can be separately identified, the revenue
related to these services is recognized as the service is performed, otherwise they are recognized in the same pattern as
discussed above. In some arrangements, we also sell professional services as a separate single element arrangement. The
revenue related to these services is recognized as the service is performed.
We defer all direct and relevant costs associated with non-distinct start-up and core implementation activities of long-term
customer contracts to the extent such costs can be recovered through guaranteed contract revenues. All other costs related to
distinct implementation and professional services arrangements are recognized as the services is performed and expensed as
incurred.
Service revenues
Service revenues consist of revenues from consulting, implementation, training and integration services. These services
are set forth separately in the contractual arrangements such that the total price of the customer arrangement is expected to vary
as a result of the inclusion or exclusion of these services. For those contracts where the services are not essential to the
functionality of any other element of the transaction, we determine VSOE of fair value for these services based upon normal
pricing and discounting practices for these services when sold separately. These consulting and implementation services
contracts are primarily time and materials based contracts that are, on average, less than six months in length. Revenues from
these services are recognized at the time such services are performed.
We also enter into contracts that are primarily fixed fee arrangements wherein the services are not essential to the
functionality of a software element. In such cases, the proportional performance method is applied to recognize revenues.
Revenues from training and integration services are recognized in the period in which these services are performed.
121
Customer support revenues
Customer support revenues consist of revenues derived from contracts to provide PCS to license holders. These revenues
are recognized ratably over the term of the contract. Advance billings of PCS are not recorded to the extent that the term of the
PCS has not commenced and payment has not been received.
Deferred revenues
Deferred revenues primarily relate to cloud and customer support agreements which have been paid for by customers prior
to the performance of those services. Generally, the services related to customer support agreements will be provided in the
twelve months after the signing of the agreement. For cloud-related service agreements, deferred revenues are primarily
recognized ratably over the performance or service period, which can vary from contract to contract. Deferred implementation
revenue, specifically, is recognized over the longer of the estimated customer life or initial contract term, whichever is longer.
Long-term sales contracts
We may enter into certain long-term sales contracts involving the sale of integrated solutions that include the modification
and customization of software and the provision of services that are essential to the functionality of the other elements in this
arrangement. As prescribed by ASC Topic 985-605, we recognize revenues from such arrangements in accordance with the
contract accounting guidelines in ASC Topic 605-35, “Construction-Type and Production-Type Contracts” (Topic 605-35), after
evaluating for separation of any non-Topic 605-35 elements in accordance with the provisions of ASC Topic 605-25, “Multiple-
Element Arrangements” (Topic 605-25).
When circumstances exist that allow us to make reasonably dependable estimates of contract revenues, contract costs and
the progress of the contract to completion, we account for sales under such long-term contracts using the percentage-of-
completion (POC) method of accounting. Under the POC method, progress towards completion of the contract is measured
based upon either input measures or output measures. We measure progress towards completion based upon an input measure
and calculate this as the proportion of the actual hours incurred compared to the total estimated hours. For training and
integration services rendered under such contracts, revenues are recognized as the services are rendered. We will review, on a
quarterly basis, the total estimated remaining costs to completion for each of these contracts and apply the impact of any
changes on the POC prospectively. If at any time we anticipate that the estimated remaining costs to completion will exceed the
value of the contract, the resulting loss will be recognized immediately.
When circumstances exist that prevent us from making reasonably dependable estimates of contract revenues, we account
for sales under such long-term contracts using the completed contract method.
Sales to resellers and channel partners
We execute certain sales contracts through resellers and distributors (collectively, resellers) and also large, well-capitalized
partners such as SAP SE and Accenture Inc. (collectively, channel partners).
We recognize revenues relating to sales through resellers and channel partners when all the recognition criteria have been
met, in other words, persuasive evidence of an arrangement exists, delivery has occurred in the reporting period, the fee is fixed
and determinable, and collectability is probable. In addition, we assess the creditworthiness of each reseller and if the reseller is
newly formed, undercapitalized or in financial difficulty any revenues expected to emanate from such resellers are deferred and
recognized only when cash is received and all other revenue recognition criteria are met.
Rights of return and other incentives
We do not generally offer rights of return or any other incentives such as concessions, product rotation, or price protection
and, therefore, do not provide for or make estimates of rights of return and similar incentives.
Research and development costs
Research and development costs internally incurred in creating computer software to be sold, licensed or otherwise
marketed are expensed as incurred unless they meet the criteria for deferral and amortization, as described in ASC Topic
985-20, “Costs of Software to be Sold, Leased, or Marketed” (Topic 985-20). In accordance with Topic 985-20, costs related to
research, design and development of products are charged to expense as incurred and capitalized between the dates that the
product is considered to be technologically feasible and is considered to be ready for general release to customers. In our
historical experience, the dates relating to the achievement of technological feasibility and general release of the product have
substantially coincided. In addition, no significant costs are incurred subsequent to the establishment of technological
feasibility. As a result, we do not capitalize any research and development costs relating to internally developed software to be
sold, licensed or otherwise marketed.
122
Income taxes
We account for income taxes in accordance with ASC Topic 740, “Income Taxes” (Topic 740). Deferred tax assets and
liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the
Consolidated Financial Statements that will result in taxable or deductible amounts in future years. These temporary differences
are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that we
consider it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, we
consider factors such as the reversal of deferred income tax liabilities, projected taxable income, and the character of income
tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax
expense.
We account for our uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates it is more likely than not, based solely on the technical merits, that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit
to recognize. The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be
realized. The tax position is derecognized when it is no longer more likely than not that the position will be sustained on audit.
On subsequent recognition and measurement the maximum amount which is more likely than not to be recognized at each
reporting date will represent the Company's best estimate, given the information available at the reporting date, although the
outcome of the tax position is not absolute or final. We recognize both accrued interest and penalties related to liabilities for
income taxes within the "Provision for (recovery of) income taxes" line of our Consolidated Statements of Income (see note 14
"Income Taxes" for more details).
Fair value of financial instruments
Carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts
payable (trade and accrued liabilities) approximate their fair value due to the relatively short period of time between origination
of the instruments and their expected realization.
The fair value of our total long-term debt approximates its carrying value since the interest rate is at market.
We apply the provisions of ASC 820, “Fair Value Measurements and Disclosures”, to our derivative financial instruments
that we are required to carry at fair value pursuant to other accounting standards (see note 15 "Fair Value Measurement" for
more details).
Foreign currency
Our Consolidated Financial Statements are presented in U.S. dollars. In general, the functional currency of our
subsidiaries is the local currency. For each subsidiary, assets and liabilities denominated in foreign currencies are translated into
U.S dollars at the exchange rates in effect at the balance sheet dates and revenues and expenses are translated at the average
exchange rates prevailing during the previous month of the transaction. The effect of foreign currency translation adjustments
not affecting net income are included in Shareholders' equity under the “Cumulative translation adjustment” account as a
component of “Accumulated other comprehensive income”. Transactional foreign currency gains (losses) included in the
Consolidated Statements of Income under the line item “Other income (expense), net” for Fiscal 2018, Fiscal 2017 and Fiscal
2016 were $4.8 million, $3.1 million and $(1.9) million, respectively.
Restructuring charges
We record restructuring charges relating to contractual lease obligations and other exit costs in accordance with ASC
Topic 420, “Exit or Disposal Cost Obligations” (Topic 420). Topic 420 requires that a liability for a cost associated with an exit
or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred. In order
to incur a liability pursuant to Topic 420, our management must have established and approved a plan of restructuring in
sufficient detail. A liability for a cost associated with involuntary termination benefits is recorded when benefits have been
communicated and a liability for a cost to terminate an operating lease or other contract is incurred, when the contract has been
terminated in accordance with the contract terms or we have ceased using the right conveyed by the contract, such as vacating a
leased facility.
The recognition of restructuring charges requires us to make certain judgments regarding the nature, timing and amount
associated with the planned restructuring activities, including estimating sub-lease income and the net recoverable amount of
equipment to be disposed of. At the end of each reporting period, we evaluate the appropriateness of the remaining accrued
balances (see note 17 "Special Charges (Recoveries)" for more details).
123
Loss Contingencies
We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant
legal matter and evaluate such matters to determine how they should be treated for accounting and disclosure purposes in
accordance with the requirements of ASC Topic 450-20 "Loss Contingencies" (Topic 450-20). Specifically, this evaluation
process includes the centralized tracking and itemization of the status of all our disputes and litigation items, discussing the
nature of any litigation and claim, including any dispute or claim that is reasonably likely to result in litigation, with relevant
internal and external counsel, and assessing the progress of each matter in light of its merits and our experience with similar
proceedings under similar circumstances.
If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably
estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this filing on Form 10-
K for the year ended June 30, 2018, we do not believe that the outcomes of any of these matters, individually or in the
aggregate, will result in losses that are materially in excess of amounts already recognized (see note 13 "Guarantees and
Contingencies" for more details).
Net income per share
Basic net income per share is computed using the weighted average number of Common Shares outstanding including
contingently issuable shares where the contingency has been resolved. Diluted net income per share is computed using the
weighted average number of Common Shares and stock equivalents outstanding using the treasury stock method during the
year (see note 21 "Earnings Per Share" for more details).
Share-based payment
We measure share-based compensation costs, in accordance with ASC Topic 718, “Compensation - Stock
Compensation” (Topic 718) on the grant date, based on the calculated fair value of the award. We have elected to treat awards
with graded vesting as a single award when estimating fair value. Compensation cost is recognized on a straight-line basis over
the employee requisite service period, which in our circumstances is the stated vesting period of the award, provided that total
compensation cost recognized at least equals the pro-rata value of the award that has vested. Compensation cost is initially
based on the estimated number of options for which the requisite service is expected to be rendered. This estimate is adjusted in
the period once actual forfeitures are known (see note 12 "Share Capital, Option Plans and Share-based Payments" for more
details).
Accounting for Pensions, post-retirement and post-employment benefits
Pension expense is accounted for in accordance with ASC Topic 715, “Compensation-Retirement Benefits” (Topic 715).
Pension expense consists of: actuarially computed costs of pension benefits in respect of the current year of service, imputed
returns on plan assets (for funded plans) and imputed interest on pension obligations. The expected costs of post retirement
benefits, other than pensions, are accrued in the Consolidated Financial Statements based upon actuarial methods and
assumptions. The over-funded or under-funded status of defined benefit pension and other post retirement plans are recognized
as an asset or a liability (with the offset to “Accumulated other comprehensive income”, net of tax, within “Shareholders'
equity”), respectively, on the Consolidated Balance Sheets (see note 11 "Pension Plans and Other Post Retirement Benefits" for
more details).
Recent Accounting Pronouncements
Income Taxes
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other
Than Inventory" (ASU 2016-16). ASU 2016-16 primarily changes the timing of when certain intercompany transactions are
recognized within the provision for income taxes among other things. ASU 2016-16 is effective for us during the first quarter of
our fiscal year ending June 30, 2019, on a modified retrospective basis. We currently anticipate that the adoption of ASU
2016-16 will result in a decrease to total assets on our Consolidated Balance Sheets of approximately $30 million and a
decrease in total liabilities of approximately $3 million with a corresponding total net decrease to opening retained earnings of
approximately $27 million.
124
Leases
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02 “Leases (Topic 842)” (ASU
2016-02), which supersedes the guidance in former ASC Topic 840 “Leases”. The most significant change will result in the
recognition of lease assets for the right to use the underlying asset and lease liabilities for the obligation to make lease payments
by lessees, for those leases classified as operating leases under current guidance. The new guidance will also require significant
additional disclosures about the amount, timing and uncertainty of cash flows related to leases. This standard is effective for us
for our fiscal year ending June 30, 2020, with early adoption permitted. Upon adoption of ASU 2016-02, entities are required to
recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. We have
formed a sub-committee consisting of internal members from various departments to assess the effect that the pending adoption
of ASU 2016-02 will have on our Consolidated Balance Sheets. Although the sub-committee has not completed their
assessment, we expect the majority of the impact to come from our facility leases, and that most of our operating lease
commitments will be recognized as right of use assets and operating lease liabilities, which will increase our total assets and
total liabilities, as reported on our Consolidated Balance Sheets, relative to such amounts prior to adoption. The sub-committee
continues to evaluate the impact of the new standard on our Consolidated Financial Statements.
Revenue Recognition
In May 2014, the FASB issued ASC Topic 606 "Revenue from Contracts with Customers" (Topic 606). Topic 606
supersedes the revenue recognition requirements in ASC Topic 605, "Revenue Recognition" (Topic 605) and nearly all other
existing revenue recognition guidance under U.S. GAAP. The core principle of Topic 606 is to recognize revenues when
promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be
received for those goods or services and permits the use of the retrospective or cumulative effect transition method. Topic 606
identifies five steps to be followed to achieve its core principle, which include (i) identifying contract(s) with customers, (ii)
identifying performance obligations in the contract(s), (iii) determining the transaction price, (iv) allocating the transaction
price to the performance obligations in the contract(s) and (v) recognizing revenue when (or as) the entity satisfies a
performance obligation.
We will be adopting Topic 606 using the cumulative effect approach when this guidance becomes effective for us, starting
in the first quarter of our fiscal year ending June 30, 2019.
We believe the key differences between Topic 606 and Topic 605 relate to our accounting for implementation services on
cloud arrangements, accounting for on premise subscription offerings and costs to obtain a contract.
Implementation Services on Cloud Arrangements
Under Topic 605, fees charged for professional services to implement hosted software within a cloud arrangement are
deferred and recognized ratably over the longer of the non-cancellable contract term or the estimated customer life because the
activities are not deemed to be a separate element for which stand-alone value exists. Under Topic 606, we expect such
implementation services revenues to be more variable from period to period, as we will recognize revenues allocated to the
distinct implementation services on the basis of relative stand alone selling price, as services are provided to the customer.
Costs relating to distinct implementation services will be expensed as they are incurred. Any implementation service revenue
and costs that do not meet the criteria of being distinct will be deferred and amortized over the contract term.
On Premise Subscription Arrangements
Under Topic 605, revenue attributable to on premise subscription arrangements is recognized under “Cloud Services and
Subscriptions revenue” and is recognized ratably over the term of the arrangement because vendor specific objective evidence
(VSOE) does not exist for the undelivered maintenance and support element of the arrangement, as it is not sold separately.
Under Topic 606, the requirement to have VSOE for undelivered elements to enable the separation of the delivered software
licenses from the on-going customer support and maintenance services is eliminated. Accordingly, we expect the adoption of
Topic 606 will result in a change in our recording of on premise subscription revenues from “Cloud Services and Subscriptions
revenues” to “License” and “Customer Support” revenues in our Consolidated Statements of Income. Further, we expect to
accelerate the recognition of a portion of the transaction price at the outset of the arrangement (upon delivery) as “License
revenue”, using the residual approach for estimating stand-alone selling price. Over the course of the service period, “Customer
Support revenues” will be recognized based on the stand-alone selling price for those services.
Costs to obtain a contract
Topic 606 will require the Company to capitalize certain sales commissions which are currently expensed as incurred.
The Company currently anticipates it will amortize these capitalized contract costs over an expected period of benefit that
includes anticipated renewals.
125
Transition
We evaluated revenue contracts that will be in effect on the adoption date as if they had been accounted for under Topic
606 from contract inception. As a result, certain revenue that would have been recognized in future periods under Topic 605
will now be accounted for and disclosed under Topic 606 as though the revenue had already been recognized in prior periods,
resulting in us having to make a cumulative effect adjustment to our retained earnings in the period of adoption.
As a result, upon adoption of Topic 606 we expect retained earnings, net of tax, to increase by approximately $35 million
and we expect to see the following corresponding impacts to the Consolidated Balance Sheet on July 1, 2018:
• A decrease to deferred revenues of approximately $34 million;
• A decrease to other assets of approximately $23 million in connection with lower deferred implementation costs;
• An increase to other assets of approximately $14 million in connection with an increase of capitalized sales
commission costs;
• An increase in accounts receivables of approximately $21 million in connection with increased contract assets
representing future billings in excess of revenues; and
• An increase in net deferred tax liabilities of approximately $11 million
These expected impacts discussed above are the result of adopting the new standard and pertain solely to the adjustment
to retained earnings as of July 1, 2018 on our Consolidated Balance Sheet, and are not indicative of the impact that the new
ASU is expected to have on our Consolidated Statement of Operations in future periods.
As part of the disclosure requirements in the year of adoption, under the modified retrospective method, we will disclose
in detail the impact of the adoption of the new revenue standard on each of our financial statements.
The application of this new guidance has no effect on the cash we expect to receive nor on the economics of the business,
but rather affects the timing of revenue and expense recognition.
ASUs adopted in Fiscal 2018
During Fiscal 2018 we adopted the following ASU, which did not have a material impact to our reported financial
position, results of operations or cash flows:
• ASU 2016-09 "Compensation-Stock Compensation (Topic 718)"
NOTE 3—ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance as of June 30, 2015
Bad debt expense
Write-off /adjustments
Balance as of June 30, 2016
Bad debt expense
Write-off /adjustments
Balance as of June 30, 2017
Bad debt expense
Write-off /adjustments
Balance as of June 30, 2018
$
$
5,987
5,908
(5,155)
6,740
5,929
(6,350)
6,319
9,942
(6,520)
9,741
Included in accounts receivable are unbilled receivables in the amount of $55.5 million as of June 30, 2018 (June 30,
2017—$46.2 million).
126
NOTE 4—PROPERTY AND EQUIPMENT
Furniture and fixtures
Office equipment
Computer hardware
Computer software
Capitalized software development costs
Leasehold improvements
Land and buildings
Total
Furniture and fixtures
Office equipment
Computer hardware
Computer software
Capitalized software development costs
Leasehold improvements
Land and buildings
Total
NOTE 5—GOODWILL
As of June 30, 2018
Accumulated
Depreciation
Net
Cost
34,647
1,467
207,381
97,653
81,073
118,200
47,880
588,301
$
$
(21,488) $
(687)
(134,906)
(59,485)
(41,556)
(55,172)
(10,802)
(324,096) $
13,159
780
72,475
38,168
39,517
63,028
37,078
264,205
As of June 30, 2017
Accumulated
Depreciation
Net
Cost
23,026
1,245
164,268
72,835
67,092
81,564
48,431
458,461
$
$
(14,879) $
(597)
(104,572)
(33,862)
(28,430)
(38,642)
(10,061)
(231,043) $
8,147
648
59,696
38,973
38,662
42,922
38,370
227,418
$
$
$
$
Goodwill is recorded when the consideration paid for an acquisition of a business exceeds the fair value of identifiable
net tangible and intangible assets. The following table summarizes the changes in goodwill since June 30, 2016:
Balance as of June 30, 2016
Acquisition of Recommind, Inc. (note 18)
Acquisition of CCM Business (note 18)
Acquisition of ECD Business (note 18)
Adjustments relating to acquisitions prior to Fiscal 2017 that had open measurement periods (note 18)
Adjustments on account of foreign exchange
Balance as of June 30, 2017
Acquisition of Hightail (note 18)
Acquisition of Guidance (note 18)
Acquisition of Covisint (note 18)
Adjustments relating to acquisitions prior to Fiscal 2018 that had open measurement periods (note 18)
Adjustments on account of foreign exchange
Balance as of June 30, 2018
$
2,325,586
91,405
173,198
825,142
(3,334)
4,752
3,416,749
7,293
129,800
26,905
(1,458)
840
3,580,129
127
NOTE 6—ACQUIRED INTANGIBLE ASSETS
Technology assets
Customer assets
Total
Technology assets
Customer assets
Total
Cost
985,226
1,348,510
2,333,736
Cost
930,841
1,230,806
2,161,647
$
$
$
$
As of June 30, 2018
Accumulated
Amortization
(439,774) $
(597,325)
(1,037,099) $
As of June 30, 2017
Accumulated
Amortization
(272,872) $
(416,233)
(689,105) $
$
$
$
$
Net
545,452
751,185
1,296,637
Net
657,969
814,573
1,472,542
The above balances as of June 30, 2018 have been reduced to reflect the impact of intangible assets relating to
acquisitions where the gross cost has become fully amortized during the year ended June 30, 2018. The impact of this resulted
in a reduction of $19.0 million related to Technology assets and $3.0 million related to Customer assets.
The weighted average amortization periods for acquired technology and customer intangible assets are approximately six
years and eight years, respectively.
The following table shows the estimated future amortization expense for the fiscal years indicated. This calculation
assumes no future adjustments to acquired intangible assets:
2019
2020
2021
2022
2023
2024 and beyond
Total
Fiscal years ending
June 30,
$
$
352,401
280,888
190,763
177,208
115,015
180,362
1,296,637
NOTE 7—OTHER ASSETS
Deposits and restricted cash
Deferred implementation costs
Investments
Marketable securities
Long-term prepaid expenses and other long-term assets
Total
As of June 30, 2018
As of June 30, 2017
$
$
9,479
26,767
49,635
—
25,386
111,267
$
$
15,821
28,833
27,886
3,023
18,200
93,763
Deposits and restricted cash primarily relate to security deposits provided to landlords in accordance with facility lease
agreements and cash restricted per the terms of certain contractual-based agreements.
Deferred implementation costs relate to deferred direct and relevant costs on implementation of long-term contracts, to
the extent such costs can be recovered through guaranteed contract revenues.
Investments relate to certain non-marketable equity securities in which we are a limited partner. Our interest, individually,
in each of these investees range from 4% to below 20%. These investments are accounted for using the equity method. Our
share of net income or losses based on our interest in these investments is recorded as a component of other income (expense),
net in our Consolidated Statements of Income. During the year ended June 30, 2018, our share of income (loss) from these
investments was $6.0 million (year ended June 30, 2017 and 2016—$6.0 million and nil, respectively).
128
Marketable securities are classified as available for sale securities and are recorded on our Consolidated Balance Sheets
at fair value with unrealized gains and losses reported as a separate component of Accumulated other comprehensive income.
We did not hold any marketable securities as of June 30, 2018.
Long-term prepaid expenses and other long-term assets includes advance payments on long-term licenses that are being
amortized over the applicable terms of the licenses and other miscellaneous assets.
NOTE 8—DEFERRED CHARGES AND CREDITS
Deferred charges and credits relate to cash taxes payable and the elimination of deferred tax balances relating to legal
entity consolidations completed as part of internal reorganizations of our international subsidiaries. Deferred charges and
credits are amortized to income tax expense over periods of 6 to 15 years.
NOTE 9—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Current liabilities
Accounts payable and accrued liabilities are comprised of the following:
Accounts payable—trade
Accrued salaries and commissions
Accrued liabilities
Accrued interest on Senior Notes
Amounts payable in respect of restructuring and other Special charges
Asset retirement obligations
Total
Long-term accrued liabilities
Amounts payable in respect of restructuring and other Special charges
Other accrued liabilities*
Asset retirement obligations
Total
As of June 30, 2018
As of June 30, 2017
41,722
$
118,024
108,903
24,786
5,622
3,097
302,154
$
43,699
121,958
135,512
24,787
13,728
2,436
342,120
As of June 30, 2018
As of June 30, 2017
4,362
35,874
12,591
52,827
$
$
2,686
36,702
10,950
50,338
$
$
$
$
* Other accrued liabilities consist primarily of tenant allowances, deferred rent and lease fair value adjustments relating to
certain facilities acquired through business acquisitions.
Asset retirement obligations
We are required to return certain of our leased facilities to their original state at the conclusion of our lease. As of
June 30, 2018, the present value of this obligation was $15.7 million (June 30, 2017—$13.4 million), with an undiscounted
value of $17.7 million (June 30, 2017—$15.0 million).
129
NOTE 10—LONG-TERM DEBT
Long-term debt
Long-term debt is comprised of the following:
Total debt
Senior Notes 2026
Senior Notes 2023
Term Loan B
Revolver
Total principal payments due
Premium on Senior Notes 2026
Debt issuance costs
Total amount outstanding
Less:
Current portion of long-term debt
Term Loan B
Revolver
Total current portion of long-term debt
As of June 30, 2018
As of June 30, 2017
$
$
850,000
800,000
997,500
—
2,647,500
6,018
(32,995)
2,620,523
10,000
—
10,000
850,000
800,000
772,120
175,000
2,597,120
6,597
(33,900)
2,569,817
7,760
175,000
182,760
Non-current portion of long-term debt
$
2,610,523
$
2,387,057
Senior Unsecured Fixed Rate Notes
Senior Notes 2026
On May 31, 2016, we issued $600 million in aggregate principal amount of 5.875% Senior Notes due 2026 (Senior Notes
2026) in an unregistered offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as
amended (Securities Act), and to certain persons in offshore transactions pursuant to Regulation S under the Securities Act.
Senior Notes 2026 bear interest at a rate of 5.875% per annum, payable semi-annually in arrears on June 1 and December 1,
commencing on December 1, 2016. Senior Notes 2026 will mature on June 1, 2026, unless earlier redeemed, in accordance
with their terms, or repurchased.
On December 20, 2016, we issued an additional $250 million in aggregate principal amount by reopening our Senior
Notes 2026 at an issue price of 102.75%. The additional notes have identical terms, are fungible with and are a part of a single
series with the previously issued $600 million aggregate principal amount of Senior Notes 2026. The outstanding aggregate
principal amount of Senior Notes 2026, after taking into consideration the additional issuance, is $850 million.
For the year ended June 30, 2018, we recorded interest expense of $49.9 million, relating to Senior Notes 2026 (year
ended June 30, 2017 and 2016—$43.1 million and $2.9 million, respectively).
Senior Notes 2023
On January 15, 2015, we issued $800 million in aggregate principal amount of 5.625% Senior Notes due 2023 (Senior
Notes 2023 and together with Senior Notes 2026, Senior Notes) in an unregistered offering to qualified institutional buyers
pursuant to Rule 144A under the Securities Act, and to certain persons in offshore transactions pursuant to Regulation S under
the Securities Act. Senior Notes 2023 bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on January
15 and July 15, commencing on July 15, 2015. Senior Notes 2023 will mature on January 15, 2023, unless earlier redeemed, in
accordance with their terms, or repurchased.
For the year ended June 30, 2018, we recorded interest expense of $45.0 million, relating to Senior Notes 2023 (year
ended June 30, 2017 and 2016—$45.0 million, respectively).
130
Term Loan B
On May 30, 2018, we refinanced our existing term loan facility (Term Loan B), by entering into a new $1 billion term
loan facility, whereby we borrowed $1 billion on that day and repaid in full the loans under our prior $800 million term loan
credit facility originally entered into on January 16, 2014. Borrowings under Term Loan B are secured by a first charge over
substantially all of our assets on a pari passu basis with the Revolver (defined below).
Term Loan B has a seven year term and repayments made under Term Loan B are equal to 0.25% of the principal amount
in equal quarterly installments for the life of Term Loan B, with the remainder due at maturity. Borrowings under Term Loan B
currently bear a floating rate of interest equal to 1.75% plus LIBOR. As of June 30, 2018, the outstanding balance on the Term
Loan B bears an interest rate of approximately 3.73%.
For the year ended June 30, 2018, we recorded interest expense of $27.9 million, relating to Term Loan B (year ended
June 30, 2017 and 2016—$24.8 million and $25.9 million, respectively).
Revolver
We currently have a $450 million committed revolving credit facility (the Revolver) with a maturity date of May 5, 2022.
Borrowings under the Revolver are secured by a first charge over substantially all of our assets, on a pari passu basis with Term
Loan B. The Revolver has no fixed repayment date prior to the end of the term. Borrowings under the Revolver bear interest
per annum at a floating rate of LIBOR plus a fixed margin dependent on our consolidated net leverage ratio ranging from
1.25% to 1.75%.
During the year ended June 30, 2018, we drew down $200 million, from the Revolver partially to finance acquisitions
(year ended June 30, 2017 and 2016—$225 million and nil, respectively).
During the year ended June 30, 2018, we repaid $375 million (year ended June 30, 2017 and 2016—$50 million and nil,
respectively). As of June 30, 2018 we have no outstanding balance on the Revolver.
For the year ended June 30, 2018, we recorded interest expense of $9.0 million, relating to amounts drawn on the
Revolver (year ended June 30, 2017 and 2016—$2.6 million and nil, respectively).
Debt Issuance Costs and Premium on Senior Notes
Debt issuance costs relate primarily to costs incurred for the purpose of obtaining our credit facilities and issuing our
Senior Notes and are being amortized over the respective terms of the Senior Notes and Term Loan B using the effective
interest method and the Revolver using the straight-line method.
In connection with the recent refinancing and amendment of Term Loan B, we incurred new debt issuance costs of
approximately $4.7 million, of which approximately $4.4 million has been paid as of June 30, 2018. Furthermore, during the
year ended June 30, 2018, we wrote off $0.2 million of unamortized debt issuance costs relating to the portion of Term Loan B
that was not recommitted by certain lenders under the new terms and were therefore considered extinguished. This amount has
been written off to "Interest and other related expense, net" on the Consolidated Statements of Income.
The premium on Senior Notes 2026 represents the excess of the proceeds received over the face value of Senior Notes
2026. This premium is amortized as a reduction to interest expense over the term of Senior Notes 2026 using the effective
interest method.
NOTE 11—PENSION PLANS AND OTHER POST RETIREMENT BENEFITS
The following table provides details of our defined benefit pension plans and long-term employee benefit obligations for
Open Text Document Technologies GmbH (CDT), GXS GmbH (GXS GER), GXS Philippines, Inc. (GXS PHP) and other
plans as of June 30, 2018 and June 30, 2017:
CDT defined benefit plan
GXS GER defined benefit plan
GXS PHP defined benefit plan
Other plans
Total
As of June 30, 2018
Total benefit
obligation
Current portion of
benefit obligation*
Non-current portion of
benefit obligation
32,651
25,382
3,853
6,095
67,981
$
$
655
1,027
138
442
2,262
$
$
31,996
24,355
3,715
5,653
65,719
$
$
131
CDT defined benefit plan
GXS GER defined benefit plan
GXS PHP defined benefit plan
Other plans
Total
As of June 30, 2017
Total benefit
obligation
Current portion of
benefit obligation*
Non-current portion of
benefit obligation
$
$
28,881
23,730
4,495
3,256
60,362
$
$
583
926
81
145
1,735
$
$
28,298
22,804
4,414
3,111
58,627
* The current portion of the benefit obligation has been included within "Accrued salaries and commissions", all within
"Accounts payable and accrued liabilities" in the Consolidated Balance Sheets (see note 9 "Accounts Payable and Accrued
Liabilities").
Defined Benefit Plans
CDT Plan
CDT sponsors an unfunded defined benefit pension plan covering substantially all CDT employees (CDT pension plan)
which provides for old age, disability and survivors’ benefits. Benefits under the CDT pension plan are generally based on age
at retirement, years of service and the employee’s annual earnings. The net periodic cost of this pension plan is determined
using the projected unit credit method and several actuarial assumptions, the most significant of which are the discount rate and
estimated service costs. No contributions have been made since the inception of the plan. Actuarial gains or losses in excess of
10% of the projected benefit obligation are being amortized and recognized as a component of net periodic benefit costs over
the average remaining service period of the plan's active employees. As of June 30, 2018, there is approximately $0.7 million in
accumulated other comprehensive income related to the CDT pension plan that is expected to be recognized as a component of
net periodic benefit costs over the next fiscal year.
GXS GER Plan
As part of our acquisition of GXS Group, Inc. (GXS) in Fiscal 2014, we assumed an unfunded defined benefit pension
plan covering certain German employees which provides for old age, disability and survivors' benefits. The GXS GER plan has
been closed to new participants since 2006. Benefits under the GXS GER plan are generally based on a participant’s
remuneration, date of hire, years of eligible service and age at retirement. The net periodic cost of this pension plan is
determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the
discount rate and estimated service costs. No contributions have been made since the inception of the plan. Actuarial gains or
losses in excess of 10% of the projected benefit obligation are being amortized and recognized as a component of net periodic
benefit costs over the average remaining service period of the plan’s active employees. As of June 30, 2018, there is
approximately $0.1 million in accumulated other comprehensive income related to the GXS GER plan that is expected to be
recognized as a component of net periodic benefit costs over the next fiscal year.
GXS PHP Plan
As part of our acquisition of GXS in Fiscal 2014, we assumed a primarily unfunded defined benefit pension plan covering
substantially all of the GXS Philippines employees which provides for retirement, disability and survivors' benefits. Benefits
under the GXS PHP plan are generally based on a participant’s remuneration, years of eligible service and age at retirement.
The net periodic cost of this pension plan is determined using the projected unit credit method and several actuarial
assumptions, the most significant of which are the discount rate and estimated service costs. Aside from an initial contribution
which has a fair value of approximately $32 thousand as of June 30, 2018, no additional contributions have been made since
the inception of the plan. Actuarial gains or losses in excess of 10% of the projected benefit obligation are being amortized and
recognized as a component of net periodic benefit costs over the average remaining service period of the plan’s active
employees. As of June 30, 2018, there is approximately $0.6 million in accumulated other comprehensive income related to the
GXS PHP plan that is expected to be recognized as a component of net periodic benefit costs over the next fiscal year.
132
The following are the details of the change in the benefit obligation for each of the above mentioned pension plans for the
periods indicated:
As of June 30, 2018
As of June 30, 2017
CDT
GXS
GER
GXS PHP
Total
CDT
GXS
GER
GXS PHP
Total
Benefit obligation—beginning of
period
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Foreign exchange (gain) loss
Benefit obligation—end of period
Less: Current portion
Non-current portion of benefit
obligation
$ 28,881
501
607
(580)
2,442
800
32,651
$ 23,730
472
489
(974)
997
668
25,382
(655)
(1,027)
$ 4,495
832
241
(141)
(1,313)
(261)
3,853
(138)
$ 57,106
1,805
1,337
(1,695)
2,126
1,207
61,886
(1,820)
$ 29,450
467
456
(469)
(1,708)
685
28,881
(583)
$ 24,729
395
377
(807)
(1,548)
584
23,730
(926)
$ 7,341
1,051
226
(53)
(3,728)
(342)
4,495
(81)
$ 61,520
1,913
1,059
(1,329)
(6,984)
927
57,106
(1,590)
$ 31,996
$ 24,355
$ 3,715
$ 60,066
$ 28,298
$ 22,804
$ 4,414
$ 55,516
The following are details of net pension expense relating to the following pension plans:
2018
CDT
GXS
GER
GXS
PHP
Total
CDT
Year Ended June 30,
2017
GXS
GER
GXS
PHP
2016
Total
CDT
GXS
GER
GXS
PHP
Total
$ 501
$ 472
$ 832
$1,805
$ 467
$ 395
$1,051
$1,913
$ 422
$ 359
$1,628
$2,409
607
489
241
1,337
456
377
226
1,059
610
543
314
1,467
541
72
(241)
372
627
168
(48)
747
425
23
—
448
$1,649
$1,033
$ 832
$3,514
$1,550
$ 940
$1,229
$3,719
$1,457
$ 925
$1,942
$4,324
Pension
expense:
Service cost
Interest cost
Amortization
of actuarial
(gains) and
losses
Net pension
expense
133
In determining the fair value of the pension plan benefit obligations as of June 30, 2018 and June 30, 2017, respectively,
we used the following weighted-average key assumptions:
Assumptions:
Salary increases
Pension increases
Discount rate
Normal retirement age
Employee fluctuation rate:
to age 20
to age 25
to age 30
to age 35
to age 40
to age 45
to age 50
from age 51
As of June 30, 2018
As of June 30, 2017
CDT
GXS GER
GXS PHP
CDT
GXS GER
GXS PHP
3.50%
2.00%
2.00%
65
—%
—%
1.00%
0.50%
—%
0.50%
0.50%
1.00%
3.50%
2.00%
2.00%
65-67
—%
—%
—%
—%
—%
—%
—%
—%
6.50%
N/A
7.25%
60
12.19%
16.58%
13.97%
10.77%
7.39%
3.28%
—%
—%
2.00%
1.75%
2.00%
65
—%
—%
1.00%
0.50%
—%
0.50%
0.50%
1.00%
2.00%
2.00%
2.00%
65-67
—%
—%
—%
—%
—%
—%
—%
—%
6.20%
N/A
5.00%
60
12.19%
16.58%
13.97%
10.77%
7.39%
3.28%
—%
—%
Anticipated pension payments under the pension plans for the fiscal years indicated below are as follows:
2019
2020
2021
2022
2023
2024 to 2028
Total
Other Plans
Fiscal years ending June 30,
CDT
GXS GER
GXS PHP
$
$
655
700
800
890
999
6,008
10,052
$
$
1,027
1,032
1,061
1,068
1,071
5,506
10,765
$
$
138
104
144
330
198
1,913
2,827
Other plans include defined benefit pension plans that are offered by certain of our foreign subsidiaries. Many of these
plans were assumed through our acquisitions or are required by local regulatory requirements. These other plans are primarily
unfunded, with the aggregate projected benefit obligation included in our pension liability. The net periodic costs of these plans
are determined using the projected unit credit method and several actuarial assumptions, the most significant of which are the
discount rate and estimated service costs.
NOTE 12—SHARE CAPITAL, OPTION PLANS AND SHARE-BASED PAYMENTS
Cash Dividends
For the year ended June 30, 2018, pursuant to the Company’s dividend policy, we declared total non-cumulative
dividends of $0.5478, per Common Share in the aggregate amount of $145.6 million, which we paid during the same period.
For the year ended June 30, 2017, pursuant to the Company’s dividend policy, we paid total non-cumulative dividends of
$0.4770, per Common Share in the aggregate amount of $120.6 million.
For the year ended June 30, 2016, pursuant to the Company’s dividend policy, we paid total non-cumulative dividends of
$0.4150, per Common Share in the aggregate amount of $99.3 million.
134
Share Capital
Our authorized share capital includes an unlimited number of Common Shares and an unlimited number of Preference
Shares. No Preference Shares have been issued.
Treasury Stock
Repurchase
From time to time we may provide funds to an independent agent to facilitate repurchases of our Common Shares in
connection with the settlement of awards under the LTIP or other plans.
During the year ended June 30, 2018, we did not repurchase any of our Common Shares for potential reissuance under
our Long-Term Incentive Plans (LTIP) or other plans (year ended June 30, 2017 and 2016—244,240 and 450,000 Common
Shares, respectively, in the amount of $8.2 million and $10.6 million, respectively). See below for more details on our various
plans.
Reissuance
During the year ended June 30, 2018, we reissued 411,276 Common Shares from treasury stock (year ended June 30,
2017 and 2016—409,922 and 434,156 Common Shares, respectively), in connection with the settlement of awards.
Option Plans
A summary of stock options outstanding under our 2004 stock option plan is set forth below. All numbers shown in the
chart below have been adjusted, where applicable, to account for the two-for-one stock splits that occurred on October 22,
2003, February 18, 2014 and January 24, 2017.
Date of inception
Eligibility
Options granted to date
Options exercised to date
Options cancelled to date
Options outstanding
2004 Stock Option Plan
Oct-04
Eligible employees and directors, as determined by the Board of Directors
30,528,078
(16,191,017)
(7,258,626)
7,078,435
Termination grace periods
Immediately “for cause”; 90 days for any other reason; 180 days due to death
Vesting schedule
Exercise price range
Expiration dates
25% per year, unless otherwise specified
$11.68 - $36.50
8/12/2018 to 5/11/2025
135
The following table summarizes information regarding stock options outstanding at June 30, 2018:
Options Outstanding
Options Exercisable
Range of Exercise
Prices
Number of options
Outstanding as of
June 30, 2018
Weighted
Average
Remaining
Contractual
Life (years)
Weighted
Average
Exercise
Price
Number of options
Exercisable as of
June 30, 2018
Weighted
Average
Exercise
Price
$
$
11.68 - $
23.51 -
25.04 -
25.58 -
27.83 -
29.75 -
32.63 -
34.48 -
34.71 -
36.49 -
11.68 - $
22.87
24.52
25.05
27.56
28.65
30.37
33.48
34.49
34.72
36.50
36.50
Share-Based Payments
952,382
72,000
885,500
1,392,520
606,484
686,414
1,279,625
705,000
473,510
25,000
7,078,435
2.86 $
3.25
2.58
3.60
3.47
4.92
5.78
5.88
6.86
6.60
4.43 $
19.10
24.28
25.04
26.99
28.01
29.84
33.03
34.49
34.71
36.50
28.41
607,706 $
55,000
885,500
297,500
310,710
153,622
172,250
—
—
—
2,482,288 $
Total share-based compensation expense for the periods indicated below is detailed as follows:
Stock options
Performance Share Units (issued under LTIP)
Restricted Share Units (issued under LTIP)
Restricted Share Units (other)
Deferred Share Units (directors)
Employee Share Purchase Plan
Total share-based compensation expense
$
$
Summary of Outstanding Stock Options
Year Ended June 30,
2018
2017
2016
9,828
$
12,196
$
3,553
6,602
936
2,921
3,754
3,624
6,452
2,804
2,849
2,582
27,594
$
30,507
$
16.97
24.52
25.04
26.80
27.90
29.84
33.39
—
—
—
24.50
13,202
2,688
5,086
1,573
2,764
665
25,978
As of June 30, 2018, an aggregate of 7,078,435 options to purchase Common Shares were outstanding and an additional
10,893,828 options to purchase Common Shares were available for issuance under our stock option plans. Our stock options
generally vest over four years and expire between seven and ten years from the date of the grant. Currently we also have
options outstanding that vest over five years, as well as options outstanding that vest based on meeting certain market
conditions. The exercise price of all our options is set at an amount that is not less than the closing price of our Common Shares
on the NASDAQ on the trading day immediately preceding the applicable grant date.
A summary of activity under our stock option plans for the years ended June 30, 2018 and 2017 are as follows:
Outstanding at June 30, 2017
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2018
Exercisable at June 30, 2018
Weighted-
Average Exercise
Price
Weighted-
Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
($’000s)
24.57
34.60
18.94
30.81
28.41
24.50
4.43 $
3.13 $
48,405
26,539
Options
8,977,830
$
1,322,340
(2,869,569)
(352,166)
7,078,435
2,482,288
$
$
136
Outstanding at June 30, 2016
Granted
Exercised
Forfeited or expired
Outstanding at June 30, 2017
Exercisable at June 30, 2017
Options
8,354,816
2,278,974
(1,012,644)
(643,316)
8,977,830
3,736,180
$
$
$
Weighted-
Average Exercise
Price
Weighted-
Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
($’000s)
21.94
31.75
20.47
22.30
24.57
19.27
4.27 $
2.74 $
64,707
45,830
We estimate the fair value of stock options using the Black-Scholes option-pricing model or, where appropriate, the
Monte Carlo Valuation Method, consistent with the provisions of ASC Topic 718, "Compensation—Stock
Compensation" (Topic 718) and SEC Staff Accounting Bulletin No. 107. The option-pricing models require input of subjective
assumptions, including the estimated life of the option and the expected volatility of the underlying stock over the estimated
life of the option. We use historical volatility as a basis for projecting the expected volatility of the underlying stock and
estimate the expected life of our stock options based upon historical data.
We believe that the valuation techniques and the approach utilized to develop the underlying assumptions are appropriate
in calculating the fair value of our stock option grants. Estimates of fair value are not intended, however, to predict actual future
events or the value ultimately realized by employees who receive equity awards.
For the periods indicated, the weighted-average fair value of options and weighted-average assumptions were as follows:
Weighted–average fair value of options granted
Weighted-average assumptions used:
Expected volatility
Risk–free interest rate
Expected dividend yield
Expected life (in years)
Forfeiture rate (based on historical rates)
Average exercise share price
Derived service period (in years)*
$
$
*Options valued using Monte Carlo Valuation Method
Year Ended June 30,
2018
2017
2016
7.58
$
7.06
$
5.69
26.95%
2.18%
1.50%
4.38
6%
34.60
$
N/A
28.32%
1.46%
1.43%
4.51
5%
31.75
$
1.79
31.76%
1.31%
1.62%
4.33
5%
24.09
N/A
As of June 30, 2018, the total compensation cost related to the unvested stock option awards not yet recognized was
approximately $19.0 million, which will be recognized over a weighted-average period of approximately 2.5 years.
No cash was used by us to settle equity instruments granted under share-based compensation arrangements in any of the
periods presented.
We have not capitalized any share-based compensation costs as part of the cost of an asset in any of the periods
presented.
For the year ended June 30, 2018, cash in the amount of $54.4 million was received as the result of the exercise of
options granted under share-based payment arrangements. The tax benefit realized by us during the year ended June 30, 2018
from the exercise of options eligible for a tax deduction was $1.5 million.
For the year ended June 30, 2017, cash in the amount of $20.8 million was received as the result of the exercise of
options granted under share-based payment arrangements. The tax benefit realized by us during the year ended June 30, 2017
from the exercise of options eligible for a tax deduction was $2.2 million.
For the year ended June 30, 2016, cash in the amount of $14.6 million was received as the result of the exercise of
options granted under share-based payment arrangements. The tax benefit realized by us during the year ended June 30, 2016
from the exercise of options eligible for a tax deduction was $0.8 million.
137
Long-Term Incentive Plans
We incentivize our executive officers, in part, with long-term compensation pursuant to our LTIP. The LTIP is a rolling
three year program that grants eligible employees a certain number of target Performance Share Units (PSUs) and/or Restricted
Share Units (RSUs). Target PSUs become vested upon the achievement of certain financial and/or operational performance
criteria (the Performance Conditions) that are determined at the time of the grant. Target RSUs become vested when an eligible
employee remains employed throughout the vesting period. LTIP grants that have recently vested, or have yet to vest, are
described below. LTIP grants are referred to in this Annual Report on Form 10-K based upon the year in which the grants are
expected to vest.
Fiscal 2017 LTIP
Grants made in Fiscal 2015 under the LTIP (collectively referred to as Fiscal 2017 LTIP), consisting of PSUs and RSUs,
took effect in Fiscal 2015 starting on September 4, 2014. We settled the Fiscal 2017 LTIP by issuing 312,651 Common Shares
from treasury stock during the three months ended December 31, 2017, with a cost of $6.7 million.
Fiscal 2018 LTIP
Grants made in Fiscal 2016 under the LTIP (collectively referred to as Fiscal 2018 LTIP), consisting of PSUs and RSUs,
took effect in Fiscal 2016 starting on August 23, 2015. The Performance Conditions for vesting of the PSUs are based solely
upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2018 LTIP. We
expect to settle the Fiscal 2018 LTIP awards in stock.
Fiscal 2019 LTIP
Grants made in Fiscal 2017 under the LTIP (collectively referred to as Fiscal 2019 LTIP), consisting of PSUs and RSUs,
took effect in Fiscal 2017 starting on August 14, 2016. The Performance Conditions for vesting of the PSUs are based solely
upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2019 LTIP. We
expect to settle the Fiscal 2019 LTIP awards in stock.
Fiscal 2020 LTIP
Grants made in Fiscal 2018 under the LTIP (collectively referred to as Fiscal 2020 LTIP), consisting of PSUs and RSUs,
took effect in Fiscal 2018 starting on August 7, 2017. The Performance Conditions for vesting of the PSUs are based solely
upon market conditions. The RSUs are employee service-based awards and vest over the life of the Fiscal 2020 LTIP. We
expect to settle the Fiscal 2020 LTIP awards in stock.
PSUs and RSUs granted under the LTIPs have been measured at fair value as of the effective date, consistent with Topic
718, and will be charged to share-based compensation expense over the remaining life of the plan. Stock options granted under
the LTIPs have been measured using the Black-Scholes option-pricing model, consistent with Topic 718. We estimate the fair
value of PSUs using the Monte Carlo pricing model and RSUs have been valued based upon their grant date fair value.
As of June 30, 2018, the total expected compensation cost related to the unvested LTIP awards not yet recognized was
$12.9 million, which is expected to be recognized over a weighted average period of 1.8 years.
Restricted Share Units (RSUs)
During the year ended June 30, 2018, we granted 4,464 RSUs to employees in accordance with employment and other
agreements (year ended June 30, 2017 and 2016—19,300 and 122,072 RSUs, respectively). The RSUs vest over a specified
contract date, typically three years from the respective date of grants. We expect to settle the awards in stock.
During the year ended June 30, 2018, we issued 98,625 Common Shares from treasury stock, with a cost of $2.1 million,
in connection with the settlement of these vested RSUs (year ended June 30, 2017 and 2016—70,000 and 30,000 Common
Shares, respectively, with a cost of $1.5 million and $0.3 million, respectively).
Deferred Stock Units (DSUs)
During the year ended June 30, 2018, we granted 87,501 DSUs to certain non-employee directors (year ended June 30,
2017 and 2016—91,680 and 111,716 DSUs, respectively). The DSUs were issued under our Deferred Share Unit Plan. DSUs
granted as compensation for director fees vest immediately, whereas all other DSUs granted vest at our next annual general
meeting following the granting of the DSUs. No DSUs are payable by us until the director ceases to be a member of the Board.
138
Employee Share Purchase Plan (ESPP)
Our ESPP offers employees a purchase price discount of 15%.
During the year ended June 30, 2018, 729,521 Common Shares were eligible for issuance to employees enrolled in the
ESPP (year ended June 30, 2017 and 2016—530,170 and 160,546 Common Shares, respectively).
During the year ended June 30, 2018, cash in the amount of approximately $21.5 million was received from employees
relating to the ESPP (year ended June 30, 2017 and 2016—$14.8 million and $5.5 million, respectively).
NOTE 13—GUARANTEES AND CONTINGENCIES
We have entered into the following contractual obligations with minimum payments for the indicated fiscal periods as
follows:
Long-term debt obligations (1) $
Operating lease obligations (2)
Purchase obligations
Payments due between
Total
3,524,567
394,907
16,108
July 1, 2018—
June 30, 2019
July 1, 2019—
June 30, 2021
July 1, 2021—
June 30, 2023
July 1, 2023
and beyond
$
142,626
$
284,013
$
282,398
$
2,815,530
72,224
9,577
127,878
6,354
85,943
177
108,862
—
$
3,935,582
$
224,427
$
418,245
$
368,518
$
2,924,392
(1) Includes interest up to maturity and principal payments. Please see note 10 "Long-Term Debt" for more details.
(2) Net of $7.6 million of sublease income to be received from properties which we have subleased to third parties.
Guarantees and Indemnifications
We have entered into customer agreements which may include provisions to indemnify our customers against third party
claims that our software products or services infringe certain third party intellectual property rights and for liabilities related to
a breach of our confidentiality obligations. We have not made any material payments in relation to such indemnification
provisions and have not accrued any liabilities related to these indemnification provisions in our Consolidated Financial
Statements.
Occasionally, we enter into financial guarantees with third parties in the ordinary course of our business, including, among
others, guarantees relating to taxes and letters of credit on behalf of parties with whom we conduct business. Such agreements
have not had a material effect on our results of operations, financial position or cash flows.
Litigation
We are currently involved in various claims and legal proceedings.
Quarterly, we review the status of each significant legal matter and evaluate such matters to determine how they should be
treated for accounting and disclosure purposes in accordance with the requirements of ASC Topic 450-20 "Loss
Contingencies" (Topic 450-20). Specifically, this evaluation process includes the centralized tracking and itemization of the
status of all our disputes and litigation items, discussing the nature of any litigation and claim, including any dispute or claim
that is reasonably likely to result in litigation, with relevant internal and external counsel, and assessing the progress of each
matter in light of its merits and our experience with similar proceedings under similar circumstances.
If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably
estimated, we accrue a liability for the estimated loss in accordance with Topic 450-20. As of the date of this Annual Report on
Form 10-K, the aggregate of such estimated losses was not material to our consolidated financial position or result of operations
and we do not believe as of the date of this filing that it is reasonably possible that a loss exceeding the amounts already
recognized will be incurred that would be material to our consolidated financial position or results of operations.
Contingencies
IRS Matter
As we have previously disclosed, the United States Internal Revenue Service (IRS) is examining certain of our tax returns
for our fiscal year ended June 30, 2010 (Fiscal 2010) through our fiscal year ended June 30, 2012 (Fiscal 2012), and in
connection with those examinations is reviewing our internal reorganization in Fiscal 2010 to consolidate certain intellectual
property ownership in Luxembourg and Canada and our integration of certain acquisitions into the resulting structure. We also
139
previously disclosed that the examinations may lead to proposed adjustments to our taxes that may be material, individually or
in the aggregate, and that we have not recorded any material accruals for any such potential adjustments in our Consolidated
Financial Statements.
We previously disclosed that, as part of these examinations, on July 17, 2015 we received from the IRS an initial Notice
of Proposed Adjustment (NOPA) in draft form proposing a one-time approximately $280 million increase to our U.S. federal
taxes arising from the reorganization in Fiscal 2010, plus penalties and interest, and that we expected to receive an additional
NOPA proposing an increase to our U.S. federal taxes for Fiscal 2012 arising from the integration of Global 360 Holding Corp.
into the structure that resulted from the reorganization, accompanied by proposed penalties and interest. We also previously
disclosed that the draft NOPA could be changed before the final NOPA is issued, including because the IRS reserved the right in
the draft NOPA to increase the adjustment by assigning a higher value to our intellectual property.
On July 11, 2018, we received from the IRS a revised draft NOPA proposing an increase to our U.S. federal taxes for
Fiscal 2010 (the 2010 NOPA) and a draft NOPA proposing an increase to our U.S. federal taxes for Fiscal 2012 (the 2012
NOPA), respectively. A NOPA is an IRS position and does not impose an obligation to pay tax. After evaluation of these
NOPAs, we continue to strongly disagree with the IRS’ positions and intend to vigorously contest the proposed adjustments to
our taxable income.
We currently estimate our potential aggregate liability, as of June 30, 2018, in connection with these ongoing matters with
the IRS, including additional state income taxes plus penalties and interest that may be due, to be approximately $725 million,
comprised of approximately $455 million in U.S. federal and state taxes, approximately $105 million of penalties, and
approximately $165 million of interest, further described below. Our previously disclosed estimated potential aggregate
liability, as of March 31, 2018, was approximately $605 million.
The 2010 NOPA received from the IRS on July 11, 2018 increases the one-time proposed adjustment to our U.S. federal
income taxes for Fiscal 2010 by approximately $55 million, from, as previously disclosed, approximately $280 million to
approximately $335 million. Such increase is based on the IRS’ assertion that certain of our intangible property involved in our
internal reorganization had a greater value than was assigned to it in the original draft NOPA. As contemplated by the original
draft NOPA, the 2010 NOPA asserts penalties equal to 20% of the additional proposed taxes for Fiscal 2010, plus interest at the
applicable statutory rate (which will continue to accrue until the matter is resolved and may be substantial).
On July 11, 2018, we also received, consistent with previously disclosed expectations, the 2012 NOPA proposing an
approximately $80 million adjustment to our U.S. federal taxes for Fiscal 2012, which was previously included in our estimated
potential aggregate liability of approximately $605 million. The 2012 NOPA also asserts, however, that the penalty rate should
be 40% of the additional proposed taxes for Fiscal 2012.
The $120 million increase from the previously estimated potential aggregate liability of approximately $605 million, as of
March 31, 2018, is attributable to (i) approximately $95 million of increased proposed U.S. federal and state taxes and
associated penalties and interest related to the IRS asserting a higher valuation of our intangible property in the 2010 NOPA, (ii)
approximately $20 million related to the additional 20% penalties and associated interest asserted by the IRS in the 2012
NOPA, and (iii) approximately $5 million related to an estimate of additional interest that has continued to accrue since March
31, 2018.
Based on our discussions with the IRS and the fact that the adjustments proposed in these NOPAs reflect the IRS’ own
asserted valuations of our intangible property, we do not expect the IRS to further revise the NOPAs to increase any of their
proposed adjustments to our U.S. federal income taxes (subject to the continued accrual of interest, as noted above).
As previously disclosed and noted above, we strongly disagree with the IRS’ position and intend to vigorously contest the
proposed adjustments to our taxable income. We are examining various alternatives available to taxpayers to contest the
proposed adjustments. Any such alternatives could involve a lengthy process and result in the incurrence of significant
expenses. As of the date of this Annual Report on Form 10-K, we have not recorded any material accruals in respect of these
examinations in our Consolidated Financial Statements. An adverse outcome of these tax examinations could have a material
adverse effect on our financial position and results of operations.
CRA Matter
As part of its ongoing audit of our Canadian tax returns, the Canada Revenue Agency (CRA) has disputed our transfer
pricing methodology used for certain intercompany transactions with our international subsidiaries and has issued notices of
reassessment for Fiscal 2012 and Fiscal 2013. Assuming the utilization of available tax attributes (further described below), we
estimate our potential aggregate liability, as of June 30, 2018, in connection with the CRA's reassessments for Fiscal 2012 and
Fiscal 2013 to be limited to penalties and interest that may be due of approximately $23 million.
140
The notices of reassessment for Fiscal 2012 and Fiscal 2013 would, as drafted, increase our taxable income by
approximately $90 million for each of those years, as well as, in the case of Fiscal 2012, impose a 10% penalty on the proposed
adjustment to income, with a similar penalty expected to be imposed for Fiscal 2013.
We strongly disagree with the CRA's positions and believe the reassessments of Fiscal 2012 and Fiscal 2013 (including
any penalties) are without merit. We have filed a notice of objection for Fiscal 2012, will be filing an objection for Fiscal 2013,
and we are currently seeking competent authority consideration under applicable international treaties in respect of these
reassessments.
Even if we are unsuccessful in challenging the CRA's reassessments to increase our taxable income for Fiscal 2012 and
Fiscal 2013, or potential reassessments that may be proposed for subsequent years currently under audit, we have elective
deductions available for those years (including carry-backs from later years) that would offset such increased amounts so that
no additional cash tax would be payable, exclusive of any assessed penalties and interest, as described above.
We will continue to vigorously contest the proposed adjustments to our taxable income and any penalty and interest
assessments. As of the date of this Annual Report on Form 10-K, we have not recorded any accruals in respect of these
reassessments in our Consolidated Financial Statements. Audits by the CRA of our tax returns for fiscal years prior to Fiscal
2012 have been completed with no reassessment of our income tax liability in respect of our international transactions,
including the transfer pricing methodology applied to them. The CRA is currently auditing Fiscal 2014 and Fiscal 2015. We are
engaged in ongoing discussions with the CRA and continue to vigorously contest the CRA's audit positions.
GXS Brazil Matter
As part of our acquisition of GXS, we inherited a tax dispute in Brazil between the Company’s subsidiary, GXS
Tecnologia da Informação (Brasil) Ltda. (GXS Brazil), and the municipality of São Paulo, in connection with GXS Brazil’s
judicial appeal of a tax claim. During the first quarter of Fiscal 2018 the courts ruled in favour of the municipality of São Paulo.
The Company decided not to pursue further appeal. On October 1, 2017, the Company reached a settlement with the
municipality and paid $1.4 million.
Historically, prior to our acquisition of GXS, GXS would charge certain costs to its subsidiaries, including GXS Brazil,
primarily based on historical transfer pricing studies that were intended to reflect the costs incurred by subsidiaries in relation to
services provided by the parent company to the subject subsidiary. GXS recorded taxes on amounts billed, that were considered
to be due based on the intercompany charges. GXS subsequently re-evaluated its intercompany charges to GXS Brazil and
related taxes and, upon taking into consideration the current environment and judicial proceedings in Brazil, concluded that it
was probable that certain indirect taxes would be assessable and payable based upon the accrual of such intercompany charges
and has approximately $1.6 million accrued for the probable amount of a settlement related to the indirect taxes, interest and
penalties.
GXS India Matter
Our Indian subsidiary, GXS India Technology Centre Private Limited (GXS India), is subject to potential assessments by
Indian tax authorities in the city of Bangalore. GXS India has received assessment orders from the Indian tax authorities
alleging that the transfer price applied to intercompany transactions was not appropriate. Based on advice from our tax advisors,
we believe that the facts that the Indian tax authorities are using to support their assessment are incorrect. We have filed appeals
and anticipate an eventual settlement with the Indian tax authorities. We have accrued $1.3 million to cover our anticipated
financial exposure in this matter.
Please also see Item 1A "Risk Factors" elsewhere in this Annual Report on Form 10-K.
NOTE 14—INCOME TAXES
Our effective tax rate represents the net effect of the mix of income earned in various tax jurisdictions that are subject to a
wide range of income tax rates.
The following is a geographical breakdown of income before the provision for income taxes:
Domestic income (loss)
Foreign income
Income before income taxes
Year Ended June 30,
2018
2017
2016
$
$
238,405
147,721
386,126
$
$
110,562
138,989
249,551
$
$
(80,066)
370,843
290,777
141
The provision for (recovery of) income taxes consisted of the following:
Current income taxes (recoveries):
Domestic
Foreign
Deferred income taxes (recoveries):
Domestic
Foreign
Provision for (recovery of) income taxes
Year Ended June 30,
2018
2017
2016
$
$
5,313
48,777
54,090
61,678
28,058
89,736
143,826
$
$
$
12,238
82,593
94,831
(851,683)
(19,512)
(871,195)
(776,364) $
(3,119)
63,862
60,743
(44,569)
(9,892)
(54,461)
6,282
A reconciliation of the combined Canadian federal and provincial income tax rate with our effective income tax rate is as
follows:
Expected statutory rate
Expected provision for income taxes
Effect of foreign tax rate differences
Change in valuation allowance
Amortization of deferred charges
Effect of permanent differences
Effect of changes in unrecognized tax benefits
Effect of withholding taxes
Difference in tax filings from provision
Effect of U.S. tax reform
Other Items
Impact of internal reorganization of subsidiaries
Year Ended June 30,
2018
2017
2016
26.5%
26.5%
26.5%
$
$
102,323
2,352
1,779
4,242
4,332
5,543
7,927
1,321
19,037
(5,030)
—
143,826
$
$
$
66,131
8,647
520
6,298
3,673
14,427
3,845
(7,836)
—
4,045
(876,114)
(776,364)
$
77,056
(71,478)
(34,999)
11,316
10,711
(264)
3,457
8,959
—
1,524
—
6,282
In Fiscal 2018 and 2017, respectively, substantially all the tax rate differential for international jurisdictions was driven by
earnings in the United States. In Fiscal 2016, this differential was driven by earnings in Luxembourg.
The effective tax rate increased to a provision of 37.2% for the year ended June 30, 2018, compared to a recovery of
311.1% for the year ended June 30, 2017. The increase in tax expense of $920.2 million was primarily due to (i) a significant
tax benefit of $876.1 million resulting from the Fiscal 2017 internal reorganization as described below which did not reoccur in
Fiscal 2018, (ii) the impact of changes in US tax legislation in Fiscal 2018 resulting in a provisional charge of $19.0 million
(see below), (iii) an increase of $29.9 million on account of the Company having higher income before taxes, including the
impact of foreign tax rates and (iv) an increase of $9.2 million relating to differences in tax filings from provisions, offset by (i)
a decrease of $8.9 million resulting from the net impact of reversals and accruals of reserves, and (ii) a decrease of $2.1 million
relating to a decrease in amortization of deferred charges. The remainder of the difference was due to normal course movements
and non-material items.
In July 2016, we implemented a reorganization of our subsidiaries worldwide with the view to continuing to enhance
operational and administrative efficiencies through further consolidated ownership, management, and development of our
intellectual property (IP) in Canada, continuing to reduce the number of entities in our group and working towards our objective
of having a single operating legal entity in each jurisdiction. A significant tax benefit of $876.1 million, associated primarily
with the recognition of a net deferred tax asset arising from the entry of the IP into Canada, was recognized in the first quarter
of Fiscal 2017. For more information relating to this, please refer to our Annual Report on Form 10-K for the year ended June
30, 2017.
As of June 30, 2018, we have approximately $60.8 million of domestic non-capital loss carryforwards. In addition, we
have $471.5 million of foreign non-capital loss carryforwards of which $65.3 million have no expiry date. The remainder of the
142
domestic and foreign losses expires between 2019 and 2037. In addition, investment tax credits of $55.2 million will expire
between 2019 and 2038.
The primary components of the deferred tax assets and liabilities are as follows, for the periods indicated below:
Deferred tax assets
Non-capital loss carryforwards
Capital loss carryforwards
Undeducted scientific research and development expenses
Depreciation and amortization
Restructuring costs and other reserves
Deferred revenue
Other
Total deferred tax asset
Valuation Allowance
Deferred tax liabilities
Scientific research and development tax credits
Acquired intangibles
Other
Deferred tax liabilities
Net deferred tax asset
Comprised of:
Long-term assets
Long-term liabilities
June 30,
2018
2017
$
129,436
$
109,060
417
123,114
829,369
17,202
62,726
57,461
1,219,725
$
(80,924) $
246
101,998
887,735
22,956
75,248
74,668
1,271,911
(58,925)
(13,342) $
(12,070)
—
(82,668)
(96,010) $
—
(79,928)
(91,998)
1,042,791
$
1,120,988
$
$
$
$
$
1,122,729
(79,938)
1,215,712
(94,724)
$
1,042,791
$
1,120,988
We believe that sufficient uncertainty exists regarding the realization of certain deferred tax assets that a valuation
allowance is required. We continue to evaluate our taxable position quarterly and consider factors by taxing jurisdiction,
including but not limited to factors such as estimated taxable income, any historical experience of losses for tax purposes and
the future growth of OpenText.
The aggregate changes in the balance of our gross unrecognized tax benefits (including interest and penalties) were as follows:
Unrecognized tax benefits as of July 1, 2016
Increases on account of current year positions
Increases on account of prior year positions
Decreases due to settlements with tax authorities
Decreases due to lapses of statutes of limitations
Unrecognized tax benefits as of June 30, 2017
Increases on account of current year positions
Increases on account of prior year positions
Decreases due to settlements with tax authorities
Decreases due to lapses of statutes of limitations
Unrecognized tax benefits as of June 30, 2018
$
$
$
174,485
5,675
18,938
(16,332)
(8,236)
174,530
6,483
17,794
—
(20,995)
177,812
Included in the above tabular reconciliation are unrecognized tax benefits of $10.5 million relating to deferred tax assets
in jurisdictions in which these deferred tax assets are offset with valuation allowances. The net unrecognized tax benefit
143
excluding these deferred tax assets is approximately $167.2 million as of June 30, 2018 (June 30, 2017—$163.0 million).
Increases on account of prior year positions includes nothing that is subject to recovery as an indemnified asset (June 30, 2017
—$9.4 million).
We recognize interest expense and penalties related to income tax matters in income tax expense.
For the year ended June 30, 2018, 2017 and 2016, we recognized the following amounts as income tax-related interest
expense and penalties:
Interest expense
Penalties expense (recoveries)
Total
$
$
6,233
(191)
6,042
$
$
13,028
438
13,466
$
$
6,534
(2,761)
3,773
Year Ended June 30,
2018
2017
2016
The following amounts have been accrued on account of income tax-related interest expense and penalties:
Interest expense accrued *
Penalties accrued *
As of June 30, 2018
As of June 30, 2017
$
$
54,058
2,438
$
$
47,402
2,160
* These balances have been included within "Long-term income taxes payable" within the Consolidated Balance Sheets.
We believe that it is reasonably possible that the gross unrecognized tax benefits, as of June 30, 2018, could decrease tax
expense in the next 12 months by $9.1 million, relating primarily to the expiration of competent authority relief and tax years
becoming statute barred for purposes of future tax examinations by local taxing jurisdictions.
Our four most significant tax jurisdictions are Canada, the United States, Luxembourg and Germany. Our tax filings
remain subject to audits by applicable tax authorities for a certain length of time following the tax year to which those filings
relate. The earliest fiscal years open for examination are 2012 for Germany, 2010 for the United States, 2012 for Luxembourg,
and 2012 for Canada.
We are subject to tax audits in all major taxing jurisdictions in which we operate and currently have tax audits open in
Canada, the United States, France, Germany, India, Malaysia, and the United Kingdom. On a quarterly basis we assess the
status of these examinations and the potential for adverse outcomes to determine the adequacy of the provision for income and
other taxes. Statements regarding the United States and Canada audits are included in note 13 "Guarantees and Contingencies".
The timing of the resolution of income tax audits is highly uncertain, and the amounts ultimately paid, if any, upon
resolution of the issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that
within the next 12 months we will receive additional assessments by various tax authorities or possibly reach resolution of
income tax audits in one or more jurisdictions. These assessments or settlements may or may not result in changes to our
contingencies related to positions on tax filings. The actual amount of any change could vary significantly depending on the
ultimate timing and nature of any settlements. We cannot currently provide an estimate of the range of possible outcomes. For
more information relating to certain tax audits, please refer to note 13 "Guarantees and Contingencies".
As at June 30, 2018, we have provided $28.5 million (June 30, 2017—$22.1 million) in respect of both additional foreign
taxes or deferred income tax liabilities for temporary differences related to the undistributed earnings of certain non-United
States subsidiaries, and planned periodic repatriations from certain United States and German subsidiaries, that will be subject
to withholding taxes upon distribution. We have not provided for additional foreign withholding taxes or deferred income tax
liabilities related to undistributed earnings of all other non-Canadian subsidiaries, since such earnings are considered
permanently invested in those subsidiaries, or are not subject to withholding taxes. It is not practicable to reasonably estimate
the amount of additional deferred income tax liabilities or foreign withholding taxes that may be payable should these earnings
be distributed in the future.
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act, which
significantly changed the existing US tax laws, including a reduction in the federal corporate tax rate from 35% to 21%, and the
transition of US international taxation from a worldwide tax system to a partially territorial tax system. As a result of the
enactment of the legislation, the Company incurred a provisional one-time tax expense of $19.0 million for the year ended
June 30, 2018, primarily related to the transition tax on accumulated foreign earnings and the re-measurement of certain
deferred tax assets and liabilities. The portion of this anticipated increase to tax expense attributable to the transition tax is
payable over a period of up to eight years. The impact of the $19.0 million adjustment resulting from the US legislation on the
effective tax rate is an increase of 4.9% for the year ended June 30, 2018.
144
The $19.0 million is a provisional amount in respect of Alternative Minimum Tax (AMT), and transition tax on
accumulated foreign earnings in accordance with Staff Accounting Bulletin 118 “Income Tax Accounting Implications of the
Tax Cuts and Jobs Act” (SAB 118). The finalization of the provisional one-time amount is pending finalization of
considerations related to undistributed foreign earnings and evaluating whether any portion of our existing AMT credit
carryforwards are not expected to be refundable as a result of the repeal of corporate AMT, which may result in changes to the
provisional amount during the SAB 118 measurement period.
The Company continues to assess the impact of the new law on its consolidated financial statements and anticipates
finalizing the determination on or before December 22, 2018 in accordance with SAB 118.
NOTE 15—FAIR VALUE MEASUREMENT
ASC Topic 820 “Fair Value Measurement” (Topic 820) defines fair value, establishes a framework for measuring fair
value, and addresses disclosure requirements for fair value measurements. Fair value is the price that would be received upon
sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement
date and in the principal or most advantageous market for that asset or liability. The fair value, in this context, should be
calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific
to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk, including our own
credit risk.
In addition to defining fair value and addressing disclosure requirements, Topic 820 establishes a fair value hierarchy for
valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair
value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by
the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
• Level 1—inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
• Level 2—inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or
similar instruments in markets that are not active, and model-based valuation techniques for which all significant
assumptions are observable in the market or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
• Level 3—inputs are generally unobservable and typically reflect management’s estimates of assumptions that market
participants would use in pricing the asset or liability. The fair values are therefore determined using model-based
techniques that include option pricing models, discounted cash flow models, and similar techniques.
145
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis:
Our financial assets and liabilities measured at fair value on a recurring basis consisted of the following types of
instruments as of June 30, 2018 and June 30, 2017:
June 30, 2018
June 30, 2017
Fair Market Measurements using:
Fair Market Measurements using:
Quoted prices
in active
markets for
identical
assets/
(liabilities)
Significant
other
observable
inputs
Significant
unobservable
inputs
(Level 1)
(Level 2)
(Level 3)
June 30,
2017
Quoted prices
in active
markets for
identical
assets/
(liabilities)
Significant
other
observable
inputs
Significant
unobservable
inputs
(Level 1)
(Level 2)
(Level 3)
June 30,
2018
N/A
N/A
N/A
N/A $
3,023
N/A $
3,023
N/A
—
—
$
N/A
N/A $
—
—
N/A
1,174
N/A
1,174
N/A $
4,197
N/A $
4,197
$ (1,319)
N/A $ (1,319)
$ (1,319)
N/A $ (1,319)
N/A $
N/A $
—
—
N/A $
N/A $
—
—
N/A
N/A
N/A
N/A
Financial Assets:
Marketable securities
Derivative financial
instrument asset
(note 16)
Financial Liabilities:
Derivative financial
instrument liability
(note 16)
Our valuation techniques used to measure the fair values of the derivative instruments, the counterparty to which has high
credit ratings, were derived from pricing models including discounted cash flow techniques, with all significant inputs derived
from or corroborated by observable market data, as no quoted market prices exist for these instruments. Our discounted cash
flow techniques use observable market inputs, such as, where applicable, foreign currency spot and forward rates.
Our cash and cash equivalents, along with our accounts receivable and accounts payable and accrued liabilities balances,
are measured and recognized in our Consolidated Financial Statements at an amount that approximates their fair value (a Level
2 measurement) due to their short maturities.
If applicable, we will recognize transfers between levels within the fair value hierarchy at the end of the reporting period
in which the actual event or change in circumstance occurs. During the year ended June 30, 2018 and 2017, we did not have
any transfers between Level 1, Level 2 or Level 3.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities are recognized
at fair value when they are deemed to be other-than-temporarily impaired. During the year ended June 30, 2018 and 2017, no
indications of impairment were identified and therefore no fair value measurements were required.
Marketable Securities
Marketable securities are classified as available for sale securities and are recorded within "Other assets" on our
Consolidated Balance Sheets at fair value with unrealized gains or losses reported as a separate component of Accumulated
other comprehensive income. We did not hold any marketable securities as of June 30, 2018.
A summary of our marketable securities outstanding as of June 30, 2018 and June 30, 2017 is as follows:
Marketable
securities
Cost
N/A
As of June 30, 2018
As of June 30, 2017
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair Value
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Estimated
Fair Value
N/A
N/A
N/A
$
2,406
$
617
$
— $
3,023
146
NOTE 16—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Foreign Currency Forward Contracts
We are engaged in hedging programs with various banks to limit the potential foreign exchange fluctuations incurred on
future cash flows relating to a portion of our Canadian dollar payroll expenses. We operate internationally and are therefore
exposed to foreign currency exchange rate fluctuations in the normal course of our business, in particular to changes in the
Canadian dollar on account of large costs that are incurred from our centralized Canadian operations, which are denominated in
Canadian dollars. As part of our risk management strategy, we use foreign currency forward contracts to hedge portions of our
payroll exposure with typical maturities of between one and twelve months. We do not use derivatives for speculative purposes.
We have designated these transactions as cash flow hedges of forecasted transactions under ASC Topic 815 “Derivatives
and Hedging” (Topic 815). As the critical terms of the hedging instrument and of the entire hedged forecasted transaction are
the same, in accordance with Topic 815, we have been able to conclude that changes in fair value or cash flows attributable to
the risk being hedged are expected to completely offset at inception and on an ongoing basis. Accordingly, quarterly unrealized
gains or losses on the effective portion of these forward contracts have been included within other comprehensive income. The
fair value of the contracts, as of June 30, 2018, is recorded within "Accounts payable and accrued liabilities”.
As of June 30, 2018, the notional amount of forward contracts we held to sell U.S. dollars in exchange for Canadian
dollars was $47.1 million (June 30, 2017—$39.0 million).
Fair Value of Derivative Instruments and Effect of Derivative Instruments on Financial Performance
The effect of these derivative instruments on our Consolidated Financial Statements for the periods indicated below were
as follows (amounts presented do not include any income tax effects).
Fair Value of Derivative Instruments in the Consolidated Balance Sheets (see note 15 "Fair Value Measurement")
Derivatives
Foreign currency forward contracts designated as
cash flow hedges
Balance Sheet Location
Prepaid expenses and
other current assets
(Accounts payable and
accrued liabilities)
As of June 30, 2018
As of June 30, 2017
Fair Value
Asset (Liability)
Fair Value
Asset (Liability)
$
(1,319) $
1,174
Effects of Derivative Instruments on Income and Other Comprehensive Income (OCI)
Derivatives in Cash
Flow Hedging
Relationship
Foreign currency
forward contracts
Amount of Gain or
(Loss)
Recognized in OCI on
Derivatives
(Effective
Portion)
$
(647)
Year Ended June 30, 2018
Location of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
Operating
expenses
Location of
Gain or (Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
Amount of Gain or
(Loss) Recognized in
Income on
Derivatives
(Ineffective Portion
and Amount
Excluded
from Effectiveness
Testing)
Amount of Gain or
(Loss) Reclassified
from
Accumulated OCI
into
Income (Effective
Portion)
$
1,846
N/A
$
—
Year Ended June 30, 2017
Derivatives in Cash
Flow Hedging
Relationship
Foreign currency
forward contracts
Amount of Gain or
(Loss)
Recognized in OCI on
Derivatives
(Effective
Portion)
$
129
Location of
Gain or (Loss)
Reclassified
from
Accumulated
OCI into
Income
(Effective
Portion)
Operating
expenses
Location of
Gain or (Loss)
Recognized
in Income on
Derivatives
(Ineffective
Portion and
Amount
Excluded from
Effectiveness
Testing)
Amount of Gain or
(Loss) Recognized in
Income on
Derivatives
(Ineffective Portion
and Amount
Excluded
from Effectiveness
Testing)
Amount of Gain or
(Loss) Reclassified
from
Accumulated OCI
into
Income (Effective
Portion)
(253)
N/A
$
—
$
147
NOTE 17—SPECIAL CHARGES (RECOVERIES)
Special charges (recoveries) include costs and recoveries that relate to certain restructuring initiatives that we have
undertaken from time to time under our various restructuring plans, as well as acquisition-related costs and other charges.
Fiscal 2018 Restructuring Plan
Fiscal 2017 Restructuring Plan
Restructuring Plans prior to Fiscal 2017
Restructuring Plan
Acquisition-related costs
Other charges (recoveries)
Total
$
$
Fiscal 2018 Restructuring Plan
2018
2017
2016
Year Ended June 30,
$
10,154
7,207
279
4,805
6,766
— $
33,827
(340)
15,938
14,193
29,211
$
63,618
$
—
—
18,644
7,710
8,492
34,846
During Fiscal 2018 and in the context of our acquisitions of Covisint, Guidance and subsequently Hightail (each defined
below), we began to implement restructuring activities to streamline our operations (collectively referred to as the Fiscal 2018
Restructuring Plan). The Fiscal 2018 Restructuring Plan charges relate to workforce reductions and facility consolidations.
These charges require management to make certain judgments and estimates regarding the amount and timing of restructuring
charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments to the expense
and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses and revise our
assumptions and estimates as appropriate.
As of June 30, 2018, we expect total costs to be incurred in conjunction with the Fiscal 2018 Restructuring Plan to be
approximately $12.0 million, of which $10.2 million has already been recorded within "Special charges (recoveries)" to date.
A reconciliation of the beginning and ending liability for the year ended June 30, 2018 is shown below.
Fiscal 2018 Restructuring Plan
Balance payable as at June 30, 2017
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2018
Fiscal 2017 Restructuring Plan
Workforce
reduction
Facility costs
Total
$
$
— $
8,511
(8,845)
892
558
$
— $
1,643
(489)
11
1,165
$
—
10,154
(9,334)
903
1,723
During Fiscal 2017 and in the context of our acquisitions of Recommind, CCM Business and ECD Business (each as
defined below), we began to implement restructuring activities to streamline our operations (collectively referred to as the
Fiscal 2017 Restructuring Plan). The Fiscal 2017 Restructuring Plan charges relate to workforce reductions and facility
consolidations. These charges require management to make certain judgments and estimates regarding the amount and timing
of restructuring charges or recoveries. Our estimated liability could change subsequent to its recognition, requiring adjustments
to the expense and the liability recorded. On a quarterly basis, we conduct an evaluation of the related liabilities and expenses
and revise our assumptions and estimates as appropriate.
As of June 30, 2018, we expect total costs to be incurred in conjunction with the Fiscal 2017 Restructuring Plan to be
approximately $45.0 million, of which $41.0 million has already been recorded within "Special charges (recoveries)" to date.
148
A reconciliation of the beginning and ending liability for the year ended June 30, 2018 is shown below.
Fiscal 2017 Restructuring Plan
Balance payable as at June 30, 2016
Accruals and adjustments
Cash payments
Foreign exchange
Balance payable as at June 30, 2017
Accruals and adjustments
Cash payments
Foreign exchange and other non-cash adjustments
Balance payable as at June 30, 2018
Acquisition-related costs
Workforce
reduction
Facility costs
Total
— $
— $
31,595
(16,156)
(5,394)
10,045
3,432
(12,342)
455
1,590
$
$
2,232
(456)
(407)
1,369
3,775
(1,627)
(86)
3,431
$
$
—
33,827
(16,612)
(5,801)
11,414
7,207
(13,969)
369
5,021
$
$
$
Included within "Special charges (recoveries)" for the year ended June 30, 2018 are costs incurred directly in relation to
acquisitions in the amount of $4.8 million (year ended June 30, 2017 and 2016—$15.9 million and $7.7 million, respectively).
Other charges (recoveries)
ERP Implementation Costs
During Fiscal 2018, we implemented a broad enterprise resource planning (ERP) system.
For the year ended June 30, 2018, we recorded charges of $3.5 million relating to the implementation of this project (year
ended June 30, 2017 and 2016—$11.0 million and $8.5 million, respectively).
Other charges (recoveries)
For the year ended June 30, 2018, "Other charges" include $2.9 million relating to system implementation costs and $4.9
million relating to other miscellaneous charges. These charges were partially offset by (i) $2.3 million relating to certain pre-
acquisition sales and use tax liabilities that were recovered outside of the acquisition's one year measurement period and (ii)
$2.2 million relating to certain pre-acquisition sales and use tax liabilities becoming statute barred.
For the year ended June 30, 2017, "Other charges" primarily include (i) a net charge of $6.5 million relating to
commitment fees, (ii) $1.4 million relating to post-acquisition integration costs necessary to streamline an acquired company
into our operations and (iii) $0.8 million relating to assets disposed in connection with a restructured facility. These charges
were partially offset by (i) a recovery of $4.5 million relating to certain pre-acquisition sales and use tax liabilities being
released upon becoming statute barred and (ii) $1.3 million relating to a recovery on certain interest on pre-acquisition
liabilities becoming statute barred. The remaining amounts relate to miscellaneous other charges.
For the year ended June 30, 2016, "Other charges" primarily include (i) a charge of $4.8 million relating to post-
acquisition integration costs necessary to streamline an acquired company into our operations and costs incurred to reorganize
certain legal entities including consolidation of intellectual property, (ii) $1.1 million relating to assets disposed in connection
with a restructured facility and (iii) $0.3 million of other miscellaneous charges. These charges were offset by (i) a recovery of
$5.7 million relating to certain pre-acquisition sales and use tax liabilities being released upon settlement or becoming statute
barred, and (ii) a recovery of $0.5 million relating to interest and pre-acquisition liabilities being released on becoming statute
barred.
NOTE 18—ACQUISITIONS
Fiscal 2018 Acquisitions
Acquisition of Hightail, Inc.
On February 14, 2018, we acquired all of the equity interest in Hightail, a leading cloud service provider for file sharing
and creative collaboration, for approximately $20.5 million. In accordance with Topic 805, this acquisition was accounted for
as a business combination. We believe this acquisition complements and extends our Enterprise Information Management
(EIM) portfolio.
149
The results of operations of this acquisition have been consolidated with those of OpenText beginning February 14, 2018.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as
of February 14, 2018, are set forth below:
Current assets
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
1,290
1,270
12,900
4,200
(6,418)
13,242
7,293
20,535
The goodwill of $7.3 million is primarily attributable to the synergies expected to arise after the acquisition. No portion of
this goodwill is expected to be deductible for tax purposes.
Included in total identifiable net assets is acquired deferred revenue with a fair value of $5.2 million, which represents our
estimate of the fair value of the contractual obligations assumed based on a preliminary valuation. In arriving at this fair value,
we reduced the acquired company’s original carrying value by $2.0 million.
The fair value of current assets acquired includes accounts receivable with a fair value of $0.7 million. The gross amount
receivable was $0.8 million of which $0.1 million of this receivable is expected to be uncollectible.
Acquisition-related costs for Hightail included in "Special charges (recoveries)" in the Consolidated Financial Statements
for the year ended June 30, 2018 was $0.5 million.
The acquisition had no significant impact on revenues and net earnings for the year ended June 30, 2018 since the date of
acquisition.
Pro forma results of operations for this acquisition have not been presented because they are not material to the
consolidated results of operations.
The finalization of the purchase price allocation is pending the finalization of the valuation of fair value for assets
acquired and liabilities assumed, including tax balances. We expect to finalize this determination on or before December 31,
2018.
Acquisition of Guidance Software, Inc.
On September 14, 2017, we acquired all of the equity interest in Guidance, a leading provider of forensic security
solutions, for approximately $240.5 million. In accordance with Topic 805, this acquisition was accounted for as a business
combination. We believe this acquisition complements and extends our EIM portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning September 14,
2017.
The following tables summarize the preliminary consideration paid for Guidance and the amount of the assets acquired
and liabilities assumed, as well as the goodwill recorded as of the acquisition date:
Cash consideration*
Guidance shares already owned by OpenText through open market purchases (at fair value)
Preliminary purchase consideration
$
$
237,291
3,247
240,538
* Inclusive of $2.3 million accrued for but unpaid as of June 30, 2018. See "Appraisal Proceedings" below for more
information.
Preliminary Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their preliminary fair values as
of September 14, 2017, are set forth below:
150
Current assets (inclusive of cash acquired of $5.7 million)
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
24,744
11,583
71,230
51,851
(48,670)
110,738
129,800
240,538
The goodwill of $129.8 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, approximately $1.9 million is expected to be deductible for tax purposes.
Included in total identifiable net assets is acquired deferred revenue with a fair value of $26.6 million, which represents
our estimate of the fair value of the contractual obligations assumed based on a preliminary valuation. In arriving at this fair
value, we reduced the acquired company’s original carrying value by $7.6 million.
The fair value of current assets acquired includes accounts receivable with a fair value of $10.3 million. The gross amount
receivable was $11.8 million of which $1.5 million of this receivable is expected to be uncollectible.
An amount of $0.8 million, representing the mark to market gain on the shares we held in Guidance prior to the
acquisition, was recorded to "Other income" in our Consolidated Statements of Income for the year ended June 30, 2018.
Acquisition-related costs for Guidance included in "Special charges (recoveries)" in the Consolidated Financial
Statements for the year ended June 30, 2018 were $2.6 million.
The acquisition had no significant impact on revenues and net earnings for the year ended June 30, 2018 since the date of
acquisition.
Pro forma results of operations for this acquisition have not been presented because they are not material to the
consolidated results of operations.
The finalization of the purchase price allocation is pending the finalization of the valuation of fair value for assets
acquired and liabilities assumed, including tax balances. We expect to finalize this determination before September 30, 2018.
Appraisal Proceedings
Under Section 262 of the Delaware General Corporation Law, shareholders who did not tender their shares in connection
with our tender offer were entitled to have their shares appraised by the Delaware Court of Chancery and receive payment of
the “fair value” of such shares. On August 31, 2017 we received notice from the record holder of approximately 1,519,569
shares or 5% of the issued and outstanding Guidance shares as of the date of acquisition, demanding an appraisal of the fair
value of Guidance shares as they believed the price we paid for Guidance shares was less than its fair value. We accrued $10.8
million in connection with these claims, which is equivalent to paying $7.10 per Guidance share, the amount these Guidance
shareholders otherwise would have received had they tendered their shares in our offer. During the second quarter of Fiscal
2018, we paid $8.5 million to the trust account of dissenting shareholders’ attorney, leaving $2.3 million accrued and unpaid for
this matter. The amount accrued has been included within "Accounts payable and accrued liabilities" in the Consolidated
Balance Sheets, with no impact to our Consolidated Statements of Income provided the courts rule within the open
measurement period of 12 months from acquisition date.
Acquisition of Covisint Corporation
On July 26, 2017, we acquired all of the equity interest in Covisint, a leading cloud platform for building Identity,
Automotive, and Internet of Things applications, for approximately $102.8 million. In accordance with Topic 805, this
acquisition was accounted for as a business combination. We believe this acquisition complements and extends our EIM
portfolio.
The results of operations of this acquisition have been consolidated with those of OpenText beginning July 26, 2017.
151
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 26, 2017,
are set forth below:
Current assets (inclusive of cash acquired of $31.5 million)
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
41,586
3,426
36,600
17,300
(23,033)
75,879
26,905
102,784
The goodwill of $26.9 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, approximately $26.8 million is expected to be deductible for tax purposes.
Included in total identifiable net assets is acquired deferred revenue with a fair value of $12.2 million, which represents
our estimate of the fair value of the contractual obligations assumed based on a preliminary valuation. In arriving at this fair
value, we reduced the acquired company’s original carrying value by $4.6 million.
The fair value of current assets acquired includes accounts receivable with a fair value of $7.8 million. The gross amount
receivable was $7.9 million of which $0.1 million of this receivable was expected to be uncollectible.
Acquisition-related costs for Covisint included in "Special charges (recoveries)" in the Consolidated Financial Statements
for the year ended June 30, 2018 were $0.9 million.
The acquisition had no significant impact on revenues and net earnings for the year ended June 30, 2018 since the date of
acquisition.
Pro forma results of operations for this acquisition have not been presented because they are not material to the
consolidated results of operations.
Fiscal 2017 Acquisitions
Purchase of an Asset Group Constituting a Business - ECD Business
On January 23, 2017, we acquired certain assets and assumed certain liabilities of the enterprise content division of EMC
Corporation, a Massachusetts corporation, and certain of its subsidiaries, collectively referred to as Dell-EMC (ECD Business)
for approximately $1.62 billion. In accordance with Topic 805, this acquisition was accounted for as a business combination.
ECD Business offers OpenText a suite of leading Enterprise Content Management solutions with deep industry focus, including
the DocumentumTM, InfoArchiveTM, and LEAPTM product families. We believe this acquisition complements and extends our
EIM portfolio.
The results of operations of this acquisition were consolidated with those of OpenText beginning January 23, 2017.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of January
23, 2017, are set forth below:
Current assets
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
11,339
103,672
407,000
459,000
(182,301)
798,710
823,684
1,622,394
The goodwill of $823.7 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, approximately $378.5 million is expected to be deductible for tax purposes.
152
Included in total identifiable net assets is acquired deferred revenue with a fair value of $163.8 million, which represents
our estimate of the fair value of the contractual obligations assumed. In arriving at this fair value, we reduced the acquired
company’s original carrying value by $52.0 million.
Further, included within total identifiable net assets are also certain contract assets which represent revenue earned by
the ECD Business on long-term projects for which billings had not yet occurred as of January 23, 2017. As these long-term
projects have now been inherited by OpenText, we are responsible for billing and collecting cash on these projects at the
appropriate time, yet we do not and will not recognize revenue for these billings. The fair value assigned to these contract
assets as of January 23, 2017 was $8.4 million.
Purchase of an Asset Group Constituting a Business - CCM Business
On July 31, 2016, we acquired certain customer communications management software and services assets and liabilities
from HP Inc. (CCM Business) for approximately $315.0 million. In accordance with Topic 805, this acquisition was accounted
for as a business combination. We believe this acquisition complements our current software portfolio, and allows us to better
serve our customers by offering a wider set of CCM capabilities.
The results of operations of this acquisition were consolidated with those of OpenText beginning July 31, 2016.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 31, 2016,
are set forth below:
Current assets
Non-current deferred tax asset
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
683
11,861
2,348
64,000
101,000
(38,090)
141,802
173,198
315,000
The goodwill of $173.2 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, approximately $105.1 million is expected to be deductible for tax purposes.
Acquisition of Recommind, Inc.
On July 20, 2016, we acquired all of the equity interest in Recommind, Inc. (Recommind), a leading provider of
eDiscovery and information analytics, for approximately $170.1 million. In accordance with Topic 805, this acquisition was
accounted for as a business combination. We believe this acquisition complements our EIM solutions, and through eDiscovery
and analytics, provides increased visibility into structured and unstructured data.
The results of operations of Recommind, were consolidated with those of OpenText beginning July 20, 2016.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of July 20,
2016, are set forth below:
Current assets
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Long-term deferred tax liabilities
Other liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
153
$
$
30,034
1,245
51,900
24,800
(1,780)
(27,497)
78,702
91,405
170,107
The goodwill of $91.4 million is primarily attributable to the synergies expected to arise after the acquisition. No portion
of this goodwill is expected to be deductible for tax purposes.
The fair value of current assets acquired includes accounts receivable with a fair value of $28.7 million. The gross amount
receivable was $29.6 million of which $0.9 million of this receivable was expected to be uncollectible.
Fiscal 2016 Acquisitions
Acquisition of ANXe Business Corporation
On May 1, 2016, we acquired all of the equity interest in ANXe Business Corporation (ANX), a leading provider of
cloud-based information exchange services to the automotive and healthcare industries, for approximately $104.4 million. In
accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition
strengthens our industry presence and reach in the automotive and healthcare industries through strong customer relationships
and targeted business partner collaboration solutions.
The results of operations of ANX were consolidated with those of OpenText beginning May 1, 2016.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of May 1,
2016, are set forth below:
Current assets
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
$
$
9,712
511
49,700
5,600
(26,204)
39,319
65,108
104,427
The goodwill of $65.1 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, approximately $7.0 million is expected to be deductible for tax purposes.
The fair value of current assets acquired includes accounts receivable with a fair value of $5.7 million. The gross amount
receivable was $5.8 million of which $0.1 million of this receivable was expected to be uncollectible.
Purchase of an Asset Group Constituting a Business - CEM Business
On April 30, 2016, we acquired certain customer experience software and services assets and liabilities from HP Inc.
(CEM Business) for approximately $160.0 million. Previously, $7.3 million was held back and unpaid in accordance with the
terms of the purchase agreement. This amount was released and paid during the quarter ended September 30, 2016. In
accordance with Topic 805, this acquisition was accounted for as a business combination. We believe this acquisition
complements our current software portfolio, particularly our Customer Experience Management and Cloud offerings.
The results of operations of this acquisition were consolidated with those of OpenText beginning April 30, 2016.
Purchase Price Allocation
The recognized amounts of identifiable assets acquired and liabilities assumed, based upon their fair values as of
April 30, 2016, are set forth below:
Current assets
Non-current tangible assets
Intangible customer assets
Intangible technology assets
Liabilities assumed
Total identifiable net assets
Goodwill
Net assets acquired
154
$
$
3,078
14,302
33,000
47,000
(24,887)
72,493
87,507
160,000
The goodwill of $87.5 million is primarily attributable to the synergies expected to arise after the acquisition. Of this
goodwill, approximately $31.8 million is expected to be deductible for tax purposes.
Acquisition of Daegis Inc.
On November 23, 2015, we acquired all of the equity interest in Daegis Inc. (Daegis), a global information governance,
data migration solutions and development company, based in Texas, United States. Total consideration for Daegis was $23.3
million ($22.1 million - net of cash acquired). In accordance with Topic 805, this acquisition was accounted for as a business
combination. We believe this acquisition enables OpenText to strengthen our current information governance capabilities.
We recognized $8.0 million of goodwill associated with this acquisition, which is primarily attributable to the synergies
that are expected to arise after the acquisition. This goodwill is expected to be deductible for tax purposes.
Acquisition-related costs for Daegis included in "Special charges (recoveries)" in the Consolidated Statements of Income
for the year ended June 30, 2016 was $1.1 million.
The results of operations of Daegis were consolidated with those of OpenText beginning November 23, 2015.
NOTE 19—SEGMENT INFORMATION
ASC Topic 280, “Segment Reporting” (Topic 280), establishes standards for reporting, by public business enterprises,
information about operating segments, products and services, geographic areas, and major customers. The method of
determining what information, under Topic 280, to report is based on the way that an entity organizes operating segments for
making operational decisions and how the entity’s management and chief operating decision maker (CODM) assess an entity’s
financial performance. Our operations are analyzed by management and our CODM as being part of a single industry segment:
the design, development, marketing and sales of Enterprise Information Management software and solutions.
The following table sets forth the distribution of revenues, by significant geographic area, for the periods indicated:
Revenues:
Canada
United States
United Kingdom
Germany
Rest of Europe
All other countries
Total revenues
2018
2017
2016
Year Ended June 30,
$
$
149,812
1,425,244
201,821
198,253
517,693
322,418
2,815,241
$
$
227,115
1,090,049
159,817
166,611
394,132
253,333
2,291,057
$
$
107,217
915,615
185,631
155,201
270,114
190,450
1,824,228
The following table sets forth the distribution of long-lived assets, representing property and equipment and intangible
assets, by significant geographic area, as of the periods indicated below.
Long-lived assets:
Canada
United States
United Kingdom
Germany
Rest of Europe
All other countries
Total
As of June 30,
2018
As of June 30,
2017
$
$
1,027,858
441,940
13,253
8,282
17,104
52,405
1,560,842
$
$
1,283,589
339,246
11,583
6,694
21,360
37,488
1,699,960
155
NOTE 20—SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for interest
Cash received during the period for interest
Cash paid during the period for income taxes
$
$
$
132,799
1,672
73,437
$
$
$
115,117
3,115
83,086
$
$
$
72,058
3,659
40,431
Year Ended June 30,
2018
2017
2016
NOTE 21—EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income, attributable to OpenText, by the weighted average number
of Common Shares outstanding during the period. Diluted earnings per share are computed by dividing net income, attributable
to OpenText, by the shares used in the calculation of basic earnings per share plus the dilutive effect of Common Share
equivalents, such as stock options, using the treasury stock method. Common Share equivalents are excluded from the
computation of diluted earnings per share if their effect is anti-dilutive.
Basic earnings per share
Net income attributable to OpenText
Basic earnings per share attributable to OpenText
Diluted earnings per share
Net income attributable to OpenText
Diluted earnings per share attributable to OpenText
Weighted-average number of shares outstanding
Basic
Effect of dilutive securities
$
$
$
$
Diluted
Excluded as anti-dilutive(2)
Year Ended June 30,
2018
2017
2016
242,224
0.91
242,224
0.91
266,085
1,407
267,492
2,770
$
$
$
$
1,025,659 (1) $
$
4.04
1,025,659 (1) $
4.01
$
253,879
1,926
255,805
1,371
284,477
1.17
284,477
1.17
242,926
1,150
244,076
5,458
(1) Please also see note 14 "Income Taxes" for details relating to a one-time tax benefit of $876.1 million recorded during the
three months ended September 30, 2016 in connection with an internal reorganization of our subsidiaries.
(2) Represents options to purchase Common Shares excluded from the calculation of diluted earnings per share because the
exercise price of the stock options was greater than or equal to the average price of the Common Shares during the period.
NOTE 22—RELATED PARTY TRANSACTIONS
Our procedure regarding the approval of any related party transaction requires that the material facts of such transaction
be reviewed by the independent members of the Audit Committee and the transaction be approved by a majority of the
independent members of the Audit Committee. The Audit Committee reviews all transactions in which we are, or will be, a
participant and any related party has or will have a direct or indirect interest in the transaction. In determining whether to
approve a related party transaction, the Audit Committee generally takes into account, among other facts it deems appropriate,
whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same
or similar circumstances; the extent and nature of the related person’s interest in the transaction; the benefits to the Company of
the proposed transaction; if applicable, the effects on a director’s independence; and if applicable, the availability of other
sources of comparable services or products.
During the year ended June 30, 2018, Mr. Stephen Sadler, a director, earned $0.8 million (June 30, 2017 and June 30,
2016—$0.8 million, respectively) in consulting fees from OpenText for assistance with acquisition-related business activities.
Mr. Sadler abstained from voting on all transactions from which he would potentially derive consulting fees.
156
NOTE 23—SUBSEQUENT EVENTS
Cash Dividends
As part of our quarterly, non-cumulative cash dividend program, we declared, on August 1, 2018, a dividend of $0.1518
per Common Share. The record date for this dividend is August 31, 2018 and the payment date is September 21, 2018. Future
declarations of dividends and the establishment of future record and payment dates are subject to the final determination and
discretion of our Board.
Restructuring Plan
On August 1, 2018, we committed to, and our Board approved, a restructuring plan that will impact our global workforce
and consolidate certain real estate facilities in an effort to further streamline our operations. The total size of the plan is
expected to be approximately $29 million and is proposed to be undertaken primarily during the remainder of the year ending
June 30, 2019. We expect to incur charges related to this plan in the following amounts:
• Workforce reductions: approximately $15 million; and
• Facility consolidations: approximately $14 million.
Item 16.
Form 10-K Summary
None.
157
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
OPEN TEXT CORPORATION
Date: August 2, 2018
By:
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
Vice Chairman, Chief Executive Officer and Chief Technology Officer
(Principal Executive Officer)
/s/ MADHU RANGANATHAN
Madhu Ranganathan
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ ADITYA MAHESHWARI
Aditya Maheshwari
Senior Vice President and Chief Accounting Officer
(Principal Accounting Officer)
158
DIRECTORS
Signature
Title
Date
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
/S/ P. THOMAS JENKINS
P. Thomas Jenkins
/S/ RANDY FOWLIE
Randy Fowlie
/S/ GAIL E. HAMILTON
Gail E. Hamilton
/S/ BRIAN J. JACKMAN
Brian J. Jackman
/S/ DEBORAH WEINSTEIN
Deborah Weinstein
/S/ STEPHEN J. SADLER
Stephen J. Sadler
/S/ MICHAEL SLAUNWHITE
Michael Slaunwhite
/S/ KATHARINE B. STEVENSON
Katharine B. Stevenson
/S/ CARL JÜRGEN TINGGREN
Carl Jürgen Tinggren
Vice Chairman, Chief Executive Officer
and Chief Technology Officer
(Principal Executive Officer)
August 2, 2018
Chairman of the Board
August 2, 2018
Director
August 2, 2018
Director
August 2, 2018
Director
August 2, 2018
Director
August 2, 2018
Director
August 2, 2018
Director
August 2, 2018
Director
August 2, 2018
Director
August 2, 2018
159
Exhibit 10.31
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of October 1, 2017, (including any schedules hereto the
“Agreement”), among Open Text Corporation, a corporation incorporated under the laws of Canada (the
“Parent Corporation”), Open Text Inc., a wholly-owned subsidiary of the Parent Corporation incorporated
under the laws of the State of Delaware (the “Corporation”), and Ted Harrison (the “Executive”).
WHEREAS, the Corporation and the Executive mutually desire that the Executive serves the
Corporation as EVP, World Wide Sales of the Corporation on the terms and conditions set forth herein and
the parties hereto shall contemporaneously execute the Restrictive Covenants Agreement (as defined below)
set forth in Schedule “C”.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein and for
other good and valuable consideration, the parties agree as follows:
1. Position and Duties
(a)
The Corporation hereby agrees to employ the Executive to act as EVP, World Wide
Sales and the Executive hereby accepts such position and agrees to serve the Corporation in such capacity
during the Term, as defined in Section 3 hereof. The Executive shall have such duties and responsibilities
as are consistent with the Executive’s position as set forth herein and as may be assigned by the Corporation
from time to time in accordance with the terms hereof. The Executive shall be subject to, and shall act in
accordance with, all reasonable instructions and directions of the Chief Executive Officer and Chief
Technology Officer of the Corporation (the “Reporting Manager”) and all policies and rules of the Corporation
and the Parent Corporation applicable to executive officers.
(b)
During the Term, excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive shall devote his full working time, energy and attention to the performance
of his duties and responsibilities hereunder and shall diligently endeavor to promote the business and best
interests of the Corporation. Notwithstanding the foregoing, to the extent that it does not interfere with the
performance of Executive’s duties hereunder, Executive may (i) with the prior consent of the Reporting
Manager, serve on the board of directors or equivalent body of up to one other company that is not a competitor
of the Corporation or the Parent Corporation; (ii) serve on the boards of directors or equivalent bodies of
trade associations and/or charitable organizations; (iii) engage in charitable activities and community affairs;
and (iv) manage his personal, financial and legal affairs.
2. Compensation
(a)
Base Salary
As compensation for the agreements made by the Executive herein and the performance by
the Executive of his obligations hereunder, during the Term, the Corporation shall pay the Executive a base
salary at the rate of US$400,000 per annum (the “Base Salary”), payable in accordance with the Corporation’s
payroll practice as in effect from time to time, except to the extent that the Executive has previously elected
to defer the receipt of such Base Salary pursuant to an arrangement that meets the requirements of Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”).
(b)
Variable Compensation
In addition to the Base Salary, with respect to each fiscal year of the Parent Corporation during
the Term, the Executive shall be eligible to earn a bonus (the “Variable Compensation”), with an annual
target amount of US$400,000 (the “Target Bonus”), paid per the incentive plan as issued each fiscal year
and based on the achievement of performance objectives established by the Parent Corporation, subject to
the Executive’s employment with the Corporation through the applicable payment date for any such Variable
Compensation. Notwithstanding anything to the contrary herein, the Variable Compensation shall be paid
in accordance with the Corporation’s normal payment practice, except to the extent that the Executive has
previously elected to defer the receipt of such Variable Compensation pursuant to an arrangement that meets
the requirements of Section 409A of the Code.
(c)
Long Term Compensation
During the Term, the Executive will be eligible to participate in all Long Term Incentive
Programs (“LTIP”) as and when approved by the Compensation Committee of the Board (the “Compensation
Committee”). The value of LTIP is generally determined at the beginning of the LTIP term (typically three
years). The value target to be used for the three (3) year term and the specified mix of PSUs, RSUs and/or
stock options of each LTIP Plan shall be determined by the Board. The target value for the Executive in
respect of the LTIP 2021 Plan (for the performance period commencing July 2018 and ending September 15
2021) shall be US$400,000. All LTIP ranges are subject to the approval of the Board.
(d)
Equity Plans
The Corporation shall permit the Executive to participate in any share option plan, share
purchase plan or similar plan offered by the Parent Corporation from time to time to its similarly situated
executive officers in the manner and to the extent authorized by the Compensation Committee.
(e)
Stock Ownership
The Executive agrees to comply with the Equity Ownership Guidelines as set out in accordance
with Schedule “A.”
(f)
Reimbursement of Expenses
During the Term, the Corporation shall reimburse the Executive for all business expenses
incurred by the Executive in performing his duties and responsibilities under this Agreement (“Business
Expenses”), in accordance and to the extent consistent with the Corporation’s policies or practices for
reimbursement of business expenses incurred by other Corporation executive officers.
(g)
Other Benefits
During the Term, for so long as the Executive meets the eligibility requirements of the
applicable plan, practice, policy or program, and except as specifically provided herein: (i) the Executive
shall be entitled to participate in all savings and retirement plans, practices, policies and programs of the
Parent Corporation which are made available generally to similar situated executive officers of the
Corporation; (ii) the Executive and/or the Executive’s family, as the case may be, shall be entitled to participate
in, and shall receive all benefits under, all perquisite and welfare benefit plans, practices, policies and programs
(including the Parent Corporation’s health insurance and disability plans) provided by the Parent Corporation
which are made available to similarly situated executive officers of the Corporation (for the avoidance of
doubt, such plans, practices, policies or programs shall not include any plan, practice, policy or program
which provides benefits in the nature of severance or continuation pay), including those benefits set forth in
Schedule “B”, as amended from time to time; and (iii) the Executive shall be entitled to 20 days paid vacation
per fiscal year of the Parent Corporation at a time approved in advance by the Reporting Manager, which
approval shall not be unreasonably withheld but shall take into account the staffing requirements of the
Corporation and Parent Corporation and the need for the timely performance of the Executive’s
responsibilities, subject to the Corporation’s policy respecting same in effect from time to time.
(h)
Annual Compensation Review
Other than as herein provided, there shall be no cost-of-living increase or merit increase in
the Base Salary or increases in any bonuses payable to the Executive unless approved by the Board or the
Compensation Committee. The Board and Compensation Committee shall review annually the Base Salary
and all other compensation to be received by the Executive under this Agreement.
3. Term
The Executive shall serve, pursuant to this Agreement, as EVP World Wide Sales commencing
on October 1 (the “Effective Date”) and expiring on the first anniversary of the Effective Date (such period,
the “Term”); provided that, on the first anniversary of the Effective Date and on each anniversary thereafter,
the Term shall be extended automatically for an additional one-year period unless either party provides the
other party with notice of non-renewal at least three (3) months before any such anniversary. Notwithstanding
the foregoing, the Executive’s employment hereunder may be terminated prior to the end of the Term upon
his “Separation from Service” with the Corporation (as hereinafter defined) in connection with the earliest
to occur of any of the events described in Section 4 hereof, in which case the Term shall be terminated as of
the date of the Executive’s Separation from Service. For purposes of this Agreement, the Executive’s
Separation from Service shall be deemed to occur when the level of services performed by the Executive for
the Corporation decreases to a level equal to 20% or less of the average level of services performed by the
Executive for the Corporation during the immediately preceding 36-month period (or, if shorter, during the
period from the Effective Date to the date of the relevant determination) and Executive’s employment with
the Corporation terminates (within the meaning of Treas. Regs. Section 1.409A-1(h)(ii)), and the date of the
Executive’s Separation from Service (the “Date of Separation from Service”) shall be the date determined
in accordance with Sections 5(b) and (as applicable) 5(c) hereof.
4. Separation from Service
(a)
Death
The Executive shall separate from service with the Corporation, and the Term shall terminate,
upon the Executive’s death.
(b)
Disability
The Corporation shall be entitled to terminate the Executive’s employment for “Disability,”
and the Executive shall separate from service with the Corporation, if, as a result of the Executive’s incapacity
due to physical or mental illness or injury, the Executive (i) shall become eligible to receive a benefit under
the Corporation’s long-term disability plan applicable to the Executive, or (ii) has been unable, due to physical
or mental illness or incapacity, to perform the essential duties of his employment with reasonable
accommodation for a continuous period of one hundred twenty (120) days or, during any period of twelve
(12) consecutive months during the Term, an aggregate of one hundred-eighty (180) days, whether consecutive
or not.
(c)
Cause
The Corporation may terminate the Executive’s employment for Cause, and upon such
termination the Executive shall separate from service with the Corporation. For purposes of this Agreement,
the term “Cause” shall mean, when used in connection with the Executive’s Separation from Service with
the Corporation: (i) the Executive’s failure to attempt in good faith to perform his duties (other than as a
result of physical or mental illness or injury); (ii) the Executive’s willful misconduct or gross negligence of
a material nature in connection with the performance of his duties as an employee, which is or could reasonably
be expected to be injurious to the Corporation, or any of its Affiliates (as defined below) (whether financially,
reputationally or otherwise); (iii) a breach by the Executive of the Executive’s fiduciary duty or duty of
loyalty to the Corporation or its Affiliates; (iv) except in connection with the Executive’s good faith
performance of duties, the Executive’s intentional and unauthorized removal, use or disclosure of the
Corporation’s or any Affiliate’s document (in any medium or form) relating to the Corporation or an Affiliate,
or the customers of the Corporation or an Affiliate thereof and which may be injurious to the Corporation,
its customers or their respective Affiliates; (v) the willful performance by the Executive of any act or acts of
dishonesty in connection with or relating to the Corporation’s or its Affiliates’ business or the willful
misappropriation (or willful attempted misappropriation) of any of the Corporation’s or any of its Affiliates’
funds or property; (vi) the indictment of the Executive or a plea of guilty or nolo contendere by the Executive
to any felony or other serious crime involving moral turpitude; (vii) a material breach of any of the Executive’s
obligations under any agreement entered into between the Executive and the Corporation or any of its Affiliates
that is material to the employment relationship between Corporation or any of its Affiliates and the Executive,
including without limitation, this Agreement; or (viii) a material breach of the policies or procedures of the
Corporation or any of its Affiliates, which breach causes or could reasonably be expected to cause harm to
the Corporation or its business reputation; provided that, with respect to the events in clauses (i), (ii), (iv) or
(vii) herein, the Corporation shall have delivered written notice to the Executive of its intention to terminate
the Executive’s employment for Cause, which notice specifies in reasonable detail the circumstances claimed
to give rise to the Corporation’s right to terminate the Executive’s employment for Cause and the Executive
shall not have cured such circumstances as determined by the Board in good faith, to the extent such
circumstances are reasonably susceptible to cure as determined by the Board in good faith, within thirty (30)
days following the Corporation’s delivery of such notice. For purposes of this Agreement, “Affiliate” means,
with respect to any person, any other person that directly or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the person specified. For the purposes of this
definition and this Agreement, the term “Control” means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a person, whether through the ownership of
voting securities, by contract or otherwise.
Corporation Termination Other than for Cause and Executive Voluntary
(d)
Termination (Other Than for Good Reason)
The Corporation may terminate the employment of the Executive for any reason other than
for Cause, notwithstanding any other provision of this Agreement, upon compliance with the terms of Section
6(a) hereof. The Executive may voluntarily terminate his employment, other than for Good Reason, provided
that the Executive provides the Corporation with notice of his intent to terminate his employment at least
ninety (90) days in advance of the Date of Separation from Service (as defined below). Upon such termination,
in each case, the Executive shall separate from service with the Corporation. In the event of non-renewal
of this Agreement by the Corporation in accordance with Section 3 hereof, the Corporation shall comply
with the terms of Section 6(a) hereof.
(e)
Good Reason
The Executive may terminate his employment and separate from service with the Corporation
for Good Reason. For purposes of this Agreement, the term “Good Reason” shall mean, when used in
connection with the Executive’s Separation from Service with the Corporation, unless the Executive shall
have consented in writing thereto, (i) a material diminution in the Executive’s duties and responsibilities
other than a change in such Executive’s duties and responsibilities that arises solely out of (a) the Parent
Corporation becoming part of a larger organization following a Change in Control or any change in the
reporting hierarchy incident thereto or (b) a reorganization of the Parent Corporation resulting in a similar
change to similarly situated executive officers’ duties and responsibilities; (ii) a material reduction in the
Executive’s Base Salary or Target Bonus, unless a proportional reduction in base salary or target bonus, as
applicable, is also applicable to similarly situated executive officers; (iii) a relocation of the Executive’s
primary work location more than fifty (50) miles from the Executive’s work location on the Effective Date;
or (iv) a reduction in the Executive’s title or position with the Corporation other than a change in such
Executive’s title or position that arises solely out of (a) the Parent Corporation becoming part of a larger
organization following a Change in Control or any change in the reporting hierarchy incident thereto or (b)
a reorganization of the Parent Corporation resulting in a similar change to similarly situated executive officers’
title or position; provided, that in each case, within thirty (30) days following the occurrence of any of the
events set forth herein, the Executive shall have delivered written notice to the Corporation of his intention
to terminate his employment for Good Reason, which notice specifies in reasonable detail the circumstances
claimed to give rise to the Executive’s right to terminate employment for Good Reason, the Corporation shall
not have cured such circumstances within thirty (30) days following the Corporation’s receipt of such notice,
and the Executive’s Separation from Service with the Corporation shall have occurred within sixty (60) days
following such failure to cure.
5. Procedure for Separation from Service
(a)
Notice of Separation from Service. Any separation of the Executive from service with
the Corporation (other than a separation from service on account of the death of Executive) shall be
communicated by written “Notice of Separation from Service” to the other party hereto in accordance
with Section 14(a) hereof.
(b)
Date of Separation from Service. The Date of Separation from Service shall mean: (i)
if the Separation from Service occurs due to the Executive’s death, the date of the Executive’s death; (ii) if
the Separation from Service occurs due to a termination by the Corporation pursuant to Section 4(b), the
date on which the Executive receives a Notice of Separation from Service from the Corporation; (iii) if the
Separation from Service occurs due to the Executive’s voluntary termination without Good Reason, the date
specified in the notice given pursuant to Section 4(d) hereof, which shall not be less than ninety (90) days
after the Notice of Separation from Service; (iv) if the Separation from Service occurs due to the Executive’s
termination with Good Reason, the date of his termination in accordance with Section 4(e) hereof; and (v)
if the Separation from Service occurs for any other reason, the date on which a Notice of Separation from
Service is given or any later date (within thirty (30) days, or any alternative time period agreed upon by the
parties, after the giving of such notice) set forth in such Notice of Separation from Service.
(c)
Section 409A of the Code. Notwithstanding anything to the contrary in Section 5(b),
the determination of whether and when the Date of Separation from Service from the Corporation occurs for
the purpose of determining when any amount that is “nonqualified deferred compensation” subject to Section
409A of the Code becomes due and payable shall be made in a manner consistent with, and based on the
presumptions set forth in, Treas. Regs. Section 1.409A-1(h). Solely for purposes of the determination referred
to in the preceding sentence, “Corporation” shall include all persons with whom the Corporation would be
considered a single employer under Sections 414(b) and 414(c) of the Code. In the event that the Date of
Separation from Service as determined in accordance with this Section 5(c) occurs before the notice period
specified in Section 5(b) has elapsed, the Corporation may elect to pay, or commence payment of, any amounts
to which this Section 5(c) applies following the completion of such notice period, but not later than December
31 of the calendar year in which the Date of Separation from Service occurs.
6. Separation Payments
(a)
Other than for Cause or for Good Reason
In the event of the Executive’s Separation from Service due to termination by the Corporation
other than for Cause (including a Separation from Service as a result of Disability but not death) or by the
Executive for Good Reason, subject to (in respect of clauses (ii) through (iv)) the Executive’s continued
compliance with Section 6(h) below, Section 20 below and the Restrictive Covenants Agreement described
in Section 10 below, the Corporation shall pay to the Executive the amounts described below at the times
specified below, and, except for (x) the Executive’s rights of indemnification and insurance provided in
Section 9 hereof and (y) any vested benefits under any tax-qualified pension plans of the Corporation, the
Corporation shall have no additional obligations under this Agreement:
(i) Accrued Payments. Within thirty (30) days following the Date of Separation from
Service, (w) any Base Salary earned by the Executive but not paid through the Date of Separation from
Service (reduced by any amounts that the Executive received in connection with benefits paid or payable as
a result of Disability, if applicable); (x) any Variable Compensation earned by the Executive for the fiscal
year prior to the year in which the Date of Separation from Service has occurred but not yet paid prior to the
Date of Separation from Service (except that, with respect to (w) and (x), to the extent that the Executive
has previously elected to defer the receipt of such Base Salary or Variable Compensation pursuant to an
arrangement that meets the requirements of Section 409A of the Code, the timing of the payment of such
Base Salary or Variable Compensation shall be in accordance with the terms of such arrangement); (y) the
Executive’s accrued but unused vacation pay through the Date of Separation from Service; and (z) any
Business Expenses not reimbursed as of the Date of Separation from Service (the amounts described in (w)
through (z), together, the “Accrued Payments”);
(ii) Separation Payments. In respect of each month during the 12 month period
measured from the day of the Executive’s Date of Separation from Service (the “Severance Period”), (x) an
amount equal to one-twelfth of the Base Salary as in effect for the year in which the Date of Separation from
Service occurs shall be paid in equal installments in accordance with the Corporation’s standard payroll
practices (reduced by any amounts received by and/or payable to Executive in connection with benefits paid
or payable as a result of Disability, if applicable) (the “Salary Continuation Payments”); and (y) an amount
equal to one-twelfth of the Target Bonus as in effect for the year in which the Date of Separation from Service
occurs shall be paid once a month (together with the Salary Continuation Payments, the “Separation
Payments”);
(iii) Pro Rata Bonus. At the time that Variable Compensation for the Parent
Corporation’s fiscal year in which the Date of Separation from Service occurred would otherwise be paid
(but in no event later than the 15th day of the third month following the close of such fiscal year), an amount
equal to the product of (i) the Target Bonus for such fiscal year that the Executive would have received had
the Executive remained employed with the Corporation and (ii) a fraction, the numerator of which is the
number of full weeks the Executive was employed with the Corporation in such fiscal year and the
denominator of which is fifty-two (the “Pro Rata Bonus”); provided that, to the extent that the Executive has
previously elected to defer the receipt of such bonus pursuant to an arrangement that meets the requirements
of Section 409A of the Code, the timing of the payment of the Pro Rata Bonus shall be in accordance with
the terms of such arrangement; and
(iv) Continued Group Medical Benefits. The Executive’s ability to participate in the
medical plan of the Corporation shall continue only through the Date of Separation from Service. If the
Executive elects to continue his health and dental insurance coverage pursuant to COBRA, the Corporation
shall reimburse the Executive for the COBRA premiums for the Executive and his dependents for the number
of months corresponding to the Severance Period; provided, however, that if the Executive is eligible to
receive comparable medical or other welfare benefits under another employer-provided plan, the COBRA
premium reimbursement described herein shall be terminated. The Executive shall promptly notify the
Corporation of any changes in his medical benefits coverage.
(b)
Timing of Separation Payments
Notwithstanding anything to the contrary in this Section 6, in the event that Executive is a
“specified employee” (within the meaning of Section 409A(2)(B) of the Code) on the Date of Separation
from Service, no Separation Payments shall be paid until the earlier of (x) the date of the Executive’s death
or (y) the first business day of the first calendar month that begins after the six-month anniversary of the
Date of Separation from Service at which time all Separation Payments which would otherwise have been
paid that would otherwise have been paid during such period of delay shall be paid with Interest (as defined
below) and the remaining Separation Payments shall be paid in accordance with Section 6(a) above. “Interest”
shall mean interest at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code, from the
date on which payment would otherwise have been made but for any required delay through the date of
payment.
Cause or Voluntarily (other than for Good Reason)
(c)
In the event of the Executive’s Separation from Service with the Corporation due to
termination by the Corporation for Cause or voluntarily by the Executive other than for Good Reason, the
Corporation shall pay the Executive, within thirty (30) days following the Date of Separation from Service,
any Accrued Payments. In the event of the Executive’s Separation from Service with the Corporation due
to termination voluntarily by the Executive other than for Good Reason, the Board, in their sole and absolute
discretion, may waive the notice period required by Section 4(d) above, in which case the Executive’s
employment shall be deemed to terminate immediately, provided the Executive shall still be entitled to
compensation due on account of Annual Base Salary and benefits earned up to the last date of the 3 month
advance written notice period given by the Executive and any Variable Compensation earned and prorated
during such 3 month notice period. Except as provided in this Section 6(c), and except for the Executive’s
rights of indemnification and insurance provided in Section 9 hereof and any vested benefits under any tax
qualified pension or equity incentive compensation plans of the Corporation, and continuation of health
insurance benefits on the terms and to the extent required by statute as may be applicable to the Executive,
the Corporation shall have no additional obligations under this Agreement.
Death
(d)
In the event of the Executive’s Separation from Service with the Corporation as a result of
the Executive’s death, the Corporation shall pay the Executive’s estate within thirty (30) days following the
Date of Separation from Service, the Accrued Payments. Except as provided in this Section 6(d), and except
for the Executive’s rights of indemnification and insurance provided in Section 9 hereof and any vested
benefits under any tax qualified pension or equity incentive compensation plans of the Corporation, the
Corporation shall have no additional obligations under this Agreement.
Options
(e)
Except as expressly stipulated in Section 7 hereof, any options which have not vested as of
the Date of Separation from Service shall terminate and be of no further force and effect as of the Date of
Separation from Service and neither any period of notice nor any payment in lieu thereof upon Separation
from Service hereunder shall be considered as extending the period of employment for the purposes of vesting
of options notwithstanding anything to the contrary in any other agreement between the Parent Corporation
and the Executive. In the event of a Separation from Service other than by the Corporation for Cause, the
Executive shall have the right to exercise any options which are vested as at the Date of Separation from
Service for ninety (90) days following such date at which time such unexercised options will expire. In the
event of a Separation from Service by the Corporation for Cause, all options, vested and unvested, shall
terminate and be of no further force and effect as of Date of Separation from Service and neither any period
of notice nor any payment in lieu thereof upon Separation from Service hereunder shall be considered as
extending the period of employment for the purposes of vesting of options notwithstanding anything to the
contrary in any other agreement between the Corporation and the Executive. In addition, notwithstanding
anything contained in this Section 6 or elsewhere in this Agreement, in the event of Separation from Service
due to death of the Executive, the estate of the Executive shall be entitled to exercise any options which have
vested as at the date of death of the Executive, at any time during the period which is twelve (12) months
following the date of death of the Executive at the end of which period such options will expire.
Long Term Compensation
(f)
Except as expressly provided in Section 7 below, in the event of the Executive’s Separation
from Service for any reason, all outstanding awards granted under any LTIP shall continue to be governed
by the terms set forth in such LTIP.
No Further Entitlements
(g)
Except as expressly provided in this Section 6 and Section 7 below, in the event of the
Executive’s Separation from Service for any reason, the Executive will not be entitled to receive any further
payments, in lieu of notice or as damages for any reason whatsoever. Except as to any entitlement as expressly
provided in this Agreement, the Executive hereby waives any claims the Executive may have against the
Corporation or the Parent Corporation for or in respect of termination pay, severance pay, or notice in lieu
thereof on account of loss of office or employment.
(h) Release
Notwithstanding anything to the contrary in this Agreement, the payments and benefits
described in Section 6(a) above, other than the Accrued Payments, shall commence being made to the
Executive, subject to the condition that Executive has delivered to the Corporation an executed copy of a
release substantially in the form attached as Schedule “D” and that such release has become effective,
enforceable and irrevocable in accordance with its terms, on the date that is 30 days after the Date of Separation
from Service or, to the extent required, on the date specified in Section 6(b) above.
7. Change in Control
(a)
Definition
For purposes of this Agreement, a “Change in Control” shall mean the occurrence of any of
the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Parent Corporation on a consolidated basis to any
person or group of related persons for purposes of Section 13(d) of the Securities Exchange Act of 1934 (the
“Exchange Act” and a “Group,” respectively); (ii) the approval by the holders of the outstanding voting
power of the Parent Corporation of any plan or proposal for the liquidation or dissolution of the Parent
Corporation; (iii) any person or Group shall become the beneficial owner (within the meaning of Section
13(d) of the Exchange Act), directly or indirectly, of shares representing more than 50% of the aggregate
outstanding voting power of the Parent Corporation and such person or Group actually has the power to vote
such shares in any such election; (iv) the replacement of a majority of the Board over a twelve-month period
from the directors who constituted the Board at the beginning of such period, and such replacement shall not
have been approved by a vote of at least a majority of the Board then still in office who were members of
such Board at the beginning of such period; or (v) consummation of a reorganization, merger, consolidation
or similar transaction involving the Parent Corporation and/or any entity controlled by the Parent Corporation,
or a sale or other disposition of substantially all of the assets of the Parent Corporation, or the acquisition of
assets or stock of another entity by the Parent Corporation or any entity controlled by the Parent Corporation
(each, a “Business Combination”) unless following such Business Combination the shareholders of the Parent
Corporation immediately prior to the Business Combination own at least 50% of the then-outstanding equity
securities and of the combined voting power of the corporation or other entity resulting from such Business
Combination (including, without limitation, an entity that, as a result of such Business Combination, owns
the Parent Corporation or substantially all of the Parent Corporation’s assets either directly or through one
or more subsidiaries). Notwithstanding the foregoing, for the purposes of this Agreement, an event or series
of events shall not be deemed to be a Change in Control to the extent that the application of the relevant
definition of Change in Control would cause any tax to become due under Section 409A of the Code.
(b)
Change-in-Control Benefits and Payments
In the event of the Executive’s Separation from Service due to termination by the
Corporation other than for Cause or by the Executive for Good Reason within the one (1) year period
following a Change in Control, then the Executive shall be entitled to the following, notwithstanding any
else in this Agreement to the contrary:
(i) payments under Section 6(a) of this Agreement at the time and in the manner set
forth therein except that for purposes of clause (ii) of Section 6(a), the Severance Period shall be 12
months;
(ii) all options which have not vested as of the Date of Separation from Service
shall vest immediately upon such Date and the Executive shall have the right to exercise all of such
options for 90 days following such Date at which time any unexercised options will expire; and
(iii) all outstanding awards granted under any LTIP shall vest 100% and any
payments under Section 6.2(b) of the Schedule to the LTIP (Special Provisions Applicable to Eligible
Employees Subject to Section 409A of the United States Internal Revenue Code) shall be made as set
forth therein except that the Target Bonus (as defined in the LTIP) shall vest 100%;
(iv) notwithstanding anything to the contrary in this Section 7, in the event that
Executive is a “specified employee” (within the meaning of Section 409A(2)(B) of the Code) on the Date
of Separation from Service, no Separation Payments shall be paid until the earlier of the date of the
Executive’s death or the first business day of the first calendar month that begins after the six-month
anniversary of the Date of Separation from Service at which time all Separation Payments which would
otherwise have been paid that would otherwise have been paid during such period of delay shall be paid
with Interest (as defined below) and the remaining Separation Payments shall be paid in accordance with
Section 6(a) above. “Interest” shall mean interest at the applicable federal rate provided for in Section
7872(f)(2)(A) of the Code, from the date on which payment would otherwise have been made but for any
required delay through the date of payment.
(c)
Certain Additional Payments by the Corporation
(i) If it is determined (as hereafter provided) that any payment or distribution by the
Corporation or Parent Corporation to or for the benefit of Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement of the Corporation or Parent Corporation, including without
limitation any stock options or other equity award, or the lapse or termination of any restriction on or the
vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed
by Section 4999 of the Code (or any successor provision thereto), or any interest or penalties with respect
to such excise tax (such tax or taxes, together with any such interest and penalties, are hereafter collectively
referred to as the “Excise Tax”), then the Payments shall be payable either (x) in full or (y) as to the maximum
value of such lesser amount which would result in no portion of the Payments being subject to the Excise
Tax and Executive shall receive the greater, on an after-tax basis, of (x) or (y) above. The reduction of the
amounts payable under this Agreement, if applicable, shall be made as follows:
First, if the Payments include the value of acceleration in the time at which any Payment not
subject to Section 409A of the Code is paid, a delay in the time of payment (but not a delay of vesting) of
such Payment, provided that such delay shall apply to the aggregate amount of such Payments (and not on
a Payment-by-Payment basis) and such aggregate amount shall be delayed only to the extent necessary to
satisfy this Section 7(c)(i);
Second, to the extent further reduction is required by this Section 7(c)(i), a reduction in the
amount of Payments required to be paid or delivered, provided that the Executive shall be entitled to select
among the forms of Payment that shall be reduced; and
Third, to the extent further reduction is required by this Section 7(c)(i), if the Payments include
the value of acceleration in the time at which any Payment vests, a cutback in the extent of such accelerated
vesting, provided that such cutback shall apply to the aggregate amount of such Payments (and not on a
Payment-by-Payment basis) and accelerated vesting of such aggregate amount shall be cut back only to the
extent necessary to satisfy this Section 7(c)(i).
(ii) Subject to the provisions of Section 7(c)(i) of this Agreement, all determinations
required to be made under this Section 7(c), including whether an Excise Tax is payable by Executive and
the amount of such Excise Tax and whether and, if so, what reductions are required by Section 7(c)(i), will
be made by a nationally recognized firm of certified public accountants (the “Accounting Firm”) chosen by
the Corporation. The Corporation will direct the Accounting Firm to submit its determination and detailed
supporting calculations to both the Corporation and Executive within fifteen (15) calendar days after the date
of the event giving rise to the Payment or the Date of Separation from Service, if applicable, and any other
such time or times as may be reasonably requested by the Corporation or Executive. If the Accounting Firm
determines that an Excise Tax would be payable by Executive, it will perform the calculation set out in
Section 7(c)(i). Any determination by the Accounting Firm as to the determination made under Section 7(c)
(i) will be binding upon the Corporation, the Parent Corporation and Executive. If the Accounting Firm
determines that no Excise Tax is payable by Executive, it will, at the same time as it makes such determination,
furnish Executive with an opinion that he has substantial authority not to report any Excise Tax on his federal,
state, local income or other tax return. The Corporation, Parent Corporation and Executive will each cooperate
with the Accounting Firm in connection with the preparation and issuance of the determination contemplated
by this Section 7(c)(ii).
(iii) The fees and expenses of the Accounting Firm for its services in connection with
the determinations and calculations contemplated by Section 7(c)(ii) of this Agreement will be borne by the
Corporation and paid as incurred. If such fees and expenses are initially advanced by Executive, the
Corporation will reimburse Executive the full amount of such fees and expenses within fifteen (15) business
days after receipt from Executive of a statement therefor and reasonable evidence of his payment thereof.
8.
No Mitigation
Except as expressly provided herein, the Executive shall not be required to seek other
employment or otherwise mitigate the amount of any payments to be made by the Corporation pursuant to
this Agreement. Except as otherwise provided herein, the payments provided pursuant to this Agreement
shall not be reduced by any compensation earned by the Executive as the result of employment by another
employer after the termination of the Executive’s employment or otherwise. The Corporation’s obligation
to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder
shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action
which the Corporation may have against the Executive or others.
9.
Legal Fees; Indemnification; Liability Insurance
(a)
In the event of any contest or dispute between the Corporation and the Executive with
respect to this Agreement or the Executive’s employment hereunder, each of the parties shall be
responsible for its respective legal fees and expenses.
(b)
During the Term and for so long as there exists liability thereafter with regard to the
Executive’s activities during the Term on behalf of the Corporation, the Corporation shall indemnify the
Executive to the fullest extent permitted by applicable law (and in no event in connection with the Executive’s
gross negligence or willful misconduct), and shall at the Corporation’s election provide the Executive with
legal representation or shall advance to the Executive reasonable attorneys’ fees and expenses as such fees
and expenses are incurred (subject to an undertaking from the Executive to repay such advances if it shall
be finally determined by a judicial decision which is not subject to further appeal that the Executive was not
entitled to the reimbursement of such fees and expenses).
(c)
During the Term and for six years thereafter, the Executive shall be entitled to the
same directors’ and officers’ liability insurance coverage that the Corporation or the Parent Corporation
provides generally to its other directors and officers, as may be amended from time to time for such directors
and officers.
10.
Restrictive Covenants
The Executive agrees to execute contemporaneously with his execution of this Agreement
the confidentiality and non-solicitation agreement annexed hereto as Schedule “C” (the “Restrictive
Covenants Agreement”).
11.
Injunctive Relief
It is impossible to measure in money the damages that will accrue to the Corporation or any
of its Affiliates in the event that the Executive breaches any of the Restrictive Covenants. In the event that
the Executive breaches any such Restrictive Covenant, the Corporation or any of its Affiliates shall be entitled
to an injunction restraining the Executive from violating such Restrictive Covenant (without posting any
bond). If the Corporation or any of its Affiliates shall institute any action or proceeding to enforce any such
Restrictive Covenant, the Executive hereby waives the claim or defense that the Corporation or any of its
Affiliates has an adequate remedy at law and agrees not to assert in any such action or proceeding the claim
or defense that the Corporation or any of its Affiliates has an adequate remedy at law. The foregoing shall
not prejudice the Corporation’s or any of its Affiliates’ right to require the Executive to account for and pay
over to the Corporation or any of its Affiliates, and the Executive hereby agrees to account for and pay over,
the compensation, profits, monies, accruals or other benefits derived or received by the Executive as a result
of any transaction constituting a breach of any of the Restrictive Covenants.
12.
Arbitration; Forum Selection.
(a) Arbitration
Except as provided for in the Restrictive Covenants Agreement, if there is a disagreement or
dispute between the parties with respect to this Agreement or the interpretation thereof, such disagreement
or dispute will be referred to binding arbitration to be conducted by a single arbitrator, if Executive and the
Corporation agree upon one, otherwise by three arbitrators appointed as hereinafter set out, pursuant to the
American Arbitration Association’s (the “AAA”) rules governing commercial arbitration in effect at the
time of the arbitration, except as modified herein. A party who wishes to arbitrate shall give written notice
of such intention to the other party (a “Notice of Intention”). The arbitrator shall be appointed by agreement
by agreement of Executive and the Corporation or, in default of agreement within ten (10) Business Days of
service of the Notice of Intention, each of Executive and the Corporation shall within five (5) Business Days
of the expiry of the aforesaid ten (10) Business Day period, select one arbitrator and notify the other of its
selection, with the third arbitrator to be chosen by the first two named arbitrators within five (5) Business
Days of the expiry of the aforesaid five (5) Business Day period. If one of the parties does not so notify the
other of its selection within the prescribed time, then the arbitrator selected by the other party in accordance
with the above procedure shall be the sole arbitrator. The arbitration shall be held in the State of Delaware.
The procedure to be followed shall be as agreed by the parties or, in default of agreement, determined by the
arbitrator(s), provided, however, that depositions or examinations for discovery will not be allowed but
information may be exchanged by other means. The parties will use their best efforts to ensure that the
arbitration hearing is conducted no later than sixty (60) days after the arbitrator is, or arbitrators are, selected.
The final decision of the arbitrator or arbitrators or any two of the three arbitrators will be furnished to the
parties in writing and will constitute a conclusive determination of the issue in question, binding upon the
parties, without right of appeal. The fees and expenses of the arbitration shall be in the discretion of the
arbitrator(s). Judgment upon the award may be entered in any court of competent jurisdiction.
(b) Forum Selection
Except as provided for in the Restrictive Covenants Agreement, the parties hereby agree that
all demands, claims, actions, causes of action, suits, proceedings and litigation between or among the parties
or arising out of the employment relationship between the Executive and the Corporation not subject to the
Arbitration provision in Section 12(a) hereof shall be filed, tried and litigated only in a federal or state court
located in the State of Delaware. In connection with the foregoing, the parties hereto irrevocably consent to
the jurisdiction and venue of such court and expressly waive any claims or defenses of lack of jurisdiction
of or proper venue by such court.
13.
Section 409A
(a)
The intent of the parties is that payments and benefits under this Agreement comply
with Section 409A of the Code and the regulations and guidance promulgated thereunder (except to the extent
exempt as short-term deferrals or otherwise) and, accordingly, to the maximum extent permitted, this
Agreement shall be interpreted to be in compliance therewith. If the Executive notifies the Corporation (with
specificity as to the reason therefor) that the Executive believes that any provision of this Agreement (or of
any award of compensation, including equity compensation or benefits) would cause Executive to incur any
additional tax or interest under Section 409A of the Code or the Corporation independently makes such
determination, the Corporation shall, after consulting with Executive and solely in the event and to the extent
the Corporation’s outside counsel deems it necessary to avoid any such additional tax or interest, reform such
provision to comply with Section 409A of the Code. To the extent that any provision hereof is modified in
order to comply with Section 409A of the Code, such modification shall be made in good faith and shall, to
the maximum extent reasonably possible, maintain the original intent and economic benefit to the Executive
and the Corporation of the applicable provision without violating the provisions of Section 409A of the Code.
In no event shall the Corporation be required to pay Executive any “gross-up” or other payment with respect
to any taxes or penalties imposed under Section 409A of the Code with respect to any benefit paid or promised
to Executive hereunder.
(b)
It is intended that each installment, if any, of the payments and benefits, if any, provided
to the Executive under Section 6 hereof shall be treated as a separate “payment” for purposes of Section
409A of the Code. Neither the Corporation nor the Executive shall have the right to accelerate or defer the
delivery of any such payments or benefits except to the extent specifically permitted or required by Section
409 of the Code.
(c)
All reimbursements and in-kind benefits provided under this Agreement shall be made
or provided in accordance with the requirements of Section 409A of the Code to the extent that such
reimbursements or in-kind benefits are subject to Section 409A of the Code. All expenses or other
reimbursements paid pursuant herewith that are taxable income to the Executive shall in no event be paid
later than the end of the calendar year next following the calendar year in which Executive incurs such
expense or pays such related tax. With regard to any provision herein that provides for reimbursement of
costs and expenses or in-kind benefits, except as permitted by Section 409A of the Code, the right to
reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, the
amount of expenses eligible for reimbursement, or in-kind benefits provided, during any taxable year shall
not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable
year, provided that, the foregoing clause shall not be violated with regard to expenses reimbursed under any
arrangement covered by Section 105(b) of the Code, if applicable, solely because such expenses are subject
to a limit related to the period the arrangement is in effect and such payments shall be made on or before the
last day of the Executive’s taxable year following the taxable year in which the expense occurred.
(d) Whenever a payment under this Agreement specifies a payment period with reference
to a number of days (e.g., “payment shall be made within thirty (30) days following the Date of Separation
from Service”), the actual date of payment within the specified period shall be within the sole discretion of
the Corporation.
14.
Miscellaneous
(a)
Any notice or other communication required or permitted under this Agreement shall
be effective only if it is in writing and shall be deemed to be given when delivered personally or four days
after it is mailed by registered or certified mail, postage prepaid, return receipt requested or one day after it
is sent by a reputable overnight courier service and, in each case, addressed as follows (or if it is sent through
any other method agreed upon by the parties):
If to the Corporation:
c/o Open Text Inc.
2950 S. Delaware Street
San Mateo, CA 94403
USA
With a copy to, in all cases, the Parent Corporation:
c/o Open Text Corporation
275 Frank Tompa Drive
Waterloo, Ontario
Canada N2L 0A1
If to the Executive:
Ted Harrison
ON FILE
or to such other address as any party hereto may designate by notice to the others.
(b)
Except as provided for in the Restrictive Covenants Agreement, This Agreement shall
constitute the entire agreement among the parties hereto with respect to the Executive’s employment
hereunder, and supersedes and is in full substitution for any and all prior understandings or agreements with
respect to the Executive’s employment.
(c)
This Agreement may be amended only by an instrument in writing signed by the parties
hereto, and any provision hereof may be waived only by an instrument in writing signed by the party or
parties against whom or which enforcement of such waiver is sought. The failure of any party hereto at any
time to require the performance by any other party hereto of any provision hereof shall in no way affect the
full right to require such performance at any time thereafter, nor shall the waiver by any party hereto of a
breach of any provision hereof be taken or held to be a waiver of any succeeding breach of such provision
or a waiver of the provision itself or a waiver of any other provision of this Agreement.
(d)
The parties hereto acknowledge and agree that each party has reviewed and negotiated
the terms and provisions of this Agreement and has had the opportunity to contribute to its revision.
Accordingly, the rule of construction to the effect that ambiguities are resolved against the drafting party
shall not be employed in the interpretation of this Agreement. Rather, the terms of this Agreement shall be
construed fairly as to both parties hereto and not in favor or against either party.
(e)
The parties hereto hereby represent that they each have the authority to enter into this
Agreement, and the Executive hereby represents to the Corporation that the execution of, and performance
of duties under, this Agreement shall not constitute a breach of or otherwise violate any other agreement to
which the Executive is a party. The Executive hereby further represents to the Corporation that he will not
utilize or disclose any confidential information obtained by the Executive in connection with any former
employment with respect to his duties and responsibilities hereunder.
(f)
This Agreement is binding on and is for the benefit of the parties hereto and their
respective successors, assigns, heirs, executors, administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by the Executive.
(g)
The Corporation shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation
to assume this Agreement in the same manner and to the same extent that the Corporation would have been
required to perform it if no such succession had taken place. As used in the Agreement, “the Corporation”
shall mean both the Corporation as defined above and any such successor that assumes this Agreement, by
operation of law or otherwise.
(h)
Any provision of this Agreement (or portion thereof) which is deemed invalid, illegal
or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this Section 14(h), be ineffective
to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining
provisions thereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid,
illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope
of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal
and enforceable. No waiver of any provision or violation of this Agreement by the Corporation shall be
implied by the Corporation’s forbearance or failure to take action.
(i)
The Corporation may withhold from any amounts payable to the Executive hereunder
all federal, state, city or other taxes that the Corporation may reasonably determine are required to be withheld
pursuant to any applicable law or regulation, (it being understood that the Executive shall be responsible for
payment of all taxes in respect of the payments and benefits provided herein).
(j)
Except as provided for in the Restrictive Covenants Agreement, this Agreement shall
be governed by and construed in accordance with the laws of the State of Delaware without reference to its
principles of conflicts of law.
(k)
This Agreement may be executed in several counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same instrument. A facsimile of a signature
shall be deemed to be and have the effect of an original signature.
(l)
The headings in this Agreement are inserted for convenience of reference only and
shall not be a part of or control or affect the meaning of any provision hereof.
15.
Disclosure
During the Term, the Executive shall promptly disclose to the Board full information
concerning any interest, direct or indirect, of the Executive (as owner, shareholder, partner, lender or other
investor, director, officer, employee, consultant or otherwise) or any member of his family in any business
that is reasonably known to the Executive to purchase or otherwise obtain services or products from, or to
sell or otherwise provide services or products to, the Corporation or to any of its suppliers or customers.
16.
Return of Materials
All files, forms, brochures, books, materials, written correspondence, memoranda, documents,
manuals, computer disks, software products and lists (including lists of customers, suppliers, products and
prices) pertaining to the business of the Corporation or any of its subsidiaries, Affiliates, and Associates that
may come into the possession or control of the Executive shall at all times remain the property of the
Corporation or such subsidiary, Affiliate or Associate, as the case may be. The term “Associate” shall have
the meaning ascribed thereto under Rule 14a-1(a) of the General Rules of the Securities Exchange Act of
1934. On termination of the Executive’s employment for any reason, the Executive agrees to deliver promptly
to the Corporation all such property of the Corporation in the possession of the Executive or directly or
indirectly under the control of the Executive. The Executive agrees not to make for his personal or business
use or that of any other party, reproductions or copies of any such property or other property of the Corporation.
17.
Resignation of Directorships, etc.
The Executive agrees that after Separation from Service, he will, at the request of the Board,
tender his resignation from any position he may hold as an officer or director of the Corporation or any of
its subsidiaries, Affiliates or Associates, and the Executive further covenants and agrees, if so requested by
the Board, not to stand for re-election to any office of the Corporation or any of its subsidiaries, Affiliates
or Associates at any time following termination of the Executive’s employment hereunder.
18.
No Derogation
Nothing herein derogates from any rights the Executive may have under applicable law, except
as set out in this section. The parties agree that the rights, entitlements and benefits set out in this Agreement
to be paid to the Executive are in full satisfaction of any rights or entitlements the Executive may have as
against the subsidiaries, Affiliates and Associates of the Corporation as a result of the termination of his
employment with such subsidiaries, Affiliates or Associates.
19.
Currency
All dollars referenced herein are in US dollars unless expressly provided to the contrary.
20.
Non-Disparagement
Each of the parties to this Agreement covenants and agrees not to engage in any pattern of
conduct that involves the making or publishing of written or oral statements or remarks (including, without
limitation, the repetition or distribution of derogatory rumors, allegations, negative reports or comments)
which are disparaging, deleterious or damaging to the integrity, reputation or goodwill of the other party,
which for the purposes of the Corporation, includes its subsidiaries, Affiliates or Associates or its and their
management. For the sake of clarity, nothing in this Section 20 shall prohibit statements or remarks made
in the good faith performance of the Corporation or Executive’s obligations under this Agreement or in
accordance with applicable law.
21.
No Set-Off
The existence of any claim, demand, action or cause of action of the Executive against the
Corporation, whether or not based upon this Agreement, will not constitute a defense to the enforcement by
the Corporation of any covenant or agreement of the Executive contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first
written above.
* * * * *
Executive
/s/ SIMON HARRISON
Name: Simon Harrison
Open Text Inc.
/s/ GORDON A. DAVIES
Name: Gordon A. Davies
Title
Executive Vice President, Chief Legal Officer and Corporate
Development
Open Text Corporation
/s/ GORDON A. DAVIES
Name: Gordon A. Davies
Title
Executive Vice President, Chief Legal Officer and Corporate
Development
Schedule A
Equity Ownership Guidelines
EQUITY OWNERSHIP GUIDELINES
In a continuing effort to align the interests of the Executives of the Corporation, with the interest of the
Corporation’s shareholders, the Board has established the following recommended Equity Ownership
guidelines (the “Guidelines”).
COVERED EXECUTIVES
The Guidelines cover the Corporation’s President and CEO, all NEO’s (Named Executive Officers), and the
Executive Leadership Team (the “Covered Executives”).
OWNERSHIP GUIDELINES
The Board recommends that the Covered Executives achieve the equity ownership levels within five (5)
years after the date of his/her qualifications as a Covered Executive, and (ii) hold such number of common
shares or share equivalents recommended for so long as they are Covered Executives.
Executive Title
CEO and CTO
Executive Leadership Team
Required Equity Ownership
4x base salary
1x base salary
Covered Executives may achieve these Guidelines through the exercise of stock option awards, purchases
under the Open Text Employee Stock Purchase Plan (ESPP), through an open market purchase made in
compliance with applicable securities laws or through any equity plan(s) the Corporation may adopt from
time to time. Until the Guideline is met, it is recommended that a Covered Executive retain a portion of any
stock option exercise or LTIP award in common shares of the Corporation to contribute to these Guidelines.
For the purpose of compliance with the Guidelines, the common shares will be valued at the greater of their
book value (i.e., purchase price) and the current market value. The Compensation Committee of the Board
will review the recommended executive ownership guideline achievement levels on an annual basis.
Schedule B
Benefits
Benefits to be enjoyed by the Executive during the term of this Agreement shall include, but are not
limited to:
(i)
reimbursement of reasonable cell phone expenses consistent with corporate policy;
(ii)
a USD$5,000 perquisite allowance per fiscal year, which may be used for reimbursement of the
following types of services or fees:
• Financial planning
• Tax planning
• Estate planning
• Athletic/Health Club
• Additional Life Insurance
(iii) An annual budget of $2,500 USD will be provided for the purposes of obtaining mandatory and
regular Health Examinations.
(iv) Home and host country tax consultation through Ernst and Young including preparation of you
and your spouse’s home tax return(s) for all tax years affected by your expat assignment.
(v) Open Text Inc will agree to sponsor the Green Card application process for you and your family
upon acceptance of this offer.
(vi) Continuation of your current Housing Allowance benefit until December 31, 2018 at which
time this agreement will terminate.
Schedule C
Restrictive Covenants Agreement
EMPLOYEE CONFIDENTIALITY AND
NON-SOLICITATION AGREEMENT
As an employee of Open Text Corporation or any related or affiliated company (the “Company”):
I understand and agree that I have a responsibility to protect and avoid the unauthorized use or
A.
disclosure of confidential information of the Company; and
I have a responsibility not to solicit or entice away from the Company any customer of the Company
B.
or any employee of the Company, in accordance with the restrictions set forth herein.
I.
Confidential Information. For purposes of this Agreement, the term “confidential information”
means all information that is not generally known and which I obtained from the Company, or learn, discover,
develop, conceive or create during the term of my employment with the Company, and which relates directly
to the business or to assets of the Company. Confidential information includes, but is not limited to: inventions,
discoveries, know-how, ideas, computer programs, designs, algorithms, processes and structures, product
information, research and development information, lists of clients and other information related thereto,
financial data and information, business plans and processes, and any other information of the Company that
the Company informs me, or which I should know by virtue of my position or the circumstances in which I
learned it, is to be kept confidential. Confidential information also includes information obtained by the
Company in confidence from its vendors or its clients. Confidential information may or may not be labeled
as “confidential”. If I am unsure as to whether information is “confidential”, I will ask my manager for
assistance.
Confidential information does not include any information that has been made generally available to the
public. It also does not include any general technical skills or general experience gained by me during my
employment with the Company. I understand that the Company has no objection to my using these skills
and experience in any new business venture or employment following the cessation of my employment with
the Company.
I recognize and acknowledge that in the course of my employment with the Company I may obtain knowledge
of confidential and proprietary information of a special and unique nature and value and I may become
familiar with trade secrets of the Company relating to the conduct and details of the Company’s business.
While I am employed by the Company and for a period of three years following the cessation of my
employment I agree:
to keep confidential and hold in secrecy and not disclose, divulge, publish, reveal or otherwise make
A.
known, directly or indirectly, or suffer or permit to be disclosed, divulged, published, revealed or otherwise
made known to any person whatsoever, or used (except for the benefit and proper purposes of the Company),
and shall faithfully do all in my power to assist the Company in holding in secrecy all of the Company’s
confidential information as defined above.
B.
to keep confidential and hold in secrecy and not disclose, divulge, publish, reveal or otherwise make
known, directly or indirectly, or suffer or permit to be disclosed, divulged, published, revealed or otherwise
made known to any person whatsoever, or used (except for the benefit and proper purposes of the Company)
any and all secrets or confidential information related to the Company’s activities or affairs which I now
know or which are hereafter disclosed or made known to me or otherwise learned or acquired by me, including
information respecting the business affairs, prospects, operations or strategic plans respecting the Company,
which knowledge I gain in my capacity as an employee of the Company and which knowledge is not publicly
available or disclosed.
Agreement Not to Solicit. I agree that while I am an employee of the Company and for six (6) months
II.
thereafter that I will:
not solicit or entice or attempt to solicit or entice away from the Company any of the employees of
A.
the Company to enter into employment or service with any person, business, firm or corporation other than
the Company;
B.
not use confidential information or trade secrets of the Company in order to solicit or entice or attempt
to solicit or entice away from the Company any customer or any other person, firm or corporation dealing
with the Company.
Further, I acknowledge and agree that I will abide by any additional restrictive covenants that I have entered
into with the Company (including any predecessor thereof), which include, without limitation, those
restrictive covenants in the agreement I entered into with Obtree Technologies (UK) Limited on October 11,
2000, it being my and the Company’s intention that the Company be afforded the broadest protection available
under any applicable law.
III. Return of Documents. Upon the cessation of my employment with the Company for any reason, I
agree to return to the Company all records, documents, memoranda, or other papers, copies or recordings,
tapes, disks containing software, computer source code listings, routines, file layouts, record layouts, system
design information, models, manuals, documentation and notes as are in my possession or control. I
acknowledge and agree that all such items are strictly confidential and are the sole and exclusive property
of the Company.
IV. General.
A.
I further represent and warrant that I have not entered into any Agreement with any previous or present
employer which would prevent me from accepting employment with the Company or which would prevent
me from lawfully executing this Agreement.
B.
I understand that the obligations outlined in this Agreement are the concern and responsibility of all
employees of the Company. I agree to report in writing any violations of these policies to my manager or to
the Vice-President of Human Resources.
C.
All the provisions of this Agreement, as well as all other restrictive covenants to which I may be
bound to the Company, will be deemed severable, and if any part of any provision is held illegal, void or
invalid under applicable law, such provision may be changed to the extent reasonably necessary to make the
provision, as so changed, legal, valid and binding. If any provision of this Agreement, or of any other restrictive
covenants to which I may be bound to the Company, is held illegal, void or invalid in its entirety, the remaining
provisions of this Agreement or of such covenants will not in any way be affected or impaired, but will remain
binding in accordance with its terms.
D.
This Agreement and all the rights and obligations arising here from shall be interpreted and applied
in accordance with the laws of the Province of Ontario and in the courts of the Province of Ontario there
shall be exclusive jurisdiction to determine all disputes relating to this Agreement and all the rights and
obligations created hereby. I hereby irrevocably attorn to the jurisdiction of the courts of the Province of
Ontario.
E.
I acknowledge that my employment with the Company is contingent on my acceptance and my
observance of this Agreement, and that such employment is adequate and sufficient consideration to bind
me to all of the covenants and agreements made by me under this Agreement.
_________________________
Print Name of Witness
_______________________________
Print Name of Employee
_________________________
Signature of Witness
_______________________________
Signature of Employee
Date: ____________________
Schedule D
General Release
1. Release of Claims and Waiver of Rights.
(a) In consideration of any payments and benefits being provided to me under Section 6(a) of the
employment agreement (the “Employment Agreement”) dated [•], 20[•], as it may have been amended to
the date hereof, between me and Open Text Corporation (the “Company”), those payments and benefits
being good and valuable consideration, the adequacy and sufficiency of which are acknowledged by me
(the “Payments”), I, [Executive] hereby release, remise and acquit Company, its present and past parents,
subsidiaries and affiliates, their successors, assigns, benefit plans and/or committees, and their respective
present or past officers, directors, managers, supervisors, employees, shareholders, attorneys, advisors,
agents and representatives in their individual and corporate capacity, and their successors and assigns (the
“Releasees”), from, and hold them harmless against, any and all claims, obligations, or liabilities
(including attorneys, fees and expenses), asserted or unasserted, known or unknown, that I, my heirs,
successors or assigns have or might have, which have arisen by reason of any matter, cause or thing
whatsoever related to my employment (or termination of my employment) with the Company on or prior
to the date on which this General Release is signed.
(b) The terms “claims, obligations, or liabilities” (whether denominated claims, demands, causes of
action, obligations, damages or liabilities) include, but are not limited to, any and all claims under any
contract with the Company, claims of age, disability, race, religion, national origin, sex, retaliation, and/or
other forms of employment discrimination, breach of express or implied contract, breach of employee
handbook, practices or procedures, libel, slander, intentional tort or wrongful dismissal, claims for
reinstatement or reemployment, arising under any federal, state, or local common or statutory law; claims
for unpaid salary, commission or fringe benefits; or any other statutory claim before any state or federal
court, tribunal or administrative agency, arising out of or in any way related to my employment
relationship with the Company and its affiliates and the termination of that relationship. I will not file or
permit to be filed on my behalf any such claim.
(c) This General Release constitutes, among other things, a waiver of all rights and claims I may have
under the Age Discrimination in Employment Act of 1967 (29 U.S.C. 621, et seq.) (“ADEA”), the
Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, Title VII of the
United States Civil Rights Act of 1964, all as amended including the amendment set forth in 42 U.S.C. §
1981 concerning damages in cases of intentional discrimination in employment and any other comparable
national or state laws, all as amended, and as may be specified on or prior to the date on which this
General Release is signed.
(d) Notwithstanding the preceding paragraphs (b) or (c) or any other provision of this Agreement, this
General Release is not intended to interfere with my right to file a charge with the Equal Employment
Opportunity Commission (the “EEOC”) in connection with any claim I believe I may have against the
Company or its affiliates. However, by executing this General Release, I hereby waive the right to recover
in any proceeding I may bring before the EEOC or any state human rights commission or in any
proceeding brought by the EEOC or any state human rights commission on my behalf. In addition, this
General Release is not intended to interfere with my right to challenge that my waiver of any and all
ADEA claims pursuant to this General Release is a knowing and voluntary waiver, notwithstanding my
specific representation that I have entered into this General Release knowingly and voluntarily.
(e) This General Release is for any relief, no matter how denominated, including, but not limited to,
injunctive relief, wages, back pay, front pay, compensatory damages, or punitive damages.
(f) This General Release shall not apply to any rights in the nature of indemnification or payments under
(i) applicable law, (ii) the charter, bylaws or operating agreements of the Company, or (iii) applicable
directors and officers insurance policies which I may have with respect to claims against me relating to or
arising out of my employment with the Company and its affiliates or my service on their respective boards
of directors, or any vested benefit to which I am entitled under any tax qualified pension plan of the
Company or its affiliates, COBRA continuation coverage benefits or any other similar benefits required to
be provided by statute. Furthermore, notwithstanding anything to the contrary contained in this Section 1,
I do not release any of the Releasees from the Company’s obligation to timely provide me with all
payments and benefits to which I am entitled pursuant to the terms of the Employment Agreement, or any
other obligations of the Company under the Employment Agreement.
2. Representations and Covenants. I hereby represent and agree to all of the following:
(a) I have carefully read this General Release.
(b) I understand it fully.
(c) I am freely, voluntarily and knowingly releasing the Releasees in accordance with the terms contained
above.
(d) Before executing this General Release, I had twenty-one (21) days to consider my rights and
obligations under this General Release.
(e) The period of time I had to consider my rights and obligations under this General Release was
reasonable.
(f) Before signing this General Release, I was advised to consult with an attorney and given a reasonable
period of time to do so and in executing this General Release have not relied on any representation or
statement not set forth herein.
(g) Execution of this General Release and the General Release becoming enforceable (in accordance with
paragraph (h) below) within 30 days from the date of my “separation from service” (as determined under
Section 409A of the Internal Revenue Code of 1986, as amended, and the rules and regulations issued
thereunder) is a condition to the Payments, which payments and benefits are in addition to anything of
value to which I am already entitled to receive from the Company and its affiliates.
(h) For a period of seven (7) days following the date on which I sign this General Release, I may revoke
it. Any such revocation must be made in writing and received by the Corporate Secretary of the Company,
by the seventh day following the date on which I sign this General Release. The Company’s obligation to
pay the consideration as set forth in Section 1 above shall not become effective or enforceable until this
seven (7) day revocation period has expired without my having exercised my right to revoke.
(i) There are no pending lawsuits, charges, employee dispute resolution proceedings, administrative
proceedings or other claims of any nature whatsoever, that I have brought (and which are pending) against
any Releasee, in any state or federal court, before any agency or other administrative body or in any other
forum.
(j) I am not aware of any material violation of any laws or Company policies or procedures by a Company
employee or officer that has not been reported to Company officials.
(k) If I violate my obligations under the Employment Agreement and such violation causes material harm
to the Company, I understand that, in addition to other relief to which the Company may be entitled, the
Company shall be entitled to cease providing the Payments and benefits provided to me pursuant to
Section 1 above unless such violation is cured (if capable of being cured) within 30 days of notification by
the Company to me of such violation (and, following such cure, all suspended payments shall be made in
a single lump sum), and this General Release will remain in full force and effect.
(l) If I should hereafter make any claim or demand or commence or threaten to commence any action,
claim or proceeding against the Releasees with respect to any matter, cause or thing which is the subject
of the release under Section 1 of this General Release, this General Release may be raised as a complete
bar to any such action, claim or proceeding, and the applicable Releasee may recover from me all costs
incurred in connection with such action, claim or proceeding, including attorneys’ fees.
(m) If any provision of this General Release is declared illegal, invalid, or unenforceable by any court of
competent jurisdiction and cannot be modified to be enforceable, such provisions will immediately
become null and void, leaving the remainder of this General Release in full force and effect.
(n) This General Release shall be governed by and construed in accordance with the laws of the State of
________________, without regard to conflicts of laws principles.
3. Declaration. I declare under penalty of perjury under the laws of the State of ____________ that the
foregoing is true and correct.
___________________________
Date: ___________________
[Executive]
Acknowledged before me this ______________
________________, NOTARY PUBLIC
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERENCE DIVIDENDS
The following table reflects the computation of the ratio of earnings to combined fixed charges and preference dividends
for the periods presented (in thousands, except for ratios):
Exhibit 12.1
Computation of earnings:
Earnings before taxes
Add:
(Income) losses attributable to non-controlling
interests
Fixed charges (see below)
Share in net (income) loss of equity investees
Computation of combined fixed charges and
preference dividends:
Fixed charges:
Interest and other related expense, net
Preference dividends
Total combined fixed charges and preference
dividends
2018
2017
2016
2015
2014
Year Ended June 30,
386,126
249,551
290,777
266,044
276,535
(76)
137,250
(5,965)
517,335
(256)
119,124
(5,952)
362,467
(18)
76,363
—
367,122
(79)
54,620
—
320,585
51
27,934
—
304,520
137,250
—
119,124
—
76,363
—
54,620
—
27,934
—
137,250
119,124
76,363
54,620
27,934
Ratio of earnings to fixed charges (1)
Ratio of earnings to combined fixed charges and
preference dividends (1) (2)
3.77
3.77
3.04
3.04
4.81
4.81
5.87
5.87
10.90
10.90
__________
(1) For the purpose of these calculations, "earnings" is the amount resulting from adding together earnings before taxes, fixed
charges, losses attributable to non-controlling interests and our share in net (income) losses of equity investees. "Fixed
charges" includes interest expensed and the amortization of capitalized expenses related to indebtedness.
(2) There were no preference shares outstanding for the indicated periods. Accordingly, the ratio of earnings to combined fixed
charges and preference dividends was identical to the ratio of earnings to fixed charges for each period.
Exhibit 21.1
Subsidiaries of Open Text Corporation as of June 30, 2018
Corporation Name
GXS (ANZ) Pty Limited
Open Text Pty Limited
Recommind Australia Pty Limited
Xpedite Systems Pty Limited
Open Text Software Austria GmbH
GXS S.A.
Open Text BeLux Branch - Belgian Branch of Open Text Coöperatief U.A.
Open Text Brasil Comercio De Software Ltda.
Open Text Technologia Da Informacao (Brasil) Ltda.
8493642 Canada Inc.
GXS Canada Inc.
Open Text Canada Ltd.
Open Text Corporation
Open Text GXS Inc.
Actuate Cayman Ltd.
Cordys (Beijing) Co., Ltd.
Cordys Information Systems B.V. – China Representative Office
Cordys Shanghai Co., Ltd.
Covisint Software Services (Shanghai) Co., Ltd.
Global 360 China Limited - Shanghai Representative Office
GXS (Shanghai) Software Development Limited
Open Text Software Technology (Shanghai) Co., Ltd
Open Text Software Technology (Shanghai) Co., Ltd. - Beijing Branch
Open Text Software Technology (Shanghai) Co., Ltd - Guangzhou Branch
Open Text s.r.o.
Actuate Corporation
Actuate International Corporation
Antelope Holding Inc.
ANX Holdings, Inc.
ANXe Business LLC
Easylink Services International Corporation
EasyLink Services USA, Inc.
Guidance Software, Inc.
GXS International, Inc.
GXS, Inc.
Hightail International, Inc.
Hightail, Inc.
Open Text Holdings, Inc.
Open Text Inc.
Vignette Partnership, LP
Xpedite Systems, LLC
Open Text A/S
Jurisdiction
Australia
Australia
Australia
Australia
Austria
Belgium
Belgium
Brazil
Brazil
Canada
Canada
Canada
Canada
Canada
Cayman Islands
China
China
China
China
China
China
China
China
China
Czech Republic
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Delaware, United States
Denmark
Open Text Egypt LLC
Acquisition U.K. Limited
Actuate UK Limited
EasyLink Services International Limited
GXS Limited
GXS UK Holding Limited
ICCM Professional Services Limited
Metastorm Limited
Metastorm UK Limited
Open Text UK Limited
Recommind Limited
Resonate KT Limited
Sysgenics Limited
Xpedite Systems (UK) Limited
Open Text OY
Actuate International Corporation French Branch
EasyLink Services (France) S.A.R.L.
Guidance Software, Inc.’s French Branch
GXS SAS
Open Text SARL
Xpedite Systems Participations S.A.R.L.
Xpedite Systems SA
Actuate (Deutschland) GmbH
Cordys Deutschland Service GmbH
Covisint GmbH
GXS GmbH
Legodo AG
Open Text Document Technologies GmbH
Open Text Software GmbH
Recommind GmbH
Xpedite Systems GmbH
Global 360 China Limited
GXS (HK) Limited
Open Text (Hong Kong) Limited
EasyLink Services Corporation India Private Limited
GXS India Technology Centre Private Limited
Hightail India Pvt. Ltd.
Open Text Corporation India Private Limited
Open Text Technologies India Private Limited
Vignette India Private Limited
Open Text Ireland Limited
GXS S.p.A
Open Text S.r.l.
Open Text K.K.
Open Text Software Technology (Malaysia) Sdn Bhd
The EasyLink Services Corporation SDN. BHD
Egypt
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Finland
France
France
France
France
France
France
France
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Germany
Hong Kong
Hong Kong
Hong Kong
India
India
India
India
India
India
Ireland
Italy
Italy
Japan
Malaysia
Malaysia
Habinger de Mexico, S. de R.L. de C.V.
Open Text, S. de R.L. de C.V.
Covisint Corporation
GXS B.V.
GXS International, Inc - Netherlands Branch
Open Text Coöperatief U.A.
Open Text New Zealand Limited
3304709 Nova Scotia Limited
Actuate Canada Corporation
Open Text ULC
Open Text SA ULC (Nova Scotia)
Open Text Venture Capital Investment Limited Partnership
Open Text (Philippines), Inc.
Open Text Sp.z.o.o.
Open Text Software S.L. - Sucursal em Portugal
Nstein Technologies Inc.
GXS Inc.
Open Text Korea Co., Ltd.
Open Text LLC
Open Text Technology LLC
Open Text Saudi Arabia LLC
EC1 Pte Ltd
Open Text (Asia) Pte Limited
Open Text South Africa (Pty) Limited
Actuate Spain S.L
Global 360 Spain S.L.
Open Text Software S.L.
Xpedite Systems Spain, SA
Open Text AB
Actuate International Sarl
GXS AG
Open Text AG
GXS Ltd
Mexico
Mexico
Michigan, United States
Netherlands
Netherlands
Netherlands
New Zealand
Nova Scotia, Canada
Nova Scotia, Canada
Nova Scotia, Canada
Nova Scotia, Canada
Ontario, Canada
Philippines
Poland
Portugal
Quebec, Canada
Republic of Korea
Republic of Korea
Russian Federation
Russian Federation
Saudi Arabia
Singapore
Singapore
South Africa
Spain
Spain
Spain
Spain
Sweden
Switzerland
Switzerland
Switzerland
Thailand
Open Text Middle East - Branch of Open Text Inc in the United Arab Emirates
Covisint - UK Branch
Guidance Software, Inc.’s UK Branch
Open Text Public Sector Solutions, Inc.
United Arab Emirates
United Kingdom
United Kingdom
Virginia, United States
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
The Board of Directors
Open Text Corporation
We consent to the incorporation by reference in the registration statements Nos. 333-184670, 333-146351, 333-121377,
333-214427 and 333-87024 on Form S-8, and No. 333-220260 on Form S-3 of Open Text Corporation of our reports
dated August 1, 2018, with respect to the consolidated balance sheets of Open Text Corporation as of June 30, 2018
and June 30, 2017, and the related consolidated statements of income, comprehensive income, shareholders’ equity
and cash flows for each of the years in the three-year period ended June 30, 2018, and the effectiveness of internal
control over financial reporting as of June 30, 2018, which reports appear in the June 30, 2018 annual report on Form
10 K of Open Text Corporation.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
August 2, 2018
Exhibit 31.1
I, Mark J. Barrenechea, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Open Text Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
Date: August 2, 2018
By:
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
Vice Chairman, Chief Executive Officer and Chief Technology Officer
Exhibit 31.2
I, Madhu Ranganathan, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Open Text Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Securities Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant's internal control over financial reporting.
By:
/s/ MADHU RANGANATHAN
Madhu Ranganathan
Executive Vice President and Chief Financial Officer
Date: August 2, 2018
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of Open Text Corporation (the “Company”) for the year ended
June 30, 2018 as filed with the Securities and Exchange Commission (the “Report”), I, Mark J. Barrenechea, Vice Chairman,
Chief Executive Officer and Chief Technology Officer of the Company, certify, as of the date hereof, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: August 2, 2018
By:
/s/ MARK J. BARRENECHEA
Mark J. Barrenechea
Vice Chairman, Chief Executive Officer and Chief Technology Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of Open Text Corporation (the “Company”) for the year ended
June 30, 2018 as filed with the Securities and Exchange Commission (the “Report”), I, Madhu Ranganathan, Executive Vice
President and Chief Financial Officer of the Company, certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: August 2, 2018
By:
/s/ MADHU RANGANATHAN
Madhu Ranganathan
Executive Vice President and Chief Financial Officer
Executive Leadership Team
Mark J. Barrenechea
Vice Chair, Chief Executive Officer and Chief Technology Officer
Madhu Ranganathan
Executive Vice President, Chief Financial Officer
Muhi Majzoub
Executive Vice President, Engineering and Cloud Services
Gordon A. Davies
Executive Vice President,
Chief Legal Officer and Corporate Development
Simon “Ted” Harrison
Executive Vice President, Worldwide Sales
James McGourlay
Executive Vice President, Worldwide Support
Prentiss Donohue
Senior Vice President, Professional Services
Paul Duggan
Senior Vice President, Worldwide Operations
Kasey Holman
Senior Vice President, Communications & Brand
David Jamieson
Senior Vice President, Chief Information Officer
Patricia E. Nagle
Senior Vice President, Chief Marketing Officer
Leslie Sarauer
Senior Vice President, Human Resources
Board of Directors
P. Thomas Jenkins, Chair
Mark J. Barrenechea, Vice Chair
Randy Fowlie
Gail E. Hamilton
Brian J. Jackman
Stephen J. Sadler
Michael Slaunwhite
Katharine B. Stevenson
C. Jürgen Tinggren
Deborah Weinstein
The Intelligent and Connected Enterprise